Option Investor
Newsletter

Daily Newsletter, Monday, 9/15/2014

Table of Contents

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

Market Wrap

Awaiting The Fed

by Thomas Hughes

Click here to email Thomas Hughes
The market is still waiting on the FOMC to point the way.

Introduction

It was another quiet, calm day of trading while the market awaits the Fed. The major indices all gently tested support in a day of nearly flat trading.

Asian and European markets were both mixed to start the day. Asian markets were affected by weaker than expected data from China that shows out-put and investment were both weaker than expected. Additionally, Japanese markets were closed for a holiday making trade volumes light. In Europe the struggling economy and the geopolitical standoff in the Ukraine continues to weigh on stocks with the added concern of this weeks Scottish referendum for independence.

Futures trading on the US indices was equally mixed with the market indicated to open flat to negative during the earliest part of the morning. Trading lifted somewhat going into the open but trading remained weak throughout the day. The SPX opened a point of two lower and hovered between -1 and -5 all morning. The Dow managed to hold above break even for the day but the NASDAQ composite suffered some pretty steep losses in the range of -50 points.

Market Statistics

Needless to say there is a lot for the market to wait for this week. The Fed I think is first and foremost; the taper, the verbiage around “considerable time”, the scope of interest rate hikes and anything else the market grabs onto will be the main market driver. After that there are 15 economic releases not counting the FOMC and energy inventories, including two regional Fed reports. After that and of lesser importance to us is the outcome of the Scottish referendum and a slate of corporate events. Apple releases the new iPhones on Friday and has already announced that the initial offering has been overwhelmed by demand. Microsoft announced its acquisition of game maker Mojang and there is an expected change to the S&P 500 on Friday.

After lunch trading was just about the same. The SPX drifted in a tight range below break even for most of the afternoon. There was a little strength late in the day that brought the index up into the green but it did not last. The NASDAQ was hit especially hard today, losing more than -1%, with the Dow Jones the only major average to close in the green. A sell of in high growth stocks like Tesla and Netflix, -9% and -3% respectively, was the cause of most of the losses.

Economic Calendar

The Economy

The September reading of the Empire State Survey of Manufacturing expanded well above expectations. The reading came in at 27.54, more than 13 points above the previous months 14.59 and and 10 points above the expected 16. This is the highest level of manufacturing in the New York region since October of 2009. New orders, shipments and prices received all moved higher while prices paid and unfilled orders both fell. Based on the increase in prices received and decrease in prices paid it looks like margins could be on the rise in NY. The index of expected activity also rose this month in expectation of a solid fourth quarter. This report was released at 8:30 and helped to lift the futures trade off of its morning low.

Industrial production and capacity utilization were both released at 9:15AM and helped to curb the positive spin that Empire Manufacturing data put on the market. Both fell in this months data with the drops blamed largely on the expected seasonal decline in auto manufacturing. The big three automakers typically slow down production in the late summer, a move they skipped last year in order to build inventory. Both employment indicators within the report rose pointing to an increase in jobs and hours worked, contrary to the recent jobs report. Production declined by -0.10% versus an expected rise of +0.3%, this is following a +0.2% gain last month. Capacity Utilization fell to 78.80% from 79.10%, 3/10ths, versus an expected gain of 2/10ths. Moody's Survey Of Business Confidence remains positive. Mark Zandi reports that “Business sentiment is strong and stable, particularly in the United States. Responses to the business survey questions are upbeat across the board and are particularly positive regarding the economy’s prospects through the remainder of the year. Hiring intentions also remain strong, inconsistent with the weaker U.S. employment gain in August.” There are only two reports scheduled for tomorrow; Long Term TIC Flows and the Producer Price Index.

According to FactSet the earnings growth expectations for Q3 remain the same at 6.2%. This is down from 6.9% in Q2. The telecom sector is still expected to produce the greatest earnings growth with consumer discretionary the only sector expected to decline.

The Oil Index

Oil traded mixed today as well. WTI had been down as much as -$0.75 before reversing near mid-day to add $0.65 to Friday's closing price. Brent also traded lower but was not able to recapture break even before the close. The reason for the drop was the weaker than expected data from China, putting additional pressure on already declining demand expectations. It is unclear what caused the mid day turn around in WTI but it may have simply been a technical bounce from the 7 month low near $91 or short covering, or both.

