Option Investor
Newsletter

Daily Newsletter, Thursday, 9/11/2014

Table of Contents

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

Market Wrap

Quiet Trade While Market Remembers

by Thomas Hughes

Click here to email Thomas Hughes
It was a quiet day of trading today as the market remembers the 9/11 attacks.

Introduction

The markets were relatively quiet today. The anniversary of the 9/11 terrorist attacks dominated attention but did not completely halt trading. Volume remains low I think because of next weeks FOMC meeting. To start the day international markets were mixed, fear of the FOMC and a weakening yen impacting Asian markets while European traders had the additional worry of Scotland's apparent drive to independence. Index futures were weak here as well with the SPX indicated down about -8 points going into the open. There wasn't much data today except the weekly jobless claims which provided a small but unexpected negative surprise. Initial claims rose, slightly, while longer term total claims fell.

The early morning news was dominated by remembrance of the 9/11 attacks. The President, Vice President and first lady all made an appearance at the White House and there was a moment of silence on Wall Street as well.

Market Statistics

The opening was weak, as expected, but did not produce the drop indicated by the futures trade. The SPX opened about 3 points below yesterday's close, dipped down to -8 only for a minute and then bounced higher, nearly reaching break even. Later in the day early lows were tested and broken but produced another bounce, this time taking the index all the way to within 0.25% of yesterday's close. Afternoon trading remained mixed but held close to break even until later in the day when the SPX, NASDAQ and Russell all traded into the green. By the end of the day the indices were mostly higher, if barely, with only the Dow Industrial Average holding on to losses.

Economic Calendar

The Economy

There wasn't a whole lot of data today and what there was the media spun by the media. Initial claims for unemployment rose by +11,000 from a +2,000 revision to last weeks data. This brings initial claims up to 315,000 and a three month high. While unexpected, it is not a very large gain and as a single piece of data has little impact on the longer term employment picture. On an unadjusted basis claims fell by -15,377, about 10,000 less than the seasonal factors had been expecting; enough difference to account for this weeks gain. I'm sticking with my theory that initial claims is more of a sign of job turnover than it is of overall unemployment so even if elevated not serious until longer term unemployment picks up. We must also remember that this is September, a month known for poor jobs data and volatility in revisions. Some of these claims at least are due to changes in seasonal employment. The four week moving average of initial claims rose as well but remains low at 304,000.


Continuing claims also rose this week, gaining 9,000 on top of a +14,000 revision to last weeks data. This week continuing claims were 2.487 million, just off of the long term low set last week. Continuing claims, a better look at long term employment trends, is still trending lower and is now below 2.5 million for the second week. The four week moving average continued to move lower, counter to the rise in this weeks numbers, dropping to a new low not seen since mid 2007.

Total claims, the figure in this group with the biggest impact on overall unemployment levels, fell this week. Total claims shed nearly -82,000 bringing the number down to 2.374 million, a new long term low. Based on these numbers it looks like initial claims are near term noise while longer term trends show jobless claims and overall unemployment moving lower, which is consistent with the NFP and unemployment data last week. Looking at the table provided by the DLS we can see that over the past two months initial claims (near term) have been edging up while continuing claims (longer term) have been moving lower.


Tomorrow heats up a little on the economic scene. There are four macroeconomic indicators on the list that will have an impact on trading. Starting off is Retail Sales, followed up by Import/Export prices, Michigan Sentiment and Business Inventories. Retail sales are expected to rise about a quarter percent, as are business inventories. Michigan Sentiment is expected to rise slightly from last months reading of 82.5.

The Oil Index

Oil prices were a little volatile today. Early trading had WTI down a dollar or more before a late day turn around sent prices above yesterday's close. Adding to the turnaround was speculation over the outcome of President Obama's new strategy for ISIL as well as renewed tension between the US, NATO and Russia. Other news impacting oil prices today was a down grade of global demand expectation from the IEA but this was largely ignored from what I can tell. By the close of today's session WTI had moved up more than 0.75% and then higher in the after hours market.

The reversal in oil helped the Oil Index find support along the long term trend line. Early trading had the index trading lower, testing previous all time highs and the long term trend line. The index has been correcting to trend, albeit very calmly, in the face of a 12% correction in oil prices. The oil index is down only about 5.7% from mid July, oil's peak, and is sitting on long term support. The indicators are bearish at this time but until the index breaks trend I will be looking for signs of a bounce.


The Gold Index

Gold prices fell again today, dropping more than $5 to fall below $1240. Long term fundamentals, those supporting an improving economy, stronger dollar, and end to tapering and an anticipated rise in interest rates have overcome near term fears. The price of gold has been dropping steadily since mid August and are now at a 7.5 month low. Momentum is building to the down side and unless some reason emerges for gold to become an attractive investment I see it moving down to test support in the $1200 - $1225 region. The Fed will have a huge impact on gold prices next week based on its statement and actions concerning interest rates.

The Gold Index at first fell in tandem with gold prices, losing about -0.85% in today's session. Later in the day, one gold prices seemed to find an intraday bottom, the index was able to power into the green. Today's action took the index into a targeted support zone before the reversal and so is not completely unexpected. Gold prices of course will be the driving factor for the index at this time. MACD is peaking in the near term but in the short term shows that momentum is on the rise. In the near term I am looking for resistance around $95 with support in the range between $90 and $92.50. However, the long term trend is down, the short term signal is down and gold prices are moving lower so I think the lower end of this range, around $90, could be reached.


In The News, Story Stocks and Earnings

The US and the EU partnered up for a new round of sanctions against Russia despite the ongoing peace process in the Ukraine. The new sanctions targeted already sanctioned areas of the Russia economy including finance, energy and defense sectors. The announcement had little to no affect on stocks but did elicit a response from Russia. They don't like it.

Alcoa and Boeing announced a new multi year deal that is worth $1 billion for the aluminum giant. The deal is no doubt linked to the recent contract, announced just Monday, between RyanAir and Boeing for all those new jets. Alcoa will be supplying aluminum sheeting for wings as well as ribbing and other important structural and non structural parts made from aluminum. This deal is the largest ever between the two companies and sets Alcoa up as the sole supplier for many products used in manufacturing aircraft. I will also point out that Alcoa's purchase of Firth Rixson earlier this year (a manufacturer of high end aluminum aircraft parts) is also likely a key element of this new deal.

Shares of Alcoa, which have been trending up steadily over the past year, lost close to 2% on the news. The stock is trading up near long term resistance set during a head&shoulders reversal in 2011. The indicators are consistent with resistance so there could be a little downside but the long term trend is up so I will be looking to buy this one on the dip. Current support is around $16.50 and the short term 30 day moving average with less than one month until the next scheduled earnings report.


Lululemon reported earnings today, beating on the top and bottom lines. The company had been expected to earn about $0.30 per share and reported $0.33. The beat was driven by the ongoing management turnaround and an unexpected rise in online sales. The results led the company to raise full year guidance and sent shares soaring in the pre market. The move took the stock up more than 15% at the open, closing the gap formed at the last earnings release three months ago. The move met with significance resistance once it broke above the upper window sill and formed a long legged doji with high trading volume. While bullish for the stock there is still a lot for the company to do to regain its former standing leaving my a little leery of this move. The indicators are weak as well and do not support a break out at this time. I would expect the stock to retrace some of today's jump up as it opened a new window/gap while closing the previous one.


RadioShack reported earnings today, posting a wider than expected loss. The stock however jumped on the report due to plans to begin a major overhaul of the balance sheet. The company reported it was in active talks with lenders, bondholders, shareholders, landlords and financial institutions in an effort to explore debt restructuring and recapitalization. Many of the analysts however do not share the optimism displayed by the market and are suggesting a possible rapid failure of the company. Shares of the stock traded higher for the day, breaking above $1, but found heavy resistance at the short term moving average and was not able to hold.


Super market chain Kroger also reported earnings today. The company reported earnings of $0.70, a penny above estimates. The company was also able to raise full year guidance to the high end of the previous range as well as same store comp sales estimates. The gains are made with the help of Harris Teeter stores which were added to the fold earlier in the year. Within the report executives said that they are planning on maintaining current plans to return money to shareholders, reinvest in the company and to continue with capital investment. The company also expects core business growth to continue accelerating.


The Indices

The Dow Jones Transportation Average was today's market leader. The trannies moved nearly a half percent higher in today's session after testing support earlier in the day. The index is now sitting on support and looking like it could bounce higher. The indicators are still weakening so there may be more sideways action which I think may end once the Fed meeting and rate announcement is made. The index is trading just below all time highs and is still in an uptrend, an uptrend that is being aided by low oil prices. Current near term support is at 8,500 with additional short and long term supports just beneath that level.


The NASDAQ composite was runner up in today's action. The tech heavy index gained 0.12% in today's action coming very near to the current all time high. This index is moving sideways in a consolidation that is now taking on the appearance of a bullish flag. If this is the case and the index breaks to the upside the targets will be 4,700 in the near term with 4,800 and 4,900 real possibilities in the short to long term. Momentum is bearish right now but the peaks are very very small, and as I have mentioned in earlier wraps not a problem so long as the index holds support levels. Bearish indicators, in relation to current price action, are a positive as they indicate a market that has cooled off within a longer term trend. At this time it is key to monitor near term support and resistance in anticipation of expected catalysts next week.


The S&P 500 had a harder time today but was also able to move up into the green. The broad market index gained only 0.09% but it was enough. Like the others, this index also tested support today, moving down through previous all time highs, touching the 30 day moving average, and then bouncing back higher. It looks a lot like the index is finding support at the previous all time high, the all time high set before the August correction, the correction associated with the peak of the Russian Incursion and the onset of the summer “traders holiday”. Looking at the indicators they are moving lower at this time but still consistent with support and the longer term trend. The MACD peak is very small and stochastic, while pointing lower, is overbought in the near term and comfortably in the middle of the neutral zone in the short term.

This is a perfect what I will call a “pre set-up” for a trend following signal. Everything is ready for it to happen (a trend following signal) it just hasn't yet. This is where real patience comes into play. I think the market is waiting on the Fed, or at least the meeting to start, before committing to a direction. During the last two meetings at least the markets began to move higher out of thier consolidation before the Fed even released their decision. Support is looking good around 1990 for now, a break below that could go as low as 1950 but would find a more considerable support level there.


The Dow Jones Industrial Average was today's laggard. The blue chip index lost -0.12 after struggling to make it to break even. Looking at it from the perspective of capitalization and focus, it looks like the large cap dividend producing industrial stocks are not as attractive as the broader growth oriented and technology driven markets. In any event, today's action tested the bottom of the two week range that I have decided to officially call a congestion band.

This index has traded exactly sideways for nearly three trading weeks and today's action bounced off that bottom. The short term 30 day moving average is just below the near term bottom of the band and helped provide support. The top of the band is consistent with the current all time high and could keep the index trading sideways until next week. The indicators are in decline following the peaks of last month but the longer term analysis shows strength in the underlying trend. Current support is around 17,000 with additional support below that around 16,750.


There is a lot for the market to consider right now and not a lot of catalyst. At least not yet, and not a whole lot of volume either. I have to ask myself at this time, if I had left the market mid summer and just come back now, what would I do? The trend is up, the economic trends are up, earnings last quarter were better than expected, GDP growth is good, oil prices are down, tapering is almost over, 3rd quarter expectations are uncertain but positive, the charts are looking OK.... not much reason to get bearish in my opinion but I could be wrong, it certainly wouldn't be the first time. Of course, with the FOMC next week I might want to wait for that too.

The chart of the Dow Jones Industrials in particular looks bullish to me. It makes me think of a crowd of people standing up against a wall or fence. As more and more people join the crowd the edge pushes up against the wall and spreads out against it until eventually it topples. The way price action is keeping the index trading up against resistance in that tight congestion band is telling me support is pushing the index up against resistance, a line on the chart. If support remains in the market eventually it will topple that line. All it takes is one person to set foot, or bid, across that line to start a flood.

Until then, remember the trend!

Thomas Hughes


New Plays

Bullish Biotechs

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Arrowhead Research - ARWR - close: 16.96 change: +0.06

Stop Loss: 15.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.4 million
New Positions: Yes, see below

Company Description

Why We Like It:
Biotechs remain a leadership group in the market. The IBB biotech index is up +20.8% in 2014. The BTK biotech index is up +34.8%. This is significantly better than the NASDAQ's +9.8% or the S&P 500's +8% gain this year. Money managers are nearing the end of their fiscal year (October 31st) and nearly 80% of funds are underperforming their benchmarks in 2014. That could tempt fund managers to chase winners and biotechs probably offer the biggest bang for the buck. Currently shares of ARWR are up +55% this year and look poised for further gains.

Who is ARWR? According to the company website, "Arrowhead Research Corporation is a biopharmaceutical company developing targeted RNAi therapeutics. The company is leveraging its proprietary drug delivery technologies to develop targeted drugs based on the RNA interference mechanism that efficiently silence disease-causing genes. Arrowhead technologies also enable partners to create peptide-drug conjugates that specifically home to cell types of interest while sparing off-target tissues. Arrowhead’s pipeline includes clinical programs in chronic hepatitis B virus and obesity and partner-based programs in oncology."

This might sound a little arcane but the company specializes in "getting siRNA drugs into tissues and cell types of interest while avoiding non-specific uptake. Our lead delivery technologies – Dynamic Polyconjugates (DPCs) and Homing Peptides – are actively targeted delivery vehicles that can be modified to exhibit the specific pharmacological properties desired for each target. Efficient targeting is a key differentiator for Arrowhead's technology, which has the potential to make siRNA therapeutics more effective by getting more of the dose to target tissues. The modular and synergistic design of each platform provides a broad base for the development of further products through the optimized combination of delivery vehicle, targeting agent, and RNAi trigger molecule."

Right Wall Street is probably focused on ARWR's current success in their development for a treatment for hepatitis B. According to the CDC, "Hepatitis B is a contagious liver disease that results from infection with the Hepatitis B virus. When first infected, a person can develop an 'acute' infection, which can range in severity from a very mild illness with few or no symptoms to a serious condition requiring hospitalization. Acute Hepatitis B refers to the first 6 months after someone is exposed to the Hepatitis B virus. Some people are able to fight the infection and clear the virus. For others, the infection remains and leads to a 'chronic,' or lifelong, illness. Chronic Hepatitis B refers to the illness that occurs when the Hepatitis B virus remains in a person's body. Over time, the infection can cause serious health problems." It is estimated that 1.2 million people in the U.S. have chronic hepatitis B.

ARWR's drug for hep B is currently titled ARC-520. ARWR reported its Phase IIa trial for ARC-520 began in March 24, 2014. After an 8-week trial it met all its end point milestones. The company expects Phase IIb will begin in the fourth quarter of 2014. If that is successful then the Phase III trials could begin in late 2015.

Technically shares of ARWR are bullish. They have spent almost five months consolidating sideways in the $10-16 zone. They appear to have formed a bottom and have started breaking out past resistance. If you look at a chart with volume you'll notice that the rallies are seeing strong volume, which is another bullish signal.

More aggressive traders may want to open bullish positions now. I do see short-term resistance in the $17.45 area. We are suggesting a trigger to open positions at $17.55.

Keep in mind that biotech stocks can be volatile and ARWR is no exception. I suggest small positions to limit risk or consider the call options. Using the option can limit your risk to the cost of the option.

Trigger @ $17.55 *small positions, higher risk*

- Suggested Positions -

Buy ARWR stock @ (trigger)

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

Buy the OCT $17 call (ARWR141018C17) current ask $2.25

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Lackluster Gains

by James Brown

Click here to email James Brown

Editor's Note:
The market continued to bounce on Thursday but gains were mild.

GPRE hit our stop loss. ADM hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Archer-Daniels-Midland - ADM - close: 50.92 change: +0.25

Stop Loss: 48.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.3%
Entry on September 11 at $50.75
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.3 million
New Positions: see below

Comments:
09/11/14: We didn't have to wait very long for ADM to hit our entry point. Shares continued to rally and outpaced the major indices with a +0.49% gain on Thursday. Our trigger was hit at $50.75.

I do not see any changes from last night's new play description.

Earlier Comments: September 10, 2014:
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.

- Suggested Positions -

Long ADM stock @ $50.75

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

Buy the 2015 JAN $50 call (ADM150117c50) entry $2.36*

09/11/14 triggered @ 50.75
*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


Best Buy Co. - BBY - close: 32.50 change: +0.19

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
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:
09/11/14: BBY is still drifting higher and near its short-term resistance.

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


Southwest Airlines - LUV - close: 33.64 change: +0.02

Stop Loss: 31.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
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:
09/11/14: Crude oil opened lower this morning but then spent the entire day bouncing in what now looks like a potential bullish reversal. This may have weighed on the airline stocks. The XAL index closed down -0.45%. Shares of LUV closed about breakeven on the session.

I am not suggesting new positions at the moment.

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

09/11/14 speculation that oil might have reversed higher today
09/09/14 triggered $ 33.25
Option Format: symbol-year-month-day-call-strike


Morgan Stanley - MS - close: 34.73 change: +0.40

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

Comments:
09/11/14: Shares of MS continued to bounce today. Traders bought the morning gap down and shares outperformed the major indices with a +1.1% gain. The next obstacle for the bulls is recent resistance near the $35.00 area.

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: 47.00 change: +0.16

Stop Loss: 44.45
Target(s): To Be Determined
Current Option Gain/Loss: +6.6%
Entry on August 14 at $44.08
Listed on August 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 36 million
New Positions: see below

Comments:
09/11/14: Traders consistently bought the dips in the $46.45-46.50 zone today and MSFT rebounded to a new closing high for 2014. Tonight I am moving the stop loss up to $44.45. More conservative investors may want to raise theirs higher.

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

09/11/14 new stop @ 44.45
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: 55.84 change: -0.17

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: +6.1%
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:
09/11/14: Thursday turned out to be a pretty quiet session for shares of SWKS. Lack of follow through on yesterday's intraday bounce would make me hesitate to launch new positions at the moment.

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: 51.65 change: +0.94

Stop Loss: 47.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
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:
09/11/14: THRM continued to bounce today and managed to outperform most of the market with a +1.85% gain. Shares are nearing short-term resistance at $52.00.

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: 49.60 change: +2.32

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +6.1%
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:
09/11/14: UBNT is finally showing some strength. The stock surged shortly after the opening bell and broke through resistance near $47.50. UBNT ended the session up +4.9% and approaching the next area of likely resistance at $50.00.

We will up the stop loss to $44.90.

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*

09/11/14 new stop @ 44.90
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: 37.32 change: +0.26

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +6.9%
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:
09/11/14: Shares of WWAV garnered some bullish analyst comments and a new price target at $41.00 this morning. That probably helped the stock rally to another record high.

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: 39.69 change: +0.59

Stop Loss: 40.10
Target(s): To Be Determined
Current Option Gain/Loss: - 2.3%
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:
09/11/14: Our MINI trade could be in trouble. The recent reversal at $40.00 has failed to see any follow through lower. Instead shares are bouncing and now look poised to breakout past the $40.00 mark.

I am not suggesting new positions at this time. Our stop loss remains a $40.10.

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: 37.37 change: +0.12

Stop Loss: 39.05
Target(s): To Be Determined
Current Option Gain/Loss: + 2.2%
Entry on September 03 at $38.20
Listed on August 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.4 million
New Positions: see below

Comments:
09/11/14: We need to be careful here. Shares of RIG are starting to act like they want to bounce. Yesterday shares rebounded off their intraday lows. Today RIG gapped down at the open but traders bought the dip and the bounce has created what is technically a bullish engulfing candlestick reversal pattern. Now these patterns need to see confirmation but it is a warning sign.

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 BULLISH PLAYS

Green Plains Inc. - GPRE - close: 42.54 change: -2.25

Stop Loss: 43.25
Target(s): To Be Determined
Current Option Gain/Loss: + 6.1%
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:
09/11/14: GPRE broke down sharply today. It would appear that U.S. ethanol producers, like GPRE, were hit hard today on a story that the market could be hit by a surge of Brazilian imports, according to IBD.

The move lower in GPRE today is likely an overreaction. The upward momentum had already slowed and investors were looking for an excuse to take profits. Once GPRE broke support it plunged.

U.S. farmers could have a record-breaking corn harvest this year. That will should make input costs cheaper for ethanol producers.

Our stop was hit at $43.25

- Suggested Positions -

Closed GPRE stock @ $40.77 exit $43.25 (+6.1%)

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

Dec $45 call (GPRE141220C45) entry $2.95* exit $2.87 (-2.7%)

09/11/14 stopped out
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

chart: