Option Investor
Newsletter

Daily Newsletter, Monday, 9/22/2014

Table of Contents

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

Market Wrap

Fed Hangover

by Thomas Hughes

Click here to email Thomas Hughes
Fear of global weakness weigh on markets.

Introduction

Fear of global slow down grew today in the wake of last weeks FOMC meeting and Friday's triple witching expiration. Starting in Asia, China is expecting the September reading of flash PMI tomorrow with most anticipating a decline. Asian market moved lower by 1.5% on average with EU markets slightly less negative around -0.5% on average. Fears of an Asian slowdown are also to blame for much of the EU's decline with comments from ECB chief Mario Draghi adding to the sentiment. He told the EU committee of economic affairs that the EU economy was losing momentum and that he expected inflation to remain low into the end of 2015 and possibly into 2016. The negative vibe carried into the open of early trading here at home with the major indices indicated lower by about a quarter percent.

Market Statistics

The opening was a little weak with the SPX down about -0.40%. This held for the first half hour or so until the existing home sales data was released. The data was a little less than expected but still above the critically watched 1 million level. Trading picked up slightly at that time, lifting the SPX off the morning low but this did not last long. Soon after, the indices started to drift lower, quickly gaining momentum, carrying them down to new intraday lows. By noon the SPX was close to -1% off Friday's close with the NASDAQ Composite off more than -1.25%. The low levels held for the day as the indices traded along support with a slight rise in prices going into the open.

Economic Calendar

The Economy

Today was pretty light on economic as most Monday's are. Aside from Moody's Survey Of Business Confidence there was but one report; Existing home sales. Existing home sales dropped -1.8% versus an expected gain of 0.4%, not too surprising since last week's permits and starts were also down and below expectations. On an annualized basis the rate of sales is 5.05 million, cool but above the 5 million level viewed by economists as showing strength. The previous month was also revised lower. This is the first month in the last five in which sales have declined and remain at the second highest level of the year, although still below last years levels. Within the report Lawrence Yun, chief economist for the National Association of Realtors, says that sales remain strong and that last months drop is due in large part to a decline in cash purchases. He also says that the market is becoming better for first time buyers and that “they have a better chance of purchasing a home now...”.

Moody's Survey of Business Confidence remains strong. The summary, prepared by Mark Zandi, remains positive. He says that “US businesses remain upbeat”, “hiring intentions remain strong” and are at an all time high for the survey. He also says that lay off's also remain low and that expectations into the end of the year and next are strong.

Data remains light the rest of the week. Tomorrow is the FHFA Housing Price Index, Wednesday is New Home Sales, Thursday is jobless claims and durable goods with the 3rd revision to 2nd quarter GDP and Michigan Sentiment on Friday. Housing data will be very important but I expect to see some small misses based on today's existing home sales and last weeks starts/permits data.

The big mover for the week will probably be GDP on Friday. The current expectations are for it to be revised higher, again, by 0.40% to over 4.6%. The upward revision is bullish, in retrospect, but will lead to speculation of how much growth to expect this quarter. The higher 2nd quarter GDP is, the harder it will be for the 3rd quarter to show significant growth on a comparative basis. Surely the 3rd quarter grew, but it is not likely that it accelerated significantly from the 2nd. The most current estimate I could find for the 3rd quarter is calling for 3.5% and then 3.0% in the fourth, which would put full year GDP right around 2.25% and in line with general expectations.

Additional economic news, or news affecting the economy, included the announced planned retirement of Federal Reserve President Charles Plosser. Plosser is one of the more hawkish members of the reserve and a frequent dissenter of the current QE and low interest rate FOMC policies. His retirement is scheduled for March of next year.

The Oil Index

Oil prices fell again today on rising supply and a lack of market moving news over the weekend. Last week's knee jerk move higher was caused by the Saudi's announcing they had cut some of their production and fears that OPEC may cut more in an attempt to raise prices. While this is still a possibility words from OPEC put the event off until sometime next year. WTI fell more than -0.75% in early trading and extended that loss to over -1.0% later in the day.

The Oil Index also traded lower and broke through the long term trend line for the second time in two weeks. Out of ten S&P sectors nine were in the red today, led by the energy sector. The Oil Index is suffering from the fall in the underlying commodity but has so far found support along the 1,600 level. This level is coincident with the bottom of the flag pattern the index broke out of in the early part of the summer but today's move calls it into question.

Even though the index broke through the line it is still exhibiting some sign of support. There is some lower wick, not much but some, and there is divergence in near term momentum consistent with a pull back to support. Oil prices will continue to affect index direction but it still looks as if the longer term uptrend wants to hold and the next few days could provide more technical clues. Watch for support between 1590 and 1,600 with a break below that possibly taking the index as low as 1,550-1,525 in the near to short term.


The Gold Index

Gold prices began the day in negative territory but reversed to move higher by a dollar or two mid day. The reverse was due in part to the decline in stocks but also to the weaker than expected data, as well as possible profit taking on the steep decline in prices over the past two months. Gold prices are now more than -9% off their mid-summer highs and only 2.5% above the long term low of $1285 ( this was an intraday low, the closing low that day was $1206). There may be a near to short term pause but Gold prices are moving lower with the long term low in sight.

The Gold Index is also moving lower and also has the long term low in sight. The index fell another +2% today and is approaching the $85 level. The indicators are bearish and momentum is building although divergence persists in the MACD. This suggest that the move is losing steam and the long term low could provide support once it is reached. $85 is the first target for possible support with $82.50 and the long term low the next target once that is broken. A break below $82.50 wouldn't find support until reaching the $65-$70 range and a full 100% retracement of the 2008-2011 bull market in gold/gold index

Not to say that we are approaching the bottom in gold, or that this is the bottom in the gold index, but it is a highly likely place for a short term to long term bounce to begin, based on the two previous bounces. However, gold prices and/or hopes for gold company profits could continue to drag the index down while the economy is recovering and rising interest rates are coming down the pipe. A question I have now is, just how discounted is the impending rate hike and how will it really affect gold prices once it is here? Not to mention that in the near to short term lower oil prices will help improve margins for gold miners offsetting revenue lost to low gold prices. Earnings aren't going to be great but they might not be that bad.


In The News, Story Stocks and Earnings

Earnings reports are light for the week although we are approaching the next earnings season. Alcoa is scheduled to report three weeks from now, heralding the official season. This week there are about 125 or so reports with a few of note. Tuesday Carmax, Wednesday KB Home, Thursday Micron and Nike followed up by BlackBerry on Friday. Carmax will be indicative of the secondary auto market and the consumer.

KB Home of course will represent the housing sector, and based on last week's report from Lennar could be a positive surprise. KB Home constructs single family homes and condominiums in the metropolitan areas of several western states. The company is expected to report $0.38 per share, a 40% increase over the previous quarter. Shares of the stock sold off today on the existing home sales news, as did the sector. Shares of the stock lost -2.5% in today's session but are basically flat for the year. The indicators show some support at this level but there is no real signs of bullishness yet.


Apple releases sales figures for the new iPhone 6. Sales set a record, topping 10 million units sold in the first weekend. This, plus the added revenue from the Pay service will surely have a positive impact on the bottom line that won't be fully appreciated for several quarters at least. However, the larger iPhone 6+ may weigh on sales of the smaller iPad models in the near term. The iWatch I have yet to form an opinion on. Personally, the only use I can see wanting it for is using it for GPS and tracking my bike rides. Shares of the stock fell today, after opening higher, to lose about a quarter percent. Today's action brings the stock down to just above long term support in the form of the previous all-time split-adjusted high. The indicators are consistent with support at this level with some near term weakness present.


Autozone reported today, beating EPS estimates but falling short on revenue. The company reported a 2.1% increase in same store sales that resulted in revenue growth of only 0.6%. EPS beat by a nickel or 0.4%. Shares of the stock fell -4.25% today, dropping to an 8 month low. The fall today was stopped by long term support set last February on a break to new highs. Since then the stock has been trading in a range between $550 and $500, today's low. The indicators are weak and look like the market could keep this one down at support, if not test or break it.


After energy, consumer discretionary was the hardest hit of the sectors today. The S&P Consumer Discretionary Spyder XLY fell by -1.5% today, hurt by the home builders among others. According to FactSet earnings growth for Q3 is estimated to be 6.2% with consumer discretionary the only sector projected to produce a decline, led by the home builders and Pulte Group. Today's decline has brought the ETF down to longer term support with weak indicators. Near term indications are bearish but longer term the ETF is trending up with the potential for a bounce from support. The stochastic has produced an early, weak, trend following signal already but yet to confirmed by MACD. Today's move set's it up for a follow up, provided support levels hold. A break below the current level could take the index down as far as the long term moving average around $67.50. A bounce from support could find some near term resistance around $69-$69.50.


The Indices

The market fell today in the wake of triple witching and last week's Fed meeting. The Dow Jones Transportation Average leading the fall, dropping -1.38 in today's session. The drop was steady throughout the day, closing at today's low and potential support consistent with the all time high set in July and then broken above at the start of September.

The divergence I noted last week panned out and has been confirmed by a bearish crossover in the MACD and a drop below the upper signal line on the stochastic. There is likely going to be a further test of support but I think it, support, will be fairly strong. A drop below the current level could take the index down to the long term trend line, about 250 points below this level, and set us up for another possible trend bounce.


The NASDAQ Composite was runner up in the race to support today. The tech heavy index fell -1.14% today after hitting a new high on Friday. It too is sitting on support formed by the July highs showing support over the short to long term. In the near term the indicators are still weak and point to a further test of support over the next few days to a week. 4,500 looks good for support right now with a break taking the index down to 4,400 in the near term. If support holds and the index moves higher there is resistance around 4,600 with a target around 4,700 on the break.


The S&P 500 is next up with a loss of -0.80% in today's session. The broad market index fell 16 points at the close, with today's candle resting firmly on support. Support is consistent with the previous all time highs as well as the 30 day short term EMA. Today's action brought the index right down to the 1990-1995 region, indicated as support, where it then proceeded to trade sideways the rest of the day. The indicators are weak and pointing to further testing of support at this time but also consistent with the set up leading to the 2nd and stronger trend following signal. If the 1990-1995 level doesn't hold stronger support is around 1950 and 1925.


The Dow Jones Industrial Average was the laggard today, falling only -0.61%. This index is also sitting on support in the form of the previous all time high set in July and then broken this month. The indicators are weak in the near term but still bullish short term, contrary to the rest. Support, however, will likely be tested along with the rest regardless of how the indicators look now. A break below 17,170 could take the blue chips down to 17,000 in the near term with strong, long term support, above 16,750.


The indices pulled back to support today and as a group are sitting on the highs set at the peak of the summer rally. This I guess is not surprising in hindsight as this is the level the market was holding before the summer trading holiday and the level at which protective positions would have been based on at that time; and expiration for those positions, a triple witching expiration, was just this past Friday. What this means now, in my view, is that the market is sitting on support with economic growth in the forecast and a whole lot of data, not this week but next.

This could be a challenging week. The candles from Friday and today are not pretty, unless you're a bear, and could lead to some more testing of support. Adding to this is data that I expect to be a little weak. Tomorrow and particularly Wednesday's New Home sales could be less than expected and help push the indices lower. However, on the flip side Thursday's unemployment claims could be more good news and then the GDP on Friday, expected to be revised higher, could also be good.

Next week is the end of the month which means there will be a tidal wave of economic data. ADP employment, Challenger Job Cuts, NFP, Unemployment top the list.

Until then, remember the trend!

Thomas Hughes


New Plays

Online Brokers & Auto Part Makers

by James Brown

Click here to email James Brown


NEW BULLISH Plays

E*TRADE Financial - ETFC - close: 23.52 change: -0.21

Stop Loss: 22.80
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
ETFC was founded back in 1982. The company really gained steam during the boom of Internet trading in the 1990s. Today they compete with a suite of online brokerage, investing and related banking solutions.

Trading volumes are not what they used to be. As a matter of fact volumes have been pretty anemic but that hasn't slowed the market's rally. Lack of volume does impact the brokers. Daily trading volume for ETFC has consistently been below the prior year's level.

Wall Street might be overlooking the drop in volumes in favor of ETFC's account growth. They have been consistently adding about 30,000 new accounts a month the last several months.

Technically shares of ETFC appear to be breaking out from their April-August consolidation. Traders just bought the dip near its rising 10-dma today. If this bounce continues we want to hop on board.

Tonight we're suggesting a trigger to open bullish positions at $23.85. I'm not suggesting an exit target yet but the point & figure chart is bullish and forecasting a long-term $33 target.

Trigger @ $23.85

- Suggested Positions -

Buy ETFC stock @ (trigger)

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

Buy the 2015 Jan $25 call (ETFC150117C25) current ask $0.97

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

Annotated Chart:

Weekly Chart:


NEW BEARISH Plays

Johnson Controls Inc. - JCI - close: 45.70 change: -0.80

Stop Loss: 47.10
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
The auto part makers were a bright spot in the market for quite a while. Yet JCI has been underperforming its peers for weeks. Now the whole group has reversed sharply lower.

Investors might be growing cautious as earnings growth slows down. Investor's Business Daily noted that the forecast for some of these auto parts makers is getting softer.

Technically the group appears to be rolling over and JCI could be leading the way lower with a bearish breakdown under a long-term trend of higher lows. It doesn't help that JCI now has a "death cross" with the 50-dma falling under its 200-dma, which itself is starting to roll over.

Today's low was $45.66. We are suggesting a trigger for bearish positions at $45.40.

Trigger @ $45.40

- Suggested Positions -

Short JCI stock @ (trigger)

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

Buy the 2015 Jan $45 PUT (JCI150117P45) current ask $1.85

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Review Your Risk

by James Brown

Click here to email James Brown

Editor's Note:
The market has been acting weak the last couple of days. Traders should review your risk.

We have updated several stop losses tonight.

WWAV hit our stop today. CBS hit our bearish entry trigger.


Current Portfolio:


BULLISH Play Updates

Archer-Daniels-Midland - ADM - close: 51.46 change: -0.23

Stop Loss: 50.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.4%
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:
09/22/14: ADM lost about -0.5% on Monday but it looked like traders were starting to buy the dip late Monday afternoon. I would rather see a dip closer to the simple 10-dma or the $51.00 level before considering new positions.

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*

09/20/14 new stop @ 50.75
09/18/14 new stop @ 49.75
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: 33.67 change: -0.94

Stop Loss: 32.75
Target(s): To Be Determined
Current Option Gain/Loss: +3.3%
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:
09/22/14: The stock market's widespread profit taking today hit some of the market's recent winners. BBY was one of them with a -2.7% plunge back toward short-term technical support at its 10-dma.

I am not suggesting new positions at this time.

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 JAN $35 call (BBY150117c35) entry $1.48*

09/20/14 new stop @ 32.75
09/16/14 new stop @ 31.75
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


Broadcom Corp. - BRCM - close: 40.28 change: -0.62

Stop Loss: 39.45
Target(s): To Be Determined
Current Option Gain/Loss: - 3.2%
Entry on September 19 at $41.60
Listed on September 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.1 million
New Positions: see below

Comments:
09/22/14: BRCM slipped -1.5%. Shares are nearing what should be support at the $40.00 level. I would consider launching new bullish positions if we see BRCM tag $40.00 and then bounce.

Earlier Comments: September 18, 2014:
We are quickly approaching a world where everything can and will be connected. Broadcom plans to make it happen by leading the world into the Internet of Things.

Who is Broadcom? The company describes itself as "a global leader and innovator in semiconductor solutions for wired and wireless communications. Broadcom products seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments. With the industry's broadest portfolio of state-of-the-art system-on-a-chip solutions, Broadcom is changing the world by Connecting everything."

By connecting everything they mean it. From broadband technology to cloud infrastructure to wireless and wearables to home networking, to automotive, appliances, bandwidth to backhaul, GPS to GPON, processors to powerline, set-top box to small cells, wearables to Wi-Fi, Broadcom is designing chips for to connect it.

What is the Internet of Things? It's a hot buzzword right now and one we will hear a lot more often over the next few years. Gartner, the world's leading information technology research company, described the Internet of Things (abbreviated as IoT) as the "network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment." One concept to help envision this idea is making dumb electronic devices smart. It could be anything from your coffeemaker to your refrigerator.

Gartner estimates that the IoT, "which excludes PCs, tablets and smartphones, will grow to 26 billion units installed in 2020." That is a 30-fold increase from 2009. Cisco Systems (CSCO) believes that the number of connected items could hit 50 billion by 2020. That's six devices for every person on the planet. Gartner is estimating that the products and services for the IoT will generate more than $300 billion in sales by 2020.

The IoT sounds like the next technology revolution. While it's only a few years away that might be too far in the future for some investors to consider. Right now everyone is focused on Apple's (AAPL) new smartphone the iPhone 6. BRCM just happens to be a major supplier for AAPL's new phone.

AAPL revealed their new phone last week. The reviews have been a little over-the-top. Descriptions of the Iphone 6 have been glowing. Some are calling it the "best smartphone on the planet" or the "best smartphone ever made!" One professional reviewer described the new iPhone 6 as the fastest iPhone yet. First-day pre-orders for AAPL's new phone hit a record-breaking four million phones. That is double the number of pre-orders for the iPhone 5 two years ago. There are estimates that AAPL could sell between 60 to 70 million iPhone 6s by the end of 2014. It certainly sounds like they have a hit on their hands and that's good news BRCM.

There was another story out recently that hinted BRCM may have won the contract to supply chips to AAPL's new smart watch as well. AAPL's new watch is expected in 2015.

Meanwhile BRCM continues to see earnings growth. They have beaten analysts' EPS estimates four quarters in a row. Shares of BRCM are currently trading at multi-year highs. The point & figure chart is forecasting a long-term target of $63.00.

Tonight BRCM closed at $41.44 with a high of $41.49. I am suggesting a trigger to open bullish positions at $41.60. The $40.00 level is short-term support so we'll put our stop loss at $39.45.

- Suggested Positions -

Long BRCM stock @ $41.60

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

Long 2015 Jan $43 call (BRCM150117C43) entry $1.55*

09/19/14 triggered @ $41.60
*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


Hewlett-Packard Company - HPQ - close: 36.47 change: -0.32

Stop Loss: 35.90
Target(s): To Be Determined
Current Option Gain/Loss: -1.9%
Entry on September 19 at $37.17
Listed on September 17, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 11.1 million
New Positions: see below

Comments:
09/22/14: HPQ tried to rally this morning but the stock failed at short-term technical resistance at its simple 10-dma. There was a new story out this morning that EMC and HPQ have been talking about a potential merger for months. At this time the two companies have reportedly ended these discussions. They couldn't agree on a price. It looked like HPQ would have been the acquirer.

Nimble traders could look for a dip near $36.00 and its 50-dma, which should be support, as a new bullish entry point. We have a stop at $35.90.

Earlier Comments: September 17, 2014:
Old technology giants are have recaptured the market's attention. The S&P 500 is only up about 7% this year. Yet companies like Intel (INTC) are up +34%, Microsoft (MSFT) is up +25%, and HPQ is up +29.5%. HPQ covers a lot of ground in the technology sector.

According to the company website, "HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. With the broadest technology portfolio spanning printing, personal systems, software, services and IT infrastructure, HP delivers solutions for customers’ most complex challenges in every region of the world."

What that marketing talk is trying to say is HPQ has got you covered. They make computers, computer peripherals, printers, servers, software, data storage. Plus, they offer cloud services, big data solutions, and cyber security. They are also expected to introduce a 3-D printer in the future.

Technically shares of HPQ have been slowly marching higher with investors consistently buying the dips. You can see the technical support at the stock's rising 50-dma. Now after a two-week pullback investors have started buying the pullback in HPQ again.

We want to hop on board if HPQ confirms this reversal higher. Tonight we're suggesting a trigger to open bullish positions at $37.15. We're not setting an exit target tonight but I will note the point & figure chart is forecasting at $47 target.

- Suggested Positions -

Long HPQ stock @ $37.17

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

Long 2015 Jan $40 call (HPQ150117C40) entry $0.83*

09/19/14 triggered on gap higher at $37.17, entry point was $37.15
*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


Southwest Airlines - LUV - close: 34.15 change: -0.41

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: +2.7%
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:
09/22/14: The profit taking in LUV continued on Monday with shares drifting lower all day long. LUV is nearing what should be short-term support at it simple 10-dma (about $34.00-34.10).

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

09/20/14 new stop @ 32.95
09/18/14 new stop @ 32.75
09/16/14 new stop @ 31.95
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: 35.18 change: -0.58

Stop Loss: 34.65
Target(s): To Be Determined
Current Option Gain/Loss: + 1.2%
Entry on September 03 at $34.75
Listed on September 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.8 million
New Positions: see below

Comments:
09/22/14: MS is down again today with a drop toward short-term support near $35.00. Tonight we'll try and reduce our risk with a new stop loss at $34.65.

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*

09/22/14 new stop @ 34.65
09/20/14 new stop @ 33.90
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: 47.06 change: -0.46

Stop Loss: 45.85
Target(s): To Be Determined
Current Option Gain/Loss: +6.8%
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:
09/22/14: Broken resistance near $47.00 held up as short-term support today. The stock did give back about -1%. We are raising our stop loss to $45.85.

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

09/22/14 new stop @ 45.85
09/20/14 new stop @ 44.75
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


Pilgrim's Pride - PPC - close: 31.37 change: -0.72

Stop Loss: 30.45
Target(s): To Be Determined
Current Option Gain/Loss: -0.6%
Entry on September 16 at $31.55
Listed on September 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
09/22/14: PPC displayed some relative weakness on Monday with a -2.2% decline. Shares briefly traded below their 10-dma. We will try and reduce our risk by moving the stop loss up to $30.45.

Earlier Comments: September 15, 2014:
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.

- Suggested Positions -

Long PPC stock @ $31.55

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

Long 2015 Jan $35 call (PPC150117C35) entry $1.40*

09/22/14 new stop @ 30.45
09/20/14 new stop @ 29.85
09/16/14 triggered @ $31.55
*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

AGCO Corp. - AGCO - close: 45.52 change: -0.57

Stop Loss: 46.35
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
Entry on September 18 at $46.25
Listed on September 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 976 thousand
New Positions: see below

Comments:
09/22/14: AGCO continues to underperform the major indices and lost -1.2%. We are adjusting our stop loss down to $46.35.

Earlier Comments: September 16, 2014:
Farmers do not like to buy new equipment when the price of their crops is falling.

According to the company website, "AGCO is a global leader focused on the design, manufacture and distribution of agricultural machinery. We support more productive farming through a full line of tractors, combines, hay tools, sprayers, forage equipment, tillage, implements, grain storage and protein production systems, as well as related replacement parts. Our products are available in more than 140 countries worldwide."

AGO management has noted weakness in multiple parts of the world this year. Their most earnings report was July 29th. They managed to beat bottom line estimates by 8 cents with a profit of $1.77 a share. Yet revenues dropped by almost 10% and missed the revenue estimates. To make matters worse AGCO management lowered their 2014 guidance by a significant margin. A few analysts expect the company's earnings to fall over the next 18 months.

Part of the challenge is the business climate for farmers. Falling crop prices affect farmer sentiment and they tend to spend less. Unfortunately for AGCO the U.S. has seen falling commodity prices for a while and it's getting worse. The recent rise in the dollar is forcing grain prices lower. Plus the American farmer is expecting a record-breaking harvest this year. They are expecting so much grain (corn and soybeans) that it will exceed the nation's ability to store it all. That doesn't bode well for farmer sentiment either.

Technically shares of AGCO are bearish. Investors have been selling the rallies since the peak in 2013. Back in July the stock broke down under a long-term, multi-year trend line of support. Now after a four-week consolidation near $48.00 the stock has started to breakdown again.

Tonight we're suggesting a trigger to open bearish positions at $46.25. We are not setting an exit target yet but I will note the point & figure chart is projecting at $40.00 target.

- Suggested Positions -

Short AGCO @ $46.25

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

Long NOV $45 PUT (AGCO141122P45) entry $1.25*

09/22/14 new stop @ 46.35
09/18/14 triggered @ 46.25
*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


CBS Corp. - CBS - close: 54.62 change: -1.29

Stop Loss: 56.35
Target(s): To Be Determined
Current Option Gain/Loss: + 0.2%
Entry on September 22 at $54.75
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.1 million
New Positions: see below

Comments:
09/22/14: Our new play on CBS is open. The stock broke down under major support in the $55.00 area and hit our suggested entry point at $54.75. Tonight we are adjusting our stop loss down to $56.35.

