Option Investor

Daily Newsletter, Thursday, 10/16/2014

Table of Contents

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

Market Wrap

Mr. Toad's Wild Ride

by Thomas Hughes

Click here to email Thomas Hughes
The market experienced another wild day of trading while Ebola fears cloud long term economic trends.


The market experienced yet another day of wild trading. The major indices dropped over 1% at the open only to bounce of support again. Like yesterday, the wild swing in stock prices was led by the small caps and transportation. Ebola fear has gripped the market, or is being used as an excuse, but long term economic trends remain intact. Today's data reveals that there is some slowing but activity in general remains positive and expansionary.

Early morning trading was likely affected by Europe and Asia. Both of those markets were sharply lower. There weren't any major headlines out of Asia but Greece has emerged as an issue in the EU again. The country may be exiting the bail-out sooner than expected, counter to current plans, in order to stave off a change in governing parties. Other factors at play overseas are rising fear of deflation in Europe.

Market Statistics

Index futures were indicated sharply lower from the earliest. The S&P 500 and Dow Jones Industrials were both more than 1% lower. This moderated somewhat throughout the morning but was largely unaffected by data or earnings. Stocks fell at the first ring of the bell with decliners outpacing advancers by more than 9:1. The negative spin did not last long, the market rose from the first trade and climbed steadily higher throughout the morning. By mid day all the majors indices were in the green. They hit the daily high around 1:45PM then moved lower to test support, bounce and then hover just above break even into the close. Only the Dow was unable to remain positive today. It looks to me like there is some stock picking going on, particularly among the small caps and transports. Based on CSX's projections for double digit growth next year I can understand why.

Economic Calendar

The Economy

There were quite a few economic events today. All were positive although a few showed some decline. The weekly jobless claims was a positive surprise, falling against expectations to a near 15 year low. Claims fell by -23,000 from last week's unrevised number to come at 264,000, analysts had been expecting a gain of about 7,000. This is the lowest since April, 15 2000 and yet another sign that job losses and turnover are slowing. The four week moving average also fell, losing -4,250 and coming in at 283,500, also a near 15 year low. Claims rose on a not adjusted basis, by 5%, but much less than expected. Seasonal factors had been expecting a gain closer to 15%. The biggest gains in new claims occurred in NY, TX and CA for a net increase of 8,554. The biggest declines in new claims were in OK, ID for a total of -314.

Continuing Claims rose by 7,000 this week. This is from an upward revision of 1,000 to 2.389 million. The four week moving average fell, in line with the recent down tick in claims, by -10,000 to 2.403 million and another new low. This low dates back to June of 2006 and will likely be broken in the coming weeks, initial claims are falling and that usually leads to a decline in continuing claims. This will also likely show up as a decline in total claims, which fell in this weeks data. The total number of Americans on unemployment fell by -38,946 to a new low of 2.088 million.

Industrial Production and Capacity Utilization figures were released at 9:15AM. Industrial production rose 1%, more than double the expectations. On a year over year basis production is also up, by 3.2%. The gains were led by mining, manufacturing and utilities. Capacity Utilization also rose more than expected. This figure rose 0.6% to 79.3% versus an expected utilization rate of 79%, 10% higher than last year in the same month.

The Philadelphia Federal Reserve Manufacturing Business Outlook Survey declined this month but was better than expected and expansionary. The diffusion index declined by nearly 2 points to 20.7, still positive and showing steady expansion in the region. This decline follows a four year high set last month. The current activity, shipments and employment components all declined this month but new orders rose and the future outlook remains positive.

The National Association Of Home Builders Index of Home Builder Confidence fell 5 points this month, after posting four straight months of gains. The index fell to 54 from 59 and is still indicating expansion. Current conditions and home buyer traffic were both reported lower for the month but according to NAHB chairman Kevin Kelly this dip merely returns us to trends set earlier this summer and is “in line with the gradual pace of the housing recovery.” The dip in this index is also not too surprising as the previous month was a 9 year high.

The Oil Index

Oil added it's own spin to the market today. The roiling issues plaguing the oil market persist and sent prices first down by over -1.5% and then up by over 1.5%. During the early part of the session prices fell below $80, for about 15 minutes, when buyers stepped into the market. It is not clear if this was physical buying, short covering or speculation but the move carried oil back to $85 where it met resistance. I don't know where oil is going from here but someone thinks $80 oil is a good price.

The Oil Index has been suffering from the decline in oil prices and today bounced from a long term support. The index climbed more than 2.25% after initially opening sharply lower. The index moved up from a long term support line, broke above resistance and held that level into the close. The indicators remain bearish but are retreating from a peak. This could be a bottom, maybe even the bottom, but the indicators are convergent with the decline so I would expect to see prices retest support before moving higher.

The Gold Index

Gold traded in a range today, but not quite as wildly as oil. Prices hovered in a $10 range around $1240 and closed even with the open, creating a spinning top. Near term momentum is up and may increase in the near future but there is some resistance around $1250, as evidenced by yesterday's action.

St. Louis Fed President Jim Bullard suggested today the Fed could, or should, continue QE past October. This could be done by not tapering the final $15 billion or even by increasing purchases. His reasoning was the Fed should continue to taper while the market is selling off in order to see how it would affect economic conditions. He of course said the decision was data dependent which from my view, is still improving and not indicative of a Fed that will be adding to QE anytime soon.

The Gold Index traded in similar fashion, creating a doji-like spinning top with noticeable wicks at both ends. This is the smallest candle formed by the index since dropping below the $80 support level. The index has been consolidating and appears to be nearing a point of possible equilibrium. The indicators are bullish but could be setting up for another bearish signal. At this point the index is still below long term support within a long term downtrend so it looks more likely for the index to continue lower than it does to move up. However, the index is tied to gold prices. If conditions develop to lift gold back above $1250 then the index could break above resistance. Most of the senior miners are scheduled to start reporting the week after next. Resistance is at $80 with a downside target near $65 if resistance holds.

In The News, Story Stocks and Earnings

Apple was in the news again, surprise surprise. The held another product launch and made some announcements that will surely impact earnings in the current quarter. They launched the iPad air. It is super thin and super cool looking but still just another iPad. They announced that developers would be able to start working on apps for the iWatch next month which will give them a few months lead in order to create the apps that will power the device. Most importantly and why I saved it for last Tim Cook announced that Pay would start working on Monday. Alongside this is the news that 500 banks are now supporting the service. This will be a cash cow for Apple as they are projected to receive $0.15 of every $100 spent using Pay. Shares opened lower along with the broader market this morning, traded higher but were not able to hold it. Prices fell back to close just above $95.

United Health Care reported that revenue and earnings both grew more than 20% on a year over year basis. This resulted in a 7% increase in earnings over the same period last year. The results and current performance caused the company to raise full year guidance to just above previous guidance. Shares of the stock jumped more than 4% today, breaking the $85 level. The indicators are line with a move toward resistance but not very strong, it could be range bound with $85 as a potential pivot point. Resistance is around $87.50 with support near $80.50 and the bottom of yesterday's candle.

Delta Airlines reported this morning as well. The air carrier reported better than expected top and bottom line results on a number of factors including increased passenger and cargo revenues and higher gross margins. The company reported $1.20 per share, 2 cents ahead of the projections. The company expects passenger and cargo trends to continue into the next quarter and is expecting to see more growth in 2015. Shares of the stock moved more than 2.5% higher in today's action coming to a one week high. The indicators are bearish in the near term but momentum has peaked and may be turning. Stochastic is showing support along the $30 level with $35 potential resistance. It looks like this one wants to move higher, and low oil is helping it, but the Ebola issue could hold it back in the near to short term.

BB&T reported $0.71 per share this morning, in line with estimates. The company reported strong loan and core deposit growth and primary drivers of the result. Fee income and improvements to credit quality are also mentioned in the report. Improvements to business and traffic are going to be aided in the coming quarters by an expansion into new territories such as Texas and Kentucky. Shares of the stock fell on the news before the open, in line with the broader market, moved lower after the open and bounced from support just beneath $35. The bounce was strong but not strong enough to regain yesterday's closing price. Resistance is now at $36 with increasing bearish momentum and stochastic setting up for a potential bearish signal, a combination pointing to a test of support.

The Indices

As today's title implies, the market went on another wild ride. First, early sellers brought them down by more than -1%, then later buyers sent them right back up with overall movement on many of them over 2% for the day. I'll start with the Dow Jones Industrial Average. This is the only major index to close in the red. The blue chips lost -0.15% after trading in a range close to 3% of index value. Today's action created a nice doji that appears to be confirming support at 16,000. This is the second day of trading in which price action crossed this level, bounced and created a long lower shadow. Bearish momentum is still on the rise so further testing of support could occur but for now it looks like support is there. Stochastic has yet to fall below the signal line and in fact has been trending flat just above it for a few days, another indication of support. The question is what kind of support is it and what kind of news will emerge to help or hinder it? This could be a bounce but I would like to see the index get above 16,250 before making any bets. Resistance is 16,250 with support at 16,000.

The SPX closed just about as close to break even with being break even as it can get. The index finished higher by just over 1 point, or 0.01%. The broad market traded in a range over 2% today, creating a small bodied candle with long upper and lower shadows. This is very similar to market action in the Dow Jones and likewise, is confirming an area of support near 1850. The index is below some potentially important resistance levels but creating a nice looking entry point for the near term. Momentum has just peaked from a long term extreme while stochastic is making a bullish crossover. Additionally, stochastic never fell below the lower signal line indicating some underlying strength. If support holds the index could move as much as 40 points higher in the near term, with 1900 as likely resistance.

The NASAQ Composite also closed just above break even. The tech heavy index gained only 0.05% in today's session. Unlike the first two indices, this one opened at support and moved higher all day, closing just shy of the top of the candle. Total movement for the day: over 2.75%. This index is finding support along the 4,100 level after breaching 10% correction yesterday and today. The indicators are bearish, below resistance and the recently broken trend line, but at very extreme levels. Well, momentum at least. It is at an extreme bearish peak and convergent with a retest of support but stochastic is like the others and showing longer term support. Prices could very easily snap back from here and move up to the 4,400 level in the near term. Risks are Ebola headlines and earnings, which could lead all the indices lower.

Now, on to the transports. The Dow Jones Transportation Average gained 1.12% today, more than a full percent ahead of the others. Today's move is a follow up to a test of support that occurred with yesterday's candle. Yesterday's action in the transports is very similar to today's action in the SPX, DJI and COMP which makes today's action look pretty good. The index is moving up from support at 7,750 with indicators consistent with a trend following bounce, assuming the correction is over or near over. Based on the report from CSX yesterday I think that the long term trend will take over eventually, once the Ebola fears calm down.

I don't typically do the Russell 2000 but today I will. The small cap index gained 1.25% today, after trading in a 3% range, to break above resistance. The indicators are in line with a trend following signal and are about to fire with strength. MACD is about to cross the zero line and stochastic is about to make a strong bullish crossover, one in which %K crosses %D when %D crosses above the lower signal line. Out of all five this index looks the most bullish and in line with prevailing trends. The Russell led us into this correction and this chart looks like it is leading us out of it too. An added positive, and maybe I'm grasping at straws, is that the correction in this index, based on the indicators, was not very strong.

Price action today looks pretty positive. The correction may not be over, there could be some more downside, but it looks like we have found some solid support. It's not likely we're going to see the market bounce straight up but a bounce is brewing. The number one near term risk is Ebola. The wrong headline at the wrong time could send the market back into a tailspin. However, keep in mind that despite Ebola fears and sluggish, slow growth in the rest of the world America is still growing. The economic trends are up, expansionary and gaining traction.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Chips Ahoy

by James Brown

Click here to email James Brown


Semiconductor ETF - SMH - close: 46.42 change: +0.55

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.4 million
Entry on October -- at $---.--
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It looks like the correction in the semiconductor stocks might be done.

The SMH is the Market Vectors Semiconductor Exchange Traded Fund (ETF) that tries to mimic the performance of the Market Vectors Semiconductor 25 index. Semiconductors as a group had been strong performers with the SMH up +73% from its late 2012 lows.

A few weeks ago the industry started to see some profit taking. MCHP issued an earnings warning last week that that sparked the massive plunge in the SMH. The SMH has witnessed a -15% correction from its 2014 closing high to the closing low on Monday this week. Now it has started to bounce. It's possible all the panic selling is over.

Intel (INTC), a much bigger company than MCHP, just reported earnings on October 14th and the results were better than Wall Street expected. More importantly INTC offered slightly bullish guidance.

Bloomberg noted that INTC said its PC-processor business rose +8.9% last quarter. Sales for INTC's chips for notebook computers soared +21%. Even chips for desktop PCs rose +6% in the third quarter.

The strong results from INTC have helped buoy the SMH, which is starting to rebound after testing (and piercing) long-term support on its weekly chart (shown below).

We suspect the worst might be over. However, this could be a volatile trade. There are a lot of semiconductor companies who have yet to report their results.

The SMH saw its rally stall under $47 and near its 200-dma. Tonight we are suggesting a trigger to buy calls at $47.15.

Trigger @ $47.15

- Suggested Positions -

Buy the 2015 Jan $50 call (SMH150117c50) current ask $0.85

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

FLS & PNR Closed After Strong Run

by James Brown

Click here to email James Brown

Editor's Note:

Our bearish plays on FLS and PNR have been closed after a strong move lower.

Current Portfolio:

CALL Play Updates

Ambarella, Inc. - AMBA - close: 38.76 change: +0.16

Stop Loss: $34.25
Target(s): To Be Determined
Current Option Gain/Loss: +41.6%
Average Daily Volume = 2.4 million
Entry on October 13 at $35.25
Listed on October 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

10/16/14: After yesterday's big rally shares of AMBA took today off and just consolidated sideways. The stock did tag its 30-dma intraday before paring its gains. I am not suggesting new positions at this time.

Earlier Comments: October 8, 2014:
AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up +633% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June this year and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. AMBA happens to make the HD camera sensors in many of GPRO's products. As GPRO rallies it could be giving AMBA a boost and GPRO expects record sales this holiday season.

It's also worth noting that AMBA's rally has been helped by consistent earnings growth. The company has beat Wall Street's estimates on both the top and bottom line for the last four quarters in a row. Their most recent earnings report in September saw AMBA's management raise their revenue guidance.

Shorts are getting killed. As the rally continues AMBA could see more short covering. The most recent data listed short interest at 21.7% of the small 28.0 million share float.

We think the bullish momentum continues. Tonight we're suggesting a trigger to buy calls at $44.65.

- Suggested Positions -

Long NOV $40 call (AMBA141122C40) entry $1.80*

10/15/14 new stop @ 34.25
10/13/14 triggered at $35.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
10/11/14 new entry strategy: move the entry trigger from $44.65 to $35.25 and move the stop loss from $40.45 to $31.90.
We will adjust the option strike from the NOV $46 call to the NOV $40 call
Option Format: symbol-year-month-day-call-strike

FedEx Corp. - FDX - close: 151.93 change: -1.89

Stop Loss: 148.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on October -- at $---.--
Listed on October 15, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

10/16/14: Oil had a volatile day and ended the session with a bounce. That may have weighed a little bit on FDX. Shares of FDX churned sideways under short-term resistance near $154.50. I don't see any changes from last night's new play description.

Earlier Comments: October 15, 2014:
Last year a last minute surge of online shoppers overwhelmed the system and thousands of Christmas presents were delivered late. Part of the problem was terrible weather. The other challenge was the growth in online shopping. Amazon.com (AMZN) blamed UPS for the mass of delayed deliveries last year. You can bet that UPS' rival FDX has taken notice and plans to be ready this year.

Market research firm EMarketer is estimating that retail online shopping will surge +17% in 2014 to $72.4 billion. That might be under estimating the growth, especially this year as many consumers might opt to shop online instead of face the crowds and risk being a target for terrorism or catching Ebola. Granted neither a terrorist event inside the U.S. and a widespread outbreak of Ebola in the states has happened yet but people are already afraid with the daily headlines about the virus.

UPS and FDX hope to be ready. UPS is hiring up to 95,000 seasonal workers and FDX is hiring 50,000 holiday workers this year. That's 10K more than last year for FDX.

In addition to the surge in online shopping FDX should also benefit from the multi-year lows in oil prices. Low oil prices means lower fuel costs, one of FDX's biggest expenses.

It would appear that FDX has fine tuned its earnings machine as well. Their latest earnings report was September 17th. Wall Street was expecting a profit of $1.95 a share on revenues of $11.46 billion. FDX delivered a profit of $2.10 a share with revenues up to $11.7 billion. That's a +24% increase in earnings from a year ago and the second quarter in a row that FDX beat EPS estimates.

FDX chairman, president, and CEO Frederick Smith said, "FedEx Corp. is off to an outstanding start in fiscal 2015, thanks to very strong performance at FedEx Ground, solid volume and revenue increases at FedEx Freight and healthy growth in U.S. domestic volume at FedEx Express." Business has been strong enough that a few weeks ago FDX started raising prices on some services.

Since that September earnings report Wall Street analysts have been raising price targets. Some of the new price targets for FDX stock are $175, $180 and $183 a share.

The recent sell-off in the market and FDX could be an opportunity. FDX has already seen a -10% correction from its intraday high near $165 to today's low near $149. Right now FDX sits just below resistance near $155.

We're suggesting a trigger to buy calls at $155.50.

Trigger @ $155.50

- Suggested Positions -

Buy the 2015 Jan $160 call (FDX150117c160) current ask $4.65

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

The Hain Celestial Group, Inc. - HAIN - close: 98.69 change: +0.29

Stop Loss: 96.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 632 thousand
Entry on October -- at $---.--
Listed on October 14, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

10/16/14: Traders bought the dip this morning and HAIN managed to outperform the large cap indices with a +0.29% gain. Yet the stock remains under the $100 mark.

Earlier Comments: October 14, 2014:
Looking at the world economies the U.S. is the cleanest shirt in the dirty clothes hamper. Every economy needs to see improvement but the U.S. is looking the healthiest. If U.S. growth continues to improve it should bode well for consumer spending. That should lead to strength in organic food sales.

There has been a strong trend of consumers moving more and more toward natural and organic foods. That's where HAIN is a major player. The company website describes HAIN as, "The Hain Celestial Group, headquartered in Lake Success, NY, is a leading natural and organic food and personal care products company in North America and Europe. Hain Celestial participates in almost all natural food categories with well-known brands that include Celestial Seasonings, Terra, Garden of Eatin', Health Valley, WestSoy, Earth's Best, Arrowhead Mills, DeBoles, Hain Pure Foods, FreeBird, Hollywood, Spectrum Naturals, Spectrum Essentials, Walnut Acres Organic, Imagine Foods, Rice Dream, Soy Dream, Rosetto, Ethnic Gourmet, Yves Veggie Cuisine, Linda McCartney, Realeat, Lima, Grains Noirs, Natumi, JASON, Zia Natural Skincare, Avalon Organics, Alba Botanica and Queen Helene."

HAIN's results have definitely confirmed the trend in consumer spending. They have beaten Wall Street's estimates and guided higher in three out of the last four earnings reports. Their most recent report was August 20th. You can see the big move in the stock after HAIN reported a profit of 90 cents a share on revenues that rose +26% to $583.8 million. Analysts were only expecting $0.89 cents a share on revenues of $577 million.

HAIN's management then raised their guidance again. They expect 2015 earnings to be in the $3.72-3.90 range compared to analysts' estimates around $3.73. HAIN is anticipating sales growth of +27% to +30% in 2015.

The bullish outlook for 2015 did not completely HAIN from the market's recent sell-off. Shares broke support near $100 and dipped to their 50-dma before bouncing. Altogether the stock has weathered the market's correction pretty well. The point & figure chart is still bullish and forecasting a long-term target at $131.00.

We want to be ready to buy calls if HAIN can rally back above the $100 level. Tonight we're suggesting a trigger to buy calls at $100.25. Earnings are expected in November so this might only be a 2-to-4 week trade.

Trigger @ $100.25

- Suggested Positions -

Buy the NOV $105 call (HAIN141122c105) current ask $1.90

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

iShares Transportation ETF - IYT - close: 143.77 change: +1.53

Stop Loss: 134.45
Target(s): To Be Determined
Current Option Gain/Loss: +44.1%
Average Daily Volume = 320 thousand
Entry on October 13 at $138.75
Listed on October 11, 2014
Time Frame: 3 to 6 weeks
New Positions: see below

10/16/14: The transportation industry shrugged off a bounce in crude oil today. The IYT rallied toward potential resistance at $145.00 before trimming its gains to +1.0% on Thursday.

Earlier Comments: October 11, 2014:
The IYT is an exchange traded fund (ETF) that tries to mimic the performance of the Dow Jones Transportation Average index.

Stocks have been sinking as investors worry about a global slowdown, especially in Europe. Yet the U.S. economy is still growing. Plunging oil prices should be great news for both business and consumers. Lower fuel costs means more money to spend elsewhere. Lower fuel prices also mean better margins for transportation companies.

The IYT has hit correction territory with a -10% pullback from its September highs about four weeks ago. When the market finally bounces the transports should lead the market higher thanks to the U.S. economy and low oil prices.

It looks like IYT's current drop could be near a bottom. Volume was almost three times the norm on Friday and shares settled near technical support at its simple 200-dma. We suspect the market will see another push lower before bouncing. That could see the IYT pierce the $140 level.

Tonight we're suggesting a trigger to buy calls at $138.75 with a stop loss at $134.45. This should be considered a higher-risk, more aggressive trade. You've heard the term "catching a falling knife" and that's what we're trying to do. You may want to wait for the IYT to pierce $140.00 and then buy the rebound back above this level as an alternative strategy.

*Higher-risk, more aggressive trade* - Suggested Positions -

Long NOV $143 call (IYT141122c143) entry $3.40*

10/13/14 triggered @ 138.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Starbucks Corp. - SBUX - close: 72.64 change: +0.26

Stop Loss: 73.25
Target(s): To Be Determined
Current Option Gain/Loss: +51.2%
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

10/16/14: SBUX spiked down to new four-month lows this morning. Shares managed to bounce back and eke out a gain. I am adjusting our stop loss down to $73.25.

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*

10/16/14 new stop @ 73.25
10/15/14 new stop @ 73.75
10/13/14 new stop @ 74.55
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: 68.27 change: +0.09

Stop Loss: 69.15
Target(s): To Be Determined
Current Option Gain/Loss: +69.8%
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

10/16/14: TUP has spent three days in a row now churning sideways in the $67-68 zone. Is this a new short-term bottom? The larger big-picture pattern would say no and that TUP has farther to fall. TUP could bounce back toward $70 or even $72 before rolling over again.

Yesterday we lowered the stop loss to $69.15. (although the table of plays above didn't reflect that last night). We are keeping the stop at $69.15 today. More conservative investors might want to just take profits now.

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

10/15/14 new stop @ 69.15
10/13/14 new stop @ 70.15
10/11/14 new stop @ 71.05
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

Vulcan Materials Co. - VMC - close: 56.77 change: +0.49

Stop Loss: 57.55
Target(s): To Be Determined
Current Option Gain/Loss: +10.7%
Average Daily Volume = 976 thousand
Entry on October 08 at $56.90
Listed on October 07, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

10/16/14: VMC has bounced three days in a row. Today saw the oversold bounce briefly traded above its 10-dma before trimming its gains. We will keep our stop loss at $57.55. I am not suggesting new positions at this time.

Earlier Comments: October 7, 2014:
VMC is in the industrial goods sector. The are the largest producer of construction aggregates in the United States. They are also a major producer of aggregate-based construction materials. Put it altogether and VMC produces crushed stone, sand, gravel, asphalt and ready-mix concrete.

The stock has languished for years after peaking near $125 a share back in 2007. It looked like the stock has turned a corner back in 2011 but that rally now appears to be in trouble. More recently VMC peaked under $70 back in March this year. It's been slowly chopping sideways since then in the $60-70 zone. The recent weakness might suggest a trend change for the worse.

The selling pressure has pushed VMC stock under multiple layers of support. It could get a lot worse. The market's recent weakness has been stoked by fears of a global growth slowdown. Bulls could argue that nearly all of VMC's sales are inside the U.S. and the U.S. economy is still growing. That's true. Evidently investors don't care.

Today's display of relative weakness (-2.1%) left shares of VMC testing its long-term trend line of higher lows dating back to 2011. A breakdown here could mean a much longer and larger correction lower. Tonight we're suggesting a trigger to buy puts at $56.90.

- Suggested Positions -

Long NOV $55 PUT (VMC141122P55) entry $1.67*

10/13/14 new stop @ 58.10
10/08/14 triggered @ 56.90
*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

WESCO Intl. - WCC - close: 71.99 change: +0.81

Stop Loss: 72.55
Target(s): To Be Determined
Current Option Gain/Loss: +130.7%
Average Daily Volume = 306 thousand
Entry on October 01 at $77.75
Listed on September 30, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

10/16/14: The oversold bounce in WCC is starting to eat into our unrealized gains. Traders may want to exit early now. I am not suggesting new positions.

Please note that WCC is scheduled to report earnings on October 23rd and we will most likely exit prior to the announcement.

Earlier Comments: September 30, 2014:
WCC is part of the services sector. They distribute industrial equipment. Their website describes WCC as "WESCO Distribution is a leader in industrial supply with an extensive offering of electrical, data communications, general maintenance, repair, and operating (MRO) and electrical OEM products. We are more than just an electrical distributor; we are a company of procurement specialists, helping customers lower supply chain costs, increase efficiency through WESCO Value Creation and save energy with green and sustainability initiatives. Our network of branches delivers industrial supply products fast, and our vast catalog of supplier partners enables WESCO to be your one-stop shop for electrical and MRO products."

Unfortunately for shareholders the stock peaked back in January this year. WCC produced a lower high in June. After a two-month drop WCC bounced but the bounce failed early September under resistance near $86.00, resistance at its simple 200-dma and resistance at the 50% retracement of the decline.

This trade isn't just about the technical picture. WCC has missed Wall Street's earnings estimates every quarter this year starting with its quarterly report announced in January, then April, and most recently in July. When WCC reported its July results management also lowered their 2014 guidance.

We are not the only ones who think WCC is bearish. The most recent data listed short interest at 13% of the 44.1 million share float. The point & figure chart is bearish too and forecasting at $64.00 target.

Today's drop was fueled by strong volume and shares are poised to break down under its late July low. Tonight we are suggesting a trigger to buy puts at $77.75.

- Suggested Positions -

Long NOV $75 PUT (WCC141122P75) entry $1.95*

10/15/14 new stop @ 72.55
10/13/14 new stop @ 73.75
10/11/14 new stop @ 76.25, traders may want to take some money off the table here.
10/01/14 triggered @ 77.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Flowserve Corp. - FLS - close: 63.49 change: +2.33

Stop Loss: 62.10
Target(s): To Be Determined
Current Option Gain/Loss: +150.0%
Average Daily Volume = 813 thousand
Entry on October 06 at $68.45
Listed on October 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

10/16/14: I have been warning readers that $60.00 might be support and shares could bounce. FLS did bounce today and it bounced big with a +3.8% gain. Our stop loss was hit at $62.10. The option traded above $10 this morning but did not trade at the time our play was stopped out.

- Suggested Positions -

NOV $70 PUT (FLS141122P70) entry $3.20 exit $8.00** (+150.0%)

10/16/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
10/15/14 new stop @ 62.10, consider an early exit now!
10/13/14 new stop @ 64.51, consider taking profits near $60.00
10/11/14 new stop @ 66.55, traders may want to take profits early
10/07/14 new stop @ 70.10
10/06/14 triggered @ 68.45
Option Format: symbol-year-month-day-call-strike


Pentair Plc - PNR - close: 61.81 change: +0.96

Stop Loss: 62.10
Target(s): To Be Determined
Current Option Gain/Loss: +140.2%
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

10/16/14: The move in PNR today looks similar to FLS above. The stock bounced off its early morning lows and rallied just high enough to tag our stop loss and close with a potential bullish reversal pattern. Our play was stopped out at $62.10.

- Suggested Positions -

Nov $70 PUT (PNR141122P70) entry $3.60* exit $8.65** (+140.2%)

10/16/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
10/15/14 new stop @ 62.10, Consider taking profits now!
10/13/14 new stop @ 63.10
10/11/14 new stop @ 64.75, traders may want to take profits now
10/09/14 new stop @ 66.15
10/01/14 new stop @ 67.05
09/06/14 new stop @ 68.65
08/26/14 triggered @ 68.90
Option Format: symbol-year-month-day-call-strike