Option Investor

Daily Newsletter, Monday, 9/29/2014

Table of Contents

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

Market Wrap

Global Fears Mount

by Thomas Hughes

Click here to email Thomas Hughes
Rising geopolitical fears are upstaging positive expectations for the future.


Despite steady economic data here at home and improving expectations for the future rising geopolitical fears were the focus of market attention today. To start the ISIL crisis and Ukraine/Russia standoff both have no end in sight. ISIL is still operational and able to gain ground along some fronts at least. Now their influence seems to be spreading as Taliban forces in Afghanistan begin to adopt similar tactics. The Russia/Ukraine situation may come to another head as the standoff has shifted to natural gas. This was always a concern and with the oncoming winter will be a problem for Ukrainians this winter. The deal brokered by the EU on behalf of the Ukraine last week may be rejected by the Ukrainian government due to disputes over price and the amount of debt owed by the Ukraine to Gazprom.

There were at least two new things to worry about today. The first and more important I think is the protesting going on in Hong Kong. It is estimated that more than 80,000 people turned out over the weekend to protest for democracy. Current leadership is willing to allow a democratic vote but wants to choose the candidates but the people aren't going for it. Today estimates say the number of people have grown and have shut down the city. The protests are being compared to the Tienamen Square during the 80's and the quest for independence from Britain in the 90's. Less of a concern but still noteworthy is the impending election in Brazil. The race has narrowed between a Socialist Party candidate and the incumbent leadership.

Market Statistics

Asian markets are best described as being mixed today. Japanese, mainland China and other indices were flat to positive while the Hong Kong based Hang Seng shed nearly 2%. European markets were down by roughly -0.75% by the end of their day after a mixed start.

Both regions also received some negative economic data as well. In China industrial profits fell by -0.6% while in Europe economic sentiment fell to a low not seen since last year, hurting inflation expectations for the region. All of this negativity took its toll on the US markets this morning, pushing early futures trading down by nearly -1%. Trading before the bell was not helped by the data released this morning and remained weak going into the open. New data shows that earnings and spending are up among consumers and in line with expectations. At the bell the indices moved sharply lower, as indicated, but found support within minutes of the open.

The indices moved steadily higher throughout the morning until hitting resistance just after 11:15AM. This coincided with 1980 on the SPX and 17,075 on the Dow Jones Industrials. The next hour saw the markets trade sideways, test resistance, and set up to move back toward the days lows. Afternoon trading was mixed. The indices retreated from the highs and then traded in a tight range about -0.25 and -0.50% below yesterday's close. Late in the day the NASDAQ and Dow Transports turned positive but only the transports were able to hold above break even into the close.

Economic Calendar

The Economy

Today's data was not bad, not good enough to support prices, but not bad. The only real negative I see was the downgrade of 3rd quarter GDP expectations by the NABE. The National Association of Business Economists lowered their target for GDP from 3.1% to 3.0% in their latest survey. This is only slightly below the consensus estimates around 3.2-3.5% going into September and not a very large revision. While modestly lower, this is still expansionary and the NABE survey also shows that economists expect growth to continue into the future. Fourth quarter estimates currently stand around 3.1%.

Personal Income and Spending were both released at 8:30AM and both rose. Personal income rose by 0.3%, as expected, while the spending component rose by 0.5%, slightly ahead of expectations. Private wages and salaries increased by over $30 billion in the month of August, nearly twice the previous month.

Pending Home Sales was reported at 10AM. The number of pending homes fell by -1% on an annualized basis, weaker than expected. Analysts had been expecting the number to remain unchanged or dip slightly at worst. I don't think this miss is too unexpected though since new, existing and starts all fell in August as well. On a year over year basis sales remain down by -2.2%. This is the fourth month of activity above 100 and a sign of above average pending sales. While a decline from the previous month, pending sales are still at the second highest level of 2014. An analyst for the National Association of Realtors says the decline is largely due to less sales of distressed properties and lower investment activity.

The Dallas Federal Reserve survey of manufacturing was released at 10:15. The survey came in strong at 17.6, more than double the previous reading of 6.8. All segments within the report showed gains with notable increases in capacity utilization, shipments and hours worked. The employment component remained steady at 10.6. Expectations for future growth slowed somewhat but remain “firmly positive” according to the report.

According to Moody's Survey of Business Confidence business outlook remains firmly up beat. According to Mark Zandi, Chief Economist, sentiment is positive across all sectors with a recent uptick in responses from manufacturers. More than half of respondents are hiring and lay off's remain low with expectations going into next year also strong.

The Oil Index

Oil began the trading day to the downside but geopolitical concerns lifted prices after the open. Rising supply levels and a lack of supply disruption were also overpowered by strong US consumer data. WTI gained about 1% by the close of the session with Brent gaining as well, but only marginally.

The Oil Index fell during the early part of today's trading but found support around 9:45, shortly after the broader market began to lift. The index traded in a smaller range today than it has in the past week or so and is now sitting just above another potential support line at 1,550. The index is extended beyond the long term trend line by about 2.5%, a move that resulted in a snap back earlier this year. The indicators are consistent with support along these levels; MACD is divergent and stochastic is trending near the bottom of the range but has not crossed the lower signal line. The long term trend may be broken but the index looks to have some longer term support near the current levels. Current support is at 1,550 while a rally will find potential resistance at 1,600 and then the bottom of the trend line around 1,625.

The Gold Index

Gold prices hovered just above break even today. Rising global fears underpinned prices while the market awaits more significant economic data later in the week. Spot prices for gold traded in a small range between $1216 and $1220 for most of the day, falling back from an earlier high just shy of $1225. This level has provided resistance multiple times over the past week of trading days and will likely be important moving forward. The fundamental picture is still bearish for gold but much of the interest rate fear may have been priced in already but that is only a conjecture.

The data later this week will be telling as up until now bullish economics have been bearish for gold. There is also the ECB meeting on Thursday to consider. If the bank increases QE or anything else to weaken the euro versus the dollar gold could move lower as well. The long term low in gold is $1192 on a close and $1185 on an intraday basis with $1200 looking like a likely place to find support, at least on a near term basis. A sustained/confirmed break below that could lead to a significant drop in gold prices while holding support may lead only to sideways market action and consolidation.

Based on some recent reading I did the long term outlook for gold can only be bullish, unless the globe just keeps printing money. Industry executives see peak gold as a nearby or currently happening event, something that will cause gold prices to rise. Industry analysts see “easily recoverable gold” as already found and a major technological advancement necessary in order to increase production levels long term.

The Gold Index fell today as low low gold prices are hurting earnings expectations for gold miners. The bulk of the senior miners are scheduled to report near the end of October. The average price for gold this quarter will be much lower than the previous but may not impact the bottom line as much as feared. The drop in oil prices will help to improve margins that have already been improving over the past few quarters and rising production levels may also help, at least in terms of revenue and EPS. The index is now within the $90-$92.50 range and at a new 9 month low. The indicators remain bullish, with a target of $90, but also indicate the move lower is running low on steam. Momentum is on the decline and stochastic remains oversold in the near and short terms. By no means does this indicate a bottom in the industry but it is consistent with anticipated support along the $90 level where a bounce could be expected. The index has bounced from this level twice this year with a resulting move of 20-25%. This is also a level in which long term investors may begin to come back into the sector.

In The News, Story Stocks and Earnings

Apple hit the news again today, no surprise, but not connected to the recent iPhone 6 launch or bend-gate. The EU is expected to announce the result of probes into tax dealings between the company and Ireland. The question is whether or not unfair advantage was given by Ireland and taken by Apple in terms of tax benefits. If found guilty the charges could result in billions in fines. As for the bend-gate scandal a study by Consumer Reports released Friday shows that the iPhone 6 and 6+ are no more “bendy” than other comparable phones. Shares of Apple opened lower today but climbed throughout the session to close above $100. This level is emerging as support and could remain active in the near term. The company is next scheduled to report in earnings at the end of October.

FactSet dramatically cut its estimates for 3rd quarter earnings growth this week. The current estimate is for growth among S&P 500 companies to average 4.7%, a little more than half the 8.9% projected at the end of the 2nd quarter and below the 6% estimated just a week or so ago. The telecom sector is still expected to lead and consumer discretionary is still expected to be the only sector to show negative growth, largely centered on the home builders. Of the 17 S&P 500 companies to have reported so far 13 have beaten the average expectation for earnings and 12 have beaten on sales.

Cal-Maine, though not on my calendar for some reason, reported earnings this morning. The company is the largest producer/provider of shell eggs and reported robust earnings growth from last year based on increased sales and higher prices for eggs. Higher consumer demand fueled much of the growth with over 18% of that in the specialty egg category. Lower feed costs also helped to improve margins, adding a boost to earnings. The company reported $1.14 per share for the recent quarter, compared to only $0.36 in the previous comparable quarter. Shares of the stock traded lower in line with the markets but found support along the short term moving average. The stock is trading just off an all time high with indicators convergent with higher prices. Support appears to be indicated around $85 with possible resistance at the current all time just high above $92.

The move lower at the open was broad. All ten S&P sectors were in the red until mid-morning when the utilities moved into the green and then later in the afternoon when technology followed suit. The biggest loser for the day was the materials sector with the financials not far behind. The XLB Materials Sector Spyder dropped about -0.40% today but found support at the short term moving average. The ETF created a doji with today's action but volume was not significant. This sector has been in an uptrend all year and this does not look to be stopping. The indicators are a little weak but still consistent with support around the $50 line. A drop below this could take the ETF down to $49 where stronger support exists. Short to long term the trend is up and appears to be holding.

The utilities sector was today's only real gainer. The techs moved into the green as well but only by a very small amount, barely above break even. The utilities Spyder XLU moved more than 0.60% higher today, matched by a 0.50% move in the Dow Jones Utility Average. The allure of yield in the face of today's sell off is likely the reason. The ETF moved up from support along $41.50 accompanied by a weak trend following signal on the stochastic. Momentum is bearish but has peaked, consistent with the early signal. The sector has been trading in a range between $40.50 and $42.50 for about 6 months and looks like it is heading up to the top of the range. Near term resistance is around $42.30 and the short term moving average.

Ford made a surprise announcement at its investor meeting today. The company announced that it expects to experience a loss next year in Europe, counter to previous expectations of at least breaking even and positive performance improvement earlier this year. Full year guidance was lowered by about $1 billion dollars along with guiding margins down to the low end of the range. The news was not taken well by investors who drove share prices down by over -7%. The stock is now down near the $15 level and a nine month low. The move is the biggest one I have ever seen in Ford and puts the stock at a level I was thinking would be attractive when looking at the chart last week.

The Indices

The market fell today and fell hard. Not quite as hard as last Thursday but hard enough to hit support and then bounce higher. Early lows were met by buyers who stepped in and drove prices higher, not quite back to break even but pretty close. Even with the bounce though, the indices are still below near resistance which could keep the markets contained until the data is released. The S&P 500 was the loss leader today, closing with a loss of -0.25%. The broad market index fell from the short term moving average and created a small doji in the process. This candle is caught between near term resistance and stronger, longer term support below around the 1960 level. The indicators are bearish but weakly so at this time; MACD and stochastic are both moving lower but without much strength. There could be further testing of support over the next few days with a possible break below that would meet up with the long term trend line.

The Dow Jones Industrial Average also lost about a quarter percent, -0.24%, in today's session. While not closing with a 100+ point move the index did move that much on an intraday basis. The blue chip index also fell from near term resistance and the short term moving average but was able to regain the moving average on the bounce. The indicators here are also a little bearish but even more weakly so, consistent with support along the 17,000 level. There may be further testing of support here as well but it looks like it will hold at this time. Near term risks are the various geopolitical concerns that are in the market as well as data outside the “Goldilocks” range.

The NASDAQ Composite was able to regain most of its losses today, closing down only -0.14%. The tech heavy index climbed upward from longer term support but fell shy of the short term moving average. The indicators are bearish and gaining some strength but still consistent with support over the short to long term. There may be some more testing of the 4,500 level but at this time it looks like it will hold. If broken there is additional, stronger, support about 100 points lower along the 4,400 level.

The Dow Jones Transportation Average was the only major index to move into the green and hold it today. The transports gained 0.16% today, after dipping below the short term moving average, coming short of near term resistance. The index is still above longer term, more critical, support and the long term trend line so I remain bullish long term. In the nearer terms the indicators are weak but bearish with a potential retest of today's support on the table. Current resistance is 8,500 and the previous all time high.

The indices moved lower today but they also found support. This is the third trading day in a row in which the indices moved down to a comparable longer term support and held there. Today they not only held, they bounced, but not enough to break above resistance. Today's move was driven by the basket full of international concerns yet tempered by a still positive forward looking view of the US economy and expectations for data later in the week. This week is another important one for the market in terms of data and could lead us into further correction or break us out of the current holding pattern the market is in.

Today's data was more of the same. Weaker, but not real weak, in one area while stronger, but too strong, in another. Yes, pending home sales fell but from the previous months year-to-date high and still at high levels. On the other hand the consumer is making more and spending more, in line with other data supportive of an improving labor market. This is much as the data has been all year. Steady improvement along all fronts but no one front taking all the credit, or making all the gains. A real nice scenario in my opinion as it allows the economy to stabilize and steadily grow.

Again, this week could be another one with volatility. The indices are at or near short term support, below near term resistance and trending up in the long term. The economics are steady and improving while geopolitical tensions on multiple fronts has the market on edge. There is a lot of data this week culminating with the NFP on Friday. Last month's reading was lighter than expected but was likely a one off event. All the other data, including any expectations for revision to last month's NFP, point to a much higher number. This month estimates are back over 200K and I am in agreement. Initial claims are trending at low levels, continuing claims are trending lower, total claims are trending lower, the employment component of today's Dallas Fed survey was positive as are the employment components of every other report I have read leading me to think that the jobs numbers this week will hold steady or show improvement across the board.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Managed Care

by James Brown

Click here to email James Brown


Centene Corp. - CNC - close: 83.72 change: +0.91

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.2 million
Entry on September -- at $---.--
Listed on September 29, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Managed healthcare companies are finally starting to reap the benefits of the Affordable Care Act. Shares of CNC have soared +40% in 2014 and ended today's session at another record high.

Who is CNC? According to a company press release, "Centene Corporation, a Fortune 500 company, is a leading multi-line healthcare enterprise that provides programs and services to government sponsored healthcare programs, focusing on under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children's Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and Long Term Care (LTC), in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans). The Company operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, care management software, correctional systems healthcare, in-home health services, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.

The Affordable Care Act could add up to seven million new healthcare clients to the system. That number is expected to surge to nearly 25 million new healthcare clients in the next decade.

At the same time there are 26 states expanding their Medicaid coverage. Right now companies like CNC are in the sweet spot as more and more states turn over their Medicaid patients over to managed-care firms like CNC. The IBD reports that CNC could see increased business from Texas, Michigan, South Carolina.

CNC has been consistently beating Wall Street's earnings estimates (at least the last four quarters). Their earnings report in April beat estimates on both the top and bottom line. They did it again in July with earnings and revenues coming above expectations. Management then raised their 2014 guidance. Since that report FBR Capital has raised their price target on shares of CNC to $90 and Oppenheimer has raised their price target to $93. The point & figure chart is even more bullish and forecasting a long-term $108 target.

We like the relative strength and the healthcare market trends certainly favor CNC. We're suggesting a trigger to buy calls at $84.05.

Trigger @ $84.05

- Suggested Positions -

Buy the NOV $85 call (CNC141122c85) current ask $3.50

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Off Its Lows

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market rebounded off its Monday morning lows as traders worried about political protests in Hong Kong.

HOG hit our bearish entry trigger.

Current Portfolio:

CALL Play Updates

Deckers Outdoor - DECK - close: 98.51 change: -0.87

Stop Loss: 95.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 665 thousand
Entry on September -- at $---.--
Listed on September 27, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

09/29/14: DECK retreated from overhead resistance near $100. Shares lost less than a dollar thanks to the intraday bounce. I don't see any changes from the weekend newsletter's new play description.

Earlier Comments: September 27, 2014:
DECK is part of the consumer goods sector. The essence of the company is making shoes. Many look at DECK and think of just one brand - Ugg. It's true that Ugg accounts for 80% of sales but DECK is growing. They have a number of brands and its Teva brand saw sales jump more than 25% last quarter. Its Sanuk brand had sales improve +19.6% last quarter.

According to a company press release, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The Company's portfolio of brands includes UGG, I HEART UGG, Teva, Sanuk, TSUBO, Ahnu, MOZO, and HOKA ONE ONE. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 126 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

DECK is developing a healthy trend of beating Wall Street's earnings estimates. The last couple of quarters have seen beats by at least 15%. Many on wall street believe DECK should continue to see healthy margin improvements.

The company's latest earnings report was in July. It was their Q1 for fiscal year 2015. Wall Street expected a loss of $1.31 a share. DECK reported a loss of $1.07. Revenues soared +24.3% to a record $211.5 million, significantly above analysts estimates. Management then raised their EPS and revenue guidance for 2015.

This earnings improvement has powered the stock to new multi-year highs. The $90.00 level was significant resistance and now DECK is testing potential round-number resistance at $100. A breakout could spark some short covering. The most recent data listed short interest at 17.3% of the small 33.49 million share float. The point & figure chart is bullish and forecasting at $116 target and a move over $100 would produce a new triple-top breakout buy signal.

Tonight we're suggesting a trigger to buy calls at $100.25.

Trigger @ $100.25

- Suggested Positions -

Buy the NOV $105 call (DECK141122C105) current ask $3.40

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

Facebook, Inc. - FB - close: 79.00 change: +0.21

Stop Loss: 75.75
Target(s): To Be Determined
Current Option Gain/Loss: + 0.9%
Average Daily Volume = 33 million
Entry on September 25 at $78.75
Listed on September 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/29/14: FB continues to show relative strength with a minor gain on Monday. The stock got some help with positive analyst comments and a new $93 price target.

Earlier Comments: September 23, 2014:
Facebook is the dominant social media company on the planet. Their social networking platform has 1.23 billion monthly active users and hundreds of millions of daily active users.

The stock was showing relative strength today and appears to be ignoring the market's three-day decline. Helping fuel the rally today (+1.9%) was news of a new ad platform. The Wall Street Journal broke the story and CNBC followed up with news on FB's new ad platform called Atlas. This new program will provide marketers with more tools on measuring the impact of their advertisements' success and helping them better target the right audience. The Atlas program will also tracks users across the web.

Google is the king of online advertising and its sales are about five times what FB's are currently. Yet FB has a huge advantage because they have so many details about each of its users. Plus, FB can track users across multiple devices from desktop PCs to mobile devices like your smartphone.

Yesterday FB was making headlines with news on its virtual reality system. Many pundits harpooned FB for spending $2 billion to buy Oculus, a leading VR design firm, back in March. Proponents say FB is planning ahead for the long-term future were VR could be huge. FB did unveil a new prototype VR headset called "Crescent Bay" and the company plans to launch a new full-scale consumer device in 2015.

This is a new all-time closing high for FB. If this rally continues we want to hop on board. Tonight I'm suggesting a trigger to buy calls at $78.75. We're not setting an exit target yet but I will note the point & figure chart is bullish and forecasting at $91.00 target.

- Suggested Positions -

Long 2015 Jan $85 call (FB150117c85) entry $3.07

09/25/14 triggered @78.75
Option Format: symbol-year-month-day-call-strike

Mallinckrodt Public Limited Co. - MNK - close: 89.92 change: -0.08

Stop Loss: 86.45
Target(s): To Be Determined
Current Option Gain/Loss: -10.0%
Average Daily Volume = 4.85 million
Entry on September 17 at $87.25
Listed on September 11, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/29/14: MNK traded to new highs above $90 before reversing its gains to close just below breakeven. More conservative investors may want to raise their stop loss.

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.

*consider smaller positions* - Suggested Positions -

Long OCT $90 call (MNK141018C90) entry $3.00*

09/25/14 new stop @ 86.45
09/22/14 new stop @ 85.65
09/20/14 new stop @ 84.65
09/17/14 triggered @ 87.25
Option Format: symbol-year-month-day-call-strike

Union Pacific Corp. - UNP - close: 108.53 change: -0.05

Stop Loss: 106.90
Target(s): To Be Determined
Current Option Gain/Loss: - 0.9%
Average Daily Volume = 2.5 million
Entry on September 17 at $108.25
Listed on September 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/29/14: UNP recovered from its morning lows to close almost unchanged on the session. Readers may want to wait for a rally past $109.00 before launching new bullish positions.

Earlier Comments: September 16, 2014:
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.

- Suggested Positions -

Long NOV $110 call (UNP141122C110) entry $2.15*

09/20/14 new stop @ 106.90
09/17/14 triggered @ 108.35, gap higher. Trigger was $108.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Autoliv, Inc. - ALV - close: 93.51 change: -1.19

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: +72.7%
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

09/29/14: The weakness in ALV continues with shares closing near their lows for the session. More conservative traders might want to adjust their stop closer to the 10-dma.

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*

09/22/14 new stop @ 98.25
09/16/14 triggered @ 98.45
Option Format: symbol-year-month-day-call-strike

Cummins Inc. - CMI - close: 132.85 change: -0.93

Stop Loss: 138.25
Target(s): To Be Determined
Current Option Gain/Loss: +11.8%
Average Daily Volume = 1.26 million
Entry on September 23 at $134.65
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/29/14: CMI tagged new multi-month lows with today's -0.69% decline. I am not suggesting new positions at current levels.

Earlier Comments: September 22, 2014:
CMI is in the industrial goods sector. The stock has been in a long-term albeit choppy up trend since mid 2012.

Company describes itself as, CMI, "a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 48,000 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 6,800 dealer locations. Cummins earned $1.48 billion on sales of $17.3 billion in 2013."

CMI is actually developing a bullish trend of beating Wall Street's estimates and raising guidance. Unfortunately investors seem to have forgotten about this growth. Shares have been underperforming since CMI peaked in June. It's been a steady trend of lower highs.

It does not help that Dow-component Caterpillar (CAT), considered a competitors for CMI, recently warned of slowing sales around the world.

Technically CMI's recent oversold bounce just failed at the $140.00 level. The stock has also broken down below a long-term trend line of support (see the weekly chart below).

Last week's low was $134.77. Tonight we're suggesting a trigger to buy puts at $134.65. We are not setting an exit target yet but the point & figure chart is bearish with a $114.00 target.

- Suggested Positions -

Long DEC $135 PUT (CMI141220P135) entry $5.90*

09/23/14 new stop @ 138.25
09/23/14 triggered @ 134.65
*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

Harley-Davidson, Inc. - HOG - close: 59.34 change: -1.20

Stop Loss: 62.25
Target(s): To Be Determined
Current Option Gain/Loss: + 8.5%
Average Daily Volume = 1.6 million
Entry on September 29 at $59.75
Listed on September 27, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/29/14: Our new trade on HOG is now open. The stock broke down under round-number support at $60.00 and hit our suggested entry point at $59.75. There was news helping push the stock lower when HOG announced they were recalling 126,000 motorcycles over a clutch problem.

Earlier Comments: September 27, 2014:
It looks like shares of HOG have run out of gas. The company is an American icon. Their website describes themselves as "Harley-Davidson Motor Company produces custom, cruiser and touring motorcycles and offers a complete line of Harley-Davidson motorcycle parts, accessories, riding gear and apparel, and general merchandise." The made in America label still resonates with many consumers, especially overseas. Unfortunately sales appear to have hit a pothole.

HOG's Q1 results were reported back in April and the numbers were better than expected. The stock gapped higher and hit new multi-year highs. Yet a week later HOG had peaked. Shares have been building a trend of lower highs ever since its late April high.

The latest earnings report was in July. While earnings were above expectations HOG's revenues were a hair below estimates. Management said that market share fell 260 basis points to 50.3%. More importantly management lowered their 2014 full year shipping guidance from a range of 279K-284K down to 270K-275K. This has resulted in some analysts lowering estimates and their ratings on the stock. Shares have also struggled.

HOG is now trading new 2014 lows. It's also testing significant support in the $60.00 level. A breakdown under $60 could send HOG toward $55 or even $50. The point & figure chart is bearish and currently suggesting at $49.00 target.

Technically shares of HOG have built a bearish head-and-shoulders pattern (easily seen on the weekly chart). The $60 level support is the neckline for this bearish sell signal. Tonight we're suggesting a trigger to buy puts at $59.75.

- Suggested Positions -

Long NOV $60 PUT (HOG141122P60) entry $2.33

09/29/14 triggered @ $59.75
Option Format: symbol-year-month-day-call-strike

iShares Russell 2000 ETF - IWM - close: 111.03 change: -0.09

Stop Loss: 113.05
Target(s): To Be Determined
Current Option Gain/Loss: +60.3%
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

09/29/14: The small cap IWM spiked down toward the Friday morning low near $109.75 and bounced. I don't see any changes from my prior comments. The $112 and $114 levels should be overhead resistance.

I'm 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

09/23/14 new stop @ 113.05
09/22/14 new stop @ 114.35
09/10/14 triggered @ 114.85
Option Format: symbol-year-month-day-call-strike

Lennox Intl. - LII - close: 77.70 change: -0.00

Stop Loss: 80.25
Target(s): To Be Determined
Current Option Gain/Loss: + 5.1%
Average Daily Volume = 391 thousand
Entry on September 22 at $79.25
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/29/14: LII spiked to a new 2014 low below $77.00 but bounced back to close unchanged on the session.

More conservative traders may want to wait for a new failed rally under the $80.00 level before initiating new bearish position.

Earlier Comments: September 20, 2014:
LII is in the industrial goods sector. Unfortunately for shareholders the stock is significantly underperforming with a -6.1% decline in 2014. That compares to a +4.1% gain in the XLI industrials ETF and a +4.2% gain in the Dow Industrials.

This is a simple momentum trade. After a three-year rally from its 2011 lows near $25 the stock traded near $95.00 in early 2014. Shares have since been struggling. Traders started selling the rallies. Now LII has broken down below its simple 200-dma and its long-term up trend (see weekly chart below). The last few days have seen LII create a "death cross" with the 50-dma crossing under the 200-dma.

This past week saw the oversold bounce in LII fail near prior support near $82.00 and its 300-dma. Friday's low was $79.33. I'm suggesting a trigger for bearish positions at $79.25. Potential support looks like $75.00 and $70.00. Currently the Point & Figure chart is suggesting at $68.00 target.

- Suggested Positions -

Long DEC $80 PUT (LII141220P80) entry $3.90

09/23/14 new stop @ 80.25
09/22/14 triggered @ 79.25
Option Format: symbol-year-month-day-call-strike

Las Vegas Sands - LVS - close: 60.15 change: -1.78

Stop Loss: 62.65
Target(s): To Be Determined
Current Option Gain/Loss: +230.0%
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

09/29/14: LVS displayed relative weakness with a -2.8% decline that erased Friday's bounce. Shares are once again poised to breakdown under support near the $60.00 level.

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*

09/22/14 new stop @ 62.65
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: 66.17 change: -1.24

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
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

09/29/14: It looks like our patience with PNR just might pay off. Shares broke down to new six-week lows today and closed with a -1.8% decline. This move could be used as a new bearish entry point if you can stomach the wide bid/ask spread.

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

Starbucks Corp. - SBUX - close: 75.27 change: +0.10

Stop Loss: 76.51
Target(s): To Be Determined
Current Option Gain/Loss: -25.0%
Average Daily Volume = 3.6 million
Entry on September 23 at $74.25
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/29/14: It's only natural that shares of SBUX would show a little relative strength on National Coffee Day (today). Overall I don't see any changes from my prior comments.

Traders might want to wait for a new failed rally near $76 or a new relative low (under $73.78) before initiating positions.

Earlier Comments: September 22, 2014:
Summer is over and fall is officially here. That has many consumers thinking of hot coffee and seasonal fare like SBUX's pumpkin spice lattes. Unfortunately Wall Street doesn't appear too keen on SBUX, if you're looking at the share price action.

This company is in the services sector. They are a global power house as a specialty retailer of what some might consider overpriced coffee and sugary drinks with too many calories. After 30 years in business they have grown to more than 20,000 stores and over 180,000 full time employees.

The stock peaked in late 2013. It looked like the correction was over back in April this year and SBUX did rally from $68 to $79 by July. Yet the stock has been dead money the last several weeks and now it's starting to underperform the market.

That spike you see on the daily chart was a reaction to its Q2 earnings results. The recent breakdown under $76 is bearish and the oversold bounce just failed near this level. Today's intraday low was $74.33. We're suggesting a trigger to buy puts at $74.25.

- Suggested Positions -

Long NOV $72.50 PUT (SBUX141122P72.5) entry $1.60*

09/23/14 triggered @ 74.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Tupperware Brands Corp. - TUP - close: 69.70 change: -0.59

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +31.2%
Average Daily Volume = 399 thousand
Entry on September 22 at $71.75
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

09/29/14: TUP has broken down under potential support at the $70.00 level. Shares remain short-term oversold so the stock is due for a bounce but that doesn't mean it will see one.

Earlier Comments: September 20, 2014:
TUP was founded back in 1946 and over the last 60 years the company has grown from their plastic food prep and storage line into multiple brands.

According to the company website, "Tupperware Brands Corporation is the leading global marketer of innovative, premium products across multiple brands utilizing a relationship based selling method through an independent sales force of 2.9 million. Product brands and categories include design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware brand and beauty and personal care products through the Armand Dupree, Avroy Shlain, BeautiControl, Fuller Cosmetics, NaturCare, Nutrimetics, and Nuvo brands."

Unfortunately this year has not been the best for TUP's stock price. The company missed earnings expectations and lowered guidance back in January. You can see the market's reaction with the big drop in late January on the chart.

It took three months but TUP slowly clawed its way back toward resistance near $85 and its simple 200-dma. That area proved to be a lid on the stock price. Then in July the company disappointed again. It's Q2 earnings report disclosed that profits fell -38% to $47.6 million, down from $76.3 million a year ago. Management then lowered its full year guidance when they reported earnings and shares plunged again.

The weekly chart has produced a bearish head-and-shoulders pattern. The daily chart doesn't look healthy either. The Point & Figure chart is bearish and suggesting at $58.00 price target.

There is short-term support near $72.00. I'm suggesting a trigger to buy puts at $71.75.

- Suggested Positions -

Long 2015 Jan $70 PUT (TUP150117P70) entry $2.59

09/23/14 new stop @ 72.25
09/22/14 new stop @ 72.80
09/22/14 triggered @ 71.75
Option Format: symbol-year-month-day-call-strike