Option Investor

Daily Newsletter, Thursday, 7/24/2014

Table of Contents

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

Market Wrap

S&P 2000 In Sight

by Thomas Hughes

Click here to email Thomas Hughes
Global data and earnings pushed the S&P 500 a little closer to the elusive 2,000 mark.


A combination of global and domestic macroeconomic data and earnings from nearly 230 companies combined to send the S&P 500 to a new all time high. Chinese and European flash PMI readings started the ball rolling in the early sessions. Chinese PMI rose to an 18 month high indicating that manufacturing in that region is responding to stimulus measures. The index came in at 52, versus the previous 50.7 and the expected 51. In the EU net PMI came in at a surprising 54 with expected weakness in France and other peripheral countries. In Germany PMI rose to 52.9, ahead of the expected 52 and last months reading. Asian markets were mixed but mostly in the green while in Europe buyers were able to lift the indices across the board with an average gain around 0.5%.

Market Statistics

Futures trading indicated a higher opening throughout the pre opening session. There were some fluctuations but the indication for the SPX was about 3 points higher than yesterday's close. A flood of earnings reports and a much better than expected jobless claims number had little affect on the market but did help to support it. At the open trading was in the green with some pressure to test yesterday's closing price in the first half hour to an hour. The SPX and other indices were pushed back to break even and into the red for a brief time before moving back up to the intraday high. One cause for the early pressure was a weaker than expected new home sales number that did not inspire a lot of confidence in the housing recovery. The remainder of the day saw the indices drift between the lows and highs of the day, closing near the mid point of the range.

Economic Calendar

The Economy

Today initial claims for unemployment was released with a surprise drop. Claims fell by an unexpected -19K to below 300,000 and a new low not seen since before February 18, 2006. This is the first time claims have been below 300K since before the crisis and a sign I have been on the watch for. This is not the holy grail of economic data by any means but is an important level in terms of this one particular indicator. This is a sign that near term unemployment, layoffs and job turnover are improving and could lead to improvements in other areas. Last weeks figure was revised upward but by a mere 1,000 claims. The four week moving average fell by more than -7K and is on the verge of breaking 300K as well. This is also a new low, one not seen since before May 19, 2007. Now that intitial claims have fallen below 300K it may be time to start looking for another marked improvement in the jobs data. The next round of which is just next week. Initial claims lag by a week, continuing claims by 2.

Continuing claims fell as well in this weeks data, by -8,000. Claims for a second week of unemployment dropped to 2.5 million and another low not seen since June 16, 2007. Last week's data was revised up by 1,000. The four week moving average of continuing claims fell by -17,000, also a new almost 7 year low. Looking at the table of adjusted claims provided by the DLS it appears as if they are trending lower with no sign of bottoming. Total claims was the negative surprise in today's jobs related data, climbing by more than 165,000 to 2.611 million. This is off of recent lows but still near the somewhat recently set long term lows.

On an unadjusted basis claims fell by more -78,215, or -21.1%. This is more than 30% more than expected. On a state by state basis New York and California led with gains in claims of 14,427 and 11,126, respectively. Georgia was next runner up with a gain of 6,112. Michigan and New Jersey both had drops in claims with Michigan's -6,846 leading the way. Now that the jobs market seems to be stable and possibly picking up some analysts are calling for an increase in wages as the next sign of recovery. Based on the results of Moody's weekly Survey Of Business Confidence that sign may come soon. The last two weeks summary of the survey has included positive sign that wage increases are in the works and could begin to appear in the hard data soon.

New Home sales posted an unexpectedly large drop. Sales fell -8.1% to an annualized rate of 406,000. This is below the expected rated of 479,000 annualized sales. The headline drop is not counting the downward revision to last months data which would put this month's figure closer to the -20% mark. On a year over year basis sales are down -11.5% with an increase of inventory of 3.1%. The caveat here is that the numbers are based on estimates with a margin of error of +/-12.3%.

Tomorrow Durable Goods Orders is the only thing on the economic calendar. Next week however is going to be a big one as it is the next FOMC meeting and the end of the month. End of the month means ADP, Challenger, NFP and unemployment data along with several other key reports.

The Oil Index

Oil prices dropped about $0.50 for WTI in the early part of the session. Later that drop extended to $0.90 and then $1.25 as diminishing concerns for global unrest merge with high stockpiles and improved supply. WTI settled near $102 today, down near -1%, but is still elevated over the longer term. Oil over $100 is good for oil company earnings, at least in theory, and that theory seems to have oil companies on the move. The Oil Index is bouncing off of its long term support line and is now moving higher. The index moved up about a half percent today and crossed the 1,700 line for the first time since breaking and being rejected by that same line last month. The move is approaching the current all time high and is accompanied by bullish indicators. Stochastic is firing off the strong trend following signal and that was confirmed today by MACD. Longer term bulls will need a break of resistance but a test of the current all time high seems likely in the near term. Support is at 1,650 with resistance near 1,725.

The Gold Index

Gold broke $1,300 today and fell to a potential support level near $1,290. Early indications had the metal trading just above round number support at $1,300 but once prices dipped below they quickly retreated down to the next level. US economic data and in particular the jobs picture have helped to strengthen the dollar and bring prices down. The Gold Index made a similar move to the down side, breaking a near/short term support line and then later the short term 30 day EMA. The indicators are bearish and gaining strength, in line with the underlying long term trend, and point to lower prices. Downside targets are $95, $92.50 and $90 in the near to short term with resistance just above the current level. Longer term there is some signs of a possible bottom around $85.

In The News, Story Stocks and Earnings

Today more than 230 companies reported earnings on what is one of the single biggest day's of the season. Action before the bell was mild considering the number of those meeting or beating expectations. The percentage is now around 79% in favor of those S&P 500 companies at least meeting the expectations. After hours was active as a number of high profile names reported. A quick round up of names reporting before the bell includes 3M, Ford, General Motors, and American Airlines. Those after the close of trading include Visa, Starbucks and Amazon.

3M reported earnings that were more or less in line with expectations. The company reported earnings of $1.91 per share and reaffirmed their guidance. Earnings are up 11.7% and are a record for the company. The stock rose today to touch a new all time intraday high but fell back from before the close. The indicators are neutral within the current uptrend but could be rolling into a buy but more confirmation is needed to get bullish on this one from here.

Ford reported better than expected earnings, driven by a surprise profit in Europe. The European arm of the company reported its first profit in 3 years, at least a quarter or two ahead of the general expectations. Adjusted EPS of $0.40 is 11.1% better than consensus estimates and on top of a slight miss in revenue. This suggests that operations are better than expected although sales are light. Shares of the stock opened higher, climbed to a new three and half year intraday high before falling from long term resistance. The indicators are bullish but weak and could be indicating the top of a range. The longer term charts are more decisively bullish so I am not counting out higher prices, but with the possibility of near to short term consolidation or pullback. Support is around $17.50 with the next level just below along the short term moving average in the $17.25 region.

GM did not meet expectations due to the impact of the recall on top and bottom line numbers. On an adjusted basis GM earned $0.58 per share, just shy of estimates, on revenue that also fell short. On a non adjusted basis GM reported earnings more than 70% lower than last year at this time due to the massive cost of the recalls, scandal and compensation fund which is just an estimate. Shares of GM fell more than 4% today, dropping below the short term moving average with strongly bearish indicators. A retest of support near $35 or $33 looks likely.

American Airlines, among other air carriers, reported earnings that beat expectations. The airline reported record earnings and initiated a stock buyback along with a dividend, the first since 1980. The company also reported further plans that are intended to reduce debt and costs. The stock, which has been trending higher since the first of the year, moved higher on the news before falling in the late afternoon trade.

After hours action was a little hot as a number of S&P and Nasdaq companies reported. Visa beat on the top and bottom line as consumer spending increased. Starbucks also beat top and bottom with 22% EPS growth, 6% comp store growth and an improvement in gross margins. Amazon was a disappointment, reporting a much wider than expected loss on revenue that was in line with estimates.

The Indices

The SPX moved marginally higher today to set a new all time intraday and closing high. The index moved about 0.1% higher after a day of light trading. Economic data and earnings helped to push the index to the high but next weeks FOMC meeting and round of economic data may be keeping the rally in check for now. The index is firing a stochastic trend following signal that is yet to be confirmed by MACD. However, similar trend following set ups over the past year and more have resulted in upward movements in the range of 40-60 points in the near to short term. The daily charts, shown here, are convergent with the longer term weekly charts which adds even more weight to current bullish analysis. This leads me to think the so-called summer melt-up that folks have been talking about could happen. Next week there are quite a few events on the calendar that could be the catalyst including the FOMC and the NFP.

The other indices were not able to hold positive territory today but closed more or less flat. The Dow Jones Industrial Average lost about -0.02% or just under 3 points. The index has been consolidating over the past week and is inside a narrowing range supported by the short term moving average and the current all time high. The indicators are on the bullish side but still more neutral than not. There is no sign of reversal or stopping here, just not much sign of strength. The index is still moving slowly and steadily higher and that is supported by the indicators.

The Dow Jones Transportation Average lost -0.03% today, or just under 2 points. The index moved lower after a flattish opening and a mild test of the new all time high set yesterday. This index is also moving slowly and steadily higher, like the blue chips, but with more strength. Bullish momentum is steady, even with today's mild drop, and stochastic is pointing up while moving higher in the upper signal zone. There is a chance for some near term weakness but short and long term indications are bullish. A short consolidation here could be expected as it is the first target based on the break out of the flag pattern from the beginning of the month. The next upside target on a continuation is 8,750. Should a dip ensue support is about 250 below the current level along the 8,250 level and the short term moving average.

The tech heavy Nasdaq shed the most today, -0.04%. The index found resistance less than a half point below the current all time high after an opening just above yesterday's close. This indicator is at resistance set last month with indicators that suggest it will test this level in the least. MACD is on the verge of crossing the zero line, an event that will attract momentum traders, while stochastic is giving off a fairly strong trend following signal. Earnings reported after the bell may weigh on the index tomorrow but the long term trend is up and the indicators are supportive of it. Resistance is at 4485 with support along the short term moving average along the 4400 line.

The indices started to make their move this week, ahead of the FOMC and data, just like it has done over the past 2-3 months. Each time the FOMC or NFP approaches the market gets ready to move, then creeps across the line to a new high even before the news is released. Today that move paused as traders digested the data and earnings in preparation for the reality of what next week will bring. The jobless claims data today is one indication that next week we may get some strong numbers from ADP, NFP and unemployment. The new home sales data not so much. In the end the key is how the data all fits together, no one piece is the answer and no single sector can carry the weight of the economy. It is the broader view and the data trends as a whole that matters. Next week we will get a another piece of the puzzle. Tomorrow be on the lookout for durable goods orders and prepare for some potentially volatile trading driven by today's after hours reports and new reports in the morning.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Headlines Piling Up

by James Brown

Click here to email James Brown

Editor's Note:

The rally in the U.S. stock market seemed to stall on Thursday. The flood of earnings news remains largely bullish but geopolitical tensions are rising and could stymie the rally.

The situation with Israel's ground offensive in Gaza is escalating. Not only is it drawing major demonstrations around the world but the warfare has turned to rioting in Gaza. Reports suggest that tens of thousands of Palestinians have clashed with Israeli forces with the Gaza residents throwing rocks, Molotov cocktails, and fireworks.

At the same time the situation with Ukraine and Russia is getting worse. The U.S. military says they have evidence that Russians have been sending more tanks into Ukraine and the Russian military has been firing their artillery at Ukraine targets. If that wasn't enough Bloomberg reported that the Ukraine (Kiev) government is in trouble with two parties, the UDAR and Svobada, both quitting the government, which dissolves the current coalition. This could force new elections by September or October.

In other news yet another passenger plane went down in Africa with over 115 people on board.

Put it altogether and the U.S. market has been extremely resilient to all these headlines. Yet as they continue to pile up it could start to impact investor sentiment.

Today was also a huge day for quarterly earnings announcements with hundreds of companies reporting results today. There is a chance tomorrow could see a post-earnings let down.

No new trades tonight.

I will note some of the bullish stocks on my watch list:

We might add some of these in the weekend newsletter.

In Play Updates and Reviews

Upgrade Your Stop Loss

by James Brown

Click here to email James Brown

Editor's Note:

We are seeing multiple bullish candidates continue to rally. Tonight we're upgrading some stop losses.

XLE hit our entry trigger. FOSL has been removed.

Current Portfolio:

CALL Play Updates

Ameriprise Financial - AMP - close: 122.53 change: -0.10

Stop Loss: 119.75
Target(s): To Be Determined
Current Option Gain/Loss: +38.8%
Time Frame: 8 to 12 weeks
New Positions: see below

07/24/14: AMP spent the day hovering under its all-time highs set a several days ago. The company is scheduled to report earnings next week on July 29th. We will most likely exit prior to the announcement.

Tonight I am raising the stop loss to $119.75.

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

07/24/14 new stop @ 119.75
07/22/14 new stop @ 117.75
07/10/14 new stop @ 115.75
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

Avago Technologies - AVGO - close: 72.51 change: -1.12

Stop Loss: 71.49
Target(s): To Be Determined
Current Option Gain/Loss: -48.9%
Average Daily Volume = 1.58 million
Entry on July 22 at $75.75
Listed on July 21, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

07/24/14: Semiconductor stocks as a group continue to underperform with the SOX index down two days in a row. AVGO is following the industry lower with a -1.5% decline today.

AVGO did pause at technical support on its 40-dma. The 50-dma is at $71.77 and our stop loss is at $71.49. Yet more conservative investors may want to just abandon ship given AVGO's relative weakness these last couple of days.

I am not suggesting new positions at this time.

Earlier Comments: July 21, 2014:
Avago Technologies is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing Backed by an extensive portfolio of intellectual property, Avago products serve four primary target markets: wireless communications, wired infrastructure, enterprise storage, and industrial and other (source: company website and press releases).

The company's products are everywhere. They make components for the industrial, automotive, solid state lighting, communications, consumer electronics and appliances, the military, and medical. A couple of months ago AVGO completed their $6.6 billion acquisition of LSI. Management believes they can wring out $200 million in annual synergies by the end of 2015. One analyst suggested that AVGO should benefit from China's rollout of a 4G wireless network. Plus the LSI acquisition could boost AVGO's margins.

Speaking of margins, AVGO continues to show margin improvement. The company last reported earnings on May 29th and said gross margins improved to 54% when they were only expecting 51.5-53.5%. Management then guided higher for the third quarter and expects margins to rise to the 54-56% range. Earnings were also better than expected. Wall Street wanted to see a profit of 77 cents a share. AVGO delivered 85 cents. Revenues surged +24.7% to $701 million, which was better than the $678 million estimate. LSI is scheduled to report earnings next in late August (27-28th).

There are a rising number of bulls on this stock. The number of mutual funds that own shares has risen from 856 to 981 in the last year. Multiple firms have price targets in the $85 region. Citigroup just raised their price target to $90.

Shares of AVGO look poised to breakout from its $72.00-75.50 trading range. The July 7th high was $75.55. We are suggesting a trigger to buy calls at $75.75. The July 18th low was $71.66 so we'll start with a stop loss at $71.49.

- Suggested Positions -

Long Oct $80 call (AVGO141018C80) entry $2.35*

07/22/14 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

Emerge Energy Services LP - EMES - close: 116.95 change: +3.98

Stop Loss: 112.45
Target(s): To Be Determined
Current Option Gain/Loss: +43.0%
Time Frame: 8 to 12 weeks
New Positions: see below

07/24/14: EMES continues to show relative strength with a +1.88% gain today. It's worth noting that this stock is now testing potential resistance at the $120.00 mark and it's up about $10 in just the last three sessions. Traders may want to consider taking some money off the table right now.

We will move the stop loss to $112.45.

Earlier Comments: July 15, 2014:
The shale energy rush in America continues. Widespread hydraulic fracturing wells means big demand for sand. The process of hydraulic fracturing or "fracking" happens deep underground. Oil and natural gas drillers reach deep into the shale formation. Then they pump tons of water and proppants (usually sand) into the formation to fracture the rock and allow the oil and natural gas to escape and be pumped up to the surface.

Drillers use sand to prop open the tiny cracks in the shale rock formation, which allows for a better flow and larger output from the well. The demand for fracking sand is expected to grow +10% a year for the next 8 years. Drillers have figured out how to boost their production. Instead of fracturing the well just once they could do it up to 40 times. The amount of proppant used has jumped from 2,500 tons to 8,000 tons per well.

According to the EMES website, Emerge Energy Services is a diversified energy services company that operates in two key segments of the energy industry: Sand Production and Fuel Processing and Distribution. Through its subsidiaries, Emerge Energy Services provides critical products and services to both the upstream and midstream energy segments.

Emerge Energy Services' sand subsidiary produces silica sand that is a key input for the hydraulic fracturing of oil and gas wells. While the Company is able to produce sand suited for the stimulation of both oil and gas wells, the Company has developed a strong reputation in the industry for producing sand that meets the strict requirements for use in oil wells.

Emerge Energy Services' Fuel Processing and Distribution ("FP&D") segment is primarily focused on acquiring, re-refining and selling transportation mixture ("transmix"). Transmix is received by the business from a number of common carrier pipelines that include the Explorer, Plantation, and Colonial pipelines, as well as via truck and private pipeline from independent refinery and terminal operators. Additionally, the FP&D division includes wholesale, terminal and biodiesel operations.

EMES last reported earnings on May 5th. It was their Q1 results, which came in at 77 cents a share. Wall Street was expecting 69 cents. EMES' revenues soared +80% to $274 million, surpassing estimates of $261 million. EMES' Chairman of the Board said it was the company's strongest quarter as a public company. The Chairman also said, "even with an industry wide shortage of railcars, we sold a company record 882,000 tons of sand, while our fuel division continues to outperform our expectations." Analysts have forecasted EMES' 10-year earnings growth at 33%.

The company is investing over $100 million into two new sand mines that are expected to be ready for production by the end of next year. This will add 5 million tons of sand capacity, which would make EMES the largest fracking sand producer in the country.

I will note the stock's gap down on June 20th. That was a reaction to a secondary offering of 3.5 million units at $109.06 a share. Fortunately there was no follow through on the drop and shares of EMES have been drifting higher. Currently shares are hovering just below resistance at $110.00. We are not setting an exit target tonight but the Point & Figure chart is forecasting at $133 target. More than one Wall Street firm has a $120 price target on EMES.

Tonight we are suggesting a trigger to open bullish positions at $110.25.

Investors should note that shares of EMES can be volatile. We love the story and the bullish outlook but I would probably label this an aggressive, higher-risk trade due to the stock's volatile moves.

- Suggested Positions -

Long Sep $115 call (EMES140920C115) entry $6.50*

07/24/14 new stop @ 112.45, traders may want to take profits now
07/23/14 new stop @ 107.90
07/16/14 triggered @ 110.25
Option Format: symbol-year-month-day-call-strike

Entry on July 16 at $110.25
Average Daily Volume = 586 thousand
Listed on July 15, 2014

Golar LNG Ltd. - GLNG - close: 61.19 change: -0.19

Stop Loss: 58.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on July -- at $---.--
Listed on July 22, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

07/24/14: GLNG is still quietly consolidating. Nimble traders may want to consider buying a dip or a bounce from the $60.00 level. The newsletter's suggested entry point is $62.25.

Earlier Comments: July 22, 2014:
GLNG describes themselves as, "one of the world's largest independent owners and operators of LNG carriers with over 30 years of experience. We developed the world's first Floating Storage and Regasification Unit (FSRU) projects based on the conversion of existing LNG carriers. We lead the industry with committed projects. We are progressing plans to grow our business further upstream via Floating liquefaction (FLNG). Our strategic objective is to become an integrated midstream player in the LNG industry."

The big picture play here is LNG exports. The shale-gas industry in the United States is booming so there has been a surge in supply. Meanwhile demand remains strong globally and the price of natural gas in Europe is double what is in the U.S. and the price is triple in Asia. Seeing an opportunity the American gas industry is planning on exporting more natural gas. The problem is that natural gas has to be liquefied before it can be transported. Turning natural gas to liquefied natural gas means cooling the material to -259 degrees Fahrenheit. Creating an LNG export terminal is a multi-year, multi-billion project. The U.S. is currently building several LNG export terminals to be completed in the next few years.

At the same time there has been a rise in the number of LNG transport ships to move all of this natural gas. Unfortunately the timing is a bit off. At the moment there is more LNG transport ships than really needed. The current global LNG fleet is about 365 vessels. That number is supposed to grow by another 29 ships this year but several of them have been delayed. However, by 2017-2018 it looks like there could be a shortage of LNG transport ships, which will drive rates higher for the shipping companies.

GLNG has about a dozen ships. They should take deliver of several more in the next 12 to 18 months. Instead of scrapping their older ships the company has decided to turn some of them into floating storage & regasification units (FSRU). They are also working on a floating liquefaction (FLNG) project.

Long-term the company looks poised to capitalize on the natural gas transport market. Investors have taken notice with a strong rally this year. Of course a +3.2% dividend yield doesn't hurt either.

Shares of GLNG have been consolidating sideways in the $57.50-62.00 zone for the last few weeks. Today GLNG is on the verge of breaking out from this trading range. We want to be ready if it does.

We are suggesting a trigger to buy calls at $62.25. Earnings are coming up in late August (potentially around the 27th) and we will likely exit prior to the announcement.

Trigger @ $62.25

- Suggested Positions -

Buy the Sep $65 call (GLNG140920C65)

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

Harman Intl. Industries - HAR - close: 114.98 change: +0.32

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: -28.3%
Time Frame: 8 to 12 weeks
New Positions: see below

07/24/14: HAR eked out another gain thanks to the gap higher. Shares spent most of the day moving sideways inside a narrow range. I would hesitate to launch new positions.

FYI: Earnings are coming up on August 7th.

Earlier Comments: July 12, 2014:
Automobile sales in the U.S. have been strong this year. Instead of playing the carmakers, which run the risk of announcing yet another recall, consider a derivative play. HAR makes speakers and electronics that are part of the growing "connected car" trend (a.k.a. infotainment systems).

HAR is developing a very bullish trend of beating Wall Street's earnings estimates. Their last two reports were both upside surprises in January and May. Both times HAR not only beat estimates on the top and bottom line but management also guided earnings higher.

The most recent report was May 21st. Analysts were expecting a profit of $1.00 a share on revenues of $1.27 billion. HAR delivered $1.12 a share with revenues hitting $1.4 billion. HAR said recovering demand in European luxury cars and growing demand in China helped fuel their gains.

Management explains that consumers want the connected car experience. The HAR teams says there is pent up demand in Europe that will likely stabilize soon. Meanwhile their business in China is surging. China is now the largest automobile market in the world and HAR's sales surged +60% in China last quarter.

Looking at that last quarter HAR reported revenues were up +32% from a year ago to $1.4 billion. Their bottom line EPS grew +41% to $1.12. They expect to end their fiscal year 2014 with revenues of $5.275 billion, up +23% from the year before.

HAR has also been making acquisitions. They recently announced a $365 million deal to buy AMX LLC, which is an enterprise control and automation system company. HAR plans to roll that up into their professional division. HAR also bought Yurbuds last month. Yurbuds is the number one brand of sports headphones in the U.S.

Last month HAR announced they were raising their quarterly dividend from 30 cents to 33 cents a share.

Technically shares have broken out from a five-month consolidation phase in the $100-115 zone. Shares have weathered the market's recent weakness pretty well. Friday's close at $116.51 is a new seven-year high. I suspect HAR can rally into the $125-130 zone, which has been resistance in the past. The Point & Figure chart is more bullish and currently projecting at $146 target.

Tonight I'm suggesting a trigger to buy calls at $117.25. More patient investors may want to use a different strategy and buy a dip or a bounce from the $114.00 level, which looks like it could be short-term support.

We'll start with a relatively wide stop loss at $109.90.

- Suggested Positions -

Long OCT $120 call (HAR141018c120) entry $6.00*

07/14/14 triggered @ 117.25
*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 July 14 at $117.25
Average Daily Volume = 715 thousand
Listed on July 12, 2014

Cheniere Energy, Inc. - LNG - close: 75.25 change: -0.75

Stop Loss: 69.90
Target(s): To Be Determined
Current Option Gain/Loss: +23.1%
Time Frame: 8 to 12 weeks
New Positions: see below

07/24/14: After a four-day rally shares of LNG saw a little profit taking today. I would watch the $74.00 area for short-term support. More conservative investors may want to move their stop closer to $72.00 instead.

Earlier Comments: June 28, 2014:
According to LNG's website, Cheniere Energy, Inc. is a Houston-based energy company primarily engaged in LNG-related businesses, and owns and operates the Sabine Pass LNG terminal and Creole Trail Pipeline in Louisiana. Cheniere is pursuing related business opportunities both upstream and downstream of the Sabine Pass LNG terminal. Through its subsidiary, Cheniere Energy Partners, L.P., Cheniere is developing a liquefaction project at the Sabine Pass LNG terminal adjacent to the existing regasification facilities for up to six LNG trains, each of which will have a design production capacity of approximately 4.5 mtpa ("Sabine Pass Liquefaction Project"). Cheniere has also initiated a project to develop liquefaction facilities near Corpus Christi, Texas. The Corpus Christi Liquefaction Project is being designed and permitted for up to three LNG trains, with aggregate design production capacity of up to 13.5 mtpa of LNG and which would include three LNG storage tanks with capacity of approximately 10.1 Bcfe and two berths.

Why is Cheniere's ability to turn natural gas into liquefied natural gas (LNG) important? Natural gas has to be turned into LNG to be transported. The oil and natural gas boom in the United States thanks to technology and hydraulic fracturing rigs that access tight oil in shale rock formations has generated a huge supply. Right now the price of natural gas in the U.S. is less than $5.00 per million British thermal units (BTUs) or mmbtu. In Europe the cost per mmbtu is over $10.00 and in Japan the cost is almost $16 per mmbtu. There is a huge opportunity if producers can export natural gas to these markets. Unfortunately, building an LNG terminal that can export natural gas is a massive undertaking. It takes years to build them and there is a very long permit process from the government. Cheniere is quickly becoming the major player in this space in the U.S.

Cheniere recently moved one step closer to a FERC approval on the Corpus Christi LNG facility. The Federal Energy Regulatory Commission draft review said the project will result in the permanent loss of more than 25 acres of wetlands, but measures Cheniere plans to take will minimize any further disturbance. FERC will take public comments until August 4th and then issue a final review by Oct 8th.

They are building the largest LNG facility in the U.S. and it takes time. They are building six trains with annual production of 4.5 million tons per annum each (MTPA). Trains 1&2 began in August 2012 and are 63% complete. First production is expected in late 2015. Trains 3&4 began construction in May 2013 and are 27% complete. First production is expected in late 2016, early 2017. Purchase orders for 7.7 MTPA have been received for trains 1&2 and another 8.3 MTPA for trains 3&4. Trains 5&6 are still in permit mode with 3.75 MTPA of purchase agreements already being approved to Free Trade Agreement (FTA) countries and the non FTA authorization is pending. Trains 1-4 already have that authorization.

The three trains to be constructed in Corpus Christi for 13.5 MTPA are nearing the end of the permit approval process. Full approvals are expected not later than January 6th 2015. Purchase agreements for 5.53 MTPA have already been signed and the DOE has approved 767 Bcf per year for export to FTA countries with the authorization for non FTA countries still pending.

You might be wondering, "what is an LNG train?" According to Cheinere, The LNG industry has adopted the analogy of a "train" meaning the series of processes and equipment units that individually remove elements from raw inlet natural gas that would otherwise plug or freeze the small passages in the downstream heat exchangers that in a cascade fashion reduces the temperature from ambient to -260 F. Each of these processes and equipment units are sequentially arranged, similar to cars of a railroad train.

Just a couple of days ago the House of representatives voted to fast track more LNG export projects, which if signed into law, should be beneficial for Cheniere's current projects under review.

Technically shares of LNG have been consolidating sideways the last few weeks after the sharp end of May rally. That big pop at the end of May was market reaction to news that the U.S. Department of Energy proposed new rules to streamline their approval process and focus on projects with the best chance of actually getting built. That was good news for LNG and the company is on track to be the first to export LNG produced in the U.S.

- Suggested Positions -

Long Sep $75 call (LNG140920C75) entry $3.45

07/23/14 new stop @ 69.90
07/22/14 new stop @ 69.40
07/10/14 new stop @ 66.40
06/30/14 triggered @ 70.25
Option Format: symbol-year-month-day-call-strike

Entry on June 30 at $70.25
Average Daily Volume = 3.0 million
Listed on June 28, 2014

Sanderson Farms, Inc. - SAFM - close: 100.85 change: -0.19

Stop Loss: 97.75
Target(s): To Be Determined
Current Option Gain/Loss: -32.7%
Time Frame: 8 to 12 weeks
New Positions: see below

07/24/14: SAFM spiked at the open but the rally didn't last. Shares spent the rest of the day inside the $100.55-101.20 zone.

I am inching our stop loss up to $97.75. More conservative investors may want consider a stop closer to $99.00 instead.

I am not suggesting new positions at this time.

After the closing bell SAFM announced a quarterly cash dividend of 20 cents payable on August 19th, 2014.

Earlier Comments: July 12, 2014:
Sanderson Farms actually started out as a farm supply business back in 1947. A few years later they started raising chickens. Today they are the third largest chicken ranch in the United States processing more than 9.3 million chickens a week.

If you have been shopping for a little backyard BBQ this summer then you already know that meat prices are high. A long, widespread drought has been plaguing cattle ranchers for months and beef prices are soaring. At the same time disease has killed millions of pigs this year reducing the supply of pork. This has fueled a surge in beef and pork prices. Chicken has been on the rise as well but consumers appear to be buying more chicken as an alternative to pricier meats.

SAFM has developed a very strong trend of beating Wall Street's earnings estimates. They have beat analysts' estimates the last two quarters in a row by a very wide margin. Consensus estimates for the first quarter of 2014 was 85 cents. SAFM reported $1.25. Analyst estimates for the second quarter was $1.75. SAFM smashed that with a profit of $2.21 a share. Revenues have also beaten expectations. For the whole year SAFM's earnings are expected to rise +68%.

Summer is the peak season for chicken demand. Investors could start to bid up shares of SAFM ahead of its next earnings report in late August. Meanwhile SAFM could provide a floor in the stock price. Earlier this year management extended their stock buyback program to buy up to 1.0 million shares. That is almost five percent of the stock's 20.3 million share float. They have 23.0 million shares outstanding.

It is also worth noting that SAFM could be a buyout target. Back in May this year shares of Hillshire Brands Co (HSH) soared from $37 to $45 on a takeover bid. Suddenly a bidding erupted and three weeks later HSH had popped to $62 a share. Bloomberg thinks that SAFM could also be a takeover target as the meat industry continues to consolidate.

A takeover would be bad news for all the shorts in SAFM. The most recent data listed short interest at 17% of the float. The current breakout to new highs and the rally past round-number resistance at $100.00 could fuel more short covering.

Friday's high was $102.28. I am suggesting a trigger to buy calls at $102.55. More nimble traders might want to consider waiting for a potential dip into the $100.00-100.50 zone instead as an alternative entry point. The low on Friday was $99.90. We're not setting an exit target yet but do plan to exit prior to earnings in late August.

- Suggested Positions -

Long NOV $110 call (SAFM141122C110) entry $5.80

07/24/14 new stop @ 97.75
07/17/14 today's move breaks short-term support. More conservative investors may want to exit early now.
07/14/14 triggered @ 102.55
Option Format: symbol-year-month-day-call-strike

Entry on July 14 at $102.55
Average Daily Volume = 305 thousand
Listed on July 12, 2014

U.S. Silica Holdings - SLCA - close: 60.99 change: +0.77

Stop Loss: 58.75
Target(s): To Be Determined
Current Option Gain/Loss: +128.5%
Time Frame: 8 to 12 weeks
New Positions: see below

07/24/14: It seems like nothing can slow down the rally in SLCA. Shares added another +1.2% today.

Readers may want to take profits and exit tomorrow. We will most likely close this trade before SLCA reports earnings on Tuesday, July 29th (next week).

Tonight I am adjusting our stop loss to $58.75.

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*

07/24/14 new stop @ 58.75
07/23/14 new stop @ 56.45
07/22/14 new stop @ 54.90
traders may want to take some money off the table now that our option has doubled
07/16/14 new stop @ 53.25
SLCA buys a Texas-based sand producer for $98 million
07/01/14 new stop @ 49.25
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

Energy SPDR ETF - XLE - close: 100.58 change: +0.09

Stop Loss: 97.95
Target(s): To Be Determined
Current Option Gain/Loss: -8.3%
Time Frame: 8 to 12 weeks
New Positions: see below

07/24/14: The four-day bounce in the XLE has finally pushed it above short-term resistance at $100.50. Our trigger was hit at $100.75. I would still consider new positions now or you could wait for a rally past today's high (near $101.00).

Earlier Comments: July 5, 2014:
Energy stocks are some of the stock market's best performers this year. The S&P 500 index is up +7.4% year to date. The XLE is up +13.4%. Earlier in the year a harsh winter helped drive demand for heating fuels. Now the industry is boosted by rising geopolitical events between Ukraine & Russia and more recently a Sunni jihadist uprising that is pushing Iraq toward a civil war.

Iraq is the third largest oil producer in the Organization of Petroleum Exporting Countries (OPEC). The country produces about three million barrels of oil a day. Iraq also accounted for over half of OPEC's recent production growth. Today the world is concerned that a civil war between hard-line Sunni Muslims in the north and northwest of Iraq and the Shia Muslim government in the south and southeast could damage or severely handicap Iraq's oil production. Meanwhile the Kurds will carve out their own independent nation at the very northern tip of Iraq.

Why should we care about a civil war in Iraq and its three million barrels of oil production a day? We should care because the difference between global oil demand and global oil supply is very tight. The U.S. Energy Information Administration (EIA) estimates that global oil demand will be in the 92 and 93 million barrels a day (mb/d) range in 2014-2015. Furthermore demand will rise 1.2 mb/d both in 2014 and 2015. The Paris-based International Energy Agency (IEA), from the latest data in June 2014, estimates global demand will rise 1.3 mb/d in 2014 to a total of 92.8 mb/d. Yet global supplies are only at 92.6 mb/d.

The world is already falling behind on oil supplies. People often forget that once you drill an oil well production is always declining as there is less and less oil in that well. Eventually wells run dry. Globally this lost production is between -3% and -5% a year. Not only do we need to discover, drill, and produce another +1.3 mb/d to meet growing demand we also have to replace the -3.6 mb/d we're losing every year due to maturing wells. That's almost 5 million barrels of oil a day!

You can see now why Iraq's 3 mb/d production is a focus for the equity markets. We've been lucky so far that nearly all of the fighting in Iraq has been in the northern half while most of the country's oil production and infrastructure is in the southern half. Thus far Iraq's production has not been seriously damaged. There is no guarantee the fighting will stay contained to the north. What happens if Baghdad falls or if the country is permanently divided? Terrorist could target Iraq's production facilities and pipelines.

Fortunately oil production in the U.S. is booming. America just hit 11 million barrels a day. That makes the U.S. the biggest single producer in the world. Current forecast put U.S. production hitting a peak of 13.1 mb/d in 2019. Unfortunately global demand might rise by another 5 or 6 mb/d by then (let's not forget the lost production from declining wells).

Oil prices will most likely remain elevated for an extended period of time. That should mean good news for all the energy companies, up stream, down stream, and everyone in between. A good way to play this strength in energy demand is the XLE, the Energy Select SPDR Exchange Trade Fund (ETF).

The XLE is a basket of over 40 of the biggest names in the energy space from production, to drilling, oil services, and refining. The XLE's top ten components are:

Exxon Mobil (XOM)
Chevron Corp. (CVX)
Schlumberger Ltd. (SLB)
ConocoPhillips (COP)
EOG Resources (EOG)
Pioneer Natural Resources (PXD)
Halliburton Co (HAL)
Occidental Petroleum (OXY)
Anadarko Petroleum (APC)
The Williams Companies Inc. (WMB)

As the violence in Iraq worsened last month we saw the XLE sprint higher in the first three weeks of June. When the stock market experienced some widespread profit taking on June 24th traders rushed into to lock in profits on the XLE. Since then the ETF has been slowly drifting higher.

We believe the up trend continues. The July 1st high was $100.66. Tonight we're suggesting a trigger to buy calls at $100.75. We'll start this trade with a stop loss at $97.95.

- Suggested Positions -

Long Oct $105 call (XLE141018C105) entry $0.84

07/24/14 triggered @ 100.75
Option Format: symbol-year-month-day-call-strike

Entry on July 24 at $100.75
Average Daily Volume = 8.8 million
Listed on July 05, 2014

PUT Play Updates

Ross Stores Inc. - ROST - close: 63.63 change: +0.63

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: - 7.6%
Time Frame: 4 to 8 weeks
New Positions: see below

07/24/14: Investors may to abandon ship on our bearish ROST trade. The stock is not cooperating as the oversold bounce continues to grow. ROST tested the $64.00 level and struggled all day trying to get past it. Our stop loss is at $64.15. I'm not suggesting new positions.

Earlier Comments: July 14, 2014:
According to the company website, Ross Stores, Inc. is an S&P 500, Fortune 500 and Nasdaq 100 (ROST) company headquartered in Dublin, California, with fiscal 2013 revenues of $10.2 billion. The Company operates Ross Dress for Less ("Ross"), the largest off-price apparel and home fashion chain in the United States with 1,146 locations in 33 states, the District of Columbia and Guam at fiscal 2013 year end.

Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. The Company also operates 130 dd’s DISCOUNTS in ten states.

The retail sector has had a rough year. 2014 started off with a harsh winter that kept consumers at home. Just about everyone blamed the terrible weather on terrible sales numbers in the first quarter. ROST joined the crowd when they reported earnings in February and lowered guidance. The first quarter has been followed by a tough Q2 as well.

Winter seemed like it would never go away. When spring finally showed up retailers were fighting for every consumer dollar. The apparel stores are facing a very competitive and highly promotional environment. There have been warnings and bearish commentary from all sort of retail players including Family Dollar, The Container Store, Rent-A-Center, and retail giant Wal-Mart.

This year the consumer has had to suffer through elevated gasoline prices at the pump and a sharply rising food prices. Everything from beef, pork, vegetables, and eggs have been rising. Every dollar spent on groceries and gas is another dollar that doesn't make it into the discretionary items.

ROST has been no exception. The company's most recent same-store sales figures had fallen to just +1% growth. Wall Street is concerned as well. There is a growing worry that ROST's sales growth will remain stuck in low single digits. Margins are also under pressure and will likely be flat to down. It's no surprise

Technically ROST's bearish trend of lower highs and lower lows has pushed the stock to key support near $65.00. This is where the stock bounced back in February. The intraday February 2014 low was $65.15. Today ROST dipped to $64.96 intraday.

I am suggesting a trigger to buy puts at $64.75. If triggered our short-term target is $60.00. Earnings are coming up on August 21st. We may choose to exit prior to the earnings announcement.

I am listing the November puts but you might want to use the August puts, which have more volume.

- Suggested Positions -

Long Nov $62.50 PUT (ROST141122P62.5) entry $2.60*

07/24/14 ROST is not cooperating and traders may want to exit early
07/19/14 new stop @ 64.15
07/16/14 new stop @ 65.65
07/16/14 triggered on gap down at $64.57, suggested entry point was $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 July 16 at $64.57
Average Daily Volume = 1.4 million
Listed on July 14, 2014


Fossil Group, Inc. - FOSL - close: 102.57 change: +1.61

Stop Loss: 100.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: Exit PRIOR to earnings on Aug 12th
New Positions: see below

07/24/14: The story for the retailers remains challenging. Yet shares of FOSL are not cooperating and continue to bounce. Nimble traders might want to watch for FOSL to tag the trend line of lower highs and then open bearish positions with a tight stop loss (see chart).

Tonight we are removing FOSL as an active candidate.

Trade did not open.

07/24/14 removed from the newsletter, suggested entry was $98.40


Entry on July -- at $---.--
Average Daily Volume = 548 thousand
Listed on July 19, 2014