Option Investor
Newsletter

Daily Newsletter, Thursday, 9/25/2014

Table of Contents

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

Market Wrap

The Bulls Duck For Cover

by Thomas Hughes

Click here to email Thomas Hughes
The markets reversed yesterday's gains in a rush for the exits ahead of tomorrow's GDP revision.

Introduction

The market reversed yesterday's gains today, diving for cover as investor weigh a variety of factors. Ongoing geopolitical events, largely out of the news of late, top the list. The standoff in the Ukraine continues to wear on while the international efforts to curb the ISIL threat seem to gain traction. Turkey is still wiffle waffling but other international partners are beginning to step forward to join the fight.

There was some hope that the bounce we saw yesterday would continue today and the early indications were good. Asian markets over 1% higher on hopes of further stimulus in both Japan and China and that euphoria carried into early trading in Europe. European markets were largely higher during the early hours on stim hopes and dovish comments from ECB president Mario Draghi. This did not last long though as fears brought on by the ongoing Russian incursion into the Ukraine sent investors seeking safer havens. The newest twist to the story is rumor of a freshly drafted law allowing Russia to seize foreign assets.

Market Statistics

The futures trade was largely flat in the early hours but that slipped into negative territory ahead of this mornings data. After the data, particularly durable goods, futures trading moved lower indicating an open around -5 on the SPX. The open of trading was weak with roughly half of S&P stocks trading lower. The SPX moved down to -7 or about -0.35% in the first few minutes and steadily extended that gain throughout the morning. Selling at the open was broad and heavy, never letting up all day. The 1990 support level did not hold as the SPX moved down to -9, -12,-16 and down to -26 points by 10:30 or so. At that point an intraday bottom was hit that lasted until the lunch hour. This held until early afternoon when the market began to drift lower, hitting new lows several times and sinking at the close of the day. The SPX lost over -1.60%.

Economic Calendar

The Economy

Mario Draghi was reported saying the ECB was ready to act further with its “unconventional measures” as needed by Reuters. He was quoted saying "We stand ready to use additional unconventional instruments within our mandate, and alter the size or composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation,"

Durable goods orders fell more than expected, by a record setting -18.2%. This is of course from last months record setting advance of 22.5% so a pullback is not surprising. Analysts had been expecting a slightly smaller loss around -17.5%. The drop is due to a much smaller number of orders for new planes, ex-transportation orders for durable goods rose 0.7%. Key metrics within the report, business inventories and core capital goods purchases, both rose.

Initial claims for unemployment rose today, by 12,000 from an upward revision to last weeks number of 1,000 to 293,000. The analysts had expected the number to be higher, closer to 310,000. This keeps the number of first time claims below 300,000 as well as the four week moving average, which is 288,500. Initial claims have been relatively flat over the past two months but remains at low levels consistent with declining unemployment levels. On an not-adjusted basis claims fell by -3,533, less than the -13,000 expected by the seasonal adjustment factors. California led with new claims over 5,000 while Michigan had the biggest decline in claims at -2473.


Continuing claims rose as well, by a mild 7,000 from an upward revision of 3,000 to last weeks data. This is just off the long term low set last week. The four week average of continuing claims fell, counter to the headline number, and is in decline. This is a better gauge of employment conditions and has been trending lower all year. Likewise, the total claims figure fell this week, dropping over -42,000 to reach 2.222 million.

We'll get the next round of ADP/NFP/Unemployment figures next week. New jobs creation may remain low, below 200,000, but based on jobless claims numbers I expect to see overall unemployment decline. If job creation actually regained some of the strength lost last month unemployment could dip significantly.


Tomorrow is the 3rd and final revision to 2nd quarter GDP. The expectation is for an upward revision to above 4.5%. Current estimates for 3rd quarter growth stand near 3.6%, in line with full year growth estimates around 2.25%.

Also on tap tomorrow, Michigan Sentiment. Last month's reading of 84.6 is expected to stand.

Next week data heats up with the end of the month, and the end of the quarter. The usual lineup of monthly macroeconomic data including auto/truck sales, ADP, Challenger Job Cuts, ISM, Chicago PMI, Pending Home Sales and others.

Dallas Fed Presisdent Fisher may also have spooked the market today. He is one of the more hawkish Fed members and said that interest rates could be hiked as early as the spring of next year, about 3 months ahead of market projections.

Not particularly an economic event but one of importance anyway, Attorney General Eric Holder announced his resignation from the post today.

The Oil Index

Oil prices held steady today following yesterday's climb. WTI traded higher by about a quarter with Brent down about the same amount. Air strikes against ISIL raised some fear for the oil supply infrastructure in the region but high levels of supply are offsetting that trade. US strikes took out some low level refineries being used by ISIL for fuel and income but nothing major was hit. Oil prices may remain at these low levels but will be susceptible to news out of Iraq as well as rising supply and economic outlook.

The Oil Index traded lower today, extending the drop below the long term trend line begun earlier in the week. The index lost about -1.25% in today's action but is still exhibiting some signs of support. The indicators are bearish but divergence persists in the MACD and the stochastic is holding above the lower signal line so just how bearish is still in question. However, now that the index has moved below the trend line new resistance will be at the trend line and possibly below along the 1,600 level. The move below the trend line is yet to be confirmed so this could be an overextended near/short term decline. In any event the index is extended below the trend line with weak indications; a good time to sit back and wait to see what happens next.


The Gold Index

Gold prices were volatile today. Early this morning spot price was down as much as ten dollars or more, trading around $1210 and a new 9 month low. Later in the day that moderated to only down a few dollars and then as the equity market was reaching it's intraday low gold prices moved into the green. This could have been on a flight to safety move but if so was based on rumor (Russia seizing assets). Regardless, this is the 2nd time this week spot price has bounced from the $1210-$1215 region and indicative of support. I'd have though a hawkish comment like what Fed President Fisher said would have sent gold lower so perhaps my thought that rising interest rates are priced or being priced into the market has some weight to it.

The Gold Index traded in similar fashion to the underlying commodity. The index moved lower and then bounced off of long term support and back into the green. Today's candle has a long lower which with the body sitting on support near the $85.50 level. This is the top of an expected range of potential support between $82.50 and $85 that dates back to two previous bounces from this level earlier this year. The indicators are consistent with potential support; MACD is still diverging from price and stochastic indicates the market is oversold. Not to try calling the bottom but the Gold Index has reached a level at which long term buyers have stepped in before and where a near to short term bounce could be expected to form. The index could continue to move down to the $82.50 or $80 level but without another significant drop in gold I think these levels could hold.


In The News, Story Stocks and Earnings

Apple continued to feel the pressure as iPhone Bend Gate sent shares lower by more than 3% today. Sure, the thin phone is a little bendy, but my thing is, why would you put your $600 dollar computer device in your pocket and sit on it and/or try to bend it? Even my iPhone 4 is a little bendy when I tried to bend it. I think that this too will pass as will the iOS 8 snafu and in the end it may lead to more sales as the unwitting phone benders have to go back and buy a new one. Apple's response was that the phones are made to be “beautiful and sturdy”, citing 6000 series aluminum, stainless steel and titanium construction and going on to say that less than 10 people had actually complained about legitimate bends. Today's drop took the stock below the long term previous all time high and the short term 30 day moving average. This stock appears to be in a short term consolidation that has yet to break out.


Ford announced another expansion at its production plants. The company added another 1,200 jobs on top of the 14,000 they have already created since 2011. The new jobs are mainly in the Kansas City plant 2nd shift production of the Transit Van delivery vehicle. Along with the announcement Ford said that this addition puts it ahead of it's plan for new additions and its agreement with the UAW. Shares of the stock dropped over -1% today and are withing a long term support zone. The indicators are consistent with support at this level but not indicative of strength at this time. Ford is next scheduled to report earnings in four weeks.


Micron Technology reported after the bell. The US based chip maker was expected to earn $0.81 per share on rising sales and profits projections. The company reported better than expected revenue and earnings as well as provided strong guidance for Q1 earnings. The stock, which had been under pressure all day along with everything else, reversed in the after hours and surged more than 3.5%.


Nike also reported after the bell. The shoe and fitness giant was expected to report about $0.88 per shre although that estimate was called into question based on dollar strength, currency conversion and the companies exposure to foreign markets. The reported $1.09 per share was well above estimates and came on higher than expected sales and future orders. The stock surged to a new all time high in the after hours market and could be an indication of how earnings season will be when they start next month.


The Indices

The market began to fall at the open of trading today and kept falling. There were several temporary bottoms but no real effort at trying to rally. The NASDAQ Composite was today's leader in the decline, dropping just shy of -2%. The tech heavy index broke short term support and looks as if it is now headed down to longer term support around the 4,400 level. The indicators are weak and confirm the move, stochastic is moving lower and MACD is convergent with the new low set today. However, the longer term still shows support so I am still not overly bearish just yet. In the near term, unless the index snaps back up above support tomorrow, there will be resistance above 4,500.


The S&P 500 was next in line in terms of losses today. The broad market index fell -1.62% in today's action, the biggest negative move it has made in several months. Looking back over the charts, each time before this move has preceded a pull back to trend that lasted a week or two, and provided highly profitable entry points. The index broke near and short term supports in the forms of my support lines and the 30 day moving average but remains above more substantial longer term support. The indicators here are also weak and pointing to further downside in the near term. Short to long term support is still indicated but where it will step in exactly is yet to be seen. My targets are between 1960-1965 or below that along the long term trend line.


The Dow Jones Industrial Average fell -1.39%. The blue chip index fell below support at the previous all time high and the short term 30 day moving average just below that. The indicators have just turned bearish and point to a move down toward next support in the region of 16,750. The long term trend is still up and we are well above the trend line so there is a chance of correction with a drop to trend equaling roughly 5.5% below the current level. That being said support around 16,750 looks like it could be strong.


The Dow Jones Transportation Average fell the least today, only -1.39%, dropping from resistance and the short term moving average. The indicators are bearish and point to further near term weakness, but like the other charts, are also indicative of longer term support. The index looks set to head down to the 8,250 level where it will find the combined support of a previous all time high and the long term trend line. The next few days could be important as the index tests the trend.


I have to say that I did not see this sell off coming and I really don't see a reason for it now, other than profit taking. But I have come up with a variety of ideas that likely all have something to do with it. First up is the start of Rash Hashanah, a holiday affecting the markets that is not widely known. I admit that I didn't realize it, or remember it, no disrespect intended. It is the Jewish New Year and could be impacting trading by keeping observers out of the market until Yom Kippur, 9 days from now. I heard a new adage today “sell on Rash Hashanah, buy on Yom Kippur” and this fits the idea the markets could correct for a week or so before bouncing from trend.

Another possibility for the selling is that it is the end of the quarter, or approaching the end of the quarter. This could lead institutional investors and money managers to take profits and lock in gains realized over the summer.

Adding to the selling was the reaction to the supposed Russian law that would allow them to seize foreign assets. As of yet this is still just a rumor and largely unsubstantiated but that never stopped the market from selling off before.

The hawkish comments from Dallas Fed president Fisher probably didn't help either. They raise fear of rising rates, but also reinforce that the economy is back on solid footing.

On top of everything else tomorrow is the GDP revision, a big event even if it is the third estimate, and there is a wave of data next week. In an ordinary month the data bundle due out next week would be enough to keep the market in check. This month end of quarter portfolio reshuffling, the Rash Hashanah holiday and geopolitical knee jerk selling combined to send the market down to a level in which selling led to more selling and this may continue tomorrow. Tomorrow and next week could be rough but the trend is still up and I expect this to be another opportunity to buy on the dip ahead of the upcoming earnings season. Expectations for the current quarter are mixed but future expectations remain high.

Until then, remember the trend!

Thomas Hughes


New Plays

Economics & Russia Pressure Markets Lower

by James Brown

Click here to email James Brown

Editor's Note:

Stocks retreated across the board on Thursday as the major indices delivered their worst one-day drop since July 31st. It's been volatile for the Dow Industrials, which turned in their fourth day in a row of triple-digit moves.

The weakness started overseas with European markets down. Russia played a role in the market's weakness. The country is considering a new law that would allow Russian courts to seize assets from foreign companies.

We also had very disappointing economic data in the U.S. in today's durable goods orders. The August reading for durable goods plunged -18.2%. That's the biggest one month drop on record, since they started recording this data back in 1992.

Yet another cloud over the market today were rumors that terrorists were planning attacks on the subways systems in New York and Paris (no time frame was provided).

There is also chatter that we could see a lot of earnings warnings in the next couple of weeks just ahead of the Q3 earnings season. Current earnings estimates may not be accounting for the huge rally in the U.S. dollar and how that's affecting profits for multi-national companies.

I expect stocks will continue to sink tomorrow morning. The question is if traders cover their shorts ahead of the weekend? Small caps have been leading the market lower and the Russell 2000 is nearing what could be significant support in the 1080-1100 zone. The S&P 500 is also nearing what could be significant support at the bottom of its bullish channel.

We're not adding any new trades tonight. If you have to trade we are seeing a lot of bearish candidates.

Here's a list of stocks that caught my eye today:

Some of these stocks may need to see a break past key support or resistance:

(bearish ideas)
MOS, AVY, MDLZ, MYL, PCL, NFX, GM, CA, GT, LPI, SOHU, LGND.




In Play Updates and Reviews

Stocks Retreat With Widespread Losses

by James Brown

Click here to email James Brown

Editor's Note:
The stock market delivered widespread losses and the major indices closed near five-week lows.

Our PPC trade was stopped out.


Current Portfolio:


BULLISH Play Updates

Best Buy Co. - BBY - close: 33.26 change: -0.73

Stop Loss: 32.75
Target(s): To Be Determined
Current Option Gain/Loss: +2.0%
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:
09/25/14: BBY dipped to short-term technical support at its 20-dma before trying to pare its losses today. If BBY sees any follow through lower tomorrow odds are good we'll see it hit our stop at $32.75.

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: 40.32 change: +0.14

Stop Loss: 39.45
Target(s): To Be Determined
Current Option Gain/Loss: - 3.1%
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:
09/25/14: Positive analyst comments on BRCM this morning helped shares gap higher. Too bad the rally didn't last. The market's widespread weakness pulled BRCM back toward $40. Shares did manage to eke out a small gain.

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


E*TRADE Financial - ETFC - close: 22.70 change: -0.79

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

Comments:
09/25/14: We are still on the sidelines with this ETFC trade. Our suggested entry point has been $23.85. Shares hit $23.52 and plunged with a -3.3% decline. Let's see how ETFC performs tomorrow and then re-evaluate our strategy then.

Earlier Comments: September 22, 2014:
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)

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


Southwest Airlines - LUV - close: 33.64 change: -0.69

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
Entry on September 09 at $33.25
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.9 million
New Positions: see below

Comments:
09/25/14: LUV failed to see any follow through on yesterday's big bounce. The market's broad-based sell-off pushed LUV to a -2.0% decline. Odds are good we could see LUV retest the $33.00 level tomorrow. Our stop is at $32.95.

I am not suggesting new positions.

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

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

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

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

- Suggested Positions -

Long LUV stock @ $33.25

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

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

09/20/14 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


Microsoft Corp. - MSFT - close: 46.04 change: -1.04

Stop Loss: 45.85
Target(s): To Be Determined
Current Option Gain/Loss: +4.4%
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:
09/25/14: Uh-oh! Our potential gains are fading fast with MSFT reversing yesterday's bounce. The NASDAQ lost -1.9% but MSFT fell -2.2%. The $46.00 and $45.50 levels should offer some short-term support. Currently we have our stop at $45.85.

I am not suggesting new positions.

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


Super Micro Computer, Inc. - SMCI - close: 27.75 change: -1.15

Stop Loss: 26.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 389 thousand
New Positions: Yes, see below

Comments:
09/25/14: Technology stocks were hit hard today as the NASDAQ led the market lower. SMCI erased yesterday's gains with a sharp reversal.

Currently we are on the sidelines with a suggested entry point at $29.15.

Earlier Comments: September 24, 2014:
A lot of investors are looking for growth and this company has got it!

With a market cap near $1 billion SMCI is still consider a small cap. According to a company press release they describe themselves as "Super Micro Computer, Inc. or Supermicro, a global leader in high-performance, high-efficiency server technology and innovation is a premier provider of end-to-end green computing solutions for HPC, Data Center, Cloud Computing, Enterprise IT, Hadoop/Big Data and Embedded Systems worldwide. Supermicro's advanced server Building Block Solutions offers a vast array of modular, interoperable components for building energy-efficient, application-optimized, computing solutions."

SMCI's last three earnings reports in a row have been better than expected. As a matter of fact the last three quarterly reports have seen SMCI beat analysts' estimates on both the top and bottom line. All three times SMCI has raised guidance.

SMCI's most recent earnings report was August 5th. Wall Street was looking for $0.39 a share on revenues of $396 million. SMCI delivered $0.40 a share. Revenues came in at $428.1 million. That's a +14.5% increase in sales from the prior quarter and a +32.8% increase from the same quarter a year ago. The company's GAAP net income was up +23.5% quarter over quarter and up +114.3% from a year ago. Gross margins improved both quarter over quarter and from a year ago.

SMCI's Chairman and CEO Charles Liang commented on their Q4 results (Aug 5th) saying "In the fourth quarter, we achieved $428.1 million revenue or 32.8% growth over last year which marked the third straight quarter of record revenues and keeps us on a path to reach our goal of achieving $2 billion annual run rate in the coming fiscal year 2015... with this strong revenue growth combined with operating expense leverage, we achieved record profits. We are looking forward to the new fiscal year and we have been preparing to be a strong market leader in the upcoming technology refresh cycle related to the Intel Grantley (Haswell new processor) launch."

Technically SMCI broke out from a three-month consolidation in mid September. The three-day pullback was mild and traders just bought the dip at its rising 10-dma. If this bounce continues we want to hop on board. I'm suggesting a trigger to open bullish positions at $29.15.

Trigger @ $29.15

- Suggested Positions -

Buy SMCI stock @ $29.15

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

Buy the 2015 Jan $30 call (SMCI150117c30)

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




BEARISH Play Updates

AGCO Corp. - AGCO - close: 45.45 change: -0.36

Stop Loss: 46.35
Target(s): To Be Determined
Current Option Gain/Loss: +1.7%
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:
09/25/14: AGCO slipped -0.78% today. Yet that's better than the NASDAQ's -1.9% or the S&P 500's -1.6% drop. I don't see any changes from my recent comments.

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: 53.84 change: -1.01

Stop Loss: 56.35
Target(s): To Be Determined
Current Option Gain/Loss: + 1.7%
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:
09/25/14: CBS is looking better (as a short) with today's -1.8% drop. These are new 2014 lows. I don't see any changes from my prior comments.

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


Garmin Ltd. - GRMN - close: 50.75 change: -0.49

Stop Loss: 52.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: Yes, see below

Comments:
09/25/14: Yesterday GRMN bounced 49 cents. Today shares lost 49 cents. That doesn't really help us much and merely suggests investor indecision. We are waiting for a breakdown under support near $50.00. Our suggested entry point is $49.75.

Earlier Comments: September 23, 2014:
Garmin was founded in 1990. They became a big name in the navigation technology business. I'm sure many of us remember buying GRMN automobile PNDs (portable navigation device) that sat on the dashboard or stuck to the windshield. Yet those have been replaced by the ubiquitous smartphone and in-dashboard GPS systems.

GRMN still sales a lot of auto GPS systems, many to OEM clients. They also sell fleet management solutions. GRMN has also see some growth in their systems for aviation (planes) and marine (boats). They seem most excited about getting into the wearables industry with a focus on fitness devices. Although that is going to be a crowded market soon.