The Oil Index fell sharply in the early session and gapped lower at the open, falling below the long term trend line. The mid day turnaround in oil prices helped the index to regain the trend line and rise nearly 1% by the close of the day. The oil index has been in a correction of late, as oil prices tumble, and is now beginning to catch up with the underlying commodity. MACD reached a peak of Friday that is not extreme but a little bigger than the last bearish peak, convergent with the new low set by the index at today's open. This usually leads to a retest of lows and possible lower lows. However, the long term trend is up so it is not quite time to start thinking about a bearish trade just yet. Today's action shows that there is interest in the sector along the long term trend so we need to wait and see what happens over the next few days.


The Gold Index

Gold prices hovered just above break even from Friday's closing prices. Gold added about $2, trading just above $1230 and a 7 month low. Gold prices are being pressured heavily by Fed expectations and have corrected to trend following the summer flight-to-safety. Expectations have driven gold to a near term extreme that may produce a bounce back once the Fed statement is released but my long term targets have gold back to $1200.

The Gold Index traded higher as well, gaining close to 1% in a move up from support. The index has fallen over -10.5% in the last two weeks and is now consolidating above a long term support zone. The momentum is bearish but has peaked in the short term on the daily charts, consistent with support, but is still increasing longer term on the weekly charts. Stochastic on the other hand has not peaked and is crossing the lower signal line, indicating weakness in the index. While highly susceptible to gold prices and the Fed, the Gold Index is in the hands of traders with low expectations of profits from the sector and is heading lower. Support is between $90 and $92 right now, just below the current levels with downside targets on a break as low as $80 in the short term.


In The News, Story Stocks and Earnings

Apple announced some data relating to iPhone 6(+) sales today. They reported a record, no surprise there, 1st day pre-order ever for one of it's products. Pre-orders totaled more than 4 million and have exceeded initial supply. They are saying that it may take up to 6 weeks for some of these to ship. Yet another great problem for Apple to have, they sold all their phones and now they have to make more. Another story on Apple speculated that the company could earn as much as $0.15 for every $100 transaction on its new Pay service which could be a serious addition to income and one not tied to sales of products, just usage. Shares of Apple opened at the recent high but sold off during the day. Momentum is still bearish but about to cross the zero line so there could be a near term break. Stochastic however is still weak so I'd be careful of whipsaws for now. Current resistance is around $103.75 with support near $95.


Tesla was downgraded today and accounted for much of the loss in the NASDAQ. An analyst at Morgan Stanley said the shares are still worth more, just not right now. His sentiment is an echo of words spoken by Tesla CEO Elon Mush not once but at least twice over the last year to the effect he didn't think the shares were worth what they were currently trading for, at least not yet. The downgrade sparked a -9% drop in the stock that may have been exacerbated by fund raising executed by would be owners buyers of Alibaba, due to IPO Friday. Today's move has brought Tesla down to the $250 region and near the long term trend line. Morgan Stanley's target for the stock is still over $300, odd in the face of today's comments.


Microsoft announced the purchase of game maker Mojang, creator of Minecraft. The deal is worth over $2.5 billion but does not include Minecraft, the companies founders or top executives. What Microsoft is said to be getting is a “loyal and largely young following” which is good but now what are they going to do with it. And will they even be able to keep it in the first place. Shares of Microsoft fell over 1% on the news. The stock is just off a recent high with divergent indicators suggesting a short term consolidation or correction is likely. There is near to short term support just below today's closing level near $45 with short to long term support near $42.50.


Ken Feinberg announced the first settlements for victims of the GM ignition switch recall scandal. The first findings are that at minimum 19 deaths have been linked to the faulty switches with more to come. Shares of GM traded higher today but are below my support line at this time. The indicators are consistent with long term support at this level which is, based on the 12 month range, not an unattractive entry for longer term positions.


The Indices

All the indices were soft today but the NASDAQ really took a beating. A sell off in high growth names like Tesla and Netflix helped to send the tech heavy index down by over 1%. This move is due in part to the half cocked downgrade for Tesla and also in part to a possible pre-Alibaba IPO sell off. The speculation is that money is being raised by investors in order to buy shares of the Chinese internet retailer. It is also options expiration week which could have something to do with it as well. Today's move brought the NASDAQ down to the short term 30 day moving average where it was halted. The indicators are bearish at this time but with strong support just below the current level so any move may be small and only serve to confirm support.


