Option Investor
Newsletter

Daily Newsletter, Thursday, 9/4/2014

Table of Contents

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

Market Wrap

Mixed Market Waits On NFP

by Thomas Hughes

Click here to email Thomas Hughes
A tidal wave of market moving events pushed the major US indices to new highs although caution took hold late in the day reversing the early gains.

Introduction

Today was one of the biggest days for market moving events, actual fundamental events, that I have witnessed in some time. No only were there 2 central bank meetings to contend with there was a hefty dose of labor and other macroeconomic data.

Setting the back drop for today's action is a possible cease fire in the Ukraine. I say possible because details I have read are sketchy and I semi-expect that it could be a ruse on the part of Putin and Russian. In any event, the news helped to lift the market. Now on to non-geopolitical market movers. First up, the BOJ held their monthly policy meeting and left current stimulus measures in place. The bank is still purchasing asset backed securities and is on track to increase the monetary base in the country as planned. The bank says its view of the Japanese economy still stands and that it expects to see a rebound in recovery starting this quarter. This decision is in the face of poor data that suggests the April usage-tax hike has had a deeper impact than forecast. Market reaction in the region was mixed with most indices trading flat to slightly negative.

Moving on, the ECB also held their policy meeting and released their decision this morning around 7:30AM ET. The ECB lowered it's three key interest rates by 0.1% each. This is an unexpected move and in addition to other QE measures announced later during the press conference. Mario Draghi revealed that the ECB will be engaging in the purchase of asset backed securities and covered bonds in an attempt to stimulate the EU economy. The exact nature of the purchases is still not clear but they are planned to begin next month. Mr.Draghi says the purchases will have a “sizable” impact on the ECB's balance sheet and that additional measures could be taken if the members deemed it necessary. The news was met with approval and EU indices were able to move up into positive territory.

Market Statistics

All of this news had our own markets trading higher in the early hours. Futures were indicated higher from the earliest part of the day with the SPX up about 5 or 6 points along with a 40ish point gain the DOW and 10 for the NASDAQ. These levels held firm through the morning and gained strength as each piece of data was released. The day started pretty early with the 7:30 release of the Challenger survey, followed by ADP at 8:15AM, jobless claims and productivity at 8:30 and then finally services sector ISM at 10AM. As a whole the data today was better than expected and suggest that tomorrows NFP could be another decent number. Current expectations are for non-farm private payrolls in a range around 225,000.

Between 8:30 and 9:00 futures spiked up to the high of the morning before moderating into the open of today's session. At the open advancers led decliners by about 2:1 in a fairly broad rally and that held through the morning. The SPX opened with a gain of only 3 points and did not seem to want to move higher but by 9:45 had extended that to 8 points and then to 10 points by 10:30AM. The move took the index and others to new all time/long term highs that coincidentally were reached exactly one year after the 52 week low. After reaching the intraday high the markets drifted slowly lower until reaching break even and then even lower. The SPX and Dow Jones Industrials both tested near term support before making a small bounce and closing near flat for the day. Although today's data was very good, trading is still light and very cautious which had a lot to do with overall market action.

Economic Calendar

The Economy

One reason today was so action packed is because of the Labor Day Holiday. Some, but not all, economic releases were pushed back by a day. Two of these were the Challenger, Gray&Christmas survey of planned layoffs and ADP which are typically released on Wendesday. According to Challenger the number of planned layoffs fell by -20.7% from last year at the same time and -15% from last month. The number of expected layoffs came in at just over 40,000 and is the fourth time that planned lay off were below last years levels. However, on a year to date basis, job cuts are only down about -4%. The heaviest sector for cuts this month was the tech/electronics sector led by Cisco Systems. Tech also leads for the year due in part to large cuts from Hewlett Packard and Microsoft. An important take away here is that the pace of job cuts are holding steady from last year if not trending lower. Another is that the cuts would be even lower if not for restructuring in two very large tech firms.

ADP was released next, at 8:15, just before the weekly jobless claims. The number of new non-farm jobs, as estimated by ADP, created in August is 204,000. This is below the expected 218,000 but still strong, or at least steady, enough to maintain current trends. July's number was revised down by -6,000 to 212,000. Despite being below expectation there were gains across the board, particularly in manufacturing and construction. Small business led in job creation among the three business sizes tracked, adding more than 78,000 new jobs. Mark Zandi from Moody's made some comments this morning to the effect that the numbers were "broad", "good" and revealed creation of “quality” jobs.

Initial claims for unemployment rose by 4,000 to 302,000. This is slightly above expectations but still at low levels. The number of initial claims has been holding steady at or near the bottom of the 12 month range for nearly two months in line with the idea that firing and job turnover is slowing. The four week moving average of claims also rose, by 3,000, to 302,750. The average, which smooths out some of the noise present in the data, has also been hanging right around 300,000 for a number of weeks, lending weight to the initial claims data. On an unadjusted basis there were 248,570 new claims, about 20,000, or 7.5%, less than last year at this same time. The seasonal factors had expected a slightly larger drop this month which accounts for the small rise we saw in the adjusted data.


Continuing claims fell by -64,000 to a new low seen last on June 16, 2007. This weeks tally of those receiving extended unemployment benefits fell to 2.464 million. Last weeks figure was revised higher, but only by 1,000. The four week moving average of continuing claims also hit a low not seen since summer of 2007. This drop in continuing claims continues the downtrend in longer term unemployment claims that stalled during the previous month. Considering that the data lags by two weeks it helps support estimates for strong August NFP and Unemployment numbers tomorrow. Another sign that tomorrows data will be strong is the total claims data. Total claims fell by -11,387 to 2.455 million. This is just off the long term low set earlier this year.


Some other data was released simultaneously to the claims data; final revision for 2nd quarter productivity, unit labor costs and the July trade balance. 2nd quarter productivity was revised slightly lower, against the expectations, to 2.3%. This is the final revision for this data point and while not as good as expected, is still positive and supportive of growth. Labor cost for the quarter were also revised lower, counter to expectations. Labor costs were revised down to -0.10% from +0.6% and below the expected +0.5%. This data shows that there may be even less job based inflation in the system than we thought.

The trade balance for July is -$40.5 billion, slightly better than expected. The previous month was revised to show a smaller deficit.

The final piece of data released today, and the one that propelled the market to its intraday high, was the services sector ISM figures. The gauge of the non-manufacturing industry expanded more than expected on top of an unrevised number for last month. The expectation was for 58, previous is 58.7, August ISM is 59.6, the highest level since the index inception. Within the report the new orders, business activity and employment indices all showed strong growth, with only the employment index below 60. All components of the non manufacturing ISM were above the expansionary 50 level.

The Oil Index

Oil prices have been volatile of late and today was no different. The price of black gold has swung in moves greater than 1% for each of the past 5 days as supply, geopolitics and economic trends play havoc with short and long term expectations. These moves have been testing support in the low $90's and resistance at $95 with no clear direction for the short to long term. Today's action had WTI begin trading even with yesterday's closing prices near $95 but that level did not hold with WTI losing more than -1.25% by the end of the session.

The Oil Index also fell in today's session. The index dropped just over -1%, coming to rest on the 30 day moving average and the long term support of a previous all time high. The index is still trending sideways while oil prices correct but has not suffered the way you might think. The index is well supported by technical levels and rising moving averages along with bullish indicators. There is still some near term weakness which could keep the index trapped within a range but it looks like the trend is still up. Low oil prices are not necessarily good in terms of revenue per barrel but could lead to increased sales volume, which could increase overall revenues. Low oil prices are good for the economy in general, and could help increase economic activity, which could lead to increased demand for oil and increased sales ….. Current support is 1,662, roughly the middle of the three month range. The indicators are bullish but also consistent with a range bound index that could persist into the short term.


The Gold Index

Gold prices were flat in early trading but once trading began in earnest could not hold up. Gold lost another $6 today, falling below $1265 for the first time in over two months. Today's move confirms the $1275-$1270 area as resistance, an area of previous support. The moves by the ECB along with our own economic data are dollar positive and will pressure gold going forward so this resistance could be strong. The long term low in gold is below $1200 and this is a real target for the metal at this time although there is additional support in the $1225 region.

The Gold Index broke out of the tight range it has been trading in over the past two months confirming my bearish analysis. Today's drop in the underlying commodity was the straw that broke the camels back. Gold prices are now at levels significantly below those of the previous quarter and will have a serious impact on the earnings ability of the gold miners. This is evidenced in the Gold Index which dropped close to 3% in today's session, falling from the 30 day moving average, breaking support and the 150 day moving average. The indicators are bearish and pointing lower with a near term target around $95. The candles formed this week, in particular Tuesday, Wednesday and today, are particularly bearish and could be indicative of strength in this move.


In The News, Story Stocks and Earnings

The dollar strengthened significantly today. The moves by both the BOJ and the ECB are undermining the value of their respective currencies and boosting the dollar. The Dollar Index, which is euro heavy, gained more than 1% today extending the 4 month rally. The index is now trading near long term 14 month highs on rising indicators. Both the MACD and stochastic are bullish and gaining strength.


The euro made a big move today as well and was the biggest mover of the Dollar Index. The announcement from the ECB was even more than the market expected. Today's action dropped the EUR/USD more than two handles, below what had been support and even lower to below long term support at 1.3000. The pair is oversold in the short and log terms but that may not matter as it is also gaining momentum. Downside target is currently 1.2750 with risk being EU economic data and any comments from the ECB or its members. Resistance is now at 1.3000.


The yen weakened today as well even though the BOJ did not increase it's stimulus. That may not matter for several reasons including but not limited to the following; the move by the ECB is boosting dollar value relative to the euro and other currencies, US economic data is strengthening while both EU and Japanese data remains weak, the Fed is on track to end US QE and the BOJ is still increasing its monetary base at a rate of billions of yen per year. The dollar set a new 8 month high versus the yen today, briefly touching long term resistance. The USD/JPY has been near resistance for three days now, following a 6 week rally. The indicators are bullish but divergent so it looks like resistance is going to hold for now.


The VIX

The afternoon turnaround in the equities market sent the VIX moving higher today. The fear index had opened near yesterday's close, just under support, and traded lower during the morning but the late day sell off pushed it above my 12.50 resistance line. The move broke one resistance but was capped at the short and long term moving averages. It still looks like the VIX is testing resistance but now that it is above 12.50 there is a chance for it to spike. There are still geopolitical risks in the market as well as important data to be released tomorrow.


The Indices

The S&P 500 traded in a wide range today despite closing near flat for the session. The broad market lost -0.15% at the end of the day after posting as much as a half percent gain and near that amount of loss at different time during the day. The action was broad, but volume was light, which may have accounted for the late day turnaround.

There has been quite a bit of data out this week and today, all pointing to continued economic recovery, but the market still likes to wait for the official NFP and unemployment numbers before getting too excited about it. Today's action dropped below 2,000 but is still above long term support. The candle formed by today's action is doji-ish but not overly big, more of a serious spinning top than anything else. The indicators are bullish but displaying some near term weakness. The MACD, for example, is in decline and approaching the zero line. This is not a problem while the index consolidates above support but will gain importance if it drops below support. Stochastic is strongly bullish, high in the upper signal zone, but currently moving lower. Also not a problem while the index is consolidating and is actually good for the index, relieving near term overbought conditions. The trend is up and the index is bullish but I think it's time to wait for the next signal, tomorrow the NFP could be it.


The NASDAQ Composite was today's leader in terms of losses. The tech heavy index fell -0.22%, or -10.28 in today's session. This is the second day of declines in the index since it hit a new intraday high yesterday. The indicators are still bullish but like with the SPX, are showing some near term weakness. There is some near term support at the current level with short and long term support not far below around 4,500. The long term trends are up but it looks like the index could drift down to 4,500 if the NFP is not to the market's liking and maybe even if it is.


The Dow Jones Industrial Average only lost -0.05% in today's session. The blue chip index fell less than 10 points at the close, trading just beneath long term resistance all day. The index has been trading just under this resistance for nearly two full weeks in a consolidation move and appears to be setting up for an attempt at new highs. A break above resistance at 17,150 could carry the index as much as 750 points higher in the near to short term while a failure to break out could keep the index range bound until market direction is decided.


The Dow Jones Transportation Average is the one index that was able to hang on to the early highs. The transports broke above resistance to gain 0.62% and set a new all time high. The index set this new high with rising, bullish indicators that point to more new highs. The only caveat at this time is a possible divergence in the near to short term MACD. The long term trend is up and the long term indications are for this continue so the divergence is not a major concern just yet, just something to take note of. The transportation stocks have been on a tear ever since oil prices dropped and I don't think this is over yet. Thinking about this index in terms of Dow theory and the Transports as a leading indicator. The transports are breaking to new highs with the industrials setting up for potential break out so it looks like the industrials could break out too.


Today's market action was little confusing. The data and events were rally worthy, sent the markets higher and yet they did not stay high. In fact, you could say they reversed, at least on an intraday basis. What happened to cause this? I think the market is waiting for the NFP. Regardless of the state of the economy, regardless of the additional data we received just today, the market still wants to wait for the NFP. I guess nothing else matters if there aren't jobs, and that is true in a sense. There has to be jobs to provide pay checks to fuel the economy.

What to expect in the number? I think it's going to be strong, over 200,000. Estimates are for it to be around 220,000. This is not out of the question and there is even a chance for it to be higher. How the market will react is the question. What is a Goldilocks number? Will just “strong” be enough to keep the market interested, as has been the case in the past, or will it need to be “surprisingly strong” to catalyze the rally. We will find out tomorrow at 8:30AM.

Until then, remember the trend!

Thomas Hughes


New Plays

Revenue Miss

by James Brown

Click here to email James Brown


NEW BEARISH Plays

On Assignment Inc. - ASGN - close: 29.48 change: +0.17

Stop Loss: 30.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 509 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
The U.S. labor market is slowly improving. Naturally you might think that would be good news for temporary labor and staff placement services. ASGN is one such company. According to their press release, "On Assignment, Inc. is a leading global provider of in-demand, skilled professionals in the growing technology, healthcare, and life sciences sectors, where quality people are the key to success. The Company goes beyond matching résumés with job descriptions to match people they know into positions they understand for temporary, contract-to-hire, and direct hire assignments. Clients recognize On Assignment for its quality candidates, quick response, and successful assignments. Professionals think of On Assignment as career-building partners with the depth and breadth of experience to help them reach their goals."

The company has beaten Wall Street's earnings estimates three quarters in a row. Their latest report was July 30th. Analysts were expecting a profit of $0.36 a share on revenues of $470.9 million. ASGN reported a profit if $0.56, significantly above expectations, yet revenues were only $468.6 million.

ASGN said their gross margins were up from a year ago and the prior quarter. They offered bullish EPS guidance for the next quarter but their revenue guidance was below Wall Street's estimates. Investors chose to focus on the revenue miss and the lower revenue guidance. Shares of ASGN collapsed more than 20% the next day. The stock has produced an oversold bounce but that bounce is fading.

Currently ASGN appears to have short-term support in the $29.00-29.20 zone. We're suggesting a trigger to open bearish positions at $28.90.

Trigger @ $28.90

- Suggested Positions -

Short ASGN stock @ (trigger)

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

Buy the Oct $30 PUT (ASGN141018P30) current ask $1.65

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Fade On QE Light

by James Brown

Click here to email James Brown

Editor's Note:
Analysts are calling the ECB's new plans "QE light" and while equities initially rallied on the ECB news the gains faded by the closing bell.

OIH hit our stop loss.


Current Portfolio:


BULLISH Play Updates

Green Plains Inc. - GPRE - close: 45.08 change: -0.67

Stop Loss: 43.25
Target(s): To Be Determined
Current Option Gain/Loss: +10.6%
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:
09/04/14: GPRE tagged another new high this morning before reversing lower. Shares hit some profit taking with a -1.4% decline but the stock remains above technical support at its 10-dma.

The simple 20-dma has risen to $43.38. We'll adjust our stop loss up to $43.25. I'm not suggesting new positions at this time.

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*

09/04/14 new stop @ 43.25
09/03/14 new stop @ 42.75
08/30/14 new stop @ 42.25
08/27/14 new stop @ 41.85
08/23/14 new stop @ 40.95
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


Morgan Stanley - MS - close: 34.70 change: +0.14

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: - 0.1%
Entry on September 03 at $34.75
Listed on September 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.8 million
New Positions: see below

Comments:
09/04/14: MS managed to outperform the major indices and the financial sector on Thursday with a +0.4% gain. Depending on your trading style you could wait for a breakout past $35.00 or a dip toward the 10-dma as alternative entry points.

Earlier Comments: September 2, 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 by a significant margin. Citigroup (C) is still down -0.8% for 2014. Goldman Sachs (GS) is only up +1.0%. JP Morgan (JPM) is up +1.6% and BAC is up +3.3% in 2014. The XLF financial ETF is up +6.8% year to date. Yet MS is up +9.4%.

The company has managed to build its revenues on stronger wealth management business. The company has beaten Wall Street's earnings estimates four quarters in a row.

Their most recent earnings report was July 17th. Analysts were expecting a profit of 55 cents a share on revenues of $8.18 billion. MS delivered $0.60 a share with revenues coming in at $8.61 billion. The company's profit has more than doubled from a year ago.

The stock has spent months consolidating sideways under resistance near $33.50. This past month has seen a bullish breakout higher. Now broken resistance near $33.50 should be new support. MS is currently testing short-term resistance near $34.50.

Tonight we're suggesting a trigger to open bullish positions at $34.75.

- Suggested Positions -

Long MS stock @ $34.75

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

Long 2015 Jan $35 call (MS150117C25) entry $1.70*

09/03/14 triggered @ 34.75
*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: 45.26 change: +0.30

Stop Loss: 42.90
Target(s): To Be Determined
Current Option Gain/Loss: +2.7%
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:
09/04/14: Traders bought the dip again with MSFT's early morning spike lower quickly reversing. The stock looks poised to test resistance near $45.50 soon.

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

08/23/14 new stop @ 42.90
08/14/14 trade begins. MSFT opens at $44.08
Option Format: symbol-year-month-day-call-strike


Skyworks Solutions - SWKS - close: 54.94 change: -0.55

Stop Loss: 52.65
Target(s): To Be Determined
Current Option Gain/Loss: +4.3%
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:
09/04/14: Both the S&P 500 and SWKS are down three days in a row. Shares of SWKS are nearing what should be short-term support near $54.00. I am bumping our stop loss to $52.65. More aggressive traders may want to keep their stop below technical support at the 40-dma (currently 52.65).

I am not suggesting new positions at this time.

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

09/04/14 new stop @ 52.65
08/30/14 new stop @ 52.45
08/13/14 new stop @ 49.95
08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike


Tekmira Pharmaceuticals - TKMR - close: 18.87 change: -0.36

Stop Loss: 19.70
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 7.5 million
New Positions: Yes, see below

Comments:
09/04/14: The intraday bounce in TKMR failed under the $20.00 level. We are currently on the sidelines. We will likely either drop TKMR or adjust our entry point strategy in the next newsletter.

Earlier Comments: August 30, 2014:
Biotech stocks have been some of the market's best performers this year. The BTK biotech index is up +34.3% year to date. The IBB biotech index is up +21.8%. Big name players like GILD and their $84,000 Sovaldi cure for hepatitis C has captured the imagination for investors. Meanwhile another story is making big waves in the biotech industry and that is the world's worst outbreak of Ebola.

Ebola is an extremely deadly virus. The virus is one of several Viral Hemorrhagic Fevers. According to the CDC, this virus was discovered back in 1976 "in what is now the Democratic Republic of the Congo, near the Ebola River." There are a handful of subspecies of the virus, which can have a 50% to 90% fatality rate. There is no known effective cure. Another challenge is the time frame. A person can be infected for eight to 21 days without showing any symptoms. Once they start showing symptoms they become contagious. Unfortunately, the early symptoms are pretty common like headaches, sore throat, a fever, muscle soreness.

Right now four countries in Africa are facing a serious crisis. Guinea, Liberia, Nigeria, and Sierra Leone have all reported deaths from the current outbreak that has killed over 1,750 confirmed cases and suspected cases of more than 3,000. The U.N. just warned that the outbreak is accelerating beyond control and cases could surge to more than 20,000. TKMR has been getting a lot of trader attention because the company is working on a potential Ebola treatment.

According to the company website, "Tekmira Pharmaceuticals Corporation is a leading RNA interference (RNAi) therapeutics company. With more than 14 years of industry experience, Tekmira is a global leader in the RNAi field. We are developing novel drugs in areas where there is a significant unmet medical need and commercial opportunity. We also license our leading lipid nanoparticle (LNP) delivery technology to partners around the world."

Right now investors are looking at TKMR for its potential Ebola drug (TKM-Ebola). In March this year the U.S. FDA gave TKM-Ebola fast track status to develop and test this new treatment. TKMR has cautioned that this is still in development and they want to work with W.H.O. and the F.D.A. and the emergency labs currently working to develop some kind of treatment for the African Ebola Outbreak. It could be weeks or months before we know more.

As traders we should consider this an aggressive, higher-risk trade due to TKMR's volatility and the nature of headline risk.

The stock bounced near round-number support in the $20.00 area on Friday. Aggressive investors may want to jump in right now at current levels. We're suggesting a trigger to open small bullish positions at $22.30, just above last week's high.

Trigger @ $22.30 *small positions*

(this is an aggressive trade)

- Suggested Positions -

Buy TKMR stock @ $22.30


Ubiquiti Networks - UBNT - close: 45.54 change: -0.09

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: -2.6%
Entry on September 02 at $46.75
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 902 thousand
New Positions: see below

Comments:
09/04/14: The market's late day weakness pushed UBNT into negative territory. Shares are still hovering over what should be support near $45.00. I am not suggesting new positions at this time.

Earlier Comments: August 26, 2014: UBNT is in the technology sector. The company operates in the wireless technology and networking industry. According to the company press release, "Ubiquiti Networks is closing the digital divide by building network communication platforms for everyone and everywhere. With over 20 million devices deployed in over 180 countries, Ubiquiti is transforming under-networked businesses and communities. Our leading edge platforms, airMAX, airFiber, UniFi, UniFi Video, UniFi VoIP, mFi and EdgeMAX combine innovative technology, disruptive price performance and the support of a global user community to eliminate barriers to connectivity."

The company has been consistently beating earnings estimates. They just wrapped up their fiscal year 2014 with the earnings report on August 7th, 2014. The company managed to beat estimates all four quarters. Their 2014 Q4 numbers showed sales up +54% from a year ago while EPS were up +70%.

It has been a rocky year for the stock price in spite of the company's earnings track record. If you recall the stock market suffered a pullback in March this year. The high-growth stocks and momentum names were hit pretty hard. UBNT was one of those that was punished and shares collapsed from $55 to $30 over the next several weeks. Since then UBNT has been slowly recovering.

Right now the stock is on the verge of breaking through resistance. A new breakout could spark some short covering. The most recent data listed short interest at 32% of the small 26.6 million share float.

We are suggesting a trigger to open bullish positions at $46.75.

- Suggested Positions -

Long UBNT stock @ $46.75

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

Long OCT $48 call (UBNT141018C48) entry $2.10*

09/02/14 triggered @ 46.75
*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


WhiteWave Foods Co. - WWAV - close: 34.91 change: +0.18

Stop Loss: 32.90
Target(s): To Be Determined
Current Option Gain/Loss: -0.0%
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:
09/04/14: Bullish analyst comments on WWAV this morning helped shares spike to a new high. Unfortunately the gains didn't last. WWAV gave back most of its rally by the closing bell. I am not suggesting new positions.

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*

09/02/14 new stop @ 32.90
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

Mobile Mini, Inc. - MINI - close: 38.20 change: -0.27

Stop Loss: 41.40
Target(s): To Be Determined
Current Option Gain/Loss: + 1.5%
Entry on August 28 at $38.80
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 265 thousand
New Positions: see below

Comments:
09/04/14: So far so good. MINI continues to sink and closed at new four-week lows.

Earlier Comments: August 27, 2014:
The mobile storage space might be facing some headwinds. MINI provides commercial storage, construction storage, residential storage, and mobile offices. According to the company's website, "Mobile Mini, Inc. is the world's leading provider of portable storage solutions through its total lease fleet of over 213,000 portable storage and office units with 135 locations in the United States, United Kingdom and Canada. Mobile Mini, Inc. went public in 1994 and trades on NASDAQ under the symbol MINI. Mobile Mini offers customers a wide range of portable storage and office products in varying lengths and widths with an assortment of differentiated features such as: proprietary security systems, multiple door options and 100 different configuration options."

Sales are growing but MINI is developing a trend of missing earnings or delivering lackluster results. MINI missed Wall Street's EPS estimates back in February and April. The latest earnings report was July 30th. Revenues were almost +10% from a year ago but earnings were down. MINI reported a 23-cent profit, which was in-line with estimates but down from 25 cents a year ago. Investors crushed the stock following the late July earnings report. MINI was already weak through most of July and then got hammered from $43 to under $38 on its earnings news.

The stock's long-term up trend might be in jeopardy. The company is not growing fast enough to justify its P/E above 40. The stock's oversold bounce from the post-earnings sell-off has stalled at technical resistance at the exponential 200-dma. Now it appears that MINI is beginning to roll over.

Today's low was $38.93. I'm suggesting a trigger at $38.80 to open bearish positions.

- Suggested Positions -

Short MINI stock @ $38.80

08/28/14 triggered @ 38.80


Natural Grocers by Vitamin Cottage - NGVC - close: 18.61 chg: -0.06

Stop Loss: 20.10
Target(s): To Be Determined
Current Option Gain/Loss: +4.3%
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:
09/04/14: NGVC spent Thursday's session drifting sideways and settled down -0.3%. More conservative traders might want to lower their stop loss. I am not suggesting new bearish 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


Transocean Ltd. - RIG - close: 37.76 change: -0.29

Stop Loss: 40.01
Target(s): To Be Determined
Current Option Gain/Loss: + 1.2%
Entry on September 03 at $38.20
Listed on August 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.4 million
New Positions: see below

Comments:
09/04/14: There was big news on the legal proceedings over America's worst oil spill - the Macondo well in the Gulf of Mexico where the Deepwater Horizon right exploded back in 2010. A U.S. District Court Judge found BP grossly negligent for the disaster. This means BP could see an additional $18 billion in civil penalties under the U.S. Clean Water Act. Transocean and Haliburton were also found negligent. This is significant. By avoiding the "gross negligence" sentence RIG will avoid the harshest penalties. RIG was still consider 30% responsible for the disaster.

The headlines above helped push shares of RIG higher but the rally stalled at resistance under $39.00 and shares reversed back into negative territory.

Earlier Comments: August 25, 2014:
The oil drillers could be facing a significant downturn due to lower demand and rising supply. That's a tough combination for any business.

RIG is one of the biggest. According to the company website, "We are a leading international provider of offshore contract drilling services for energy companies, owning and operating among the world's most versatile fleets with a particular focus on deepwater and harsh-environment drilling. Our fleet of 79 mobile offshore drilling units includes the world's largest fleet of high-specification rigs consisting of ultra-deepwater, deepwater and premium jackup rigs. In addition, we have seven ultra-deepwater drillships and five high-specification jackups under construction."

The company's latest earnings report on August 6th looked pretty good. Wall Street was expecting a profit of $1.12 a share. RIG delivered $1.61 - blow out number. Revenues also beat estimates at $2.33 billion versus the $2.29 estimate but revenues were down from a year ago. Investors ignored the better than expected results. That's because the industry is facing a number of headwinds.

Day rates are dropping and more rigs are sitting idle. Analysts are lowering estimates due to rising down time. RIG's latest fleet update showed that out-of-service time for 2014 had risen by 28 days. Their 2015 projected out-of-service time had surged 236 days. That is significant when you consider that these rigs get paid hundreds of thousands of dollars per day they operate. Of course those numbers are coming down.

Angie Sedita, an analyst with UBS, said, "We believe dayrate pressure will persist given limited rig tenders (demand) and fierce competition, with dayrates already down 25%-40% from peak levels."

Raymond James analyst Praveen Narra provided more details on their bearish outlook. According to Narra:

After a decade of good times, the deepwater drilling rig market is facing a multiyear down-cycle. Historically, most offshore drilling cycles have been short-lived as there have usually been sudden demand shocks that tend to self correct relatively quickly. This time, it is more of a new rig supply problem compounded by a moderation in offshore spending from the suddenly “return driven” multinational major oil companies. That means this down-cycle should be more drawn out than usual. Specifically, we think the downturn will take about three years to play out with average floater day-rates falling about 25% with over 60 floating rigs needing to be stacked (either warm stacked or cold stacked). More importantly for investors, we think consensus 2016 floater estimates (on average) are still about 25% too high. Put another way, earnings multiples are not as attractive as some now think, in our view. Obviously, the lower-end, older floating assets will be hit the hardest. While everyone loses in this environment...

If you're curious a "stacked" rig is not in service. They can be warm stacked, which means they are idle but still have a crew and ready for deployment. A cold stacked rig has essentially been mothballed.

The bearish outlook for RIG is evident in the stock's decline. Shares just broke down under support near $38.00. The Point & Figure chart is bearish and forecasting at $30.00 target but this target could fall further. It is worth noting that there are a lot of traders already bearish on RIG. The most recent data listed short interest at 18% of the 327 million share float. That can spark short squeezes like the one back in April and again in June.

- Suggested Positions -

Short RIG @ $38.20

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

Long OCT $35 PUT (RIG141018P35) entry $0.27*

09/03/14 trade begins. RIG gaps higher at $38.20
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/02/14 remove the trigger ($37.25) and short RIG now at current levels.
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Oil Services ETF - OIH - close: 53.38 change: -1.23

Stop Loss: 53.45
Target(s): To Be Determined
Current Option Gain/Loss: -2.4%
Entry on September 03 at $54.77
Listed on August 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.8 million
New Positions: see below

Comments:
09/04/14: Energy stocks were underperforming on Thursday and the OIH broke down under short-term support. Our stop loss was hit at $53.45.

- Suggested Positions -

OIH ETF @ $54.77 exit $53.45 (-2.4%)

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

2015 Jan $55 call (OIH150117C55) entry $2.15* exit $1.35** (-37.2%)

09/04/14 stopped out
09/03/14 triggered on gap higher at $54.77, trigger was $54.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/02/14 adjust entry strategy: move the trigger from $55.75 down to $54.75, adjust the stop loss to $53.45.
Adjust the option strike to the 2015 Jan $55 call
Option Format: symbol-year-month-day-call-strike

chart: