Option Investor

Daily Newsletter, Monday, 3/17/2014

Table of Contents

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

Market Wrap

What a Relief

by Linda Piazza

Click here to email Linda Piazza
Market Internals


Markets reacted with relief today. The conclusion of this weekend's vote in the Crimea was a foregone one. What hadn't been known was the aftermath. After that vote, boycotted by anti-Russian citizens but reportedly approved by more than 83 percent of the possible voters and about 96 percent of those who did vote, no time was wasted. The Crimean parliament declared its independence from the Ukraine, formally requested annexation by Russia, and voted to nationalize state property in the Crimea. President Vladimir Putin recognized Crimea as a sovereign nation. The region will switch to the Russian ruble on April 1, some news sources reported.

Ukrainian and Russian defense ministers reportedly agreed on a truce until March 21, although subsequent actions did not inspire confidence. Russian troops continue to enter the Crimea, with Ukrainian military units there to be disbanded. The newly formed administration in Kiev in the Ukraine called up 40,000 reservists. About half of those recalled troops will serve in a newly formed national guard.

Meanwhile, other countries took their next steps. As expected, EU foreign ministers began by applying sanctions to individuals, with the first phase to include key politicians involved in the referendum in the Ukraine. When the EU Council meets later in the week, some experts believe that the list will be lengthened. Today, British Foreign Secretary Hague confirmed that others might be added, depending on how Russia reacts to this weekend's vote. Few expect the sanctions applied so far to make much difference, but they are being applied in a measured way, leaving room to increase the numbers of those individuals and businesses to which they might be applied.

The U.S. joined with the EU in applying restrictions by freezing assets and imposing travel bans to politicians and those that are believed to be involved in the Russian arms industry. In talk television this weekend, commentators noted that recent executive orders give President Obama the ability to engage in economic warfare, but both in the EU and here in the U.S., the first sanctions appeared to be concentrated on punishing political operatives and not businesses or business people. That may change in the future. Today, President Obama confirmed that the U.S., too, stands ready to impose further sanctions.

Vice President Joe Biden is set to visit Poland and Lithuania this week, departing today. He will meet with the presidents of both Poland and Lithuania as well as others. Many experts feel that Russia will continue efforts to destabilize the Ukraine, including economically. The concerted efforts of the U.S. and the Eurozone countries may be needed to help the Ukraine avoid defaulting on its debts, says Willis Sparks of the Eurasian Group. Such efforts may be needed to move the Ukraine toward eventual EU membership or Western leaders risk losing it to Russian influence, those experts warn.

The G7 meeting may have been pushed back to next week, according to some economic schedules. You may recall that these meetings were originally scheduled to be G8 meetings held in Russia, but the other seven countries uninvited Russia and will hold the meeting elsewhere.

When we didn't awake to a shooting war, futures rose and cash indices followed. The SPX rose 0.96 percent; the Dow, 1.13 percent; and the NDX, 0.95 percent. The RUT gained 0.58 percent, and the SOX, 1.25 percent. The DJT, the Dow Jones Transports, rose 0.89 percent. Financials as represented by the BKX, the KBW Bank Index, jumped 1.25 percent ahead of the Thursday release of the latest bank stress tests.

After this weekend had passed and ahead of this week's FOMC decision, yields on the ten-year treasuries rose to 2.6990 percent, and, on the thirty-year, to 3.63 percent. Gold futures (/GC)for April delivery settled at 1372.9, down 6.1 points as some of the risk premium evaporated after this weekend. Silver futures (/SI) for May delivery settled at 21.275, down 0.138. Copper futures (/HG) for May delivery settled at 2.9520, up 0.0015. Light sweet crude futures (/CL) for April delivery settled at 98.08, down 0.81. In a Bloomberg article, Seth Kleinman, Citigroup's head of energy research in London was quoted as claiming that Russia needs Europe's funds as much as Europe needs Russia's energy, somewhat cushioning the effect of the Crimean crisis on energy futures ("Commodities Cushioned from Crimea Crisis by Ample Supply").

Monday's Developments

This weekend, North Korea might have gotten jealous of the attention the Crimean situation was garnering. The Nikkei Asian Review reported that North Korea had fired 25 short-range missiles toward the Sea of Japan late Sunday. Those missiles were reportedly fired off North Korea's Sea of Japan. The Nikkei Asian Review also reported that manufacturers in Japan plan to hire 13.4 percent more new college graduates next spring.

In China, the government initiated plans to build infrastructure, including expanding the transportation network. Currency-related boards lit up with news that the Bank of China will expand the yuan's trading band to 2 percent, a possible development that had been discussed on those same boards in recent weeks.

Reflecting all these influences as well as reacting to the situation in the Crimea, Asian bourses turned in mixed performances last night. The Nikkei 225 dropped 0.35 percent, and the Hang Seng, 0.30 percent. However, the Straits Times rose 0.60 percent, and China's Shanghai Composite gained 0.96 percent.

In Europe, the CPI headed lower, not the preferred direction. European bourses saw a relief rally, however, after last week's losses. The FTSE 100 gained 0.62 percent; the DAX, 1.37 percent; and the CAC 40, 1.31 percent. Spain's IBEX 35 rose 1.66 percent, and Italy's FTSE MIB, 2.52 percent.

The Federal Reserve Bank of New York calculated the March Empire State Manufacturing Index to be 5.6, well below the expected 6.6 but above the prior result. The prior result had been 4.5. The Federal Reserve Bank of New York characterized that general business conditions number as "little changed," however, and noted that new orders, shipments, and inventories all rose. The employment components indicated small increases in both hours worked and employment levels. The index for capital spending proved particularly heartening, as that component rose to a several-month high. Indices related to pricing dropped but remained in positive territory, the bank was careful to note. Optimism remained "fairly strong," according to the bank but had eased from the prior month's even stronger reading. The bank plans a supplemental survey report to be released tomorrow, detailing the effects of weather on business early this year, among other conclusions.

More important to market sentiment was the surprise in the national capacity utilization and, especially, production numbers. January's had dropped sharply, and regional reports for February have shown some weakness. However, the Federal Reserve noted that February's capacity utilization rose to 78.8 percent from the prior 78.5 percent. That result slightly beat expectations of 78.7 percent. Meanwhile, industrial production jumped to +0.6 percent from the prior -0.3 percent. That beat the expected 0.2-percent.

Since weather was blamed for the sharp January declines in many economic reports, analysts wanted to see if the losses were reversed in February, and they were. The Federal Reserve noted in its report that February's gain in factory production was the biggest since last August. Of the major market groups into which the Federal Reserve breaks the data, none of the groups saw a month-over-month decrease. Breaking the groupings down further, the Federal Reserve noted that the production of automotive products reversed almost all of January's decrease. However, the production of appliances, furniture and carpeting declined. Manufacturers might be looking forward to better times since the production of materials requiring further processing by the industrial sector now measures 3.2 percent more than its year-ago level. Among the major industry groups--a different breakdown than the major market groups--production dropped in the mining and utilities categories.

Not everyone is ready to jump on the all-is-well bandwagon after this result. Some economists and market writers remained skeptical of this one-month reversal of the prior month's reversal. The government pointed out that overall, industrial production ranks at 101.6 percent of the benchmark 2007 average and is 2.8 percent above the year-ago level. Capacity utilization measured 1.3 percentage points below its 1972-2013 average, however. The Federal Reserve concluded that the various results show that much of the swing lower in January could now be attributed to the depressing effect of the brutal weather on January's numbers.

A few minutes later, the National Association of Home Builders (NAHB) and Wells Fargo delivered news that wasn't as encouraging, at least at first look. Paying attention to the conclusions of the NAHB offered more hope.

NAHB/Wells Fargo reported that its month-over-month diffusion index indicating builder confidence rose to 47 from the prior 46, but it failed to meet expectations of a rise to 50. Components for this index include Single Family Sales: Present; Single Family Sales: Next 6 Months; and Traffic of Prospective Buyers. While Single Family Sales: Present and Traffic each inched higher, Single Family Sales: Next 6 Months inched lower.

Examining the report by region, the role of weather-related causes did not appear to be the sole contributing factor to the disappointment. While the index for the Northeast, subject to the most brutal weather conditions, dropped to 29, the lowest number seen in at least a year, the index for the West also inched lower. Indices for the Midwest and South rose. Three-month averages for all four regions fell.

The NAHB concludes that weather as well as difficulty securing lots and finding labor continue to dampen these results. Builders are worried that they will not be able to meet demand for the coming buying season, the NAHB's chief economist noted, although traffic figures would seem to argue against that worry unless builders still believe weather impacts the traffic level. That's possible: even here in Central Texas, we've had an uncommon number of days of icy road conditions this winter, continuing into March when we're typically seeing weather well into the 80's.

The Bureau of Labor Statistics (BLS) released January's Regional and State Employment and Unemployment. The BLS summed up the report by saying that unemployment rates fell in 43 states and the District of Columbia, rose in one state and did not change in six states. Rhode Island's 9.2 percent unemployment rate was the highest among the states, while North Dakota's 2.6 percent unemployment rate was the lowest. All four regions--West, Midwest, South, and Northeast--saw "statistically significant" declines in unemployment rates, the BLS concluded. The national jobless rate of 6.6 percent was 1.3 percentage points below the year-earlier result.

Employment increased in 23 states and fell in 27 states and the District of Columbia. California, Illinois and Kentucky made up the states with the largest percentage decreases in employment while Texas, Ohio, and Arizona were the states with the largest percentage increases in employment. Over the last year, Texas added 322,400 jobs; California, 319,600; and Florida, 192,800.

Moody's weekly Business Confidence rose to 36.6 from last week's 36.1. Moody's data still suggest to Moody's analysts that the recent weaker economic data was due to terrible winter weather conditions. Sentiment still remains "consistent with an economy that is expanding well above its potential," the report concluded.

Story stocks today included Vodafone (VOD, 37.46, up 0.48 or 1.30 percent). VOD will acquire Ono, a Spanish broadband entertainment and communication company, for about $10 billion. The press release describes Ono as the market leader in high speed broadband in Spain. VOD expects the companies to cross sell to each other's customer bases and says the transaction will be accretive on an adjusted EPS basis from the first full year after completion.

Fannie Mae (FNMA, 3.76, down 0.37 or 8.96 percent) and Freddie Mac (FMCC, 3.74, down 0.37 or 9.00 percent) continued recent weakness after last Tuesday's revelation of a bill that would wind down the two agencies. Most experts believe the bill has little chance of passing, but the leaders of the Senate Banking Committee released details this weekend that apparently stirred up concerns again. Two controversial requirements in the bill include one setting up a governmental financial backstop in case mortgage-back securities go bad and another that would collect fees from users, with those fees devoted to the support of affordable housing. The fees would be split up between two existing funds and a third to be created.

Ahead of Alibaba's New York IPO, Yahoo (YHOO, 39.11, up 1.55 or 4.02 percent) added to Friday's gains, gains made despite the news last week that China was blocking Alibaba's smartphone-payment plans. YHOO owns a 24 percent stake in Alibaba. The Chinese tech company said it has begun the IPO process.

Herbalife (HLF, 53.50, down 4.54 or 7.82 percent) didn't join the celebration today. Concerns about the FTC's investigation hurt the stock.

General Motors (GM, 34.63, up 0.54 or 1.58 percent) added three new recalls, but the news didn't appear to harm the stock. These recalls were not related to the recent recalls concerning the ignition switch. GM said it would take a $300 million charge in the first quarter due to the four recalls. The CEO said that the company would change the way it handles recalls, admitting that "terrible things happened" because of the way previous defects were addressed.

Let's look at daily charts. Although the weekly charts will not be shown because of length considerations, the weekly charts of the SPX, Dow, NDX, Nasdaq, and RUT all produced potential reversal signals last week. Such signals do not constitute proof that the markets will turn down and end the long bull run, of course. Over the past six months, for example, we've seen several such potential reversal signals on the weekly chart followed by small pullbacks (sometimes after a further week of gains) or even by sharp gains when there was no follow-through on the bearish signal. All we know for certain when we see such signals is that we should be alert to the possibility of a pullback, perhaps after a week of steadying.


Those new to my Monday Wraps might find the following paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.

For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with rectangles, usually green for upside and red for downside. Orange rectangles are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.

As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher rectangle, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.

Legend for Keltner Channels and Moving Averages:

This legend references the SPX chart that follows, but the Keltner and -ema setup remains consistent across all the shown charts, so the colors and setup can be referenced here.

Annotated Daily Chart of the SPX:

Last week, the SPX sank beneath a declining 9-ema, all the way into a possible support zone on daily closes that now extends from about 1,830-1,845. Last week, that support held on daily closes. SPX prices then pushed up through the 9-ema this morning and managed a daily close at but not clearly above that moving average. If the SPX is to resume its rally pattern, daily closes need to be maintained back above that 9-ema, probably within another day or two. Today, that moving average appeared to be resistance on daily closes.

The Keltner resistance currently being tested probably stretches up toward about 1,867 because the 9-ema could be pushed up that high by any rapid climbs. If the SPX could sustain daily closes above 1,867, it theoretically sets a new potential upside target from about 1,887-1,906, with resistance on daily closes likely to kick in anywhere within that zone.

If the SPX should weaken instead and sustain daily closes beneath about 1,830, it sets a potential Keltner downside target at about 1,775-1,796. Of course, we know to watch out for interim historical or psychological support near 1,811-1,820 and then at 1,800, but the Keltner setup suggests that we should also evaluate the impact to our positions of a steeper drop to the next Keltner target if 1,830 is consistently breached on daily closes.

Annotated Daily Chart of the Dow:

Last week, the Dow sank beneath its 9-ema, producing several daily closes beneath that turning-lower moving average. If the Dow is to reinstitute its strongest rally pattern, it needs closing prices back above that moving average within a day or two. Today's close was at that moving average rather than clearly above it, so we need to see further trading to know whether that 9-ema now serves as resistance on daily closes.

The Dow's move higher this morning brought the Dow into an area of potential resistance extending from about 16,200-16,300. If the Dow can produce closing values above about 16,300, it sets a potential next upside target from about 16,530-16,650. We know to watch for interim round-number and historical resistance near 16,400, too, but the Keltner setup suggests that we should evaluate the viability of our trades if conditions are set for that higher target, too. Another higher potential target is also marked, in case the Dow can zoom past the marked resistance.

Nearby historical, psychological and potential Keltner support on daily closes extend down to about 16,000. If 16,000 is breached on consistent daily closes, next potential downside targets are 15,858-15,950 and 15,590-15,700. The Dow, with its narrow 30 components, tends to be pushed around a bit more than some other indices. It tends to overrun boundaries a bit more than some others, so that the 15,590-15,700 target could easily be pushed into a retest of the February low if the Dow begins a sharp retreat.

Annotated Daily Chart of the NDX:

In my opinion, the NDX never did break convincingly above the top of its expanding or broadening formation, a formation that warns us to be careful about assumptions because it can signal instability. The potential resistance on daily closes that converges from about 3,730-3,775 appears to be strengthening so that it would take either a sharp rally to pierce it or a long period of battering at the barrier to break it down. However, until the NDX produces consistent daily closes beneath about 3,600 and especially if the NDX can again sustain daily closes above the 9-ema, the possibility remains that investors and traders might buy the NDX component stocks and send the NDX higher to batter against that resistance again.

The NDX isn't as responsive to the 9-ema as are some other indices, but that doesn't mean that would-be bulls wouldn't like it better if the NDX could again maintain daily closes above that moving average. Today it served as resistance. That moving average can still be used as a benchmark as long as traders realize it's not as reliable as it might be on some other indices. The NDX tends to zoom from one side of its smallest (grey) Keltner channel to the other a bit more than some other indices.

Consistent daily closes beneath about 3,600 lessen the likelihood of an immediate NDX resistance test and increase the likelihood that the NDX could drop to its next potential downside target. Keltner channels set the potential next target at about 3,454-3,500, at a configuration that does have some resonance for the NDX. However, historical trading patterns would suggest some interim potential support near 3,525, too. If the NDX heads toward that target near 3,500, bears with profits should consider how they'll deal with a test of 3,525. A bounce attempt could be possible at that level unless the NDX just barrels through it.

Annotated Daily Chart of the RUT:

The RUT left a daily candle today that's generally considered a bearish candle, although the RUT has certainly run higher after producing such candles on other occasions. Those using the RUT as a market indicator should be alerted to pay attention, however.

RUT traders made a valiant effort today to keep RUT prices above the January swing high, and, therefore, above the 9-ema, too. However, the RUT traders deal with potentially strong resistance that extends up to about 1,200. Sustained daily closes above 1,200 suggest another shot at the all-time high achieved earlier this month, with the Keltner channels suggesting that the RUT will encounter potentially strong resistance on daily closes from about 1,207-1,225.

Unfortunately for those trying to gauge next direction, potential support on daily closes for the RUT extends all the way down to about 1,180. If consistent daily closes are sustained below about 1,180, a potential target from about 1,157-1,171 would be suggested. That particular configuration has been important in recent swing lows for the RUT, so its potential support could be important. Perhaps some traders might prefer watching the 50-ema rather than the peach-colored 45-ema upon which these channels are configured.

The Keltner setup suggests the possibility that the RUT could test 1,115-1,130 if it produces consistent daily closes beneath about 1,157. Historical and other support near 1,140-1,150 should not be ignored if the RUT heads beneath about 1,157, but neither should the potential for the RUT to retest the configuration that it tested in early February be ignored.

Annotated Daily Chart of the VIX:

The SPX's volatility index has itself been quite volatile, but it's broken upward out of its most recent consolidation zone from about 13.50-14.70. That zone is marked by the two horizontal black lines. Sometimes volatility measures get wonky during a quadruple witching week like this one. Still, equity bulls would prefer that the VIX sink back into that most recent consolidation zone or below it, while equity bears would prefer that the VIX stay above it or reach again toward 20-21. Keep it on your radar but don't use it to time markets.

Tomorrow's Economic and Earnings Releases

This week's important economic events are carried forward from Jim Brown's weekend Wrap.

TIC Long-Term Purchases was originally scheduled for today but appears to have been moved to tomorrow. To calculate this result, the Department of the Treasury subtracts the dollar amount of domestic purchases of long-term U.S. securities from the dollar amount of long-term U.S. securities purchased by foreigners. The prior report had measured -45.9B, but this month's reading is expected to be +23.4B.

Germany's ZEW Economic Sentiment tends to be closely watched. It will be reported at 5:00 AM ET tomorrow morning.

What about Tomorrow on the Intraday Charts?

Annotated 30-Minute Chart of the SPX:

Like many other indices, the SPX jumped higher this morning and then churned sideways. The SPX needs consistent 30-minute closes above about 1,862 before it sets a new upside target on the intraday chart. That target would be from about 1,867-1,871. Translating that to the daily chart, the SPX would then be challenging the top of the currently being tested resistance block on the daily chart. A higher potential target is also marked in case the SPX can produce consistent 30-minute closes above about 1,871. That one also corresponds to the next target on the daily chart.

Consistent 30-minute closes below about 1,855, however, set the potential for a drop down to retest last Friday's low, with support on 30-minute closes perhaps beginning to kick in ahead of a retest of Friday's low, at about 1,845. However, consistent 30-minute closes below about 1,840 suggest a test of the lowest potential target marked on that 30-minute chart.

Annotated 30-Minute Chart of the Dow:

The Dow also surged higher this morning and then trended sideways, churning out a choppy consolidation zone. Sustained 30-minute closes above about 16,275 set up a potential upside target of 16,326-16,367, with potential resistance on 30-minute charts in that zone as well as potential resistance on daily closes also showing up within that zone. Sustained 30-minute closes above about 16,367 set a potential upside target at 16,486-16,527 according to the 30-minute chart setup, but I would also certainly be aware of potential resistance from the early March swing high beginning to show up closer to 14,450, too.

Sustained 30-minute closes beneath about 16,210 and particularly below 16,200 sets up a potential retest of Friday's low, with potential support on 30-minute closes perhaps kicking in as soon at 16,100. A retest of 16,000 would be suggested if Friday's low is exceeded for any length of time.

Annotated 30-Minute Chart of the NDX:

Like the other indices, the NDX zoomed higher and then chopped sideways, creating a consolidation zone. Sustained 30-minute closes above about 3,680 suggest a potential upside target of 3,696-3,706, with a higher potential target also set if the NDX could sustain 30-minute closes above about 3,706.

The Keltner chart suggests that sustained 30-minute closes beneath about 3,663 set up a potential target near 3,626-3,636. A breach of last Friday's low of 3,626.86 for any length of time would suggest that the next lower target marked on the chart would become the next short-term potential target for the NDX.

Annotated 30-Minute Chart of the Russell 2000:

The RUT surged higher and then retraced most of the day's range. The 30-minute chart suggests that the RUT would need sustained 30-minute closes above about 1,190 to set a new short-term upside target, with that target at about 1,195-1,198, but likely to be pushed up toward 1,200 if it's tested. Sustained 30-minute closes above about 1,198 and particularly above 1,200 suggest a new short-term upside target near 1,207-1,211, where resistance seen on both 30-minute and daily charts might kick in.

If the RUT sustains 30-minute closes beneath about 1,186, the Keltner setup suggests a short-term downside target of 1,176-1,179. Failure to hold support there on 30-minute closes suggests a retest of Friday's low or maybe 1,166-1,170, where support on 30-minute closes might exist.

The long upper shadow left on the RUT's daily chart was a sign of selling into this morning's rally, but not all indices produced a long upper candle shadow on their daily charts. Still, the RUT offers a warning that should be watched. The 30-minute chart setup on the RUT and some other indices offers a conflicting view. That setup is sometimes seen prior to a push up through resistance. That push through the short-term resistance, if it occurs, would bring the indices up to test what could be strong resistance on daily closes. I suggest running "what if" scenarios for both directions, deciding what you'll do with your trades if markets break down instead of fulfilling their more hopeful short-term look.

The RUT as well as many other indices have been "gappy" lately as futures traders respond to overnight news and see at least initial follow through on the first prints in the morning. Predicting direction becomes problematic in news-driven markets, and we sometimes see "pop and drop" days such as that produced on the RUT. Someone was selling into gains, but was that to lower their long-term risk or just their risk ahead of this week's FOMC decision or even to reposition ahead of Friday's expiration?

Predicting how options positions will decay also remains problematic as risk premium fails to be released when expected. That may be particularly true this week with the FOMC meeting beginning tomorrow and lots of geopolitical strife to be assessed, too. Options positions that you normally could have expected to exit well ahead of this week's quadruple expiration may not behave as you anticipate during the middle of this week, even if prices land where you wanted them to land. If you're in complex positions waiting for decay to occur, it's a good idea to plan tonight whether you want to hold onto those positions through the FOMC announcement. The announcement could trigger that decay, but Thursday could then bring volatile price movement that would be difficult on positions, too. Make your decision while you have a calm space to think about it.

Linda Piazza

New Option Plays

Rising Defense

by James Brown

Click here to email James Brown


Raytheon Co. - RTN - close: 100.96 change: +0.87

Stop Loss: 98.40
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 4 to 5 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
RTN is in the industrial goods sector. The company is part of the defense industry. The defense stocks, as a group, have continued to maintain their bullish trend and RTN is one of the stronger stocks in the group. Traders were buying the dip near $98 and its 20-dma.

Tonight we are suggesting a trigger to buy calls at $101.25. More conservative traders may want to wait for a new high above $102.15 before initiating positions.

We will start this play with a stop loss at $98.40. I'm not setting an exit target yet but it will probably be in the $107-110 zone.

Trigger @ 101.25

- Suggested Positions -

Buy the APR $100 call (RTN1419D100) current ask $2.64

Annotated Chart:

Entry on March -- at $---.--
Average Daily Volume = 1.9 million
Listed on March 17, 2014

In Play Updates and Reviews

Monday Sees A Relief Rally

by James Brown

Click here to email James Brown

Editor's Note:

After falling last week the stock market produced a relief rally on Monday following the referendum in Crimea on Sunday.

IWM hit our entry trigger.

Current Portfolio:

CALL Play Updates

Chicago Bridge & Iron - CBI - close: 82.78 change: +1.80

Stop Loss: 80.90
Target(s): 89.50
Current Option Gain/Loss: -46.4%
Time Frame: 4 to 6 weeks
New Positions: see below

03/17/14: CBI shot higher with the market this morning. The rally stalled in the $83.20 area, below its 10-dma. I am not suggesting new positions at this time.

Earlier Comments:
Our target is $89.50. More aggressive investors could aim higher since the Point & Figure chart for CBI is bullish with a $111 target.

- Suggested Positions -

Long Apr $85 call (CBI1419D85) entry $2.80

03/04/14 triggered @ 84.50

Entry on March 04 at $84.50
Average Daily Volume = 1.16 million
Listed on March 01, 2014

Centene Corp. - CNC - close: 63.75 change: +0.69

Stop Loss: 61.75
Target(s): 67.75
Current Option Gain/Loss: -80.0%
Time Frame: 3 to 4 weeks
New Positions: see below

03/17/14: The bounce in CNC stalled near the $64 area but shares did manage to close up +1.0%. I am not suggesting new positions at this time.

We only have FOUR trading days left on our March calls.

- Suggested Positions -

Long Mar $65 call (CNC1422C65) entry $1.25

03/01/14 new stop loss @ 61.75
02/24/14 triggered @ 63.60

Entry on February 25 at $63.60
Average Daily Volume = 656 thousand
Listed on February 24, 2014

Greenbrier Companies - GBX - close: 46.81 change: +0.59

Stop Loss: 44.30
Target(s): April call target: $49.85, June call target: $53.50
Current Option Gain/Loss: Apr$50c: + 5.5% & Jun$50c: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: see below

03/17/14: GBX briefly traded to a new all-time high before paring its gains. Shares are on the verge of breaking out past resistance near $47.00.

Earlier Comments:
Please note that I am setting two targets. If you choose the April calls then plan to exit at $49.85. If you choose the June calls then we're aiming for $53.50.

- Suggested Positions -

Long Apr $50 call (GBX1419D50) entry $0.90

- or -

Long Jun $50 call (GBX1421F50) entry $2.00

03/13/14 opened at $46.25

Entry on March 13 at $46.25
Average Daily Volume = 608 thousand
Listed on March 12, 2014

Russell 2000 ETF - IWM - close: 118.06 change: +0.52

Stop Loss: 115.25
Target(s): TBD
Current Option Gain/Loss: -7.2%
Time Frame: exit prior to May expiration
New Positions: see below

03/17/14: Our new trade on the IWM was triggered quickly this morning. The IWM gapped open higher at $118.22 and spiked to $119.10 before trimming its gains. Our suggested entry point was hit at $118.25. It is interesting that the bounce today seemed to struggle with the IWM's simple 10-dma.

- Suggested Positions -

Long May $120 call (IWM1417E120) entry $2.50*

03/17/14 triggered @ 118.25
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on March 17 at $118.25
Average Daily Volume = 43 million
Listed on March 15, 2014

Lockheed Martin - LMT - close: 164.07 change: +1.65

Stop Loss: 159.90
Target(s): 169.75 & 174.75
Current Option Gain/Loss: -28.5%
Time Frame: exit prior to April option expiration
New Positions: see below

03/17/14: LMT produced a +1.0% bounce but shares remain below short-term resistance near $165.00 and its 10-dma. I am not suggesting new positions at this time.

We have two different targets. Our conservative target is $169.75. Our more aggressive target is $174.75. FYI: The Point & Figure chart for LMT is very bullish with a $221 target.

- Suggested Positions -

Long Apr $165 call (LMT1419D165) entry $4.20

03/04/14 triggered @ 164.35

Entry on March 04 at $164.35
Average Daily Volume = 2.3 million
Listed on March 03, 2014

Spirit Airlines - SAVE - close: 60.88 change: +1.65

Stop Loss: 57.25
Target(s): 65.00
Current Option Gain/Loss: -10.9%
Time Frame: 4 to 5 weeks
New Positions: see below

03/17/14: SAVE displayed relative strength with a +2.78% gain and a new closing high. If you were waiting for a new rally above $60 as your entry point then you got it today!

- Suggested Positions -

Long Apr $60 call (SAVE1419D60) entry $3.20

03/11/14 triggered @ 60.50

Entry on March 11 at $60.50
Average Daily Volume = 1.0 million
Listed on March 10, 2014

Constellation Brands Inc. - STZ - close: 81.86 change: -0.64

Stop Loss: 81.45
Target(s): Target for March calls @ $84.50
Target(s): Target for April calls @ $88.00
Current Option Gain/Loss: Mar$80c:+ 8.8% & Apr$80c: +15.1%
Time Frame: 6 to 8 weeks
New Positions: see below

03/17/14: STZ underperformed the market with a -0.77% decline thanks to a downgrade. Goldman Sachs downgraded their rating on the stock from a "buy" to a "neutral". The intraday low was $81.51. Our stop loss is at $81.45. I am not suggesting new positions at this time.

We have FOUR days left on our March options.

Our target to exit the March $80 calls is STZ at $84.50.
Our target to exit the April $80 calls is STZ at $88.00.

- Suggested Positions -

Buy the MAR $80 call (STZ1422C80) entry $1.70

- or -

Buy the APR $80 call (STZ1419D80) entry $3.30

03/08/14 new stop loss @ 81.45
move the target to exit the March calls to $84.50
move the target to exit the April calls to $88.00
03/01/14 new stop loss @ 79.65
02/25/14 new stop loss @ 78.75
02/22/14 new stop loss @ 77.80
02/18/14 new stop loss @ 77.40
02/13/14 new stop loss @ 76.40
02/12/14 triggered @ 79.00

Entry on February 12 at $79.00
Average Daily Volume = 1.5 million
Listed on February 11, 2014

Varian Medical Systems - VAR - close: 84.64 change: +0.39

Stop Loss: 83.40
Target(s): 89.75
Current Option Gain/Loss: -32.6%
Time Frame: 4 to 6 weeks
New Positions: see below

03/17/14: The early morning gains faded and shares of VAR closed below resistance near $85.00. I am growing more defensive as VAR continues to struggle with resistance at $85.00.

The Point & Figure chart for VAR is bullish with a $91 target.

- Suggested Positions -

Long Apr $85 call (VAR1419D85) entry $2.08

03/11/14 triggered @ 85.05

Entry on March 11 at $85.05
Average Daily Volume = 573 thousand
Listed on March 08, 2014

VMware, Inc. - VMW - close: 109.74 change: +4.24

Stop Loss: 103.80
Target(s): 114.00
Current Option Gain/Loss: +100.0%
Time Frame: 4 to 6 weeks
New Positions: see below

03/17/14: VMW garnered new analyst coverage with a "buy" rating and a $125 price target. Shares responded with a +4.0% surge to new one-year highs.

Traders have a choice to make. Do you take profits now with VMW hovering at potential round-number resistance at the $110 level and our option up +100%? Or do you hold on, willing to endure a likely pullback, and continue to aim for $114.00?

I am not suggesting new positions at this time.

The simple 10-dma has risen to $104.00. We will adjust our stop loss to $103.80.

Earlier Comments:
Our target is $114.00. More aggressive traders could aim higher. The point & figure chart just produced a brand new triple-top breakout buy signal this month and is forecasting at $121 target.

- Suggested Positions -

Long Apr $105 call (VMW1419D105) entry $3.50

03/17/14 new stop @ 103.80, traders may want to take profits now
03/11/14 triggered on gap higher at $104.08, suggested entry was $103.55

Entry on March 11 at $104.08
Average Daily Volume = 2.0 million
Listed on March 10, 2014

Workday, Inc. - WDAY - close: 101.57 change: +0.66

Stop Loss: 98.70
Target(s): 110.00-115.00
Current Option Gain/Loss: -32.5%
Time Frame: 4 to 6 weeks
New Positions: see below

03/17/14: I am growing more concerned with our WDAY trade. The early rally faded and WDAY retested support near $100 before bouncing again. There is clearly a bearish trend of lower highs in place with short-term resistance at the 10-dma. Traders will want to wait for a rally past the 10-dma (currently near 103.15) before considering new positions.

Earlier Comments:
Our target is the $110-115 zone. We will tentatively set an exit target at $110.00 for now. The stock could move quickly. The most recent data listed short interest at 20% of the 80.2 million share float.

- Suggested Positions -

Long Apr $105 call (WDAY1419D105) entry $4.30

03/13/14 triggered on gap higher at $103.82. plan was a trigger @ 103.25

Entry on March 13 at $103.82
Average Daily Volume = 1.9 million
Listed on March 12, 2014

PUT Play Updates

Akamai Tech. - AKAM - close: 59.80 change: +0.27

Stop Loss: 61.05
Target(s): 55.10
Current Option Gain/Loss: -25.3%
Time Frame: 3 to 4 weeks
New Positions: see below

03/17/14: AKAM spiked higher with the market's rally this morning. Yet the rally in AKAM failed near the short-term trend of lower highs. I am inching our stop loss down to $61.05.

- Suggested Positions -

Long Apr $57.50 put (AKAM1419P57.5) entry $1.42

03/17/14 new stop @ 61.05
03/11/14 triggered @ 58.95

Entry on March 11 at $58.95
Average Daily Volume = 3.0 million
Listed on March 10, 2014

Charter Communications - CHTR - close: 126.49 change: -0.51

Stop Loss: 127.05
Target(s): 1st target: 120.50, 2nd target: $116.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 5 weeks
New Positions: Yes, see below

03/17/14: CHTR underperformed the market with a -0.4% decline on Monday. Shares look poised to retest support near $125.00 soon.

I am suggesting a trigger to open bearish positions at $124.60. If triggered I am setting two different targets. Our conservative target is $120.50, the February low. Our more aggressive target is $116.00. FYI: The Point & Figure chart for CHTR is bearish with a $110 target.

Trigger @ 124.60

- Suggested Positions -

Buy the APR $120 PUT (CHTR1419P120)

Entry on March -- at $---.--
Average Daily Volume = 2.5 million
Listed on March 13, 2014

State Street Corp. - STT - close: 65.44 change: +0.71

Stop Loss: 65.25
Target(s): 60.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

03/17/14: STT spiked up toward $66.00 this morning and then spent the rest of the day fading lower. I don't see any changes from the weekend newsletter's new play description on STT.

Earlier Comments:
I am suggesting a trigger to buy puts at $63.90. If triggered our short-term target is $60.25. More aggressive traders could aim lower. The Point & Figure chart for STT is bearish with a $53 target.

Trigger @ 63.90

- Suggested Positions -

Buy the Apr $65 PUT (STT1419P65)

Entry on March -- at $---.--
Average Daily Volume = 2.9 million
Listed on March 15, 2014

Twitter, Inc. - TWTR - close: 52.05 change: +0.13

Stop Loss: 56.15
Target(s): 46.50
Current Option Gain/Loss: +13.8%
Time Frame: 3 to 5 weeks
New Positions: see below

03/17/14: It was an interesting day for shares of TWTR. The stock did not participate in the market's surge higher this morning. Instead the stock chopped sideways and almost tagged its exponential 200-dma before bouncing. TWTR spent most of the session inside the $51.40-52.20 zone. I would not be surprised to see a bounce but the $54.00 area should be overhead resistance.

(Weekend comments)
I do expect that TWTR will see a short-term bounce on its test of the $50.00 mark. More conservative traders may want to take profits there anyway.

Earlier Comments:
TWTR currently has 544.7 million shares outstanding. There is a major lock up expiring on May 6th when another 474 million shares will come available for sale by insiders. It seems unlikely that TWTR is going to rally ahead of such a massive lock up expiration.

TWTR can be a volatile stock. Therefore we are suggesting small positions to limit risk.

- Suggested Positions -

Long Apr $50 PUT (TWTR1419P50) entry $1.80

03/15/14 adjust exit target from $50.25 to $46.50
03/12/14 trade opens at $54.25

Entry on March 12 at $54.25
Average Daily Volume = 11.4 million
Listed on March 11, 2014