Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/10/2014

Table of Contents

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

Market Wrap

Bears Can't Get No Satisfaction

by Keene Little

Click here to email Keene Little
Sung to the tune of the Rolling Stone's "(I Can't Get No) Satisfaction," the bears (the few that remain) are feeling the same way. The choppy pullback from last week is looking like the bears might have to wait at least a little longer.

Wednesday's Market Stats

Last week's high still has the potential to be an important high for the market but with each passing day it's looking like we have just a corrective pullback that will lead to a push higher. The few remaining bears are likely singing the Rolling Stones' song "(I Can't Get No) Satisfaction" as they continue to be amazed by the resiliency of this market.

It was relatively quiet during the overnight session and there were no market-moving economic reports this morning. That left the market to fend for itself and initially that led to a small decline out of the gate but then after the first hour of trading the dipsters couldn't stand it any longer and started lifting the market back up. By the end of the day the DOW was challenging Tuesday afternoon's high near 17086 (after dropping to a low of 16974). The bears have no more hair to pull out and they are now running around naked.

We have plenty of signs, including various sentiment measures, which tell us there are very few bears left and there's a lot of complacency by the bulls. The dipsters do what they because it has worked for so long but when most expect something it's usually a good time to be a bit of a contrarian. It doesn't pay to be a contrarian too early, which I tend to be, but it pays to be alert to the possibility that there are too many chasing the market in one direction since a reversal could happen fast and violently as the masses disembark en masse.

Last week's Investor's Intelligence sentiment survey showed 56.1% bulls and 13.3% bears, for a 42.8% spread. Anything over a 40 spread is dangerous territory for bulls. This week's numbers show a small increase for both sides -- 57.6% bulls and 14.1% bears, for a 43.5% spread. Bulls are playing with fire here even if the measure is not a good market timing tool.

An interesting sentiment measure is the CNBC viewership, as shown on the chart below. A recent article at zerohedge.com showed this chart and as you can see, viewership is down to a low not seen since 1992. During the 2002-2007 bull market it also dropped down near the current level, which was another time when the market seemed to only know up as the direction (following the pullback in the first half of 2004). CNBC should be rooting for a market collapse so they can get viewership and advertisers back (like the spike following the 2008 market collapse). Traders are simply not interested in either CNBC, the market or both.

CNBC viewership, 1991-August 2014, chart courtesy ZeroHedge.com

At the end of August I had reviewed the Gann Square of Nine chart to review the two important levels for SPX on the chart (1998 and 2007). Since then we now have an interesting correlation of time and price pointing to a potentially important high in early September. Once SPX got through 1998 the next important level is 2007, which is opposite the March 2009 low near 667. It would be more than a little interesting if the 2009-2014 bull market was capped at opposite ends of the vector through the low and high of the bull market on the Gann Sof9 chart.

Gann Square of Nine chart (vertical middle section)

SPX rallied above 2007 twice, on September 3rd and 4th, but was unable to hold above 2007. It then closed at 2007 on September 5th and so far that's its all-time closing high. From a Gann perspective, with the chart above, it would be easy to call a major high now in place. The weekly chart below shows it occurred at the trend line along the highs from April 2010 - May 2011 and did so with a significant bearish divergence against the July highs. From a weekly perspective the wave count looks complete with the confirming bearish divergence for the 5th wave.

S&P 500, SPX, Weekly chart

For those who love to play with numbers, the intraday all-time high on September 4th was 2011 and 2011 days from the March 6, 2009 low gives us September 5th, which is when we had the all-time closing high at the important Gann 2007 level. Gann would have loved this setup for a market reversal.

I've had 2015 on my charts as a possible upside target (the 127% extension of the July-August decline) but it would also be interesting if we achieved a high of 2014 in 2014. As for future potentially important days, some cycle studies, which pointed to September 4th as an important turn date, show September 18th as the next important turn date. Alibaba is expected to price its IPO on that date and then we have quadruple witching on Friday, September 19th. The Autumnal equinox is on Sunday, September 21st. If the market does drop lower in the coming week I think it will be important to watch for a possible low by the end of next week (opex week).

In the above paragraph I mentioned the 127% extension and if I use this extension off the July 3 - August 7 a-b-c pullback, as shown on the daily chart below (instead of off the July 24 - August 7 decline), that extension points to 2007.57. The September 5th high was 2007.71. I'm sure this is all purely coincidental with the Gann 2007 level (wink), but the linkage between Mr. Fibonacci and Mr. Gann is potentially very strong here.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2015
- bearish below 1972

Looking at the daily chart above it's not hard to view last week's high as an important high, even if not THE high. The oscillators have rolled over from overbought (and MACD has crossed down) and an uptrend line for the rally from August 7th has clearly been broken. We don't yet have confirmation of a trend change so a rally back above 2007 would be a bullish move. It's not confirmed bearish until SPX is driven below 1972 so in the meantime this could go either way in the coming week.

The problem for the bears right now, other than the fact that the market refuses to sell off, is that the move down from last week's high has been choppy (overlapping highs and lows within the move down) and that makes it look like a correction to the rally instead of something more bearish. On the 60-min chart below I've drawn a parallel down-channel for the pullback and it could easily fit as a bull flag pattern as an a-b-c correction. I'm now watching carefully for evidence that the pullback has completed and a new rally leg has started but so far there's no strong evidence either way.

The alternate interpretation of the pullback pattern is very bearish since from an EW (Elliott Wave) perspective it means we're in a series of 1st and 2nd waves down and it's getting ready to unwind the wave count in a series of 3rd waves to the downside, which would likely be a strong move (at least down to the 1950 area in a couple of days and then stair-step lower in a week's time). The series of lower highs since last week needs to be broken in order for the bulls to negate the bearish potential, starting with last Friday's closing high near 2007. We'd have a bullish heads up above 2000, which was yesterday's midday high (which was a bearish back-test and kiss goodbye against the broken uptrend line from August 7 - September 5).

S&P 500, SPX, 60-min chart

In addition to the Gann Sof9 chart we have the moon phases coinciding with a potential market high as well. As can be seen on my MPTS chart below, the choppy price pattern between August 26th and the marginal new high on September 4th (and closing new high on the 5th), which might have been part of a rounding top, occurred between the new moon on August 25th and the full moon on September 9th (yesterday). We don't know yet if THE top is in place but that's the possibility here.

SPX MPTS Daily chart

The DOW looks very similar to SPX and the 2-week consolidation/pullback can easily be interpreted as a bullish continuation pattern. At this morning's low it tested both its 20-dma, near 16992, its uptrend line from November 2012 - February 2014, near the same level, and price-level S/R at 16970-17000 (the morning low was 16974). As long as the bulls can defend 16970 on a closing basis they control the tape. If support breaks, the next support level will be the 50-dma, currently near 16915.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,150
- bearish below 16,970

For the past 2-1/2 weeks NDX has been doing battle with two trend lines -- the one along the highs from April 2010 - April 2012, which is where it closed today, and the broken uptrend line from June 2013 - February 2014, currently near 4115. As with the other indexes, the daily oscillators have rolled over from overbought and bearish divergence but if price continues to trade sideways while MACD drops down the zero line we'd have a bullish setup. Today NDX almost tagged its 20-dma at 4052, with a low near 4054, so the bulls would like to see that support hold. A drop below 4050 would be a bearish heads up whereas a rally above 4120 would be bullish (not sure how high but it certainly would hammer a few more shorts).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4120
- bearish below 3985

It will important to see how the semiconductor index does from here. This is one of my favorite indexes to watch because it's a good indicator for economic health and since it's an important driver for the tech indexes. At the moment I see a possible high for the SOX but with no confirmation yet (similar to the broader market indexes). Back at the end of June I was thinking we'd soon see a high near the price projection at 656.57, which is where the c-wave of an A-B-C bounce off the November 2008 low would achieve 162% of the a-wave. There was a double top high near 652 in July but the 656 projection wasn't achieved. Monday's high at 656.03 can be considered close enough for government work and as can be seen on its weekly chart below, at the same time it has stalled at the mid-line of its up-channel from November 2012 and is showing significant bearish divergence if it rolls over from here. A drop below 620 would be the fat lady singing the blues for the SOX (and the broader market).

Semiconductor index, SOX, Weekly chart

Yesterday the RUT closed marginally below its 20-dma, near 1163 today, and this morning it had broken marginally below its 50-dma, at 1156, but closed back above both today. I don't show the short-term downtrend line from last week's high but it's currently near 1165, which is where it closed today. That's also the location of a broken uptrend line from the August 1-7 lows so there's the potential for a back test and kiss goodbye here. The bulls need to rally this above 1165 and make it stick otherwise a drop below this morning's low would look more bearish, especially if it drops below its 200-dma near 1151.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1183
- bearish below 1150

Last week I showed the weekly chart for TLT and suggested it could be ready for a stronger pullback over the next couple of months since this year's rally looks to have completed a 5-wave move up. There's been a larger pullback since the August 29th high but it remains inside its up-channel from the December 2013 low, the bottom of which is currently near 114 (today's low was 114.79). It's certainly possible TLT will simply continue higher but a break below 114 would be a good signal that TLT will pull back further to correct this year's rally before heading higher next year.

20+ Year Treasury ETF, TLT, Daily chart

Another bond chart, this one of the high yield (junk) variety, is providing another warning sign for the bulls. HYG normally tracks very close to the stock market since investors' appetite for risk for stocks and junk bonds closely correlate. But notice on the daily chart below how quickly it plunged following the June high, well ahead of the stock market high in September (so far). I see two warning signs here: first, the very strong plunge lower demonstrates the risk I discussed last week about ETFs in general -- with their large sums of money invested in them they haven't been battle tested in a bear market and selling can quickly get out of control; second, the strong selling following the bounce to a lower high on August 27th is further indication investors don't want to exposed to the risk in these bonds. It's only a matter of time before investors in stocks feel the same way.

High Yield Corporate bond fund, HYG, Daily chart

The U.S. Dollar has been on fire and it climbed a little higher above its downtrend line from 2010-2013, currently near 83.40. That line should now be support on a pullback but I don't see much higher before it will pull back further to correct the rally from May. A rally up to its downtrend line from 2009-2010, currently near 87, continues to look like an upside target over the next several months (maybe faster).

U.S. Dollar contract, DX, Weekly chart

In the race for the bottom in currency valuations, the ECB's actions (lowering their interest rate and threatening to add a trillion euros to their balance sheet) tanked the euro's value against other currencies and as can be seen on its monthly chart below, the rollover is from May's test of its downtrend line from 2008-2011. The pattern calls for a quick retracement of the small rising wedge pattern from the July 2012 low, at 1.207, and will likely head for the bottom of its down-channel, which will be near 1.08 by the end of the year.

Euro, Monthly chart

I'm beginning to doubt gold's ability to make one more bounce before tumbling lower. It might skip the bounce and just tumble instead. A drop below 1240 would likely lead to a drop to just below 1200 before I would again look for the possibility for a bounce back up before heading for the 1000 area. If the gold bulls arrive in time, there's still the potential for a rally up to about 1350 before it starts a more serious decline into early next year. Silver (not shown) is close to testing price-level support near 18.60 (June-July 2013 and then January, May and June of this year) so if that holds we could see both bounce back up. But silver below 18.60 and gold below 1240 would likely lead to a couple of weeks of selling before looking for support.

Gold continuous contract, GC, Weekly chart

Short-term bullish divergences suggest oil could be nearing a tradable bottom for the decline from June. But the pattern now looks bearish so a bounce over the next month or two could lead to a nice short trade in oil. We might see a bounce into November for a back-test of its broken uptrend line from June 2012, near 100 by then.

Oil continuous contract, CL, Weekly chart

It's quiet again for economic reports Thursday morning so the market will left to react to geopolitical events. Friday will be a little more important with retail sales and Michigan Sentiment.

Economic reports and Summary

Last week was a good setup for a market top and it remains possible the top is now in place. But the pullback from last week looks corrective enough to suggest new highs are coming. There are certainly enough dipsters who keep propping the market back up. We had many signs of distribution into last week's highs and the propping we're seeing (to a series of lower highs so far) could be more evidence of controlled selling by big funds to retail traders. In one sense, the series of lower highs since last week is a down trend and as shown on the charts, such as for SPX, price remains inside a down-channel from last week.

The bottom line is that I could argue for new highs as well as I could argue for new lows. The important thing though is that upside potential is dwarfed by downside risk. This is especially true from an EW perspective since the bearish wave count calls for a strong break to the downside as a series of 3rd waves are unleashed. A drop below this morning's lows could usher in much stronger selling. But we do not have enough evidence yet to call last week's highs THE highs yet and that warrants caution by those who want to try the short side. Keep a tight leash on short positions and a break of the series of lower highs should be enough to get you out of your position. Trade carefully or stay patient and watch for a little longer. We should have an answer in the next day or two.

Lastly, tomorrow is the Thursday prior to opex week and is known to be a head-fake day. Usually it's a selloff in the morning followed by the start of a jam back to the upside and into opex. This time there's the possibility the end of opex will mark a tradable bottom but again, we should have a clearer picture of that possibility by the end of the week.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Plays

A Record Harvest

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Archer-Daniels-Midland - ADM - close: 50.67 change: +0.21

Stop Loss: 48.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.3 million
New Positions: Yes, see below

Company Description

Why We Like It:
Sometimes it pays to be in the middle. ADM does not farm so falling grain prices don't hurt but actually help. The company is the middleman between producers (farmers) and retailers.

