Option Investor

Daily Newsletter, Wednesday, 11/12/2014

Table of Contents

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

Market Wrap

Selling Outlawed

by Keene Little

Click here to email Keene Little
It's at about this time that bears realize the market has outlawed any selling. All pullbacks, tiny as they are, get immediately bought and the market powers higher. Bullish sentiment, and especially the lack of bearish sentiment as bears throw in the towel, makes for a vulnerable market.

Wednesday's Market Stats

The market struggled a little bit today, more so for the blue chips than the techs and small caps. The relative strength in the higher-beta names was a bullish sign for the market since it was more of a risk-on than risk-off kind of day. But we're seeing more evidence behind the numbers that the rally could be in trouble soon and while there's no indication yet that the bears are about to have their turn in the sun, there are reasons for bulls to exercise more caution here.

Equity futures had sold off some last night as European markets declined. There was some disappointment after the Bank of England (BOE) gave a less-than-enthusiastic forecast for the coming year, downgrading both its economic and inflation forecast. They believe England will only see 1% inflation (I think they'll be struggling with deflation like most of Europe next year). It's likely we'll see continual downgrades in Europe for a while. The U.S. stock market gapped down but it was just another buying opportunity and the indexes were immediately pushed back up. Another morning selloff to a higher low was another buying opportunity. The end result of this back and forth is creating narrow-range days as the market is able to make only marginal new highs each day. But the new highs is good for the headlines.

The bears are far and few between right now as bearish sentiment, according to the latest AAII survey, has now dropped to its lowest level since 2005. The rally from October has just about everyone convinced in the end-of-year rally scenario and we're again hearing new predictions for much higher prices, like we were hearing into the September high. It doesn't mean they're wrong but when everyone gets on the same side of the boat it's generally better to don your life vest and crawl over the other side and try to stay away from the panicking crowd when they end up tipping the boat over. We have again reached that point and it's amazing how quickly the mood has completely shifted from the extreme bearishness in mid-October. Not only price volatility has increased; sentiment has become wildly volatile as well.

There was a recent article in Bloomberg (October Is Forgotten) in which the Credit Suisse Fear Barometer (CSFB), which compares put/call option prices three months OTM, is now at its lowest level in more than a year. Even the end-of-year rally into December 2013 did not produce bearish readings as low as today's. The previous low level that is being matched by today's low level was back in August 2013. One driving factor has been the expectation that Japan's, and soon Europe's, QE efforts will continue to push stock markets higher. It would appear everyone is now buying into this theory.

According to Peter Cecchini of Cantor Fitzgerald LP, investors might be placing too much faith in what the central banks will be able to do when it comes to helping the stock market. As I've said for years, the primary benefit or QE is psychological, not the actual money. As long as people feel bullish they'll continue to plow more money into stocks. As Cecchini notes, "The size of stimulus from Japan's central bank is minuscule compared to the $18.5 trillion market value of the S&P 500, while ECB bond buying 'will be a backstop, not a pitching machine.'" At the moment investors are feeling invincible, convinced the central banks of the world are working in concert to power stock markets higher.

The Lipper Weekly Fund Flows report for last week shows a continuation of net inflows into mutual funds but most of that went into taxable bond funds and only a minor amount into equity funds. Digging into the numbers for equity funds shows most of it went into non-domestic funds rather than U.S. funds. The net result was actually a net withdrawal from U.S. equity funds of about $1B and most of that came out of the large cap funds. That hasn't prevented broader market indexes from making new highs because a lot of money continues to pour into the ETFs, with SPY taking the biggest share. But as the rally has progressed it's again doing it on the backs of a smaller number of stocks. This is very visible on the NYSE advance-decline line chart below:

NYSE Advance-Decline Issues, Daily chart

The chart above shows the significant negative divergence that is showing up at recent price highs for the market, which doesn't mean the rally will fail here and now but it does mean that those who are chasing it higher (the retail investors) are very likely going to be the ones left holding the bag while in their canoe hoping to make it up the creek without a paddle and not able to find a chair when the music stops. The new highs since last week are not getting the kind of buying participation it needs to continue much further.

Another indication of potential trouble ahead is being telegraphed by the NYSE McClellan Oscillator, as shown in the chart below. As Tom McClellan writes in his newsletter, the initial thrust to a peak is typically not the price peak for the market. It simply shows the momentum behind the move. But when the oscillator starts back down, indicating a loss of momentum, while prices continue higher it's when investors should be very careful about chasing the market higher. At the moment it's merely a warning sign.

NYSE McClellan Oscillator, Daily chart

So while we've got some market breadth warning indicator lights going off, it doesn't mean the engine driving this thing is going to immediately seize up. Price is king and that's what we have to watch to see when price tells us the rally might be finished. In the meantime bears need to continue to be patient and bears need to be cautious. Stops on long positions should be tucked in tighter.

The SPX weekly chart below shows how close price now is to the trend line along the highs from April 2010 - May 2011, which is currently near 2053. Considering where we are in the rally pattern from October I don't believe the rally will extend beyond that trend line, and that's if it's even reached. What's not clear at this point is whether the October-November rally will complete all of the 5th wave in the move up from October 2011 or just the 1st wave of the 5th wave. The risk for those who want to hold on during a pullback, with the expectation that the rally will continue into next year, is that the pullback could turn into a more serious decline. Only after we get a pullback/decline will we have a better sense of what should follow. But in either case, we should be looking for at least a pullback very soon.

S&P 500, SPX, Weekly chart

The daily chart below also shows the trend line along the highs from July-September, which is currently near 2045. In between is the broken uptrend line from November 2012 - February 2014, near 2051. That gives us an upside target zone by these trend lines at 2045-2053.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2055
- bearish below 2001

The rally from the pullback on October 22nd had been contained in a parallel up-channel, as can be seen on the 60-min chart below. SPX then dropped out of the channel, did a little back-test and then ran out sideways. From an EW perspective, the 1st wave (up to the October 22nd high) is an extended wave and it's common in that case to see the 3rd through 5th waves achieve equality with the 1st wave, which is the projection shown at 2055. That opens the target zone slightly to 2045-2055. It doesn't mean SPX will get there, or stop there, but it's a potentially important area to watch for a top.

S&P 500, SPX, 60-min chart

With SPX rolling over and out of the parallel up-channel it's giving us the appearance of a rolling top following the November 3rd high. In addition to the 5th wave being a choppy ending pattern, the fact that it's creating a rolling top says the rally shouldn't have much more gas left in the tank. All the indexes have this rolling-top pattern and therefore bulls are being forewarned here.

The DOW has a little more upside potential if it's going to reach its trend line along the highs from May 2011 - May 2013, which is currently up near 17820, another 200 points higher. That would have SPX blowing through its resistance zone on its way to 2060-2070 so we'll see how SPX does if it reaches 2055. This morning the DOW found support at its broken trend line along the highs from December 2013 - July 2014 and its uptrend line from November 2012, both near 17520. It's possible to look at today's candle as a hanging man doji but it would not be confirmed bearish until the DOW drops back below support and this morning's low.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,500
- bearish below 17,278

Last week NDX had formed a sideways triangle continuation pattern, which typically leads to the final move (up in this case). From an EW perspective a 4th wave triangle is a common pattern and it leads to the 5th wave. A sideways triangle is filled with choppy moves, which it was, and if that choppy price action continues into a choppy rally it's usually a very good sign that the 5th wave is going to form an ending diagonal (rising wedge). It's an ending pattern and so far this week's price action supports that interpretation, which shouldn't gain many more points. In fact it's possible this afternoon's high was the completion of the pattern.

The small rising wedge for this week's choppy rally points to a possible top around the 4200 area (today's high was 4199) while the daily chart points to a little higher potential. The trend line along the highs from April 2010 - April 2012 is currently near 4215 and the 127% extension of its September-October decline is near 4233. Above 4235 would be a bullish move but at the moment the EW count and the ending pattern suggests this rally could top out at any time.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4235
- bearish below 4126

The ending diagonal 5th wave idea is shown on the 15-min chart below. It argues for a top sooner rather than later, potentially at this afternoon's high. The pattern for the 5th wave, up from November 6th, is hard to decipher and the wave count is my best guess at the moment. The matching wave labels on MACD support the count but it means it will need to turn back down right here right now. If it continues higher we'll then have at a minimum a larger rising wedge but it remains an ending pattern regardless and therefore not a good time to chase it higher from here. A drop below this afternoon's low near 4187 would be a bearish heads up and below yesterday's mid-morning low near 4174 would confirm the rally is likely done.

Nasdaq-100, NDX, 15-min chart

The RUT has reached an interesting level, which is an important level for the bulls to break through. The September high, at 1183.85, was slightly broke today with a high at 1187.20. Coinciding with that level is the broken uptrend line from March 2009 - October 2011, which stopped the rally into the previous high on November 3rd. Was today's push higher in the final hour just a stop run to be followed by a quick reversal tomorrow morning? It wouldn't be the first time. But if today's rally holds it will open the door to the March and July highs near 1213. At the moment we only have a test of the September high, potentially mirroring the double top in July when it tested the March high.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1185
- bearish below 1160

While it looks like the stock indexes are forming rounding topping patterns we've got the opposite for bond prices, represented by the 20-year Treasury Bond ETF, TLT. As can be seen on its 120-min chart below, the rounding bottom is following the sharp move back down after peaking on October 15th (the same day that the stock market did its v-bottom reversal). With bonds and stocks continuing to trade inversely, the rounding bottom supports the idea that we should be looking for a coming rally in the bond market (declining yields) and a decline in the stock market. The reversal for both is just taking its sweet old time.

20+ Year Treasury ETF, TLT, 120-min chart

Following this week's rally above the trend line across the highs from July-September, the TRAN headed for a longer-term trend line across the highs from May 2013 - July 2014, which it almost tagged with yesterday's high at 9104. For its rally from October 2011 the 5th wave, which is the ramp up from October, would equal the 1st wave 9430.80, shown on its daily chart below. That's the upside potential if it can get above the trend line, near 9135 on Thursday and 9142 on Friday.

Transportation Index, TRAN, Daily chart

Last week the U.S. dollar made it up to the projection near 88 were the 5th wave of its rally from May equals 162% of its 1st wave. That should be good enough for at least a larger pullback over the next couple of months to correct the May-November rally before starting back up again. If the dollar continues to hold above its downtrend line from May 2009 - June 201, near 86.94, that would keep it bullish. But at the moment it could be just a throw-over that will lead to a head-fake break.

U.S. Dollar contract, DX, Weekly chart

Following gold's strong rally last Friday it has struggled to hold onto those gains. The rally had taken gold right up to price-level resistance near 1180, which had been support since June 2013. Once that support level broke on October 31st it's natural for it to turn into resistance. It's hard to determine at this point whether the next higher-odds move will be down to the 1090 area (50% retracement of its 2001-2011 rally) or head up to the top of its down-channel from 2011-2012, currently near 1250. For now, it remains bearish below 1180.

Gold continuous contract, GC, Weekly chart

Oil's short-term pattern continues to support the idea we'll see a low near 75 before getting a bigger bounce. Much below 74.50 would point to a drop below 70 but bullish divergence on the daily chart suggest oil bears need to tighten their stops.

Oil continuous contract, CL, Weekly chart

There are no market-moving economic reports Thursday morning so it will be up to overseas markets to help define where our market will start.

Economic reports and Summary

We've reached the point in the rally, especially with what looks like rounding tops being put in place, where it's too risky to be long the market but too early to be short. A rounding top is difficult to play because it's a slow reversal and the dips keep pulling in the buyers while shorts keep getting stopped out and soon give up trying. As the market runs out of buyers it becomes more vulnerable to a stronger decline and I think that's where we are. The topping process can take weeks, sometimes months, and it's typically a good time for traders to exercise patience and not get sucked into every little squiggle. These are the times when traders send their brokers' kids to college since they're the only ones making money from your trade commissions.

The market sentiment says the central banks of the world are accomplishing what they need most -- to keep investors feeling bullish and buying. They continue to suck in the unsuspecting while smart money offloads inventory (it's what creates the rounding top). The strong inflows of money into equity funds in the past couple of weeks (although slowing in the past week, which is another reason why the market is slowly rolling over) tells us the retail investor has literally bought into the idea of an end-of-year rally. But keep in mind that what's obvious to many is obviously wrong. Don't go with the crowd, or at least recognize when you're with the crowd and be ready to be one of the first to jump out.

All in all, you have to figure the Fed has certainly accomplished their goal. This cartoon says it all:

Good luck, trade safe and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Option Plays

Four Quarters In A Row

by James Brown

Click here to email James Brown


CR Bard Inc. - BCR - close: 165.21 change: +0.94

Stop Loss: 161.60
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 538 thousand
Entry on November -- at $---.--
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
BCR is in the healthcare sector. The company makes medical supplies. According to the company website, "C. R. Bard, Inc. is a leading multinational developer, manufacturer, and marketer of innovative, life-enhancing medical technologies in the product fields of vascular, urology, oncology, and surgical specialty. BARD markets its products and services worldwide to hospitals, individual health care professionals, extended care facilities, and alternate site facilities."

The company has been on a roll with its earnings reports. BCR has beaten Wall Street's estimates on both the top and bottom line the last four quarters in a row. The last couple of quarters have seen some pretty big beats and management has raised guidance.

BCR's most recent earnings report was October 22nd. Wall Street expected a profit of $1.87 a share on revenues of $818.8 million. BCR said earnings rose +28% from a year ago to $2.15 a share. Revenues were up +9% to $830 million. Inside the U.S. net sales were up +13%. Management raised their Q4 EPS guidance above analysts' estimates.

The stock has been struggling to breakout past major resistance near the $150-155 range but the October earnings results launched shares of BCR higher. The last couple of weeks have seen BCR consolidating sideways under resistance near the $165.00 level. We think it's about to break out. The point & figure chart is bullish and forecasting at long-term target of $194.00.

Tonight we are suggesting a trigger to buy calls at $165.60

Trigger @ $165.60

- Suggested Positions -

Buy the 2015 Jan $170 call (BCR150117c170) current ask $2.60

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

Daily Chart:

Intraday Chart:

In Play Updates and Reviews

Stocks Tread Water On European Weakness

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market drifted sideways as investors eyed disappointing economic data in Europe (again). All of the major European markets closed in negative territory today.

AAPL and QQQ hit our entry points today.

Current Portfolio:

CALL Play Updates

Apple Inc. - AAPL - close: 109.70 change: +0.87

Stop Loss: 106.45
Target(s): To Be Determined
Current Option Gain/Loss: + 11.5%
Average Daily Volume = 55.5 million
Entry on November 12 at $110.25
Listed on November 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/12/14: AAPL garnered positive comments from multiple analysts this morning. This helped lift the stock above resistance at $110 and hit our suggested entry point at $110.25. Shares outperformed the market with a +1.4% gain and closed at a record high.

Earlier Comments: November 8, 2014:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of almost $640 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit of $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $135 target. Shares have been outperforming the broader market and AAPL is currently up +36% year to date.

Currently AAPL is up three weeks in a row but it spent most of last week consolidating sideways and digesting its prior gains. As we approach the holiday shopping season AAPL is poised to benefit from what should be stronger than average consumer spending with the company's stable of new releases to tempt consumers to upgrade their older electronics.

The daily chart shows AAPL's intraday high to be $110.30 on November 3rd but that's actually a bad tick. The real intraday high is about $109.90. Tonight I am suggesting a trigger to buy calls on AAPL at $110.25. We will start with a stop loss at $106.45. More conservative traders may want to try a stop loss closer to last week's low near $107.70 instead.

- Suggested Positions -

Long 2015 Jan $110 call (AAPL150117c110) entry $3.90

11/12/14 triggered @ 110.25
Option Format: symbol-year-month-day-call-strike

ASML Holding - ASML - close: 101.83 change: -0.47

Stop Loss: 98.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on November -- at $---.--
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

11/12/14: Shares of ASML quietly consolidated sideways on Wednesday. I do not see any changes from last night's new play description.

Earlier Comments: November 11, 2014:
We are surrounded by electronics. There are mini-computers in just about every appliance we use. Our lifestyles are built on the magic of semiconductors. ASML makes the equipment for companies to build semiconductor circuits.

The company describes itself as "ASML makes possible affordable microelectronics that improve the quality of life. ASML invents and develops complex technology for high-tech lithography machines for the semiconductor industry. ASML's guiding principle is continuing Moore's Law towards ever smaller, cheaper, more powerful and energy-efficient semiconductors. We are a multinational company with over 70 locations in 16 countries, headquartered in Veldhoven, the Netherlands. We employ more than 13,800 people ASML is traded on Euronext Amsterdam and NASDAQ under the symbol ASML."

Currently the company is working hard on the future of semiconductor fabrication with a new system for lithography. ASML is calling it EUV, which stands for "extreme ultraviolet", which is a reference to the light source used to etch the semiconductor wafers.

Here's an excerpt from ASML's website:

For the past decades, the semiconductor industry has been driven by what is called "Moore's Law". It goes back to Intel co-founder Gordon Moore, who observed in the 1960s that the amount of transistors that could be fit on a chip of a given size at an acceptable cost doubled roughly every year. (He later revised the period to two years.)

The entire semiconductor industry operates to this model, which requires chip makers to pack transistors more tightly with every new generation of chips, shrinking the size of transistors. Smaller transistors mean that semiconductor lithography machines must be able to print finer features with every new generation of chips as well.

Since lithography is an optical technology, one of the things that limits the resolution of the equipment is the wavelength of the light that is used. Shortening the wavelength of the light means higher resolution and smaller features. Lithography machines have gone from using ultraviolet light with a wavelength of 365 nanometers to "deep ultraviolet" light of 248 nanometers and 193 nanometers, improving the resolution at every step. EUV is the next step, with light of a wavelength of 13.5 nanometers. (An analogy is painting: we use a smaller brush to paint the finer details)"

Shares of ASML plunged back in July on a disappointing guidance. Yet a couple of weeks later the stock soared following an update on its EUV system. ASML said their latest test showed their EUV system "reached a throughput of 637 wafers per day, ahead of the target of 500 wafers it gave in its Q2 earnings report this month." The company's target is processing 1,500 wafers a day by 2016.

ASML's most recent earnings report was October 15th, and coincidentally the market's recent bottom. Wall Street was expecting a profit of € 0.57 per share with revenues of €1.41 billion. ASML missed with a profit of only €0.56 a share and revenues of only €1.32 billion. Management said the miss was due to a couple of shipments that were pushed back to the fourth quarter. They also reported strong gross margins of 43.7%, which was above their estimate of 42%.

ASML raised their Q4 guidance and expects revenues of €1.3 billion, which was above Wall Street's €1.19 billion estimate. Their backlog soared almost 40% to €2.4 billion, not counting their EUV systems. ASML's President and CEO Peter Wennink said, "We are on track to meet our full-year 2014 forecast of at least EUR 5.6 billion of net sales. In the third quarter, we delivered a good profit margin on net sales that fell just short of our previous guidance due to a couple of system shipments shifting into Q4, which does not impact our full-year guidance. Looking ahead, we see a solid start to 2015. In memory, we expect higher sales in H1 driven by the strong backlog. In logic, the ramp of 20/16/14 nanometer nodes is expected to continue, but the timing and volume depends on the business allocations by our customers' customers."

ASML is also shareholder friendly with a steady dividend they have increased every year since 2009. In the third quarter they purchased 2.3 million shares of their stock. In the last two years they have spent €776 million to buy back 11.8 million shares of company stock. They still have €224 million left to spend on their buyback program before 2014 ends.

Shares of ASML have been very strong during the market's rebound off its October lows. Shares are in the process of breaking out past resistance at its 2013-2014 highs. A breakout here would be new record highs. The point & figure chart is bullish and forecasting at $129 target.

There should be a steady news flow from ASML to support the stock. The company is presenting at several conferences between now and year end. Their investor day is November 24th.

Tonight I am suggesting a trigger to buy calls at $102.75.

Trigger @ $102.75

- Suggested Positions -

Buy the 2015 Jan $105 call (ASML150117c105) current ask $2.80

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

Acuity Brands, Inc. - AYI - close: 138.71 change: -0.21

Stop Loss: 136.65
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

11/12/14: I cautioned readers yesterday that AYI was looking vulnerable. Shares posted a minor loss today (-0.15%) and spent most of the day drifting sideways. This could be a small victory for the bulls but we're turning more defensive. Tonight we are changing the stop loss to $136.65.

I am not suggesting new positions at this time.

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

11/12/14 new stop @ 136.65
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: 136.90 change: +0.21

Stop Loss: 134.75
Target(s): To Be Determined
Current Option Gain/Loss: +137.0%
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

11/12/14: COST delivered another quiet session. Shares bounced near the bottom of its $136-138 trading range.

Tomorrow could be interesting. Wal-Mart (WMT) will report earnings tomorrow morning. This will include WMT's Sam's Club operations, which is a direct rival to COST. WMT's results might influence COST tomorrow.

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

11/08/14 new stop @ 134.75
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: 95.33 change: +1.54

Stop Loss: 91.45
Target(s): To Be Determined
Current Option Gain/Loss: +54.1%
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

11/12/14: Shares of DIN raced higher on Wednesday and outperformed the U.S. market with a +1.6% gain. The stock is on track for its fifth weekly gain in a row.

The simple 10-dma has risen to $92.07. Tonight I am raising our stop loss to $91.45. I'm not suggesting new positions at the moment.

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

11/12/14 new stop @ 91.45
11/08/14 new stop @ 89.65
11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike

FedEx Corp. - FDX - close: 171.80 change: -0.54

Stop Loss: 165.50
Target(s): To Be Determined
Current Option Gain/Loss: +154.7%
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

11/12/14: FDX hit a little profit taking this morning and spent the rest of the session trying to recover. The $170.00 level looks like short-term support. A breakdown below $170 or its 10-dma near $169.50 could spark some sharper profit taking.

More conservative 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

11/08/14 new stop @ 165.50
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: 152.73 change: -1.96

Stop Loss: (removed)
Target(s): To Be Determined
Current Option Gain/Loss: +30.4%
Current Option/Gain loss if you sold the NOV $160 call: +588.0%
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

11/12/14: GMCR dipped to short-term support near its 10-dma. If this pullback continues we might see GMCR test round-number support at $150.00.

Please note we are removing the stop loss. By selling the November $160 call we eliminated a lot of our risk. Tonight we are deleting the stop loss on this particular trade. If you only have the directional call trade then you'll want to keep a stop loss. If you choose to keep a stop on the spread then be sure to close both positions if stopped out. You do not want to be naked short calls.

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

11/12/14 removed the stop loss
11/08/14 new stop @ 148.65
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: 162.89 change: +0.60

Stop Loss: 156.85
Target(s): To Be Determined
Current Option Gain/Loss: +414.7%
Current Option/Gain loss if you sold the NOV $159 call: + 900.0%
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

11/12/14: Crude oil continued to sink on Wednesday and that helped keep the IYT buoyant.

I am not suggesting new positions at this time. Investors may want to take profits early. We have less than two weeks left on our November options.

EDIT: I have corrected the current gain/loss number above. The maximum gain with our call spread is +900%.

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

11/08/14 new stop @ 156.85
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: 67.68 change: -0.47

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

11/12/14: NOW dipped toward short-term technical support at its simple 10-dma on Wednesday.

I am not suggesting 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

PriceSmart Inc. - PSMT - close: 95.20 change: +0.82

Stop Loss: 89.45
Target(s): To Be Determined
Current Option Gain/Loss: +22.0%
Average Daily Volume = 156 thousand
Entry on November 10 at $92.75
Listed on November 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/12/14: PSMT worked its way higher and ended the session at a new multi-month high. More conservative traders may want to already start raising their stop loss.

Earlier Comments: November 6, 2014:
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.

- Suggested Positions -

Long 2015 Jan $95 call (PSMT150117C95) entry $3.44

11/10/14 triggered @ 92.75
Option Format: symbol-year-month-day-call-strike

PowerShares QQQ (ETF) - QQQ - close: 102.46 change: +0.18

Stop Loss: 99.95
Target(s): To Be Determined
Current Option Gain/Loss: + 4.0%
Average Daily Volume = 38.1 million
Entry on November 12 at $102.35
Listed on November 10, 2014
Time Frame: exit prior to December option expiration
New Positions: see below

11/12/14: The path of least resistance is higher for the Qs and the ETF closed at a new 14-year high. Our trigger to buy calls was hit at $102.35.

Earlier Comments: November 10, 2014:
The QQQ is the exchange traded fund (ETF) that mimics the NASDAQ-100 index, which is the largest 100 non-financial stocks on the NASDAQ exchange, including both foreign and domestic companies.

The NASDAQ-100 has been outperforming its index brethren this year with the QQQ up +15.5% in 2014 compared to a +9.9% gain in the S&P 500, a +9.4% gain in the S&P 100, a +6.0% gain in the Dow Industrials, and a +0.8% gain in the Russell 2000.

This leadership should continue. Seasonally this is a very bullish time of year for stocks. November is the third best month of the year. We just started the best six months of the year. Midterm years perform even better than normal. Corporate earnings has been strong. Interest rates are low. The Fed remains cooperative. Japan's central bank just announced a massive new QE program that will send more money into U.S. stocks. Europe is on the verge of more QE. There are plenty of reasons to be bullish.

Most of the market does look short-term overbought with a massive bounce from the October 15th low. Yet the QQQ has spent the last several days consolidating gains in a sideways move under short-term resistance near the $102 area. That consolidation is narrowing and the Qs look poised to breakout higher.

Tonight we are suggesting a trigger to buy calls at $102.35.

- Suggested Positions -

Long DEC $102.63 CALL (QQQ141220C102.63) entry $1.49

11/12/14 triggered @ 102.35
Option Format: symbol-year-month-day-call-strike

The Sherwin-Williams Co. - SHW - close: 238.10 change: +1.03

Stop Loss: 229.75
Target(s): To Be Determined
Current Option Gain/Loss: +57.2%
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

11/12/14: SHW dipped to $235.42 before bouncing today. The stock closed near its highs. Readers should note that $240 could be potential resistance. Investors might also want to note that both Home Depot (HD) and Lowes (LOW) report earnings next week (18th and 19th). Their results might influence trading in SHW.

I am not suggesting new positions at this time.

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

11/08/14 new stop @ 229.75
11/05/14 triggered @ 231.00
Option Format: symbol-year-month-day-call-strike

Semiconductor ETF - SMH - close: 51.82 change: -0.15

Stop Loss: 50.85
Target(s): To Be Determined
Current Option Gain/Loss: +136.3%
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

11/12/14: Caution! SMH looks vulnerable here. The stock has struggled with resistance near $52 the last several days. Now SMH has dipped to short-term technical support at its simple 10-dma.

We are raising the stop loss to $50.85. Traders may want to just lock in potential gains now. 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

11/12/14 new stop @ 50.85, readers may want to just take profits now!
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: 114.43 change: +0.45

Stop Loss: 111.75
Target(s): To Be Determined
Current Option Gain/Loss: +20.0%
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

11/12/14: URI drifted higher on Wednesday but shares are still struggling with resistance near $115.00.

Tonight we are moving the stop loss up to $111.75. 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

11/12/14 new stop @ 111.75
11/08/14 new stop @ 107.15
11/03/14 triggered @ 110.55
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

FMC Corp. - FMC - close: 56.76 change: -0.06

Stop Loss: 58.85
Target(s): To Be Determined
Current Option Gain/Loss: -35.8%
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

11/12/14: It has been a very quiet week for shares of FMC but the stock is still sinking. I would consider new positions at current levels or under today's low.

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: 161.92 change: -1.38

Stop Loss: 165.75
Target(s): To Be Determined
Current Option Gain/Loss: -22.5%
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

11/12/14: IBM's oversold bounce appears to be rolling over again. Investors may want to wait for a breakdown under $160.00 before initiating new bearish positions.

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