Option Investor

Daily Newsletter, Thursday, 6/19/2014

Table of Contents

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

Market Wrap

Unsurprising FOMC

by Thomas Hughes

Click here to email Thomas Hughes
The Fed lowered its 2014 GDP expectations unexpectedly but the move was not surprising for the market which set another new high today.


Yesterday the Fed acted as expected and tapered another $10 billion. The unexpected part, at least by me, was a lower GDP forecast. The thing is, once I heard the news I was not that surprised. The IMF lowered its forecast earlier this month and considering the law of averages if the first quarter is lower than expected, as it was, then naturally the full year average will be lower even if the second, third and fourth quarter come in as expected. The good news is that the Fed also thinks that inflation is rising in line with their expectations and that a rebound in the economy is currently underway. This news sparked a rally to new highs that carried over into the international market and the overnight session. In Asia most markets were up around a half percent or so with the Shanghai one notable exception. The mainland Chinese index ended the session in the red. In Europe markets climbed about 0.75% on average, hindered in small part by the escalating situation in Iraq.

US futures trading was flat to negative in the earliest part of the day but moved into the green following the 8:30AM release of jobless claims data. Claims were a little under the predictions and inline with the long term trends of declining unemployment. At the open the market was flat to weak with the SPX hovering just over the break even line for the first thirty minutes of trading. At 10AM Leading Indicators and Philly Fed sent a ripple through the market that caused the SPX to move down to the low of the morning just below yesterday's closing price. Both indicators were positive, Leading just below expectations and Philly Fed just above. The rest of the day saw the indices drift slowly lower by about a quarter percent or less and then slowly drift higher into the close, regaining positive territory and leaving the SPX at another new high.

The Economy

On the headline initial claims for unemployment dropped more than expected. In reality the number was 1,000 claims lower than expected at 312,000. This is at the low of the 12 month range and at least helps to maintain the status quo in terms of the jobs market. Last weeks claims were revised higher by 1,000 for a net drop of 6,000 from last weeks report. The four week moving average also declined, by -3,750, to 311,750. On an unadjusted basis claims fell by -13,178 to 300,193, or -4.1%. Looking at the table provided by the DOL claims have been at or near the low of the range for most of this quarter. If jobs continue to increase at the rate they have been this figure could drop below the 300,000 level in the near future.

Continuing claims fell by -54,000 and hit a new low not seen since Oct 13, 2007, according to the revised and readjusted data. Last weeks figure was revised up by +1,000 as well. This figure has been in decline for over four months and could be accelerating. In the long term view total claims rose by 32,000 but remains near long term lows. On a state by state basis California led with an increase of 9,935 new initial claims, followed by Florida with 4,050 new claims. New Mexico and Nebraska led with declines of -332 and -162 respectively.

At 10AM Philly Fed and the Index Of Leading Indicators caused the market to turn to the red. Philly Fed was stronger than expected at 17.8, rising more than 2 points from last months 15.4 and 4 points higher from the expected 13.2. This is a strong sign the economy is rebounding. Within the report the employment index rose to 12 from 8 and new orders to 16.8 from 10. The prices paid index was a negative and a sign of inflation rising sharply to 35.

The Index of Leading Indicators rose less than expected, depending on who you listen to. The index gained 0.5%, in line with the consensus of 0.5% and ahead of the 0.3% gain in April and the 0.2% gain in March. The gains in the index were broad based and will likely pick up in the second half of the year according to the report. This is also the fourth month of positive readings and the third consecutive month of increases. The coincident index also rose by 0.3% in May, ahead of the 0.2% gain in April. The lagging index gained 0.4% last month versus the 0.3% in April. According to all three of these indices the current and previous months activity is stronger than expected and in line with the expected economic rebound.

The Dollar

The Fed's stance on the economy was not too surprising but the new speak on interest rates is a little. The economy is still growing enough to taper, strongly enough to expect that a rate hike might come sooner than anticipated but that conditions support the idea of lower rates longer than forecast. I think that this may be a veiled attempt at telling us not to expect too much, such as too much time before the hikes begin or too much of a hike when it comes. Not surprisingly this stance weakened the dollar somewhat causing it to drop below the 30 day moving average and approach support levels near the mid point of the 8 month trading range. The indicators are bearish and could carry the index to test support along the 80 level. There are now several weeks before the next important central bank meeting from the ECB and the BOJ. Until then economic data affecting Fed outlook could impact dollar values.

The Gold Index

Gold prices responded very well to the Fed's new interest rate agenda. Gold prices climbed mildly yesterday and then spiked up by more than $25 in the early part of the day and then as high as $45 in what can be described as a massive short covering rally. Gold prices are now trading around the $1315 level and a potential area for resistance. This move in gold is a little suspicious to me and could be a little knee-jerk in quality; the extent of the rally a little bit of an over reaction. Interest rates are still going to rise, probably sooner rather than later and we can expect they will stay low a long time after that. I think we pretty much knew that already. In the long term the economic trends are up and the rebound is underway which is going to lead us into higher interest rates. Plus, now that the Fed has lowered its GDP expectations they have opened up the possibility they will have to raise them again later if/as the economy strengthens and I don't think that would be a bullish catalyst.

The Gold Index naturally followed gold prices higher and has blown past the resistance level it was trading under last week. Today the index gained about 2.75%, forming a strong and long white candle rising up from the 30 day moving average on bullish indicators. Near term analysis looks pretty bullish for the index with a long term resistance level about 4% higher at $100. While bullish, the indicators, especially the MACD, is on the weak side. The rise in gold and the index is based on Iraq flight to safety with the added momentum of reaction to the new Fed stance either of which could dissipate quickly. The Iraq premium is a little harder to judge because who knows how the uprising will end? The Fed premium is tied to economic data and trader perception, economic trends are good and trader perception fickle.

The Oil Index

Prices for WTI hovered around the $106 level today in a mild session. Prices moved in a range roughly $0.25 above and below yesterday's close. Brent crude climbed higher by near a half percent as Iraq tension and violence raised the possibility of supply disruption. New developments today include increased international dissatisfaction with the Iraqui prime minister and US drones flying surveilance over hot zones. The Oil Index traded higher today as well, breaking the round number resistance of 1,700. The index is currently in an uptrend driven by improving economics and higher oil prices that have been inflated since the start of the Ukraine incursion. The indicators are bullish and supportive of higher prices at this time. 1,700 will be important for the index in the near term with support in the 1,650-1,660 region.

Story Stocks

Starbucks received an upgrade today from neutral to buy at UBS. The upgrade was based on the average analyst target price versus current share price. The upgrade comes with a potential upside of more than 18% of current value. Shares of Starbucks climbed more than 2% on the news coming to a halt just below resistance at $77.50.

It is not earnings season yet but that does not mean that no earnings are coming out. Today several higher profile, bigger name mid-term earnings reports were released led by Blackberry, Oracle and Pier 1. Blackberry reported before the bell, producing less of a loss than expected. Ex-items the company produced a loss of -$0.11 per share versus consensus in the range of -$0.25. Gross margins in the quarter are up to 48% from 43% last quarter on reductions in operating expenses. Total sales of Blackberry devices to end users was ahead of expectations. The stock surged more than 10% following the announcement.

Pier 1 missed its earnings expectations by 4 cents. The company earned $0.16 per share versus a consensus $0.20 on a 6.3% sales growth. The results are better than expected on quarter over quarter basis but still behind last years results for the same period. At the same time the company also lowered full year guidance to the low end of the expected range. The results were not satisfying and sent the stock down by more than 13% in today's trading.

Oracle reported after the bell. The software services company reported only $0.92 versus the expected $0.95. Revenue was light along with new licenses and software renewals. The stock got hit hard after hours dropping more than 7.5%.


The VIX traded up today after a lower opening. The volatility index traded in a tight range around yesterday's closing prices after opening close to a low dating back to 2008. Historically whenever the VIX reaches extreme low levels it usually precedes a sharp snap back. Over the past year that level was near 12.50. Now the VIX is below that level and the current situation does not appear to be the same, at least not yet. The indicators are currently bearish and point to lower VIX values which is coincident with a confirmation of resistance over the last two days precipitated by data and extended by the Fed. This resistance level is the same level that provided support for the VIX and resistance for the SPX all last year as the recovery began to take hold and we were speculating about when tapering would begin. On a purely technical basis the support turned resistance is a potentially strong one and could keep the VIX beneath it for the near to short term.

Before the Housing Bubble and market meltdown the VIX traded around the current level for years. It was not an extreme, it was the norm while the markets were rallying. The market was euphoric then on a rapidly rising housing market and that led to the bubble. I don't think the market is euphoric now; even though the equity market is at all time highs trading volumes are down according to OCC and other data, the housing market is not as robust as we keep expecting and there is still lingering concern for US and global growth. It could be that the market has reached a level of calm signifying that the Housing Bubble and Credit Crisis are behind us; It could be there really is a new normal.

The Indices

Today's laggard was the Nasdaq Composite. It is not surprising the index had a little trouble today as it opened at a new high, a new high coincident with a full retracement of the correction seen earlier this year. Earnings, even though it is still below full season, may be having an impact on this index today. Yesterday open source provider RedHat reported earnings that beat estimates and sent the stock up sharply. Today Oracle's report after the bell may have been a reason for traders to wait. The indicators are bullish but momentum is very weak. Stochastic is making a bullish crossover high in the upper signal zone but again I classify it as a weak one. It looks for now as if the Comp could be contained by resistance but the next few days to a week could reveal more. A break above the current high would provide some more bullish evidence but until then caution is warranted.

The Dow Jones Industrials climbed a mere 0.08% today, coming just short of the all time high set last week. The light action and small bodied candle formed today is not unexpected following the rally yesterday. The index is making a bounce from the short term moving average in line with the long term trend. The indicators are turning bullish in what can be considered a weak trend following signal. MACD momentum has just turned positive with today's candle and stochastic is making a bullish trend following crossover but only %k is pointing up at this time. The index faces resistance just above the current level at the previous all time high, a level the index looks likely to at least test. A break above would be bullish and could lead to another round of new highs.

The Transports closed exactly at break even from yesterday's closing prices after making new intra-day highs during the session. This index is also in mid-moving average bounce but with momentum yet to turn positive. Stochastic is presenting the early and weaker trend following signal but without a break above the current all time high caution is due.

The SPX led the major indices today with a gain of +0.13. This index is also presenting an early trend following signal and perhaps the strongest early signal of the four indices described. Momentum has turned firmly bullish with a trend following moving average bounce and a stochastic that, while not quite pointing all the way up, has a %d line that is flat to uppish. The SPX closed at a new all time high and looks good to produce more into the near to short term.

The Fed seems to have given the market yet another signal to rally with a hint of a reason to be cautious. The taper was continued, a sign the economy is still doing well enough to remove it. They indicated inflation is progressing at a pace in line with their outlook. They reiterated and reinforced that interest rates would rise sooner rather than later and yet stay low a long time. The only thing standing in the way now is economic data and full on earnings season which is only a few weeks away. In the near term, there is no economic data being released tomorrow and only three earnings reports, one of which I've never heard of, the other two being Darden Restaurants and Carmax. Next week the economic calendar is full with a slew of housing related data, durable goods and the final estimate for 1st quarter GDP.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Another S&P High

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index hit a record high for the 21st time this year on Thursday. Yet gains were mild with the S&P 500 index up less than three points. Year to date the large cap index is up +6.0%.

Currently the market has been able to shrug off rising geopolitical tensions, especially in Iraq. However, the weekend could bring new headline risk. That means traders may not be willing to hold positions over the weekend. Friday might struggle to keep the rally going even though stocks look poised to rally higher as of Thursday's close.

We are not adding new trades tonight.

In Play Updates and Reviews

Buying The Dip

by James Brown

Click here to email James Brown

Editor's Note:

The stock market continued to make gains after traders bought the midday dip. It is worth noting that gains were pretty anemic with none of the major U.S. indices up more than +0.12%.

Current Portfolio:

CALL Play Updates

Anadarko Petroleum - APC - close: 110.22 change: +0.64

Stop Loss: 99.90
Target(s): To Be Determined
Current Option Gain/Loss: + 61.4%
Time Frame: 8 to 12 weeks
New Positions: see below

06/19/14: APC garnered some bullish analyst comments and a new $120 price target. Shares drifted higher and managed to close above potential resistance at $110.00.

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

Ameriprise Financial - AMP - close: 117.80 change: -0.40

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

06/19/14: AMP hit $118.64 this morning and spent the rest of the session consolidating sideways on either side of the $117.50 level. I don't see any changes from my previous comments.

Earlier Comments: June 18, 2014:
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 $3.70

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

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

Capital One Financial - COF - close: 82.00 change: +0.35

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +65.2%
Time Frame: 8 to 12 weeks
New Positions: see below

06/19/14: COF spent Thursday's session consolidating just under its June highs. Traders did buy the midday dip and shares look poised to breakout higher.

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: 77.45 change: +0.09

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: -25.9%
Time Frame: 8 to 12 weeks
New Positions: see below

06/19/14: Rite Aid (RAD) reported earnings that were only in-line with Wall Street expectations. Shares of RAD sold off on its results, which may have pressure CVS today.

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: 68.15 change: -0.75

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/19/14: DWRE rallied towards round-number resistance near $70.00 and then faded lower. After a multi-day rally shares were due for a little pullback.

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: 77.88 change: -2.47

Stop Loss: 71.45
Target(s): To Be Determined
Current Option Gain/Loss: +18.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/19/14: Ouch! After yesterday's upgrade-inspired rally shares of EXPE reversed sharply with a -3.0% decline. I warned readers last night to expect some profit taking.

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: 87.25 change: -0.15

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: + 8.8%
Time Frame: 8 to 12 weeks
New Positions: see below

06/19/14: HBI spent Thursday's session consolidating sideways at new highs.

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: 203.22 change: -0.37

Stop Loss: 200.75
Target(s): To Be Determined
Current Option Gain/Loss: - 9.5%
Time Frame: 8 to 10 weeks
New Positions: see below

06/19/14: Hmm... PPG delivered a disappointing session on Thursday. Shares failed to breakout past short-term resistance near $204 and its 10-dma.

We are going to turn more defensive here and raise our stop loss to $200.75. That's about 50 cents under Wednesday's low. More aggressive traders will want to keep their stop below the $200.00 mark.

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*

06/19/14 new stop @ 200.75
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: 77.23 change: +1.67

Stop Loss: 71.75
Target(s): To Be Determined
Current Option Gain/Loss: +28.3%
Time Frame: 8 to 12 weeks
New Positions: see below

06/19/14: SBUX gapped open higher and surged to a +2.2% gain after UBS upgraded the stock from a "neutral" to a "buy". The analyst believed SBUX would continue to see strong same-store sales and strong growth in the Americas and raised their price target on SBUX from $80 to $87.

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: 53.45 change: -0.87

Stop Loss: 48.40
Target(s): To Be Determined
Current Option Gain/Loss: +14.2%
Time Frame: 8 to 12 weeks
New Positions: see below

06/19/14: SLCA briefly tagged a new all-time high before succumbing to profit taking and closing down -1.6%. Technically today's move has created a bearish engulfing candlestick reversal pattern. I am not suggesting new positions at this time.

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: 102.37 change: -0.42

Stop Loss: 97.75
Target(s): to be determined
Current Option Gain/Loss: + 43.4%
Time Frame: 4 to 8 weeks
New Positions: see below

06/19/14: It looks like UPS' bounce is struggling near the $103.00 level. Shares underperformed the major indices and the transportation average with a -0.4% decline.

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.