The Dow Jones Transportation Average also fell today, but not by quite so much. The transports lost only -0.36% in today's session, also coming to rest just above support. This support, like with the NASDAQ and other indices, is sitting on the previous all time high set in late July. It looks like the index has calmed down and is now holding its breath waiting for the next “something” to happen. The trend is up, the index is above support and trading near all time highs so I am leaning toward that something being a rally. The indicators are neutral but still strong; MACD is hovering on the zero line and stochastic is trending sideways with %D hovering on the upper signal line.However, there is some room for the index to move down should the fed disappoint or if the market just decides it's time to take some money off the table. A break of support at 8,500 would find the trend line about 250 points below with the short term moving average in between.


The S&P 500 traded in the red most of the day in a range between -1 and -5. Late in the day the index powered higher and popped into the green a couple of times before returning back to the original range. At the close the broad market was off by only -0.07 points and sitting on support; support consistent with the all time highs set back over the summer. The indicators are bearish still but also in line with support over the short to long term. This support level may be tested further but the longer term trends are still up so I think an downside will be limited. A break below 1980, which was approached several times today, could take the index down as much as 80 points before reaching the trend line with additional near and short term supports in between.


The Dow Jones Industrial Average was able to hold in the green all day today; dividends and stability attracting investors while the Fed meeting is still a question. The blue chip index gained a little over a quarter percent today in a move up from the short term moving average. This index is still beneath the resistance of the August all time highs but still supported. The indicators are consistent with support at this level but that support may be tested. If broken, around 16,950, the index could move down to 16,750 in the near term with a full correction to trend about 6% lower near 16,000.


It really is a wait and see time for the market now. The Fed is on the horizon and what they do, don't know and hint at doing carries a lot of weight. As far as the market goes I know what it looks like is happening, and what I want to happen, but that doesn't mean it will happen. It looks like we're setting up for another leg up but there is a lot that could happen between now and the end of the week to change that.

The FOMC meeting emerged as a target pivot point for me a few weeks ago and it turns out to have been a pretty strong one. The markets have been trading sideways to down for just over three weeks now and it looks like this will keep up at least until then, the FOMC meeting that is.

A lot of this market weakness is also due to soft commodity prices as well. Low oil and low gold are hurting their respective sectors and adding downward pressure to the indices. This may not let up for a while and could be amplified by Fed speak.

The long term trends in stocks and the economy are up are and I don't see that changing. There are near term and even short term reasons to be wary but when aren't there? It is possible that the market will sell off after the Fed announcement but if there is I still see it as a potential opportunity to buy on the dip.

Until then, remember the trend!.

Thomas Hughes


New Plays

Falling Expenses

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Pilgrim's Pride - PPC - close: 31.35 change: +0.46

Stop Loss: 29.30
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

Company Description

Why We Like It:
Last year the U.S. stock market was up about +30%. Shares of PPC rallied almost +100%. This year the S&P 500 is up about +7%. Yet shares of PPC are up +90%. One reason is rising demand for protein and another is falling feed costs.

According to the company website, "Pilgrim's Pride Corporation employs approximately 35,700 people and operates chicken processing plants and prepared-foods facilities in 12 states, Puerto Rico and Mexico. The Company's primary distribution is through retailers and foodservice distributors. Pilgrim's is the second-largest chicken producer in the world, with operations in the United States, Mexico and Puerto Rico. Our corporate headquarters is in Greeley, Colorado. We have the capacity to process more than 36 million birds per week for a total of more than 9.5 billion pounds of live chicken annually. The company exports chicken products to customers in approximately 105 countries, including Mexico." (FYI: The company is majority owned, about 75%, by Brazilian meat producer JBS SA, symbol: JBSAY).

The cost to feed millions and millions of chickens is the number one expense for a chicken farmer. The price of corn and soybeans has been falling. Currently both grains are at multi-year lows. That means PPC's margins should improve. The good news is that U.S. farmers are looking at a record-breaking harvest of corn and soybeans again this year. That should continue to push grain prices lower.

Technically shares of PPC are riding their long-term trend of higher lows. Shares got ahead of themselves in July and sold off following its earnings report at the end of the month. Yet investors bought the dip at technical support on the rising 50-dma. Now after consolidating sideways for the last few weeks PPC is starting to rally again.

Today's intraday high was $31.39. We're suggesting a trigger to open bullish positions at $31.55.

