Option Investor

Daily Newsletter, Thursday, 11/6/2014

Table of Contents

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

Market Wrap

Drifting Higher

by Thomas Hughes

Click here to email Thomas Hughes
Economic data and central bank policy lift the market.


The indices drifted higher today, led by a surge in the Dow Transports.Futures indicated a flat to negative open from the start of early trading but slowly improved throughout the morning. Economic data and earnings both helping to lift prices. This week's round of labor data is positive and once again shows underlying strength in the economy. The only weak spot was the jump in planned layoffs which was not unexpected, just a little shocking when you first read the headlines. After the 8:30AM data release index futures rose to break even just before the opening bell. After the open trading was mixed, hovering around flat for the first half hour before quickly dipping down to test near term support. By 10:30AM the market was bouncing higher and setting new all-time highs.

Market Statistics

Dovish policy from the ECB added some support today as well. The monthly meeting of the ECB ended this morning with the announcement it would leave key rates unchanged. This was more or less as expected; Mario Draghi has been blowing wind about “further measures” for many, many quarters and has yet to really do anything. Today was no different, in the statement and press conference Draghi stated the central banks commitment to increasing the balance sheet and even made a few more hints at increasing stimulus measures. Mr. Draghi also addressed the possibility that there was division amongst ECB council members by saying “it's normal to disagree”. The European markets at first responded well to the news, driving index prices up by more than 1% before falling when the reality of “weak growth momentum” and “downside risk” to the EU economy set in.

Economic Calendar

The Economy

First released today was the Challenger Gray&Christmas report on planned layoffs. According to their data the rate of planned layoffs surged by 68% in October, lead by retail and computers. The total number of layoffs planned in October rose to 51,183, the second highest level this year. Last month's figure was a 14 year low, one reason the snap-back this month is not too surprising. Another reason is that October and November are historically months in which layoffs accelerate due to end of the year business restructuring. According to data within the report restructuring was listed as the reason behind 33,000(64%) of this month's layoffs. This month the gains were led by Hewlett Packard and Sears, both of which are in the midst of planned restructuring. On a year-to-date basis layoffs are down -4.3% for the year. An additional tidbit I found near the bottom of the report was a tally of planned hiring showing a month-to-month and year-over-year increase.

Initial claims for unemployment fell by -10,000, reversing three weeks of gains. Last week was revised up by 1,000. This week's number of initial claims is 278,000, extending the dip below 300,000 to 8 weeks. The four week moving average also fell, shedding -2250 and setting a new 14 year low. On an unadjusted basis claims fell by -1.9%, just ahead of the expected -1.7% projected by the seasonal factors and down -20% from last year. Initial claims are off of their lows but trending at long term low levels. These levels are consistent with the current rebound in the labor market and economic recovery.

Continuing claims also fell this week. The number of claims fell by -39,000 to 2.348 million. This is a new 14 year low not seen since December, 2000. The previous week was revised up but even with that the 4 week moving average was able to set a new low as well. Continuing claims are still trending lower and could be leading the way to another decline in the unemployment rate. The total number of claims for unemployment for all levels rose by 77,119. This is just off the recently set long term low.

It looks to me like the labor market is still chugging along. There is no sign of a booming market, but no signs of a weak market either. Just the same steady market that has been building for the last two years. All the data supports it. The ADP figure yesterday was just right, smack in between 200K and 250K. Challenger is up this month and down for the year. Jobless claims are trending lower at levels that have already contributed to a decline in unemployment. Based on these factors I am expecting to see tomorrow's NFP in the same range as ADP with a possible decline in unemployment.

Productivity increased in the 3rd quarter by +2.0%. This is below the +2.7% increase in the 2nd quarter but still a decent number. This was matched by a 4.4% increase in output and a 2.3% increase in hours worked. On a year-to-date basis productivity is up just shy of 1.0% with a 3% increase in output and 2.1% increase in hours worked. Compensation also increased, by 1.2%. This isn't a massive increase in hours, productivity or wage growth but it is growth and shows there is some upward pressure on wages.

The Oil Index

Volatility persisted in the oil pit. Ongoing perception issues with OPEC and pricing issues with Saudi Arabia were compounded today when OPEC released its annual report on oil, lowering its outlook on demand and prices. Along with the lower outlook OPEC also sees a danger of oversupply, more fuel for the ongoing price way. Additionally there is a growing possibility that Iran and the West will come to terms over it nuclear program and opening up even more supply to the market. Brent fell by about a percent when the OPEC report hit the wire but was able to regain its losses by the end of the day. WTI fell as well but was not able to reclaim yesterday's settlement prices.

The Oil Index traded to the upside. The index gained about 0.80% in a move that began below yesterday's close and a potential support. While it looks like oil could move lower the Oil Index appears to be undecided. I could make an argument for a potential move higher, or a retest of long term support down around 1,350 but I think it is going to come down to where oil prices go and for now that is the million dollar question. Current resistance is 1,490 with support around 1,430 and 1,400.

The Gold Index

Gold prices held steady around $1145 today but may only be pausing for breath. The rapid increase in dollar strength over the past two weeks has pushed gold down to 4 year lows and is not showing sign of letting up. The ECB is still a year or more behind the FOMC in its recovery and policy cycle and the BOJ is actively printing yen as we speak. At the same time the US economy is gaining momentum while EU and Asian economies continue to flounder, all adding up to a strong dollar and weak gold.

The Gold Index gained over 5% today, creating a long white candle and a possible bullish engulfing pattern. The index opened higher than yesterday's close and then powered higher all day, completely making up all of yesterday's loss and more. Of course, this is probably a very short term indication of direction as the index is in a long term downtrend, below long term support and showing weak indicators. Possible bullish signs exist in the indicators as well as in the price action but without a move above $66.50 I see them as portents of possible bearish entry. The MACD is peaking, stochastic is forming a very weak bullish crossover and both indicators are divergent from the two month down trend. These could lead to a snap back or relief rally but there is a significant resistance level at $66.50 that must be overcome and I think it will take a significant improvement in gold prices for that to happen. Without that I will be looking for bearish activity in this sector.

In The News, Story Stocks and Earnings

Earnings are still flowing but we are getting near the end of the season. RandGold resources, a senior miner with operation throughout Africa, reported earnings today. The miner reported EPS of $0.63, 11% better than the previous quarter but less than the $0.76 expected. The gains were made on an 8% increase in production for the quarter, attributable to operations at a new mine called Kibali in western Africa. There was no mention of Ebola affecting operations but the company did say it was taking steps to protect the miners and communities where they are operating. On a year to date basis production is up more than 37% and is expected to increase as operations in Kibali come fully on line. Shares of the stock rose more than 10% in today's session, it is not a part of the Gold Index.

CBS reported earnings above estimate. EPS of $3.03 was aided by positive charges related to the spin off of CBS Outdoors earlier this year. The company also reported favorable earnings surprises from syndicated programming offered on cable and streaming channels. Shares of the stock moved higher in the premarket session and gapped 2% higher at the open. Then sellers stepped in and drove prices back down to retest support near $50. This one has been trading more or less sideways to down over the past 12 months and could be forming a bottom. Today's action appears to be confirming support set last month. If not, a drop below here could lead to a more pronounced downtrend in this stock.

Disney reported after the bell and matched estimates for earnings on slightly heavy revenue. The results are an improvement over the previous quarter and a company record. Unfortunately they are a little shy of expectations and sent shares lower in after hours trading. Disney also announced the title of the latest Star Wars movie, “The Force Awakens”, as well as a handful of Marvel titles.

The Indices

The bulls came out of the gate a little timidly today but quickly regrouped to rally higher. There was some resistance early on but most indices were able to set a new all time high. The Dow Jones Transportation average led the way with a gain of nearly 1.25%. The transportation sector was bolstered by a new report from the postal service that shows volume this holiday season will be at a record. This is only one of many indications that volumes, and revenues, for shippers and transporters will be robust over this season. Today's action extends the breakout from a short term consolidation I highlighted earlier this week. The indicators are bullish and setting up for a follow up trend following signal. MACD has retreated from an extreme peak and has started to rollover to a second peak while stochastic is making a bullish crossover high in the upper signal zone. My upside targets are now around 9,250 and 9,750 in the near to short term.

The Dow Jones Industrial Average was also fairly strong today. The blue chip index gained 0.40% and set a new all time high. Today's move is an extension of a near straight line advance in the index that has so far taken it over 9.5% in less than a month. The sharpness of the advance may be a sign of investors and traders chasing prices, it also could (will) lead to a pullback of some variety, at some time in the future. At this time the index is moving higher and with some strength. MACD shows momentum is strong and slowing slowly, stochastic is high in the range and pointing higher in both the near and short term.

The SPX also managed to make a move of near 0.40%. The broad market had a little more trouble breaking to a new high than the Dow indices but made it there eventually. Today's move extends the bounce/test of support from the 2,000 level and looks like it is going to keep moving higher. Momentum and stochastic are both strong, stochastic forming a bullish crossover high in the upper signal zone. I'm using the 2,000 as the basis for my near/short term projection with a target of 2,150. This is assuming the bounce from the October low until the test of support at 2,000 this week is only the first half of the move. If so, the second leg will likely not be as strong and could run until the end of the year.

The NASDAQ Composite also traded to the upside today. The tech heavy index was not able to set an new intraday high but it did make a new closing high. The index has been trading sideways since reaching this level last Friday and is creating a series of spinning tops. These spinning tops are forming a nice little congestion band that may lead to new highs, if the rest of the market is any indication. This congestion band is comparable to the near term consolidation I highlighted on the Dow Transports chart and the possible mid-point of a larger move. 4,600 and 4,500 is support with a near to short term target near 5,100.

The market is moving higher. Slowly, steadily, on the back of earnings and economic data higher. The trends are up, the labor market is improving and the expectations for the holiday season are strong. Some companies will not perform as well as others but as a whole business is doing well and expected to do well. Basically it's a stock pickers market just like always.

The NFP numbers are released tomorrow and could provide catalyst for the market. Unless it is so bad there is absolutely no hope for the economy any downside move will likely be small compared to the October correction.

Until then, remember the trend!

Thomas Hughes

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New Option Plays

The Shopping Warehouse of Latin America

by James Brown

Click here to email James Brown


PriceSmart Inc. - PSMT - close: 92.23 change: +1.81

Stop Loss: 89.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 156 thousand
Entry on November -- at $---.--
Listed on November 06, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
PSMT is in the services sector. The company is essentially the Costco of Latin America. A company press release describes them this way, "PriceSmart, headquartered in San Diego, owns and operates U.S.-style membership shopping warehouse clubs in Latin America and the Caribbean, selling high quality merchandise at low prices to PriceSmart members. PriceSmart now operates 34 warehouse clubs in 12 countries and one U.S. territory (six in Costa Rica; four each in Panama, Trinidad, and Colombia; three each in Guatemala, the Dominican Republic, and Honduras; two in El Salvador; and one each in Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin Islands)."

A lot of PSMT's locations are in fast growing countries. Honduras has an annual growth rate of +3.1%. Costa Rica's is +4.2%. Columbia & Guatemala are growing at +4.3%. Panama latest GDP was +6.3%. Yet a few countries are struggling. Trinidad's growth rate is -1.2% while the Dominican Republic's plunged to an annual pace of -13%. Overall the consolidate trend is positive for PSMT's environment and they're building new stores in Columbia.

The company's latest earnings report was mixed. Their 73-cent earnings missed estimates by one cent but revenues were up +6.3% for the year and above Wall Street's estimate. This was PSMT's fourth quarter and they ended their fiscal year with sales of $2.4 billion, a +9.2% increase. Overall same-store sales rose +4.8%. Management reported double-digit sales growth for the year in Columbia, Panama, Trinidad, and Aruba.

Technically the stock has been in a bear market after a sharp decline from its late 2013 highs near $125 a share. PSMT appears to have built a base in the $80-92 range over the last few months. Now shares are starting to breakout from this significant consolidation pattern. Today's rally is significant because it's a bullish breakout above technical resistance at the 200-dma. The point & figure chart is bullish and forecasting a target of $102.

The October 29th intraday high was $92.68. Tonight I am suggesting a trigger to buy calls at $92.75.

Trigger @ $92.75

- Suggested Positions -

Buy the 2015 Jan $95 call (PSMT150117C95) current ask $3.50

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Rise On Dovish Draghi

by James Brown

Click here to email James Brown

Editor's Note:

The ECB meeting and ECB President Mario Draghi evidently said what markets wanted to hear. The big cap U.S. indices hit new highs.

IBM hit our entry trigger.

We want to exit our NTES trade tomorrow morning.

Current Portfolio:

CALL Play Updates

Acuity Brands, Inc. - AYI - close: 140.73 change: +1.84

Stop Loss: 135.25
Target(s): To Be Determined
Current Option Gain/Loss: +18.4%
Average Daily Volume = 485 thousand
Entry on October 28 at $136.25
Listed on October 27, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: The market's widespread rally on Thursday helped AYI close above recent resistance at the $140 level. Today's intraday high was $140.82. I'd be tempted to use a rally past $141.00 as a new bullish entry point.

Earlier Comments: October 27, 2014:
AYI is part of the technology sector. The company considers itself the North American market leader and one of the world's biggest providers of lighting solutions. Headquartered in Atlanta, Georgia, AYI does business in North America, Europe, and Asia. Their fiscal 2014 sales hit $2.4 billion.

It has been a rocky year for AYI's stock price but the August low definitely looks like a bottom. Shares have rebounded sharply and investors have been buying the dips. As of today's close AYI is up +23% in 2014.

The last few weeks have been volatile. The early October rally was a reaction to AYI's earnings results. The company reported on October 1st with a profit of $1.26 per share on revenues of $668.7 million. That beat Wall Street's estimates on both the top and bottom line. Sales were up +15% from a year ago and profits were up +22%. The company said they are seeing strong adoption of their LED lighting solutions, which saw sales almost double from a year ago.

AYI said their Q4 and full year 2014 results were both records. AYI's Chairman, President, and CEO, Vernon Nagel, was very optimistic in his outlook. Mr. Nagel said,

"We remain very bullish about our prospects for future profitable growth. Third-party forecasts as well as key leading indicators suggest that the growth rate for the North American lighting market, which includes renovation and retrofit activity, will be in the mid-to-upper single digit range for fiscal 2015 with expectations that overall demand in our end markets will continue to experience solid growth over the next several years.

We believe the lighting and lighting-related industry will experience solid growth over the next decade, particularly as energy and environmental concerns come to the forefront along with emerging opportunities for digital lighting to play a key role in the Internet of Things. We believe we are well positioned to fully participate in this exciting industry."

Since the report Goldman Sachs has added AYI to their conviction buy list and Oppenheimer has raised their price target on AYI to $160. The point & figure chart is bullish and forecasting at $162 target. Zacks is bullish on the account they are seeing analysts revising their earnings estimates for AYI higher.

Currently shares of AYI have been hovering near resistance in the $135.00 area. Today's move is starting to look like a bullish breakout. We are suggesting a trigger to buy calls at $136.25.

- Suggested Positions -

Long DEC $140 call (AYI141220c140) entry $3.80

11/01/14 new stop @ 135.25
10/28/14 triggered @ $136.25
Option Format: symbol-year-month-day-call-strike

Costco Wholesale - COST - close: 137.09 change: +0.59

Stop Loss: 130.75
Target(s): To Be Determined
Current Option Gain/Loss: +143.5%
Average Daily Volume = 1.9 million
Entry on October 30 at $132.25
Listed on October 29, 2014
Time Frame: Exit prior to earnings in December
New Positions: see below

11/06/14: COST reported October same-store sales growth of +4.0% versus expectations of +3.8%. The stock saw a small pop higher this morning but then spent the rest of the day consolidating sideways near $137.00.

I am not suggesting new positions at the moment.

Earlier Comments: October 29, 2014
COST is part of the services sector. The company runs a discount, membership sales warehouse. The company's latest earnings report said Costco currently operates 664 warehouses, including 469 in the United States and Puerto Rico, 88 in Canada, 33 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, six in Australia and one in Spain.

The company has struggled to hit Wall Street's bottom line estimates for over a year but steady improvement in their same-store sales have helped drive the stock higher. A strong back to school shopping season and higher membership fees fueled a better than expected quarterly report.

COST reported their Q4 numbers on October 8th. After missing estimates for five quarters in a row the company finally beat estimates. Analysts were expecting a profit of $1.52 a share on revenues of $35.3 billion. COST delivered $1.58 a share with revenues up +9.3% to $35.52 billion. The net profit number was up +13% and gross margins improved 15 basis points.

COST also reported that their e-commerce sales continue to grow at a brisk pace and their online sales rose +18% in their fourth quarter. Same-store (comparable store) sales remain a key metric to watch. COST's Q4 same-store sales were up +4% yet if you back out falling gasoline prices and currency effects their comparable store sales were up +6% for the quarter versus +4.5% a year ago. Membership renewal rates remain very strong at 91% in the U.S. and 87% globally. COST plans to open up to eight more locations before the end of the 2014 calendar year.

The company also recently announced their first foray into China. COST has entered the Chinese market with an online store through Alibaba Group's (BABA) Tmall Global platform.

The holiday shopping season is almost upon us with less than 60 days before Christmas. COST is poised to do well since the company caters to the higher-end more affluent customer.

Shares are hovering just below the $132.00 level. Tonight we are suggesting at trigger to buy calls at $132.25. We will plan on exiting positions prior to their December earnings report.

- Suggested Positions -

Long DEC $135 call (COST141220c135) entry $1.54

11/01/14 new stop @ 130.75
10/30/14 triggered @ 132.25
Option Format: symbol-year-month-day-call-strike

DineEquity, Inc. - DIN - close: 92.51 change: +0.17

Stop Loss: 87.45
Target(s): To Be Determined
Current Option Gain/Loss: -8.3%
Average Daily Volume = 154 thousand
Entry on November 05 at $91.55
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: DIN posted another gain but the rally was pretty anemic today. I would not be surprised to see DIN retest $91.00 tomorrow if the market sees any profit taking on the jobs report data.

Earlier Comments: November 4, 2014:
Restaurant stocks were showing relative strength today. Better than expected earnings results from the likes of Red Robin (RRGB) and Bloomin Brands (BLMN) helped buoy the group. Additional stocks in this industry showing relative strength on Tuesday are: BWLD, PNRA, JACK, EAT, SONC, TXRH, KKD, DNKN, CAKE, DRI, and PBP. The one we like tonight is DIN.

According to a company press release, "Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 19 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world."

The company has seen success with a steady improvement in earnings. DIN has beaten Wall Street's estimates on both the top and bottom line three quarters in a row. Their most recent report was October 28th. Analysts were looking for a profit of $1.05 a share on revenues of $157.2 million. DIN served up $1.14 per share with revenues climbing to $162.85 million.

The company saw domestic system-wide same-store sales up +2.4% at IHOP and +1.7% at Applebee's. Management then raised their sales guidance on both Applebee's and IHOP. DIN also raised its dividend by 17% to $0.875 per share and they boosted their stock buyback program from $40 million to $100 million.

The restaurant industry should be a major beneficiary of the drop in oil prices. Lower gasoline prices at the pump mean consumers have more spending money and will likely burn a lot of that cash eating at restaurants.

Shares broke out to new highs on this earnings report and bullish guidance. Today the stock is at all-time highs. The point & figure chart is bullish and forecasting a long-term target at $118.00.

Tonight we are suggesting a trigger to launch bullish positions at $91.55.

- Suggested Positions -

Long DEC $95 call (DIN141220c95) entry $1.20

11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike

FedEx Corp. - FDX - close: 171.70 change: +2.28

Stop Loss: 163.45
Target(s): To Be Determined
Current Option Gain/Loss: +157.5%
Average Daily Volume = 1.5 million
Entry on October 17 at $155.50
Listed on October 15, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: FDX is still leading the market higher. Today saw shares of FDX break out past potential resistance at $170 and its multi-week trend line of higher highs.

This stock is up more than $20 from its October lows. Traders may want to consider taking some money off the table.

I am not suggesting new positions at this time.

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.

- Suggested Positions -

Long 2015 Jan $160 call (FDX150117c160) entry $5.30*

11/01/14 new stop @ 163.45
10/28/14 new stop @ 162.65, traders may want to take profits now!
10/25/14 new stop @ 157.85
10/23/14 new stop @ 155.90
FDX is nearing resistance at $164.00. Traders may want to take profits now.
10/21/14 new stop @ 153.45
10/17/14 triggered @ 155.50
Option Format: symbol-year-month-day-call-strike

Keurig Green Mountain, Inc. - GMCR - close: 153.06 change: +2.60

Stop Loss: 144.90
Target(s): To Be Determined
Current Option Gain/Loss: +51.5%
Current Option/Gain loss if you sold the NOV $160 call: +699.1%
Average Daily Volume = 1.68 million
Entry on October 28 at $145.75
Listed on October 25, 2014
Time Frame: Exit PRIOR to earnings on November 19th
New Positions: see below

11/06/14: GMCR is the best performer in the S&P 500 this year. CNBC did a little highlight on GMCR today. The positive press didn't hurt. Shares bounced from support near $150 and outperformed the major indices with a +1.7% gain. The next hurdle is short-term resistance near $155.00.

I am not suggesting new positions at this time.

Earlier Comments: October 25, 2014:
GMCR is labeled as part of the consumer goods business. GMCR describes their company as "a leader in specialty coffee, coffee makers, teas and other beverages, Keurig Green Mountain (Keurig), is recognized for its award-winning beverages, innovative brewing technology, and socially responsible business practices. The Company has inspired consumer passion for its products by revolutionizing beverage preparation at home and in the workplace." GMCR makes almost 300 varieties of coffee, hot cocoa, teas, and other beverages in K-cup and Vue portion packs.

The company's latest earnings report back in August were better than expected but revenues were a disappointment and management guided lower. Yet the stock did see much follow through on the initial post-earnings drop. Then a couple of weeks later shares of GMCR soared to new highs on news it had finally signed a licensing deal with Kraft Foods, the second largest food and beverage company in the world. GMCR already had licensing deals with all the major coffee brands but Kraft was the lone holdout.

Several weeks later shares of GMCR soared again after Goldman Sachs slapped a buy rating on the stock and gave it a 12-month $166 price target. The Goldman analyst believes GMCR will see sales rise at a compounded annual growth rate of almost 30% and profits will soared at 23% per year through 2017.

On a short-term basis the middle of last week was starting to look like a top, especially with Thursday's bearish engulfing candlestick reversal pattern. Yet there was no confirmation on Friday.

Friday's intraday high was $145.54. We are suggesting a trigger to buy calls at $145.75. We'll try and limit our risk with a stop loss at $141.90. We are not setting an exit target yet but I will note the point & figure chart is suggesting a $182.00 target.

Earnings are coming up on November 19th. We will plan on exiting prior to the announcement. More aggressive traders may want to take a longer-term approach and hold over the announcement (and use longer-dated calls).

- Suggested Positions -

Long NOV $150 call (GMCR141122C150) entry $6.17

- plus -

(On November 3rd, 2014, Sell the November $160 call)
Short NOV $160 call (GMCR141122C160) sold short @ $5.00

11/05/14 new stop @ 144.90
11/03/14 Sold short the NOV $160 call
11/01/14 Strategy Update: Sell the Nov $160 call on Monday morning, November 3rd
10/30/14 new stop @ 143.25
10/28/14 triggered @ $145.75
Option Format: symbol-year-month-day-call-strike

iShares Transportation ETF - IYT - close: 160.38 change: +2.13

Stop Loss: 154.50
Target(s): To Be Determined
Current Option Gain/Loss: +350.0%
Current Option/Gain loss if you sold the NOV $159 call: +856.2%
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

11/06/14: The transportation stocks continue to sprint ahead of the rest of the market. The IYT added another +1.3% to close at record highs. Tonight I am raising the stop loss up to $154.50.

We have less than three weeks left on our November options.

I'm not suggesting new positions at this time.

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

- plus -

(sell short the Nov $159 call on October 29th)
Short NOV $159 call (IYT141122c159) entry $1.80

11/06/14 new stop @ 154.50
10/29/14 IYT gapped open higher at $157.44 (+56 cents)
10/28/14 Strategy Update: new stop @ 151.85, Plus, we want to sell the November $159.00 call (current bid is $1.75).
10/25/14 new stop @ 148.65, traders may want to take some money off the table now
10/23/14 new stop @ 147.25
10/21/14 new stop @ 144.65
10/18/14 new stop @ 141.75
10/13/14 triggered @ 138.75
Option Format: symbol-year-month-day-call-strike

ServiceNow, Inc. - NOW - close: 66.85 change: +1.30

Stop Loss: 64.90
Target(s): To Be Determined
Current Option Gain/Loss: -26.3%
Average Daily Volume = 1.4 million
Entry on October 31 at $67.46
Listed on October 30, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: Thankfully NOW did not confirm yesterday's potentially bearish candlestick. Instead NOW rebounded with a +1.98% gain. Unfortunately today's move is nothing more than an inside day (still inside yesterday's range). I would stay cautious here. No new positions at this time.

Earlier Comments: October 30, 2014:
NOW is in the technology sector. The company provides cloud-based IT solutions across most of the world. According to the company website, "ServiceNow is the enterprise IT cloud company. We transform IT by automating and managing IT service relationships across the global enterprise. Organizations deploy our service to create a single system of record for IT and automate manual tasks, standardize processes, and consolidate legacy systems. Using our extensible platform, our customers create custom applications and evolve the IT service model to service domains inside and outside the enterprise."

NOW is less than three years old as a public company. Their IPO price was $18.00 and they opened at $23.75 back June 2012. It's been a roller coaster ride for investors but the trend is higher. NOW is one of the fastest-growing enterprise software companies. They're stealing market share from older, larger firms like CA Technologies, Hewlett-Packard, and BMC Software.

NOW is developing a very bullish pattern of strong revenues and raising guidance. The last four quarterly reports in a row have seen NOW meet or beat Wall Street's earnings estimate, beat the revenue estimate, and raise guidance every time.

Their most recent quarterly report was October 22nd. Wall Street expected a profit of $0.01 per share on revenues of $174.4 million. NOW delivered $0.03 with revenues rising +60% to $178.7 million. They added 150 new customers in the quarter, which puts their total at 2,514 clients. Their renewal rate is 98%. NOW raised their Q4 guidance above Wall Street's estimates.

NOW's President and CEO Frank Slootman said, "We had a solid third quarter as we continued to help our customers extend service management across the enterprise. The opportunities for us to expand within IT, as well as deliver value throughout the business, significantly broaden our addressable market and growth potential." Michael Scarpelli, their CFO, said, "Our strong third quarter performance included a record 11 deals greater than $1 million in annual contract value. We also achieved our first quarter of billings greater than $200 million."

Technically shares of NOW have broken out past resistance in the $65.00 area. The Point & Figure chart is bullish and forecasting at $74 target. The highs this past week have been near $67.00. Tonight I am suggesting a trigger to buy calls at $67.25.

- Suggested Positions -

Long DEC $70 call (NOW141220c70) entry $2.85

11/05/14 new stop @ 64.90
10/31/14 triggered on gap higher at $67.46, suggested entry was $67.25
Option Format: symbol-year-month-day-call-strike

NetEase, Inc. - NTES - close: 92.80 change: -0.55

Stop Loss: 91.45
Target(s): To Be Determined
Current Option Gain/Loss: -26.5%
Average Daily Volume = 430 thousand
Entry on October 21 at $91.59
Listed on Exit PRIOR to earnings on November 12th
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: Warning! NTES has closed below its 10-dma for the first time in weeks. The relative weakness today is not a good sign for the bulls.

Tonight I am suggesting we exit immediately tomorrow morning!

Earlier Comments: October 20, 2014:
NTES is in the technology sector. They are part of the Chinese Internet space. The company operates online video games, an Internet portal and email services in China. Technically the stock has been outperforming most of its peers in the Chinese Internet industry (compare to the performance of the KWEB ETF of which NTES is a component).

Their most recent earnings report was healthy. NTES' quarterly profit was in-line but revenues were up +21% to $475.8 million, beating Wall Street's estimates. NTES' Chief Executive Officer Mr. Ding said, "This quarter we have achieved in three business areas MoM and YoY increase revenue total revenue growth of 17.2%, an increase of 22.3 percent compared with the same period last year, gaming revenues grew 13.1%, advertising services revenue grew 42.9%, mailboxes, electricity suppliers and other business income increased 201.5 percent."

After an initial rally on these results NTES share price stalled out at resistance near $90-91. Here we are more than two months later and NTES is testing resistance near $90-91 again. This time the point & figure chart is suggesting at $102 price target.

We are suggesting a trigger to buy calls at $91.15.

- Suggested Positions -

Long NOV $95 call (NTES141122C95) entry $2.45

11/05/14 prepare to exit tomorrow morning
11/01/14 new stop @ 91.45
10/23/14 new stop @ 89.40
10/21/14 triggered on gap higher at $91.59, trigger was $91.15
Option Format: symbol-year-month-day-call-strike

The Sherwin-Williams Co. - SHW - close: 233.22 change: +2.83

Stop Loss: 224.75
Target(s): To Be Determined
Current Option Gain/Loss: +15.7%
Average Daily Volume = 526 thousand
Entry on November 05 at $231.00
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: Traders quickly bought the dip in SHW this morning and the stock reversed and rushed higher. This is another new high.

Earlier Comments: November 1, 2014:
It's not very often you see a company about to celebrate its 150th birthday. For SHW that will be the year 2016. The company has been in business since 1866. The Company's core business is the manufacture, distribution and sale of coatings and related products. SHW is headquartered in Cleveland, Ohio. They sell through over 4,100 company-operated stores. Their global group has sales in more than 115 countries. Sherwin-Williams is also a very well known dividend payer and has annually increased dividends since 1979.

The slow and steady economic improvement in the U.S. has been beneficial. The real estate market has also helped SHW. New homes need new paint. The pace of new home sales in the U.S. hit six-year highs last month. While home sales do tend to slow down a bit in the winter months SHW should benefit from lower input costs. Crude oil and natural gas are big components in the paint and coatings industry. The severe drop in oil the last few months is a blessing for SHW.

The company raised their earnings guidance back in July. They issued bullish guidance again in their latest quarterly report. SHW announced earnings on October 28th. Wall Street was expecting a profit of $3.22 per share on revenues of $3.18 billion. SHW said their earnings rose +31.4% to a record-setting $3.35 per share. Revenues were up +10.6% at $3.15 billion, which missed the estimate.

SHW's remodeling business saw growth. The real driver was paint sales. Their paint stores account for the lion's share of sales, which saw revenues up +20%. SHW also purchased 2.0 million shares of their stock last quarter and still have 6.8 million yet to buy in their stock buy back program.

Management was optimistic. SHW's Chairman and CEO MR. Christopher Connor, said,

"We are pleased to report record sales and earnings per share in the third quarter and first nine months of 2014 on the continued positive sales volume and strong operating results of our Paint Stores Group. The Paint Stores Group architectural volume growth was positive across all end market segments. The Comex acquisition continues to perform better than expected in the year. Our Consumer Group improved its operating results through higher volume sales and operating efficiencies. Our Global Finishes Group continues to improve its operating margins through improved operating efficiencies."

Management raised their 2014 EPS guidance above Wall Street's estimates. They also raised their revenue guidance but this was only in-line with consensus. SHW now expects Q4 sales in the +6% to +8% range. They expect earnings to be in the $1.30-1.40 range versus $1.14 in the fourth quarter of 2013.

The stock's relative strength has driven shares to new all-time highs and a +25% gain in 2014. The point & figure chart is bullish and forecasting at long-term target at $286.

Tonight we are suggesting a trigger to buy calls at $231.00.

- Suggested Positions -

Long 2015 Jan $240 call (SHW150117c240) entry $3.37

11/05/14 triggered @ 231.00
Option Format: symbol-year-month-day-call-strike

Semiconductor ETF - SMH - close: 51.98 change: -0.06

Stop Loss: 48.85
Target(s): To Be Determined
Current Option Gain/Loss: +163.6%
Average Daily Volume = 2.4 million
Entry on October 17 at $47.15
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: The SMH failed to participate in the market's rally today. Shares are just hovering near the $52.00 level.

The September highs near $52.60 could be resistance. I am not suggesting new positions.

Earlier Comments: October 16, 2014:
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.

- Suggested Positions -

Long 2015 Jan $50 call (SMH150117c50) entry $1.10

11/01/14 new stop @ 48.85
10/25/14 new stop @ 47.85
10/21/14 new stop @ 46.35
10/17/14 triggered @ 47.15
Option Format: symbol-year-month-day-call-strike

United Rentals, Inc. - URI - close: 113.76 change: +2.59

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +22.2%
Average Daily Volume = 1.6 million
Entry on November 03 at $110.55
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: URI displayed relative strength today with a +2.3% gain. This is a new six-week high. Shares are nearing what could be short-term resistance near $115.00. I am not suggesting new positions at this time.

Earlier Comments: November 1, 2014:
URI is a company that is gaining market share. Traditionally the equipment rental business has been a very fragmented industry with a lot of mom and pop stores. URI has decided that being the biggest offers a better selection to their clients. Today URI is the biggest equipment rental company in the world.

Twenty years ago commercial construction clients only accounted for about 15% of the equipment rental market. Today that number is closer to 50%. The last few years have seen a strong trend of construction companies choosing to rent equipment instead of buy new equipment due to an uncertain economic outlook.

According to URI's website they were founded in 1997 and have grown into a network of 832 rental locations in 49 states and 10 Canadian provinces. Their rental fleet includes 3,100 classes of equipment.

Earnings are improving. The last couple of quarterly reports have been strong. In the July 16th report URI beat Wall Street estimates with a profit of $1.65 per share on revenues of $1.399 billion. That was a +47% improvement from a year ago and management raised their guidance.

The most recent report was October 15th. Again URI beat estimates. Analysts were looking for a profit of $2.12 per share on revenues of $1.51 billion. URI delivered $2.20 per share with revenues up +17.8% to $1.54 billion. This was a +34% jump in URI's earnings from a year ago. Margins hit a record +49.3% in the third quarter. They reaffirmed their guidance.

URI's CEO Mr. Michael Kneeland commented on his company's report and said,

"The third quarter provided further confirmation that our strategy and the North American construction recovery are both solidly on track. Our end markets are continuing to rally, creating numerous opportunities for well-managed, profitable growth. We reported a robust 16% increase in rental revenue for the quarter— and more importantly, the discipline behind that growth is evident in our record EBITDA margin and gains in volume, utilization and rates."

Technically the stock experienced a painful correction from $120 to $90 during the market's pullback in September-October. The bounce back stalled at resistance near $110 and its 100-dma and 50-dma. However, after a two-week consolidation in the $105-110 zone, shares of URI now look poised to breakout. Shares were showing relative strength on Friday with a +3.7% gain.

The 50-dma is directly overhead at $110.17 and the intraday high on Friday was $110.39. Tonight we are suggesting a trigger to buy calls at $110.55.

- Suggested Positions -

Long 2015 Jan $115 call (URI150117c115) entry $4.50

11/03/14 triggered @ 110.55
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

FMC Corp. - FMC - close: 57.24 change: +0.62

Stop Loss: 58.85
Target(s): To Be Determined
Current Option Gain/Loss: -33.3%
Average Daily Volume = 1.42 million
Entry on November 04 at $55.85
Listed on November 03, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: FMC decided to participate in the market's widespread rally on Thursday. Shares actually outperformed with a +1.0% gain. I am not suggesting new positions at this time.

Earlier Comments: November 3, 2014:
FMC is in the basic materials sector. They are a diversified chemical company with agricultural chemicals, minerals, and health and nutrition businesses.

It has been a rough year for shareholders as FMC peaked in March this year and has been sliding lower every since. That's because the earnings picture has been deteriorating. You can see on the daily chart below where FMC issued an earnings warning in June. Then when they reported earnings in late July they missed estimates. It's not great when you warn about earnings and still miss Wall Street's lowered estimates.

FMC's most recent earnings report was October 29th. The company missed on both the top and bottom line. Analysts were expecting a profit of 96 cents a share on revenues of $1.06 billion. FMC only delivered 95 cents with revenues of $1.02 billion. The biggest part of their business, the Agricultural Solutions, which represents nearly half of FMC's sales, reported a small +2% revenue growth from a year ago.

In the company press release, Pierre Brondeau, FMC president, CEO and chairman, said: "In the third quarter, market dynamics continued to affect our portfolio. Agricultural markets were impacted by multiple factors around the world, a softening of demand in China affected parts of our Health and Nutrition portfolio, and Argentina continued to weigh on Lithium's results." Brondeau also noted they are concerned over some beverage products in China that have seen two quarters in a row of declining demand.

The weakness in shares of FMC have produced a -24% decline in 2014 versus the S&P 500's +10% gain. Meanwhile FMC's point & figure chart is suggesting the selling will continue and is pointing to a $25.00 target.

Tonight we are suggesting a trigger to buy puts at $55.85. More conservative investors might want to wait for a breakdown under $55.00 instead.

- Suggested Positions -

Long 2015 Jan $55 PUT (FMC150117P55) entry $1.95

11/04/14 triggered @ $55.85
Option Format: symbol-year-month-day-call-strike

Intl. Business Machines - IBM - close: 161.46 change: +0.74

Stop Loss: 165.75
Target(s): To Be Determined
Current Option Gain/Loss: -5.0%
Average Daily Volume = 4.1 million
Entry on November 06 at $160.90
Listed on November 05, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/06/14: Our new bearish play on IBM has been triggered. Shares gapped down at $161.28 and then dipped to $160.05 before bouncing paring its losses. The gap down this morning was IBM trading ex-dividend for its quarterly dividend.

Our trade opened at $160.90. The talking heads on CNBC today called IBM the sick man of the Dow and suggested no one was interested in buying the stock following its most recent earnings report.

Earlier Comments: November 5, 2014:
IBM is considered a bellwether in the technology sector. The company was founded back 1910 and has been known as IBM since 1924. They've grown into a powerhouse of information technology, hardware, software, and services. Unfortunately for IBM and its shareholders the company's business seems to have stalled as it faces tougher competition across all of its products.

Big Blue, the company's nickname, was a master manipulator of the Wall Street earnings game. IBM has for years massaged its earnings per share results with massive stock buybacks. This wasn't a big secret. Then finally their strategy started to stall. IBM's stock struggled for years after its 1999 peak under $140 a share.

The stock market's QE fueled rally from the 2008 low fueled a massive run in IBM and shares grew from $70 late 2008 to over $215 in early 2013. While the U.S. market continued to run higher in 2013 and 2014 IBM did not participate. That's because revenues have been flat or declining since mid 2013. At the same time investors became more suspicious of the financial engineering of IBM's earnings results with its massive stock buybacks.

Big Blue has spent $108 billion on stock buybacks since 2000. About $12 billion of that was just in the first six months of 2014. IBM has also spent $30 billion on dividends since 2000. Now normally stock buybacks and dividends are shareholder friendly but critics argue that IBM has financed a lot of these expenses with debt. Meanwhile IBM's revenues have fallen to levels not seen since 2008.

IBM's most recent earnings report was October 20th and the results were a big disappointment that sent shares plunging to multi-year lows. Wall Street was looking for a profit of $4.32 per share on revenues of $23.37 billion. IBM reported $3.68 per share, a 64 cent miss. Earnings dropped -4% to $22.4 billion, another miss.

Management said revenues declined across all of their major product lines and geographies. EPS results were down -10%. Net income was down -18%. Gross margins were down 90 basis points to 49.2%. Revenues in the Americas, Europe, Middle East, and Africa were all down -2%. Revenues in Asia-Pacific slipped -9%.

IBM said they saw a significant slowdown in September and the sharp rise in the dollar played a big impact on its results. Furthermore management has removed their previous earnings guidance of $20 per share in 2015. Multiple analyst firms have lowered their price target on IBM following this report.

Bullish investors will argue that IBM has been steadily raising its dividend over the last several years, which is true. The stock currently has a respectable yield of 2.7%. Unfortunately, high-yield stocks are going to look less attractive when the Federal Reserve starts raising rates in 2015. Bulls will also argue that IBM is cheap on a valuation basis with its P/E down to 10. We also know a cheap stock can always get a lot cheaper. A value play could turn into a value trap.

Currently shares of IBM have already seen their oversold bounce roll over. If shares breakdown under their October lows the next support level could be the $140 area. Tonight we are suggesting a trigger to buy puts at $160.90. More conservative traders may want to use a trigger under $160.00 instead.

- Suggested Positions -

Long 2015 Jan $160 PUT (IBM150117P160) entry $4.00

11/06/14 triggered $ 160.90
Option Format: symbol-year-month-day-call-strike