Option Investor

Daily Newsletter, Thursday, 6/26/2014

Table of Contents

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

Market Wrap

And Back To Support

by Thomas Hughes

Click here to email Thomas Hughes
Some less than expected data sent the markets back down to support.


Lower than expected personal spending data sent the markets seeking support today. Asian markets ended up on the rebound in US stocks seen Wednesday while the EU indices felt some of the impact of today's economic data. In the pre-opening session US futures were indicated flat to positive until the 8:30AM time frame when the trade turned slightly negative. The reason, personal spending, a sign of the consumer strength, rose but only by 0.2% versus the expected 0.4%.

Just before the opening bell index futures strengthened to the point it seemed as if we might have a positive day but that did not last long. Soon after the start of open trading the indices began to drift into the red and then made a quick drop down to retest near term support. The SPX was down -3.5 in the first minutes, -9 by 9:45AM and by 9:50 had hit intraday bottom near -13. The index briefly touched 1945 then began bouncing higher. The remainder of the day saw the index tread water just above support and hold that level into the close. Although the spending data was today's excuse to sell it only takes a look at the calendar to see why the markets are treading water this week. Next week is the end of the month and the end of the 2nd quarter. This means there will be a massive wave of macroeconomic data that will affect 2nd quarter GDP estimates and outlook for the next quarter. And on top of that earnings season begins the week after that.

Another reason may be comments from Fed President Bullard. In comments today he said that the economy was likely much closer to “normal” than most people realize. He expects to hit 2% inflation and sub 6% unemployment later this year. He doesn't believe the market or policy makers understand that the economy is as close as it is to being normal. Further comments included things like the Fed is not as dovish as the market thinks and that interest rates could rise as soon as the end of Q1 2015. His projection for economic growth over the next four quarters averages 3% which means that, if correct, this quarter isn't going to be that bad even with the massive revision to the first quarter.

The Economy

First up, Personal Income and Spending. Personal income rose as expected by 0.4% but spending only rose by 0.2%, half the expected rise. This is now the second month of weaker than expected spending. This is concerning because it may have a drag on GDP in this quarter. On the flip side it may also mean that households are saving, which is good, either for summer vacations or other more long term reasons.

On the employment front initial claims for unemployment fell by -2,000 from an upward revision of 2,000 for a net gain of 0 from last weeks report. Claims this week were reported as 312,000. The four week moving average rose by 2,000 to 314,000. On a non adjusted basis claims rose by 2,832 to 304,169. Claims are holding steady and are near the bottom of the 7 month range. Based on this figure and chart it does not look as if the labor market is holding steady but has not significantly improved. Pennsylvania and California led with increases in claims of +7,120 and +670. Georgia ad Missouri led with declines of -2,245 and -2,130.

Continuing claims rose slightly this week as well. Claims for a second week of unemployment climbed by 12,000 to 2.571 million. Last week was revised lower by -2,000. The four week moving average of continuing claims fell to a new low not seen since November 3rd, 2007. This figure is looking better in terms of the labor market. Continuing claims is still trending lower and could be leading total unemployment lower as well. Total claims for unemployment this week fell by -37,990 to hit 2.441. This is just off the long term low for this figure.

There is only one economic indicator being released tomorrow, Michigan Sentiment. The expectation is for the final reading for the month of June to be revised higher by about one point to just above 82. Next week however is a different story and will provide a lot of information for the market to chew on. There are a total of 21 economic releases including auto/truck sales, pending home sales, ISM, factory orders, ADP, Challenger and the all important NFP. My calendar shows NFP on Thursday this time around which will make the Wednesday/Thursday time span full of employment data.

The Gold Index

Gold prices fell today but not as much as I might have guessed given the nature of the Bullard comments. Gold prices lost about $15 in the early part of the day but tapered that down to about -$6 or so at the close of trading. On top of the hawkish spin to Bullard's comments there was also some bearish news for gold including low demand among physical buyers as well as ETF and other fund buyers. China is also reported to be consuming less as imports fell more than 17% last month. Last weeks massive rally was driven by short covering which leaves gold in a very precarious position. If no one sees gold as bullish at this level there is no place for it to go but down. Bullard's comments are certainly no reason to get bullish on gold for me.

