Option Investor

Daily Newsletter, Monday, 6/23/2014

Table of Contents

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

Market Wrap

June Swoon?

by Thomas Hughes

Click here to email Thomas Hughes
Spreading violence in Iraq, an impending GDP revision and mixed global PMI helped to usher in a potential June swoon.

Wall Street veteran Art Cashin has been expecting, or at least preparing, for a lower week this week and today he reiterated that point. He mentioned how this week is historically a down week and today's price action does nothing to make me believe that may not be the case. Global markets were mixed in the overnight session in the face of positive PMI readings in China and Germany. Asian and European markets ended the day flat to mixed on signs of growth, just slowing or slowing growth. In China flash PMI was reported at 50.8, expansionary and above the expected 49.7 and the previous 49.4. In the EU German PMI was reported at 54.2, firmly expansionary but below last months 55.6 and the second month of declines. Other countries in the EU, France notably, sank deeper into decline.

Iraq was another factor in the early part of the trading day. More news of Isis taking over more towns and spreading it's influence throughout the region. Militants have also gained control of parts of the border along Jordan and Syria as well raising the threat of the violence spreading. Alongside that was other discussion of oil supply and how Iraq supply has not yet been impacted by the turmoil. Futures trading was flat to negative prior to the start of trading and held those levels going into the open. The SPX opened weak around -0.75 and then dropped to -2.75 in the first ten minutes. Support kicked in fairly quickly though, around the 1960 level, and sent the index up to poke into positive territory for a few minutes before moving back down to set a new intraday low. The back and forth at the open is a sign that traders are still indecisive about what this week will bring.

There is a fair amount of new data coming out but the bit in focus may be the GDP 3rd and final revision. Expectations are high the number will be revised even lower than last time. Current estimate stands at -1% with an expected drop to -1.8%. This revision will be important and could alter 2nd quarter and full year estimates. Afternoon trading saw the major indices trade in a tight range between the mid morning high and low into the close.

The economy

Only one piece of US data was released today, Existing Home sales. Sales increased by more than expected but not enough to significantly move the market. Sales increased by 4.9% to a rate of 4.89 million homes per year. The previous months data was revised up but sales are still down about 5% from last year. The median price of homes sold went up 1.5% and according to the report the “slow down is over”.

Tomorrow more housing data in the form of the Case-Shiller 20 city index and new home sales as well as consumer confidence. Wednesday Durable Goods and the GDP final revision lead into jobless claims, personal income & spending on Thursday and then Michigan Sentiment on Friday.

Moody's survey of business confidence administered by Mark Zandi remains positive. In his report he says that businesses are “stalwartly upbeat”. Businesses report that sales are still strong and that investment and hiring remain robust. He says that there are no signs of significant inflation as only a third of respondents have dad to raise end prices.

The Dollar Index

The dollar weakened slightly today but held above support and the 80 level. The index fell about a tenth of a point on very weak momentum and is now trading just above the mid point of the 8 month range. There are no central bank meetings for about 2 weeks so until then economic data will be driving dollar value. Iraq may have some impact if traders seek safe have currencies like the yen or the Swiss Franc.

The Gold Index

Gold prices held steady near the high set last week. Prices traded in a tight range just under the $1320 level and ended today's session up by a few dollars. $1320 looks like a potential resistance point for gold prices at this time. Short covering is likely to be over at this point leaving flight to safety holding up prices by it self. Regardless of the reason higher gold prices usually mean higher prices for gold stocks and that is what we saw today. The Gold Index advanced another +1% today on rising bullish indicators to halt just shy of a longer term resistance level. Momentum in gold stocks is positive now and on the rise so a test of this resistance is likely. Although rising, momentum is not very strong right now and stochastic is overbought in the near term so I'm not getting too bullish just yet. There is always the possibility that gold will get slammed again and that would not be good for the gold miners. In the longer term the index is showing some signs of bottoming around the $85 level so I would expect any decline to be met by support around the $95, $82.5, $80 and $85 levels.

The Oil Index

Oil prices opened at new highs today but quickly fell as traders weigh the news. Prices for WTI opened the day around $107 per barrel with Brent touching $115.50 before both fell during the session.The threat to Iraq oil is real and causing the rise in prices but the fear premium is being tempered by the counter reports explaining how Iraqi oil infrastructure is secure and not being impacted currently. The drop in prices after the open brought WTI beneath Friday's closing price but the decline was halted at $106. The Oil Index continued its march higher but it appears to be losing steam. The candles over the past few trading days have been getting smaller and smaller, one sign of a tired market. Momentum is still bullish so the index could keep going but there will probably be better entry points.

In The News

There are about 18 IPO's scheduled for this week. It's hard to nail down the number because there are at least 2 holdover's from last week and at least 14 for this week depending on which list you look at.

GE's offer to buy Alstom has had the last barricade removed but will result in slightly less earnings per share attributable to the purchase. GE is also selling part of its Capital Consumer Finance business to Banco Santander. Shares of GE fell more than 1% on the news falling just below the 30 day moving average in a move confirming longer term resistance.

Earnings season is just around the corner. Alcoa leads of the traditional start of the season on Tuesday July 8th. Today Micron Technology reported earnings after the bell and could be foreshadowing an earnings season of surprises. Micron reported earnings far above, well far enough anyway, analyst estimates moving the stock more than 1.5% in the after hours session. EPS of $0.79 beat estimates by nearly a dime on revenue that also beat by a fair margin. On a year over year basis Micron revenue has increased by over 71% on strong sales of its microprocessors.

The Indices

The Nasdaq Composite was today leader in terms of least amount of loss. The tech heavy index fell today after opening at the current all time intraday high. After a mild but choppy day of trading the index was able to just move into positive territory before the close. The Nasdaq has reached resistance at the 4,370 level as expected and looks as if a break through is not going to be easy. The indicators are bullish but highly divergent and consistent with the top of a range. A correction from this level will put the Nasdaq in position for a possible double top but that is still just a speculation. On the longer term weekly charts the indicators are bullish so this week may just be a test of resistance and support. The index has multiple support levels between the current level and the long term trend line which is about 9.5% lower than today's close. The GDP report on Wednesday and then the ever important upcoming earnings season could be the deciding factors on how low the index goes.

The SPX was today's runner up today and nearly made it back into the green before the close. The broad market traded just beneath the current all time high in a very tight range and low volume. The indicators are neutral to bullish in the near term with the chance of a small correction in the mix. Nearer term stochastic is overbought but longer term is low in the range and only in the process of rolling into bullishness. At this time the market appears to be sitting at a new high and waiting to “see what happens”. Maybe GDP will impress and the market can rally. Maybe Iraq will go away and the market can rally. Or maybe earnings outlook will weigh the market down with the help lower full year GDP expectations. In the near term support exists at the round number of 1950 and then just below that at the short term 30 day EMA around 1926.10 or -3.1%.

The Dow Industrial Average lost about -0.6% today on weak indicators. Momentum in the blue chip stocks is bullish but the peak is so small the chart doesn't even pick it up. Stochastic is in the midst of the weak trend following signal but % D is still pointing down so I don't put a lot of faith in that signal on by itself. The trend is still up and the index is making new highs but the near term is not looking real strong to me now. Support exists around 16,750 and 16,500 with a correction to my long term trend line equal to roughly 8.8%.

The Transports were the big loser today and no surprise as it has been the market leader for some time. The Trannies lost about a half percent and looks set to make a move lower. The indicators are firmly bearish hear, MACD in the red and ticking lower with today's candlestick. Stochastic is trending lower with both lines but %K is above %D so I'm not too worried about it yet. This could be setting up for another trend following move and bounce from the long term trend line which is about 5% below the current level. First support is along the short term moving average about 150 points lower.

There was a lot for the markets to consider today but again I think that the GDP revision will be the market mover of the week. If it's lower than expectations will it be blamed on the weather? Will the market believe it if it is and will it even matter? I think at this point we know the first quarter was weak, weaker than expected and weak enough to recalculate estimates. Will it matter if the revision costs us a tenth of a point or two or even three? The first quarter ended nearly three months ago. What is more important is the current quarter and how the rebound will be perceived. Did the rebound rebound enough? It's not a matter of how high 2nd quarter GDP is although higher is better, it is a matter of how much rebound we get from the first quarter. More rebound now means more economic momentum going into the summer, less is less and that is never good for the market. We'll find out on Wednesday but I think that whatever happens it will be another buy on the dip, however deep the dip goes.

And don't forget that next week is the end of the month and the next round of monthly jobs data.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Hovering Near Its Highs

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market spent Monday's session hovering at its highs.

The trend is up but the rally looked a little tired today. The NASDAQ composite remains just below its 2014 resistance near 4,371. The Transportation average and the semiconductor index both saw some profit taking today.

Overall it was a quiet session. Stocks might see another pullback tomorrow.

We are not adding new trades tonight.

In Play Updates and Reviews

S&P 500 Ends 6-day Win Streak

by James Brown

Click here to email James Brown

Editor's Note:

The stock market took a day off to catch its breath after the S&P 500 index rallied six days in a row. Losses in the major indices on Monday were very mild.

CVS was closed this morning.

We want to exit our EXPE trade tomorrow morning.

MLM and SAVE both hit our entry triggers.

UPS hit our new stop loss.

Current Portfolio:

CALL Play Updates

Ameriprise Financial - AMP - close: 119.38 change: +0.24

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: + 8.3%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: AMP quietly consolidating sideways near $119.00 on Monday. Considering the pullback in the market today traders might want to wait to see that both AMP and the S&P 500 are positive on Tuesday morning before initiating new positions.

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.

- Suggested Positions -

Long Sep $120 call (AMP140920c120) entry $3.60

06/20/14 triggered @ 118.80
Option Format: symbol-year-month-day-call-strike

Entry on June 20 at $118.80
Average Daily Volume = 823 thousand
Listed on June 18, 2014

Anadarko Petroleum - APC - close: 111.10 change: -0.45

Stop Loss: 99.90
Target(s): To Be Determined
Current Option Gain/Loss: + 73.9%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: APC retreated from the $112 level this morning but traders still bought the dip midday. Investors may want to start raising their stop loss.

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: 83.49 change: +0.06

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +102.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: COF bounced off its morning lows but shares closed essentially unchanged on the session.

I am not suggesting new positions at this time.

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

Demandware, Inc. - DWRE - close: 68.47 change: +0.19

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

06/23/14: Monday was another quiet session for DWRE with shares drifting sideways. The $70.00 level could be overhead resistance.

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: 77.83 change: -0.49

Stop Loss: 71.45
Target(s): To Be Determined
Current Option Gain/Loss: +15.6%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: Warning! The recent action in EXPE is worrisome. The big rally early last week was great but EXPE reversed on Thursday. The stock underperformed the broader market today.

We are longer-term bullish on EXPE but short-term the stock might correct lower. Therefore we are suggesting an immediate exit tomorrow morning. We'll consider jumping back into EXPE after it corrects toward the $75 area.

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*

06/23/14 prepare to exit tomorrow morning.
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: 88.20 change: +0.00

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: +15.6%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: HBI is hovering near its highs. Shares closed unchanged on Monday. I don't see any changes from my earlier comments. I'm 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

Martin Marietta Materials - MLM - close: 133.81 change: -1.10

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: -16.9%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: Monday was a frustrating session for the bulls. MLM pushed past resistance near $135.00 and hit new multi-year highs before erasing all of its gains and closing down -0.8%.

Our suggested entry point to buy calls would have been hit at $135.25 but MLM actually gapped open higher at $135.97 before dipping back to $135.00, just before its morning advance toward its lunchtime highs.

Our trade is open but investors might want to wait for a dip or a bounce from the 10-dma now (near $131.85) before initiating new positions.

FYI: In the news this morning MLM did announce they planned to enter an agreement with the U.S. DoJ about its planned acquisition of TXI but it probably means MLM may have to sell some assets.

Earlier Comments: June 21, 2014:
96 percent of all paved roads in the United States are covered in asphalt. The material is a combination of asphalt oil, sand, and gravel. A lot of those materials come from MLM. The company also supplies stone, sand, gravel and concrete. They have over 300 quarries and distribution centers. They plan on growing as MLM is currently in the process of acquiring Texas Industries (symbol: TXI), which will immediately give MLM a strong presence n California and boost its cement business.

The U.S. economy has been struggling to maintain a +2% growth rate but the outlook seems to be improving. As the U.S. grows it's going to see improvement in the residential and non-residential construction. MLM expects sales to the residential market to grow at more than 10% in 2014.

MLM management has noted that historically low mortgage rates and slowly improving employment trends has been a boost for the residential construction market. Annual housing starts are expected to come in at more than one million homes for the first time since 2007.

Meanwhile non-residential is expected to grow in the high-single digits this year. The sector is seeing stronger fundamentals thanks to rising rents and occupancy rates. Rising property values has helped boost commercial real estate lending and that fuels construction.

MLM is also a major player in materials for roads and highways. Government contracts for highway construction and repair were up +14% for the year through last December. This year both the democrats and the republicans have voiced support for a new highway bill, which could mean more business for MLM.

Margins are improving. MLM said their prior quarter saw margins on its aggregates business improve 400 basis points. MLM plans to raise prices by 3% to 5% this year while production costs are expected to decline. That should further boost MLM's margins.

Investors should be aware that the U.S. Department of Justice is looking into MLM's acquisition of TXI but management does not expect any issues. They're suggesting it's just a review but if the DOJ were to block the deal it could rattle the stock.

Technically shares of MLM have been showing relative strength. The stock recently broke out past significant resistance near $130 and closed the week at multi-year highs. If this strength continues MLM could see more short covering. The most recent data listed short interest at 22% of the relatively small 46 million-share float.

- Suggested Positions -

Long Oct $140 call (MLM141018C140) entry $6.50*

06/23/14 triggered on gap higher at $135.97, suggested entry point was $135.25
*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 June 23 at $135.97
Average Daily Volume = 419 thousand
Listed on June 21, 2014

PPG Industries - PPG - close: 204.37 change: -0.20

Stop Loss: 200.75
Target(s): To Be Determined
Current Option Gain/Loss: - 1.3%
Time Frame: 8 to 10 weeks
New Positions: see below

06/23/14: PPG spent most of Monday bouncing along the $204.00 level. Investors looking for a new entry point may want to wait for a rally past short-term resistance at $206.00.

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

Spirit Airlines - SAVE - close: 63.50 change: -0.30

Stop Loss: 61.90
Target(s): To Be Determined
Current Option Gain/Loss: -14.6%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: Our new play in SAVE is open but shares are not performing quite as we had hoped. The stock spiked to a new all-time high this morning, hit our suggested entry point at $64.75, and then reversed lower. It would appear that the $65.00 level could be round-number resistance.

Overall I don't see any changes from my earlier comments. Traders may want to wait for a little more relative strength before initiating new positions.

Earlier Comments: June 21, 2014:
Have you looked at the airline stocks lately? The XAL airline index is hitting levels not seen since early 2002. The strength in the airlines has been a strong undercurrent for the transportation industry. SAVE is doing its part with new all-time highs on Friday.

SAVE is in the low-fare airline category. They currently offer about 250 daily flights to 50 destinations in the United States, Caribbean, and Latin America. While business is good the company has struggled with its reputation. They may be in the ultra-low fare business but they make up for it with lots of add on fees. Last year SAVE had the highest number of complaints per passenger than any other U.S. airline. They're hoping to change that. Last month SAVE launched a new brand overhaul program to better inform their customers about who they are and what to expect.

The company has been doing well in spite of the customer complaints. SAVE is developing a trend of beating Wall Street's earnings estimates. The company recently released its traffic numbers for May and revenue passenger miles were up +18.7% versus May 2013. SAVE's CEO Ben Baldanza echoed this growth in a recent interview where he said his company was on track to grow 18 percent in 2014 and 30 percent in 2015.

Wall Street certainly likes the stock. SAVE got a lot of positive comments and upgrades in April after their most recent earnings report. Analysts are upbeat on SAVE's Q2 and Q3 potential. They are expecting strong earnings and margin growth. SAVE will also grow after they add 24 new planes over the next 18 months.

Jim Cramer had some bullish things to say about SAVE. Cramer credits SAVE's efficiency to boost its ultra-low fare model. According to Cramer, "The company has 55 planes at the moment, but they use those planes more efficiently than the competition, keeping them in the air for 13 hours a day, whereas a Jet Blue only flies its planes for 12 hours a day, and at Southwest that number is less than 11 hours. Also, the company outfits its planes with more seats than the competition, too. On a Spirit Airbus A320 there are 178 seats, versus just 150 seats for Jet Blue on the same model of airplane. True, there's less legroom on a Spirit Airlines flight, however, the revenue potential per flight is greater."

This month the airline stocks did see some turbulence after a major German airline issued a profit warning but the details around the German company do not affect SAVE's business. What could affect SAVE is rising fuel prices. The violence in Iraq has boosted the price of oil and that affects jet fuel prices. Yet so far SAVE and the rest of the airline group have managed to shrug off the high price of oil.

More conservative investors may want to wait for a rise past $65.00 before initiating positions.

- Suggested Positions -

Long Sep $65 call (SAVE140920C65) entry $4.10*

06/23/14 triggered @ 64.75
*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 23 at $64.75
Average Daily Volume = 898 thousand
Listed on June 21, 2014

Starbucks Corp. - SBUX - close: 76.73 change: +0.13

Stop Loss: 71.75
Target(s): To Be Determined
Current Option Gain/Loss: + 8.4%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: SBUX rebounded from its intraday lows to close back in positive territory. I am not suggesting new positions at the moment.

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.

- 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: 53.61 change: +1.40

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

06/23/14: SLCA erased Friday's decline with a +1.40 bounce. The trend of higher lows remains intact. Investors could buy this bounce or if you're worried about resistance near $55.00, then wait for a breakout.

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

PUT Play Updates

Currently we do not have any active put trades.


CVS Caremark Corp. - CVS - close: 76.32 change: -0.47

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: -42.3%
Time Frame: 8 to 12 weeks
New Positions: see below

06/23/14: We were worried about CVS' recent performance and decided in the weekend newsletter to exit on Monday morning. Shares opened at $76.77 before underperforming the market with a -0.6% decline on Monday.

- Suggested Positions -

Aug $80 call (CVS140816C80) entry $1.04 exit $0.60 (-42.3%)

06/23/14 planned exit
06/21/14 prepare to exit on Monday morning, June 23rd.
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

United Parcel Service - UPS - close: 102.46 change: -0.04

Stop Loss: 101.75
Target(s): to be determined
Current Option Gain/Loss: + 26.2%
Time Frame: 4 to 8 weeks
New Positions: see below

06/23/14: UPS only lost four cents for Monday's session. Unfortunately the stock saw a another intraday swoon. Shares dipped to $101.64 and then bounced back toward unchanged. Our new stop loss was hit at $101.75.

- Suggested Positions -

Jul $100 call (UPS140719C100)* entry $1.98 exit $2.50 (+26.2%)

06/23/14 stopped out
06/21/14 new stop loss @ 101.75
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