According to the company website, "Every day, the 31,000 people of Archer Daniels Midland Company turn crops into renewable products that meet the demands of a growing world. At more than 270 processing plants, we convert corn, oilseeds, wheat and cocoa into products for food, animal feed, industrial and energy uses. We operate the world's premier crop origination and transportation network, connecting crops and markets in more than 140 countries on six continents."

"Archer Daniels Midland Company is one of the largest agricultural processors in the world. Serving as a vital link between farmers and consumers, we take crops and process them to make food ingredients, animal feed ingredients, renewable fuels and naturally derived alternatives to industrial chemicals."

The earnings picture has been improving. The upcoming harvest could really boost ADM's margins. American farmers are looking at a potential record-breaking crop of corn and soybeans. Estimates suggest the crop will be so big it will exceed the nation's permanent storage by 694 million bushels. That's enough to fill about 174,000 jumbo hopper rail cars.

Shares of ADM are currently at all-time highs. The breakout past round-number resistance at $50.00 is bullish. We are suggesting a trigger to open bullish positions at $50.75.

Trigger @ $50.75

- Suggested Positions -

Buy ADM stock @ (trigger)

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

Buy the 2015 JAN $50 call (ADM150117c50) current ask $2.45

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

No Follow Through Lower

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 bounced, ending a brief, two-day drop. Tech stocks led the way higher.

ASGN has been removed.


Current Portfolio:


BULLISH Play Updates

Best Buy Co. - BBY - close: 32.31 change: +0.51

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.9%
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:
09/10/14: BBY displayed some relative strength today with a +1.6% gain.

I don't see any changes from Monday'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: 44.79 change: +0.34

Stop Loss: 43.25
Target(s): To Be Determined
Current Option Gain/Loss: + 9.9%
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:
09/10/14: GPRE is still churning sideways but managed to keep pace with the NASDAQ's +0.75% bounce today. 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: 33.62 change: +0.71

Stop Loss: 31.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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:
09/10/14: Another drop in crude oil helped fuel a bounce in the airline stocks. LUV soared to another high.

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: 34.33 change: +0.42

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: - 1.2%
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:
09/10/14: MS managed to recoup about half of yesterday's decline. Yet today's bounce is an inside day, which suggest indecision on the part of traders. Tomorrow could hint at a potential trend change or a reaffirmation of the prior trend.

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: 46.84 change: +0.08

Stop Loss: 42.90
Target(s): To Be Determined
Current Option Gain/Loss: +6.3%
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:
09/10/14: Shares of MSFT continue to hold up well and traders bought the dip intraday. The story today, which started last night, was news that MSFT is pursuing Swedish game maker Mojang, who created the extremely popular Minecraft video game. The real story is probably the price tag, which is rumored to be $2 billion.

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: 56.01 change: +0.39

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: +6.4%
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:
09/10/14: Traders bought the dip in SWKS near last week's lows. That makes this rebound a potential entry point for bullish investors. Although the $57.00 level remains short-term overhead resistance.

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: 50.71 change: +0.36

Stop Loss: 47.75
Target(s): To Be Determined
Current Option Gain/Loss: -1.4%
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:
09/10/14: THRM bounced near round-number support at the $50.00 mark today. If shares open positive tomorrow I would use it as a bullish entry point.

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: 47.28 change: +1.01

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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:
09/10/14: UBNT displayed relative strength on Wednesday with a +2.1% gain. The stock is on the verge of breaking out past short-term resistance near $47.50. We can use a breakout as a new bullish entry point.

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: 37.06 change: +0.45

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +6.2%
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:
09/10/14: It is encouraging to see WWAV outperforming the market again after yesterday's rally. Traders bought the dip this morning and WWAV outperformed with a +1.2% gain.

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

Mobile Mini, Inc. - MINI - close: 39.10 change: +0.47

Stop Loss: 40.10
Target(s): To Be Determined
Current Option Gain/Loss: - 0.8%
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:
09/10/14: Hmm... lack of follow through on the recent reversal is frustrating. MINI bounced just enough to erase yesterday's decline. I am not suggesting new positions at this time.

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: 37.25 change: +0.10

Stop Loss: 39.05
Target(s): To Be Determined
Current Option Gain/Loss: + 2.5%
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:
09/10/14: Weakness in crude oil pressured the energy stocks lower today. Yet RIG managed an intraday bounce and just about erased yesterday's loss.

I am not suggesting new positions at this time.

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


CLOSED BEARISH PLAYS

On Assignment Inc. - ASGN - close: 29.63 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: see below

Comments:
09/10/14: I am giving up on ASGN. The stock isn't moving. Shares are stuck in the $29-30 range for now. Our trade did not open.

Trade did not open.

09/10/14 removed from the newsletter, suggested entry was $28.90

chart: