Option Investor

Daily Newsletter, Wednesday, 6/18/2014

Table of Contents

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

Market Wrap

Fed Disappoints, Market Rallies Anyway

by Keene Little

Click here to email Keene Little
Today's FOMC meeting did not give the market anything to cheer about but it cheered anyway. Now we're left to wonder if the afternoon rally was real or just a head-fake break.

Wednesday's Market Stats

The market had been chopping higher off last week's low and especially for indexes like the DOW and SPX it looked like nice bear flag patterns. The setup was for a selloff following the FOMC announcement. The bulls had a different idea and blasted the shorts out of the water this afternoon. When technical patterns fail they tend to fail hard and that's what happened to the bear flags today.

The market was essentially on hold the past week while waiting for the gray-haired lady from the Fed to sprinkle some more pixie dust all over the market and make the bulls feel happy. It worked and even though the Fed is continuing their taper program (reducing their asset purchases by another $10B/month) and even though the FOMC statement was less optimistic than the market expected to hear, the market rallied anyway. Obviously there was an agenda to rally the market regardless of what the Fed said or didn't say. After all, this is opex week.

The Fed noted consumer spending is weaker than they would like to see and they're now thinking an economic growth rate of 2.1%-2.3%, down from the 2.8%-3.0% that it provided in March. If the Fed follows their normal course, that growth estimate will again be ratcheted lower in the fall.

In Yellen's press conference, she assured us that the stock market is not overvalued and that the economic slowdown that we've seen in the first half of the year is over. We can now expect better growth in the 2nd half. Excuse me when I say my BS meter pegged to the right on her statements. The Fed is wrong about 100% of their economic calls. 100%. At the top of the tech bubble Greenspan felt the market was fairly valued and didn't have a clue what was happening and how the Fed's easing (for Y2K concerns) was the last straw that helped the bubble burst. At the top of the housing market Bernanke said we weren't in a housing bubble and that prices were not overvalued. These people are worthless as predictors and yet the market eats their words up as if they came down from the Mount. I don't get it but the only important thing to remember is the mood of the market and whether it will ignore bad news and rally. When the market is selling on good news then you know the mood is souring.

Speaking of mood, in the beginning of June I saw a chart of the Investors Intelligence Sentiment, which is a measure of how many financial newsletters are bullish vs. bearish and two weeks ago the number was 45. As you can see on the chart below, whenever the measure got to 42 or above it was considered bearish from a contrarian perspective. The number is likely higher today than it was in early June and at or above the January high at 46. That high of course led to the sharp market decline into February and the two previous highs at 42, in October 2007 and May 2011, also led to significant market declines. Again, from a contrarian perspective this is not where you want to be bullish the stock market.

Investor's Intelligence Sentiment, 2006-present, chart courtesy Pension Partners

There's another interesting sentiment chart that can be found at CNN Money (cnn.com/data/fear-and-greed), which uses several different measurements to come up with the index value. It's currently at 94 on a scale of 1 to 100. The high reading matches previous highs since 2012, as can be seen at the bottom of the chart, and what's scary for bulls is how quickly sentiment shifted to Extreme Greed. It's not only high but it seems to have sucked everyone back into the bull camp remarkably quickly. There's simply no question by many that the market is heading higher.

Fear & Greed Index, chart courtesy CNN Money

If you go to the site and check this index out, you'll see you can open the individual measures and I've copied just two of them below. The top one on the chart below shows the spread between junk bonds and safer investment-grade corporate bonds. This essentially shows no fear by investors in junk bonds (trying to get higher yield and at the moment there's a lot of risk for very little return). This narrow spread has been seen at previous important market highs, such as in 2007. The put/call ratio at the bottom is not quite as low as it was at the end of December but again, when many are convinced the rally will continue they're buying call options to play it. The market rarely accommodates the majority for long.

Fear & Greed Index, Junk Bond Demand and P/C Ratio, chart courtesy CNN Money

Today we got a new multi-year low in the VIX and as a component of the Fear & Greed Index it has helped drive the index into the Extreme Greed zone. The chart below is what I'm tracking and just as the rapid rise to extreme greed is a dangerous sign, so too is the collapse in the VIX the past two days. There's simply no fear out there and most feel there is no need to buy put protection. Why bother? The market's going to the moon! Well, at least SPX is going to 2000. I mean everyone knows that's going to happen for sure. This can go on for a long time and SPX could head for 2200 before it's done rallying but when you combine all these sentiment indicators it's a risky bet on the long side. The VIX is now less than a point from where it bottomed in 2007.

Volatility Index, VIX, Daily chart

A chart I've shown before is another reason why it's hard to believe in the upside. While it could continue much higher, chasing it higher from here is akin to playing Russian roulette -- you could do just fine but I consider the reward potential not worth the larger risk. Since new 52-week highs peaked in March 2013 the 10-day moving average of this measure started to decline until a lower high was made in December as the market pressed to new price highs. Since December the measure of new 52-week highs has dropped even lower while the NYSE has continued to rally higher. This is a clear indication the indexes are making new highs on the backs of fewer and fewer participating stocks. This is why the average stock has not kept up with the indexes themselves. This is a strong indication the rally is in trouble and the longer the divergence continues the stronger will be the decline. This chart should have a sign on it "Danger Will Robinson."

NYSE vs. New 52-week highs, Weekly chart

So with that let's look at what the indexes are doing. The above information is good to know since it tells you whether you're trading with or against the prevailing winds. But price is king and all of our chart patterns are based on price so that's what we analyze.

Starting with the weekly chart of SPX it continues to push up against the top of its parallel up-channel from the October 2011 low, currently near 1954. It had pushed about 6 points above the line last week so another similar throw-over would be to about 1960, about 2 points above today's high. The top of its parallel up-channel from April is near 1970 so that gives us an upside target zone to watch for a possible final high. Between the over-the-top bullish sentiment and the bearish momentum and other market breadth indicators I think it's better to be looking for a top rather than participating in the rally (unless you're able to watch it during the day and get quickly if you have to).

S&P 500, SPX, Weekly chart

Shown on the daily chart below, there's another parallel up-channel from February, the top of which is currently near 2004 and that's the bullish potential if we get more of a blow-off top than currently expected. The top of the up-channel from April is near 1972. Above 1972 would be more bullish for the run up to 2000 that most traders are expecting to see. The wave pattern is messy and therefore projections based on the wave count can only be used to identify levels of interest to see how price behaves around them. One thought for the wave count, different from what I'm showing, calls for two equal legs up from February at 1960, which would be the 6-point throw-over above the top of its up-channel from 2011, making it a strong level of interest. With today's high at 1957.74 that's not much higher.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1972
- bearish below 1925

The 60-min chart below shows another potential upside target, at 1964, which is where the 5th wave of the leg up from May 15th would be 162% of the 1st wave. Between a few different wave count ideas, price projections and tops of up-channels I'm thinking SPX could top out in the 1960-1972 area. The risk in thinking about any more upside is that it's been common to see the day after FOMC reverse the post-FOMC afternoon move, which means down in this case. It's possible a decline could start out of the gate Thursday morning.

S&P 500, SPX, 60-min chart

At today's high at 16911.41 it came within about a point of the 78.6% retracement of last week's decline. I've mentioned this retracement level many times in the past, especially as it relates to the DOW's high retracements before turning back down. Whether it turns back down immediately this time or not is something we'll find out quickly Thursday morning. Just beware of that particular retracement level (16912.80). Other than that I see trendline resistance near 16970 and 17070. In between there's century and millennial resistance at 17K, another level that most traders will now be achieved.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,000
- bearish below 16,700

When the NDX was rallying into its high on June 9th I had an upside target near 3825 that I liked. It stopped short of that level, hitting a high at 3804, but now might have another shot at it. This is where the 127% extension of the previous decline is located (3826.51), a common reversal level, and it would be another back-test of its broken uptrend line from June 2013 - February 2014, which it tested into the June 9th high but was rejected. It's now trying again with bearish divergence (so far). As with the other indexes, it's now important for the bulls to defend last week's lows (NDX 3751) since a break of those lows would be a good indication the top is in place.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 3827
- bearish below 3738

Today's high for the RUT, at 1183.38 is less than 2 points from its 78.6% retracement of its March-May decline, at 1184.94, so that level deserves to be watched carefully. I've been saying for a long time that the RUT's price pattern is a choppy mess and was the one supporting the idea we'd get a new high following the choppy decline from May. That potential still exists, especially if it gets above 1185 and holds above. A break below 1154 would be strong indication the bounce high is in place.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1185
- bearish below 1154

The 30-year yield, TYX, has been struggling around its downtrend line from December 31st, which is where it closed today and is now also battling its broken uptrend line from July 2012 - May 2013, which it hit yesterday but closed back down today. It's currently bouncing between its 20-dma, at 3.406, and its 50-dma, at 3.431. I suspect a break below Monday's low at 3.83 would lead to lower prices, in which case it could break to new lows. A rally above its June 5th high near 3.5 would be more bullish but at the moment I'm leaning to the downside on bond yields. I think they have a long way to drop this year.

30-year Yield, TYX, Daily chart

There's been very little movement in the U.S. Dollar over the past 3 weeks and it's in the middle of its 9-month trading range between 79 and 81.50. Still looking for higher, eventually.

U.S. Dollar contract, DX, Weekly chart

Monday's high for gold, at 1285.10, was a little shy of the apex of its previous sideways triangle, near 1292, that ran from April through May. The apex is typically strong S/R when back tested following the break of the triangle so in this case it's viewed as a resistance level. It poked above its downtrend line from March, near 1273 at the moment, but failed to get back above its 50-dma, at 1286 on Monday and currently at 1285. The 50-dma has held down every rally attempt since early May. Gold would be more bullish above 1292, although gold bulls would have a tough fight up until its downtrend line from October-November 2012, near 1322, but the larger pattern continues to support another leg down.

Gold continuous contract, GC, Daily chart

Last Thursday's rally in oil was a strong breakout from its ascending triangle that ran from March to the truncated low on June 5th. The minimum upside projection for the breakout is to the 110-112 area and any higher above 112 would be an even larger breakout since it would be above the top of the large sideways triangle running from May 2011, shown on its weekly chart below. If that happens (more than just a head-fake break above it) we could be looking for oil to rally up to 140-150 to challenge its July 2008 high near 147. While the stock market and oil tend to trade more in synch than out of synch, a strong rally in oil this time could put a major squeeze on a fragile global economy, which is already in trouble. At the moment I do not believe oil will rally above 112 but I'll be watching closely for evidence that it will.

Oil continuous contract, CL, Weekly chart

Thursday morning we'll get the usual unemployment claims data and then at 10:00 AM we'll get the Philly Fed and Leading Indicators, two reports that will provide a little more information about how our economy is doing. The Philly Fed is expected to show some slowing while the Leading Indicators is expected to remain flat.

Economic reports and Summary

The positive reaction to the FOMC announcement looks bullish, especially coming out of a corrective base following last week's low. The pullbacks are getting smaller and smaller and the new highs are occurring on weaker market breadth, a combination that typically is a sign of topping rather than accelerating higher. We could see opex week continue to push higher into the end of the week but with the sentiment picture so bullish and market breadth/momentum weakening I think it's ripe for a market top. Whether the top occurs becomes buying simply peters out or we get some outside event that scares the market, it's likely very close now.

Most market participants expect SPX to hit 2000 and the DOW to hit 17K. It could easily happen from here since neither level is far away. But when too many expect something to happen we often see the market disappoint the many. Will that happen this time? The pieces are in place for a top at any moment but bears need to stay aware of the upside potential.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Option Plays

Financial Strength

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)


Ameriprise Financial - AMP - close: 118.20 change: +1.28

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
AMP is in the financial sector. The company, and its subsidiaries, provides a range of financial products including advice and wealth management. The company had a record year in 2013 and it looks like the momentum has continued into 2014. The company' last earnings report was its Q1 results, reported on April 28th. Wall Street was expecting a profit of $1.88 per share on revenues of $2.84 billion. AMP delivered $2.04 with revenues rising +11% to $3 billion.

AMP's Q1 results were a +19% improvement from a year ago. Furthermore both revenues and margins are improving. AMP raised its dividend 12 percent to 58 cents (currently at a 2.0% yield) and announced a $2.5 billion stock buy back program.

Technically shares of AMP are in a long-term up trend and just recently broke out from a five-month consolidation. Traders have already jumped in to buy the dip at prior resistance near $115.00.

Tonight we're suggesting a trigger to buy calls at $118.80.

Trigger @ $118.80

- Suggested Positions -

Buy the Sep $120 call (AMP140920c120) current ask $3.90

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

Annotated Chart:

Weekly Chart:

Entry on June -- at $---.--
Average Daily Volume = 823 thousand
Listed on June 18, 2014

In Play Updates and Reviews

Fed Gives Stocks Another Lift

by James Brown

Click here to email James Brown

Editor's Note:

The markets rallied following the FOMC announcement and Yellen's press conference on Wednesday afternoon.

DWRE hit our entry trigger.

BA and BBH hit our new stop losses.

Current Portfolio:

CALL Play Updates

Anadarko Petroleum - APC - close: 109.58 change: +2.17

Stop Loss: 99.90
Target(s): To Be Determined
Current Option Gain/Loss: + 55.2%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: APC was showing relative strength today with a +2.0% gain. That outpaced the energy ETFs and the broader market indices. Shares look poised to breakout past short-term resistance near $110 soon.

Earlier Comments: June 10, 2014:
APC is in the basic materials sector. The company is a very active oil and natural gas producer. They have assets in the Rocky Mountains, the Southern U.S., the Gulf of Mexico, and Alaska. Plus, APC is active internationally with assets in Algeria, Brazil, China, Colombia, Ghana, Liberia, Mozambique, New Zealand, Sierra Leone, and South Africa. Altogether APC has a strong onshore and off-shore portfolio.

The company's latest earnings report on May 5th was better than expected. Wall Street was expecting $1.14 per share. APC delivered $1.26. APC said they set record volumes in the quarter at 819,000 barrels of oil equivalent (BOE) per day. Management went on to raise their full-year sales-volume. A week later they increased their dividend by 50% from 18 cents to 27 cents per share.

APC could end up a big liquefied natural gas (LNG) producer with their assets in Mozambique (Southeast Africa). Last year APC drilled two natural gas off-shore wells. This year they could drill up to eight new wells. The company recently upgraded their view on how much recoverable gas in their northern Mozambique assets to 50 trillion to 70 trillion cubic feet. APC is developing an LNG project and plan to deliver their first LNG cargo in 2018.

One of the biggest headlines for APC has been its settlement over the TROX litigation. This refers to a large lawsuit over the bankrupt Tronox company, which was spun-off from APC's Kerr-McGee division. Previously the estimated penalty range for this TROX lawsuit was in the $5.15 billion to $14.17 billion with many analysts estimating the final results would probably be around $10 billion. On April 3rd this year APC reported they would settle this for $5.15 billion, the very low end of the range and the stock exploded higher. Getting past this TROX liability has removed a very dark cloud for the company and the stock price.

It is worth noting that APC still has potential legal risk from the April 2010 Macondo well blow out. BP Plc was the operator and majority owner of the well but APC did own 25% of it. The U.S. judges are arguing that APC will be held responsible for its 25% of the penalties. The final numbers could be huge. The U.S. Clean Water Act allows the government to fine the companies $1,100 per barrel of oil spilled into the Gulf. Plus, they could add another $4,300 penalty per barrel for gross negligence. Right now BP is arguing with the courts over how much oil was spilled. The U.S. is claiming 4.2 million barrels of oil escaped into the Gulf of Mexico. BP estimates only 2.45 million barrels. APC management has suggested they may not be fined for any gross negligence penalties since they did not have any direct operational involvement. The penalty phase for this lawsuit is scheduled for January 2015. This issue is clearly not stopping the rally in shares of APC today.

Technically shares of APC have been consolidating sideways under resistance near $105 with a bullish trend of higher lows. Now the stock is on the verge of breaking out.

- Suggested Positions -

Long NOV $110 call (APC141122C110) entry $4.80*

06/11/14 APC hit our trigger at $105.25
rumors this morning that XOM might buy APC.
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on June 11 at $105.25
Average Daily Volume = 2.8 million
Listed on June 10, 2014

Capital One Financial - COF - close: 81.65 change: +0.75

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +45.6%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: COF rebounded from support near $80.00 and surged to a +0.9% gain. The stock looks ready to hit new highs.

Earlier Comments:
COF is in the financial sector. The company provides financial services and products in the United States, United Kingdom and Canada. They're probably best known for the Capital One credit cards.

The financial sector took a leadership role in today's widespread market rally. The group has been lagging the big cap indices the last few weeks. If financials resume their up trend it's going to be a rising tide that helps lift shares of COF to new highs.

Financials should also benefit from the big picture view that interest rates will rise. Some of the federal reserve governors have been hinting that the Fed may have to raise rates sooner than expected. If rates do start rising then investors could start buying financials ahead of this trend.

Credit card companies are also showing strength in their loan quality. COF said their charge off rates have been dropping (losses from unpaid loans).

Technically shares of COF have a long-term bullish trend of higher lows and it's about to breakout past resistance and hit new multi-year highs. The point & figure chart is already bullish and suggesting an $83 target.

- Suggested Positions -

Long Sep $80 call (COF140920C80) entry $2.30*

05/28/14 triggered @ 78.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on May 28 at $78.75
Average Daily Volume = 3.0 million
Listed on May 27, 2014

CVS Caremark Corp. - CVS - close: 77.36 change: +1.16

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: -24.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: CVS displayed some relative strength today with a gap open higher and a +1.5% gain at the closing bell. The bounce is encouraging but I'll point out that shares closed right at short-term resistance on its 10-dma and 20-dma.

The company is due to present at two conferences this week. One on June 18th and the other on June 19th.

Earlier Comments:
CVS is in the services sector. The company provides integrated pharmacy healthcare services in addition to running a drug store chain with over 7,600 locations. CVS' largest rival is Walgreen's with 8,650 locations.

The company's most recent earnings report was mixed. CVS delivered a profit of $1.02 per share. That missed estimates by a penny. Revenues came in above expectations at $32.69 billion in the first quarter. Wall Street appears to have accepted CVS's "blame it on the weather" excuse. Last month CVS also disclosed they had finalized a settlement with the SEC over events dating back to 2009 that stemmed from its acquisition of Longs Drug Stores in 2008. In the settlement CVS did not have to admit any wrongdoing and does not have to restate any earnings reports. They're happy to put the ordeal behind them and for investors it's old news.

More importantly the company is seeing strong growth in its PBM business. Its pharmacy services segment saw revenues climb +10.3% to $20.2 billion in the second quarter. Management said CVS is "beginning to develop integrated products for both hospitals and health plans."

They're also growing into a broader healthcare provider with the retail-based clinic subsidiary MinuteClinic. According to CVS' website, "MinuteClinic launched the first retail medical clinics in the United States in 2000 and now has more than 800 locations in 28 states. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to provide treatment for common family illnesses, skin conditions and injuries, administer vaccinations, conduct physicals and wellness screenings, and offer monitoring for chronic conditions seven days a week without an appointment, including evenings and holidays."

American's growing acceptance of the MinuteClinic for quick healthcare services will grow. Long-term CVS will benefit from an aging population more dependent on their prescriptions. Plus, CVS will benefit from the growing number of new Americans being covered under Obamacare. Payments for these services will be covered by health care plans, Medicaid, and now the Affordable Care Act mandate.

Wall Street is happy with its steady growth. The most recent earnings report showed profits rising 18% year over year for the fifth consecutive quarter of double-digit earnings growth.

We're not setting a bullish exit target yet but the Point & Figure chart for CVS is bullish with a $102 target.

- Suggested Positions -

Long Aug $80 call (CVS140816C80) entry $1.04

05/22/14 triggered @ 77.25
option format: symbol-year-month-day-call-strike

Entry on May 22 at $77.25
Average Daily Volume = 5.1 million
Listed on May 21, 2014

Demandware, Inc. - DWRE - close: 68.90 change: +3.21

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: + 4.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: Our brand new play on DWRE is open. The stock stair-stepped higher throughout Wednesday's session. Our suggested entry point was hit at $66.75. DWRE now faces potential round-number resistance at $70.00. If you missed our entry point you may want to wait for a dip before considering new positions.

Earlier Comments: June 17, 2014:
DWRE provides cloud-based digital commerce solutions. They first introduced their platform in 2004. According to DWRE's website they "power more than 200 retail brands across more than 800 sites around the globe."

The stock was hammered lower this spring as investors sold everything that might be considered high-growth or a momentum-stock. DWRE corrected from $80 to $45 but shares have since rebounded.

Earnings have been strong. The company reported Q4 numbers in February that beat estimates and DWRE management raised their Q1 and 2014 guidance. DWRE reported their Q1 numbers on May 6th. Wall Street was expecting a loss of 9 cents per share on revenues of $29.0 million. DWRE delivered a loss of 7 cents. Revenues were up +57% to $32.2 million. DWRE's CEO said their momentum from 2013 carried over into 2014. The first quarter this year saw record subscription revenues.

Technically shares of DWRE have broken through resistance in the $60-65 zone and all of its major moving averages. The stock also has short interest that is about 8.5% of the small 31.8 million share float. New relative highs could spark more short covering. Currently the point & figure chart is bullish and suggesting a long-term target of $99.00.

I would consider a more aggressive, higher-risk trade. DWRE can be volatile and the options are not cheap. I'm suggesting small positions to limit our risk.

*small positions* - Suggested Positions -

Long Oct $70 call (DWRE141018c70) entry $6.92

06/18/14 triggered @ 66.75
Option Format: symbol-year-month-day-call-strike

Entry on June 18 at $66.75
Average Daily Volume = 705 thousand
Listed on June 14, 2014

Expedia Inc. - EXPE - close: 80.35 change: +2.73

Stop Loss: 71.45
Target(s): To Be Determined
Current Option Gain/Loss: +51.8%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: EXPE spent almost the entire day in rally mode. Shares are now up nearly $6.00 in the last two sessions. The relative strength is great but EXPE is nearing likely resistance in the $80-81 zone. I would expect some profit taking soon.

Earlier Comments: June 9, 2014:
EXPE is in the services sector. The company is in the super competitive online travel industry with rivals like Priceline.com (PCLN) and Orbitz Worldwide (OWW).

EXPE is developing a trend of beating analysts' estimates with strong profit and revenue growth. This past quarter EXPE reported revenues of $1.2 billion. That is the fifth quarter in a row that EXPE has delivered double-digit year over year revenue growth. The company has also seen surging growth in its bookings. Q3 2014 saw 15% bookings growth. Q4 2014 was +21%. Q1 2014 was +29%.

Analyst firm Cantor Fitzgerald recently offered bullish comments on EXPE and raised their price target. The company is having success with its Expedia Traveler Preference program. In Q3 2013 there were about 35,000 hotels in the program. By Q1 2014 that has grown to 51,000 hotels. As more hotels join it will boost EXPE's room nights metric and sales.

Billionaire hedge fund manager David Tepper's Appaloosa Management is also bullish on EXPE. The latest 13F filing showed that Appaloosa had initiated a new stake in EXPE in the first quarter of 2014.

Bears could argue that EXPE, PCLN and OWW could face competition from companies like Google and Facebook as they seek to boost their ad revenues to their large audiences. Reuters has reported that Google is experimenting with some programs with a few hotels. This threat is probably a few years away and could eventually make EXPE as potential takeover target.

Technically EXPE experienced a correction from $81 to $67 earlier this year. The stock found support in the $67 area and just recently EXPE has broken out past some key resistance.

At the moment shares of EXPE are flirting with a breakout past potential round-number resistance at the $75.00 mark. The Point & Figure chart is bullish and forecasting at $90.00 target. I do expect the $80.00 area to offer some overhead resistance. We will choose a target later as the play progresses.

- Suggested Positions -

Long Oct $80 call (EXPE141018C80) entry $4.15*

06/11/14 triggered @ 75.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on June 11 at $75.75
Average Daily Volume = 1.6 million
Listed on June 09, 2014

Hanesbrands Inc. - HBI - close: 87.40 change: -0.04

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: + 2.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: It was a quiet day for HBI. Shares are hovering just below a trend line of higher highs. I am not suggesting new positions at this time.

Earlier Comments:
HBI is in the consumer goods sector. The company designs and manufacturers apparel. You wouldn't normally think of basic apparel maker as a momentum stock but HBI has been outperforming. Shares just ended the week at a new all-time high.

The company has delivered on its earnings results. When HBI last reported in January and April this year the company beat Wall Street's estimates both times and raised their guidance both times.

Think about that. HBI is not a retailer but their products are sold through retailers. Most of retail got hammered in the first quarter due to lousy winter weather. Yet HBI managed to beat estimates and then raised its guidance.

Jim Cramer has pointed out what many analysts are saying on the company. HBI has strong brand names like Hanes, Champion, Playtex, and Bali. HBI owns most of their supply chain, which allows them to keep and improve their strong margins. Their first quarter saw margins increase 180 points. Most of Wall Street is bullish on HBI's recent acquisition of Maidenform. HBI believes they can generate significant margin improvement in the Maidenform brand by 2016.

The Point & Figure chart for HBI is bullish with a $92 target.

- Suggested Positions -

Long Oct $90 call (HBI141018C90) entry $2.94

06/04/14 triggered @ 85.25
Option Format: symbol-year-month-day-call-strike

Entry on June 04 at $85.25
Average Daily Volume = 690 thousand
Listed on May 31, 2014

PPG Industries - PPG - close: 203.59 change: +1.08

Stop Loss: 199.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.8%
Time Frame: 8 to 10 weeks
New Positions: see below

06/18/14: Traders bought the dip in PPG this afternoon at $201.27. Shares raced back toward short-term resistance at the 10-dma. A rally past $204.00 could be used as a potential entry point.

Earlier Comments:
Big cap industrial names have been leading the market higher. PPG is one of them. The company is in the basic materials sector. PPG manufacturers coatings, specialty materials, and glass products.

PPG has developed a strong trend of beating Wall Street's earnings estimates. They just did it again when they reported earnings on April 17th with EPS coming in 10 cents above estimates. Revenues were up +17% year over year to $3.64 billion. Earnings were up +33% from a year ago at $1.98 per share. The company is also seeing margin improvement.

Last month PPG's management announced a $2 billion stock buyback program and raised their dividend by +10% to $0.61 per share. PPG's CEO said that his company saw volumes improve in Europe for the first time in ten quarters. The tough winter in the U.S. did not hurt them. Thus far PPG has been able to pass along small price increases to offset rising commodity costs.

Technically the stock is in a long-term up trend. Shares have spent the last three months consolidating below the $200 level. Now the bullish pattern of higher lows is about to push PPG through major resistance near $200-201.

The Point & Figure chart is bullish and forecasting at $222.00 target.

- Suggested Positions -

Long Aug $210 call (PPG140816C210) entry $3.65*

05/30/14 triggered @ 202.00
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on May 30 at $202.00
Average Daily Volume = 552 thousand
Listed on May 29, 2014

Starbucks Corp. - SBUX - close: 75.56 change: +0.25

Stop Loss: 71.75
Target(s): To Be Determined
Current Option Gain/Loss: -5.4%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: Shares of SBUX shot lower at the open but bounced at $74.60. The stock spent the rest of the day pushing higher. Yesterday's high was $75.65. Today's high was $75.68. Investors may want to wait for a move past $75.75 before initiating positions.

In the news today there was a story that SBUX plans to start offering sodas. It's a new brand of carbonated drinks called Fizzio and customers can pick how much "fizz" Starbucks adds to their drink. A 16 oz. Fizzio is only 100 calories with no artificial flavors, preservatives, or high-fructose corn syrup.

Earlier Comments: June 14, 2014:
The twin-tailed siren of Stabucks could be ready to sing for investors again. The company is named after the first mate in Herman Melville's Moby Dick. According to company literature their mission is "to inspire and nurture the human spirit - one person, one cup and one neighborhood at a time."

Notice it didn't say one cup of coffee at a time. Make no mistake. Coffee is big business. According to Business Insider coffee is worth about $100 billion globally and planet earth drinks about 500 billion cups of coffee every year. Quite a few of those cups are consumed at Starbucks' ubiquitous coffee chain, which now has over 10,000 company-run stores and over 9,500 licensed stores.

Believe it or not but tea is a bigger market. Tea producers churn out more than 4 billion kilograms of tea every year. Tea is the second-most consumed beverage behind water. Several months ago SBUX purchased the Teavana chain for $620 million. Now they're planning to update and expand the brand into 1,000 tea bars in the next five years.

SBUX recently said that food remains a big opportunity and currently food sales are only 22% of its U.S. business. SBUX purchased the French bakery chain "La Boulange" in 2012 and they've started distributing some of the bakery's products in more than 6,000 Starbucks stores. These should reach all of their coffee stores by the end of this year. They're also testing lunch items and testing alcohol sales in certain states. That means Malbec wines and bacon-wrapped dates could be available at a Starbucks store near you soon. The company said that adding food items has increased purchases and boosting ticket growth.

This past week SBUX said they're going to roll out wireless charging mats for smartphones in some of their stores soon.

Put it altogether and the company has big plans. Their latest earnings report in late April was mixed. Profits were in-line with estimates but revenues were a miss although same-store sales came in above expectations. SBUX management raised their Q4 guidance and 2014 guidance following its results.

Technically SBUX looks ready to breakout again. After correcting from its 2013 highs near $82 the stock tested $68 in April this year. The last several days have seen SBUX trying to breakout past big moving averages like the 150-dma and 200-dma. The June 6th high was $75.54. We're suggesting a trigger to buy calls at $75.65.

- Suggested Positions -

Long OCT $80 call (SBUX141018c80) entry $1.66

06/17/14: triggered @ 75.65
Option Format: symbol-year-month-day-call-strike

Entry on June 17 at $75.65
Average Daily Volume = 3.5 million
Listed on June 14, 2014

U.S. Silica Holdings - SLCA - close: 54.32 change: +1.08

Stop Loss: 48.40
Target(s): To Be Determined
Current Option Gain/Loss: +30.1%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: The sand and proppant stocks continues to surge and SLCA added another +2.0% today. Shares are nearing resistance at the early June highs.

Earlier Comments: June 14, 2014:
There is a new gold rush going on for sand! America's shale oil and gas boom has created another boom for sand producers. Energy companies use hydraulic fracking to mine oil and gas out of tight shale formations. This fracking technique blasts millions of gallons of water at high pressure into shale rock where the oil and gas is trapped. These wells can cost between $4 million and $12 million each. In order to maximize their returns drillers use proppants to help "prop" open these minute cracks in the shale rock to help the oil and gas escape to the surface.

The cheapest and one of the most effective proppants has been fine sand. SLCA has been providing sand for industrial use for over 100 years. The company currently has 297 million tons in reserve. Oil and gas industry demand for proppants is expected to rise +30% between 2013 and 2016. That might be underestimated. The energy industry consumed 56.3 billion pounds of sand for fracking in 2013. That's up 25% from 2011.

According to SLCA they saw a +45% increase in demand for their sand. SLCA's CEO reported that some hydraulic fracking wells have doubled their use of sand from 2,500 tons per well to 5,000 tons. There are some wells using up to 8,000 tons.

Demand has been so strong that SLCA is actually sold out of some grades of sand and they're raising prices (about +20%) on non-contracted silica. SLCA believes demand for their products will rise another 25% this year alone.

Wall Street has taken notice of the dynamics of the sand industry and shares of SLCA have soared from their February 2014 lows. It may not be a coincidence that the stock was added to the S&P 600 smallcap index in February this year.

We are not setting an exit target tonight but Point & Figure chart for SLCA is bullish with a $69 target.

- Suggested Positions -

Long Sep $55 call (SLCA140920C55) entry $3.15*

06/17/14 triggered @ 52.15
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on June 17 at $52.15
Average Daily Volume = 1.2 million
Listed on June 14, 2014

United Parcel Service - UPS - close: 102.79 change: +1.18

Stop Loss: 97.75
Target(s): to be determined
Current Option Gain/Loss: + 61.6%
Time Frame: 4 to 8 weeks
New Positions: see below

06/18/14: Better than expected earnings results from Fedex (FDX) sent shares of FDX surging to all-time highs. UPS followed in its shadow with a +1.1% gain.

Earlier Comments:
I am concerned that the $105 level could be resistance. More conservative traders may want to start taking profits now or closer to $105.00.

We're not setting an exit target yet but the Point & Figure chart for UPS is bullish with a $123 target (up from $114 a few weeks ago).

- Suggested Positions -

Long Jul $100 call (UPS140719C100)* entry $1.98

05/29/14 more conservative investors may want to start taking profits now or as UPS gets closer to potential resistance at the $105 level.
05/12/14 triggered @ 100.25
*I've provided the more standardized option symbol format.

Entry on May 12 at $100.25
Average Daily Volume = 2.9 million
Listed on May 10, 2014

PUT Play Updates

Currently we do not have any active put trades.


The Boeing Company - BA - close: 132.48 change: +0.03

Stop Loss: 131.25
Target(s): To Be Determined
Current Option Gain/Loss: -57.7%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: BA closed up just three cents for the day. Yet that doesn't tell the whole story. BA was weak right from the opening bell. The stock spent a good chunk of its session bouncing along the $131.25 level and then saw a spike lower following the FOMC announcement before reversing higher.

Our stop loss was hit at $131.25.

- Suggested Positions -

Aug $140 call (BA140816C140) entry $2.25* exit $0.95** (-57.7%)

06/18/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
06/17/14: new stop @ 131.25
06/02/14: Triggered @ 135.55
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Entry on June 02 at $135.55
Average Daily Volume = 2.95 million
Listed on May 31, 2014

Biotech ETF - BBH - close: 92.40 chang6: +0.66

Stop Loss: 91.45
Target(s): to be determined
Current Option Gain/Loss: -19.7%
Time Frame: 8 to 12 weeks
New Positions: see below

06/18/14: BBH pierced short-term support and hit our new stop loss before reversing higher as stocks rallied following the Fed meeting.

- Suggested Positions -

Sep $95 call (BBH140920C95) entry $3.55* exit $2.85** (-19.7%)

06/18/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
06/17/14 new stop @ 91.45
05/27/14 triggered @ 90.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Entry on May 27 at $90.25
Average Daily Volume = 119 thousand
Listed on May 22, 2014