Option Investor

Daily Newsletter, Thursday, 8/14/2014

Table of Contents

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

Market Wrap

Putin Reassures Markets

by Thomas Hughes

Click here to email Thomas Hughes
The market made some gains today but remains in a holding pattern while we wait to see what happens in the Ukraine.


Global markets made some gains today but equities remain in a holding pattern. Light summer volume and continued uncertainty over the Ukraine situation and Russian convoy of aid are keeping stocks in check despite soothing words from Vladmir Putin. Early weakness in the European markets stemming from poor GDP figures reversed upon statements from Russia's leader that Russia did not want the violence to continue and would do whatever needed to help end the bloodshed. US markets also responded favorably to the news with futures indicating a positive opening. Negative GDP in Germany for the first time in 12 months was shrugged off in hopes that global growth would resume.

Market Statistics

Futures trading in the early part of the morning was mostly flat ahead of the statements released by Putin. Trading lifted in the wake of his statements and was boosted a little by today's economic data. The positive trade held into the open with the SPX gaining 2-3 points right out of the gates. The indices drifted higher for the first part of the day before hitting resistance around noon. Just before 1PM ET the President made a statement concerning the state of our involvement in Iraq and the progress being made in that region. His statements gave the market a slight boost and lifted them to a new intraday high. After lunch the markets drifted near the highs of the day until the final minutes of trading. Some late day news, just before the closing bell, that Iraqi Prime Minister Maliki had resigned pushed the market to another new high.

Economic Calendar

The Economy

Weekly jobless claims rose this week by 21,000 from a mild upward revision. Claims came in at 311,000, just above estimates, with a +1,000 revision to last week's figures. The four week moving average of claims also rose, by 2,000, but remains below 300K at 295,750. This is the fourth week the moving average has been below 300K. On a non adjusted basis first time claims rose by 20,960 or 8.5%, slightly ahead of the seasonal expectations and adjustment factor. On a state by state basis no state reported an increase in claims more than 1,000 while several states, led by California and Tennessee, posted decreases in claims greater than 1,000. Based on the table it appears as if the recent drop in claims has hit a bottom but remains near long term lows. Futures trading, positive ahead of the release, lifted marginally afterward.

Likewise, continuing claims for unemployment are also flat for the 4 week period. Claims for ongoing unemployment rose by 25,000 in this weeks data, also from an upward revision of 1,000, to hit 2.544 million. This is just off of the long term low set last month. The four week moving average of this figure also rose slightly. The long term trend in continuing claims also hit a pause but remains near the recent lows.

Even with the gains in initial and continuing claims the total number of Americans receiving unemployment fell by over 40,000 to 2.536 million. This is just of the long term lows for total unemployment and a sign that long term unemployment is still improving even though near term fluctuations in the job market persist.

Import/Export prices were basically flat for the month of July. Export prices rose 0.3% last month, reversing a -0.3% drop in June. Import prices dropped -0.2% this month but remain flat when oil is factored out. There were no revisions to last month. On a year to date basis both import and export prices are rising with 0.5% and 0.6% respective gains.

The Oil Index

The weak EU GDP combined with high supply levels to put a hurting on oil prices. WTI lost more than $2.00 on an intraday basis to fall below $96 for the first time in over 5 months, dating back to the beginnings of the Ukraine and Islamic State crisis. The Oil Index opened higher today, in line with the broader market, but was unable to hold onto the gains. The drop in oil prices is weighing on the index and the sector but for now longer term support appears to be holding. The index has been trading at support, just above 1630, for over two weeks while the market works out this recent dip. Momentum is still bearish is in decline with the longer term analysis still showing support along the current levels. Stochastic is a little more positive and showing an early/weak trend confirming signal. Should the index break down through support at 1,625 it would find the long term trend line about 75 points lower.

The Gold Index

Gold held steady again today, trading around the $1315 level for most of the day. Weak EU GDP and mild increases in US unemployment claims helped to underpin gold prices while we await the outcome of the Russia aid convoy stand off. Today's action was in a tight range just over $10 and found resistance at $1320 once again. $1320 has been an important resistance area many times over the past 6 months as traders try to match prices with underlying fundamentals and near term risks.

The Gold Index also tried to trade to the upside, and also found resistance. The index tried to break above my resistance line at $103.90, the upper range of the resistance zone I described on Monday, and created a bearish doji candle. Today's action appears to be a confirmation of a longer term resistance line and a possible short term double top within the longer term bear market. The indicators are divergent and in line with resistance at this level, pointing to lower prices. However, as always, gold prices will have a lot to do with movement in the index. Near term fear could spike and drive gold prices higher carrying the index with it.

In The News, Story Stocks and Earnings

Wal Mart, amongst a handful of other retailers, reported earnings today. The big box discounter reported earnings in line with estimates but cut its full year out look on rising health care costs and investments in ecommerce. EPS of $1.21 per share matched estimates but full year guidance was lowered to just below the previous estimated range. Sales on a US and international basis were both relatively flat, especially when compared to a 24% rise in ecommerce sales, the second quarter in a row of above 20% increases in that segment of business. Shares of the stock opened lower, then traded even lower, before finding support and moving higher later in the day. On a longer term basis Wal Mart is trading near the bottom of what is now a 15 month range with indicators confirming support.

Other retailers reporting today include Kohl's, Nordstrom and JC Penny. Nordstrom and JC Penny both reported after the bell. Kohl's reported EPS well above estimates on revenue in line with expectations. The report had shares of KSS up as much as 5% in the pre market session on hopes there would be a turnaround in this month's official retail sales figures. The stock gapped up at the open, near a long term resistance line and the top of the 12 month range. Volume was high today, more than twice average daily volume for the second day in a row, and indicates interest in the name. The indicators are bullish and the report definitely inspired some buying but this stock looks contained below resistance at this time.

The XRT Retail Spyder received the benefit of the doubt today, rising more than 1% in today's action ahead of earnings from JCP and Nordstrom. The market had big expectations for JC Penny at least and that, along with the rise in Kohl's, helped to lift nearly the entire sector. The XRT gained about a half percent today, rising from the long term moving average above the short term moving average with weakly bullish indicators. The ETF has been in a range for at least 12 months and remains trapped within that range now. Prices are currently consolidating near the bottom of that range and look as though they could drift to the upper boundary in the near to short term. Near term support is just below the current level around $85 with longer term support just below that around $82.50.

JC Penny traded up by 3% in today's session on expectations the retailer would show improvements. The company is still in recovery following a management shake up that nearly destroyed it. Today's move brought the stock up to near the top of the 6 month range and higher in the after hours session. The results were quite robust, compared to previous quarters, and sent the stock surging 10% in the after hours market. Revenue of $2.8 billion was better than expected, leading to less than expected loss of -$0.75 versus the expected -$0.93. The store reported same store sales growth of 6%, also better than expected. This stock has apparently gotten back on track and now holds the potential to make another gain in the current quarter. Nordstrom, who also reported after the bell, beat their expectations on the top and bottom lines. Comp store sales increased and are above estimates and full year guidance has been affirmed.

The Indices

The Dow Jones Transportation Average led the market today with a 0.67% gain. The trannies gained just shy of 55 points, rising from the short term 30 day moving average and breaking back above the 8,250 resistance level. The indicators are mixed at this time but in line with a bounce from the long term moving average as well as a snap back from near term bearish extremes. Stochastic has already given the early trend following signal and MACD is on the threshold of a zero line cross with today's candle. There is still resistance ahead but the trend line bounce is in full swing and gaining momentum. The next significant area of resistance is the current all time high around 8,500.

The tech heavy NASDAQ composite lagged the trannies in percent gain but is leading in terms of indicators. This index rose 0.43%, or 18.88 points. The signal here is a little stronger as MACD momentum has turned bullish in support of the early stochastic signal given earlier in the week. This index is also bouncing higher, from long term support, and looks set to tackle resistance at the current long term highs just shy of 4,500. The index has tested this level twice before, on a near term basis, and could spark some selling once reached.

The broader S&P 500 index also gained 0.43% today. This index gained just over 8 points today, climbing from the 30 day EMA. The indicators are in support of a trend line bounce but still in the earlier stages similar to the Transportation Average. Stochastic is showing the early trend following signal while MACD is still bearish but quickly approaching a zero line crossover. There will likely be some volatility when the index reaches resistance, just above the current level, which is coincident with the expiration of options tomorrow, another reason to suspect there may be some volatility. A drop from this level would find support near term support just below the current level with longer term support along the 1910 level and the long term trend line.

The blue chip Dow Jones Industrial Average was today's laggard with a gain of 0.37%. The index climbed over 61 points in an extension of its bounce from strong support but fell short of the 30 day moving average. The indicators are near identical to both the transports and the broader S&P 500 and indicate longer term support in line with prevailing trends. The bounce from the long term 150 day EMA is still in the early stages and requires further confirmation to get really bullish but appears to be in line with previous bounces from the long term moving average. Near term support is around 16,500 with resistance just above at 16,750.

The markets made a nice move up today and seem to be confirming the longer term trends. On a case by case basis the indices are bouncing from long term support of various degree with early signs of trend following signal. Going forward they are all still constrained by near term resistances in the form of technical levels and also geopolitics. Reassurances from Vladmir Putin helped the market today but can only go far. The Putin comments helped to lift market spirits but at the same time we still need to wait and see what he is really up to, and if aid will really reach those in need. We, I, have been burned in the past when Putin's bipolar antics caused the market to shift first one way and then the other. I am glad for him to be nice but only time will tell when it comes to him.

Looking past the near term Putin effect the economy is still chugging along. Economic trends are still positive and while jobless claims rose this week, are still down near long term lows and at levels that support the steady improvements in labor we have seen over the past 12 months. The markets are moving higher and the long term trends seem to be intact. Near term fears are present but are diminishing in favor the long term trends. The risk at this time is that the Putin situation will look entirely different in the morning, and that economic data will deteriorate.

Tomorrow there will likely be volatility induced by options expiration and it may be enhanced by a lack of volume. On top of expiration Friday there is also a fair amount of economic data on tap starting with PPI and running through TIC flows, Empire Manufacturing, Michigan Sentiment, Capacity Utilization and Industrial Production. Earnings, including the after hours reports from JC Penny and Nordstroms, will also be moving the market.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Bond Yields Hit New Lows

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. stock market continued to rally on Thursday but a good question to ask is why? The economic data out of Europe has been terrible. In an interconnected world like ours if Europe sinks it will weigh on the global economy.

The 18-member Eurozone reported their Q2 GDP was flat. That's below expectations for +0.1% gain. Dragging the EU lower has been a significant slowdown in Germany.

Germany is the EU's biggest and strongest economy - at least it used to be the strongest. Germany's Q1 GDP growth was +0.7%. Their Q2 GDP estimate this morning came in at -0.2%. That's the first time Germany has seen negative growth in over a year.

France is the EU's second biggest economy and their Q2 growth was flat (+0%). After this morning's report French Finance Minister Michel Sapin lowered their 2014 GDP estimate from +1.0% growth to +0.5%.

Meanwhile Italy's Q2 GDP growth was negative and the country is in its third recession in just the last few years.

You could argue that this weakness in Europe will force the European Central Bank to launch their own QE program. You could also argue that this weakness overseas makes the U.S. market the safest place for stock investors (sort of the best house in an ugly neighborhood).

Another warning sign is the flow of money into safe havens like German and U.S. bonds. The yield on the German 10-year bond fell below 1%. Today saw the yield on the U.S. 10-year bond close at 2.4%, the lowest (closing) low in 12 months. Bond yields fall as bonds rally. What does that say about investor sentiment if they would rather buy a bond with a 2.4% yield than put money in the stock market?

Meanwhile the S&P 500's bounce has produced a strong weekly gain but it just closed at 1955. Potential resistance at the simple 50-dma is directly overhead at 1956. The small cap Russell 2000 is also just beneath resistance at its 100-dma and 200-dma.

Considering the negative economic headlines and the indices close just below resistance we are not adding new candidates tonight.

In Play Updates and Reviews

Stocks Ignore Disappointing Headlines

by James Brown

Click here to email James Brown

Editor's Note:

Disappointing earnings guidance from Wal-Mart and negative economic data out of Europe failed to stop the U.S. market's rebound.

Stocks instead chose to focus on what seemed like dovish comments from Russian President Putin.

BMRN hit our entry trigger. PLL hit our stop loss.

Current Portfolio:

CALL Play Updates

BioMarin Pharmaceutical Inc. - BMRN - close: 67.67 change: +1.86

Stop Loss: 61.95
Target(s): To Be Determined
Current Option Gain/Loss: +17.6%
Average Daily Volume = 1.26 million
Entry on August 14 at $66.55
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

08/14/14: Biotech stocks continued to show relative strength on Thursday and shares of BMRN outperformed its peers with a +2.8% gain. The stock has now broken out past resistance at its 200-dma. Shares also hit our suggested entry point at $66.55.

Earlier Comments: August 11, 2014:
BMRN is in the healthcare sector, specifically the biotech industry. According to the company's press release they "develop and commercialize innovative biopharmaceuticals for serious diseases and medical conditions. The company's product portfolio comprises five approved products and multiple clinical and pre-clinical product candidates."

The company's strategy is "providing first-in-class or best-in-class treatments for patients with serious unmet medical needs, optimizing powerful biology with demonstrated potential and development clarity, accelerating approval process, strategic pipeline development."

BMRN's current product portfolio looks like this: VIMIZIM™ for Morquio A syndrome (MPS IVA), Naglazyme® for MPS VI, Aldurazyme® for MPS I, Firdapse™ (currently approved in the EU only) for LEMS, KUVAN® Tablets for PKU.

BMRN lists their current clinical pipeline as follows: PEG PAL for PKU, BMN 673 for genetically defined cancers, BMN 701 for Pompe disease, BMN 111 for achondroplasia, BMN 190 for late-infantile neuronal ceroid lipofuscinosis (CLN2), a form of Batten Disease, BMN 270 for hemophilia A and BMN 250 for Sanfilippo Syndrome or MPS IIIB.

The company is developing a trend of beating Wall Street's earnings estimates. Back in February they reported results that bested analysts' estimates by a wide margin. They did it again in May. Wall Street was looking for a loss of 44 cents on revenues of $145.1 million. BMRN reported a loss of just 1 cent with revenues rising +18.5% to $151.6 million. Their most recent earnings report was July 30th. Analysts were expecting a loss of 41 cents on revenues of $159.2 million. BMRN announced a loss of 23 cents with revenues soaring +40.1% to $191.7 million. Furthermore BMRN management raised their 2014 guidance following the July 30th report.

The stock peaked back in February this year. When the market corrected in March most of the high-growth and momentum names were crushed. BMRN was in that group that saw their stock hammered lower. Shares fell from almost $85 to $55.00. Fortunately the $55.00 level has been solid support. Shares have been building a significant base in the $55-65 zone for over three months.

Currently the rebound from its July lows is pushing the stock up against major resistance in the $65.00-66.00 area. This is where BMRN has resistance with its simple 200-dma and its trend line of lower highs. If the stock breaks out it could spark a significant move higher.

Tonight we're suggesting a trigger to buy calls at $66.55. We're not listing an exit target tonight but I will share that the point & figure chart is bullish with a $77.00 target.

- Suggested Positions -

Long Oct $70 call (BMRN141018C70) entry $2.55*

08/14/14 triggered @ 66.55
*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

Cummins Inc. - CMI - close: 141.95 change: -0.02

Stop Loss: 138.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.6 million
Entry on August -- at $---.--
Listed on August 09, 2014
Time Frame: 10 to 14 weeks
New Positions: Yes, see below

08/14/14: CMI delivered a disappointing performance. The stock did not participate in the market's rally today. Instead shares drifted sideways and closed virtually unchanged.

I do not see any changes from our weekend newsletter's new play description below.

Earlier Comments: August 9, 2014:
Sometimes investors overreact to news and the stock reaction can generate an opportunity. That's what we are seeing in CMI today.

Cummins Inc. was founded back in 1919 by its namesake Clessie Lyle Cummins. The company has four businesses: engines, power generation, components, and distribution. They're headquartered in the state of Indiana with about 48,000 employees worldwide. They do business in 190 countries.

According to the company website CMI describes themselves as "a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems."

CMI reported Q1 earnings on April 29th. They crushed the earnings number and beat the revenue estimates with revenues up +12.3% for the quarter. CMI management raised their 2014 guidance by +6% to +10% (about $18.3-19.0 billion).

When CMI reported Q2 earnings on July 28th Wall Street was expecting a profit of $2.39 a share on revenues of $4.82 billion. CMI beat those numbers with a profit of $2.43 on revenues of $4.84 billion. Profits were up +10.5% from a year ago. Management raised their 2014 guidance again. This time they see revenues up +8% to +11% in 2014. That's about $18.7-19.2 billion.

CMI's Chairman and CEO Tom Linebarger said, "Demand is growing in on-highway markets in North America this year as the economy improves and we have gained market share in medium duty truck and bus markets." Their North American sales surged +14% last quarter versus a -1% pullback in international sales.

That's two quarters in a row that CMI has beat Wall Street's top and bottom line estimates and raised guidance. Yet the stock was crushed following the July earnings number. It appears the upgraded revenue guidance wasn't good enough and analysts were expecting more.

CMI reported sales of $17.3 billion in 2013. Now they're approaching $19 billion. They've already approved a $1 billion stock buyback program to replace their current $1 billion buyback program once it's complete. They have also raised their dividend this year.

The company has rising sales, rising market share, rising profits, and rising dividends. It has a trailing P/E of 17 and a forward P/E of 12.8. That sounds like a pretty good combination.

Technically the stock has fallen to its long-term trend line of support (see the weekly chart below). Last week shares have started to rebound from this trend. However, on a short-term basis the breakdown under its 200-dma looks pretty ugly. The bounce last week failed near $144.00 and its 10-dma. Therefore tonight we are suggesting a trigger to buy calls at $144.25.

FYI: Investors should note that Deere (DE) reports earnings on August 13th. While not exactly in the same business as CMI their results might influence CMI's performance.

Trigger @ $144.25

- Suggested Positions -

Buy the 2015 Jan $150 call (CMI150117C150)

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

Gilead Sciences, Inc. - GILD - close: 96.36 change: +2.38

Stop Loss: 89.95
Target(s): To Be Determined
Current Option Gain/Loss: +31.0%
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

08/14/14: The strength in biotech stocks helped push GILD to a new all-time high. The stock is on pace to pots its ninth weekly gain in a row.

Please note that the $100.00 mark could be round-number, psychological resistance for GILD stock. More conservative investors may want to consider taking money off the table or exiting completely as GILD nears the $99-100 zone.

Tonight we'll move our stop loss to $89.95.

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*

08/14/14 new stop @ 89.95
Investors may want to consider taking money off the table as GILD nears the $99-100 zone.
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

Isis Pharmaceuticals - ISIS - close: 36.58 change: +0.74

Stop Loss: 31.85
Target(s): To Be Determined
Current Option Gain/Loss: +9.7%
Average Daily Volume = 1.5 million
Entry on August 13 at $35.25
Listed on August 12, 2014
Time Frame: 12 to 15 weeks
New Positions: see below

08/14/14: ISIS is another biotech stock showing relative strength today with a +2.0% gain. The stock is nearing what could be resistance in the $37.50-38.00 area. The simple 200-dma is overhead at $37.75.

Earlier Comments: August 12, 2014:
Science has discovered that some diseases are caused by certain proteins. Some biotech firms are using RNA-targeted technology to focus on those proteins and find a treatment. ISIS is one such company.

According to their website, ISIS is "the leading company in antisense drug discovery and development, exploiting a novel drug discovery platform we created to generate a broad pipeline of first-in-class drugs. Antisense technology provides a direct route from genomics to drugs. With our highly efficient and prolific drug discovery platform we can expand our pipeline and our partners' pipelines with antisense drugs that address significant medical needs. Our strategy is to do what we do best—to discover unique antisense drugs and develop these drugs to key clinical value inflection points."

The company has a significant number of drugs in development. You can see a list of ISIS' pipeline on this webpage. They currently have over 30 drugs in progress. The depth and scale of their pipeline makes ISIS a potential takeover target from bigger drug or biotech firms. Gilead Sciences and Biogen Idec have been rumored as potential suitors.

Lately the headlines have been full of the world's worst Ebola outbreak in history. Biotech stocks are grabbing investor attention as companies search for a treatment. Whenever one biotech firm makes positive headlines it tends to create a halo effect that buoys the rest of the group.

The stock peaked back in February this year after ISIS reported positive results on a treatment for children with spinal muscular atrophy. After soaring from $8.00 in the prior 18 months traders sold this news near $60.00. A few days later in March all the high-growth and momentum names were crushed. The correction was exceptionally tough on ISIS. The stock plunged from $60 in February to $23 in May. Their Q1 results in early May didn't help. Results were in-line but revenues were down 35% from a year ago to $28.2 million. Their most recent earnings report on August 4th was much better. ISIS missed Wall Street's estimate for a loss of 10 cents a share by 1 cent. However, revenues soared +49.8% to $57.1 million, which was significantly above expectations.

ISIS explained that the big swings in their revenues are normal. According to their press release, "Isis' revenue fluctuates based on the nature and timing of payments under agreements with its partners and consists primarily of revenue from the amortization of upfront fees, milestone payments and license fees. Isis' revenue from the amortization of payments from its partners was $31.4 million in the first half of 2014, compared to $19.2 million for the same period in 2013." You can see they made significant improvement from 2013 to 2014.

ISIS is getting closer to several drugs completing their final Phase 3 clinical trials before being approved for market. The company said,

We have initiated the Phase 3 program for ISIS-SMNRx to treat patients with spinal muscular atrophy. Our Phase 3 clinical study of ISIS-TTRRx in patients with the polyneuropathy form of transthyretin amyloidosis is enrolling well and patients who have completed the controlled portion of the study can continue to receive treatment in our open-label extension study. Also this year, we plan to initiate the Phase 3 program for ISIS-APOCIIIRx to treat patients with severely elevated triglyceride levels with the first study starting very shortly," said B. Lynne Parshall, chief operating officer of Isis. "By the end of the year, we plan to be conducting Phase 3 programs on a number of different drugs to treat important genetically driven diseases for which antisense may offer a unique therapeutic approach."

It looks like the stock has made a bottom in July. Shares have pushed through several key moving averages in the last couple of weeks. If this continues ISIS could see some short covering. The most recent data listed short interest at 10% of the 117.9 million share float. The Point & Figure chart is bullish and forecasting at $46.00 target.

Tonight we are suggesting a trigger to open bullish positions at $35.25. If triggered we'll try and limit our risk with a stop loss at $31.85. I will point out that ISIS does have resistance in the $37.50 area including its simple 200-dma. We're expecting the stock to break through it. More conservative investors might want to wait for ISIS to close above $38.00 before considering new positions.

- Suggested Positions -

Long 2015 Jan $40 call (ISIS150117C40) entry $4.10

08/13/14 triggered @ 35.25
Option Format: symbol-year-month-day-call-strike

Transportation ETF - IYT - close: 148.21 change: +1.22

Stop Loss: 141.90
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
Average Daily Volume = 276 thousand
Entry on August 11 at $146.03
Listed on August 09, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

08/14/14: Today's rally in the IYT is bullish. Not only did this ETF outperform the major indices with a +0.8% gain but the IYT also broke through its 20, 30, 40, and 50-dma.

I am not suggesting new positions at this time.

Earlier Comments: August 9, 2014:
In tonight's market commentary Jim pointed out the bounce in the Dow Jones Transportation Average ($TRAN). The transportation group has been leading the market higher for months with a series of new all-time highs. The group was hit with some profit taking in the last two and a half weeks. Even with a 500-point (about -6%) pullback in the $TRAN index it's still up +9.3% for the year. Now that group is bouncing.

One way to play the transports is the iShares transportation ETF (symbol: IYT). This ETF tries to mimic the performance of the Dow Jones Transportation Average. The top ten holdings in this ETF are:

(FDX) FedEx - delivery services
(KEX) Kirby Corp. - marine transportation
(KSU) Kansas City Southern - railroads
(UPS) United Parcel Service - delivery services
(NSC) Norfolk Southern - railroads
(UNP) Union Pacific Corp. - railroads
(CHRW) C.H. Robinson Worldwide - trucking
(R) Ryder System Inc. - transportation services
(CNW) CON-WAY Inc. - trucking
(JBHT) J.B. Hunt Transport Services - trucking

If the U.S. economy continues to improve as so many expect it will then the transports should be a major beneficiary. We should take advantage of this pullback in the transports and buy this bounce from support.

The IYT has been bouncing from technical support at its rising 100-dma for months. It bounced off the 100-dma in October 2013, February 2014, April 2014, and almost hit it again on Friday morning before bouncing.

Tonight we're suggesting traders buy calls now following Friday's bouncing with a stop loss at $141.90, just under the 100-dma. More conservative traders may want to consider an alternative entry point and wait for a rise past $146.25 instead.

- Suggested Positions -

Long 2015 Jan $150 call (IYT150117C150) entry $4.60

08/11/14 trade begins. IYT gaps higher at $146.03
Option Format: symbol-year-month-day-call-strike

LyondellBasell Industries - LYB - close: 109.79 change: -0.06

Stop Loss: 107.40
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

08/14/14: LYB's performance today was a disappointment. The stock hit a new all-time high and then reversed to close virtually unchanged on the session. The intraday was $110.49. We are still on the sidelines since our suggested entry point is $110.50.

More conservative traders may want to use a trigger a little bit higher.

Please note I am raising the stop loss to $107.40.

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)

08/14/14 adjust the stop loss to $107.40 (trade not open yet)
08/14/14 LYB almost hit our trigger but failed at $110.49
Option Format: symbol-year-month-day-call-strike

Palo Alto Networks, Inc. - PANW - close: 85.49 change: +0.70

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: +53.1%
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

08/14/14: PANW gapped open higher this morning and spiked to $87.79 before reversing. Shares still managed a +0.8% gain on the session.

I would not be surprised to see PANW retest the $84.00 level before moving higher.

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*

08/13/14 new stop @ 79.90
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

U.S. Silica Holdings, Inc. - SLCA - close: 60.00 change: -1.15

Stop Loss: 57.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.42 million
Entry on August -- at $---.--
Listed on August 13, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

08/14/14: I am honestly surprised to see SLCA showing relative weakness. Rival sand and proppant stocks like EMES, HCLP, and CRR also underperformed the market today as well.

At the moment I do not see any changes from yesterday's new play description.

Earlier Comments: August 13, 2014:
We are bringing SLCA back after some post-earnings volatility.

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.

SLCA's most recent earnings report was July 29th. Wall Street expected a profit of $0.47 a shares on revenues of $189.7 million. SLCA beat estimates with a profit of $0.55 and revenues soaring +58.5% from a year ago to $205.8 million.

The company said sales were up sharply both from a year ago and from the first quarter. Management raised its 2014 earnings guidance.

Currently shares of SLCA are hovering just below resistance in the $61.75 area. Tonight we're suggesting a trigger to buy calls at $62.05. We are not setting an exit target tonight but Point & Figure chart for SLCA is bullish with a $69 target.

Trigger @ 62.05

- Suggested Positions -

Buy the DEC $65 call (SLCA141220C65)

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

PUT Play Updates

Currently we do not have any active put trades.


Pall Corp. - PLL - close: 80.13 change: +0.76

Stop Loss: 80.35
Target(s): To Be Determined
Current Option Gain/Loss: -28.8%
Average Daily Volume = 437 thousand
Entry on July 30 at $79.45
Listed on July 29, 2014
Time Frame: Exit PRIOR to earnings on August 28th
New Positions: see below

08/14/14: The stock market's continued rebound helped boost the oversold bounce in PLL. Today saw shares break through resistance near $80.00 and its simple 300-dma. Our stop was hit at $80.35.

- Suggested Positions -

Sep $80 PUT (PLL140920P80) entry $2.60* exit $1.85** (-28.8%)

08/14/14 stopped out at $80.35
**option exit price is an estimate since the option did not trade at the time our play was closed.
08/09/14 updated time frame. PLL scheduled to report earnings on Aug 28
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