Option Investor

Daily Newsletter, Tuesday, 6/24/2014

Table of Contents

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

Market Wrap

Yes, There Is a Sell Button

by Jim Brown

Click here to email Jim Brown

Today's drop proves that stocks can be sold. Many of us were beginning to wonder.

Market Statistics

This was a busy day for economics and there was another burst of headlines from Syria but there was nothing specific that caused the decline. Early in the day the market reporters blamed it on a report that Syrian planes were bombing targets inside Iraq and that was the reason for the market decline. While that is an interesting development I seriously doubt it impacted our markets.

Reportedly Syrian planes bombed ISIS convoys on two separate occasions with help from Iranian intelligence. That report was confirmed by two senior U.S. defense officials. The report was both bullish and bearish. It was bullish because they were bombing ISIS convoys. Regardless of which direction they were headed it was positive for Iraq. It was bearish because Iran provided the intelligence on the targets in Iraq and it was a foreign country bombing in Iraq and they killed more than 50 people. No word on whether those were 50 ISIS troops or 50 civilians.

What we did hear that was bearish for the markets was a move to evacuate the U.S. Embassy locations in Iraq. The U.S. is positioning ships in the Persian Gulf to assist in the event of an evacuation. Reportedly more than 1,000 embassy workers in Baghdad are already being moved to other locations including Jordan. The Iraq embassy is the largest U.S. embassy in the world with 5,000 workers. Moving to evacuate workers suggests the U.S. expects the conditions to worsen rather than improve.

Also weighing on the markets were comments from Philly Fed President Charles Plosser that the Fed may need to move faster and hike rates sooner to offset rising inflation. Analysts believe it will be mid to late 2015 before the Fed begins to hike rates. If the Fed suddenly said they were considering a shorter waiting period after the end of QE the market would react negatively.

However, even if Plosser is right and the Fed did decide to move earlier it would still be well into 2015 before that action would be announced. Selling stocks because of Plosser's comments today would be stupid. Investors will file his comments away for future review but it really depends on what the Fed says along the way.

The busy economic calendar should have been bullish for the market with multiple positive reports. The reports may have been so bullish that traders began to worry Plosser was right and the economy was accelerating too quickly.

New Home Sales spiked from 425,000 to 504,000 and the fastest pace since mid-2008. This was a +18.6% rise since April and +16.9% over April 2013 and months of inventory declined from 5.3 to 4.5 months. Home prices have risen +6.9% year over year. The snapback in home sales definitely arrived. The consensus estimate for a drop to 400,000 was really wrong and that contributed to the early morning spike in the markets.

Consumer confidence for June soared from 82.2 to 85.2 to the highest level since the recession. The present conditions component rose from 80.3 to 85.1 and a six-year high. The expectations component rose from 83.5 to 85.2, which was also a decent move. Auto buying plans rose from 11.6% to 12.3% of consumers surveyed. Home buying plans rose from 5.0% to 5.4%. Appliance buying plans like kitchen appliances and big screen TVs rose from 45.2% to 50.2%. Apparently the snapback in the consumer sector is also alive and well. However, only 18.8% of respondents expect business conditions will improve over the next 6 months. More than 16.3% thought available jobs would increase but 18.7% believe available positions will worsen.

The weekly chain store sales rose +2% and the biggest gain in four weeks. This follows a +0.4% gain last week and -2.8% drop the prior week. This report is normally ignored but today it was punctuation for the other bullish reports.

However, there was a bear in the house today. The Richmond Fed Manufacturing Survey declined from 7.0 to 3.0 and a three-month low. The internal components were generally negative. Backorders fell into contraction territory from +1 to -3. Employment declined from 10 to 3 and inventories fell from 14 to 4. New orders were a positive component with a minor rise from 3 to 4 and the average workweek rose from 3 to 7.

The Richmond Services Survey declined from 13 to 9 mostly as the result of a sharp decline in retail. If you exclude retail from both months it would have been a rise from 7 to 13. The six month outlook component declined only one point from 13 to 12.

The decline in the Richmond activity was minimal and nothing in the components suggests there is a slowdown in the long term trend. However, we have seen some weakness in several of these regional reports so the outlook is still cloudy.

The Case Shiller home price report showed prices rose in April 10.8% over year ago levels. That is down from +12.4% for the prior month. The FHFA Purchase Only House Price Index showed a gain of +5.9% in April compared to 6.4% in February. These are lagging reports for the April period and were ignored.

The big report for the week is the GDP due out on Wednesday. Analysts are currently expecting a downward revision to -1.9% for Q1. Most investors are going to be shocked when this number is released if it is anywhere close to the forecast. With estimates for the rest of the year now declining every week the negative start for the year could be bad for sentiment.

The Fed lowered their full year growth forecast last week from 2.9% to 2.3% because of the negativity in Q1. They blamed it on the weather and nobody blinked.

After Plosser's comments today the speech by Richmond Fed President Jeffery Lacker on Thursday is sure to draw attention.

I had several emails about the Russell index rebalance on Friday and asking about what to expect from the Russell in the following week. Basically the Russell should be negatively influenced by the rebalance through Friday. The majority of fund selling and buying will be done with market on close orders on Friday. However, traders will try to front run the funds by selling all week. Early next week fund managers will try to even out their new positions based on the final weightings released by Russell. This means there will be a minor amount of follow on buying to bring their positions into compliance with the new Russell weightings. In theory this should provide a slightly positive bias for the Russell indexes next week.

Since the indexes being reconstituted involve the top 3,000 stocks in the U.S. this positive bias is market wide. However, there are only about 165 stocks being added. Depending on the market cap of those 165 stocks the positions in the other 2,835 stocks will have to be adjusted. For instance if Facebook were being added with a $131 billion market cap it would cause ripples in the entire index structure. Even a little ripple can be felt because there is $7.5 trillion indexed to the Russell indexes.

I scanned the additions list, See the list of additions here, and I did not see any giants. However, there are a lot of midrange companies and some popular new IPOs. Companies of interest were GRUB, TYC, TRUE, PLUG, FRSH, LQ, FWLT, KODK, ARWR and ALLY. The two in that group that stood out the most were Tyco and Ally Financial. ALLY has a market cap of $12 billion and TYC is $21 billion. Strangely most of the small cap additions I looked at were moving lower. That may have just been the market pressures for this week.

Yahoo CEO Marissa Mayer really ticked off a lot of people when she showed up more than two hours late to a key meeting with some very important advertisers. The mistake came at the Cannes Advertising Festival where companies like Yahoo get some face time with the people who make decisions about spending tens of millions of advertising dollars.

In this case Interpublic Group (IPG) had arranged a private dinner at the very posh L'Oasis restaurant to meet executives from Mondelez International (MDLZ) home of Kraft Foods, Nabisco, Maxwell House, etc, MillerCoors and yogurt maker Chobani. When Mayer did not show up for more than two hours the CEO of IPG and several of the other executives had already left.

Mayer told attendees she had fallen asleep. Analysts said it would have been better if she had lied and blamed an unavoidable conflict. Since Yahoo's advertising revenue is declining every quarter Mayer should have been very interested in not only being on time but alert and engaged. After the story broke numerous employees and past employees came forward and claimed she is extremely late for meetings all the time. While I don't think Mayer will lose her job over this I suspect the board will make her understand that relationships matter and respect or disrespect from the C-suite goes a long way. Just because she earns $500,000 a week it does not mean she can show up at meetings whenever she wants.

Is anyone worth $500,000 a week?

Micron (MU) reported earnings of 79 cents that beat estimates of 70 cents. Revenue spiked +72% to $3.98 billion and beating estimates of $3.89 billion. They raised guidance for current quarter revenue to $4.1 billion and slightly ahead of estimates. Micron said estimates for falling chip prices were wrong and DRAM and NAND prices were stable and demand was strong. DRAM PC/Server memory accounted for 69% of revenue with NAND flash memory at 28%.

SanDisk is still outperforming Micron with a new generation of chips called TLC or three level cell. Micron is working on widening its product base but right now it is the low cost producer of the generic memory and business is good. Micron is expected to partner with a hard drive maker like STX or WDC to make a major push into SSD drives.

Vertex (VRTX) shareholders were handed a long awaited gift today when the company announced the results of some drug trials on cystic fibrosis. Lumacaftor, when used in conjunction with an existing Vertex drug was shown to improve lung function, patients quality of life improved and they gained weight. People with this disease normally die in their mid 20s. Goldman Sachs expects the drug to peak at $5 billion a year in revenue, up from the $370 million for the companion drug. This is a windfall for Vertex and they have a couple more drugs in the pipeline to further enhance the patient response. Analysts expect VRTX shares to rise as high as $150 once they get FDA approval in 2015.

This drug trial announcement had been expected for some time and Vertex said it would be out at the end of June. You could not buy options on VRTX for the last several weeks without paying an obscene premium. I tried on Monday to find a way to play it for maximum impact and I could not make the numbers work. Near the money calls at $15 and puts at $12 on a $66 stock did not work for me. The reason was the potential for either a pass or fail trial. If the trial had failed we could have seen the stock in the $20s, down from the close at $66 on Monday. This was an all in bet. Red or black, pass or fail, hero or zero. Those with faith in the outcome were richly rewarded. Shares rallied +40% to $94.

Web.com (WWWW) shares fell -20% after Google said it was testing a service for finding and registering domain names. If Google leaps into this sector the cannonball splash is going to empty the pool. There has been some serious consolidation over the last several years and every time I log into my registrar I expect to see some new name on the webpage.

Registering domain names is a lucrative business. I own about 700 and even using an inexpensive registrar is expensive because they have to be renewed every year. I loaded up on website and newsletter names over a decade ago and have been slowly selling them off one at a time. I sold Jon Najarian the OptionMonster.com name way too cheap! (If anyone wants to start their own website/newsletter just email me and I will partner with you. Need a newsletter name, I have it.)

Google could quickly dominate the market if it decides to jump in. Google has sold domains through resellers in the past so they have experience in the process. It is not a hard business and with Google's IT staff they should be able to develop a compelling offering. They announced yesterday they are working with website builder Wix.com (WIX) and shares of WIX spiked 13%.

The energy sector was the biggest loser today after being the biggest winner for the last month. Shares of the big momentum stocks were down hard on no news. CLR lost -$5, EOG -4, HP, -4, WLL -4, OXY -4, etc. However crude prices were positive most of the day around $106. The sector may rebound tomorrow because something happened after the bell to send crude prices to $107.50 and while I could not find the headline I would bet it had to do with Iraq.

The Dow lost -119, Nasdaq -18 after being up +30, the S&P -12 and the Russell 2000 -11. Those are decent declines but only a blip in the longer term trend. The S&P only declined -.6% and added one more day to extend its streak to 44 days without a 1% move in either direction. That is the longest since 1995. We should not be concerned about a -12 point drop especially when the trend since January has been rally for a couple weeks, decline for three days and repeat.

The S&P hit a new intraday high at 1,968 this morning before falling to close at 1,950. That round number close was convenient but support is still another 20 points away around 1,930. If the 1,925-1,930 level breaks we should become very concerned because it would be a change in the trend.

The historical trend for the week after June expiration is down for 21 of the last 24 years. We are well on our way but the week is not over.

The Dow chart worries me. The Dow high in early June was 16,970.17. The intraday high today was 16,969.70. The difference is only .47 or less than half a point. Can you say "double top?" Normally double tops are farther apart in time but it would be tough to argue with today's performance. The fly in this soup is the intraday high on Friday at 16,978. It only happened for a few seconds before falling back below 16,960 the rest of the day. However, the chart still looks the same.

The failure at the 16,970 level multiple times is a warning. If uptrend support just under 16,800 were to fail this decline could accelerate quickly. As long as the existing tend is not broken buyers will eventually return. However, this close to summer it would not take much to sour sentiment. Nobody wants to leave a bunch of positions open in a falling market as they head to the beach.

The Nasdaq Composite soared past resistance at 4,371 at the open but the hang time above that level was very short. The decline began almost immediately and the Nasdaq went from +30 at the open to -18 at the close. In reality all it did was give back three days of gains but it was ugly on an intraday chart.

The 4,350 level is a critical support point after falling below the short term uptrend support. However, we could dip to the 4,300 level without significant damage. I don't want to go there but it is not my choice.

The Nasdaq 100 spiked through the 3,800 resistance level that has held it back for two weeks but it was instantly sold to knock it back below that prior resistance. Note the very tight range under 3,800. That suggests the buying pressure is growing.

The Russell 2000 was up +9 points in the morning and declined to lose -12. The dead stop at 1,193 and resistance from April could have been a determining factor but I am betting on the Dow being the lead dog today. However, the MACD is rolling over along with the RSI. We need that 1,160 support level to hold or we are in big trouble.

Let's review the facts. We were overbought and struggling to make incremental new highs every day. The Dow may or may not have been the major factor for the decline when the early June highs proved to be too much resistance to overcome. This week has been down in 21 of the last 24 years. The situation in Iraq took a turn for the worst. A Fed head was trying to roil the market and succeeded.

One day does not make a trend. Our recent history of dips lasting only three days is a trend. Let's hope it holds.

There were 275 new highs on the NYSE and Nasdaq and only 53 new lows. That is hardly bearish.

The S&P only traded in a narrower range than it did on Friday and Monday ONE day in the last 20 years. We were due for some volatility.

Table from Business Insider - MKM Partners

Traders are so used to watching the market overcome all obstacles and move higher that a strong down day flushed out a lot of weak holders.

Thanks to QE making money cheap in the first quarter stock buybacks totaled $160 billion and the second highest quarter ever. If you add dividends the cash back to shareholders totaled $241.2 billion. Only Q4-2007 was higher. When QE ends this free money scenario could also end. With this statistic being repeated almost daily and Plosser predicting a quicker arrival of rate hikes investors may have decided to take some money off the table.

We never know why a market declined until it is over and we have the benefit of hindsight. Let's hope our rear view mirror next week shows another three day dip and rebound to new highs. If this dip turns into something else then we will deal with it as it happens. Remember, stocks do go down as well as up. We should remain in buy the dip mode until proven wrong.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Sales Slowdown

by James Brown

Click here to email James Brown


Tractor Supply Co. - TSCO - close: 62.56 change: -0.44

Stop Loss: 64.10
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:
TSCO has everything from cowboy boots to chicken coops and everything you might possibly need on the farm. The company has over 1,300 stores in 48 states. This specialty retailer is focused on the "lifestyle needs of recreational farmers and ranchers and others who enjoy the rural lifestyle, as well as tradesmen and small businesses."

A lot of things are on the rise for TSCO. They have rising sales, a rising dividend, rising stock buyback program. What is not rising is their stock price. Shares peaked in January this year after surging to all-time highs in 2013. The company has been raising its dividend, now up to 16 cents a share. They also recently announced another $1 billion to their stock buyback program. Unfortunately these do not seem to be helping the share price.

Their last earnings report was April 23rd. TSCO reported Q1 earnings of 35 cents a share on revenues of $1.18 billion. That missed estimates of 37 cents on revenues of $1.21 billion. To be fair the terrible weather in the first quarter really did affect their sales, given their farm and rancher focus. Management believes these sales will return as the weather improves. TSCO reaffirmed their 2014 sales guidance of $5.62 billion to $5.7 billion and same-store sales of 2.5% to 4%. The company plans to open over 100 new stores this year.

Not everyone on Wall Street believes TSCO is a buy. The company was recently downgraded thanks to its high valuation (over 26 times its 2014 earnings estimates) and weaker gross margins. TSCO also seems to be suffering from slowing same-store sales. Last year their average same-store sales growth was +4.8%. The fourth quarter's was +3.5%. The first quarter of 2014 it was down to +2.2%. Again, you could blame that on the weather but it's not a good trend.

Technically shares of TSCO are in a bearish pattern of lower highs and soon to be lower lows. The February low was $62.06. We are suggesting a trigger to buy puts at $61.90. We are not setting an exit target tonight. It is worth noting that the point & figure chart is bearish and suggesting a $46 target.

Trigger @ $61.90

- Suggested Positions -

Buy the Oct $60 PUT (TSCO141018P60) current ask $2.30

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

Annotated Chart:

Weekly Chart:

Entry on June -- at $---.--
Average Daily Volume = 871 thousand
Listed on June 24, 2014

In Play Updates and Reviews

Reversal In Progress?

by James Brown

Click here to email James Brown

Editor's Note:

The market's early morning highs vanished into a widespread market decline on Tuesday. Is this a reversal in progress? Or is this just a little profit taking?

The market ignored positive economic news like new home sales rising at their fastest pace in six years. Plus, the latest consumer confidence reading hit six-year highs.

Our EXPE trade was closed this morning.

Current Portfolio:

CALL Play Updates

Ameriprise Financial - AMP - close: 118.50 change: -0.88

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: - 2.7%
Time Frame: 8 to 12 weeks
New Positions: see below

06/24/14: AMP approached potential round-number resistance at $120 midday before rolling over and following the market lower. We can look for short-term support near $118 or the 10-dma near $117.50.

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: 107.39 change: -3.71

Stop Loss: 99.90
Target(s): To Be Determined
Current Option Gain/Loss: + 29.1%
Time Frame: 8 to 12 weeks
New Positions: see below

06/24/14: Energy stocks were some of the market's worst performers today as investors decided to do some profit taking. APC lost -3.33% and erased the last four days worth of gains.

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: 82.45 change: -1.04

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: + 73.9%
Time Frame: 8 to 12 weeks
New Positions: see below

06/24/14: COF underperformed the financial sector with a -1.24% decline today. Shares look poised to test short-term support near $82.00 soon.

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: 67.08 change: -1.39

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: -11.8%
Time Frame: 8 to 12 weeks
New Positions: see below

06/24/14: DWRE briefly spiked above resistance at $70.00 this morning before reversing lower. The $65.00 level might offer some short-term support.

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

Hanesbrands Inc. - HBI - close: 88.54 change: +0.34

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: +25.8%
Time Frame: 8 to 12 weeks
New Positions: see below

06/24/14: HBI tagged new highs today thanks to some positive analyst comments. Shares also received a $100 price target. The stock rallied to $89.57 intraday before trimming its gains.

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: 131.39 change: -2.42

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: -30.7%
Time Frame: 8 to 12 weeks
New Positions: see below

06/24/14: The profit taking in MLM continued on Tuesday and shares fell -1.8%. Today's drop is also a bearish close below its simple 10-dma. The next level of support should be $130.00. Our stop is at $129.75.

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: 203.03 change: -1.34

Stop Loss: 200.75
Target(s): To Be Determined
Current Option Gain/Loss: -12.3%
Time Frame: 8 to 10 weeks
New Positions: see below

06/24/14: PPG traded up to $205.49 before reversing. Shares are now back under their 10-dma and 20-dma. That is short-term bearish. I'm worried if this market pullback continues tomorrow we could see PPG hit our stop at $200.75.

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: 62.52 change: -0.98

Stop Loss: 61.90
Target(s): To Be Determined
Current Option Gain/Loss: -29.2%
Time Frame: 8 to 12 weeks
New Positions: see below

06/24/14: Airline stocks followed the rest of the transportation industry lower on Tuesday. SAVE struggled with the $64.00 level this morning before moving lower and closing down -1.5%. Shares could hit our stop loss at $61.90 tomorrow.

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: 77.43 change: +0.70

Stop Loss: 71.75
Target(s): To Be Determined
Current Option Gain/Loss: +24.6%
Time Frame: 8 to 12 weeks
New Positions: see below

06/24/14: SBUX displayed relative strength today with a +0.9% gain. This is a new five-month closing high for SBUX.

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: 52.42 change: -1.19

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

06/24/14: This morning, before the opening bell, SLCA announced they were raising prices again on its non-contracted ground and fine ground silica sand products used primarily in paints, coatings, and other chemical products. The average price increase is 10 percent. This announcement may have helped SLCA's early morning rally. Shares traded up toward round-number resistance at $55.00 and then reversed. SLCA eventually erased most of yesterday's gains.

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

PUT Play Updates

Currently we do not have any active put trades.


Expedia Inc. - EXPE - close: 76.26 change: -1.57

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

06/24/14: In last night's newsletter we decided to exit our EXPE trade early at this morning's opening bell. EXPE gapped down to open at $77.51 before falling -2.0% by day's end.

We're still longer-term bullish on the stock. Keep an eye on it for support in the $74-75 zone.

- Suggested Positions -

Oct $80 call (EXPE141018C80) entry $4.15* exit $4.80** (+15.6%)

06/24/14 planned exit this morning
**option exit price is an estimate since the option did not trade at the time our play was closed.
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