Earlier Comments: September 20, 2014:
Television is a cutthroat business. Companies fight with affiliates, content providers, distribution rights, and more. They need to because traditional TV has been dying for years as more and more consumers forgo television for their computer, tablet, or even smartphone to get their media. Companies like Netflix also steal viewership. Granted the major networks have invested a lot to build up their own "second screen" viewership but it's unclear if the investment is paying off.

Who is CBS? According to the company website, "CBS Corporation (NYSE: CBS.A and CBS) is a mass media company that creates and distributes industry-leading content across a variety of platforms to audiences around the world. The Company has businesses with origins that date back to the dawn of the broadcasting age as well as new ventures that operate on the leading edge of media. CBS owns the most-watched television network in the U.S. and one of the world's largest libraries of entertainment content, making its brand – "the Eye" – one of the most recognized in business. The Company's operations span virtually every field of media and entertainment, including cable, publishing, radio, local TV, film, outdoor advertising, and interactive and socially responsible media. CBS's businesses include CBS Television Network, The CW (a joint venture between CBS Corporation and Warner Bros. Entertainment), Showtime Networks, CBS Sports Network, TVGN (a joint venture between CBS Corporation and Lionsgate), Smithsonian Networks, Simon & Schuster, CBS Television Stations, CBS Radio, CBS Television Studios, CBS Global Distribution Group (CBS Studios International and CBS Television Distribution), CBS Interactive, CBS Consumer Products, CBS Home Entertainment, CBS Films and CBS EcoMedia."

Shares of CBS peaked near $68.00 back in early March 2014, marking what looks like the end of a strong two-year rally from its 2011 lows. The challenge seems to be revenues. The last couple of earnings reports have seen CBS beat Wall Street's EPS estimates. How they are doing that could be cost cutting or financial engineering. CBS has announced significant stock buybacks and accelerated repurchases in 2014. Yet revenues keep falling.

Back in May, when CBS reported its Q1 earnings, revenues for the quarter were down -4.6% from a year ago. When CBS reported its Q2 results in early August this year, revenues were down -5.4%. Management tried to soften the blow with news they were doubling their stock buyback from $3 billion to $6 billion. Yet the stock continues to fall. Investors are probably worried about the falling revenue numbers.

Technically shares of CBS are testing major support at its trend line of higher lows (see the weekly chart) and support near $55.00. It also appears that CBS has created a bearish head-and-shoulders pattern, albeit one with two right shoulders (which is not uncommon). Thus a breakdown under $55.00 would be very negative for the stock price.

The May 2014 intraday low was $55.01. Tonight I am suggesting a trigger to launch bearish positions at $54.75.

- Suggested Positions -

Short CBS stock @ $54.75

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

Long 2015 Jan $55 put (CBS150117P55) entry $3.40*

09/22/14 new stop @ $56.35
09/22/14 triggered @ 54.75
*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


Mobile Mini, Inc. - MINI - close: 36.81 change: -0.52

Stop Loss: 37.85
Target(s): To Be Determined
Current Option Gain/Loss: + 5.1%
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:
09/22/14: MINI fell another -1.39% on Monday. Tonight we're adjusting our stop loss to $37.85.

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

09/22/14 new stop @ 37.85
09/06/14 new stop @ 40.10
08/28/14 triggered @ 38.80


Transocean Ltd. - RIG - close: 33.63 change: -0.45

Stop Loss: 34.75
Target(s): To Be Determined
Current Option Gain/Loss: +12.0%
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:
09/22/14: The selling pressure in RIG continues with a -1.3% decline on Monday. We are moving our stop loss down to $34.75.

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*

09/22/14 new stop @ 34.75
09/20/14 new stop @ 37.55
09/17/14 new stop @ 38.05
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

WhiteWave Foods Co. - WWAV - close: 35.83 change: -0.75

Stop Loss: 35.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.7%
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:
09/22/14: WWAV broke down to new two-week lows and hit our stop loss at $35.85. Investors may want to watch for a pullback toward WWAV's simple 100-dma before considering new bullish positions.

- Suggested Positions -

Closed WWAV stock @ $34.91 exit $35.85 (+2.7%)

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

OCT $35 call (WWAV141018C35) entry $1.70* exit $1.70 (+0.0%)

09/22/14 stopped out @ 35.85
09/16/14 new stop @ 35.85
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

chart: