Option Investor
Newsletter

Daily Newsletter, Tuesday, 9/9/2014

Table of Contents

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

Market Wrap

All Apple All Day

by Jim Brown

Click here to email Jim Brown

You would think there was no other market news with all the headlines about Apple.

Market Statistics

Apple officially announced the iPhone 6 with two screen sizes at 4.7 and 5.5 inches. The phones come with rounded edges, a thinner frame, longer battery life and higher resolution displays. The iPhone 6 will cost $199 (16gb), $299 (64gb) or $399 (128gb). They can be preordered starting on the 12th for availability on the 19th. The iPhone 6 Plus starts at $299 with the same feature progression.


Apple is replacing the Apple Wallet with a new payment process called Apple Pay. This could be a challenge for Ebay and PayPal but they have overcome competitors before. Apple Pay is primarily mobile payments where PayPal is online, mobile and in person payments. The Apple Pay app is already built into the iPhone 6 and uses the Nearfield Communications (NFC) chip.

You use a camera to add credit card numbers to your iTunes Passbook. Apple does not give the card number to the vendors. When you pay for something the vendor only gets a one-time payment number and a dynamic security code from Apple to complete the transaction. American Express, Visa and MasterCard are all onboard with the program. Vendors currently signed up include Bloomingdales, Macy's, Walgreens, Subway, McDonalds and Whole Foods. While that is a big list there are millions of individual stores that may take a long time to understand the program and decide to sign up. This will not be an immediate process. New technology, especially technology that deals with a new payment process, tends to be adopted slowly. It took PayPal 10 years to go from an Ebay only payment process to mobile, commercial websites, debit cards and vendor payments.

The theory is the same for shopping online. Apple Pay is scheduled to be available as a free update to iOS 8 in October. There will be a one-touch button whenever credit card info is requested by a vendor. No card info is shared with online vendors.

Apple also announced a new Apple Watch. Tim Cook said it was the most personal device Apple has ever created. It is not an iWatch, they dropped the "i" and just called it the Apple Watch. The watch comes with Siri onboard and you can text from your watch. It comes with multiple band options from leather, sports or stainless steel. The picture below shows the home screen on the Apple Watch. It costs $349 and will be available "early next year." It will require an iPhone 5 or newer to function. Apple produced an interesting video describing the watch. View it Here


Apple shares declined to $98 on the initial announcement but then rallied to $103.08 after they announced Apple Pay and the Apple Watch. The spike quickly faded as the qualifications were discussed on Apple Pay and the limitations became obvious on the watch. Shares declined to $99 where they stabilized in the early afternoon but dipped to close at $98.


Ebay (EBAY) shares declined to -2% to $53 on worries over the potential disruption of PayPal by Apple Pay. I think this is a long term worry not something PayPal has to worry about over the next year or so. PayPal has a very big head start and does not require a major change in technology to be used. I am sure Apple Pay will catch on with the Apple faithful but Samsung and the other Smartphone vendors are selling far more phones than Apple.


Samsung has a new phone almost every month compared to Apple's once a year upgrade. Apple's market share in the U.S. has fallen to 17.3% as of the end of 2013 with phones running the Android OS having a 74.7% share. Android's market share rose +5.2% for the quarter and Apple declined -3.8%.

Why is the Apple product announcement such a big deal when Samsung and Android are killing them in the market? Clearly it is because Apple is the biggest tech company in the U.S. and they are riding on the coattails of their previous product wins. It will be interesting to see where Apple is this time next year.

They did not announce the 12.9 inch iPad that is already being fabricated in Asia.

Economics

Back in the real world the NFIB Small Business Optimism Index rose slightly from 95.7 to 96.1 but has still not returned to the 96.6 high from May. The May number was the highest level since October 2007. Respondents did say they felt less threatened from geopolitical impacts to the U.S. economy.

The internal components were mixed. Those respondents expecting the economy to improve rose from -6% to -3% and hardly a stunning endorsement by business owners. Those expecting to see an increase in sales fell from 10% to 6%. Those planning on increasing employment fell from 13% to 10%. However, those with current "hard to fill" job openings rose from 24% to 26%. Earnings trends remain quite dismal with only a 1% improvement to -17%. That means 17% more respondents fell negative about earnings trends than those who feel positive. For example 50% could feel negative and only 33% felt positive. The report was ignored.

The Job Openings and Labor Turnover Survey (JOLTS) for July showed the job market was little changed from June. There were 4.673 million openings compared to 4.675 million in June. The job openings rate was unchanged from June at 3.3%. Hires rose from 4.791 million to 4.872 million. Separations rose from 4.520 million to 4.559 million and quits rose from 2.484 million to 2.517 million. The rise in the quit rate suggests that workers feel more confident about finding another job. Layoffs rose slightly from 1.657 million to 1.659 million. That is probably a seasonal factor. The report was ignored.

The report that was not ignored was the data out overnight from the San Francisco Fed. The research puzzled over the fact that the average rate increase expected by the 17 FOMC members in 2014 was 120 basis points. That compared to only 75 basis points expected by the bond market.

Wrightson ICAP's Lou Crandall felt the market's benign outlook for Fed policy could prompt the Fed to act sooner rather than later in order to wake up the bond market. The term commonly used is to "kick the bond market" to wake it up to the coming changes.

The difference between the Fed's rate expectations and the market could lead to a statement change at next week's FOMC meeting. JPM believes there is a 50% chance they will remove the "considerable period" language from the statement. The considerable period is six months according to Janet Yellen. This has led rate watchers to believe there will not be any rate hikes for at least six months from the end of QE, which is expected to be announced at the October 29th FOMC meeting.

If they remove the considerable period language at the meeting next week it could be the equivalent of kicking the bond market. It changes the Fed from "forward guidance" mode to "data dependent" mode and suggests that rate hikes can come at any time. If we suddenly got a big jobs number like 275k to 325K accompanied by a jump in a manufacturing report they could hike rates at the next meeting. They would no longer be hindered by the six-month "considerable period."

Fed doves and hawks appear to be favorable to removing the considerable period language and moving to a data dependent stance. That scares bond traders because the doves are seen as an anchor to low rates. If the doves are agreeable to modifying the stance then their anchor is disappearing.


The market did not like the new revelation. The Dow started off the day down -100 points and after a minor rebound on the Apple news it sold off hard again to trade under 17,000 late in the day. Just when it appeared the markets were poised to trade up into October the fear of the Fed came back to haunt us. I was expecting this in the last half of October rather than in September. Apparently investors fear the Fed more than Putin or ISIS.

The calendar for the rest of the week is light on important reports. However, I would not discount the 9/11 cloud over the market. There are so many rumors flying about planned ISIS and Al-Qaeda anniversary attacks that we could see continued weakness ahead of Thursday.

We could also see continued weakness ahead of next week's FOMC meeting. Now that the rumors of a statement change are flying the investing public may begin moving to the sidelines. I believe that is stupid this far in advance but nobody ever accused the retail investing public of being overly intelligent.


Amazon (AMZN) took aim at Apple by slashing the price of the Android Fire phone to 99 cents from $199. There are rumors the Fire phone had not been selling well but that may have been due to only being available on the AT&T network. Amazon does not need to make any money on the phone because in Amazon's mind it is simply a remote cash register for shopping on Amazon. Amazon shares declined -3.7% on the Apple announcement.


Apple supplier GT Advanced (GTAT) fell -13% after Apple said the new iPhone screens would not be "ion strengthened" which is code for not having the super strong sapphire glass screens. The Apple Watch will have the sapphire screens but production will not be until 2015. Most analysts expected the new phone to have the stronger, scratch proof screens since current iPhones are prone to cracked and scratched screens.


McDonald's (MCD) shares declined -1.5% to a new 52-week low at $91.09. McDonald's said same store sales declined -3.7% in August with U.S. sales down -2.8%. That was bad but it gets worse. In Asia Pacific/Middle East and Africa sales declined -14.5%. This was due in part to the meat scandal in China where a supplier relabeled out of date meat and shipped it to McDonalds and YUM Brands stores. The company said it would negatively impact Q3 profits by 15-20 cents per share. Yum Brands reported last week that China sales declined -13%. For McDonalds the decline in August sales was the fourth consecutive month of declines.


Annie's Inc (BNNY) soared +38% to $46 after General Mills (GIS) announced an agreement to acquire the company for $820 million in cash. That was a 51% premium over Annie's 30-day average closing price. General Mills feels Annie's foods will be a great addition to the GM organic and natural foods portfolio. Annie's strongly recommended shareholders take advantage of this offer. Given the sharp decline in the stock price over the last year I doubt anyone is going to complain.


The fear of the Fed plus a little Alibaba hangover knocked the S&P back to support at 1985 after punching through initial support at 1992 at the open. The selling was strong despite the lack of any material headlines. The banking sector led the declines. The Apple announcement probably distracted traders from the market performance or the selling could have been worse. The close at 1988 was a three week low. Fund managers will have to sell $20 billion in stock to raise cash for the Alibaba IPO but after today I think that particular market drag is behind us. Now the Fed is front and center.

The 1985 level is a clear line in the sand and a breakdown below that level would suggest a significantly lower decline. We never really took profits from the August rebound even though we traded sideways in a consolidation pattern for three weeks. The lack of forward progress may have soured sentiment and once the Fed headlines began to break it produced additional indigestion.

Support 1985, resistance 2007-2007.


The Dow chart illustrates the critical nature of the close. The index closed just over critical round number support at 17,000 and a breakdown here could be dramatic. McDonalds and the banks were the biggest factor in the Dow's decline. We have a lower low and a lower high so the Dow needs to rebound strongly at the open on Wednesday or the bears are going to pile on to any weakness.

The Dow and S&P are at a pivotal point for September. A breakdown here could poison performance for the rest of the month.



The Nasdaq Composite also closed right on critical support at 4,550 and Apple shares could see further weakness in the coming days. Apple typically declines in the days following a product announcement and that could weigh on the Nasdaq.

Like the Dow and S&P a break below 4,550 could be dramatic and poison sentiment for the rest of September.



Not to be outdone the Russell 2000 also declined to critical support at 1160 and actually closed -2 points under that level. The Russell followed the big cap indexes almost perfectly so at least we don't have the case of the small caps leading us down. The Russell is neutral today.


The Russell 3000, the largest stocks in the U.S., closed right on support as well. This was a broad based bout of selling that impacted the entire market not just certain sectors.


Historically the month of September is negative. Dating back to 1950 the average September loss is -0.5%. Dating back to 1990 it is -1.1%. However, four of the last five Septembers have been positive with an average +2% gain. While history is a guide and not a guarantee this is encouraging. Historically when August is positive September is normally positive.

I was expecting a positive market in September but I was not expecting a sudden burst of Fed fear ahead of the September FOMC meeting. I thought we had another month before the Fed reared its ugly head. Now we have six days for the market to digest and feed on the rumors and analyst projections before next Wednesday's Fed announcement. That is plenty of time for unpleasant things to happen.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

Click the advertisement below for a free trial to the Ultimate Investor newsletter.

 


New Plays

The Non-Apple Story Of The Day

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 has been trading sideways on either side of resistance at the 2,000 level for almost two weeks. After a five-week rally you could say the market rally was tired. Short-term momentum indicators all look bearish with the S&P 500's two-day dip after moving sideways for so long.

Why were stocks weak today? The most common excuse was the rising U.S. dollar and new fears that the Federal Reserve might raise rates sooner than people expect.

If you recall last Friday's jobs report, which came in significantly worse than expected, supposedly put the Federal Reserve back in a wait-and-see how the data comes in mode. There was speculation that the Fed might push back any rate highs from Q1 2015 to Q2 2015, which would be considered bullish for stocks. Today' the story is that the Fed might remove the "considerable period" language from its policy statement next week, which might suggest the Fed could raise rates sooner not later. At least that was the concern today. Stocks might just be tired.

We are not adding any new trades tonight. The 1990 level was short-term support for the S&P 500. The next stop could be its 50-dma near 1970.




In Play Updates and Reviews

Stocks See Widespread Declines

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market's major indices all ended the session with widespread declines.

LUV hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Best Buy Co. - BBY - close: 31.80 change: -0.15

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -2.5%
Entry on September 08 at $32.60
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.3 million
New Positions: see below

Comments:
09/09/14: BBY did not escape the market's pullback on Tuesday but it's -0.4% dip was better than the S&P 500's -0.6% decline.

I don't see any changes from yesterday's comments. More conservative investors might want to wait for a breakout past $32.80 before initiating new bullish positions.

Earlier Comments: September 6, 2014:
It's tough to be bearish when investors are buying bad news. The U.S. economy is slowly improving there have been nagging concerns over the U.S. consumer. If that wasn't bad enough Amazon.com has become the dominant player in consumer electronics. So why are investors buying shares of BBY?

First here's a brief description from the company website: "Best Buy Co., Inc. is the world's largest consumer electronics retailer, offering advice, service and convenience – all at competitive prices – to the consumers who visit its websites and stores more than 1.5 billion times each year. In the United States, more than 70 percent of Americans are within 15 minutes of a Best Buy store and BestBuy.com is among the largest ecommerce retailers in the United States. Additionally, the company operates businesses in Canada, China and Mexico. Altogether, Best Buy employs more than 140,000 people and earns annual revenues of more than $40 billion."

The last few years have seen BBY suffer from the online showroom phenomenon. Where customers come in, look at merchandise in BBY's showroom, and then go home and buy it online (usually at Amazon.com). The company has been desperately fighting this issue for a couple of years and they have made progress. However, sales continue to suffer.

BBY reported earnings on August 26th. Wall Street expected a profit of $0.31 on revenues of $8.98 billion. BBY beat the bottom line estimate with $0.44 but revenues only hit $8.9 billion. More importantly management guided lower. They expect same-store sales declines in both the third and fourth quarter. So why are investors buying the stock? It could be a case of all the bad news is already price in. Some consider BBY to be a value play at current levels.

If investors are willing to buy the bad news then it could be tough to be bearish. The shorts could be in trouble. The most recent data listed short interest at 9.5% of the 288.6 million share float. A breakout higher could spark some short covering. The point & figure chart is already bullish and suggesting at $49.00 target.

Traders bought the post-earnings sell-off in August and they bought the dip again this past week. Now BBY is on the verge of hitting new multi-month highs. We're suggesting at trigger to open bullish positions at $32.60.

- Suggested Positions -

Long BBY stock @ $32.60

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

Long 2015 $35 call (BBY150117c35) entry $1.48*

09/08/14 triggered @ 32.60
*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: 44.45 change: -0.27

Stop Loss: 43.25
Target(s): To Be Determined
Current Option Gain/Loss: + 9.0%
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:
09/09/14: GPRE is still hovering near its 10-dma and the $44.00 level.

More conservative traders might want to move their stop closer to $44.00 instead. 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


Southwest Airlines - LUV - close: 32.91 change: +0.05

Stop Loss: 31.65
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
Entry on September 09 at $33.25
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.9 million
New Positions: see below

Comments:
09/09/14: LUV offered some good news this morning. The company said it flew 9.6 billion revenue passenger miles (RPMs) in August 2014, which is a +4.9% increase from August 2013. LUV's August 2014 load factor was 85.5% versus 81.3% a year ago.

The stock tagged a new high intraday but then started to roll over as the market declined. Our trigger to open positions was hit at $33.25. Unfortunately the market's broader weakness today makes me nervous. Investors might want to wait for a new rise past $33.25 before initiating new positions.

Earlier Comments: September 6, 2014:
Airline stocks have been big winners this year. A big drop in the price of crude oil has been a blessing since fuel is the biggest expense for airliners. Year to date the S&P 500 index is up +8.5%. The XAL airline index is up +26.2%. Yet shares of LUV are up an astounding +74.25%.

According to the company's press release, "Dallas-based Southwest Airlines continues to differentiate itself from other carriers with exemplary Customer Service delivered by more than 45,000 Employees to more than 100 million Customers annually. Based on the most recent data available from the U.S. Department of Transportation, Southwest is the nation's largest carrier in terms of originating domestic passengers boarded. The airline also operates the largest fleet of Boeing aircraft in the world to serve 93 destinations in 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and five near-international countries via wholly owned subsidiary, AirTran Airways. Southwest is one of the most honored airlines in the world, known for its triple bottom line approach that takes into account the carrier's performance and productivity, the importance of its People and the communities it serves, and its commitment to efficiency and the planet."

Earnings are coming in better than expected. When LUV reported on July 24th Wall Street was looking for a profit of $0.61 a share on revenues of $4.95 billion. LUV reported a profit of $0.70 with revenues up almost 8% to $5.01 billion. Demand for domestic air travel has been strong. Shares of LUV have been showing significant relative strength.

Traders bought the dip on Friday at short-term technical resistance on the simple 10-dma. That left LUV to end the week near all-time highs. Tonight we are suggesting a trigger to buy calls at $33.25.

- Suggested Positions -

Long LUV stock @ $33.25

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

Long 2015 Jan $35 call (LUV150117c35) entry $1.25

09/09/14 triggered $ 33.25
Option Format: symbol-year-month-day-call-strike


Morgan Stanley - MS - close: 33.91 change: -0.95

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: - 2.4%
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:
09/09/14: Ouch! It was not a good day for MS. Shares closed at new multi-year highs yesterday. Yet investors were in a selling mood today. MS gapped open lower at $34.44 and fell to a -2.7% decline. The next level of support could be the $33.50 area.

I am not suggesting new positions at this time.

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: 46.76 change: +0.29

Stop Loss: 42.90
Target(s): To Be Determined
Current Option Gain/Loss: +6.1%
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:
09/09/14: Widespread market pullback? Where? Not in shares of MSFT. The stock continues to rally with its fourth daily gain in a row. The stock is working on its sixth weekly gain in a row.

Shares do look short-term overbought here. Broken resistance near $45.50 should be new support.

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: 55.63 change: -0.90

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: +5.7%
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:
09/09/14: The big day for AAPL proved to be a volatile day for AAPL's share price. Not so much for SWKS. Shares of SWKS mostly churned sideways until the market started accelerating lower this afternoon. I would not be surprised to see SWKS retest the $54.75-55.00 zone before bouncing.

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

09/08/14 new stop @ 54.40
09/06/14 new stop @ 53.65
We may want to exit this week following AAPL's Sept. 9th announcement
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


Gentherm Inc. - THRM - close: 50.35 change: -1.01

Stop Loss: 47.75
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
Entry on September 09 at $51.43
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 529 thousand
New Positions: see below

Comments:
09/09/14: THRM did not see any follow through on yesterday's rally to new highs. The stock opened at $51.43, tried to rally but failed near yesterday's highs around $52.00 and then reversed. We can watch for a bounce from $50.00 or the 10-dma as an alternative entry point to launch bullish positions.

Earlier Comments: September 8, 2014:
Sales of automobile and light trucks are soaring in the U.S. According to Autodata the nation's auto sales hit an annualized pace of 17.53 million units in August. That's the best pace since early 2006. One group that is cashing in on this trend are the auto part manufacturers, which are clearly outperforming the actual auto makers.

THRM is one such auto parts company. They are probably best known for their climate controlled car seats. According to the company's website, "Gentherm is a global developer and marketer of innovative thermal management technologies for a broad range of heating and cooling and temperature control applications. Automotive products include actively heated and cooled seat systems and cup holders, heated and ventilated seat systems, thermal storage bins, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), cable systems and other electronic devices. The Company's advanced technology team is developing more efficient materials for thermoelectric and systems for waste heat recovery and electrical power generation for the automotive market that may have far-reaching applications for consumer products as well as industrial and technology markets. Gentherm has more than 8,300 employees in facilities in the U.S., Germany, Mexico, China, Canada, Japan, England, Korea, Malta, Hungary and the Ukraine."

What is you might find really interest is THRM's power generation segment. THRM says that "Nearly two-thirds of the energy produced by a typical gasoline engine is lost through waste heat. A thermoelectric device can capture some of that waste heat and convert it to electricity." They began working on this project back in 2004. THRM now expects this product to be completed in 2015. They also have a similar business of capturing wasted heat in energy-intensive manufacturing plants, like cement production, glass, and metal production, and generating electric instead of letting the heat escape into the atmosphere.

THRM's sales have been surging. Back in March 2014 they reported their Q4 report and beat estimates on both the top and bottom line while management raised their 2014 guidance. They have continued to beat estimates all year. Their most recent report was August 1st. Wall Street was looking for a profit of $0.36 a share on revenues of $190.51 million. THRM reported $0.46 with revenues rising +28.5% to $206.2 million. Management raised their 2014 guidance again.

In their earnings press release THRM's President and CEO Daniel R. Coker said, "The excellent results in this year's second quarter followed a very strong first quarter and capped off an exceptional first six months of 2014. We achieved record levels of revenue and profit in both periods and every one of our operations met or exceeded its goals. Revenues for this year's second quarter were again driven by a significant year-over-year increase in sales of our Climate Control (CCS) systems. Operational efficiencies continued to increase in the first half of this year, and our gross margins improved significantly year over year and were again at the high end of our expected range."

The company delivered earnings growth of +106% last year. This year their EPS growth is poised to hit +78%. Naturally the stock is performing well as investors look for growth. Shares suffered some profit taking in late July but have since recovered. Now THRM is hitting new all-time highs.

Tonight we are suggesting new bullish positions at the opening bell tomorrow morning. We'll try and limit our risk with a stop loss at $47.75.

- Suggested Positions -

Long THRM stock @ $51.43

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

Long DEC $55 call (THRM141220C55) entry $2.95*

09/09/14 trade begins. THRM opens at $51.43
*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


Ubiquiti Networks - UBNT - close: 46.27 change: -0.70

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
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:
09/09/14: UBNT erased yesterday's 67-cent rally with a 70-cent drop. The stock could be headed back to retest support near $45.00 again. I am not suggesting new positions at current levels.

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: 36.61 change: +0.89

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +4.9%
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:
09/09/14: Yesterday WWAV looked like it was coiling for a bullish breakout higher. Today's news that General Mills (GIS) is buying organic-food maker Annie's Inc. (BNNY) for $820 million sparked a rally for the organic food industry. BNNY soared +37.5%. Shares of WWAV gapped open higher at $37.06 and hit an all-time high of $37.29 before paring its gains to +2.5%.

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*

09/06/14 new stop @ 33.90
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

On Assignment Inc. - ASGN - close: 29.46 change: -0.36

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

Comments:
09/09/14: ASGN underperformed the S&P 500 and the NASDAQ with a -1.2% decline. Shares remain inside the $29-30 trading range. I do not see any changes from last Thursday night's new play description below:

Earlier Comments: September 4, 2014:
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)

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


Mobile Mini, Inc. - MINI - close: 38.63 change: -0.46

Stop Loss: 40.10
Target(s): To Be Determined
Current Option Gain/Loss: + 0.4%
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:
09/09/14: MINI continued to drift lower and lost -1.1% on the session. Traders could use today's weakness as a new bearish entry point.

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

09/06/14 new stop @ 40.10
08/28/14 triggered @ 38.80


Transocean Ltd. - RIG - close: 37.15 change: -0.11

Stop Loss: 39.05
Target(s): To Be Determined
Current Option Gain/Loss: + 2.7%
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:
09/09/14: RIG tagged new relative lows on Tuesday but shares only lost -0.29% versus the -0.6% drop in the S&P 500.

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*

09/06/14 new stop @ 39.05
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