Option Investor

Daily Newsletter, Saturday, 11/15/2014

Table of Contents

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

Market Wrap

Another Lackluster Day but Still a Record High

by Jim Brown

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Market Statistics

For the last two weeks the Dow and S&P have been trading sideways but seemingly always able to close slightly higher in record territory. That streak ended for the Dow on Friday but we can't really say an 18 point loss was a disaster. It was a rounding error at most. Visa was the only Dow stock to lose more than $1.

The S&P narrowly missed ending in negative territory with a 0.49 point gain. That was enough to keep it closing over the 5 day average for 21 consecutive days and tied for the second longest streak since 1998. There was a 23 day streak back in July 1998. It was really close and a surge of buy orders in the last 3 minutes of trading pushed the index back over the average at 2039.07. This is a sign of how overbought the market is today.

There was a flurry of economic reports on Friday with the October Retail sales the most watched. Sales rose +0.3% in October and reversed the -0.3% decline in September. The two big losers were gasoline stations, which is obvious given the drop in gasoline prices, and electronics and appliances. Analysts said the drop from +4.7% in electronics sales in September to a -1.6% decline in October was the result of the iPhone schedule. Sales are counted when the phones are delivered to the stores not when customers buy them. Gasoline stations saw a -1.5% decline in sales.

Gains came from nonstore retailers at +1.9%, sporting goods and hobbies +1.2% thanks to consumers preparing for the arrival of winter sports and hunting season. Food service and bars rose +0.9% as consumers put food in their mouths using the savings from their recent gasoline fill ups.

The headline number of +0.3% was uninspiring but at least it was a gain. If you remove gasoline sales and sales of automobiles it jumps to +0.6% and a much better number. Obviously you can't whine about overall mediocre sales if the majority of the drop was due to falling gasoline prices.

Consumer Sentiment for November spiked nearly +3 points to 89.4 and a seven-year high. That is the highest reading since July 2007. The current conditions component rose nearly +5 points from 98.3 to 103.0 while the expectations component rose +1 point from 79.6 to 80.6. The falling gasoline prices and the outcome of the election were cited as reasons for the gain in the present conditions component. Shoppers said they feel the best about their economic situation since before the recession. This bodes well for the holiday shopping season and the stock market for the rest of the year.

Business inventories rose +0.26% for the September period. That is the average for the last three months and erases a decline to +0.13 in August. This is a lagging report and was ignored.

Import prices declined -1.3% in October to double the -0.6% decline in September. This is the fourth consecutive month of declining import prices and it does not take a genius to realize this was due to falling oil prices. If we take out the drop in oil prices the headline number would have only been down -0.1% and that is a significant difference. Oil prices declined -6.9% for the month. Export prices declined -1.0% and that was also due to lower prices for gasoline and diesel that we export.

Natural gas injections into storage totaled +40 Bcf last week as the cold weather increased demand significantly. We have been averaging about 90 Bcf into storage every week. I expect the withdrawal season to begin this week with net withdrawals from storage instead of injections. Nat gas inventories are -5.7% below year ago levels and -6.2% below the five year average. With another super cold surge of arctic air scheduled for this week those gas heaters and gas fired electrical plants are going to be running close to capacity.

The calendar for next week is pretty busy with the FOMC minutes the major event. The minutes for the prior meeting upset the market when they were released on Oct 8th and these have the same potential. These will tell us what the Fed heads were thinking about future rate hikes as they voted to end QE in late October. Particular attention will be paid to any comments about ending the "considerable period" language.

Next most important will be the Philly Fed Manufacturing Survey on Thursday. This is the proxy for the ISM and future Fed reports for November. Expectations are for a decent increase from 20.7 to 24.0.

Everything else in green is of market interest but they are not normally market movers. The new residential construction, NAHB Housing Index and the existing home sales will be the most important of that last group.

The Q3 earnings cycle is nearly complete. This is the last week with any real activity and LOW, HD, BBY, GMCR highlight a list heavy in retailers.

Amazon was in the news a lot last week. They stealth announced on Friday by updating a page on their websites that you can now get a Kindle for free for 30 days and Amazon pays the shipping both ways. If you decide to keep it over your 30 day "trial" then they will charge you for the device. They also announced a new software download that has a lot of new features like instant definitions of any highlighted word and the ability to share books among family members on their own Kindles that are registered to different Amazon accounts. I could go on but there is a long list of new features.

They also announced a settlement with Hachette Book Group on a new multi-year contract for sharing of ebook revenues. In the old contract for a $9 book sale Amazon would get $2.70, the publisher would get $4.72 and the writer $1.58. Amazon proposed a new sharing arrangement. Amazon suggested 35% for the publisher, 35% for the author and 30% for Amazon. The retailer is the largest ebook seller by far with 60% of the market so it is critical for publishers and authors to maintain positive relations with Amazon.

Everybody keeps beating Amazon up because they don't make any money. Bezos could turn on the profits at any time simply by making the decision to do it. Most people don't realize that Amazon has the biggest cloud on the planet and it is growing at the rate of 40% a year. The amount of data online doubles every year. They have five times as much capacity as the next 14 competitors combined. If the Amazon Web Services (AWS) division was spun off it would be valued in the $17-$20 billion range.

AWS has more than one million customers. Amazon has 11 cloud regions around the world. Each region has multiple datacenter clusters. There are 28 total clusters around the world. Each of those clusters has one or more datacenters, with the typical facility containing 50,000 to 80,000 servers. Gartner Research said Amazon has more than two million servers. If you compared them to Rackspace (RAX) they are not even on the same planet. Rackspace has 6 datacenters with a little more than 100,000 servers total. Microsoft has 17 regions with more than 1 million servers and Google has 3 regions with just over 1 million servers according to Steve Ballmer. A former Amazon engineer said the company may eventually end up with a datacenter in every state at the rate they are expanding. Amazon has a 27% share of the market followed by Microsoft at 10% and IBM and Google slightly less than that according to Synergy Research.

Revenue from AWS was $1.34 billion last quarter and they should exceed $4 billion for the year. Numerous Amazon associates and outside analysts believe AWS revenue will eventually exceed that of the retail side of Amazon. Portions of this Amazon commentary came from an article by Jack Clark at Global Tech. Amazon Cloud

Jeff Bezos is building a total business of unbelievable scale and long term Amazon will rule the online retail market even more than it does today. I have bought more than 50 items from Amazon since September 1st not counting ebooks. I rarely ever go shopping in my car.

Google saw the future and Google Wallet was not in it. Google announced it was terminating Google wallet for third-party digital purchases. Google cited a maturing industry as the reason for the cancellation. They said the landscape of mobile payments has become competitive and variable since the Wallet launched in 2012. No replacement will be offered. It will officially terminate on March 2, 2015. The Wallet will remain the payment system for the Google Play Store.

Google Glass may be headed the way of Google Wallet. Apparently developers are bailing from the project in record numbers and sales of the $1,500 test version of the product have died. Many developers are now saying that Glass will never become a consumer product but it may have some technical uses in some fields. Reuters contacted 16 major app builders and nine said they had stopped work on their projects or abandoned them because of a lack of customers or limitations of the device. Three others have switched from consumer development to development for specific business applications. Twitter also dropped support for the device.

Little Guy Games, said they were no longer developing for Glass because there was no market for the devices. Several key Google employees instrumental in developing Glass have now left Google for greener pastures. A Google Glass funding consortium headed by Kleiner Perkins Caufield & Byers and Andreessen Horowitz quietly deleted their website and forwarded clicks to the main Google Glass site. The Glass Collective, a funding consortium, also closed its website. Glu Mobile was the first to launch a game on Glass but has now discontinued work on it. Google is now selling Glass in bulk at a 50% discount to businesses. Apparently just having Google's name on something does not make it successful. Google shares have been struggling recently as the bloom fades from the company. Driverless cars, mysterious barges, monster wind farms, etc are not as profitable as Android phones and online advertising.

Shares of Virgin America (VA) were priced on Thursday at $23 and opened for trading on Friday. Shares rose to $30 at the close but that was pretty much guaranteed with only 12 million shares available to trade. Richard Branson will own 24.8% post IPO and Cyrus Capital Partners will own 32.8%. The airline has 66 planes and operates out of California with high traffic routes inland. They claim their cost structure is 30% lower than other carriers.

Movado Group (MOV) had a bad day. The company provided guidance for Q3/Q4 and apparently nobody is buying Movado watches. The company said the watches are not selling well overseas and some of their fashion brands including Lacoste and Scuderia Ferrari are also underperforming. They now expect Q3 earnings in a range of 86-87 cents and analysts were looking for $1.13. Revenue estimates were cut from $216.6 million to $188.6 million. For Q4 earnings are now expected to be between 18-23 cents and analysts had expected 50 cents. They also cut the full year forecast to $1.83 down from $2.44. Shares fell -31% on the news.

Shares of Baker Hughes (BHI) surged on Thursday afternoon after the Wall Street Journal said they were in talks to be acquired by Halliburton (HAL). Baker Hughes confirmed the story but warned there was no guarantee of a completed deal. Shares rallied from $49 to $62 but faded somewhat on Friday after another story broke that the deal negotiations were hung up on the purchase price and on the billions of dollars of assets that would have to be sold to get regulatory approval. Analysts say Halliburton may have to divest as much as 20% of Baker Hughes. Halliburton has discussed setting up a new unit to hold assets it is willing to divest. The combined company would have 39% market share in the onshore fracking market and more than double Schlumberger (SLB). Hughes Tool was started in 1909 and merged with Baker International in 1987. Halliburton started in 1914.

Analysts believe it will take something in the $70-$75 range to buy Baker Hughes. The stock traded at those levels as recently as July. The -31% drop in oil prices since June has decimated many of the stocks in the energy sector. Baker Hughes declined to $50 before the news broke about the talks.

Update: Late Saturday Halliburton said it intends to nominate a full slate of directors to replace the BHI board after negotiations broke down over price. The shareholder meeting is in April 2015. Baker Hughes published 3 letters to Dave Lesar, CEO of Halliburton, claiming the price was too low and the harsh negotiating tactics Halliburton was using were inappropriate and were trying to force a sale that undervalued the company. The company statement said, "Baker Hughes believes that Halliburton’s various attempts at coercive tactics, instead of being willing to negotiate a reasonable value for the Company's stock and despite having stated twice that they have room to increase the value of their offer, are attempts to control both sides of a negotiation and are entirely inappropriate." It looks like the war has begun.

Pandora (P) rallied +16% after CEO Brian McAndrews personally bought 25,000 shares in the open market for $465,000. He now holds 475,392 shares. The purchase was seen as a vote of confidence ahead of discussions with the Copyright Royalty Board (CRB) next week. The meeting with the CRB is expected to be on case theory rather than Pandora's strategy in copyright proceedings. Pandora filed a lengthy proposal the second week of October. The proceedings are in the discovery period that lasts until early December. Both parties have proposed different rate structures. Something has to change. On one streaming service a song was streamed more than 6 million times and the singer received only $104 in royalties.

Hertz (HTZ) announced on Friday it was going to restate earnings for 2012 and 2013 in addition to the previously announced restatement of 2011 earnings. The company already withdrew 2014 guidance after discovering a series of accounting errors. The review process and the restatement will not be completed until mid 2015. Shares dropped sharply on the news but recovered to lose only -4.6%.

Caesars Entertainment (CZR) said on Friday the company would run out of cash in 2015 and would be forced to file bankruptcy if it can't restructure its obligations through creditor agreements. The company burned through $550 million in the last 9 months and expects negative cash flow for the foreseeable future. The company has $25.5 billion in debt. They have reached preliminary agreements on a prearranged bankruptcy with six of its first-lien bondholders but there are plenty left representing billions in debt. The company was taken private in 2008 for $30.7 billion just as the financial crisis appeared. Without an agreement with everyone "there is substantial doubt in Caesars ability to continue as a going concern after Q4-2015." Shares were little changed on the news. Apparently trades believe they will get that agreement. Even if they do get an agreement for a prepackaged bankruptcy it is still a bankruptcy and the share value is sure to suffer. This looks like a good short to me. The spike in the shares last week was the news they had tentative agreements with those six bond holders. I would be surprised if they didn't take advantage of the share spike to do a secondary offering.

Oil prices may have firmed on Friday but gasoline prices are still in free fall. The price of gasoline in the futures market dropped to $1.99 briefly intraday on Friday. That is down from $3.15 back in June. Consumers are in for a real treat for their Thanksgiving drive to grandma's house. The national average for gasoline prices fell to $2.91 on Friday and it still has a long way to go to catch up with the falling oil prices. I paid $2.46 on Thursday in Denver with a few cents off for a loyalty card and I was very happy. Analysts are saying we could see average prices in the $2.75 range by the end of December but some states are already under that level.

Friday was the deadline for hedge funds to file their 13F forms showing changes in their portfolios for Q3. Here are some brief summaries from some of the big names.

Oberweis Asset Management sold all its 1.3 million shares in NQ Mobile (NQ). Valiant Capital Management bought 2.0 million shares of NQ for a 3.9% stake in the company. Research firm Muddy Waters LLC accused NQ of being a massive fraud about a year ago and the company undertook an extensive audit to prove otherwise. ChinaRock Capital Management owns 9.2 million shares or 18%.

Leon Cooperman's Omega Advisors sold its entire 1.3 million share stake in Qualcomm (QCOM). The company also sold 20.5 million shares in Sprint (S). They bought $36 million in Alibaba (BABA) and $59 million in Groupon (GRPN). Omega sold its $30.8 million stake in SeaWorld (SEAS).

Berkshire Hathaway (BRK.B) bought a $35 million stake in Express Scripts (ESRX) with 449,489 shares held at the end of the quarter. Holdings in GM rose +21% to 40 million shares and a stake Charter (CHTR) was doubled to 4.95 million shares with an increase in holdings of DirecTV (DTV) rising +28% to 30 million shares worth $2.6 billion. Berkshire also added to Walmart with a +3% gain and IBM with roughly a 1% gain. The company sold its 4 million stake in Deere (DE). Berkshire's total portfolio is valued at $117 billion.

Tiger Global Management added 12.8 million shares of Hertz (HTZ) and exited its stake in Dollar General (DG). Tiger's portfolio is valued at $6.85 billion, a drop of -$98.7 million for the quarter. Tiger also exited an $88 million stake in Qihoo 360 (QIHU) and cut its stake in Vipshop (VIPS) by 7.1 million shares. They added a new position in Bitauto (BITA) valued at $512 million.

Starboard Value bought 1.92 million shares or 2.4% of AOL. The company had exited a stake in AOL in 2012 after they were unsuccessful in getting their directors added to the AOL board. Shares of AOL rose +79% during the fight so Starboard did really well with their 5.1% stake at the time. They also added 7.72 million shares of Yahoo (YHOO). They are actively trying to force Yahoo to buy/merge with AOL and to spinoff its remaining stake in Alibaba and Yahoo Japan to avoid a high tax bill.

Starboard was successful in replacing all 12 directors at Darden (DRI) after the company sold Red Lobster against shareholder wishes. Basically the fully control Darden today and plan on making changes to increase profitability and sell off some non-core chains.

Bruce Berkowitz managed Fairholme Capital exited its positions in Fannie Mae and Freddie Mac. Investors in those companies lost a legal bid to force the bailed out companies to share profits with private holders. Fannie Mae shares lost -31% for the quarter while Freddie Mac dropped -32%.

Fairholme also exited a stake in Genworth Financial (GNW) just in time to avoid the -40% drop in the shares in November.

George Soros fund boosted holdings in Level 3 Communications (LVLT) by 3.64 million shares to triple his stake in the company. The fund also added 2.92 million shares of Dow Chemical (DOW). Soros cut his stake in Herbalife (HLF) by 2.85 million shares for a -73% decline. A $234 million stake in Console Energy (CNX) was exited along with a stake in Halliburton (HAL). Soros equity holdings declined -2.6% to $10.1 billion with positions in 234 companies. Sixty-nine of those were new positions.

John Paulson bought 5.7 million shares of Shire (SHPG) to increase his stake to 9.1 million shares worth $2.3 billion. Unfortunately he added those shares before the drop from $245 to $160 in October. That had to hurt! Paulson also bought 13 million shares of AbbVie the company that was trying to merge with Shire. Paulson's fund lost -14% in Q3 to extend his losses year to date to -25%. The fund added to its stake in Covidien (COV) now valued at $1.1 billion and added a new $292 million stake in PetSmart (PETM). The fund closed positions in TMO, FCX, QCOR and Hillshire Brands.

Paulson continued to hold his 10.23 million share stake in the SPDR Gold Trust (GLD). He has held his position at this level for five straight quarters. The value is down -40% from his entry point. Gold is currently in the longest slump since 1998 thanks to the sharply rising dollar. He started the position in 2009 and gold rose 70% from the 2008 lows before falling -28% in 2013 and the biggest annual drop in 30 years.

Jana Partners sold 200,000 shares of CBS class A shares and 4,127,149 class B shares. They also sold 10.4 million shares of SunEdison (SUNE). The fund added 975,000 shares of AMD, 300,000 shares of BABA, 2.7 million shares of AMGN, 8.05 million shares of Gollar General (DG), 842,000 shares of McDonalds (MCD) and 200,000 call options. They bought 7.0 million shares of RackSpace (RAX) and 1.3 million shares of Valeant Pharma (VRX). They increased their 1.0 million share stake in Ebay to 13 million and 5 million call options. They increased the stake in Hertz to 10.07 million shares and 9.0 million call options, up from 5.9 million shares and no options.

They raised their stake in PetSmart from 4.9 million shares to 9.7 million but dropped the 4.57 million call options from the prior quarter. It appears they may have exercised some of those calls.

Julian Robertson's Tiger Management opened a new 1.2 million share position in Alibaba. It is now their largest holding at 30% of their portfolio. Gilead (GILD) is 13% at 444,000 shares. Ebay is a new holding at 7% or 496,400 shares. Apple shares were cut from 17,500 to 15,900 and Facebook (FB) was cut from 341,500 to 303,400 shares and 6% of total holdings.

David Einhorn's Greenlight Capital opened 10 new positions.

Share amounts in millions.

Aecom Tech - ACM 3.04
Citizens Financial - CFG 8.0
Colony Financial - CLNY 0.87
Consol Energy - CNX 4.88
FCB Financial - FCB 1.35
Interpublic Group - IPG 2.43
Kennametal - KMT 0.58
Nokia - NOK 7.83
ON Semiconductor - ONNN 15.0
Synchrony Financial - SYF 2.11

Positions exited:

Chico's FAS - CHS 1.87
DSW Inc - DSW 0.18
Computer Sciences - CSC 2.32
Tempur Sealy - TPX 1.77


Apple - AAPL 9.45 to 9.17
BioFuel - BIOF 1.43 to 3.63
BP - BP 1.48 to 2.06
McDermott - MDR 10.77 to 2.81
Micron - MU 40.34 to 30.47

A lot of traders are betting on a bottom in oil prices by investing in oil ETFs. Over the last month more money has flowed into those ETFs than any time in the last two years. The four biggest ETFs had 70.5 million shares outstanding on Wednesday and the most since May 2013 according to Bloomberg. More than 1 million ETF shares were being created every day with net inflows on all but 4 days since October 1st.

The two most popular ETFs were USO and UCO. The USO saw inflows of $183.8 million so far this month and the UCO added $62.2 million.


Volume was very low on Friday with only 6.0 billion shares. That was just slightly over the average for the week at 5.93 billion. There is definitely no conviction in the market. If volume was just a little higher I would be labeling it as a distribution event but the very low volume appears to be consolidation instead of distribution.

The problem is the lack of catalysts. Earnings are over and everyone expects the markets to move higher but there is no catalyst. There is nothing to make buyers want to jump into the market despite new marginal highs every day. As long as the markets are trading sideways there is no urgency to buy.

The reverse is also true. The longer we trade sideways the better the chance of some event that creates a headline the market does not like. Traders may start thinking the holiday rally has already occurred. We did rebound more than 10% straight up from the October correction. Conversely, the longer we stay at this level without a negative catalyst the stronger underlying support becomes.

One potential catalyst would be a rebound in the price of oil. The energy sector is a large part of the S&P and energy stocks are very oversold. If crude were to rebound to $80 or higher we should get a substantial rebound in energy equities that could trigger a move higher on the S&P.

The S&P may be clawing out a new high every day but with a PE of 17 there is not much institutional excitement for further PE expansion. However, 75% of actively managed funds are below their benchmarks and fund managers are going to be scrambling for additional gains over the next six weeks. They are being held back somewhat by the apparent index stall at the new highs. Nobody wants to throw their last pile of cash at the market only to have it roll over.

On the 5-day average chart you can see the flat lining currently in progress and the likelihood of a market dip in the near future. If you look to the left where the August rally sputtered to an end and the S&P fell back below the 5-day the selling was not bad. It was simply profit taking from the big +95 point gain from the August 8th low at 1910. The current bounce started at 1820 for a +220 point jump. Clearly we have a serious need for some profit taking.

Unfortunately the market never does what we expect in the timeframe we expect it. While a dip to reload would be the logical move the market has no memory and it can remain bullish far longer than those shorting the top can remain liquid.

The dip buyers are alive and well and every minor intraday dip is instantly bought. However, the bullish sentiment is at a four year high at 57.9% as evidenced by the AAII weekly poll. The last time sentiment was this high was December 23rd, 2010 at 65%. While this is a sentiment peak for the recent trend it is well under the historical high of 75% on Jan 6th 2000. In fact since 1987 bullish sentiment has been higher than 58% on 59 occasions. Even at the high of 65% in 2010 the market continued higher for several more weeks before rolling over.

Something else to note. While bullish sentiment rose +5.2% last week the bearish sentiment rose +4.3%. That is very rare to see them both rise at the same time. Those neutral on the market declined by -9.5%. Apparently the majority of investors have an opinion on direction because only 22.8% are neutral. Out of the 1,392 weeks since the survey started in 1987 there have been 238 weeks with the neutral reading below 22% so it is not that unusual for the market to be polarized.

I have been showing the chart below for several weeks and that upper resistance line has not changed. The S&P has come to a dead stop at that resistance and the odds are good we are going to see some profit taking before we move higher. While I said the odds are good they are not 100% because of the current bullish sentiment.

If we were to see a decent spike higher I am sure there would be some significant short covering. The setup for the bears has been so visible for the last two weeks that I am sure there are plenty of traders with short positions hoping for a drop next week.

The longer we stay at this level the stronger underlying support becomes. Currently that is about 2,033. If that level breaks it could trigger sell stops and we could be looking at 2,000 once again with pauses at 2,025 and 2,015. I am not expecting that but it is possible.

The Dow has now rebounded +1,850 points from the October low at 15,855 to Thursday's high at 17,705 in only four weeks. We are seriously overbought but the Dow is showing no indications of weakness. Like the S&P it is moving perfectly sideways with minimal incremental steps higher. Dow components Cisco and Walmart failed to energize a continued move higher when they reported earnings last week and there are no catalysts left for the Dow. We will have to rely on economics and/or M&A news.

Resistance is well above at 17,750 and initial support at 17,500.

The Nasdaq 100 ($NDX) remains our hope for a bullish breakout. The big cap techs just keep powering higher. Unfortunately they are also nearing resistance at 4,250. The NDX is well above the congestion from the prior two weeks and we can only hope the Dow and S&P charts look the same at the end of next week. The NDX consolidated from the 31st to the 11th and then began a strong move higher.

The Nasdaq Composite hit resistance at 4,700 on Thursday and was immediately sold. On Friday it appears the buyers stepped in but only a few. The volume was light and the gain of +8 was minimal. The next test of 4,700 will be critical. If the composite moves over that level it should be accompanied by a similar rise in the NDX and that would be very market positive. Watch 4,700 for direction next week.

The Russell 2000 normally leads in both directions. The Russell lost ground on Thr/Fri in what could be a signal the broader market is about to take profits. However, the Russell built up some decent support over the last two weeks as it consolidated in the 1160-1170 range. Friday's low was 1,172 so that support is still intact. If the Nasdaq indexes continue higher the Russell should tag along but it still has strong resistance at 1,180. Once over that level we can start breathing easier.

The small cap stocks tend to underperform in Q4 compared to large caps because of fund manager investing patterns around year end. Mark Hulbert, Favor Large Cap Stocks

While the Russell normally leads, the Nasdaq 100 was leading the charge last week. Let's hope that trend continues.

In short I expect some profit taking next week unless the Nasdaq rally accelerates over resistance. If that happens I think we could be off to the races for a pre Thanksgiving rally. I am not bearish on the market. I just think the rebound has run its course until we see some backing and filling. Investors don't want to buy a top. They would much rather buy after a couple days of declines. If we move higher without any profit taking I am not going to complain.

Random Thoughts

Russia or maybe I should say Valdimir Putin was all over the news last week. I am really starting to worry that Putin is going to do something stupid. Russia invaded the Ukraine again last week. Multiple columns of tanks, artillery, antiaircraft missiles and troop convoys were photographed by multiple news sources flooding into the Ukraine. Apparently Putin did not like the election of pro western officials and he is determined to secure eastern Ukraine as a land bridge to the Crimea regardless of the legality of the aggression.

Unfortunately nobody is going to stop him. Several European officials said they were not going to impose additional sanctions because "it might hurt the peace process." I doubt Putin cares about the peace process.

Australian Prime Minster Stephen Harper said in advance he was going to challenge Putin when he showed up at the G20 conference in Australia this weekend. When he was forced to greet all the attending heads of state he said to Putin, "I guess I’ll shake your hand but I have only one thing to say to you: You need to get out of Ukraine." Putin responded with the equivalent of sc*** you and told Harper "that getting out of Ukraine would be impossible because Russia is not there."

Putin quickly found he was not welcome at the event. On Saturday his press secretary said Putin was going to leave the conference a day early because of pressure from the various leaders over the Ukrainian situation. Numerous leaders used their podium appearances to mention the Ukraine crisis and apparently Putin did not like the constant negative press. President Obama gave an uncharacteristically direct speech saying Russian "aggression" in Ukraine is a threat to global security and the shooting down of MH17 has appalled the world in its callous disregard of human life. While the majority of leaders socialized at a barbeque Putin sat in a corner with Brazil's Dilma Vana Rousseff on opposite sides of a table for six. So how did you like being a pariah Mr. Putin?

I am assuming if he leaves he will take his warships with him. Yes, warships. Putin has a habit of sending a flotilla of warships ahead of him when he attends these meetings. In this case four warships arrived off the coast of Australia and made their prescience known. What kind of leader sends warships ahead of his arrival to basically threaten peaceful countries?

At the same time there have been multiple incursions of Russian military aircraft all around Europe. NATO scrambled to fighters on Saturday to chase away two Russian fighters. The number of incursions is up 300% over the prior month. This is just another way for Putin to warn everyone "We are here, we are not going away and there is nothing you can do about it."

Earlier in the week Russia announced plans to send long range nuclear bombers to the Gulf of Mexico. The Defense Minister said "We have to maintain Russia's military presence in the Western Atlantic and eastern Pacific, as well as the Caribbean and the Gulf of Mexico. Sending bombers on long range patrols is part of the drills. The flights will conduct "reconnaissance missions to monitor foreign powers' military activities and maritime communications." Russia also said it was upgrading its nuclear arsenal to maintain superiority over NATO and the USA. Russian Nuclear Upgrades

The message here is that Russia is more than capable of launching World War III if the U.S. keeps intervening in the European response to the Ukraine invasion. The minister also said Russia is adding full radar coverage by year's end to cover the Arctic, Alaska and northern Canada to "meet unwanted guests." As recently as June U.S. fighters intercepted Russian bombers off the California coast in what was called "cruise missile launch drills." That was the first time Russian planes had ventured offshore California in more than two years.

Last month a Russian submarine ventured into Swedish waters near Stockholm. The largest sub hunt since the Cold War was triggered by an emergency distress call in Russian that led to visual sightings by merchant ships before the submarine disappeared.

Russia is flexing its military muscle and identifying NATO and the U.S. as its enemy. One military analyst said Russia was looking for a provocation so they could escalate the confrontation and force NATO or the U.S. to back down.

Putin has small man syndrome. He is 5 foot 7 inches and he is surrounded by taller people. Small man syndrome or Napoleonic Complex is characterized by overly-aggressive or domineering social behavior to compensate for the person's short stature. Napoleon was 5 foot 6 inches. Putin is repeatedly photographed in manly actions like wrestling, hunting, bare-chested horseback riding, etc, in an effort to build up his image as being macho.

Putin sees President Obama as weak in military and foreign policy and he understands he has two more years before a new president takes office that may not be as docile as Obama. That means Putin should be expected to extend his aggression possibly to a wider foothold in Ukraine and possibly to other nations bordering Russia.

Europe can't really put up too much of a fight or Putin can cut off their natural gas supplies and they will freeze over the winter. Europe gets more than 30% of its gas from Russia.

Russia is stockpiling gold at a furious pace like they know what is coming. Russia bought 55 tonnes of gold in Q3 and far more than any other nation. All the central banks in the world including Russia bought a total of 93 tonnes in Q3. Putin has tripled gold reserves to around 1,150 tonnes. Why is Russia rushing to stockpile so much gold?

I fear we are getting closer to a flash point. Putin is starting to feel like a cornered rat and may need to strike out to reestablish his credibility. Russia just posted the slowest growth since 2000. The ruble is at an 11 year low. Russian oil exports supply about 65% of the country's budget and they just took a -35% hit because of the drop in oil prices. Capital is flowing out of Russia by the billions. Economic conditions inside Russia are deteriorating rapidly. Putin's popularity ratings were over 85% several months ago but are now beginning to decline.

In situations like this history is full of examples where the embattled leader turned to war to distract the populace from the problems at home. If that happens where does Putin draw the line? How will the U.S. respond to further blatant aggression in some other satellite country? Many of them are NATO countries and Putin perceives NATO as weak so that is where he would likely strike. Would NATO stand up to Putin or fold like the paper tiger he thinks they are?

The flash point could be the delivery of two Mistral-class warships from France to Russia. They are currently in a shipyard in Saint Nazaire France. Russia paid 1.2 billion euros to France to construct the warships. France succeeded in getting the warship sale excluded from the sanctions since the contracts had been signed several years ago. However, President Hollande imposed two conditions necessary for the completion of the sale. One of those conditions was for a cease-fire to be imposed in Ukraine and the second was tangible evidence of progress toward a political settlement over Ukraine's future. Neither of those conditions have been met. Russia has told France it has until the end of November to turn those warships over to Russia or face "grave consequences."

Everyone knows the Western Nations are locked in a confrontation with Iran over their nuclear program with a November 24th deadline for a resolution. Last week Putin announced a deal to build eight new nuclear reactors in Iran. The new equipment will be built in Iran and supposedly will be under the supervision of the IAEA. However, the announcement of the deal could not come at a worse time than a week before the deadline on shutting down Iran's nuclear enrichment program. Putin timed the announcement to make the western nations look like fools as the negotiations come to an end with Iran next week.

I fear we are headed for an unwanted confrontation at some point in the next two years. I really hope I am wrong.

The second topic this week has to be the rapidly approaching executive order to give amnesty to 5 million illegal immigrants without any constitutional basis. This is going to be released next week according to recent reports. Whatever your opinion on immigration the real point here is that President Obama is going to authorize it on his own over the objections of Congress and that is going to start a war in Washington.

In election exit polls conducted by The Polling Company more than 74% of voters believed that "President Obama should work with Congress rather than around Congress on immigration instead of separately." More than 92% of republicans, 80% of independents and 51% of democrats did not want Obama to enact executive amnesty on his own. Only 20% of voters wanted Obama to move forward on his own with an executive order.

More than 80% of Americans wanted newly created jobs to go to American workers not immigrants and that was across the entire country. (74% in Northeast, 80% midwest, 85% south and more than 80% in the west) Midterm Exit Polls

On Friday Vice President Biden said in addition to Obama's executive action the U.S. will offer "refugee status" to youths from El Salvador, Guatemala and Honduras. Up to 4,000 a year from each country will be allowed entry to the U.S. and immediately have full rights in the USA. This move comes after 68,000 children from those three countries entered the U.S. illegally last summer. However, the program only applies to children under 21 that have a parent already living in the USA.

I believe we should have comprehensive immigration reform but only if it follows the constitutionally mandated path. Congress makes the laws after serious debate that considers all the options and then the president signs them. This provides for laws that are enacted by the people's representatives after due process not by an individual that wants to impose his own standards on the population.

The Affordable Care Act may have entered a terminal phase. First the administration sharply lowered their estimates of how many people will be registered in the current plan renewal period from 13.1 million to 9.1 million. That compares to the 8 million that registered for 2014. Of those 8 million more than 1 million cancelled or defaulted on payments and are no longer insured by ACA. Of the 7.1 million people currently enrolled more than 80% receive subsidies. Unfortunately for many of those the subsidies may go away.

The Supreme Court agreed to hear the King vs Burwell case regarding subsidies in the ACA. The law clearly states that Federal subsidies are only available for policies issued through a healthcare exchange "established by the individual states." Only 16 states have built individual exchanges and are eligible for subsidies. Residents in the other 34 states are not eligible for subsidies but the administration allowed them anyway.

The Supreme Court will not have any leeway on this case since the law specifically spells out that subsidies are only to individual states. Most analysts believe the court will be forced to rule against subsidies since the language is clear. To rule in any other fashion would be to rewrite the law and the Supreme Court does not have that capability. The IRS originally refused to allow the subsidies to those people on the Federal exchange because that was not how the law was written but the president directed them to ignore the law and dole out the subsidies anyway.

Since 80% of enrolled people get a subsidy and 70% of the people enrolled in ACA are living in those 34 states about 4.6 million people would lose their subsidies. With the census numbers already well out of balance with 20% paying significantly higher premiums in order to subsidize the 80%, the removal of 4.6 million people from the program is going to be a disaster. The Rand Corp estimates that premiums for the 4.6 million that will lose subsidies will rise an average of 43%. The low risk individuals will bail immediately and forego insurance leaving only the high risk individuals that can't afford to be without insurance. The risk pool will immediately tilt towards the high risk side and rates for everyone would spike higher in the next renewal period. The individual and employer mandates would crumble because nobody could afford the increase in premiums.

The insurance companies are already losing money on the program despite a dramatic increase in rates. They are not concerned since the administration has agreed to cover all their losses for the first three years. That means the Federal Government will write them a check for their losses every year and taxpayers will foot the bill. This is expected to be in the hundreds of billions of dollars.

Lastly, despite the dramatic increase in premiums for individuals when the program was implemented in 2014 the rates for 2015 have increased another 5.6% to 35% and the program benefits have shrunk even more. For example the average increase in Colorado is between 22% and 35%. Networks are shrinking, deductibles are rising and co-pays for doctor visits and drugs are rising. The co-pay for my generic medicine I have been taking for 30 years went up from $8 to $75. A plan survey by HealthPocket found the average annual deductible rose 42% to $5,081.

The insurance companies are trying to find a level where they can make money and with health care costs rising and 80% of applicants getting subsidies they have to raise the rates for everyone in order to break even.

This law has survived numerous congressional attacks and court cases but it may have exhausted its nine lives. The republicans are not going to be agreeable to making modifications unless they get some of their own requests like the cancellation of the medical device tax and the cancellation of the Cadillac tax on company supplied health plans. There is going to be a monster fight over healthcare in 2015 and if the President follows through on the executive order amnesty it is only going to make the House and Senate even more opposed to doing anything he wants in the future.

Finding out last week that the architects of the ACA knew in advance they were going to have to lie to get it passed is only going to further inflame the public. MIT professor Jonathan Gruber and architect of the plan said he and President Obama agreed during a conference in the oval office that the plan would have to be worded in "tortured language" to confuse the Congressional Budget Office and the stupid American voters. The law was specifically written to be confusing so the "lack of transparency" would be a political asset meant to dupe the gullible public.

He and Obama came up with the business deduction scam. Gruber said "we just tax insurance companies, they pass on higher prices that offsets the tax break we get into being the same thing. It’s a very clever basic exploitation of the lack of economic understanding of the American voter." Numerous videos have come to light with Gruber making these comments in various forums. Gruber is also on video explaining that if states don't setup their own exchanges they will not be eligible for subsidies. That pretty well seals the deal for the Supreme Court. The administration paid Gruber $400,000 for consulting to help write the law and he is explaining on video how it was written.

Obamacare may not be dead but it is bleeding profusely and the opponents have a lot of ammunition left.

Retailers are preparing to go to war next week with the various Black Friday promotions that have turned into Black Week promotions. Several retailers have already launched their pre Black Friday sales. Walmart store managers have officially been told they are now free to match online prices starting November 14th. This is a fight to reduce the impact of showrooming where people look at an article in the store and then go home and order it online. If you are spending money this holiday season it would be wise to take your smartphone and scan the barcodes to look for the lowest advertised price and then show that price to the cashier.

Eaten your broccoli lately? McDonalds has now invented bubble-gum flavored broccoli to entice children to eat healthy. Unfortunately it did not work. Kids were confused by the taste and still refused to eat it.

More than 46 million turkeys will make the ultimate sacrifice for your Thanksgiving meal. Wholesale prices have risen 16% from 2013 to $1.24 per pound and the highest since records started in 1993. Retail prices average about $1.58 per pound. More than 20% of annual turkey consumption occurs on Thanksgiving. As of September 30th 297.2 million pounds of whole turkeys were in frozen storage. That is the lowest for that date since 2011. Gobble gobble!

Only 10 shopping days until Thanksgiving and 39 shopping days until Christmas.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"People have difficulty cutting losses, admitting an error, and moving on. I am rather frequently—and on occasion, quite spectacularly—wrong. However, if we expect to be wrong, then there should be no ego tied up in admitting the error, honoring the stop loss, selling the loser—and preserving your capital."

Barry L. Ritholtz


Index Wrap

Leveling Off May Be Mini-Top

by Leigh Stevens

Click here to email Leigh Stevens

The Market tends to go from 'extreme' to extreme (bullish to bearish or the reverse) and a key way to measure where the major indices would be at support or potential next 'resistance' is to track the 21-day moving average and pivotal moving average envelopes. These envelope values vary per my individual index charts seen below.

Upside momentum has slowed and we see the appearance of a possible rounding top on hourly charts. Meanwhile the Relative Strength Index readings suggest the major indices are more or less at overbought extremes. A Market probably a bit ahead of itself is occurring as bullish sentiment was rising over the course of this past week.

This most recent rise in bullishness comes AFTER the S&P 500 has gone UP a whopping 9 percent from its Closing low of mid-October. When it takes that long to recognize that we're IN a bull market I'm ready to exit calls, go to my corner and stand aside.



The SPX chart remains bullish with Friday's Close now UP 9 percent from its mid-October Closing low. Upside momentum has understandably slowed a bit after such a climb and the recent sideways trend most bullish interpretation is as a pause or 'consolidation' of the aforementioned very strong rebound.

The bullish chart has to be tempered somewhat by upside momentum slowing down and the appearance of a possible 'rounding-top' on hourly charts. Meanwhile the Relative Strength Index readings mostly suggest the major indices are more or less at overbought extremes. A Market probably a bit ahead of itself is occurring as bullish sentiment was rising over the course of this past week.

And this rise in bullishness comes AFTER the S&P 500 has risen a whopping 9 percent from its Closing low of mid-October. When it takes that long to recognize that we're IN a bull market I'm ready to exit calls and stand aside.

Use of the Moving Average Envelopes is a way of ascertaining outside extremes from the 'centered' mean, a 21-day moving average in this case. This technical model or 'tool' would suggest selling moves to the 2100 area.

Resistance is highlighted at 2060-2070, then at 2100. Support is seen in the low-2000 area; noted below at 2013, with support extending to 2000. Next support is in the 1960 area. A Close below the 21-day moving average, followed by another such down day, would turn the intermediate trend down.


The OEX remains bullish in its pattern although this past week OEX didn't climb much in point terms relative to the 3 weeks before. A sideways 'consolidation' of prior steep gains is what is most suggested with this recent slowdown. The possibility of what I call a 'mini-top' is present although I currently don't anticipate much of a dip below 900-895. Going sideways also 'throws off' the overbought RSI extreme in that this indicator will trend lower to a more 'neutral' mid-range reading.

A typical range of the big cap S&P 100 in a bull trend in terms of the 21-day moving average 'envelope' is that the Index doesn't go above or below 2 percent the 'centered' 21-day moving average. With the recent sharp expansion of OEX to 5% BELOW the 21-day average, will sometimes result in a subsequent equivalent move to that same value ABOVE the (21-day) average. This rule of thumb 'measures' a potential next target and potential 'resistance' at 930 per my chart below. Near resistance comes in at 915.

Initial or near support is at 900, with the key must-hold support for the bulls AT the 21-day moving average, currently at 885. Generally in the Indexes, trade ABOVE the average is bullish, below it assumes a bearish hue.


The Dow 30 (INDU) has the same bullish chart as the broader S&P indices. The Dow also has the same slowing momentum this past week, as INDU was up a scant 61 points on the week. More important (than a 'pause' here) for the longer-term bullish outlook is that selling is light and after such a strong recent rally hasn't pulled prices down much.

Bullish sentiment has risen over this past week perhaps partly helped by the fact that the Market has held its recent gains so well. This rise in my bullish sentiment indicator, while probably realistic ('CPRATIO' indicator on the SPX chart above) over the long run, in the near-term this suggests to me many 'Johnny-come-lately' bulls. Enough so as to suggest risk of a pullback, exiting calls and waiting for the next trade with a lower risk of a counter-trend move or sideways trend and declining call premiums.

Currently INDU is closer to near resistance at 17650-17700 then it is to 17400 support. Potential for a dip in the Dow has increased some with the 13-day Relative Strength Index registering in its overbought RSI zone. This could mean risk to gains in DJX calls bought on the initial upswing by the Dow moving sideways ahead or dipping to 17400 near support or to more pivotal support around 17200.


The Nasdaq Composite is bullish in its pattern and shows a stronger steadier gain in the past week than the S&P side of the Market. The last bounce took COMP a 100 points higher, trough to intraday peak.

Given the very strong bullish ascent a further gain to the 4840 area could occur and carry COMP to the SAME envelope extreme (5 percent) on the UPSIDE as was the case at the recent mid-October lows. See my chart highlights below. At an 'envelope' extreme above 4800 I'd exit Nasdaq related index calls.

It's been my experience that moves to EQUAL index envelope 'extremes' will tend to then be followed by either slowing trend momentum OR by a dip back to the 'mean', which in the case of the trading the major stock indexes is the (Fibonacci) 21-day moving average.

COMP support is highlighted at 4600, extending to the 21-day moving average at 4553 currently. Technical support then is seen next at 4500. Important for those holding bullish positions, betting on a further rise over the coming 3-4 weeks, to see COMP hold at or above its 21-day moving average.

COMP is in the overbought red zone, so beware shakeouts bullish ones. Moreover bullish 'sentiment' was rising this past week and that's 'too many' bulls for me generally. Still no sign yet of even a 'mini-top'.


The Nasdaq 100 (NDX) Index is strongly bullish and saw further gains this past week; more so than was seen with the more sideways trend in the S&P and Dow.

The recent rebound from 4200 suggests potential to the 4300 area next, perhaps to 4350 which would represent a type of 'overbought' extreme as this (21-day moving average envelope) model often suggests so accurately; i.e., the lower 'envelope' extreme at 5% suggests that a gain of 5% ABOVE the 'centered' 21-day moving average is an opposite 'overbought' extreme. This based on the observation that EQUAL 'extremes' tend to come along in pairs in alternating Market swings.

I'd be scaling out of call positions on a move into the 4300-4350 zone. I'd also be thinking bullish on NDX pullbacks to its 21-day moving average, only exiting on a 4050 Close. Pivotal near-term chart support is at 4100, extending to 4060, with next support at the 4000 milestone level.

This last little upward squeeze higher puts NDX finally 'fully' into its RSI overbought zone, so potential pullbacks become a bit higher on the prediction ladder.


If NDX looks bullish, its ETF, symbol QQQ, looks even a bit more bullish in terms of its run up just less so in terms of volume which is low. However, in QQQ this is the 'norm'. It's the sell offs that 'brings out' sharp spikes in daily trading volume. So, bullish chart, relatively low Volatility (VXN), but overbought in the Relative Strength Index which can mean a possible tendency ahead for a sideways move or pullback. The RSI tends to come back down from 'extremes' over time.

Very strong support is suggests at the top of the gap area at 100.2. Near support comes in a bit higher, at 101, but 100.2-100 is the must hold for the bulls, ahead of a plunge risk to the 96-95 area.

'Resistance' or a next potential upside 'target' is to 105, extending to 106. I'd be shorting the stock in that zone one way or another. Since similar upside AND downside 'extremes' are often seen in Index in BOTH directions, I can anticipate taking profits on long positions and/or betting on the short side based on the envelope 'extreme' and other overbought indications or reversal patterns.

On Balance Volume (OBV) continues to trend strongly higher so this key volume measure is 'concurring' with the strong advance.


The Russell 2000 (RUT) is the first of the major US indexes to show not only slowing upside momentum, but the possible start of a pullback. Stay tuned on that but given how weak RUT has been I'm quicker to see a bearish downturn ahead than not, such as a dip back to the 1160 area. Support then extends to the 21-day moving average, currently intersecting at 1148.

If RUT extends recent gains, probably due to a strong Nasdaq market, it could again tackle near resistance in the 1186 area. Assuming a move to new highs for this move there's the prior highs in the 1200 area to consider as potential major resistance. I've noted resistance on my chart at 1210 and implied by the 5% upper (moving average) envelope line relative to the 'centered' 21-day moving average.


New Option Plays

Footwear & Software

by James Brown

Click here to email James Brown


Deckers Outdoor Corp. - DECK - close: 91.79 change: +1.11

Stop Loss: 88.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 763 thousand
Entry on November -- at $---.--
Listed on November 15, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
DECK is part of the consumer goods sector. The company owns a number of brands but for many Deckers means UGG. The iconic footwear line was started in 1978 in Southern California. Strength in the UGG line helped power the company's latest quarterly results.

According to the company website, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The Company's portfolio of brands includes UGG, I HEART UGG, Teva, Sanuk, TSUBO, Ahnu, MOZO, and HOKA ONE ONE. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 130 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

The most recent earnings report was October 23rd. Analysts were expecting a profit of $1.03 per share on revenues of $457.2 million. DECK beat estimates with a profit of $1.17 a share. That's a +23.2% increase from the same period a year ago. Revenues soared +24.2% to a record $480.3 million. U.S. sales rose +21.1% and international sales surged +29.2%. E-commerce sales soared +45%.

It was DECK's Q2 and their gross profit rose +34% while gross margins increased 340 basis points to 46.6%. This was above estimates of 45% and above their gross margin a year ago of 43.2%. Management said all brands delivered a strong performance.

The company lowered their Q3 guidance (current quarter) to below Wall Street estimates. They also raised their Q4 and 2015 guidance on both the top and bottom line. DECK expects 2015 to see revenues up +15%, earnings up +15.8%, and gross margins around 49%. Last quarter the S&P 500 saw earnings growth of about +6.9%. DECK is clearly outgrowing the market with +23% growth. The S&P 500 is expected to see +10-11% growth in 2015.

Technically shares are poised for a breakout on both the daily chart and the point & figure chart. Looking at the point & figure chart (not shown), a breakout past $92.00 would generate a new triple-top breakout buy signal. A breakout could also spark some short covering. The most recent data listed short interest at 17% of the small 33.6 million share float.

Tonight we are suggesting a trigger to buy calls at $92.25. Such a move probably signals a run toward resistance near $100.00.

Trigger @ $92.25

- Suggested Positions -

Buy the 2015 Jan $95 call (DECK150117c95) current ask $3.50

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

Daily Chart:

Open Text Corp. - OTEX - close: 59.09 change: +0.79

Stop Loss: 57.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 300 thousand
Entry on November -- at $---.--
Listed on November 15, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
OTEX is in the technology sector, specifically the application software industry. They are a Canadian company that was founded in 1991. The company considers itself a leader in the Enterprise Information Management (EIM) market. OTEX has beaten Wall Street's earnings estimates the last four quarters in a row.

The most recent report was OTEX Q1 report, announced on October 22nd. Analysts were expecting a profit of $0.86 on revenues of $461.2 million. OTEX beat the bottom line estimates with a profit of $0.97 a share. Revenues were a miss at $453.8 but that is still a +40% improvement from a year ago.

The quarter was fueled by a +260% surge in cloud services revenue. Their operating margin improved from 30.6% a year ago to 34.3%. OTEX CEO Mark J. Barrenechea said, "We delivered the strongest first quarter results in the history of OpenText, with total revenues of $453.8 million, up 40% year-over-year and non-GAAP-based operating income of $155.7 million, up 57% year-over-year, despite a toughening economy."

The stock experienced a knee-jerk reaction sell-off on this report (big drop on October 23rd) but shares have been up every week since then. Now OTEX is trading at all-time highs. Shares have spent the last few days consolidating sideways in the $58-60 zone and look poised to push higher. The point & figure chart is bullish and suggesting at $76 target.

Tonight we are suggesting a trigger to open bullish positions at $60.25.

Trigger @ $60.25

- Suggested Positions -

Buy the Dec $60 call (OTEX141220c60) current ask $1.20

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Market Momentum Slows, But Still Rising

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market continued to drift higher last week. The NASDAQ continues to show leadership. Transports and the small caps saw their rally stall. The biotechs are seeing a pullback.

We closed our AYI trade on Friday morning.

We want to close our IBM trade on Monday morning.

Current Portfolio:

CALL Play Updates

Apple Inc. - AAPL - close: 114.18 change: +1.36

Stop Loss: 106.45
Target(s): To Be Determined
Current Option Gain/Loss: + 64.1%
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

11/15/14: AAPL was getting a lot of attention on Friday as the stock continues to rally. Shares are up four days in a row. The breakout past resistance near $110 has sparked a new round of buying.

CNBC noted that from the market's mid October low shares of AAPL are up +20% and have gained about $130 billion in market cap.

The stock is potentially short-term overbought here. I would not be surprised to see a dip but $110 should be decent support.

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: 102.10 change: +0.18

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

11/15/14: ASML bounced at short-term technical support on its rising 10-dma. Shares look poised to breakout to new record highs. Our suggested entry point is $102.75.

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 $2.65

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


CR Bard Inc. - BCR - close: 164.04 change: -1.55

Stop Loss: 161.60
Target(s): To Be Determined
Current Option Gain/Loss: -31.5%
Average Daily Volume = 538 thousand
Entry on November 13 at $165.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/15/14: BCR ended the week on a down note. Lack of follow through on Thursday's rise is a troubling sign.

The stock underperformed the major indices with a -0.9% pullback. Friday's intraday high was $165.91. Traders might want to consider waiting for a rally past $166.00 before initiating new bullish positions.

Earlier Comments: November 12, 2014:
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

- Suggested Positions -

Long 2015 Jan $170 call (BCR150117c170) entry $2.63

11/13/14 triggered @ 165.65, suggested entry was $165.60
Option Format: symbol-year-month-day-call-strike


Cerner Corp. - CERN - close: 64.31 change: -0.22

Stop Loss: 62.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.7 million
Entry on November -- at $---.--
Listed on November 13, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

11/15/14: CERN bounced right where it should have on Friday with traders buying the dip near prior resistance in the $64 area. More aggressive traders may want to jump in now and buy calls on Friday's intraday bounce. The newsletter is suggesting a trigger to open positions at $65.10.

Earlier Comments: November 13, 2014:
CERN is part of the technology sector. The company sells healthcare information technology solutions. According to a company press release, "Cerner's health information technologies connect people, information and systems at more than 14,000 facilities worldwide. Recognized for innovation, Cerner solutions assist clinicians in making care decisions and enable organizations to manage the health of populations. The company also offers an integrated clinical and financial system to help health care organizations manage revenue, as well as a wide range of services to support clients' clinical, financial and operational needs. Cerner's mission is to contribute to the improvement of health care delivery and the health of communities."

CERN's most recent earnings report was October 23rd. The results bottom line results were in-line with estimates and the revenue number was a miss. Yet these headlines don't tell the whole story. Analysts were expecting CERN to deliver a profit of $0.42 a share on revenues of $857 million.

The company met the EPS number of 42 cents but that's a +20% improvement from a year ago quarter. Revenues were only $840 million, which missed Wall Street's estimate but revenues still grew +15.4%. The company's last quarter saw a record $1.1 billion in bookings, the most ever for a third quarter.

CERN is very profitable. Their gross margins are above 80%. CERN's backlog soared +21% to $10.16 billion. It was a pretty good quarter considering they also announced on August 5th they were buying Siemens Health Services for $1.3 billion. This deal has already been approved by the U.S. FTC and should close in February 2015.

CERN's Q4 guidance expects revenues to grow +13% from a year ago to $880-915 million. Adjusted diluted earnings per share should come in the $0.46-0.47 range. New bookings are expected to hit the $1.15-1.25 billion zone. All of these show additional growth but they're largely in-line with analysts' estimates.

The stock has seen a significant bounce from its October low and the late October rally produced a breakout past its 2014 high. Now CERN has spent about two weeks digesting its gains and it's starting to breakout again. Today saw shares outperform the broader market and close above short-term resistance at $64.00.

More aggressive traders may want to buy calls now. We are suggesting a trigger to buy calls at $65.10.

Trigger @ $65.10

- Suggested Positions -

Buy the 2015 Jan $65 call (CERN150117c65) current ask $1.80

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


Costco Wholesale - COST - close: 138.48 change: -0.23

Stop Loss: 134.75
Target(s): To Be Determined
Current Option Gain/Loss: +208.4%
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

11/15/14: COST briefly tagged a new high on Friday. Shares spent most of the day consolidating sideways. Traders were buying the dips in the $138.00-138.10 area.

I am not suggesting new positions at this time. It's conceivable that the $140.00 level could be round-number resistance. More conservative investors may want to raise their stop loss closer to $136.00 or take some money off the table here.

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: 94.61 change: -0.38

Stop Loss: 92.25
Target(s): To Be Determined
Current Option Gain/Loss: +20.8%
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

11/15/14: Profit taking in DIN has the stock down two days in a row. Yet shares ended the week with another gain. DIN is now up five weeks in a row. I'm watching the simple 10-dma for potential short-term support (currently near $93.15).

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

11/13/14 new stop @ 92.25
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: 171.56 change: -0.01

Stop Loss: 168.40
Target(s): To Be Determined
Current Option Gain/Loss: +145.2%
Average Daily Volume = 1.5 million
Entry on October 17 at $155.50
Listed on October 15, 2014
Time Frame: Probably exit prior to earnings on Dec. 17th
New Positions: see below

11/15/14: FDX has spent the last few days consolidating sideways in the $170-173 area. This is either a rest before the up trend begins anew or this pause is signaling that momentum has stalled. We won't know until FDX breaks out from its current trading range.

Tonight I am raising our stop loss to $168.40. More conservative traders may want to move their stop closer to $170 or just take some money off the table now.

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

11/15/14 new stop @ 168.40
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: 154.27 change: +0.36

Stop Loss: (removed)
Target(s): To Be Determined
Current Option Gain/Loss: +40.1%
Current Option/Gain loss if you sold the NOV $160 call: +639.3%
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

11/15/14: GMCR spiked higher on Friday morning and briefly traded at a new record before paring its gains. The rally was thanks to Goldman Sachs who raised their price target on GMCR from $166 to $185.

GMCR has earnings coming up this week on November 19th. I am not suggesting new positions.

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: 162.55 change: -0.14

Stop Loss: 156.85
Target(s): To Be Determined
Current Option Gain/Loss: +435.2%
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

11/15/14: Weakness in oil remains bullish for the transport stocks but the rally stalled a bit the last few days. The IYT remains a strong performer and the ETF is up five weeks in a row (from the mid October low).

I have been warning readers that the IYT is overbought and due for a pullback.

I am not suggesting new positions at this time. Investors may want to take profits early. We have five trading days left on our November options.

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: 67.51 change: +0.54

Stop Loss: 65.90
Target(s): To Be Determined
Current Option Gain/Loss: -33.3%
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

11/15/14: NOW displayed some relative strength on Friday with a +0.8% gain. We remain cautious here. I'm not suggesting new positions. We will raise the stop loss to $65.90.

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

11/15/14 new stop @ 65.90
11/13/14 Caution! NOW looks vulnerable here. Readers may want to exit early now!
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: 94.75 change: -0.49

Stop Loss: 89.45
Target(s): To Be Determined
Current Option Gain/Loss: +13.3%
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

11/15/14: Last week saw PSMT breakout past key resistance in the $92.50 area. Shares have set a string of new intraday relative highs. Yet the stock has experienced a little bit of profit taking the last couple of sessions.

If PSMT retreats we can look for support in the $92.50 region.

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: 103.22 change: +0.32

Stop Loss: 99.95
Target(s): To Be Determined
Current Option Gain/Loss: +29.5%
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

11/15/14: The QQQ was leading the market higher last week. With a little help from AAPL the QQQ posted a string of new record highs. Broken resistance near $102 should offer some short-term support.

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: 239.65 change: +0.02

Stop Loss: 234.45
Target(s): To Be Determined
Current Option Gain/Loss: +78.0%
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

11/15/14: Friday was a quiet session for SHW with the stock closing virtually unchanged. Yet last week was bullish with a rally to new highs. SHW is up five weeks in a row. The stock is currently testing potential resistance at $240.00. It looks like SHW could break through $240 soon.

Tonight we are raising the stop loss to $234.45.

I am not suggesting new positions at this time.

FYI: Investors might want to note that both Home Depot (HD) and Lowes (LOW) report earnings this week (the 18th and 19th). Their results might influence trading in SHW.

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

11/15/14 new stop @ 234.45
11/13/14 SHW is hitting potential resistance at $240. Traders may want to take profits now.
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: 52.30 change: +0.45

Stop Loss: 50.85
Target(s): To Be Determined
Current Option Gain/Loss: +168.1%
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

11/15/14: Good news! After two weeks of consolidating sideways in the $52.00 area it looks like the SMH is poised to break out higher. This ETF displayed relative strength on Friday with a +0.8% gain. We could see the SMH challenge its multi-year highs set in September in the $52.55-52.70 range soon.

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: 115.17 change: +1.62

Stop Loss: 111.75
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

11/15/14: The action in URI on Friday was very encouraging. Shares have been struggling with resistance at the $115.00 level for days. The stock rebounded from its simple 10-dma and appears to be breaking out past the $115.00 mark.

If URI confirms this bullish breakout past $115 the next obstacle is resistance in the $120.00 area.

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: 56.62 change: +0.23

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

11/15/14: FMC continues to underperform the broader U.S. market. Shares eked out a small gain on Friday but the stock is down three weeks in a row.

A new breakdown under $56.00 could be used as a bearish entry point to buy puts.

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: 164.16 change: +1.37

Stop Loss: 165.75
Target(s): To Be Determined
Current Option Gain/Loss: -30.0%
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

11/15/14: We are throwing in the towel on our IBM trade. The stock is just not cooperating. After a very disappointing earnings report and a plunge to new multi-year lows the stock has just meandered sideways in the $160-165 area.

We are concerned that IBM may not see further weakness as money managers try the old "Dogs of the Dow" strategy. Essentially, the concept is the worst performers among the 30 Dow Jones Industrial Average components this year will be the best performers next year.

January is still several weeks away but for many fund managers their fiscal year ended on October 31st so they are already working on next year.

Tonight we are suggesting an immediate exit on Monday morning.

- Suggested Positions -

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

11/15/14 prepare to exit on Monday morning.
11/06/14 triggered $ 160.90
Option Format: symbol-year-month-day-call-strike



Acuity Brands, Inc. - AYI - close: 138.29 change: +0.26

Stop Loss: 136.65
Target(s): To Be Determined
Current Option Gain/Loss: -21.0%
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

11/15/14: AYI was not performing. Shares have broken down under their 10-dma and now we're seeing the stock's bounces fail at this moving average.

Our plan was to exit positions on Friday morning.

- Suggested Positions -

DEC $140 call (AYI141220c140) entry $3.80 exit $3.00 (-21.0%)

11/14/14 planned exit
11/13/14 prepare to exit tomorrow morning
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