Option Investor

Daily Newsletter, Tuesday, 9/16/2014

Table of Contents

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

Market Wrap

New Intraday High

by Jim Brown

Click here to email Jim Brown

Market sentiment turned on a dime after Fed expectations turned more dovish.

Market Statistics

So many excuses, so few facts. The reasons for the market rebound today could fill a thousand word essay. The short list includes a sudden liquidity injection by the People's Bank of China, new surveys and commentary claiming Janet Yellen will not change the language in the FOMC statement along with the end of the cash raise period ahead of the Alibaba IPO.

The People's Bank of Japan injected 500 billion yuan into the top five banks. This targeted QE represented 100 billion to each of the top five banks and has a duration of three months. This is what China calls a Short-Term Lending Facility (SLF) and is the equivalent of a short term QE program and it was unannounced. This came after the Manufacturing PMI fell to 51.1 for August and their GDP estimates slipped to 6.9%.

Multiple surveys of analysts and economists over the potential FOMC statement suggested the furor last week about a language change was a tempest in a teapot. The CNBC survey of 37 analysts found only 41% expected the language to change on Wednesday. Another 24% expected it in October, 24% in December and 11% in January.

Fed reporter Jon Hilsenrath said the Fed will probably keep the "considerable time" language in the policy statement but would likely qualify those words with some additional language. Since the words are tied to the current QE program that is expected to be terminated at the October meeting they will have to change the language in October in some form.

Lastly the period where investors could sell stocks to raise cash before the Alibaba IPO has ended. In order to be sure you had settled cash in your account on Thursday you would have to have sold before the close on Monday. The next big impact from the IPO will be investors putting that cash back into the market if they did not receive any BABA shares from the IPO. This could produce a market bounce on Friday and Monday assuming there are no other headlines.

The only economic report of note was the Producer Price Index (PPI) for August. The headline number was flat at zero after rising +0.1% in July. The core rate, excluding food and energy, was also zero and that was the first time in five months that the core rate did not rise.

Final energy goods declined -1.5% after falling -0.6% in July. This was the 6th decline in seven months. Intermediate unprocessed goods declined -3.3% and core unprocessed goods declined -5.9%. Oil and gasoline prices have been declining for the last three months and oil has hit levels that should be strong support. This suggests the decline in producer prices should be moderating.

The calendar for tomorrow is of course headlined by the FOMC statement at 2:PM and Yellen's press conference at 2:30. At this point the consensus is calling for no material change in the statement and possibly some further dovish comments to put investor minds at ease and take the pressure off rising rates.

The Consumer Price Index (CPI) and NAHB Housing Market Index will be the morning events.

Fedex (FDX) will report earnings before the open and that is normally seen as a proxy for the economy when they update guidance.

The change in outlook for the Fed statement caused a sharp decline on the dollar at 11:30 and commodities rebounded strongly on short covering. Crude oil gained +2% and copper +2.4%. The liquidity injection into China banks was also in play suggesting China was going to do whatever necessary to stimulate their economy.

Chinese e-commerce company Alibaba.com IPOed yesterday with shares soaring +122% to $3.87, up from the issue price of $1.74. Demand for the IPO was strong with the 858.9 million share offering more than 257 times oversubscribed. Alibaba said its share sale was the biggest technology IPO since Google in August 2004.

If that preceding paragraph seems strange in light of the headlines over the last two weeks then you have been paying attention. That was the news headline when Alibaba went public in November 2007 just before the financial crisis. The listing was on the Hong Kong stock exchange. Jack Ma took the company private again in June 2012 when Alibaba bought back all its shares at the IPO price, which was a 45.9% premium over the closing price when the buyback was announced. Jack Ma said the depressed share price had an adverse impact on its reputation with customers. Alibaba paid $7 billion at the time to buy back 20% of itself from Yahoo.

Fast forward to 2014 and Alibaba just raised the price range for Friday's IPO to $66-$68, which would raise about $22 billion. However, if underwriters exercise the 48 million share overallotment option, which is almost guaranteed, it would boost that to $24.3 billion and overtake the Agricultural Bank of China $22.1 billion IPO in 2010 to be the largest IPO ever.

After the bell Adobe (ADBE) reported earnings of 28 cents compared to estimates for 26 cents. Revenue of $1.01 billion was just below estimates of $1.02 billion. They said Creative Cloud subscribers rose to 2.8 million, up +506,000 from the prior quarter. Their guidance for the current quarter was revised to 26-32 cents and analysts were expecting 31 cents. Revenue would be $1.03 to $1.08 billion and analysts were expecting $1.09 billion. Shares declined after the news.

Rackspace Hosting (RAX) fell -16% after the close when it said it decided to stay independent after a strategic review of the alternatives. The company also named the current president Taylor Rhodes as its new CEO. Back in May Rackspace shares rallied +17% on news they were exploring alternatives including a sale. Analysts believe Rackspace was unable to find a buyer in that highly competitive market.

Casino stocks fell again after Morgan Stanley warned the conditions in Macau could get worse. The analyst just returned from a fact finding trip to Macau and he said Macau casinos have not yet found a bottom. FBR Capital said Macau gambling revenue was on a trajectory for a fourth straight monthly decline and its first quarterly decline in years. Additionally a casino smoking ban goes into effect in October and China and Asia populations are still heavy smokers. This will limit time in the casinos by smokers and therefore limit gambling. Shares of LVS fell another -1.6% and MGM -1.7%.

Humana (HUM) shares rallied +3.7% after they said they replaced a $1 billion share buyback with $700 million remaining with a new $2 billion buyback program through 2016. They also announced a $1.75 billion debt offering with $1 billion of that to be used to buy back $1 billion in shares by June 30th 2015 out of the $2 billion authorized.

Apple (AAPL) shares fell slightly after news broke the iPhone 6 would not be available in China until next year because it has not yet received government approvals in that country. Apple still expects to launch in 115 countries by the end of 2014. Apple said iPhone sales over the weekend were more than 4 million units and a record but that was below some analyst estimates. Website issues and the shipping delay may have caused some users to abort their buying effort. Apple still says they will have phones in retail stores this weekend. In the prior two releases they sold 9 million phones in the first weekend the phones were actually available. Apple shares are threatening to fall below uptrend support but so far they have avoided the dreaded post announcement drop. Until they move under $98 the trend is still positive.

Teekay Tankers (TNK) rallied +10% after Deutsche Bank initiated coverage with a buy rating.

ViMicro (VIMC) rallied another 24% to $8.25 after raising estimates last week. Shares were up +14% on Monday. The company provides video surveillance products in China and the USA.

UPS said it was hiring 90,000 to 95,000 temporary workers for the holiday shopping season. This compares to 55,000 hired in 2013 and the 333,000 current employees. The company said it was also adding thousands of additional trucks, trailers, aircraft and portable loading aids for the holiday period. The National Retail Federation has predicted online sales will rise 9-12% and more than the 4.1% increase expected at retail stores. Online sales rose +9.3% in 2013. Obviously margins are going to suffer but they are expecting an even larger burst of holiday packages this year.

Boeing (BA) and SpaceX will split a $6.8 billion award from NASA to build a space taxi and return the U.S. to manned space flight. Boeing will receive $4.2 billion and Elon Musk's Space Exploration Technologies Corp, commonly known as SpaceX will receive $2.6 billion. The companies are expecting to have a working model by 2017. Currently the U.S. pays Russia about $70 million a seat to send U.S. astronauts to the space station on Russian vehicles. It is entirely possible that Russia could announce at any time we are no longer selling seats in retaliation for the sanctions over Ukraine.

SpaceX has a 7 person Dragon V2 capsule that is capable of landing anywhere on earth with the "precision of a helicopter" according to their publicity info. Boeing also has a 7 passenger CST-100 vehicle that has roots in the Apollo missions.

NASA said it would continue to work with other vendors including Blue Origins, which is backed by Jeff Bezos. The problem with these various vehicles is that they are either powered by unproven rockets in the case of SpaceX or Saturn 5 rockets using Russian rocket engines. This is another challenge since Russian rockets are no longer available. The SpaceX Falcon 9 rocket exploded during an August 22nd test. Bezos company Blue Origins is competing to replace the Russian rockets currently in use.

Allergan (AGN), Valeant (VRX) and Bill Ackman's Pershing Square settled a court case today that attempted to halt the special shareholder meeting in December. Now that the meeting is definitely scheduled and the roadblocks for Ackman and Valeant have been removed it is up to Allergan to find some other way to block the takeover by Valeant. About the only option left is for Allergan to buy somebody else really quick to make the Valeant acquisition less affordable for Ackman and Valeant.

Allergan is pursuing separate litigation against Ackman to prevent him from voting his 9.72% stake. Allergan claims Ackman violated insider trading securities laws by joining with Valeant in the takeover attempt. An announcement by Allergan of a pending acquisition is going to crater the stock if it takes the Valeant bid out of play. January put prices are huge because of this possibility.

Endo International (ENDP) made an unsolicited offer of $2.2 billion for Auxilium Pharmaceuticals (AUXL) after the close. The offer values AUXL at $28.10 per share and includes the assumption of their debt. AUXL is suffering from the bad press testosterone therapies have been receiving. Their Testim gel sales are falling and they said they would cut 190 jobs earlier this month. That is 30% of their workforce and part of a plan to save $75 million a year. Endo is transforming itself from a drug company to a drug and medical device maker and has spent about $4.5 billion on acquisitions in recent years. Shares of AUXL rose to $30 in afterhours from the $21.52 close.

It was an interesting day in the market with the major rebound beginning about 11:15 when the Jon Hilsenrath comments hit the wire. From that point on it was straight up until 1:30 and traders began to worry about the analysis of the Hilsenrath comments. Those with alternate views began to share them and the rally faded. The S&P hit 2002 intraday and right back to within 5 points of its closing high.

The selling from last week has been completely forgotten and it should remain a distant memory IF the Fed doesn't spoil the party with a hawkish statement change at 2:PM on Wednesday. The bears that loaded up on shorts last week hoping for a Fed induced correction were squeezed once again and a positive statement from Yellen could send stocks to new highs and cause fund managers to hold their nose and chase them higher.

Support at the 1980 level was rock solid on Friday and Monday and it was touched briefly again this morning. This three day basing should be enough to convince large cap investors the next move is going to be higher, Fed permitting.

The Dow traded up to a new high at 17,167 intraday but faded to close at 17,131. That was only 7 points away from a new closing high. Clearly the Dow is poised for a sprint to higher highs if the Fed retains its dovish posture.

The converging resistance at 17,131 to 17,150 was briefly penetrated but returned before the close. Support on Friday was 16,950 and 17,000 returned as support today.

Only one Dow component was negative today and that was Nike.

The Nasdaq crash on Monday broke strong support at 4550 and today's rebound barely returned the index to that level with a close at 4552. At any other time I would be warning of a continued move lower. However, I am convinced the sell off was a result of the cash raise for Alibaba shares. Everyone that does not receive shares on Friday morning is going to be putting that cash back into the market and those same tech shares that declined on Monday will be back in favor a couple days from now. At least that is my opinion and I am sticking with it until proven wrong.

On a purely technical basis and ignoring all the external events like Alibaba and the FOMC meeting the Nasdaq chart is bearish. Technicians always claim all the current events are already priced into the charts. If that is the case the Nasdaq is in trouble. We will know for sure next Monday if that unspent cash does not come back into the market.

The Russell 2000 chart is bearish as well. The Russell posted a minimal rebound today but it is still a lower high and lower low. The prior support at 1146 did not hold and the Russell dipped to 1141 at the open. The lack of a meaningful Russell rebound is negative for broad market sentiment.

Based on the Russell chart I would have a bearish bias. Small caps typically lead in both directions and they are pointing lower.

The Russell is one day away from a death cross where the 50-day average crosses under the 200-day average. That is typically a sell signal for fund managers.

I am seriously conflicted tonight. With the negative chart patterns on the Nasdaq and Russell 2000 I should have a negative bias. The new high on the Dow and strong rebound on the S&P suggests a big cap breakout ahead. When small caps and large caps disagree I would normally go with the small caps. This is a troubling conundrum. The wild card is the Fed and then the Alibaba IPO disrupting cash flows.

I would NOT be an aggressive buyer or seller of stocks over the next three days. Let's wait for the situation to play out and then follow the market.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Technology & Transports

by James Brown

Click here to email James Brown


Tableau Software, Inc. - DATA - close: 73.39 change: +2.02

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on September -- at $---.--
Listed on September 16, 2014
Time Frame: 4 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
"Put together an Academy Award-winning professor, a brilliant computer scientist at the world's most prestigious university, and a savvy business leader with a passion for data. Add in one of the most challenging problems in software - making databases and spreadsheets understandable to ordinary people. You have just recreated the fundamental ingredients for Tableau's products." That's how DATA introduces itself on the company website.

"Tableau Software helps people see and understand data. Tableau helps anyone quickly analyze, visualize and share information. More than 21,000 customer accounts get rapid results with Tableau in the office and on-the-go. And tens of thousands of people use Tableau Public to share data in their blogs and websites."

The company's business is growing. Back in May this year the company reported earnings that beat estimates on both the top and bottom line. Management then raised their guidance. They did it again in July. DATA reported its Q2 results on July 31st. Analysts were expecting a loss of $0.04 a share on revenues of $79.4 million. DATA delivered a profit of $0.05 with revenues soaring +81.8% to $90.7 million.

According to the company's earnings release they saw license revenues up +80% year over year to $60.4 million. They added over 2,200 new customers, which surpassed their four-quarter average of 1,650. They also closed 157 deals worth more than $100,00 each, which is a +96% increase from a year ago. Management then raised their 2014 revenue guidance well above Wall Street's estimates.

On September 16th a Credit Suisse analyst adjusted their rating from "neutral" to "outperform" and bumped their DATA price target from $87.50 to $100 thanks to the company's technology advantage and strong international sales. The point & figure chart is eve more positive with a $119.00 target.

Bears should be worried, The recent breakout past technical resistance at its simple 200-dma is bullish. Traders just bought the dip near this moving average today. The most recent data listed short interest at 11% of the small 41.1 million share float. That might be enough to spark some short squeezes.

Tonight we're suggesting a trigger to buy calls at $74.25. I'm listing both the October calls and the 2015 January calls. Which one depends on your time frame.

Trigger @ $74.25

- Suggested Positions -

Buy the OCT $75 call (DATA141018C75) current ask $3.60

- or -

Buy the 2015 Jan $80 call (DATA150117C80) ask $6.00

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

Daily Chart:

Union Pacific Corp. - UNP - close: 107.92 change: +0.88

Stop Loss: 105.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.5 million
Entry on September -- at $---.--
Listed on September 16, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
If you believe the U.S. economy is getting better then transports should perform well. Dow Theory suggests we can't have a significant rally without the transports. Thus far the group has shown leadership this year with the Dow Jones Transportation average up +15.1% in 2014. The railroads have been a strong part of that leadership.

UNP is one of the biggest. The company has been around for 150 plus years. They have over 46,000 employees, more than 8,200 locomotives, and pull nine million carloads a year.

According to the company website, "Union Pacific operates North America's premier railroad franchise, covering 23 states in the western two-thirds of the United States. Union Pacific serves many of the fastest-growing U.S. population centers, operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and is the only railroad serving all six major Mexico gateways. Union Pacific provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner."

Believe it or not but the shale gas and shale oil energy boom in the U.S. has played a part in the railroad strength. U.S. energy production has soared with the Energy Information Administration reporting U.S. crude oil production at 8.5 million barrels a day in June. That's the highest production since July 1986. A lot of that crude oil gets moved by train.

Back in 2008 only 9,500 carloads a year were crude oil. Today that has surged to over 407,000 railcars of crude oil a year.

The railroad group continues to see strong traffic in 2014. The upcoming harvest will also put more demand on the railroads. American farmers are looking at a record-breaking crop this year.

Currently shares of UNP Have been consolidating sideways at all-time highs just under the $108.00 level. Tonight we're suggesting a trigger to buy calls at $108.25.

Trigger @ $108.25

- Suggested Positions -

Buy the NOV $110 call (UNP141122C110) current ask $2.00

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

Daily Chart:

In Play Updates and Reviews

Stocks Bounce on Fed Hopes

by James Brown

Click here to email James Brown

Editor's Note:

Hopes that the Federal Reserve would keep their "considerable period" language sparked a bounce in stocks.

Our ALV put play was triggered today.

Current Portfolio:

CALL Play Updates

Amgen Inc. - AMGN - close: 139.33 change: +1.36

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

09/16/14: AMGN bounced back to the top of its recent trading range. Shares are once again poised to breakout past resistance near $140.00. Our suggested entry point is $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: 108.16 change: +0.84

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +54.4%
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

09/16/14: The bounce in CNQR today managed to keep pace with the S&P 500 with a +0.7% gain.

Investors may want to raise their stop loss. I am not suggesting new positions at this time.

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: 125.82 change: +1.95

Stop Loss: 121.95
Target(s): To Be Determined
Current Option Gain/Loss: -18.2%
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

09/16/14: FFIV managed to erase yesterday's loss with a +1.5% bounce. The stock is once again testing resistance near $126.00. Investors may want to wait for a rally past $127.00 before initiating new positions.

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: 177.19 change: +1.59

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: +15.9%
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

09/16/14: Defense stocks were showing some strength today. LMT tagged a new all-time high near $178.00 before paring its gains. Today's rally could be used as a new entry point.

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

Mallinckrodt Public Limited Co. - MNK - close: 86.89 change: +1.11

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

09/16/14: MNK is bouncing from short-term support near $85.00 and its 10-dma. The stock looks poised to breakout tomorrow and hit our entry point at $87.25.

Note: the option spreads are a little wide. Traders may want to limit their position size.

Earlier Comments: September 11, 2014:
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 *consider smaller positions*

- Suggested Positions -

Buy the OCT $90 call (MNK141018C90)

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

Nike, Inc. - NKE - close: 81.20 change: -0.41

Stop Loss: 79.40
Target(s): To Be Determined
Current Option Gain/Loss: +10.2%
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

09/16/14: NKE underperformed the market today. It is disappointing to see NKE not participate in today's relatively widespread bounce. The $80.00 level should still be support and investors could use a dip near $80.00 as a new entry point.

We will adjust our stop loss up from $77.95 to $79.40.

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*

09/16/14 new stop @ 79.40
09/05/14 triggered @ 80.50
Option Format: symbol-year-month-day-call-strike

Northrop Gruman - NOC - close: 131.93 change: +1.36

Stop Loss: 127.45
Target(s): To Be Determined
Current Option Gain/Loss: +20.8%
Average Daily Volume = 870 thousand
Entry on September 15 at $130.55
Listed on September 13, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/16/14: NOC was showing some relative strength today with a +1.0% gain and a new all-time high.

Earlier Comments: September 13, 2014:
One might have assumed that when Washington politics cut $500 billion from the U.S. defense budget over the 2012-2021 time frame it would have been bearish for defense sector stocks. Yet the group has been an outperformer in the stock market and delivered amazing gains last year. The defense-related juggernauts like NOC continue to perform well in 2014.

According to their company website, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." What does that mean? It means NOC makes bombers, unmanned drones, cyber security solutions, and logistics. If you're curious, C4ISR stands for command, control, communications, computers, intelligence, surveillance, and reconnaissance.

The fact that the world seems to be growing more dangerous, not less dangerous, should be a bullish undercurrent that lifts the defense sector. NOC should benefit because the American public does not have the stomach for another war. That means the U.S. will use more and more unmanned technology like NOC's drones.

The company has been performing well this year and NOC has raised guidance the last three quarters in a row. NOC's most recent earnings report was July 23rd. Wall Street was looking for a profit of $2.22 a share on revenues of $5.97 billion. NOC delivered $2.37 a share with revenues hitting $6.04 billion. Management then raised their EPS guidance and revenue guidance for 2014. NOC's backlog is currently at $35.6 billion.

Technically shares have a bullish trend of higher lows that just recently blossomed into a breakout to new all-time highs. NOC is testing the $130.00 level. At the moment the point & figure chart is bullish with a $158.00 target.

Tonight we're suggesting a trigger to buy calls at $130.55.

- Suggested Positions -

Long NOV $135 call (NOC141122C135) entry $1.82*

09/15/14 triggered @ 130.55
*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

Splunk, Inc. - SPLK - close: 56.48 change: +0.84

Stop Loss: 53.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.3 million
Entry on September -- at $---.--
Listed on September 13, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

09/16/14: SPLK doubled the market's performance today with a +1.5% gain yet shares did not hit our new entry trigger at $57.25. If this bounce continues tomorrow we could be triggered.

Earlier Comments: September 13, 2014:
Based in San Francisco, SPLK is cashing in on corporations' desire to analyze the massive amounts of "big data" out there. The last several months have been a bumpy ride for SPLI shareholders. If you recall back in March this year all the big growth and momentum stocks were hit hard with widespread selling. The correction in SPLK lasted longer than the broader market. Shares were cut in half with a drop from $93 to $40 by its June lows. Now shares have started to recover, up nearly 50% from its 2014 lows.

Who is SPLK? According to the company website, "Splunk was founded to pursue a disruptive new vision: make machine data accessible, usable and valuable to everyone. Machine data is one of the fastest growing and most pervasive segments of 'big data'—generated by websites, applications, servers, networks, mobile devices and all the sensors and RFID assets that produce data every second of every day. By monitoring and analyzing everything from customer clickstreams and transactions to network activity and call records—and more—Splunk turns machine data into valuable insights no matter what business you're in. It's what we call Operational Intelligence. Since first shipping its software in 2006, Splunk now has over 7,900 customers in 100 countries."

Earnings have been improving. Their earnings report in May saw SPLK beat estimates on both the top and bottom line. SPLK management guided higher for the second quarter. They did it again in their latest earnings report. The company added more than 500 new customers in the latest quarter. SPLK reported earnings on August 28th. Wall Street expected a loss of $0.02 a share on revenues of $93.82 million. SPLK delivered a profit of $0.01 a share with revenues soaring +51.7% to $101.5 million. Management then raised their guidance for the third quarter and fiscal year 2015.

The stock soared following its late August earnings news with a rally from $45 to $60 in a couple of days. Since then SPLK has been digesting its gains and consolidating sideways just below resistance near $60.00 and its simple 300-dma. The big reversal higher has created a buy signal on the point & figure chart that is forecasting a long-term $99.00 target.

This stock can be volatile so I do consider it a higher-risk, more aggressive trade. The high last week was $61.36. We are suggesting a trigger to buy calls at $61.55. More conservative investors may want to wait for shares of SPLK to close above potential technical resistance at its simple 200-dma (currently at $62.38) before initiating bullish positions.

Trigger @ $57.25 *smaller positions, higher risk*

- Suggested Positions -

Buy the NOV $60 call (SPLK141122C60) current ask $4.10

09/15/14 Strategy update: Change the entry point trigger from $61.55 to $57.25 and change the stop loss from $57.90 to $53.95
Adjust the strike price from Nov. $65 to Nov $60 call
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Autoliv, Inc. - ALV - close: 99.15 change: +0.31

Stop Loss: 101.55
Target(s): To Be Determined
Current Option Gain/Loss: -36.3%
Average Daily Volume = 392 thousand
Entry on September 16 at $98.45
Listed on September 15, 2014
Time Frame: 4 to 6 weeks
New Positions: see below

09/16/14: Our brand new put play on ALV has been triggered. Shares slipped to a new low, under its exponential 200-dma, and hit our trigger at $98.45 only to bounce back. The market's widespread rally today didn't help.

Today's intraday low was $98.23. Traders might want to wait for a new relative low or a failed rally near $100.00 as our next entry point.

Earlier Comments: September 15, 2014:
The auto part makers have been a bright spot in the market over the past year and a half or so. It looks like the group is starting to diverge. Stocks like DLPH, TRW, and LEA still look relatively strong. Yet BWA and ALV have broken down.

Who is ALV? According to their website, "For over 60 years, Autoliv has focused on one very important issue: saving lives. Our innovative products save 30,000 lives every year and prevent 10 times as many injuries. We are first and foremost a safety technology company. In the world of automotive occupant safety, we were the first to introduce the two- and three-point seat belt system and airbags for front and side impacts. We were also the first to launch pyrotechnic belt pretensioners and pedestrian protection systems. We develop, manufacture and market airbags, seatbelts, steering wheels, passive safety electronics and active safety systems such as radar, night vision and camera vision systems. We also produce anti-whiplash systems, pedestrian protection systems and integrated child seats. Autoliv Inc. is the result of a merger in 1997 of the Swedish company Autoliv AB, and the U.S. company Morton ASP."

Earnings momentum may have peaked. The company's most recent earnings report back in July was a miss. Wall Street expected a profit of $1.55 a share but ALV only delivered $1.45 with profits falling -2% from a year ago. Revenues did come in above expectations at $2.38 billion. Yet the sell-off on earnings may have started the current correction in ALV stock.

Technically shares look bearish. ALV produced a double top with the peaks in June and July. The bullish breakout past resistance near $104 in early September proved to be a bull trap. Now ALV is breaking support at its simple 200-dma and its long-term bullish trend (see weekly chart below).

Tonight we're suggesting a trigger to buy puts at $98.45.

- Suggested Positions -

Long OCT $95 PUT (ALV141018P95) entry $1.65*

09/16/14 triggered @ 98.45
Option Format: symbol-year-month-day-call-strike

Chart Industries - GTLS - close: 64.22 change: -0.52

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: + 4.0%
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

09/16/14: GTLS underperformed the market with a -0.8% decline. The intraday action looks bearish with a failure near its 10-dma.

More conservative investors may want to lower their stop loss.

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: 44.75 change: -0.57

Stop Loss: 50.55
Target(s): To Be Determined
Current Option Gain/Loss: +16.0%
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

09/16/14: HFL has broken down to new 2014 lows with today's -1.25% decline. Investors may want to lower their stops.

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: 114.43 change: +0.32

Stop Loss: 118.15
Target(s): To Be Determined
Current Option Gain/Loss: - 0.7%
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

09/16/14: Small caps continue to underperform the large caps. The IWM fell to a new relative low before lunchtime. They managed a bounce back into the green by the closing bell. Unfortunately for the bulls the IWM only gained +0.28% versus the +0.74% gain in the S&P 500.

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: 61.17 change: -0.98

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +216.6%
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

09/16/14: There was a lot of negativity surrounding the casino names today, especially those with major operations in Macau. One story pressuring stocks lower is growing worker discontent. Revenues and profits for the major players in China's only gambling hub have soared in recent years but worker compensation has not risen.

There is a growing movement of workers staging strikes and protests for better wages. One group has already held eight demonstrations this year. There is concern they might strike again during the upcoming National Day public holiday on October 1st. This is a week-long holiday in China and usually sees a surge of traffic to Macau. Casinos are required to hire people living in or near Macau and the huge growth has nearly eliminated unemployment. It's not easy to replace workers.

Another issue that might retard traffic is the smoking ban that goes into effect in October. This is a region of the world where smoking is still popular.

There was also a story in the Macau Business Daily paper that reported casinos could see a -5% drop in revenue from June to August.

If that wasn't enough several analysts have expressed concerns about the Macau casinos. A Wells Fargo analysts issued a warning on September's gambling revenues. A Morgan Stanley analyst said the city has not hit bottom yet and Wall Street's estimates are still too high. Another analyst, this one with FBR Capital, believes that Macau gambling revenues could fall for their fourth month in a row this September.

All of this news pushed shares of LVS to new 2014 lows and the stock briefly traded under $60.00 before bouncing. Broken support near $62.00 should be new resistance.

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: 67.36 change: +0.03

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: +11.1%
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

09/16/14: Tuesday turned out to be another quiet day for shares of PNR. The fact that PNR did not participate in the rally is bearish.

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