Officially the company describes itself as, "Garmin International Inc. is a subsidiary of Garmin Ltd. (GRMN), the global leader in satellite navigation. Since 1989, this group of companies has designed, manufactured, marketed and sold navigation, communication and information devices and applications – most of which are enabled by GPS technology. Garmin’s products serve automotive, mobile, wireless, outdoor recreation, marine, aviation, and OEM applications. Garmin Ltd. is incorporated in Switzerland, and its principal subsidiaries are located in the United States, Taiwan and the United Kingdom."

It's a bit surprising to see GRMN's relative weakness considering their last earnings report back on July 30th. The company has no debt and their last results beat estimates. Management raised their 2014 guidance. Gross margins improved from 55% to 57% and operating margins improved from 24% to 28%. Unfortunately traders sold the news.

You can see the big spike on its earnings report and immediate reversal lower. Since then traders have been selling the rallies. Now GRMN is under its 200-dma and it looks poised to breakdown under support near the $50.00 mark.

We suspect this trend down continues. Tonight we're suggesting a trigger to launch bearish positions at $49.75. I'm not setting an exit target tonight but the point & figure chart is forecasting at $42 target.

NOTE: GRMN does have an elevated amount of short interest (more than 10% of the float). Traders may want to use the options to limit their risk.

Trigger @ $49.75

- Suggested Positions -

Short GRMN stock @ (trigger)

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

Buy the 2015 Jan $50 PUT (GRMN150117P50)

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


Johnson Controls Inc. - JCI - close: 44.65 change: -0.67

Stop Loss: 47.10
Target(s): To Be Determined
Current Option Gain/Loss: + 1.7%
Entry on September 23 at $45.40
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: see below

Comments:
09/25/14: JCI slipped -1.4% and this looks like new four-month lows for the stock. More conservative traders might want to adjust their stop loss closer to the $46.00 area.

Earlier Comments: September 22, 2014:
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.

- Suggested Positions -

Short JCI stock @$45.40

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

Long 2015 Jan $45 PUT (JCI150117P45) entry $2.25

09/23/14 triggered @ $45.40
Option Format: symbol-year-month-day-call-strike


Mobile Mini, Inc. - MINI - close: 36.83 change: +0.00

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:
09/25/14: Caution! MINI's failure to participate in the market's widespread drop today is a bit worrisome if you're bearish. I am not suggesting new positions at this time.

Earlier Comments: August 27, 2014:
The mobile storage space might be facing some headwinds. MINI provides commercial storage, construction storage, residential storage, and mobile offices. According to the company's website, "Mobile Mini, Inc. is the world's leading provider of portable storage solutions through its total lease fleet of over 213,000 portable storage and office units with 135 locations in the United States, United Kingdom and Canada. Mobile Mini, Inc. went public in 1994 and trades on NASDAQ under the symbol MINI. Mobile Mini offers customers a wide range of portable storage and office products in varying lengths and widths with an assortment of differentiated features such as: proprietary security systems, multiple door options and 100 different configuration options."

Sales are growing but MINI is developing a trend of missing earnings or delivering lackluster results. MINI missed Wall Street's EPS estimates back in February and April. The latest earnings report was July 30th. Revenues were almost +10% from a year ago but earnings were down. MINI reported a 23-cent profit, which was in-line with estimates but down from 25 cents a year ago. Investors crushed the stock following the late July earnings report. MINI was already weak through most of July and then got hammered from $43 to under $38 on its earnings news.

The stock's long-term up trend might be in jeopardy. The company is not growing fast enough to justify its P/E above 40. The stock's oversold bounce from the post-earnings sell-off has stalled at technical resistance at the exponential 200-dma. Now it appears that MINI is beginning to roll over.

Today's low was $38.93. I'm suggesting a trigger at $38.80 to open bearish positions.

- Suggested Positions -

Short MINI stock @ $38.80

09/25/14 MINI's failure to drop today might be a warning sign.
09/22/14 new stop @ 37.85
09/06/14 new stop @ 40.10
08/28/14 triggered @ 38.80


Transocean Ltd. - RIG - close: 32.49 change: -0.53

Stop Loss: 34.50
Target(s): To Be Determined
Current Option Gain/Loss: +14.9%
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:
09/25/14: The story for RIG is very bearish and shares continue to fall. Eventually the stock will see an oversold bounce. That's why you need to manage your stop loss. We will inch our stop loss down to $34.50.

NOTE: Our put option is up +866%. You might want to take some money off the table here.

I am not suggesting new positions at this time.

Earlier Comments: August 25, 2014:
The oil drillers could be facing a significant downturn due to lower demand and rising supply. That's a tough combination for any business.

RIG is one of the biggest. According to the company website, "We are a leading international provider of offshore contract drilling services for energy companies, owning and operating among the world's most versatile fleets with a particular focus on deepwater and harsh-environment drilling. Our fleet of 79 mobile offshore drilling units includes the world's largest fleet of high-specification rigs consisting of ultra-deepwater, deepwater and premium jackup rigs. In addition, we have seven ultra-deepwater drillships and five high-specification jackups under construction."

The company's latest earnings report on August 6th looked pretty good. Wall Street was expecting a profit of $1.12 a share. RIG delivered $1.61 - blow out number. Revenues also beat estimates at $2.33 billion versus the $2.29 estimate but revenues were down from a year ago. Investors ignored the better than expected results. That's because the industry is facing a number of headwinds.

Day rates are dropping and more rigs are sitting idle. Analysts are lowering estimates due to rising down time. RIG's latest fleet update showed that out-of-service time for 2014 had risen by 28 days. Their 2015 projected out-of-service time had surged 236 days. That is significant when you consider that these rigs get paid hundreds of thousands of dollars per day they operate. Of course those numbers are coming down.

Angie Sedita, an analyst with UBS, said, "We believe dayrate pressure will persist given limited rig tenders (demand) and fierce competition, with dayrates already down 25%-40% from peak levels."

Raymond James analyst Praveen Narra provided more details on their bearish outlook. According to Narra:

After a decade of good times, the deepwater drilling rig market is facing a multiyear down-cycle. Historically, most offshore drilling cycles have been short-lived as there have usually been sudden demand shocks that tend to self correct relatively quickly. This time, it is more of a new rig supply problem compounded by a moderation in offshore spending from the suddenly “return driven” multinational major oil companies. That means this down-cycle should be more drawn out than usual. Specifically, we think the downturn will take about three years to play out with average floater day-rates falling about 25% with over 60 floating rigs needing to be stacked (either warm stacked or cold stacked). More importantly for investors, we think consensus 2016 floater estimates (on average) are still about 25% too high. Put another way, earnings multiples are not as attractive as some now think, in our view. Obviously, the lower-end, older floating assets will be hit the hardest. While everyone loses in this environment...

If you're curious a "stacked" rig is not in service. They can be warm stacked, which means they are idle but still have a crew and ready for deployment. A cold stacked rig has essentially been mothballed.

The bearish outlook for RIG is evident in the stock's decline. Shares just broke down under support near $38.00. The Point & Figure chart is bearish and forecasting at $30.00 target but this target could fall further. It is worth noting that there are a lot of traders already bearish on RIG. The most recent data listed short interest at 18% of the 327 million share float. That can spark short squeezes like the one back in April and again in June.

- Suggested Positions -

Short RIG @ $38.20

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

Long OCT $35 PUT (RIG141018P35) entry $0.27*

09/25/14 new stop @ 34.50
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

Pilgrim's Pride - PPC - close: 30.14 change: -0.92

Stop Loss: 30.45
Target(s): To Be Determined
Current Option Gain/Loss: -3.5%
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:
09/25/14: The pullback in PPC resumed today and shares fell toward round-number support at $30.00. Our stop was hit at $30.45.

- Suggested Positions -

Closed PPC stock @ $31.55 exit $30.45 (-3.5%)

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

2015 Jan $35 call (PPC150117C35) entry $1.40* exit $0.80** (-42.8%)

09/25/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

chart: