Option Investor

Daily Newsletter, Thursday, 8/7/2014

Table of Contents

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

Market Wrap

Fundamentals Or Politics

by Thomas Hughes

Click here to email Thomas Hughes
Once again the market tried to stage a rebound but geopolitics persist in keeping them down.


Earnings and economic data had the equities market up this morning in an attempt, once again, at rebounding from recent lows. However, once again, the geopolitical scene stepped in the way and sent the market seeking cover. The as yet unresolved Russia/Ukraine situation continues to deteriorate with Russian troops massed on the border, massive sanctions from the west and new retaliatory sanctions from Russia against the west. New developments include a ban against imports of poultry into Russia and an end to a recent cease fire upheld by the Ukraine government. Adding to the geopolitical scene and tension is the ISIS uprising in Iraq which has reached the point in which our own government is contemplating military support for those displaced by the violence. Needless to say, the market was focused on these issues today.

Market Statistics

Equities were depressed on a global level today. In Asia equities finished mostly lower on uncertain economics and geopolitics. In Europe the feeling was much the same, with the added disappointment of no change to ECB rate policy. The ECB released it's monthly monetary policy decision today and, though largely expected to do nothing, still managed to let some steam out of the market. In his statements following the release bank leader Mario Draghi said that the bank, while not ready to act now, had “intensified preparations” and was “ready to act” on asset purchase plans if the inflationary data warranted it. So far this year EU expansion and inflation have been very tame, well below the 2.0% target rate and Draghi has been saying much the same thing all along.

Here at home early futures trading indicated a strong opening and held that lead following the release of the weekly jobless claims numbers. Claims came in much lower than expected but were not strong enough to overcome near term concerns. After the open the SPX and other major indices held onto some gains for most of the morning before dipping into the red. This was blamed on comments from the NATO chief pledging support for Ukraine in the face of Russian aggression. Following the comments the SPX shed about 10 points, followed by a 70 point drop in the Dow. The market then churned between the daily low and yesterday's closing price after hitting intraday bottom around 12:40. The indices tried to rebound in the mid afternoon but were not able to sustain the move and by 3:00 the market was back down near the low of the day. Late afternoon saw the markets set a new intraday low before the close of trading.

Economic Calendar

The Economy

Today's jobless claims numbers were better than expected, dropping back below 300,000 for the second time. In this week's report claims fell by -14,000 to 289,000. Last week's number was revised higher by 1,000 for a net drop of -13,000 from last week. The four week moving average also moved lower, dropping -4,000 to 293,000. This is the second week the average has been below 300,000 and the lowest it has been since 2/25/2006, on an adjusted, revised and recalibrated basis. Claims also fell on an unadjusted basis, by -10,492 or -4.1%, to 247,133. The states with the biggest gains in claims were Washington State with +426 and New Jersey with 346. The states with the biggest declines in claims were Michigan at -3773 and Ohio with -2,701.

Today's data is a sign, providing the number stands through revision, that job loss is decelerating. I also take it as a sign that turnover in the market, on a short term basis, is slowing and could be a sign of increased job availability. Looking at the table of claims provided by the DLS, from a chartist perspective, it appears as if adjusted claims has dropped below previous support and may be confirming resistance at that level, 300,000. Looking at the table of unadjusted claims, which is presented with last years data as a dotted line, it appears as if the drop in claims is accelerating faster than the seasonal trend of last year.

Continuing claims also fell this week, by -24,000 to 2.518 million. Last week's number was revised higher by 3,000 for a net drop of -21,000. The four week moving average also fell, dropping by -17,000 to the lowest level since 2007. This is just off the low set early last month and a continuation of the long term down trend in unemployment. This number is not an awe inspiring piece of data but is one more incremental improvement in the overall picture. Since March of this year continuing claims has declined by roughly 15%. Total claims also fell in this weeks data, dropping -41,623 from last week. Total claims are not revised but also continue to decline over the long term and are sitting just off the long term low.

The Oil Index

Oil prices spiked by 0.75% today on renewed Iraq fear. The new fear is that we will get involved in some way but as yet the oil infrastructure has not been damaged. However, Kurdish and ISIS forces are fighting in the north and could soon become a problem. WTI gained $0.75 while Brent gained more than a dollar. The Oil Index did not fare so well, dropping by more than one percent on an intraday basis. The index fell below my long term trend line at 1625 but did not drop below the intraday low of last Friday. The indicators are bearish at this time with momentum increasing and stochastic pointing the way lower. There is support at the current level, but more just below along the long term trend line which is my target on a full breach of support. The long term trend is still up so I remain bullish but have caution going into tomorrow and the weekend. There are no major economic or earnings releases but lots of chances for geopolitics to impact oil and equity prices.

The Gold Index

Gold was under pressure in the early part of the day as economic data pointed to the longer term economic uptrend. Later in the day the geopolitical situation helped put a bid back into the metal and drove it up about $6 or $7 to near the $1315 level. Once again gold prices have become a safe haven to run to but once again it appears as if $1315-$1320 is going to provide some resistance. My long term view of the economy is bearish for gold but it may be possible that my view has been priced in. Price action over the past few months has been hard to judge due to clashing economics trends and market fears but basically sideways and around $1300 with no real sign of longer term decline.

I am about to hang up my bearish stance on gold for a more firmly neutral one but not quite yet. This is also true for the Gold Index, providing it can maintain its position above the 150 day moving average. The index traded down today and is sitting just above support, in the middle of a short term consolidation range. This support is consistent with the short term and long term moving averages as well as a previously marked support area. The index is still within a longer term bear market but has created a potential long term bottom this year with a base at $85. Currently the index is within the short term consolidation band, but also near the mid point of the potential double bottom reversal pattern. The indicator are consistent with support along these levels and could be leading the index to move up and test resistance at the $105 level in the short term and possibly the $110 level in the near term. In the end though I think it will come down to gold prices and at this time those seem tied to fear inspired by Putin, Russia and to some extent ISIS and Iraq.

Randgold Resources, one of the top gold producers in Africa, reported earnings that were below expectations. The company posted EPS of $0.53 versus the expected $0.79 and last quarters $0.79. Production for the quarter was down from the first quarter marginally but up from last year. Improvements to operating mines helped to boost production while increasing costs hurt bottom line results. Shares of the stock lost over 1% in today's session, breaking the short term moving average but coming to rest on a long term support. I have two support/resistance lines marked on this chart, forming a zone of potential support coincident with the long and short term moving averages. A break below the upper boundary along the $85 level could see the stock fall down to the lower end and longer term support along the 150 day EMA. Gold prices will have a lot to do with any move in this stock, as they d do with the index so the risk at this time is geopolitics vs fundamental economic improvement and how that plays out in the gold pits.

Royal Gold also reported earnings today, beating the estimates. The company reported $0.96 per share, down 12% from the same quarter last year, but well ahead of the expected $0.29. The gains were made on improvements across the mining portfolio but were centered on the Mt Milligan project. The company reported average price for gold last year was down 19% from the previous year at $1296 per ounce. This is below the $1300 level I mentioned above and perhaps the tipping point for gold stocks. If we can assume the average price for gold sales across the industry is in the $1300 region we can expect gold company profits to rise when gold prices are above and for gold company profits to fall when gold prices are below$1300. Shares of Royal Gold gained 1.63% in today's session, climbing above a long term resistance and Fibonacci retracement level. The indicators are weak but show support is growing at this level along the short term moving average.


The VIX gapped lower today as the open of trading was strong. The VIX opened near the bottom of the one week range, above 15, and traded higher from there as fear crept its way into the market. The fear was capped at the 17.50 line and seems to be capped there for now as the indicators are consistent with resistance and range bound trading. Without a major catalyst to move the market one way or another I see volatility remaining elevated. Geopolitical concerns, where they will lead and how they will hurt the global recovery are in control right now leaving the market susceptible to sharp movements in either direction.

The Indices

The Dow Jones Transportation Average was today's leader, more or less. It lost the least, only shedding -0.22%. The index, today and yesterday, is now sitting on the long term trend line and below some technical resistance. The trend is up and I see no reason for that to change but there are some things to consider. First and foremost is that near term fears are piling up and have been weighing the market down. With that in mind the index now faces resistance and the longer it lasts the stronger it will get. At this time there is no reason to think that Putin/Russia will go away and leave the Ukraine alone any time soon so that is going to be an ongoing problem. Now, long term bull that I am, the longer term picture is still pretty good in my opinion. The data is not too hot and not too cool, just right for slow and steady growth. When that picture comes back into the market focus the long term trend should continue. The index may find further support along the current trend line or on a break below that at the long term moving average around 7,750. The indicators are bearish but at extreme peaks, peaks that usually result in trend following snap backs. The MACD is making an extreme not seen for nearly 3 years while stochastic is overbought in the near term and very close in the short term.

The Dow Industrial Average fell -0.46% in today's session. The blue chips fell from the 150 day moving average to make a new low well inside a strong support zone based on a consolidation pattern earlier this year. The indicators are bearish but momentum is rolling over and stochastic is overbought. The index may go down and touch the bottom of the support range around 16,250 or news could turn overnight and send it up to the upper end of the range. Longer term the trend is up so I am waiting to see what happens tomorrow and next week.

The NASDAQ Composite also fell by -0.46% today, dropping from recently broken support. The indicators are bearish and growing in strength, and added to today's action, look like the index is set to run for the long term moving average about 100 points lower. Longer term the index is still trending up and that will take over sooner or later. In the near term geopolitics are going to be a hurdle that may persist.

The S&P 500 was today's big loser. The broad market lost -0.56%, breaking near term support set earlier this week and falling to a new 2 ½ month low. The correction that began last week has reached the 3.5% mark and could be gaining momentum. The peak on MACD is large here and on the rise but not extreme, yet. Support is indicated just below the current level along the 1900 line with the long term moving average and a long term trend line just below. Tomorrow's action could easily bring the index down to that level at which point I would expect to start seeing some more bullish activity begin. The long term trend is still up and this still looks like a near term correction.

Geopolitics remain in control of the market. Today we saw the expected gain in the early trading due a good piece of data like the jobless claims number but had that gain wiped out by the rising tide of global concerns. While the concerns are still mostly near term in nature the picture has started to change. The weakness that the EU has already been experiencing is likely to be exacerbated by the growing sanction battle between Russia and the West. If this keeps up it could have a longer lasting impact on the market than just a correction. In the meantime our own data is still chugging along, leading us up the path of slow and steady growth. For now I remain a long term bull, with caution in the near term and an eye on the short term. The fundamentals still support a bull market, when that changes so will I. Tomorrow be on the look for productivity numbers, labor costs and whole sale inventories.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Investors Are Worried

by James Brown

Click here to email James Brown

Editor's Note:

The stock market continues to worry over Russia. Investors are looking for safe havens due to the uncertainty overseas. This is driving money into U.S. bonds with the yield on the 10-year bond down to 2.4% and nearing a new low for 2014. At the same time the volatility index (VIX), also known as the fear index, close near four-month highs.

Traders fret over a potential invasion as Russia sends more troops to the Ukraine border. At the same time things are heating up in Iraq again. There were rumors that the U.S. had launched military airstrikes against the ISIS (a.k.a. Islamic State) Sunni terrorists in Iraq. The Pentagon denied they were airstrikes. Instead the U.S. was airdropping humanitarian supplies to trapped Iraqi minorities in ISIS controlled territory. At least that is the official story.

Traders were selling into the rally this morning. That doesn't bode well for Friday. The S&P 500 still has what should be support at 1900 but the path of least resistance seems to be down (on a short-term basis).

We are not adding any new trades tonight.

In Play Updates and Reviews

Seeing A Trend Today

by James Brown

Click here to email James Brown

Editor's Note:

Stocks displayed a widespread trend today. That trend was the early morning rally reversing at short-term resistance.

Current Portfolio:

CALL Play Updates

Gilead Sciences, Inc. - GILD - close: 92.05 change: -0.74

Stop Loss: 87.99
Target(s): To Be Determined
Current Option Gain/Loss: - 2.7%
Average Daily Volume = 14.1 million
Entry on July 29 at $92.25
Listed on July 28, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

08/07/14: GILD opened higher, above short-term resistance at $93.00 but then spent the rest of the day fading lower and eventually erased yesterday's bounce.

More conservative investors may want to move their stop loss closer to the $90.00 level.

Earlier Comments: July 28, 2014:
GILD seems to be everyone's favorite biotech stock. I only hear bullish opinions about the future of the company, and for good reason. They have some pretty amazing treatments with products for HIV/AIDS, liver diseases, oncology, cardiovascular, respiratory, and more. GILD has essentially revolutionized how we treat major diseases like HIV and Hepatitis C.

According to the company website, "Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. We strive to transform and simplify care for people with life-threatening illnesses around the world. Gilead's portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer and inflammation, and serious respiratory and cardiovascular conditions."

This year everyone has been raving over GILD's hepatitis C treatment called Sovaldi. Hepatitis C is a form of viral hepatitis that causes chronic inflammation of the liver. About 185 million people currently suffer with hepatitis C. Previously the most common treatment for hepatitis C had serious side effects and was less than 50% successful. GILD changed that with their Sovaldi drug that not only treats the symptoms but actually cures the patient. The company has drawn some negative publicity over the cost since GILD charges $84,000 for a 12-week course of Sovaldi in the United States. The fact that 80% to 90% of patients who take Sovaldi are cured is a major milestone.

The Financial Times noted that before Sovaldi the impact of hepatitis C in the U.S. took a heavy toll on the healthcare system. The disease can lead to liver failure and cancer, both of which cost significantly more than Sovaldi's $84,000 price target. Hepatitis C is the leading cause for liver transplants in the U.S., which can cost a minimum of $145,000. One consulting firm estimated that the annual cost of hepatitis C to the U.S. healthcare system was going to surge from $30 billion to $85 billion in the next twenty years. Sovaldi has the potential to change. that.

Stocks move on earnings and GILD has plenty of them. They company last reported on July 23rd. Wall Street was expecting a profit of $1.80 a share on revenues of $5.86 billion for the second quarter. GILD delivered a profit of $2.36 a share with revenues soaring +136% to $6.53 billion. Last quarter Sovaldi accounted for $3.5 billion in sales. Management issued bullish guidance on revenues and margins.

GILD has also had good news with both the FDA and the European Committee for Medicinal Products for Human Use approving GILD's Zydelig treatment for chronic lymphocytic leukemia and follicular lymphoma. The European committee's decision will now be sent to the full European Commission and if approved will open up Zydelig to all 28 countries in the EU.

The outlook is pretty bullish for GILD. Traders just bought the dip and shares closed at all-time highs. Today's intraday high was $91.73. We are suggesting a trigger to buy calls at $92.25. We are not setting an exit target tonight but I will point out the point & figure chart is bullish with a $106.00 target. I am concerned that the $100.00 level could be temporary resistance for GILD. We'll have to wait and see.

- Suggested Positions -

Long Oct $95 call (GILD141018C95) entry $3.70*

07/29/14 triggered @ 92.25
*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

LyondellBasell Industries - LYB - close: 107.93 change: -1.06

Stop Loss: 105.99
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.5 million
Entry on August -- at $---.--
Listed on August 04, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

08/07/14: LYB saw a small spike higher at the open but the rally failed at resistance near $110.00. Currently we are on the sidelines waiting for a new relative high.

Earlier Comments: August 4, 2014:
One way to play the shale-gas boom in the U.S. is plastics. The bloom of natural gas production has been a huge blessing for LYB. According to the company's website, "We participate in the entire petrochemical value chain, from refining to specialized petrochemical product end uses. We are the largest producer of polypropylene and polypropylene compounds; a leading producer of propylene oxide, polyethylene, ethylene and propylene; a global leader in polyolefins technology; and a producer of refined products, including biofuels. Additionally, LyondellBasell is a leading provider of technology licenses and a supplier of catalysts for polyolefin production."

The recent spike in LYB's stock price was a reaction to better than expected earnings results. Wall Street was looking for LYB to deliver a profit of $1.93 a share on revenues of $11.5 billion. LYB surpassed expectations with a profit of $2.22 a share with revenues rising +9.1% to $12.12 billion.

The stock has been an earnings machine with rising earnings the last four years in a row. Analysts are now estimating LYB will see earnings rise 11% in 2014 and 16% in 2015. Jefferies recently raised their price target on LYB from $120 to $125 as they upgraded their EPS estimates on the company.

After a strong rally from $100 to $110 in mid July the stock was short-term overbought and due for a pullback. Traders jumped in to buy the dip near LYB's simple 10-dma last week. Now LYB is rebounding higher.

More aggressive traders may want to buy the bounce today. We are suggesting a trigger to buy calls at $110.50 since the July high is $110.38.

FYI: For more background on the LYB story Forbes.com has a great article that you might find interest. You can read it here.

Trigger @ $110.50

- Suggested Positions -

Buy the DEC $115 call (LYB141220C115)

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

Palo Alto Networks, Inc. - PANW - close: 79.96 change: +0.63

Stop Loss: 76.75
Target(s): To Be Determined
Current Option Gain/Loss: -12.5%
Average Daily Volume = 1.3 million
Entry on August 04 at $80.50
Listed on July 30, 2014
Time Frame: Exit PRIOR to earnings on Sept. 9th
New Positions: see below

08/07/14: PANW shot higher at the opening bell but the rally failed near short-term technical resistance at its simple 10-dma.

I am not suggesting new positions at this time.

Earlier Comments: July 30, 2014:
Customer data mining is big business. It doesn't matter of the company is online or a bricks and mortar store they want to know all they can about you. Who are you? How old are you? What zip code do you live? They track your purchases and store your credit card data.

Last year retail giant Target (TGT) disclosed a cyber breach that affected up to 110 million customers to potentially having their credit card data stolen. Months later, Target's president and CEO resigned over the fiasco. Target isn't the only one being targeted. The University of Maryland recently disclosed an online security breach. The number of cyber attacks on small business doubled last year.

Sadly it's only getting worse. The Justice Department called the online landscape for cyber threats and hacking extremely dangerous. They used the term "pre-9/11 moment" suggesting that any day now someone could launch a massive cyber attack. The government is worried about protecting our infrastructure and electrical grid. Corporate America wants to protect their data (and your data). That's why cyber security is big business and getting bigger.

PANW is making a splash in the security world. The stock IPO'd in 2012 and while it has been a rocky ride so far the company seems to have found its groove. Founded in 2005 and headquartered in Santa Clara, California, PANW describes their company as, "leading a new era in cybersecurity by protecting thousands of enterprise, government, and service provider networks from cyber threats. Unlike fragmented legacy products, our security platform safely enables business operations and delivers protection based on what matters most in today's dynamic computing environments: applications, users, and content."

More than 70 of the Fortune 100 companies use PANW's products and services. In 2013 PANW saw revenues grow +55% year over year, outpacing their rivals. They have added more than 1,000 customers per quarter for the last ten quarters in a row. PANW most recently reported earnings on May 28th and said it was their "highest rate of new customer acquisition in our history and now serve more than 17,000 customers."

Another important event last quarter was the settlement of a three-year patent lawsuit with rival Juniper Networks (JNPR). Resolving this issue has removed a significant black cloud over PANW.

Wall Street has noticed. The last few weeks have seen a number of price target upgrades. Deutsche Bank upped their PANW price target to $95.00. Goldman Sachs raised their price target to $97.00. Morgan Stanley is forecasting at PANW price target of $105.00.

Shares of PANW have rallied back toward their all-time highs set just five weeks ago. A bullish breakout appears imminent. Tonight we're suggesting a trigger to buy calls at $84.55. More conservative investors might want to consider waiting for a new high above $85.80.

Keep in mind that PANW is scheduled to report earnings on September 9th and we will likely exit prior to the announcement.

- Suggested Positions -

Long SEP $85 (PANW140920C85) entry $3.20*

08/04/14 triggered @ 80.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/02/14 Strategy update: Move the entry trigger from $84.55 to $80.50 and move the stop loss from $79.65 to $76.75.
Adjust the option strike from Sep $90 call to Sep $85 call
Option Format: symbol-year-month-day-call-strike

Western Digital Corp. - WDC - close: 101.60 change: -0.28

Stop Loss: 99.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on August -- at $---.--
Listed on August 05, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

08/07/14: We are seeing a trend today. That trend is the morning rally failing at short-term resistance. WDC failed near resistance in the $102.50-103.00 zone.

Earlier Comments: August 5, 2014:
Hard drives are a critical piece for any computer system. Today hard drives or hard disk drives are not just for computers. They are in tons of consumer products including DVRs, home entertainment centers, game consoles, laptops in addition to your PC. Plus they are a significant portion of the data center business and the cloud computing phenomenon.

A few years ago WDC was neck and neck in a race with its rival Seagate (STX). They were essentially a duopoly in the hard drive business. WDC has slowly stolen market shares from STX thanks to a better product. The outer edge of a normal 7200 RPM hard drive is moving at 67 miles an hour. Eventually something is going to break. Hard drives have a 5% failure rate in the first year. That jumps to almost 12% in the first three years and about a 20% failure rate in four years. Some of you are reading this right now and wondering how long you've had your current hard drive. Whatever the answer is, you'd better back up your data now.

Seagate's drives have a 26.5% failure rate in the first three years. WDC's managed to cut its failure rate to just 5.2% in the first three years. That is significant, especially if you're an enterprise customer with a ton of servers. WDC has been developing a stronger solid-state drive for its big business clients. All the data on the cloud has to sit somewhere. The sea change movement to put more and more data on the cloud will continue to drive need for more storage.

The death of the PC was been a long-term issue for hard drive makers. WDC has developed a strong non-PC related sales that now account for more than 50% of its business. On the plus side earlier this year Intel (INTC) reported a strong surge in PC sales so the death of the PC might be a little premature.

WDC just reported earnings on July 30th and it was a good quarter. For WDC it was their fourth quarter of 2014. Wall Street expected a profit of $1.74 a share on revenues of $3.6 billion. WDC delivered $1.85 a share with revenues of $3.65 billion.

The company said consumer electronics and gaming was a big performer with a +67% surge to 10.9 million units. Their notebook hard drive shipments fell -5% to 22.9 million units but that was better than analysts' expectations. Altogether WDC shipped 63.1 million hard drives with an average selling price of $56 and a gross margin of 28.2 percent.

WDC has also been actively buying back shares. Last quarter the company repurchased 3.2 million shares and for the their fiscal year they bought 10.3 million shares for a total of $816 million.

WDC's guidance was rather lackluster but shares held up well. Barclays raised their outlook for WDC following the earnings report and upped their price target from $98 to $117. The Point & Figure chart is more bullish and currently forecasting at long-term target of $145. A move over $104 would produce a new triple-top breakout buy signal on the P&F chart.

WDC appears to have short-term resistance in the $102.50-102.80 zone. Tonight we're suggesting a trigger to buy calls at $103.05.

Trigger @ $103.05

- Suggested Positions -

Buy the Oct $105 call (WDC141018C105)

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

PUT Play Updates

Pall Corp. - PLL - close: 77.20 change: +0.42

Stop Loss: 80.35
Target(s): To Be Determined
Current Option Gain/Loss: +38.4%
Average Daily Volume = 437 thousand
Entry on July 30 at $79.45
Listed on July 29, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

08/07/14: PLL displayed some relative strength today and added +0.5%. The overall trend remains lower.

We're not suggesting new bearish positions at this time.

Earlier Comments: July 29, 2014:
PLL is in the industrial goods sector. It is considered part of the diversified machinery industry. They market to a lot of different customers around the world. PLL operates in the aerospace and defense industry, the animal health, biopharma, food and beverage, fuels and chemicals, graphic arts, laboratories, machinery and equipment, medical, microelectronics, power generation, and water treatment.

The company describes themselves as, "Pall Corporation is a filtration, separation and purification leader providing solutions to meet the critical fluid management needs of customers across the broad spectrum of life sciences and industry. Pall works with customers to advance health, safety and environmentally responsible technologies. The company's engineered products enable process and product innovation and minimize emissions and waste."

PLL's latest earnings report on May 29th was a disappointment. Wall Street was expecting a profit of $0.83 a share. PLL delivered 81 cents. Revenues did come in better than expected. Guidance was only in-line with prior estimates. The results failed to generate any investor excitement for the stock.

Quite the opposite seems to have happened. PLL produced what appears to be a triple-top pattern from late May through June. Then in July the stock has collapsed through several layers of support. Today we are seeing PLL breakdown under significant support at the $80.00 mark, support at its 300-dma, and support at its long-term trend line of higher lows (see weekly chart below).

Today's intraday low was $79.65. Tonight we're suggesting a trigger to buy puts at $79.45. We're not setting an exit target yet but I will point out that the point & figure chart is bearish and forecasting at $72.00 target.

Keep in mind that PLL is scheduled to report earnings again in very late August. There is no confirmed date yet. We will likely exit prior to the announcement.

- Suggested Positions -

Long Sep $80 PUT (PLL140920P80) entry $2.60*

08/06/14 new stop @ 80.35
07/30/14: triggered @ 79.45
*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

PVH Corp. - PVH - close: 109.54 change: -0.93

Stop Loss: 111.55
Target(s): To Be Determined
Current Option Gain/Loss: -35.9%
Average Daily Volume = 821 thousand
Entry on August 04 at $108.00
Listed on August 02, 2014
Time Frame: 4 to 6 weeks, exit ahead of earnings in mid September
New Positions: see below

08/07/14: PVH gapped open higher at $111.29 but that proved to be the high for the day. Shares reversed near short-term resistance at its 10-dma and 20-dma. I would be tempted to use today's session as a new bearish entry point to buy puts. Our stop loss remains at $111.55.

Earlier Comments: August 2, 2014:
PVH is one of the largest apparel companies in the world. They purchased the Calvin Klein brand in 2003. In 2010 they added Tommy Hilfiger to their portfolio. Last year they purchased the Warnaco Group. PVH is also know for its Van Heusen, IZOD, ARROW, Speedo, Warner's and Olga brands. PVH started in 1881 and has grow into clothing powerhouse with sales topping $8 billion a year across North America, Europe, Asia and Latin America.

The stock has delivered an amazing performance from its 2009 lows near $15.00 to January 2014 high of $137.00 a share. Unfortunately for investors the momentum has reversed. Technically shares have formed a massive head-and-shoulders bearish top over the last several months (see weekly chart below).

Consumer spending patterns have changed this year. Consumers seem to be saving up and purchasing big ticket items like cars and spending less on apparel. PVH has been working hard to overcome the tough environment. During the previous quarter PVH managed to show revenue growth but profits are getting squeezed. That's like due to the increasingly promotional retail environment. The big drop in early June was a reaction to PVH's earnings where they missed the bottom line estimate by two cents and management guided lower.

The stock's recent bounce just failed at resistance near $115 and its 20 & 30-dma. Now PVH is breaking support near $110. The Point & Figure chart looks pretty ugly and currently projects an $82 target.

I am suggesting bearish positions now at current levels. We are not setting an exit target tonight but we'll most likely exit prior to PVH's next earnings report in mid September.

- Suggested Positions -

Long Sep $105 PUT (PVH140920P105) entry $3.20

08/06/14 new stop @ 111.55
08/04/14 PVH opened @ 108.00
Option Format: symbol-year-month-day-call-strike