The Gold Index traded to the upside today but I am not too bullish on it. The drop from my resistance line just two days ago is a confirmation that there are still long term bears in this market. There is some sign of bottoming in the index on the longer term weekly charts but that bottom, if it is one and I am not calling it, is down around the $85 level. In view of the long term down trend in the Gold Index this is looking a lot like a trend following entry, possible near the end of the trend, but still trend following. The MACD is bullish and peaked at the resistance level simultaneously with a strong bearish stochastic crossover. There is long term resistance at the $100 level with support levels around the $95, $92.50, $90 and $85 levels. I took a stroll through the list of gold stocks, indices and funds I know to see what I could see. Every single one ( GOLD, GLD, GG, RGLD, ABX) shows price action confirming a longer term resistance level.

The Oil Index

Oil traders finally realized what the news reports have been saying all along. The oil infrastructure in Iraq is not under any more threat than it normally is. The ISIS uprising is not impacting Iraqi oil delivery, refining or production...yet. The possibility is still there but the need to drive up oil prices because of the possibility lessened somewhat today. WTI fell by nearly a dollar by the late afternoon with Brent down an equal amount. The Oil Index also traded lower today but appears to be confirming support. The index corrected hard this week after reaching its peak on Monday but is still above long term support and the short term 30 day moving average. Today's price action just above yesterday's close and then moved lower to test that support and then form a hammer doji. Even with the Iraq premium deflating oil prices are still at long term high levels and should have a positive impact on the bottom line of oil producers. The long term trend in the index is up and support is in play at the previous all time high at 1660.

In The News

There were quite a lot of names in the news today. Camera maker GoPro was a hot topic today. The company rang the opening bell and IPO'd. The stock was priced at $24 per share even though it was oversubscribed by about 20X. The opening went without a hitch and the stock quickly rose an additional $7 making many of the participants near instant millionaires.

Barclay's is the subject of a new investigation and allegations pertaining to dark pools and high frequency trading. The charges allege that Barclay's favored high frequency traders through its dark pool. The company naturally is cooperative. Barclay's ended plans for a new bond offering in the wake of the investigation and some of the brokers using the dark pool have dropped their connections. Shares of the stock dropped more than 7%.

GM halted all sales of its top selling Cruze vehicle due to an air bag malfunction. Not all cars are affected but the company decided to stop all sales until they can recall the bad parts. The talk on TV was how this was a bad sign for GM but there may be a positive in it. Yes GM's sales are going to be affected but the stance of taking no chances could stand out in the eyes of consumers once this issue is in the past. Until then, Ford may be the better pick in the auto sector.

Alcoa hit the news today and not because of earnings. The aluminum giant purchased Firthe Rickson, a maker of airplane parts for jet engines. Company execs say the move is to enhance their offering of air line related products. Alcoa reports earnings in less than two weeks. The stock has been trending up steadily for the last 9 months and looks as if it could continue. Today's announcement caused the stock to gap up and get ahead of the market so there may be some consolidation going into next week and earnings season.

Big Lots instituted a dividend. The dividend is $0.17 per share quarterly, or $0.64 annually or about 1.5% of current stock prices. Shares of Big Lots fell more than 1.25% on the news.

After the closing bell Dupont lowered its full year guidance on slow sales of corn seeds. Stronger sales in soy beans off set some of the difference but not enough to maintain projections.

The Indices

The market traded to the downside today after a fair opening and never could quite get back to break even. The Nasdaq posted the least amount of loss today and is trading closest to a new high of the big three. Today the index opened above the long term resistance of the previous 14 year high, tested that level and moved back above to close very near to the opening price. The Nasdaq made a new high and so far resistance has not pushed it back down. The indicators are consistent with a range bound stock so I am not over bullish on this index without a firmer break of resistance and move into new highs. A failure to do so could result in a return to support at 4,250 or 4,100.

The SPX traded lower to test support at 1,950. The early move lower took the index down to just below 1,945 before it made a sharp bounce back to the 1,950 level. Late day trading nearly took the index into the green but not quite. This is now the 7th day of trading above 1,950 and the indicators have softened to a point where buyers could step back into the market. Momentum is bearish but very very weak. The stochastic is in the mid part of the range, neither over bought or over sold, and has already given a weaker early trend following signal.

The Dow Jones Industrials fell about -0.13 % today but may get a boost tomorrow from Nike, which reported earnings after the bell. Nike beat on the top and bottom lines with solid guidance for the future. The stock popped more than 3% after the bell. As for the Dow itself it is sitting on a solid support level marked by a previous all time high and the short term moving average. The indicators are bearish but weak and consistent with consolidation at this time. The stochastic is similar to that of the SPX and is setting up for a potential second/stronger trend following signal. Support is currently at 16,750 with the next level just below at 16,500.

The Transports were today's loss leader with a -0.18% decline. This index also tested support at the short term moving average and is trading in a rapidly narrowing range that began about three weeks ago. This range/consolidation is beginning to look like a possible flag/triangle continuation and bears close watching. The indicators are little mixed as MACD is still bearish but the peaks show support at the current level. Stochastic is pointing to a trend following buy. A move above 8,250 on this index could lead to another prolonged up swing with a target at 8,500.

The markets are consolidating and getting ready for next week. There is a lot of data coming out and a lot of reasons for the market to get high or get spooked. The entire week will be important but Thursday and the NFP will be the focus I believe and that will quickly move on to earnings the very next week. There is not much on the schedule tomorrow save Michigan Sentiment and four earnings reports including KB Homes. The trends are still up but for now the markets are waiting for data and earnings. Unless something surprising comes out tomorrow could be more of the same we saw today.

Until then, remember the trend!

Thomas Hughes


New Option Plays

$4.1 Trillion In Assets

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's failure to see any follow through on yesterday's bounce is a little bit frustrating. At the same time traders did buy the dip again this morning.

There was a lot of talk today about the Russell rebalancing tomorrow. This is an annual event. This affects over $600 billion invested directly in products based on the Russell indexes. It also influences the $4.1 trillion (with a T) in assets that are benchmarked to the Russell indices.

Tomorrow could be a quiet summer Friday but the Russell reconstitution might generate some volatility.

We are not adding new trades tonight.

In Play Updates and Reviews

Stocks Drift Lower

by James Brown

Click here to email James Brown

Editor's Note:

The market failed to see any follow through on yesterday's bounce.

Our HBI trade was closed this morning.
MLM hit our stop loss. TSCO hit our entry trigger.

Current Portfolio:

CALL Play Updates

Ameriprise Financial - AMP - close: 119.15 change: -0.09

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: + 5.5%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: AMP bounced off short-term support near $118 again this morning. If you're looking for a new entry point you may want to wait for a breakout past $120.00.

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: 109.09 change: -0.48

Stop Loss: 99.90
Target(s): To Be Determined
Current Option Gain/Loss: + 51.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: APC spent Thursday's session hovering in the $108-110 zone. Traders may want to wait for a rally above $110 before considering new positions.

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: 82.49 change: +0.16

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: + 76.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: COF pierced short-term support near $82 and its 10-dma this morning but shares managed to bounce back into positive territory by the closing bell.

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: 66.67 change: -0.52

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: -14.7%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: DWRE is still consolidating sideways. I am not suggesting new positions at this time.

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

PPG Industries - PPG - close: 202.58 change: -1.89

Stop Loss: 200.75
Target(s): To Be Determined
Current Option Gain/Loss: -23.2%
Time Frame: 8 to 10 weeks
New Positions: see below

06/26/14: The trading in PPG turned bearish on Thursday with shares erasing yesterday's bounce. If this move continues lower tomorrow we will likely 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

Starbucks Corp. - SBUX - close: 78.06 change: -0.06

Stop Loss: 71.75
Target(s): To Be Determined
Current Option Gain/Loss: +38.5%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: Shares of SBUX spent Thursday's session meandering sideways and closed virtually unchanged.

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: 54.04 change: +0.17

Stop Loss: 48.40
Target(s): To Be Determined
Current Option Gain/Loss: +11.1%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: SLCA inched higher. Shares still look poised for a bullish breakout past resistance near $55.00.

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 Rentals, Inc. - URI - close: 105.28 change: -0.30

Stop Loss: 101.80
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

06/26/14: URI is still consolidating sideways on either side of $105.00. I do not see any changes from last night's new play description.

Earlier Comments: June 25, 2014:
URI is the 800 pound gorilla in the rental space. With almost $5 billion in annual sales they have become the largest equipment rental company in the world. URI offers 3,100 categories of construction and industrial equipment for rent, including a number of specialty equipment. They have over 870 locations in 49 U.S. states and 10 Canadian provinces.

URI claims a diverse customer base that includes construction and industrial companies, utilities, local municipalities, government agencies and independent contractors.

Business must be good because URI is developing a trend of beating analysts' estimates. Their most recent earnings report in April was 90 cents a share on revenues of $1.18 billion. Wall Street was only looking for 76 cents a share on revenues of $1.17 billion. Management reaffirmed their full year outlook. Last year URI delivered earnings growth of 30 percent. They're on track to hit almost 32% EPS growth this year.

If you believe the economy is improving then URI should continue to benefit as construction picks up. The relatively slow growth the U.S. has seen so far has promoted a more cautious stance on companies in the construction and industrial space. That means more of them have chosen to just rent equipment instead of buying it. This has fueled strong time utilization rates for URI.

URI reported they spent $43 million of their $500 million stock buyback program in the first quarter. They expect to complete the program by April 2015.

Technically shares of URI are in a long-term up trend as investors continue to buy the dips. Tonight we are suggesting a trigger to open bullish positions at $106.70. We are not setting an exit target tonight but the point and figure chart is bullish with a $114.00 target.

Trigger @ $106.70

- Suggested Positions -

Buy the Sep $110 call (URI140920C110) current ask $4.20

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

Entry on June -- at $---.--
Average Daily Volume = 1.6 million
Listed on June 25, 2014

PUT Play Updates

Tractor Supply Co. - TSCO - close: 60.84 change: -1.42

Stop Loss: 64.10
Target(s): To Be Determined
Current Option Gain/Loss: +14.2%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: Our new play on TSCO is now open.

The selling pressure in TSCO accelerated on Thursday. The stock broke down below potential support and underperformed the market with a -2.2% decline.

Our suggested entry point to buy puts was hit at $61.90.

Earlier Comments: June 24, 2014:
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.

We are not setting an exit target tonight. It is worth noting that the point & figure chart is bearish and suggesting a $46 target.

- Suggested Positions -

Long Oct $60 PUT (TSCO141018P60) entry $2.45

06/26/14 triggered
Option Format: symbol-year-month-day-call-strike

Entry on June 26 at $61.90
Average Daily Volume = 871 thousand
Listed on June 24, 2014


Hanesbrands Inc. - HBI - close: 98.03 change: +1.31

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: +178.9%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: HBI continued drifting higher today. Shares outperformed the market with a +1.3% gain. The $100.00 level could be acting like a magnet but it could also be round-number, psychological resistance.

Our plan was to exit positions this morning to lock in potential gains. HBI opened at $96.37.

- Suggested Positions -

Oct $90 call (HBI141018C90) entry $2.94 exit $8.20* (+178.9%)

06/26/14 planned exit this morning.
*option exit price is an estimate since the option did not trade at the time our play was closed.
06/25/14 prepare to exit tomorrow morning
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: 130.13 change: -0.80

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: -43.0%
Time Frame: 8 to 12 weeks
New Positions: see below

06/26/14: MLM's performance the last few days has been a big disappointment. Shares broke out above resistance at $135.00 four days ago and immediately reversed. The stock has been down every day since. Shares traded below what should have been support at $130 today and hit our stop at $129.75. Actually, looking at an intraday chart, MLM gapped down at 9:47 a.m. so our exit was $129.62.

- Suggested Positions -

Oct $140 call (MLM141018C140) entry $6.50* exit $3.70** (-43.0%)

06/26/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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