Option Investor

Daily Newsletter, Thursday, 9/11/2014

Table of Contents

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

Market Wrap

Quiet Trade While Market Remembers

by Thomas Hughes

Click here to email Thomas Hughes
It was a quiet day of trading today as the market remembers the 9/11 attacks.


The markets were relatively quiet today. The anniversary of the 9/11 terrorist attacks dominated attention but did not completely halt trading. Volume remains low I think because of next weeks FOMC meeting. To start the day international markets were mixed, fear of the FOMC and a weakening yen impacting Asian markets while European traders had the additional worry of Scotland's apparent drive to independence. Index futures were weak here as well with the SPX indicated down about -8 points going into the open. There wasn't much data today except the weekly jobless claims which provided a small but unexpected negative surprise. Initial claims rose, slightly, while longer term total claims fell.

The early morning news was dominated by remembrance of the 9/11 attacks. The President, Vice President and first lady all made an appearance at the White House and there was a moment of silence on Wall Street as well.

Market Statistics

The opening was weak, as expected, but did not produce the drop indicated by the futures trade. The SPX opened about 3 points below yesterday's close, dipped down to -8 only for a minute and then bounced higher, nearly reaching break even. Later in the day early lows were tested and broken but produced another bounce, this time taking the index all the way to within 0.25% of yesterday's close. Afternoon trading remained mixed but held close to break even until later in the day when the SPX, NASDAQ and Russell all traded into the green. By the end of the day the indices were mostly higher, if barely, with only the Dow Industrial Average holding on to losses.

Economic Calendar

The Economy

There wasn't a whole lot of data today and what there was the media spun by the media. Initial claims for unemployment rose by +11,000 from a +2,000 revision to last weeks data. This brings initial claims up to 315,000 and a three month high. While unexpected, it is not a very large gain and as a single piece of data has little impact on the longer term employment picture. On an unadjusted basis claims fell by -15,377, about 10,000 less than the seasonal factors had been expecting; enough difference to account for this weeks gain. I'm sticking with my theory that initial claims is more of a sign of job turnover than it is of overall unemployment so even if elevated not serious until longer term unemployment picks up. We must also remember that this is September, a month known for poor jobs data and volatility in revisions. Some of these claims at least are due to changes in seasonal employment. The four week moving average of initial claims rose as well but remains low at 304,000.

Continuing claims also rose this week, gaining 9,000 on top of a +14,000 revision to last weeks data. This week continuing claims were 2.487 million, just off of the long term low set last week. Continuing claims, a better look at long term employment trends, is still trending lower and is now below 2.5 million for the second week. The four week moving average continued to move lower, counter to the rise in this weeks numbers, dropping to a new low not seen since mid 2007.

Total claims, the figure in this group with the biggest impact on overall unemployment levels, fell this week. Total claims shed nearly -82,000 bringing the number down to 2.374 million, a new long term low. Based on these numbers it looks like initial claims are near term noise while longer term trends show jobless claims and overall unemployment moving lower, which is consistent with the NFP and unemployment data last week. Looking at the table provided by the DLS we can see that over the past two months initial claims (near term) have been edging up while continuing claims (longer term) have been moving lower.

Tomorrow heats up a little on the economic scene. There are four macroeconomic indicators on the list that will have an impact on trading. Starting off is Retail Sales, followed up by Import/Export prices, Michigan Sentiment and Business Inventories. Retail sales are expected to rise about a quarter percent, as are business inventories. Michigan Sentiment is expected to rise slightly from last months reading of 82.5.

The Oil Index

Oil prices were a little volatile today. Early trading had WTI down a dollar or more before a late day turn around sent prices above yesterday's close. Adding to the turnaround was speculation over the outcome of President Obama's new strategy for ISIL as well as renewed tension between the US, NATO and Russia. Other news impacting oil prices today was a down grade of global demand expectation from the IEA but this was largely ignored from what I can tell. By the close of today's session WTI had moved up more than 0.75% and then higher in the after hours market.

The reversal in oil helped the Oil Index find support along the long term trend line. Early trading had the index trading lower, testing previous all time highs and the long term trend line. The index has been correcting to trend, albeit very calmly, in the face of a 12% correction in oil prices. The oil index is down only about 5.7% from mid July, oil's peak, and is sitting on long term support. The indicators are bearish at this time but until the index breaks trend I will be looking for signs of a bounce.

The Gold Index

Gold prices fell again today, dropping more than $5 to fall below $1240. Long term fundamentals, those supporting an improving economy, stronger dollar, and end to tapering and an anticipated rise in interest rates have overcome near term fears. The price of gold has been dropping steadily since mid August and are now at a 7.5 month low. Momentum is building to the down side and unless some reason emerges for gold to become an attractive investment I see it moving down to test support in the $1200 - $1225 region. The Fed will have a huge impact on gold prices next week based on its statement and actions concerning interest rates.

The Gold Index at first fell in tandem with gold prices, losing about -0.85% in today's session. Later in the day, one gold prices seemed to find an intraday bottom, the index was able to power into the green. Today's action took the index into a targeted support zone before the reversal and so is not completely unexpected. Gold prices of course will be the driving factor for the index at this time. MACD is peaking in the near term but in the short term shows that momentum is on the rise. In the near term I am looking for resistance around $95 with support in the range between $90 and $92.50. However, the long term trend is down, the short term signal is down and gold prices are moving lower so I think the lower end of this range, around $90, could be reached.

In The News, Story Stocks and Earnings

The US and the EU partnered up for a new round of sanctions against Russia despite the ongoing peace process in the Ukraine. The new sanctions targeted already sanctioned areas of the Russia economy including finance, energy and defense sectors. The announcement had little to no affect on stocks but did elicit a response from Russia. They don't like it.

Alcoa and Boeing announced a new multi year deal that is worth $1 billion for the aluminum giant. The deal is no doubt linked to the recent contract, announced just Monday, between RyanAir and Boeing for all those new jets. Alcoa will be supplying aluminum sheeting for wings as well as ribbing and other important structural and non structural parts made from aluminum. This deal is the largest ever between the two companies and sets Alcoa up as the sole supplier for many products used in manufacturing aircraft. I will also point out that Alcoa's purchase of Firth Rixson earlier this year (a manufacturer of high end aluminum aircraft parts) is also likely a key element of this new deal.

Shares of Alcoa, which have been trending up steadily over the past year, lost close to 2% on the news. The stock is trading up near long term resistance set during a head&shoulders reversal in 2011. The indicators are consistent with resistance so there could be a little downside but the long term trend is up so I will be looking to buy this one on the dip. Current support is around $16.50 and the short term 30 day moving average with less than one month until the next scheduled earnings report.

Lululemon reported earnings today, beating on the top and bottom lines. The company had been expected to earn about $0.30 per share and reported $0.33. The beat was driven by the ongoing management turnaround and an unexpected rise in online sales. The results led the company to raise full year guidance and sent shares soaring in the pre market. The move took the stock up more than 15% at the open, closing the gap formed at the last earnings release three months ago. The move met with significance resistance once it broke above the upper window sill and formed a long legged doji with high trading volume. While bullish for the stock there is still a lot for the company to do to regain its former standing leaving my a little leery of this move. The indicators are weak as well and do not support a break out at this time. I would expect the stock to retrace some of today's jump up as it opened a new window/gap while closing the previous one.

RadioShack reported earnings today, posting a wider than expected loss. The stock however jumped on the report due to plans to begin a major overhaul of the balance sheet. The company reported it was in active talks with lenders, bondholders, shareholders, landlords and financial institutions in an effort to explore debt restructuring and recapitalization. Many of the analysts however do not share the optimism displayed by the market and are suggesting a possible rapid failure of the company. Shares of the stock traded higher for the day, breaking above $1, but found heavy resistance at the short term moving average and was not able to hold.

Super market chain Kroger also reported earnings today. The company reported earnings of $0.70, a penny above estimates. The company was also able to raise full year guidance to the high end of the previous range as well as same store comp sales estimates. The gains are made with the help of Harris Teeter stores which were added to the fold earlier in the year. Within the report executives said that they are planning on maintaining current plans to return money to shareholders, reinvest in the company and to continue with capital investment. The company also expects core business growth to continue accelerating.

The Indices

The Dow Jones Transportation Average was today's market leader. The trannies moved nearly a half percent higher in today's session after testing support earlier in the day. The index is now sitting on support and looking like it could bounce higher. The indicators are still weakening so there may be more sideways action which I think may end once the Fed meeting and rate announcement is made. The index is trading just below all time highs and is still in an uptrend, an uptrend that is being aided by low oil prices. Current near term support is at 8,500 with additional short and long term supports just beneath that level.

The NASDAQ composite was runner up in today's action. The tech heavy index gained 0.12% in today's action coming very near to the current all time high. This index is moving sideways in a consolidation that is now taking on the appearance of a bullish flag. If this is the case and the index breaks to the upside the targets will be 4,700 in the near term with 4,800 and 4,900 real possibilities in the short to long term. Momentum is bearish right now but the peaks are very very small, and as I have mentioned in earlier wraps not a problem so long as the index holds support levels. Bearish indicators, in relation to current price action, are a positive as they indicate a market that has cooled off within a longer term trend. At this time it is key to monitor near term support and resistance in anticipation of expected catalysts next week.

The S&P 500 had a harder time today but was also able to move up into the green. The broad market index gained only 0.09% but it was enough. Like the others, this index also tested support today, moving down through previous all time highs, touching the 30 day moving average, and then bouncing back higher. It looks a lot like the index is finding support at the previous all time high, the all time high set before the August correction, the correction associated with the peak of the Russian Incursion and the onset of the summer “traders holiday”. Looking at the indicators they are moving lower at this time but still consistent with support and the longer term trend. The MACD peak is very small and stochastic, while pointing lower, is overbought in the near term and comfortably in the middle of the neutral zone in the short term.

This is a perfect what I will call a “pre set-up” for a trend following signal. Everything is ready for it to happen (a trend following signal) it just hasn't yet. This is where real patience comes into play. I think the market is waiting on the Fed, or at least the meeting to start, before committing to a direction. During the last two meetings at least the markets began to move higher out of thier consolidation before the Fed even released their decision. Support is looking good around 1990 for now, a break below that could go as low as 1950 but would find a more considerable support level there.

The Dow Jones Industrial Average was today's laggard. The blue chip index lost -0.12 after struggling to make it to break even. Looking at it from the perspective of capitalization and focus, it looks like the large cap dividend producing industrial stocks are not as attractive as the broader growth oriented and technology driven markets. In any event, today's action tested the bottom of the two week range that I have decided to officially call a congestion band.

This index has traded exactly sideways for nearly three trading weeks and today's action bounced off that bottom. The short term 30 day moving average is just below the near term bottom of the band and helped provide support. The top of the band is consistent with the current all time high and could keep the index trading sideways until next week. The indicators are in decline following the peaks of last month but the longer term analysis shows strength in the underlying trend. Current support is around 17,000 with additional support below that around 16,750.

There is a lot for the market to consider right now and not a lot of catalyst. At least not yet, and not a whole lot of volume either. I have to ask myself at this time, if I had left the market mid summer and just come back now, what would I do? The trend is up, the economic trends are up, earnings last quarter were better than expected, GDP growth is good, oil prices are down, tapering is almost over, 3rd quarter expectations are uncertain but positive, the charts are looking OK.... not much reason to get bearish in my opinion but I could be wrong, it certainly wouldn't be the first time. Of course, with the FOMC next week I might want to wait for that too.

The chart of the Dow Jones Industrials in particular looks bullish to me. It makes me think of a crowd of people standing up against a wall or fence. As more and more people join the crowd the edge pushes up against the wall and spreads out against it until eventually it topples. The way price action is keeping the index trading up against resistance in that tight congestion band is telling me support is pushing the index up against resistance, a line on the chart. If support remains in the market eventually it will topple that line. All it takes is one person to set foot, or bid, across that line to start a flood.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Outperforming Its Peers

by James Brown

Click here to email James Brown


Mallinckrodt Public Limited Co. - MNK - close: 86.84 change: +0.91

Stop Loss: 83.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.85 million
Entry on September -- at $---.--
Listed on September 11, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
MNK is considered a drug maker but the stock is outperforming its peers in both the drug industry and the biotech industry. The S&P 500 is up about +8% in 2014. The pharmaceutical index (DRG) is up +13.1%. The biotech index is up +34.8% thus far in 2014. Yet MNK is up +64.4%.

The company describes itself as "a global specialty pharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents."

"Areas of focus include analgesics and central nervous system drugs for prescribing by office- and hospital-based physicians, and autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities."

"The company's Specialty Pharmaceuticals segment includes branded and specialty generic drugs and active pharmaceutical ingredients, and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. Mallinckrodt has more than 5,500 employees worldwide and a commercial presence in roughly 65 countries. The company's fiscal 2013 revenue totaled $2.2 billion."

The company had seen a few key milestones this year. They recently finished their $5.6 billion acquisition of Questcor. In August the stock was added to the S&P 500 index. MNK's earnings report in May was better than expected and management raised their guidance. Their latest earnings report was August 7th. Wall Street expected a profit of $0.85 a share on revenues of $610 million. MNK delivered a profit of $1.20 a share with revenues up +14.6% to $653 million. Management raised their guidance again for both their 2014 EPS and revenue estimates.

MNK's Chief Executive Officer and President, Mark Trudeau, commented on their quarterly results saying,

"This has been another exceptionally strong quarter in what is shaping up to be a very promising year for Mallinckrodt. This performance is being driven by the strength of our Specialty Pharmaceuticals segment in both Brands and Specialty Controlled Substance Generics, as well as streamlined costs from our on-going restructuring initiatives, leading to meaningful top-line and bottom-line growth. We continue to be pleased with the performance of our base business and recently added OFIRMEV, and look forward to closing the acquisition of Questcor in the coming weeks."

The current rally in MNK stock has lifted shares to all-time highs. The September 5th move looked like a potential bearish reversal yet there was no follow through lower. Instead MNK has been consolidating sideways. If shares continue to march higher it could spark some short covering. The most recent data listed short interest at 29.3% of the small 53.9 million share float.

We are not setting a target tonight but the point & figure chart is forecasting at $90.00 target. We are suggesting a trigger to buy calls at $87.25.

Trigger @ $87.25

- Suggested Positions -

Buy the OCT $90 call (MNK141018C90) current ask $3.50

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

Daily Chart:

In Play Updates and Reviews

Traders Continue To Buy Dips

by James Brown

Click here to email James Brown

Editor's Note:

The market's major indices bounced off their morning and midday lows but gains were muted.

FFIV hit our entry trigger.

Current Portfolio:

CALL Play Updates

Amgen Inc. - AMGN - close: 138.96 change: -0.23

Stop Loss: 135.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.0 million
Entry on September -- at $---.--
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

09/11/14: AMGN spent Thursday's session churning sideways and failing at resistance near $140.00 again. We are suggesting a trigger to buy calls at $140.25.

Earlier Comments: September 8, 2014:
Biotech stocks have been leading the market higher this year. The BTK biotech index is up +32.5% year to date. The IBB biotech ETF is up +19.1%. AMGN is up +20.8% versus the S&P 500's +8% gain in 2014.

The company describes itself as focusing "on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people's lives. A biotechnology pioneer since 1980, Amgen has grown to be the world's largest independent biotechnology company, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential."

They are one of the first major biotech firms to go public. Today the California-based company has grown to 20,000 employees with a presense in more than 75 countries. Annual revenues are set to hit $19.5 billion this year. The company invests near $4 billion in R&D every year. AMGN has is a combination of mature drugs and a new stable of treatments working through their pipeline.

The company recently received good news after the FDA granted priority review to AMGN's Ivabradine treatment for chronic heart failure. Wall Street is also eager for AMGN's new cholesterol drug, which could be its next multi-billion blockbuster. This new cholesterol drug, Evolocumab, is a PCSK9 inhibitor to lower LDL cholesterol for patients that can't use statin drugs. AMGN recently filed some key regulatory paperwork with the FDA as it races against rival Regeneron to be the first mover in this new field of cholesterol treatments.

Enthusiasm for AMGN's new pipeline should continue. In addition to Evolocumab and Ivabradine, AMGN should see progress on Kyprolis, Talimogene laherparepvec, Blinatumomab, Trebananib, Brodalumab, and AMG 416 in the next six months.

The company's last earnings report was better than expected. AMGN reported on July 29th. Wall Street was looking for earnings of $2.07 a share on revenues of $4.9 billion. The company reported $2.37 a share with revenues up +10.7% to $5.18 billion. Management also guided higher and raised estimates for 2014 earnings growth and revenue growth. Several analysts have raised their price targets and the point & figure chart is bullish and currently forecasting at $152 target.

Tonight we're suggesting a trigger to buy calls at $140.25.

Trigger @ $140.25

- Suggested Positions -

Buy the 2015 Jan $150 call (AMGN150117C150)

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

Concur Technologies - CNQR - close: 110.80 change: +1.06

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +86.1%
Average Daily Volume = 576 thousand
Entry on August 19 at $100.50
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: CNQR displayed relative strength with a +0.9% gain and a close above resistance at the $110.00 mark.

Earlier Comments: August 16, 2014:
CNQR is in the technology sector. The company provides travel and expensive management solutions. The company was founded back in 1993. Their focus is helping companies control travel costs. The business has been growing over 23,000 customers and over 25 million users.

The company press release describes Concur as "the leading provider of spend management solutions and services in the world, helping companies of all sizes transform the way they manage spend so they can focus on what matters most. Through Concur's open platform, the entire travel and expense ecosystem of customers, suppliers, and developers can access and extend Concur's T&E cloud. Concur's systems adapt to individual employee preferences and scale to meet the needs of companies from small to large."

There is no denying that it has been a rocky year for CNQR investors. The stock struggled with resistance near $130.00 for over a month earlier this year. When the momentum names corrected lower in March shares of CNQR were crushed. The stock produced a two-month retreat down to $75.00.

Meanwhile earnings continued to improve. When CNQR reported earnings on April 29th they beat estimates by six cents and guided higher for the second quarter. Their most recent earnings report was August 4th. Wall Street expected a profit of $0.16 on revenues of $175.1 million. CNQR delivered a profit of $0.25 with revenues rising +28.6% to $178.4 million. Management also raised their 2014 guidance.

Stocks analysts are starting to notice and a few of them have upgraded their price targets on CNQR into the $110-115 region. If shares of CNQR can breakout past resistance near $100 and its 200-dma then it might sprint towards $110. That's because the stock has a significant chunk of short interest.

The most recent data listed short interest at 12.2% of the relatively small 55.5 million share float. Since the $100 mark is significant resistance a breakout could definitely spark some short covering. The point & figure chart is already bullish and projecting at $108 target.

Tonight we are suggesting a trigger to buy calls at $100.50.

- Suggested Positions -

Long NOV $105 call (CNQR141122C105) entry $5.05*

09/03/14 new stop @ 104.90
08/27/14 CNQR is not moving. Investors may want to exit now. We are moving the stop loss up to $98.40
08/19/14 triggered @ 100.50
*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

F5 Networks, Inc. - FFIV - close: 126.12 change: +0.93

Stop Loss: 121.95
Target(s): To Be Determined
Current Option Gain/Loss: -5.2%
Average Daily Volume = 855 thousand
Entry on September 11 at $126.25
Listed on September 10, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: Our new trade on FFIV is open. The plan was to buy calls at $126.25. This morning FFIV received some bullish analyst comments and an upgraded price target at $150. This helped push the stock to new two-year highs.

Earlier Comments: September 10, 2014:
Shares of FFIV did not enjoy the same rally the rest of the market did back in 2013. This year they're playing catch up with their stock up +35.4% versus the +8% rally in the S&P 500. Who is FFIV? According to a company press release:

"F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

Just a few months ago FFIV strengthened their security services by buying Defense.net Inc. "a privately-held provider of cloud-based security services for protecting data centers and Internet applications from distributed denial-of-service (DDoS) attacks. The advanced technologies and operational experience shared between the two companies will expand F5's portfolio of security solutions for defense against Internet-based DDoS attacks on networks, data centers, and applications."

One reason the stock has been performing better this year is the earnings picture. Back in April when FFIV reported its Q2 numbers the company beat analysts expectations with revenues rising almost 20% from the year before. Management raised their EPS and revenue guidance.

They did it again in their last report. FFIV reported its Q3 results on July 23rd. Analysts were expecting a profit of $1.35 a share on revenues of $435 million. FFIV delivered a profit of $1.39 with revenues up +18.9% to $440.3 million. FFIV management raised their 2014 EPS and revenue estimates again.

John McAdam, F5 president and chief executive office, commented on their Q3 results. McAdam said,

"F5's solid gains in Q3 were driven by strong growth in product revenue, up 5 percent sequentially and 20 percent year-over-year... Growing demand for our expanding array of systems and application services was fueled by increasing awareness and uptake of our security offerings and the appeal of our Good, Better, Best pricing options. During the quarter, sales of Good, Better, Best bundles grew 49 percent from the prior quarter and contributed to a significant increase in sales of software products and of security solutions in particular. Sales were generally solid across all geographic regions and vertical market segments, with the exception of Japan."

These results sparked new upgrades from the analyst community. The Point & Figure chart is bullish and forecasting at $144 target.

The recent high is near $126.00. We are suggesting a trigger to buy calls at $126.25. We are listing the October calls. Investors may want to consider the 2015 January calls instead.

- Suggested Positions -

Long OCT $130 call (FFIV141018C130) entry $2.68*

09/11/14 triggered @ 126.25
Option Format: symbol-year-month-day-call-strike

Lockheed Martin - LMT - close: 174.59 change: -0.35

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: -18.8%
Average Daily Volume = 1.1 million
Entry on September 08 at $175.55
Listed on September 06, 2014
Time Frame: 10 to 14 weeks
New Positions: see below

09/11/14: It was a quiet session for LMT. Shares drifted sideways in a relatively narrow range. I would wait for a decent bounce before considering new bullish positions.

Earlier Comments: September 6, 2014:
A few years ago the word "sequestration" was a buzzword in politics and the defense industry. The defense cuts were supposed to be so bad that it would force the democrats and republicans to work together and prevent the Budget Control Act of 2011 from becoming law. Well we all know how that worked out. Politics won and the budget cuts were enacted. The U.S. is supposed to be cutting $500 billion in defense spending from 2012-2021.

Yet these drastic cuts have not slowed the defense stock's performances. The group had a banner year in 2013 with big stock market gains. They continue to show leadership in 2014. Shares of LMT are up +17.4% in 2014 versus a +8.6% gain for the S&P 500.

According to a company press release LMT describes itself as, "Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation’s net sales for 2013 were $45.4 billion."

The company has continued to capture a number of big government contracts including a $915 million deal to build a "space fence" for the U.S. Air Force.

It is worth noting that LMT is the U.S. government biggest defense contractor and just over 80% of LMT's revenues come from the U.S. government. The company is being proactive in trying to broaden their customer base and hope to achieve 20% of sales from outside the U.S. At the moment LMT already has sales in 70 different countries. The plan seems to be working with 25% of the company's backlog coming from international orders.

Many believe that LMT's F-35 joint strike fighter program will be a key revenue driver in the future. The F-35 Joint Strike Fighter (JSF) is already the world's most expensive weapons system with a price tag near $400 billion. Earlier this year the JSF program suffered a setback after its engines, built by a subcontractor, caught fire. LMT believes they have solved the engine problem and the JSF program is getting closer to completion with over 19,500 hours of flight time. LMT already has 11 countries planning to purchase the new F-35 JSF planes.

LMT's earnings have been strong in spite of the sequestration. Back in April they report their Q1 results that beat estimates. Wall Street expected a profit of $2.53 a share on revenues of $10.89 billion. LMT beat the bottom line estimate with $2.87 per share but missed the revenue estimate at $10.65 billion for the quarter. However, management gave an optimistic outlook and raised their 2014 guidance on both net profits and revenues. When LMT reported earnings again in July they deliver a profit of $2.76 a share on revenues of $11.31 billion. That beat Wall Street's estimate of $2.66 and revenues of $11.15 billion. Management raised their EPS guidance again. The company has beaten analysts estimates four quarters in a row.

The company is shareholder friendly with a strong stock buyback program and a dividend yield of 3.2%. The point & figure chart is bullish and forecasting at $200 price target. Tonight we're suggesting a trigger to buy calls at $175.55.

- Suggested Positions -

Long DEC $180 call (LMT141220C180) entry $3.45*

09/08/14 triggered @ 175.55
*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

Nike, Inc. - NKE - close: 81.82 change: -0.65

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: +25.6%
Average Daily Volume = 2.8 million
Entry on September 05 at $80.50
Listed on September 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: NKE spent today's session consolidating sideways. I am not suggesting new positions at this time.

Earlier Comments: September 4, 2014:
Nike made headlines earlier this week when there was a bit of a bidding war for NBA star Kevin Durant. Durant's endorsement contract with NKE was coming to an end and rival Under Armour (UA) was trying to steal Durant away from NKE with a $200 million deal. In the end NKE outbid its rival and offered the 25-year old Durant a $300 million deal over the next ten years. Some of suggested that it could be worth a total of $350 million over the next 20 years. While I personally find numbers like these outrageous it's pocket change for NKE, which is sitting on $5.14 billion in cash and brings in a net profit of $2.7 billion a year on revenues of almost $28 billion annually.

Meanwhile the winds of fashion seem to be blowing in NKE's favor. There's a new trend being called "athleisure" where activewear and fashion intersect. Last year apparel sales fell -1%. Yet sales of activewear rose +7%. The activewear market now accounts for 16% of the U.S. market and has grown to almost $34 billion.

NKE's most recent earnings report was better than expected. Wall Street was looking for a profit of $0.75 on revenues of $7.34 billion. The company beat estimates with $0.78 on revenues of $7.42 billion. Gross margins improved 170 basis points to 45.6 percent. Management reported that they spent $912 million on buying back 12.3 million shares of stock last quarter as part of their $8 billion stock buyback program.

Technically shares of NKE have been stuck under major resistance at the $80.00 level since December 2013. Investors have been slowing buying the dips and now the stock looks poised to breakout past resistance. The point & figure chart is bullish and currently forecasting at $98 target.

Tonight I'm suggesting a trigger to buy calls at $80.50. Shares of NKE do not move super fast so we'll use the 2015 January calls.

- Suggested Positions -

Long 2015 Jan $85 call (NKE150117C85) entry $1.95*

09/05/14 triggered @ 80.50
Option Format: symbol-year-month-day-call-strike

Spirit Airlines - SAVE - close: 70.57 change: -0.76

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -60.0%
Average Daily Volume = 544 thousand
Entry on September 08 at $73.75
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: SAVE narrowly escaped hitting our stop loss today. Shares spiked lower at the opening bell and briefly traded below support at $70.00. The intraday low was $69.78. Our stop is at $69.75.

I am not suggesting new positions at this time. Let's wait for a bounce and re-evaluate.

Earlier Comments: September 6, 2014:
Airline stocks have been some of the best performers in 2014. The XAL airline index is up +26.2% this year versus the +8.6% gain in the S&P 500. A significant drop in crude oil prices has played a big part and should help boost margins for the entire industry.

One stock leading the charge is SAVE. According to a company press release, "Spirit Airlines is committed to offering the lowest total price to the places we fly, on average much lower than other airlines. We operate more than 270 daily flights to over 55 destinations in the U.S., Latin America and the Caribbean." Last year SAVE's average fare was $133. That's 65% lower than the average domestic airline flight. That is just their basic ticket with no frills and they charge you for extras to boost their margins. The strategy seems to be working.

SAVE reported better than expected earnings back in April with revenues up +18.3% from a year ago, beating analysts' expectations. They did it again in July when SAVE reported their Q2 numbers. The company beat estimates on both the top and bottom line with revenues soaring +22.6% from a year ago. Management reported that their adjusted pre-tax margins improved from 17.8% to 21.3%.

The stock is in rally mode with SAVE closing near all-time highs on Friday. The Point & Figure chart is already bullish and forecasting an $82.00 target. Tonight we are suggesting a trigger to buy calls at $73.75.

- Suggested Positions -

Long OCT $75 call (SAVE141018C75) entry $2.13*

09/08/14 triggered @ 73.75
*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

PUT Play Updates

Chart Industries - GTLS - close: 66.20 change: +1.70

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: -30.0%
Average Daily Volume = 617 thousand
Entry on August 29 at $65.60
Listed on August 28, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: I don't see any catalyst to explain the $3.00 rally in shares of GTLS this morning. The stock traded above $67.00 before trimming its gains. More conservative investors may want to lower their stop loss. I am not suggesting new positions at this time.

Earlier Comments: August 28, 2014:
If you have seen the 1986 movie Top Gun then you know that Tom Cruise's character "Maverick" and his RIO "Goose" fly through the jet wash of another aircraft and their plane enters a flat spin that Maverick is unable to pull out of. Spoiler - their plane crashes.

Both the stock price and the earnings results for GTLS appear to be in a flat spin that they cannot pull out of. According to the company website, "Chart Industries, Inc. is a leading independent global manufacturer of standard and custom engineered products and systems for a wide variety of cryogenic and gas processing applications. Our equipment is used in the production, storage, distribution and end-use of atmospheric and industrial gases as well as natural gas itself."

A growing portion of their business is natural gas. "Major equipment designed and manufactured by Chart is used in the liquefaction, distribution and storage of LNG, plus we also supply LNG fueling stations and vehicle fueling systems." Considering the huge surge of natural gas demand you might think GTLS business would be booming. Yet the company seems to be struggling.

Shares of GTLS delivered an amazing rally in 2013. That is until late October. GTLS reported earnings in late October 2013 that missed profits estimates, missed the revenue estimate and management lowered guidance. When GTLS reported earnings in February 2014 they missed estimates, missed the revenue number and lowered guidance. In April 2014 they missed estimates, missed the revenue number and lowered guidance. Are you seeing a trend here? Their latest earnings report was July 31st, 2014 and guess what? GTLS missed the EPS estimate, missed the revenue estimate, and lowered guidance.

Technically the oversold bounce from its August lows has completely reversed. Today is worth noting since GTLS has broken down to a new closing low for 2014. This trend will likely continue.

Today's intraday low was $65.70. I am suggesting a trigger to buy puts at $65.60.

- Suggested Positions -

Long OCT $65 PUT (GTLS141018P65) entry $2.50*

08/29/14 triggered @ 65.60
*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

Herbalife Ltd. - HLF - close: 45.76 change: -0.73

Stop Loss: 50.55
Target(s): To Be Determined
Current Option Gain/Loss: + 4.6%
Average Daily Volume = 1.5 million
Entry on September 09 at $47.90
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: HLF also spiked higher at the open but quickly ran out of steam. Shares spent most of the day hovering near $46.00.

I am not suggesting new positions at this time.

Earlier Comments: September 8, 2014:
HLF calls itself a nutrition company. Most see it as a multi-level marketing firm. Its detractors would call HLF a pyramid scheme.

According to the company's website, "Herbalife is a global nutrition company that has been changing people’s lives with great products since 1980. Our nutrition, weight-management, energy and fitness and personal care products are available exclusively to and through dedicated Independent Herbalife Members in more than 90 countries. We are committed to addressing the global obesity epidemic by offering high-quality products, one-on-one coaching with an Herbalife Member and a community that inspires customers to live a healthy, active life. The company has over 7,400 employees worldwide, and its shares are traded on the New York Stock Exchange (NYSE: HLF) with net sales of $4.8 billion in 2013."

HLF's biggest opponent is influential hedge fund manager Bill Ackman. Ackman's Pershing Square Capital Management has famously bet $1 billion that HLF is an illegal pyramid scheme and once the facts come to light the government will shut it down. Unfortunately for Bill this is a fight he has been waging since late 2012. It has definitely generated a roller coaster ride in HLF's stock price.

Back in July Ackman promised to deliver a death blow to HLF in an over hyped presentation. Unfortunately, Wall Street failed to see the smoking gun and shares of HLF surged about 25% in one day. Yet there hasn't been any follow through. In fact shares of HLF have reversed and are trading near their 2014 lows.

The latest earnings report did not help. HLF reported earnings in late July and missed both the top and bottom line estimates. Management lowered their 2014 guidance. The company seems to be having trouble retaining their independent salesmen. At the same time there is a growing scrutiny of MLMs overseas, especially in big markets like China and India.

The stock is hovering above support near $48.00. A breakdown would look very bearish for HLF. The Point & Figure chart is already bearish and forecasting a $28.00 target. A drop under $48.00 would generate a new triple-bottom breakdown sell signal on the P&F chart.

I do want to caution investors that this should be considered a more aggressive, higher-risk trade due to the high amount of short interest. The most recent data listed short interest at 44% of the 60.0 million share float. I suggest limiting your position size to reduce risk.

(small positions) Suggested Positions -

Long Oct $45 PUT (HLF141018P45) entry $2.37

09/09/14 triggered @ $47.90
Option Format: symbol-year-month-day-call-strike

iShares Russell 2000 ETF - IWM - close: 116.61 change: +0.75

Stop Loss: 118.15
Target(s): To Be Determined
Current Option Gain/Loss: -32.5%
Average Daily Volume = 29.0 million
Entry on September 10 at $114.85
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: The bounce in the IWM continues with this ETF up two days in a row. Shares should find resistance in the $117.50-118.00 zone.

I am not suggesting new positions at this time.

Earlier Comments: September 9, 2014:
The S&P 500 made it 14 days in a row without a move of more than 0.5% on a closing basis. Jonathan Krinsky at MKM Partners noted this occurrence yesterday. Krinsky said the last time we saw a streak this long was 1995. To find a streak longer than 14 days you have to go back to 1969, which saw a run of 20 days in a row. Today would have been the 15th day but stocks started to move and the direction was down. Small cap stocks were leading the way with the Russell 2000 falling -1.1% versus the -0.6% drop in the S&P 500.

Market watchers were blaming the rising dollar and new fears that the Federal Reserve might raise rates sooner than expected. There is speculation that the Fed might drop its "considerable time" guidance for low rates in its policy statement at the Fed meeting scheduled for next week.

Whatever the reason small caps look vulnerable and underperformed on above average volume today. We want to hedge our bullish bets with a put position on the IWM just in case the market does start to correct lower. Investors might be growing nervous about the 9/11 anniversary on Thursday. You could call this put a little 9/11 market insurance.

Tonight we are suggesting a trigger to buy puts at $114.85.

- Suggested Positions -

Long OCT $115 PUT (IWM141018P115) entry $2.70

09/10/14 triggered @ 114.85
Option Format: symbol-year-month-day-call-strike

Las Vegas Sands - LVS - close: 63.65 change: +0.73

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +103.0%
Average Daily Volume = 4.6 million
Entry on August 27 at $67.40
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: Casino and gambling stocks were showing relative strength today but the bounce in LVS stalled near short-term resistance in the $64.00 area.

I am not suggesting new positions at this time.

Earlier Comments: August 26, 2014:
The high-speed growth in the world's biggest gambling hub is slowing down. Investors are taking notice. It used to be that when the world wanted to gamble the came to Las Vegas. Today the biggest gambling center in the world is Macau, a city in southern China.

LVS describes itself as "the world's leading developer and operator of Integrated Resorts. Our collection of Integrated Resorts in Asia and the United States feature state-of-the-art convention and exhibition facilities, premium accommodations, world-class gaming and entertainment, destination retail and dining including celebrity chef restaurants, and many other amenities." LVS has properties in Vegas, Pennsylvania, Singapore, and Macau.

Macau has been the major focus for casino companies the last few years. The coastal strip of Macau is the only place in China where gambling is legal. Forbes described Macau as "Vegas on steroids." Macau overtook Vegas as the world's biggest gambling center back in 2006 with Chinese tourists accounting for nearly 66% of its traffic.

After years of booming growth in Macau the area is facing a few hurdles. One of them is rising wage costs. Current laws force casino operators to hire locals. This has driven unemployment in Macau down to 1.7%. Employees are unhappy. They make less than half that their counterparts in Vegas make. There has been a number of demonstrations as casino workers demand higher wages. There is currently the threat of a labor strike on August 28th this year.

Macau is also suffering from an economic slowdown in China. The country has been slowing grinding down for years. China is still expected to grow more than +7% this year but that's a multi-year low. Another issue has been China's crackdown on corruption this year. This new pressure from Beijing has thrown a wet blanket on VIP traffic to Macau. Yet another challenge for Macau is growing competition from foreign destinations. Other countries are starting to add gambling resorts, which could pressure traffic to Macau.

Analysts have been adjusting their earnings and revenues estimates lower for the casino stocks. That's not surprising given the recent reports of slowing revenue numbers. Macau's gambling regulators said gross gaming revenues dropped -3.7% in June and -3.6% in July. Morgan Stanley just slashed their 2014 Macau estimates from +12% to +6%.

Technically shares of LVS are bearish. The stock has broken significant support near $70.00. The oversold bounce is starting to roll over under resistance. The point & figure chart is bearish and forecasting at $56.00 target.

Tonight we are suggesting a trigger to buy puts at $67.40.

- Suggested Positions -

Long OCT $65 PUT (LVS141018P65) entry $1.50*

09/06/14 new stop @ 64.65
09/02/14 new stop @ 68.25
08/27/14 triggered @ 67.40
*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

Pentair Plc - PNR - close: 67.79 change: +0.60

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: + 5.5%
Average Daily Volume = 2.0 million
Entry on August 26 at $68.90
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/11/14: I'm starting to worry about our PNR put play. The stock displayed relative strength with a +0.89% gain on Thursday. I am not suggesting new positions at this time.

Earlier Comments: August 23, 2014:
Pentair is considered part of the industrial goods sector. They manufacture industrial equipment across the globe. According to the company website, "Pentair is a global water, fluid, thermal management, and equipment protection partner with industry leading products, services, and solutions. Pentair reports the performance of its business within four reporting segments that focus on five primary verticals."

Long-term the stock has had a strong 2012 and 2013 performance. The rally appears to have peaked in 2014 when the market started pulling back in March this year. If you recall many of the momentum names and higher-growth stocks were hammered lower starting in March. PNR doesn't really qualify as a big momentum name or a high-growth name but shares have been unable to recover anyway. Shares have trended lower from the March peak, currently down -16% from its 2014 highs and down -10.6% year to date.

PNR's earnings results have not helped the stock's performance. Back in April they beat estimates but missed the revenue number and then guided lower for the second quarter. Their most recent earnings report was July 31st. Depending whose estimate you use PNR either reported in-line profits or managed to just beat by a penny. Revenues disappointed again. PNR missed the revenue estimate with a -2.7% decline from a year ago to $1.91 billion. Management lowered guidance again but they also announced they were exiting their struggling water transport business.

PNR collapsed on this late July earnings news and lowered guidance with a drop toward $64. Shares have spent three weeks with an oversold bounce that is just now starting to roll over under resistance. PNR appears to have resistance near $70-71 and its 50-dma and 300-dma (see daily chart below). The point & figure chart is bearish and currently forecasting at $61 target.

Tonight we are suggesting a trigger to buy puts at $68.90.

- Suggested Positions -

Long Nov $70 PUT (PNR141122P70) entry $3.60*

09/06/14 new stop @ 68.65
08/26/14 triggered @ 68.90
Option Format: symbol-year-month-day-call-strike