Option Investor

Daily Newsletter, Saturday, 10/5/2013

Table of Contents

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

Market Wrap

Shutdown Showdown

by Jim Brown

Click here to email Jim Brown

The shutdown is turning into a showdown with participants solidifying their positions as the deadline for action approaches.

Market Statistics

The budget battle shut the government down last week but the headline topics are slowly changing to encompass the debt ceiling as well. As the battle lines on the budget begin to blur and merge with debt ceiling talking points the potential for a grand bargain increased. At this point the president would make a major mistake by accepting a deal today that only solved the budget battle while knowing an even bigger battle is only two weeks away. It is incumbent on the president to package the two battles into one solution.

The House on the other hand may want to speed up the resolution of the budget battle and end the shutdown before taking up the problem of the debt ceiling. By ending the government shutdown the public interest will fade. The House has a much stronger argument for forcing spending cuts as part of the debt ceiling. By separating it into two different battles the republicans would likely stand to gain more ground.

The Debt Ceiling has been raised 16 times since 1993 when it was $4 trillion. It is currently $16.7 trillion. BOTH PARTIES have used the debt ceiling raises as tools to extract concessions from the other. This is not just a republican tactic. The party in control tends to use it to their advantage. There is absolutely ZERO truth to the claim by the president that the debt limit has never been used before to extort concessions from a sitting president. There is also ZERO truth to the claim that hitting the debt limit will force a U.S. default on its debts. The government takes in over $250 billion a month and debt service is between $30-$45 billion depending on the month. The default sound bite is simply a scare tactic used by whichever party is in control at the time. The government can prioritize payments to debt service although the current administration has rejected that option because it would take away one of their Armageddon style sound bites. Since much of the debt service payments would go to China that option may not play well on Main Street.

The market rallied on Friday despite further hostile sound bites from House and Senate leaders designed to be the lead in sound bites on the news shows over the weekend. The market rallied on three things. First, investors know the countdown clock is ticking and the longer the shutdown remains in force the greater the potential for a favorable resolution.

The second reason for the market rebound was short covering. When an agreement could be announced at any time traders were hesitant to hold short positions over the weekend. Nobody currently short wants to wake up on Monday morning and see S&P futures up double digits on some weekend resolution.

The third reason was bargain hunting. With the Dow at a four-week low and testing round number support at 15,000 this was a good spot for bargain hunters to begin nibbling at stocks. The Nasdaq is back just below the high for the week and the S&P honored support at 1680 for five consecutive days.

With the government shutdown the Nonfarm Payroll report was postponed for the first time in 17 years so there were no material economics to move the market. FYI, the BLS completes the Nonfarm report on the Monday prior to the Friday release. That was Sept 30th and prior to the shutdown. They give the report to the president on the Thursday prior to the release so his staff can prepare the administration talking points. There was no reason why the report was not released other than the decision by the administration to withhold the data and cause the market grief. Other government agencies like the Energy Information Agency went ahead and released their reports.

The ADP Employment on Wednesday became the proxy for the missing Nonfarm data. The ADP report showed +166,000 jobs created in September compared to estimates for +180,000. That was definitely in the Goldilocks range for continued Fed QE. However, the August number was revised down from +179,000 to +159,000. That makes the ADP report a miss and a decline and that suggests the Nonfarm data may also be lower than expected.

It was shutdown headlines all day Friday and the public is already tiring of that repetition. The government shutdown and life as we know it in the U.S. did not end. For the typical trader their mind was already turning to the Cowboy - Bronco football game on Sunday.

The economic calendar for next week is lackluster other than the FOMC minutes. Many of the reports will not be released but nobody is sure which ones. Some offices have said they will produce reports for several weeks using a skeleton staff while others are actually shut down. The nongovernmental reports like the Moody's Business Confidence and NFIB Small Business Survey will still be released.

The FOMC minutes is by far the biggest economic event for the week. The Fed surprised everyone last month when they did not announce a taper. Analysts will be scrutinizing every word in the minutes for a clue about future actions.

I believe they can search all they want and it will make no difference. With the government in shutdown mode the Fed is not going to announce a taper in the near future. According to analysts the government shutdown is removing -0.03% from the GDP per week but that number will grow the longer the shutdown lasts.

Next week is the start of the Q3 earnings cycle with the big names on Friday with JPM and WFC reporting.

With no taper on the horizon the market is free to rally in the fourth quarter because of diminished Fed fears. The president has not yet named his replacement for Bernanke but he has been talking about it a lot. That keeps the topic fresh and makes it appear that he is diligently searching for the right candidate. I could never make it in politics. Talking around a topic to generate interest without actually saying anything is an art. Knowing which topics to talk about and which to dodge is a science.

Tropical storm Karen is heading for the Alabama/Florida coast but winds have slowed to 40-45 mph. This is going to be a large thunderstorm by the time it hits the coast on Sunday. There is a slight chance of strengthening on Saturday night but forecasters are downplaying that potential. Louisiana and Mississippi could receive a light brush by the storm as it moves to the northeast this weekend. APC, XOM, BP, CVX, EPD, MRO and RDS.A were evacuating Gulf personnel ahead of the storm and shutting in some production to be safe. The region south of Louisiana is home to the majority of Gulf production. The Gulf of Mexico provides 23% of U.S. oil production and 5.6% of natural gas production. More than 45% of the refining industry is found surrounding the Gulf.

The storm's passage is close to the Louisiana Offshore Oil Port (LOOP) and the only U.S. port capable of offloading ultra-large crude carriers. The LOOP is still functioning but maintaining a close watch on Karen. We saw a sharp decline in oil imports three weeks ago when there was a flurry of storms in the Atlantic. This storm, although mild, will probably delay imports again. Tanker drivers will not want to fight the storm and will wait outside the storm's path until it blows over.

Crude prices rose slightly on Friday as traders speculated on the potential for a drop in production.

Tropical Storm Karen's Path

Have you got a potbelly? After the Friday IPO of Potbelly Corp you may be wishing you had one or at least a few shares of Potbelly (PBPB). The company owns Potbelly Sandwich Works and operates 280 company owned stores in the 18 states. The company sells sandwiches similar to Subway but warm and toasty according to their menu. Their IPO was warm and toasty after pricing at $14 it traded to nearly $34 before fading to close at $30.76 and a +120% gain.

Cherry Hills Mortgage Investment Corp (CHMI) was not as successful as Potbelly. The stock priced at $20 and never traded at the IPO price. CHMI topped out at $19.20 and then faded to close at $18.50. It is rare that an IPO does not trade at the IPO price at least briefly on the first day. The company will use the $130 million in IPO proceeds to buy mortgage servicing rights and mortgage backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.

Sotheby's (BID) auction house said it adopted a poison pill two days after activist investor Dan Loeb's Third Point hedge fund acquired a 9.3% stake. Loeb wants to replace the management because of weak financial results and losing market share to Christie's. The poison pill activates if any one investor acquires more than 10% of Sotheby's shares. Sotheby's poison pill allows every existing shareholder owning less than 10% of the shares to buy $400 in common stock for $200 if an activist investor acquires more than 10% of the outstanding shares. That investor would not be allowed to participate thereby diluting him significantly. Loeb reacted with hostility to the plan and said he would acquire additional shares and once he had a board seat he would lobby for the replacement of the Chairman/CEO, Bill Ruprecht.

Tesla Motors (TSLA) shares fell from $193 to $168 after a video of a burning Model S went viral on the Internet. The car ran over a large metal object on the highway that punctured a three-inch hole through quarter-inch armor plating surrounding the battery compartment of the car and caused a short circuit of the batteries. The individual was not injured.

On Friday Tesla CEO Elon Musk said even after the firefighters punctured the batteries protective cover to extinguish the fire, it never reached the passenger compartment.

Musk released emails between Tesla and the car's owner, who is currently an investor and owns Tesla shares. The owner said the response from Tesla has been fantastic and far beyond what he could have expected. The company gave him a loaner model as a temporary replacement.

Musk pointed out this was the first Model S fire ever. He also said the fire ratio for a Tesla was once every 100 million miles driven compared to once every 20 million for a gasoline car. In the U.S. there are 30 vehicle fires every hour. Musk said the fire risk in a Tesla was significantly less than someone driving around with a gas tank filled with explosive liquid.

People beat up Tesla for only selling an estimated 21,000 cars in 2013. They should remember it took Toyota 8 years to grow Prius sales from 50,000 units to 250,000 units, a fivefold increase. Tesla expects to increase sales five times within two years.

TSLA shares rebounded nearly $8 on the news.

You probably heard that Twitter is going to launch a $12 billion IPO. We don't know what the symbol will be but it is not TWTRQ. That belongs to Tweeter Home Entertainment. The stock was halted on Friday after a rumor broke that this was related to Twitter. The stock rose +1500% intraday. Yes, +1500%. Of course it was only trading for a penny prior to the rumor. Somebody made a lot of money because 14.4 million shares traded hands compared to the average daily volume of 61,000 shares.

Priceline gained +13 on Friday after Lazard raised its price target to $1200. Note to CEO Jeffery Boyd, "It is ok to split your stock." There are only 51.5 million shares outstanding.

BlackBerry (BBRY) was back in the news on Saturday thanks to a Reuters article. Reuters said the company was in talks with Google (GOOG), Cisco (CSCO) and SAP AG (SAP). Reuters also listed Intel (INTC), LG Electronics and Samsung as parties to the talks. Private equity firm Cerberus has previously expressed interest according to Bloomberg. Reportedly the company has requested preliminary expressions of interest from potential buyers by the end of next week. BBRY shares closed at $7.69 on Friday.

Lockheed Martin (LMT) said it was planning to furlough 3,000 workers on Monday as a result of the government shutdown. The number of workers furloughed will increase each week until the shutdown is over. Some workers are prevented from working because their jobs are in government buildings that have been closed. Boeing (BA) also said it will begin "limited furloughs" next week. The Aerospace Industries Association said tens of thousands of defense workers are being forced off their jobs with no pay. BAE Systems and United Technologies (UTX) are also planning furloughs. As many as 15% of the 34,500 employees at BAE could be sent home. More than 1,000 BAE employees in the U.S. have already been laid off. UTX said a further extension of the shutdown could put 5,000 workers at risk.

Goldman Sachs believes there will be a grand bargain where the budget resolution and the debt ceiling will be combined together in a single solution. However, they do not believe it will happen before October 12th and more than likely it will be somewhere around the Oct 17th deadline set by the Treasury. They view that as a 60% probability. They also said there was the remote possibility that the budget issue could remain unresolved even after the debt ceiling had been dealt with. Goldman gave this a 30% chance of occurring.

There is also a decent chance that Congress might vote to suspend the debt ceiling until some future date. This is different that voting to raise it but only in the minds of lawmakers. They can still say with a straight face they did not vote to raise the debt ceiling. In theory this would appease low information voters that don't really understand what happened. You see most voters actually believe what politicians tell them.

Lastly, Congress is scheduled to go on recess the week of October 13th. It is amazing to look back and realize how many seemingly insurmountable hurdles were resolved in the days just prior to a congressional recess.

The president tried several times last week to force the stock market lower. In multiple sound bites he warned investors that "this shutdown is different." Prior government shutdowns have had little impact on the market with stocks rising in the month following a resolution. Analysts believe the president would like to see a plunge in the markets that would weaken republican resolve and allow democrats to win the battle.

Meanwhile lawmakers will spend the weekend looking for cameras and microphones to jump in front of and get their 5 minutes of weekend fame. There appears to be no urgency to solve the problems so next week could be a duplicate of last week only there will be less interest from the public. The lack of an actual calamity breeds complacency.

The shutdown and debt ceiling are only two of the challenges for the market. The third one is the earnings cycle. S&P Capital IQ said earnings growth estimates for Q3 are +3.3% and revenue is expected to increase +4.1%. Both of those numbers are better than Q2. However, there is a fly in the earnings soup.

FactSet reported that 82% of companies giving guidance have reduced expected earnings. That is the most for a quarter since they began keeping records in 2006. Thomson Reuters said that companies have reduced estimates over the last two quarters the most since 2001.

Somebody is wrong or the comps are so lackluster that even reduced earnings guidance is still +3.3% growth. With Q3 earnings beginning this week we will see pretty quickly over the next two weeks how this quarter is going to play out. Estimates for Q4 finally dropped into the single digits for +9.7% growth. I would definitely bet against that level coming to pass.

The market does not seem worried about Washington or earnings. The Dow was the only index to decline significantly at -185 points while the Nasdaq actually gained +26 points for the week. The S&P lost -3 points but that is hardly a material loss.

The S&P tested strong support at 1680 every day last week with an intraday plunge to 1670 on Thursday before recovering to close at 1679. Friday short covering and hope there might be a deal in Washington over the weekend pushed the index to a gain of +12 on Friday.

I view the solid support at 1680 as the red line for the market. As long as the S&P does not close significantly under that level the longer term market sentiment is still bullish. The short term sentiment is just reacting to the headlines and trying to scalp a few volatility trades.

The Dow continues to be the weakest index despite the +76 point gain on Friday. The Dow has lost ground repeatedly since the high on September 19th. The 15,000 level is round number support that almost failed on Thursday with the Dow closing at 14,996. Friday's rebound was simply short covering and probably some light bargain hunting.

The Dow is oversold but could become even more oversold with a drop to 14,880 and strong support. Since the headlines next week are not expected to be conducive to a change in sentiment I think we have a good chance of seeing that 14,880 level.

The Nasdaq plunged from the 13-year high of 3819 on Wednesday to 3753 on Thursday. That was a dramatic shift in sentiment but driven entirely by the Washington headlines. On Thursday afternoon and Friday the index recovered almost all of the drop to close at 3807 and only 12 points from a new high.

What this showed us is the strength of the support at 3750. That level has been tested numerous times over the last two weeks and held each time. Even the monster gap open lower to 3734 on Monday was immediately bought to close back at 3771.

Bullish sentiment for tech stocks is very high all things considered. Resistance remains the recent high at 3819 but I think that will be broken.

The Russell 2000 is the twin of the Nasdaq. There is solid support at 1065 and solid resistance at 1080. Several excursions outside that range eventually failed. The Russell closed at a historic high of 1087 on Tuesday but then gave back its gains to retest 1065 on Thursday. There has been volatility but the dip buyers are alive and well.

In normal Octobers the seasonal volatility usually occurs between the 19th and 28th as fund managers restructure portfolios for the October 31st fiscal year end. This year and this October are far from normal. How much of that seasonal trend we will see this year is unknown.

What we do know is that many fund managers are behind the curve and have failed to keep pace with the market gains. That could mean they are willing to hang on until the last minute in hopes of a Washington resolution producing one last climatic bounce. However, even if that happens there is a good chance we will see at least a brief sell the news event in the days that followed.

In the contrarian view some believe the fund managers have already shifted out of their losers and took profits in winners to cover those losses when the markets hit highs back in August. They believe the decline in late August was the portfolio restructure cycle.

Since nobody knows for sure we simply have to dance with the trend that brought us to this point. We should continue to remain bullish and view any Washington generated dip as a buying opportunity. Who knows, maybe earnings will be stronger than expected because the bar has been lowered too much. Time will tell.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"I believe there are no good stocks or bad stocks; there are only money making stocks. So there is no good direction to trade, short or long; there is only the money-making way to trade."
Jesse Livermore


Index Wrap

S&P is lower with Volatility Up; Nasdaq churns higher again.

by Leigh Stevens

Click here to email Leigh Stevens

The Nasdaq Composite (COMP) eked out another weekly gain for the fifth week running. Quite another story in the S&P 500 (SPX) and the Dow 30 (INDU) as they just finished a 3-week period of lower closing weekly lows. The recent decline isn't dramatic, with SPX so far holding key near support at 1680 and INDU finding buyers around 15000 support.

Volatility, as measured by the CBOE S&P Volatility Index (VIX) has gone from a recent low of 13 to 17.7 on Thursday; over the prior 10 trading sessions we've seen VIX jump about 36%. I don't anticipate LESS volatility ahead, the way things are going with the Congress. We do now have an earnings focus ahead as Q3 numbers start coming out. Good earnings may help offset some of the worry about a continued government shutdown or, worst, failure to increase the debt ceiling. I'm not hopeful that a default will be averted, based on what I'm reading.

Voters in rural districts where much of the strength of tea party conservatives lies seem to think that the United States even defaulting on its debt is no big deal. They don't see how it will impact THEM. This kind of thinking will change if the U.S. again goes into recession. But, being 'wrong' in that regard on this issue won't undue the damage that could be done.

I mostly rely on the chart picture, big and small. As I wrote in my most recent Trader's Corner article (10/3/13), the major indexes like SPX and COMP are very 'overbought' on a long-term chart basis (monthly) and there is an historical tendency for major tops to be made in the Sept-Oct. timeframe. See the aforementioned article.

The multiyear charts don't predict a major top so to speak but the analysis shown in my aforementioned (Trader's Corner) article would suggest that a major downside correction, especially in the tech-heavy Nasdaq, is 'due' or overdue. However, predicting exact timing for WHEN a large correction/pullback will occur in a major bull move is tough. Long-term charts suggest a downside reversal COULD start in the current month and this IS the month when the default issue will be settled, or not. It all depends on how events external to the Market play out. Stay tuned!



The S&P 500 (SPX) chart pattern shows the Index in short-term correction. SPX has held at recent lows at support implied by its 50-day moving average but is now trading under its 21-day average, which suggests possible further weakness. Early week trading ought to clarify relative strength or weakness ahead.

Near resistance is seen in the 1695-1700 area, with next resistance at the prior recent top in the 1730 area, extending to the upper end of SPX's uptrend price channel around 1740.

Very near support is at 1680, with further implied support at the up trendline at 1660, with next support at the 1640-1630 price zone or the cluster of prior lows at the most recent bottom.

SPX looks like it could start to rebound a bit in the short-term but outside political events will also be key. 'Inside' the Market news will be on Q3 earnings releases. Technically, a decisive downside penetration of 1680 and certainly also trendline support in the 1660 area would be bearish. A move back above 1700 that was sustained would be bullish.

Bullish sentiment (see my CPRATIO indicator above) remains higher in my estimation than I would expect, given the current political stalemate. It may be that traders are 'too' complacent and figure that Washington will resolve their current impasse. I'm not so sure they will, or at least I don't have that optimism, but stay tuned as to how this plays out.


The S&P 100 (OEX) chart looks to be a pivotal level. The short-term OEX trend is down but unlike big brother SPX, the S&P 100 is now AT support implied by its up trendline. If 745-743 gives way, especially on a Closing basis, then there's no 'obvious' chart support before the 730 area at the prior bottom.

I didn't highlight it, but key near resistance is likely to be found at a 'line' of prior OEX lows (support, once penetrated, 'becoming' subsequent resistance) in the 753 area. My first highlighted resistance, at the red down arrow, comes in at 760, then at 770-772.

OEX, along with SPX, also has had a pattern of moving from an overbought high to an oversold low as seen below. We don't have the oversold condition yet but stay tuned for this possibility.


The Dow 30 (INDU) chart remains bearish but the Average has found some buying interest as predicted in the 15000 area. Below 15000 next key support comes in around 14800, at the cluster of prior lows made at the last bottom.

Near resistance is seen in the 15200 area, extending to around 15290-15300.

Given the double top that formed in early-August to mid-September, it would not be at all surprising to see the prior LOW re-tested in the 14800 area; if support developed in this area it could indicate a broad 15650-14800 trading range in the Dow. 'Confirmation' of an INDU double top would occur with a daily Close below 14800-14776 (at the prior bottom) that wasn't reversed the next day.

A good number of the 30 stocks in the Dow remain in corrective patterns relative to their prior uptrends. A handful only of bullish exceptions are seen with BA, NKE, UNH, MMM and V.


The Nasdaq Composite (COMP) Index chart remains bullish. The only potential bearish element is that upside momentum has slowed as COMP has reached some technical resistance at the high end of its uptrend channel. Resistance is highlighted in the 3830-3850 area, with next resistance likely at 3900.

Near COMP support is seen at the 21-day moving average currently at 3758, with next support at 3700.

As prices trend sideways to higher, this is occurring on less relative strength, as the RSI has been gradually trending lower. This divergence sometimes turns out to occur ahead of a downside reversal. Sometimes, a more or less sideways move is simply a way that an index or stock will 'throw off' an overbought condition. Take your pick.

Currently, it doesn't look like the tech heavy Nasdaq will ever come down. Bullish sentiment keeps popping back up. I'm too much of a contrarian to buy into this rosy view of tech and the current love affair with social media. Stay tuned on the battle of the bulls versus bears. So far the bulls are winning or at least those shorting these stocks are not gaining anything but heartburn!


The Nasdaq 100 (NDX) chart remains bullish and the 'most' bearish thing that's apparent from the chart is that the advance has slowed at resistance implied by the upper end of NDX's broad uptrend channel. Near-term resistance is projected at the upper end of the channel line, currently intersecting at 3270, with resistance then extending to 3300.

Initial downside support is highlighted in the 3200 area, extending to 3150.

As in COMP, there is a potentially bearish RSI/price divergence as the RSI is trending lower as prices move sideways to higher. Such divergent trends sometimes forecast a pullback and sometimes mean little in terms of any substantial reversal or corrective action. I note this divergence as it warns me off from buying into NDX this far into a strong bull run until these stocks come off some. The march higher has slowed which is a slight warning note to bullish traders. Tech bubbles have been much in my past and when I was blinded by the bullish light it was usually trouble later. Stay tuned!


The Nasdaq 100 (QQQ) chart is bullish but again this week there's a slight bearish divergence with the On Balance Volume (OBV) indicator as OBV has been trending lower on balance while prices have trended sideways to higher.

Near resistance is highlighted at 80.1, extending to 80.6. Near support is at 78.5, then is highlighted on my chart in the 77.6 area; next support comes in around 76.

Daily trading volume spiked on Thursday as the Q's fell to support at the 21-day moving average. The subsequent rebound was limited but the next day and the end of the week saw some strength again. The bears are getting tired of shorting tech stocks and this stand in tracking stock for the whole Nas 100 index. It 77.6 is pierced expect the bulls to be racing for the exits as seen with a BIG jump in volume.


The Russell 2000 (RUT) chart is bullish but isn't following Nasdaq to ever new highs. It looks like RUT is stalled in the 1080-1088 level and this fact doesn't fill me with confidence for the Russell being a bellwether for a continued advance in Nasdaq. A decisive upside penetration of prior recent highs would suggest potential to as high as the upper end of RUT's broad uptrend channel line intersecting at 1122 currently.

Conversely, support is anticipated in the 1066-1060 area, then at the up trendline, currently intersecting at 1040.

I have no suggestion in terms of the Russell. Potential upside might be another 54-56 points from the 1066 Friday Close, versus potential downside of 26 points to trendline support. Of course, RUT has to pierce 1088 first before we could speculate on possible upside to the upper channel line. Meanwhile the RSI is trending lower as RUT goes sideways, which doesn't suggest an ideal bullish technical outlook.


New Option Plays

Apparel, Grocery, & Internet

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

(bullish ideas)


L Brands, Inc. - LTD - close: 62.08 change: +0.45

Stop Loss: 59.95
Target(s): 66.50
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings in mid November
New Positions: Yes, see below

Company Description

Why We Like It:
Previously known as Limited Brands, LTD is probably best known for its Victorias Secret and Bath & Body Works stores. This past week the National Retail Federation forecasted a healthy 2013 holiday shopping season but they warned that the dysfunction in Washington D.C. could sour consumer appetites to spend money. Thus far there doesn't appear to be any worry reflected in LTD's stock price. Shares have been showing relative strength and just closed at a new all-time, record high on Friday. Friday's move also looks like a bullish breakout past short-term resistance near $62.00.

I am suggesting a trigger to buy calls at $62.25. If triggered our target is $66.50 but we will plan to exit prior to LTD's earnings report in mid November.

Trigger @ 62.25

- Suggested Positions -

Buy the NOV $65 call (LTD1316K65) current ask $1.10

- or -

Buy the 2014 Jan $65 call (LTD1418a65) current ask $2.20

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 1.5 million
Listed on October 05, 2013

Whole Foods Market - WFM - close: 59.55 change: +0.66

Stop Loss: 57.90
Target(s): 64.75
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings in early November
New Positions: Yes, see below

Company Description

Why We Like It:
WFM is a high-end grocery store with a focus on natural and organic foods. The stock hit new all-time highs this past week after consolidating sideways and digesting gains for about two weeks (the last half of September). We believe the momentum continues. WFM spent the last couple of days hovering below round-number, psychological resistance at the $60.00 level.

I am suggesting a trigger to buy calls at $60.25. If triggered our target is $64.75. However, we will plan to exit prior to WFM's earnings report in early November.

Trigger @ 60.25

- Suggested Positions -

Buy the NOV $60 call (WFM1316K60) current ask $2.07

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 2.4 million
Listed on October 05, 2013

Yelp, Inc. - YELP - close: 73.22 change: +2.20

Stop Loss: 69.75
Target(s): 79.50
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings in very late October
New Positions: Yes, see below

Company Description

Why We Like It:
YELP operates Yelp.com, an urban city guide. It has been lumped in with the "social media" stocks lately. The stock has more than tripled this year as momentum traders lift the share price. This is definitely a technical, momentum trade. I am personally surprised that there hasn't been more analyst turning negative on YELP based on valuation concerns. Yet so far the street seems bullish on YELP. There is a risk that another large Internet player (maybe someone like Google) could launch a competing product.

In the meantime YELP could see more short covering. The most recent data listed short interest a 22% of the relatively small 37.8 million share float. Now after a two-week consolidation in the $65-70 zone YELP is breaking out to new all-time highs.

Friday's intraday high was $73.45. I am suggesting a trigger at $73.75. If triggered our target is $79.50. I do consider this an aggressive, higher-risk trade and therefore suggest readers use smaller positions to limit risk.

Trigger @ 73.75 *small positions*

- Suggested Positions -

Buy the NOV $80 call (YELP1316K80) current ask $5.10

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 3.75 million
Listed on October 05, 2013

In Play Updates and Reviews

ACT Hit Our Target

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market bounced on Friday following Thursday's sell-off to new two-week lows. There doesn't appear to be any Wall Street panic yet over the government shutdown.

ACT hit our exit target. GPOR and SLB hit our entry trigger. TFM was stopped out.

Current Portfolio:

CALL Play Updates

Anadarko Petroleum - APC - close: 93.90 change: +0.92

Stop Loss: 92.25
Target(s): 99.50
Current Option Gain/Loss: -53.7%
Time Frame: 3 to 5 weeks
New Positions: see below

10/05/13: APC managed to stay ahead of the S&P 500 with a +0.98% gain but Friday's range was inside of Thursday's range. Thursday's session was almost an inside day within Wednesday's range. What does this mean? It means investors are indecisive. The stock is coiling for a breakout but the breakout could go either way. More conservative traders may want to just abandon ship instead of risk the break lower. I am not suggesting new positions.

- Suggested Positions -

Long Oct $95 call (APC1319j95) entry $3.05*

09/21/13 new stop loss @ 92.25
*option entry price is an estimate since the option did not trade at the time our play was opened.


Entry on September 11 at $94.25
Average Daily Volume = 2.55 million
Listed on September 09, 2013

3D Systems - DDD - close: 54.14 change: +0.21

Stop Loss: 52.48
Target(s): 59.75 & 64.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks and two-to-three months
New Positions: Yes, see below

10/05/13: DDD really didn't see much action on Friday. Shares traded sideways and only closed with a +0.3% gain versus +0.7% in the S&P 500. The bigger picture is still positive so we will continue to wait for a breakout.

Earlier Comments:
DDD could see a short squeeze. The most recent data listed short interest at 33% of the 94.5 million share float. Tuesday's high was $56.23. We are suggesting a trigger to buy calls at $56.35. If triggered our short-term target is $59.75. Our longer-term target is $64.00. The Point & Figure chart for DDD is bullish with a $71 target.

Trigger @ 56.35

- Suggested Positions -

Buy the NOV $60 call (DDD1316k60)

- or -

Buy the 2014 Jan $60 call (DDD1418a60)


Entry on September -- at $---.--
Average Daily Volume = 4.1 million
Listed on September 24, 2013

Ecolab Inc. - ECL - close: 99.34 change: +1.58

Stop Loss: 97.75
Target(s): 105.00
Current Option Gain/Loss: Unopened
Time Frame: exit prior to earnings in late October
New Positions: Yes, see below

10/05/13: ECL reversed nearly all of Thursday's declines with a big bounce off its 20-dma. Shares rallied +1.6% to close near the top of its recent trading range. The stock now looks poised to breakout past round-number resistance at the $100.00 mark.

We are suggesting a trigger to buy calls at $100.25. If triggered we'll use a stop loss at $97.75. Our target is $105.00. We will plan to exit prior to ECL's next earnings report due sometime in very late October.

Trigger @ 100.25

- Suggested Positions -

buy the NOV $100 call (ECL1316k100)


Entry on October -- at $---.--
Average Daily Volume = 877 thousand
Listed on October 01, 2013

Gulfport Energy - GPOR - close: 67.41 change: +0.96

Stop Loss: 63.95
Target(s): 72.50
Current Option Gain/Loss: + 0.0%
Time Frame: exit PRIOR to GPOR's earnings in November
New Positions: see below

10/05/13: As we expected the bounce in GPOR continued on Friday. Shares hit our trigger at $67.10 and closed at a new all-time high. The $64.00-64.50 zone should be support. The next challenge is possible round-number resistance at the $70.00 level.

- Suggested Positions -

Long NOV $70 call (GPOR1316K70) entry $2.75


Entry on October 04 at $67.10
Average Daily Volume = 1.4 million
Listed on October 03, 2013

iShares Russell 2000 ETF - IWM - close: 107.02 change: +0.71

Stop Loss: 103.40
Target(s): 110.95
Current Option Gain/Loss: +20.0%
Time Frame: 6 to 9 weeks
New Positions: see below

10/05/13: Thursday's afternoon bounce in the IWM continued into Friday and the ETF added +0.66%. This looks like a rebound from its rising 20-dma. The IWM appears to have some short-term resistance at $107.50 and $108.00 but our multi-week target is $110.95. More conservative investors may want to consider raising their stop loss toward the $105 area.

Earlier Comments:
I'm suggesting the 2014 January $110 calls but you may want to use another month or strike that better suits your trading style.

- Suggested Positions -

Long 2014 Jan $110 call (IWM1418a110) entry $2.10

10/01/13 setting the bullish exit target at $110.95
09/30/13 buy-the-dip trigger hit at $105.25.


Entry on September 30 at $105.25
Average Daily Volume = 34.6 million
Listed on September 28, 2013

Ross Stores Inc. - ROST - close: 73.48 change: +0.32

Stop Loss: 69.95
Target(s): 77.50
Current Option Gain/Loss: Nov75c: + 6.1% & 2014jan75c: + 1.9%
Time Frame: 6 to 9 weeks
New Positions: see below

10/05/13: ROST bounced near short-term support again and posted a +0.4% by Friday's closing bell. Shares look poised to hit new all-time highs soon. More conservative traders may want to raise their stop loss higher.

Earlier Comments:
FYI: The Point & Figure chart for ROST is bullish with an $89 target.

NOTE: I'm listing our trade with an initial stop loss at $69.95 but more conservative traders may want to use a stop closer to $71.00 instead.

- Suggested Positions -

Long Nov $75 call (ROST1316K75) entry $1.13

- or -

Long 2014 Jan $75 call (ROST1418a75) entry $2.60*

*option entry price is an estimate since the option did not trade at the time our play was opened.


Entry on October 01 at $73.05
Average Daily Volume = 1.28 million
Listed on September 28, 2013

Starbucks Corp. - SBUX - close: 77.40 change: +0.53

Stop Loss: 75.75
Target(s): 79.75
Current Option Gain/Loss:(Oct75c:+ 93.2%) & 2014Jan75c: +61.5%
Time Frame: 4 to 6 weeks
New Positions: see below

10/05/13: SBUX has been consolidating sideways for two weeks now. Shares did close at their high for the day on Friday and the stock looks poised to breakout higher. We are aiming for $79.75. More aggressive traders could aim higher (maybe $82.00).

- Suggested Positions -

Oct $75 call (SBUX1319j75) entry $1.18 exit $2.28 (+93.2%)

- or -

Long 2014 Jan $75 call (SBUX1418a75) entry $3.25

10/02/13 adjust final target to $79.75
09/28/13 new stop loss @ 75.75, consider taking profits early!
09/19/13 new stop loss @ 73.90
09/18/13 new stop loss @ 73.40, adjust exit to $79.00
this morning we closed the Oct. $75 calls at the open.
09/17/13 prepare to exit the October $75 calls at the open tomorrow
09/17/13 new stop loss @ 72.40
09/14/13 new stop loss @ 71.75
09/11/13 SBUX at new highs. Cautious traders may want to lock in some gains.


Entry on September 05 at $72.35
Average Daily Volume = 3.0 million
Listed on September 04, 2013

Schlumberger - SLB - close: 90.01 change: +0.57

Stop Loss: 88.25
Target(s): 94.75
Current Option Gain/Loss: - 6.9%
Time Frame: exit PRIOR to earnings on Oct. 18th
New Positions: see below

10/05/13: Traders bought the dip in SLB near $89.00 again on Friday and the bounce carried shares above resistance near $90.00. The stock hit our suggested entry point at $90.25. If you missed it more conservative traders might want to wait for a rise past Friday's intraday high and buy calls when SLB hits $90.50.

Earlier Comments:
Please note that we only have about two weeks. We do not want to hold positions over SLB's earnings announcement on October 18th. FYI: The Point & Figure chart for SLB is bullish with a $113 target.

- Suggested Positions -

Long Nov $92.50 call (SLB1316K92.5) entry $1.88


Entry on October 04 at $90.25
Average Daily Volume = 6.3 million
Listed on October 02, 2013

Sohu.com Inc. - SOHU - close: 86.70 change: +4.12

Stop Loss: 81.75
Target(s): 88.50
Current Option Gain/Loss: +68.1%
Time Frame: 3 to 4 weeks
New Positions: see below

10/05/13: SOHU ended the week with a big push higher (+4.98%). The stock has rallied from Monday's low near $74.50 to almost $87.00 in the last five days (a +16% move). Shares are short-term overbought here. Readers will want to seriously consider taking profits right now with the bid on our call up to $7.40. We are still aiming for $88.50 and will raise our stop loss to $81.75.

Earlier Comments:
NOTE: I do consider this a more aggressive, higher-risk trade because SOHU can be a volatile stock. I am suggesting small positions to limit risk.

*small positions* - Suggested Positions -

Long Nov $85 call (SOHU1316K85) entry $4.40

10/05/13 new stop loss @ 81.75. More conservative traders may want to just take profits right now!
10/03/13 new stop loss @ 77.75


Entry on October 03 at $80.75
Average Daily Volume = 2.0 million
Listed on October 02, 2013

Tractor Supply Company - TSCO - close: 68.53 change: +0.33

Stop Loss: 65.75
Target(s): 74.00
Current Option Gain/Loss: + 6.6%
Time Frame: 6 to 9 weeks
New Positions: see below

10/05/13: Friday turned out to be a relatively quiet day for shares of TSCO. Shares edged up +0.48% and spent the entire day inside of Thursday's range. More conservative traders may want to tighten their stop loss again. I am not suggesting new positions at this time.

Earlier Comments:
It is possible that the $70.00 level could be round-number resistance but we're aiming for $74.00 between now and yearend. FYI: The Point & Figure chart for TSCO is bullish with an $87 target.

- Suggested Positions -

Long 2014 Jan $70 call (TSCO1418a70) entry $2.72

10/03/13 new stop loss @ 65.75
10/01/13 trade opened on gap higher at $68.04.
Trigger was $67.50


Entry on October 01 at $68.04
Average Daily Volume = 440 thousand
Listed on September 30, 2013

United Parcel Service - UPS - close: 91.00 change: +0.90

Stop Loss: 89.95
Target(s): 99.00
Current Option Gain/Loss: Unopened
Time Frame: exit prior to earnings on Oct. 25th
New Positions: Yes, see below

10/05/13: I was about ready to give up on UPS after Thursday's plunge toward $90.00. The stock rebounded and is back inside its recent trading range. We are still on the sidelines and waiting for a breakout past resistance near $92.00. We need to remain patient.

Earlier Comments:
We are suggesting a trigger to buy calls at $92.25. If triggered our target is $99.00 but we will plan to exit prior to the earnings announcement on October 25th.

Trigger @ 92.25

- Suggested Positions -

buy the 2014 Jan $95 call (UPS1418a95)


Entry on October -- at $---.--
Average Daily Volume = 2.6 million
Listed on October 01, 2013

Workday, Inc. - WDAY - close: 82.39 change: -0.01

Stop Loss: 79.75
Target(s): 89.00
Current Option Gain/Loss: -15.7%
Time Frame: 4 to 6 weeks
New Positions: see below

10/05/13: Friday's session in WDAY looks like an echo of Thursday. The early gains faded but traders bought the dip midday. Overall shares just continue to drift sideways. I remain cautiously bullish here. Cautious traders could raise their stops closer to Thursday's low ($80.88). I would wait for a rally past $84.00 or the September 19th high at $84.42 before initiating new positions.

Earlier Comments:
The stock could see a short squeeze. The most recent data listed short interest at 18% of the 65.2 million share float.

- Suggested Positions -

Long Dec $90 call (WDAY1322L90) entry $2.85


Entry on September 27 at $82.75
Average Daily Volume = 1.2 million
Listed on September 26, 2013

PUT Play Updates

Energizer Holdings - ENR - close: 92.85 change: +0.46

Stop Loss: 93.65
Target(s): 88.00
Current Option Gain/Loss: -55.0%
Time Frame: 3 to 4 weeks
New Positions: see below

10/05/13: ENR managed another bounce on Friday. Shares rallied toward resistance near $94.00 and its 20-dma and exponential 200-dma before paring its gains. We are turning more defensive here. Friday's intraday high was $93.57. We're adjusting our stop loss down to $93.65. More aggressive traders will want to keep their stop above $94.00.

- Suggested *Small* Positions -

Long Oct $90 PUT (ENR1319v90) entry $1.00

10/05/13 new stop loss @ 93.65


Entry on September 26 at $92.36
Average Daily Volume = 424 thousand
Listed on September 25, 2013

Longer-Term Play Updates

Chicago Bridge & Iron - CBI - close: 70.47 change: +0.78

Stop Loss: 64.00
Target(s): 79.00
Current Option Gain/Loss: +178.4%
Time Frame: 4 to 6 months
New Positions: see below

10/05/13: CBI outperformed the major indices on Friday with a +1.1% gain. Yet shares still look vulnerable to more profit taking. I would not be surprised to see a dip into the $66-68 zone.

I am not suggesting new positions at this time.

*Small Positions* - Suggested Positions -

Long 2014 Jan $65 call (CBI1418A65) entry $2.55

10/01/13 new stop loss @ 64.00, adjust target to $79.00
09/21/13 new stop loss @ 59.75
09/11/13 new stop loss @ 57.65
07/20/13 new stop loss @ 55.75
06/29/13 CBI might be poised to dip into the $57-55 zone again.
06/24/13 triggered @ 56.75
06/22/13 adjust entry trigger to $56.75
06/15/13 entry strategy change: change the breakout trigger at $65.25 to a buy-the-dip trigger at $56.50. Adjust the stop loss to $53.75.
Adjust the option strike to the 2014 Jan. $65 call


Entry on June 24 at $56.75
Average Daily Volume = 1.8 million
Listed on June 01, 2013

Vanguard FTSE Europe ETF - VGK - close: 54.55 change: -0.03

Stop Loss: 50.95
Target(s): 58.50
Current Option Gain/Loss: +11.1%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

10/05/13: The VGK has churned sideways in the $54-55 zone for the last two weeks. What's different this past week is that shares have been failing at their simple 10-dma (new short-term resistance). I suspect that we're going to see the VGK dip into the $53.50-53.00 area.

I am not suggesting new positions at this time.

Earlier Comments:
We are taking a multi-month time frame with this trade. If we are triggered our target is $58.50 but we'll adjust it as the trade progresses. FYI: The Point & Figure chart for VGK is bullish with a $63 target.

- Suggested Positions -

Long 2014 Mar $55 call (VGK1422L55) entry $1.80*

09/11/13 trade opens. VGK @ 53.60
*option entry @ 1.80 is an estimate. Ask closed at $1.75 yesterday
09/10/13 entry trigger met. open positions tomorrow.
09/10/13 new stop loss @ 50.95
08/24/13 adjust the option strike from 2013 Dec $55 to $2014 Mar $55.


Entry on September 11 at $---.--
Average Daily Volume = 3.0 million
Listed on August 10, 2013


Actavis, Inc. - ACT - close: 146.90 change: +2.41

Stop Loss: 139.40
Target(s): 148.50
Current Option Gain/Loss: +213.3%
Time Frame: 3 to 4 weeks
New Positions: see below

10/05/13: Target achieved.

ACT shot higher on Friday morning and almost hit $150.00 before paring its gains. Our exit target was hit at $148.50.

- Suggested Positions -

Oct $145 call (ACT1319j145) entry $1.50* exit $4.70 (+213.3%)

10/04/13 target hit
09/30/13 new stop loss @ 139.40
09/28/13 new stop loss @ 137.75
09/25/13 new stop loss @ 135.75
09/21/13 Shares of ACT were volatile right at the closing bell on Friday (09/20/13). Expected more volatility on Monday morning
*option entry price is an estimate since the option did not trade at the time our play was opened.


Entry on September 19 at $139.50
Average Daily Volume = 985 thousand
Listed on September 18, 2013


The Fresh Market, Inc. - TFM - close: 49.78 change: +1.78

Stop Loss: 48.75
Target(s): 42.00
Current Option Gain/Loss: -77.7%
Time Frame: 3 to 4 weeks
New Positions: see below

10/05/13: Our TFM trade has been stopped out. I could not find any news to account for Friday's display of relative strength. The move itself looks like short covering with the gap open higher on Friday morning. I warned readers on Thursday night that Thursday's close above its moving averages was bullish and that conservative traders may want to exit immediately.

Earlier Comments:
I am suggesting we keep our position size small because TFM can be a little bit volatile. Plus the most recent data listed short interest at 13% of its small 40.1 million share float.

- Suggested *small* Positions -

Oct $45 PUT (TFM1319v45) entry $0.45 exit $0.10 (-77.7%)

10/04/13 stopped out
10/02/13 new stop loss @ 48.75


Entry on September 25 at $47.50
Average Daily Volume = 591 thousand
Listed on September 16, 2013