Trigger @ $31.55

- Suggested Positions -

Buy PPC stock @ (trigger)

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

Buy the 2015 Jan $35 call (PPC150117C35) current ask $1.30

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

The Retreat Continues

by James Brown

Click here to email James Brown

Editor's Note:
Last week's market pullback continued on Monday with high-beta names leading the way lower.

ARWR has been removed.
SWKS, THRM, and UBNT hit our stop loss today.


Current Portfolio:


BULLISH Play Updates

Archer-Daniels-Midland - ADM - close: 50.56 change: +0.15

Stop Loss: 48.90
Target(s): To Be Determined
Current Option Gain/Loss: -0.4%
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:
09/15/14: ADM displayed some relative strength on Monday with a +0.29% gain. Lack of follow through on Friday's drop is a good sign.

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: 34.01 change: +0.39

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: +4.3%
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:
09/15/14: BBY continued to show strength today with a +1.1% gain. The stock was higher this morning with a spike to $34.62. Deutsche Bank had some comments today suggesting RadioShack's woes are BBY's gain. It's an idea people were discussing late last week. There is a growing fear that RadioShack will file for bankruptcy soon.

There has been rumor and speculation that Amazon.com (AMZN) might want to buy RSH but others were suggesting that BBY might be a better target for AMZN to acquire. Which could be another reason BBY was showing strength today.

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: 33.86 change: -0.01

Stop Loss: 31.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
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:
09/15/14: Bulls should be impressed with LUV today. The XAL airline index lost -2.0% and underperformed the major indices. Yet LUV managed to close virtually unchanged on the session. That doesn't mean LUV will continue to show strength if the airline group accelerates lower. We can watch for LUV to find short-term support at its 10-dma (near $33.18).

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: 35.21 change: +0.20

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: + 1.3%
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:
09/15/14: MS shrugged off the broad market weakness and declines in the financial sector. Shares added +0.5% and closed at a new multi-year high.

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: 46.24 change: -0.46

Stop Loss: 44.45
Target(s): To Be Determined
Current Option Gain/Loss: +4.9%
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:
09/15/14: MSFT confirmed it will buy the hit game Minecraft for $2.5 billion, that's up from the $2.0 billion discussed last week. Some analysts were pointing out that a few of people at the top of Mojang, the private Swedish game company that created Minecraft, essentially the main talent behind Minecraft are not joining Microsoft Studios. This raised a few eyebrows. Meanwhile shares of MSFT joined the sell-off in the NASDAQ today and lost almost -1%.

Broken resistance near $45.50 should be new support.

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

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

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

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

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

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

- Suggested Positions -

Long MSFT stock @ 44.08

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

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

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


Trina Solar Ltd. - TSL - close: 13.76 change: -0.75

Stop Loss: 17.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.4 million
New Positions: Yes, see below

Comments:
09/15/14: Shares of TSL were also caught up in the tech stock sell off today. TSL reversed sharply with a -5.1% drop toward last week's lows.

Currently we are on the sidelines with a trigger to open bullish positions at $14.80.

Earlier Comments: September 13, 2014:
Solar energy use is growing. As more and more countries look to build up their renewable energy the solar space should benefit. TSL is one of the biggest Chinese solar energy companies and one of the most profitable ones. They currently have almost 1,000 patents for solar technology.

According to the company website, "Trina Solar Limited is a global leader in photovoltaic modules, solutions and services. Founded in 1997 as a PV system integrator, Trina Solar today drives smart energy together with installers, distributors, utilities and developers worldwide. The Company's industry-shaping position is based on innovation excellence, superior product quality, vertically integrated capabilities and environmental stewardship."

Back in July the U.S. government initiated tariffs on some overseas solar energy companies for dumping solar energy equipment in the U.S. market. Some firms have lowered their guidance due to these new tariffs. Thus far TSL is not.

TSL is the second biggest solar panel maker in China and they're poised to become number one at their current pace. If you believe management the solar energy business is booming. In a recent interview with Bloomberg Trina Solar's CEO Gao Jifan shed some light on the industry. Last this past week Jifan said, "Right now Trina is producing at 100 percent capacity and selling at all rates, yet we still can’t meet all customer demand."

TSL's solar-panel capacity will rise to 3.8 gigawatts this year. That's up from 3.4 gigawatts last year (at the end of June). They expect China's total solar instatllations to soar to 50 gigawatts by 2015 and to 150 gigawatts by 2020.

Technically the stock is performing well. The gap down on August 26th was a reaction to earnings but TSL has quickly recovered. Shares have broken out past its 200-dma and now it's poised to hit new five-month highs. The point & figure chart is bullish and forecasting at $20 target. If this rally continues it could spark some short covering. The most recent data listed short interest at 30% of the relatively small 68.39 million share float.

We are suggesting a trigger to open bullish positions at $14.80. More conservative investors may want to wait for a rally past $15.00 instead.

Trigger @ $14.80

- Suggested Positions -

Buy TSL stock @ (trigger)

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

Buy the 2015 Jan $15 call (TSL150117C15)

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


WhiteWave Foods Co. - WWAV - close: 36.69 change: -0.68

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +5.1%
Entry on August 19 at $34.91
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
09/15/14: Traders were taking profits today and WWAV was a target after hitting new highs on Friday. Shares retreated -1.8%.

I am not suggesting new positions at this time. Investors may want to raise their stop loss.

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: 39.01 change: -0.33

Stop Loss: 40.10
Target(s): To Be Determined
Current Option Gain/Loss: - 0.5%
Entry on August 28 at $38.80
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 265 thousand
New Positions: see below

Comments:
09/15/14: MINI outpaced the market's decline with a -0.8% dip today. I am still hesitant to launch new positions.

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: 35.56 change: -0.30

Stop Loss: 39.05
Target(s): To Be Determined
Current Option Gain/Loss: + 6.9%
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:
09/15/14: Barron's recently noted that the oil drillers continue to paint a very bleak picture for their industry. Noble Corp. (NE) recently reported a new deal significantly below prior run rates. One firm lowered their estimates on the company. Another driller, Seadrill (SDRL) said that the market was bad this year and even worse for 2015. The recent sanctions against Russia could also hurt the industry.

Shares of NE, SDRL, and RIG have all fallen to multi-year lows. RIG lost another -0.8% today.

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

Arrowhead Research - ARWR - close: 15.22 change: -1.31

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: see below

Comments:
09/15/14: ARWR is not cooperating. Shares underperformed the market with a -7.9% decline today. Today's move broke the multi-week trend of higher lows. Our trade has not opened yet so we're removing ARWR as a candidate.

Trade did not open.

09/15/14 removed from the newsletter, suggested entry was $17.55

chart:


Skyworks Solutions - SWKS - close: 54.00 change: -1.02

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: +3.3%
Entry on August 07 at $52.65
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.3 million
New Positions: see below

Comments:
09/15/14: The profit taking in SWKS continued on Monday and shares hit our stop at $54.40. Keep an eye on the 50-dma for support. A break under the 50-dma might jeopardize the longer-term up trend.

- Suggested Positions -

Closed SWKS stock @ $52.65 exit $54.40 (+3.3%)

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

Nov $55 call (SWKS141122C55) entry $2.86 exit $3.09 (+8.0%)

09/15/14 stopped out
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

chart:


Gentherm Inc. - THRM - close: 48.10 change: -2.91

Stop Loss: 47.75
Target(s): To Be Determined
Current Option Gain/Loss: -7.2%
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:
09/15/14: It was an ugly day for shares of THRM. I don't see any particular story behind the sell-off today. Whatever the reason investors were in a selling mood and shares tumbled -5.7%. Our stop was hit at $47.75.

- Suggested Positions -

Closed THRM stock @ $51.43 exit $47.75 (-7.2%)

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

DEC $55 call (THRM141220C55) entry $2.95* exit $1.35** (-54.2%)

09/15/14 stopped out
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

chart:


Ubiquiti Networks - UBNT - close: 43.03 change: -3.46

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: -4.0%
Entry on September 02 at $46.75
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 902 thousand
New Positions: see below

Comments:
09/15/14: UBNT bulls just can't catch a break. Three days ago the stock was breaking out past resistance and hitting new five-month highs. The last two days have seen a -$7.00 reversal from $50 to its 200-dma near $43.00. Our stop was hit today at $44.90. There is no explanation for the weakness today other than the widespread profit taking in high-growth and high-beta names.

- Suggested Positions -

Closed UBNT stock @ $46.75 exit $44.90 (-4.0%)

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

OCT $48 call (UBNT141018C48) entry $2.10* exit $1.02 (-51.4%)

09/15/14 stopped out
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

chart: