Option Investor

Daily Newsletter, Saturday, 11/22/2014

Table of Contents

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

Market Wrap

Central Bank Boost

by Jim Brown

Click here to email Jim Brown

China cut rates and Draghi again promised to do whatever it takes. This boosted world markets on Friday.

Market Statistics

Friday started off with a bang after China unexpectedly cut two rates and Mario Draghi repeated his "do whatever it takes" vow and suggested the ECB was close to buying sovereign bonds in an extension of its stimulus program. The twin central bank actions powered the European markets to gains of 2-3% on average.

China cut rates for the first time since July 2012 as economic conditions continue to weaken with the slowest growth since 1990. The one-year lending rate was lowered -0.4% to 5.6% and the one-year deposit rate were lowered by 0.25% to 2.75%. The deposit rate cap was raised from 110% to 120% of the benchmark rate. That allowed consumers to continue earning the same interest despite the drop in the deposit rate. This is really a managed economy where the government even controls how much interest banks can pay to individuals on deposits. The move by the PBOC to cut rates came as a big surprise to investors. The bank had been trying to micro manage the economy using non-standard methods but it was not working. The China EFT (FXI) spiked +3.68% on the news.

Draghi said Europe was teetering on the edge of a recession and "We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires. Some inflation expectations have been declining to levels that I would deem excessively low." The next policy meeting in less than two weeks away and analysts are speculating the ECB is moving closer to a full-fledged QE program of buying sovereign debt. With GDP at +0.2% and inflation at +0.4% the ECB is flirting with a major slowdown. The ECB has already indicated they will lower economic forecasts again at the Dec 4th meeting. The ECB began buying asset backed securities (ABS) on Friday.

The Dow spiked +176 points at the open and immediately began to fade to gain only +45 at midday. Buyers appeared late in the day to push it back over 17,806 with a +91 point gain. The S&P gained +11 points to close at 2,062. The S&P Energy sector gained +7.8%, Industrials +4.8%, materials +4% and financials +1.7%. The Nasdaq spiked more than +50 points at the open but gave back 40 to gain only 11 points for the day.

The economic calendar for the U.S. on Friday was lackluster. Leading the list was the Kansas City Fed Manufacturing Survey for November, which rose to 7.0 from 4.0 in October. This was the 11th consecutive month of gains for the index. However, new orders declined for the 4th month to only 1.0 after hitting 12.0 in July. Backorders rose from -8 to +4 and the first month in positive territory since June. Employment posted a six month high at 9, up from 6 in October. Over all it was a good report but that sharp drop in new orders is very troubling. That suggests it could be in negative territory next month.

We have a busy calendar for a holiday week as the majority of reports are squeezed into the first three days. The GDP revision will garner a lot of attention on Tuesday with the whisper number in the 2.9-3.1% range, down from +3.55% in the last reading. The Richmond Fed surveys also on Tuesday are of interest but rarely move the market. Wednesday has the two home sales numbers and that will be the highlight for the day.

Two of the biggest events of the week are not economic and not in the USA. The deadline on the Iranian nuclear negotiations is Monday. Early Friday Secretary John Kerry and Iran's counterpart Mohammad Javad Zariff both planned to leave the negotiations early because the talks were making no progress. Late Friday it was announced that both had cancelled plans to exit the negotiations and said they would meet again to try and salvage a last minute agreement.

The P5+1 nations have repeatedly said there would be no further extensions in the deadline. Iran is the master of the rope-a-dope with delaying tactics an art. These negotiations have been ongoing for the last ten years. Nothing constructive ever happens until the deadline arrives. If an agreement is reached we could see another 1.25 mbpd of oil come to market and that would further depress prices. If no agreement is reached we could see 1.0 mbpd cut off from the market by the resumptions of full sanctions.

A 45 page draft agreement has been prepared with a 5 page introduction and 30-40 pages of details according to an Iranian diplomat. Of course we don't know it that is a joint agreement or one that Iran drew up that is heavily weighted to their positions. The White House spokesman Eric Schultz said the U.S. will only approve a deal that "effectively cuts off all pathways to a nuclear weapon." Since there is a vocal majority in Iran that object to even participating in the talks and refuse to give up anything on the nuclear issue the odds of a comprehensive deal are slim.

On Thursday OPEC meets in Vienna to discuss production quotas. The outcome is far from certain. In a survey of 20 energy analysts by Bloomberg exactly half expected a production cut and half expected no cut. In the seven years since the surveys began this was the only one that was evenly divided. OPEC has to decide whether to cut production and lift prices from a four-year low and continue to empower the energy boom in the U.S. or leave production alone and possibly see prices decline into the $60s and cost them billions in revenue. Leaving production at the current levels will eventually pressure U.S. drillers to mothball some rigs and slow production growth but it won't stop U.S. production growth unless the price remains low for an extended period of time.

Not cutting production will hurt the finances of OPEC countries that depend on high oil prices to fund their budgets. With Brent crude prices down -31% since June that means a -30% cut to export revenue and that is a huge blow to countries like Algeria, Nigeria and Venezuela. If OPEC does not cut production and claim they are ok with the lower rates the market will test them almost immediately. Sellers will appear in volume until a bottom appears. OPEC knows this and they have to take this into account when they meet. They may be ok with Brent at $80 but are they ok with it at $65? It may be better to take the smaller dose of pain now and cut production rather than play games with the market and see oil trade significantly lower and still have to cut production later. This is one of the most important OPEC meetings in the last ten years.

Retailers continue to disappoint and the recent trend is to guide lower for Q4. Apparently they are not expecting big holiday sales despite the falling gasoline prices. Let the discounting begin! Weak expectations for holiday sales is the signal for retailers to start slashing prices before the shopping hysteria even begins.

Ann Inc (ANN) reported earnings of 72 cents, which beat estimates of 68 cents. Revenue of $646.8 million did not meet estimates of $653.1 million. For the current quarter ANN guided lower for sales of $630 million and analysts were expecting $633 million. I thought it was strange that they are guiding for lower sales in Q4 than Q3. That is a clear signal they are planning to cut prices to the bone. Shares fell fractionally on the news.

Gap stores (GPS) warned that Q4 earnings would now be $2.73 to $2.78 compared to earlier estimates of $3.95-$3.00 and analyst consensus of $2.91. The CEO said sales were sluggish and they were forced to slash prices to clear out slow moving merchandise. Same store sales at Gap stores fell -5% in the last reporting period. Not a good sign for the holiday shopping season. Shares fell -4% on the news.

Williams-Sonoma (WSM) parent of the Pottery Barn beat Q3 earnings but then guided lower for Q4. The CEO said "There's no question the holiday season will be even more competitive than last year." Shares gapped higher on the earnings beat but faded on the guidance warning.

GameStop (GME) shares fell -13% after reporting earnings of 57 cents that missed estimates of 62 cents and were a penny lower than the year ago quarter. Revenue of $2.092 billion also missed estimates of $2.214 billion. Same store sales fell -2.3%. New video game sales fell -34.4% but mostly due to a strong release of games in the year ago quarter. GameStop operates 6,664 stores. The company said same store sales for Q4 would be in the range of -5% to +2% and much lower than the 6-12% increase in prior forecasts. Full year earnings are now expected to be $3.40-$3.55 down from $3.40-$3.70. Analysts were looking for $3.73.

Ross stores (ROST) reported earnings of 93 cents that beat estimates of 87 cents. Revenue of $2.6 billion also beat. Same store sales rose +4% and twice company guidance. They expect same store sales of 1-2% in Q4 and earnings of $1.05-$1.09, up from $1.02 in the year ago quarter. Total revenue growth was projected in the 5-6% range. Full year earnings guidance was raised from $4.18-$4.26 to $4.28-$4.32. Shares spiked +7% on the news.

The Maxim Group upgraded Ross from sell to hold. Deutsche Bank reiterated a buy rating and Wedbush reiterated an outperform rating.

There were a lot of analyst upgrade/downgrades on Friday and some were on major stocks. Lockheed Martin (LMT) was upgraded from sell to neutral at UBS. Jefferies initiated coverage on Microsoft (MSFT) with an underperform (sell) rating and $40 price target. Aruba Networks (ARUN) was downgraded to underperform at Bank of America. The bank also downgraded Dillards (DDS) from buy to neutral. Evercore downgraded Ebay from hold to sell. Jefferies initiated coverage of Adobe (ADBE) with a buy rating and Checkpoint (CHKP) with a buy rating. Nomura initiated coverage of Amazon with a buy rating and $410 price target. Stifel Nicolaus initiated coverage of Caterpillar (CAT) with a buy rating.

CAT soared +4% on the rate cut news from China. This is positive for future sales in the country and the stock was responsible for about 35 Dow points on Friday.

Intel shares faded after a strong rally of +5% on Thursday on raised guidance. Revenue in 2015 is now expected to grow in mid single digits compared to prior expectations of 1-2%. The company also raised guidance on gross margin and raised the dividend 6.7%. Stifel Nicolaus reiterated a buy rating and Imperial Capital reiterated an outperform rating.

CLSA cut Intel to sell on a difference in Intel's PC chip forecast compared to expectations for PC sales. CLSA said Intel is expecting volume in the PC segment to grow +9% but CLSA expects overall PC sales to decline -2%. The company said they expect Intel's PC chip revenue to decline -6% in 2015.

It was a sunny day for SolarCity. The company announced it has entered into a contract with Walmart (WMT) to install new solar systems at facilities in 36 states over the next four years. The company has already completed more than 200 systems for Walmart since 2010. Walmart is testing different battery storage configurations to use stored electrical power to run the stores after the sun goes down. Walmart will test ten new configurations in 2015 using a 400 kilowatt hour battery. Walmart has asked for a quote for 400 more stores and fully expects to upgrade all its stores to solar over the next decade.

Alibaba's (BABA) Jack Ma caused investors some worries last week when he said Alibaba is facing its most dangerous moment. Coming only two months after the IPO that could be a little unnerving. He said people may be expecting too much from Alibaba. "Two months before the IPO people did not think we could make money. Now the problem is people think we are too good - we can do anything. This is the most dangerous moment."

A Chinese analyst said this is Jack Ma's speech style. He tries to be provocative instead of routine. The company announced last week it was going to sell $8 billion in debt to refinance its existing credit lines and loans. The offering was extremely oversubscribed with more than $57 billion in bids. The company said it may raise the offering to $10 billion thanks to the record demand. This would be the biggest dollar denominated bond sale ever in Asia. The bonds have been rated A+ by S&P. Alibaba has $11 billion in existing debt.

Alibaba is already the top online shopping site in Russia and Brazil and is working on cornering other markets as well.


One commentator said this was a Taylor Swift "Shake it Off" market. Regardless of the economic or geopolitical events the market just keeps shaking it off and moving higher. While that may be true it is not doing it in a very convincing fashion. The Dow spike to +176 at the open was pure short covering and then the decline to only +46 intraday was investors taking profits at the highs and shorts setting up new positions.

On the positive side we did close higher ahead of the Thanksgiving week and the indexes posted decent gains for the week with the exception of the Russell 2000. However, it was a fight. Every point gained was in the three steps forward, two steps back method. Last week is normally choppy and we definitely had a choppy market. Next week is typically bullish but the average gain is less than 1%.

The market has plenty to be happy about with the S&P 500 components posting more than $30 in earnings in Q3 and that is a record. Q4 is expected to be even higher. Unfortunately 59% of companies missed on revenue and nearly every company that reported this week or issued guidance, warned on Q4 revenue.

The biggest complaints are the higher dollar and its impact on overseas sales and the weakness in Europe. There is a real fear that the weakness will migrate to the U.S. and throw us back into recession. At the same time the economics while mixed have been improving. The Philly Fed Manufacturing Survey on Thursday soared from 20.7 to 40.8 and only 3 points below a 30 year high at 43.4 from March 2011. This reading came after two months of declines and was totally unexpected. New orders doubled from 17.3 to 35.7 and employment nearly doubled from 12.1 to 22.4. This was a very strong report but it is just one section of the country.

Despite the Philly Fed report we are still lagging behind optimal growth with GDP in the +3% range. The worries over Europe have put the Fed rate hikes on hold for the foreseeable future. Citigroup changed their expectations for the first rate hike from September to December 2015. As long as China, Japan and Europe are pouring stimulus on the fire because of slowing economies the Fed is not going to raise rates or halt the process of reinvesting matured QE securities. That process of reinvesting matured securities is a stealth QE program that is still supporting our markets. With $3.5 trillion in securities about $5 billion a week mature and new securities are purchased. That is a significant amount of continuing stimulus.

The S&P has now closed over its 5-day average for a record 26 days. The S&P has now posted its best five week gain since April 2009. Obviously this is evidence the bulls are in control but it also suggests we are stretching our luck. All streaks eventually come to an end and this one may end not with a whimper but with a bang. I am not saying the market is going to roll over next week but every day this streak continues brings us a day closer to some serious profit taking.

The S&P breakout last week freed it from more than a week of consolidation and in theory that consolidation phase should provide decent support on any market weakness. For three days the 2,050 level provided resistance and after Friday's spike to close over 2,060 that prior resistance should now be support. Overhead resistance is slim until just below 2,100. However, the Friday high at 2,071 could be a speed bump on any further rally. Support should be 2,050 and 2,040.

The Dow surged through resistance at 17,725 to 17,894 at the highs. The decline to close at 17,806 sets it up for a relatively easy test of the 18,000 level but it still faces uptrend resistance from 2011 at 17,860. That level was tested on Friday and was immediately sold. Caterpillar and Visa were the main drivers of the Friday gains.

The Nasdaq 100 sprinted well above resistance to a new 14 year high but gave back -35 of those points to close at 4,250 and a +9 point gain. That level was resistance earlier in the week and should be support as we start off on Monday. However, it may be weak support with the real support level well back at 4,200 which has held all tests since Nov 13th. I still believe the Nasdaq big caps are the stocks to watch for market direction over the next few weeks.

The Nasdaq Composite blew through resistance at 4,725 at the open to touch 4,751 but the hang time was measured in minutes rather than hours. The index was immediately sold and retreated back below that resistance to close at 4,711. It was clearly a short squeeze and the speed at which everyone already long took profits and those shorts that were squeezed reinstituted short positions was amazing. Friday was one of those days where an active trader could have made money in both directions very easily.

For next week that 4,725 resistance is still intact and the speed of the decline on Friday suggests it may be a battle to get over that area in a normal market. Support is well below at 4,657.

For the Russell 2000 the major resistance at 1,180 is still intact after a spike through to 1,182 at the open. Like the other indexes the Russell stocks were immediately sold and the index barely managed to end the day with a +1.66 gain. As I have reported before there is something in the trading pattern of fund managers that favors big caps in late November and small caps tend to fade. Everything is proceeding according to that historical trend.

The smallest of the small, the Russell Microcaps ($RUMIC) have an even bigger challenge. They peaked for the year in March and are now in a clearly defined bearish channel. They failed at the upper resistance last week and could be poised to retest downtrend support. ANY move over 464 would be a breakout of this pattern and could trigger significant short covering.

Friday's volume was just slightly over 7.0 billion shares and for an expiration Friday that was very tame. The average for the prior four days was low at about 5.9 billion shares. There is still no conviction in the market and everyone seems content to just hold the cards they have and wait for the next catalyst to appear. However, any deviation from neutral in either direction is immediately bought or sold depending on the direction. There are plenty of investors taking profits on every spike and just as many buying the dips whenever they appear. The markets appear to be evenly balanced ahead of a historically bullish period.

Like last week I would not complain about a 2-3 day decline but I also intend to profit from any continued rally. We are in buy the dip mode until proven wrong.

Random Thoughts

You may have heard that President Obama and Chinese President Xi Jinping agreed to a radical environmental program. China has the world's worst pollution. For the seven days prior to the APEC summit China closed factories and limited traffic in Beijing so that the air would not be poisonous to the dignitaries attending the conference. More than 140 factories in Beijing were ordered to close and operational limits were placed on 3,900 plants in Hebei province and 1,953 firms in Tianjin city.

China has reached the point where pollution is so bad it is causing social discontent and you don't want to make 1.2 billion people angry about your disregard about their health. As part of the environmental agreement the U.S. has to cut emissions to 27% below 2005 levels by 2025 with a target of a 17% reduction by 2020.

China has agreed to "cap" its carbon emissions by 2030 and get 20% of its energy from renewable sources. Note that the U.S. has to "cut" emissions to 27% of 2005 levels while China only has to cap emissions or halt their climb by 2030. Who got the better deal there?

To put China's task into perspective they will need to add about 1,000 nuclear reactors, 500,000 wind turbines and 50,000 solar farms to meet those goals. They will need to produce about 67 times more nuclear energy than they have today, 30 times more solar and 9 times more wind power. Those additions amount to the current generating capacity of the entire USA today.

Part of China's problem comes from their developing economy. Electricity demand will rise 46% by 2020 and double by 2030. They currently depend on coal for two-thirds of their electricity. That is the most of any G20 country other than South Africa.

China will have to spend more than $4.5 trillion upgrading its power industry by 2040. Nuclear, wind and solar alone will cost nearly $1.8 trillion. China currently has 22 nuclear reactors, 26 under construction and 159 currently proposed. Globally there are slightly over 415 reactors in operation and 91 under construction. Japan has 19 that have been shut down for the last two years and are in the long restart approval process to boost the global operating number to 434. For China to expand its fleet to 1,000 by 2030 or even 2040 would seem to be an insurmountable task even for a country with 1.2 billion people. The amount of money and manpower required is astronomical. This is going to be a windfall for companies like Cameco (CCJ) and General Electric (GE) but the time horizon is very long. China would have to accelerate the process and build at least 45 per year to reach their goal. A typical nuclear plant takes ten years to permit and build in the U.S. but I am sure that time can be shortened considerably in China to possibly 5 years.

The real question for me is the environmental agreement. In the U.S. cutting emissions by 27% from 2005 levels is going to mean significant pain for the consumer and for manufacturers. Your utility bill is going to triple or quadruple as companies are forced to install wind, solar or natural gas to replace coal fired plants. I am in favor of reducing emissions but not at any expense. Building new plants to be energy efficient and environmentally friendly is one thing but forcing the shut down or remodeling of every existing plant at enormous cost to the consumer is not a viable alternative. Secondly, why should the U.S. cut emissions 27% in just over ten years and China has 15 years just to stop increasing emissions? There are 620 coal fired plants in China and they build ten new coal fired plants every month with more than 570 currently in planning or construction stages. There are just over 2,300 coal fired power plants worldwide and China has 25% and they consume 50% of global coal production. I think the deal stinks and American consumers are going to be paying the bill for a very long time.

In 2010 VP Joe Biden proclaimed the U.S. military would be out of Afghanistan by the end of 2014 come "hell or high water." Apparently the administration has decided it does not want another Iraq because the president signed an order last week extending the mission there at least through 2015. Also, it authorizes a more expansive mission with troops authorized to attack the Taliban as well as Al Qaeda and their offshoots. This also authorizes American fighter jets, bombers and drones to support Afghan troops on combat missions.

In May President Obama proclaimed in a Rose Garden speech that American would not have a combat presence in Afghanistan after 2014. The 9,800 troops remaining in country would be limited to training Afghan forces. Apparently that proclamation has evolved in order to avoid a repeat of Iraq. It was interesting that the president announced this just two weeks after the election despite the decision being made in "recent weeks" as the announcement stated. Clearly political forces were in play. Announcing before the election may have cost the democrats even more seats just as announcing the executive order on immigration would have prompted an even bigger election landslide against democrats since exit polls showed 74% of voters were against amnesty. More than 20 times in recent years the president has said in his speeches he did not have the authority to make the immigration changes by executive order. Immediately after the election he suddenly decided he had the authority. Coincidence, right?

In the Ukraine the Russian army has gone on the offensive launching 78 artillery attacks on Ukrainian positions and multiple mortar attacks on Ukrainian villages this weekend. VP Biden was visiting Ukraine this weekend and condemned the Russian attacks. Russian foreign minister Sergei Lavrov again denied they were in the Ukraine or were helping the rebels. Apparently as long as you deny something it is not true.

Google (GOOGL) has been targeted by the EU for what they consider anti-competitive behavior. They are considering an action to split up companies that focus on web search. The EU is considering forcing an "unbundling" of search engines from other "commercial services" in order to aid Europe's digital industry. Google has a 90% market share in many European countries. The EU is considering a "copyright levy" against companies with excessive market share. Lawmakers are demanding the EU antitrust regulators act "immediately and unequivocally" to prevent Google from discriminating against its rivals. They want the search engines to display searches that are best for the user not best for Google. In other words paid search results would no longer be allowed.

It was not a good week for the Affordable Care Act otherwise known as Obamacare. Back in May regulators said there were 8.1 million people enrolled in the program. In September the revised number was 7.3 million. Last week the number dropped again to 6.7 million. Part of the initial decline was 1.1 million people enrolled into dental plans that were counted by mistake as Obamacare enrollees. Basically they were double counted. Last week another 400,000 people in dental plans were discovered and removed from the rolls leaving 6.7 million supposedly enrolled in the program. This is in comparison to the administrations claims that 50.7 million people would have access to high quality medical care when the program was inaugurated.

HHS secretary Sylvia Burwell also disclosed that more than a million enrollees dropped out during the year and either quit paying or defaulted on payments.

OK, so Obamacare actually had 6.7 million enrollees at the end of October according to HHS. However, another study found that 71% of the people enrolled in Obamacare were actually pushed into Medicaid instead of a paid healthcare program. Actually the number was 6.07 million and that 71% number was using the September claimed total enrollment of 8.5 million. So, if 6.07 million are in Medicaid and the new total enrolled is 6.7 million does that mean only 630,000 people are actually enrolled in Obamacare?

Those numbers are so bizarre that I seriously doubt their accuracy. It would be easier if HHS would just disclose the numbers on their website but if the above math is accurate it is obvious why they don't disclose them. The political outrage would be off the scale. Lastly approximately 81% of the enrollees are receiving subsidies according to the latest study. That makes the numbers even more disastrous. With only 19% of enrollees paying the full cost and supporting the other 81% the numbers will not work long term. Once the employer mandate kicks in next year the numbers should improve because people with jobs are going to be paying premiums rather than receiving subsidies.

Remember, the Supreme Court agreed to rule on the validity of subsidies for the 34 states that did not create their own exchanges. The law specifically spells out that those states are not allowed to offer subsidies and plan architect Jonathan Gruber has been shown on videos explaining why they designed the law that way. It would be very difficult for the Supreme Court to rule in any way except against the subsidies. That decision could end Obamacare as we know it and the decision should be out late next summer.

Oops! Federal investigators announced this weekend that as many as 30,000 missing Lois Lerner emails have been found. Lerner headed the committee that targeted conservative groups applying for tax classifications from the IRS. When the earlier investigation heated up the IRS waited over a year to disclose that Lerner's hard drive as well as the drives of 8 of her subordinates, also under investigation, had crashed and been destroyed. No emails were available and Lerner refused to testify under oath. If the Feds really found 30,000 Lerner emails I bet she is really nervous this weekend.

In April an unarmed Russian SU-24 tactical bomber flew over the USS Donald Cook in the Black Sea and using an electronic warfare weapon disabled the entire ship. This is important because the Donald Cook is an Aegis equipped guided missile destroyer. The Aegis weapons system is the most integrated and advanced combat weapons system the U.S. has available.

The ship carries 56 Tomahawk missiles in standard mode and 96 in attack mode and can launch nuclear missiles. It also has more than 50 antiaircraft missiles. The Aegis weapons system can link to all the other ships in the area to enable tracking of hundreds of targets in real time. It is also installed on NATO's most modern ships.

The SU-24 had only an electronic warfare pod and no bombs or missiles. The electronic warfare device is called a Khibiny. The device disabled all radars, control circuits, computer systems, information transmission systems, etc. After the first pass that disabled all fire control the plane circled around and made a simulated missile attack on the destroyer, not once but 12 times before flying away. The Donald Cook immediately headed for a port in Romania for repairs. Reportedly 27 sailors on the Donald Cook requested to be relieved from active duty service. This is very disconcerting that the best electronic warfare capability we have was eliminated so easily. It is even more of a problem with Putin ramping up military challenges all around Europe. NATO has scrambled fighters to intercept Russian plane more than 400 times this year. That is three times more than in 2013. AEGIS fails in the Black Sea

Russian Foreign Minister Lavrov accused the West on Saturday of trying to use sanctions imposed against Moscow to seek "regime change" in Russia. The war of words between Russia and the West is definitely increasing as the economic hardship of the sanctions and the drop in oil prices weighs on Russia. Regime Change

Late Saturday the Jerusalem Post claims Israel is considering military action against Iran if the current P5+1 negotiations with Iran end in an agreement that allows Iran to continue nuclear research. Reportedly Israel has seen the rough draft agreement being proposed and it is unacceptable to Israel. Iran has said if they had a nuclear weapon their first target would be Israel. The draft agreement would restrict Iran's nuclear program for ten years but would only cap its ability to weaponize fissile material for a minimum of nine months.

Who should be the TIME Person of the Year? Would you believe the Ferguson protestors are in third place in the polls with 4.7% of the vote? That is right behind Vladimir Putin in 2nd place with 6.5% of the vote. John Kerry is in 7th place with 2.9% and Barack Obama is in 12th place with 2.1%. The CEO of Apple, Tim Cook is 18th with 1.8%. Leading the list by a wide margin is Narenda Modi, the Prime Minster of India, at 14.1%. See the rest of the list HERE.

Only 4 shopping days until Thanksgiving and 32 shopping days until Christmas.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"People somehow think you must buy at the bottom and sell at the top. That is nonsense. The idea is to buy when the probability is greatest that the market is going to advance."

Martin Zweig


Index Wrap

Up 14-15% From Mid-Oct Lows to Recent Highs Enough For Now?

by Leigh Stevens

Click here to email Leigh Stevens

The Market has had a very strong rebound from its Mid-October lows but appears to be hitting some technical resistance. A possible 'exhaustion' price gap formed on Friday, the market is overbought and bullish sentiment has grown enough to suggest a potential pause or pullback.

The sideways trend of last week could have been an interim or mini-top but there was another breakout move to above prior lines of resistance. However, Friday's pullback from intraday highs after another upside price gap, suggests a possible exhaustion gap. Meaning simply an upside gap (day's low HIGHER than the prior day's high) that forms after a prolonged move but then lacks upside follow through. In turn, implying that bullish investors may have 'exhausted' how much money they are willing to use in pursuing stocks ever higher. Stay tuned on this possibility.

Use of Moving Average Envelopes with the major indices is a way of ascertaining lower and upper extremes from a 'centered' mean, a 21-day moving average in this case. I've had the thought that UPSIDE possibilities for the indexes might equal the last downside move in terms of an EQUAL percentage gain above the 21-day average as was true on the mid-October lows; e.g., if the S&P fell to a 5 percent moving average envelope or 5% UNDER the moving average, it might next hit resistance around 5 percent ABOVE the 21-day average. As below, so above and vice versa.

Instead, after falling to bottoms that were 5% below their 21-day moving averages, it looks like the S&P and Dow are unlikely to rise to much more than 3.5 to 4% above the key centered moving average (21-days), which is not overly much above their historical tendency for price swings equal to 2-3 percent above or below their 21-day moving averages. SEE THE RELEVANT 'MOVING AVERAGE ENVELOPE' HIGHLIGHTS ON THESE CHARTS.

In the Nasdaq, the historical tendency is for price swings that remain within 4-5 percent above/below the 21-day moving averages for the Nasdaq Composite (COMP) and big cap 100 (NDX) indices. COMP and NDX fell to 6% under their 21-day moving averages but now look like they may not see upside moves equal to more than 4.5% above their 21-day moving averages. SEE THE RELEVANT 'MOVING AVERAGE ENVELOPE' HIGHLIGHTS ON THESE CHARTS.

Another chart that is of interest here is the weekly S&P 500 chart with its broad uptrend price channel highlighted. In terms of resistance implied by the upper channel line, SPX is hitting it. This is not to imply that SPX won't go higher still, but there's a likelihood that the advance will slow.

It's fairly unlikely we'll see a next move that is anything like the oversold rebound off the mid-October bottom from the LOW end of SPX's trend channel; I'd also note the oversold extreme seen at that bottom in terms of the 8-week or 2-month Relative Strength Index (RSI).



NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows in the major indices.

The S&P 500 (SPX) chart remains bullish in its chart pattern although further upside potential may be limited. There was limited follow through to what would normally be ANOTHER bullish upside price gap at the end of this past week. The fact that this gap comes at the end of a prolonged and very strong upswing opens the possibility that THIS particular gap represents a so-called exhaustion 'gap', marking at least an interim top. This possibility is a chart interpretation that should be mentioned.

SPX is overbought now in terms of the 13-day RSI and we can see another type of 'overbought' extreme in terms of high bullishness among traders per my CPRATIO (Call to Put volume ratios for all equities trading on the CBOE) indicator seen at the bottom of the price chart.

Resistance per my last week's column remains highlighted at 2060-2070, with next potential 'resistance' suggested in the 2100 area, representing a potential rally 'extreme' at 3.5 percent ABOVE SPX's 21-day moving average.

Near support is seen at 2040, with fairly strong support back down in the area of the milestone 2000 level.


NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

Like the broader S&P 500, the big cap OEX chart remains bullish in its pattern although there was the same limited follow through to what would normally be ANOTHER bullish upside price gap at the end of this past week. The fact that this gap comes at the end of a prolonged and very strong upswing opens the possibility that THIS particular gap represents a so-called exhaustion 'gap', marking at least an interim top. This possibility is a chart interpretation that I should mention. OEX, also like SPX, is at an overbought extreme per the 13-day RSI.

Near resistance comes now a bit higher than last week, at 920, with next potential 'resistance' suggested by the upper 3.5% moving average envelope, currently intersecting in the 930 area.

Initial support is at 905, extending to 900, near the 21-day moving average. Generally in the Indexes, trade ABOVE the average is bullish, below it assumes a bearish hue.


NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

The Dow 30 (INDU) has the same bullish chart as the broader S&P indices and also saw the same somewhat limited upside follow through after the apparent breakout move above the line of prior resistance at 17712-17720. Near resistance is 17895-17900, with a next possible target/potential resistance coming in at 18000, extending to 18160 if the Dow was again to advance to its upper 4% envelope line.

INDU support is highlighted in the 17600 area, then in the area of the Dow's 21-day moving average, intersecting currently at 17440.

The Dow is no longer seeing the 'slowing' upside momentum of the prior week but its continued move higher this past week also takes the Average up to a further overbought extreme in terms of the (13-day) Relative Strength Index indicator. Such 'extremes' can't be seen as meaning this rally is DONE but they do suggest increased risk of a leveling off of prices or a potential pullback. Overbought conditions also often go on much longer than oversold periods do in bull markets.


NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

The Nasdaq Composite 'filled in' Friday's upside price gap that occurred initially by its substantially higher opening. COMP not only pulled back to lower support, but the implication is also that the Index couldn't hold early gains. This pattern represents slowing upside momentum, which is what the RSI measures.

Near COMP support is highlighted at 4650, extending to the 21-day moving average intersecting just over 4600 currently. Significant technical support then is seen at 4500. From last week, I'd again note that for those betting on a further rise over the coming 2-3 weeks, it's important to have COMP find support/buying interest in the area of its 21-day average.

COMP is no longer in the overbought red zone but seeing the RSI pulling back from there suggests the possible start of a correction of minor to intermediate degree. Moreover bullish 'sentiment' has risen further this past week. Price action, the RSI indicator falling back and high bullish expectations argues against complacency for those holding bullish positions. Don't get too bullish from a trading perspective, versus the longer-term implications of a primary or major up trend.


NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

The Nasdaq 100 (NDX) Index has been in a strongly bullish pattern and it shot up above this past week's highs on Friday but dropped back substantially from the Open. This past week only saw NDX tack on a slim 26 points.

Slowing upside price momentum is seen graphically in the sideways move of the Relative Strength Index. After such a substantial rise of the past 5 weeks, NDX may be pausing here and consolidating in a further sideways move or topping out for now.

I noted last week that "I'd be scaling out of NDX call positions on a move into the 4300-4350 zone". The Index didn't quite get to 4300, given its weekly high of 4285, 15 points shy of the aforementioned price zone.

Pivotal near-term chart support is now up to 4200, with what looks like it would be substantial buying interest/support coming in around 4100. Key overhead resistance is projected at 4300, extending to 4365.


NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

QQQ continues bullish in its pattern but the fall back from Friday's substantially higher Open indicates slowing upside momentum and isn't surprising given how far QQQ has come up from its mid-October bottom.

As an aside, do you recall the pervasive feeling of fear and panic there was a month ago about the Market turning into a Bear. Remember it, as this mood of the pack is what creates such hesitancy to buy when a waterfall type decline doesn't suggest that there's a bottom. This pattern keeps many sidelined when they should be BUYING when risk to reward potential is GREATEST!

I wrote last week that QQQ "'resistance' or a next potential upside 'target' is to 105, extending to 106." And ... "I'd be shorting the stock in that zone one way or another." (i.e., via the stock or options) I may yet get my chance to make a counter-trend play but this past week's High was 104.7. Stay tuned.

I anticipate resistance now coming in at 4.5 percent above the 21-day moving average which forecast resistance above 104.7, as being in the 106.6 area. I didn't highlight close by support at 103, but did at 102 as initial technical support, with the 100 area as fairly major support.

On Balance Volume (OBV) continues to trend higher so OBV is in sync with the strong uptrend. OBV rarely 'diverges' from the price trend as long as Closes continue to trend higher on balance.


The Russell 2000 (RUT) could be the 'canary in the coal mine' in suggesting that peak prices for the overall Market may be at hand for now.

RUT has traced out a possible Head & Shoulder's Top formation. Resistance has shown up at recent highs in the 1188 area. RUT's prior intraday high was at 1212 (Closing high: 1208) and so becomes a pivotal implied resistance area.

Near support is seen in the 1160 area, next at 1140.

The declining RSI in the face of a sideways trend is a mildly bearish price/RSI divergence. Conversely, back to back Closes above 1200, with support developing there on pullbacks would be bullish.


New Option Plays

New Highs For Technology

by James Brown

Click here to email James Brown


NXP Semiconductors - NXPI - close: 74.85 change: +0.71

Stop Loss: 71.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.9 million
Entry on November -- at $---.--
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
NXPI is in the technology sector. The company classified as part of the semiconductor industry but they make a host of electronic parts and components. The company describes itself on their website as follows, "The electronics industry is being driven by four mega trends that are helping shape our society: Energy Efficiency, Connected Devices, Security and Health. Connecting to these trends and enabling Secure Connections for a Smarter World, NXP Semiconductors N.V. (NASDAQ: NXPI) creates solutions for the Connected Car, Cyber Security, Portable & Wearable and the Internet of Things. Through our innovations, customers across a wide variety of industries – including automotive, security, connected devices, lighting, industrial and infrastructure – are able to differentiate their products through features, cost of ownership and/or time-to-market."

The company has seen a dramatic turnaround. NXPI was born in 2006 when Phillips Electronics sold its semiconductor business to private equity firms. By 2009 they were $6 billion in debt and losing money. Today they have cut their debt in half.

Investors business daily noted that companies like NXPI and its rival AVGO, another bullish looking stock, should both benefit thanks to a new trade deal with China. The U.S. and China have recently decided to remove some tariffs on almost $1 trillion worth of high-tech products.

As we approach the holidays shares of NXPI could get a boost thanks to Apple (AAPL). Investors expect AAPL to see a very strong fourth quarter with its new iPhone 6 and 6+ and AAPL is trying to revive its tablet business with a refresh of its iPad models. NXPI provides components to the iPhone, the iPad, and is rumored to produce equipment for AAPL's new Apple Pay technology.

NXPI's revenues have been strong all year. The company has actually beaten Wall Street's earnings estimates on both the top and bottom line the last four quarters in a row. Revenues were up +15.9%, +14.8%, +17.3% and in the most recent quarter +21.3%. NXPI's last earnings report was October 23rd. The company reported a profit of $1.35 a share, which was four cents above estimates. Revenues came in at $1.51 billion. Management issued bullish guidance on its Q4 EPS number while its revenue estimate was only in-line with Wall Street.

The stock received several price target upgrades in November. Recently as mutual funds issued their 13F filings it was unveiled that Appaloosa Management, the fund run by influential manager David Tepper, had initiated a new position in NXPI last quarter.

Technically shares of NXPI have been digesting gains in a sideways consolidation the last couple of weeks. Shares managed to end the week at a new all-time high. There looks like short-term resistance at $76.00. Tonight I'm suggesting a trigger at $76.05.

Please note this is a slightly more aggressive trade as NXPI appears to have potential resistance at a trend line of higher highs (see chart).

Trigger @ $76.05

- Suggested Positions -

Buy the 2015 Jan $80 call (NXPI150117c80) current ask $2.20

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

Daily Chart:

In Play Updates and Reviews

Update Your Stop Losses

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index has extended its gains to five up weeks in a row. We are seeing more and more stocks look overextended.

Tonight would be a great time to double check your stop loss placement. We have updated our stop losses on almost all of our current Option Investor trades below.

Our GMCR call spread has expired.

We also closed our IYT trade on Friday.

Current Portfolio:

CALL Play Updates

Apple Inc. - AAPL - close: 116.31 change: +1.64

Stop Loss: 113.25
Target(s): To Be Determined
Current Option Gain/Loss: +110.2%
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

11/22/14: The big headlines for AAPL on Friday was news that its $450 million settlement over an e-book price fixing lawsuit was approved by the courts. The news really didn't do much for shares of AAPL. The stock has been in rally mode for weeks and spent Friday's session consolidating sideways in a narrow range.

The stock is arguably short-term overbought here. More conservative traders may want to take profits now. We are choosing to raise the stop loss to $113.25. I am not suggesting new positions at this time.

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

11/22/14 new stop @ 113.25
11/12/14 triggered @ 110.25
Option Format: symbol-year-month-day-call-strike


ASML Holding - ASML - close: 105.68 change: -0.23

Stop Loss: 103.65
Target(s): To Be Determined
Current Option Gain/Loss: +37.9%
Average Daily Volume = 1.0 million
Entry on November 18 at $102.84
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

11/22/14: Semiconductor stocks had a good week. ASML extended its gains to six up weeks in a row. These are new all-time highs for ASML.

Shares are a bit overbought here. I am not suggesting new positions at this time. Tonight we are moving the stop loss to $103.65.

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.

- Suggested Positions -

Long 2015 Jan $105 call (ASML150117c105) entry $2.90

11/22/14 new stop @ 103.65
11/18/14 triggered on gap higher at $102.84, trigger was $102.75
Option Format: symbol-year-month-day-call-strike


CR Bard Inc. - BCR - close: 166.50 change: -0.61

Stop Loss: 163.35
Target(s): To Be Determined
Current Option Gain/Loss: -10.6%
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

11/22/14: The stock market's spike higher on Friday morning helped BCR gap open higher. Shares hit a new intraday high of $169.09 but gains didn't last. Shares eventually closed in the red and erased most of Thursday's gain.

It looks like BCR could have support in the $165 area so tonight we are moving the stop loss to $163.35.

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

11/22/14 new stop @ 163.35
11/13/14 triggered @ 165.65, suggested entry was $165.60
Option Format: symbol-year-month-day-call-strike


Costco Wholesale - COST - close: 139.72 change: +0.47

Stop Loss: 137.25
Target(s): To Be Determined
Current Option Gain/Loss: +247.4%
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

11/22/14: Shares of COST also saw a gap open higher on Friday morning. COST hit a new high at $140.83 before profit taking set in. Shares are up five weeks in a row and up seven out of the last eight weeks.

The relative strength in COST is great but more conservative investors may want to take some money off the table here. We are choosing to raise the stop loss to $137.25.

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

11/22/14 new stop @ 137.25
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


Deckers Outdoor Corp. - DECK - close: 94.00 change: -1.20

Stop Loss: 89.75
Target(s): To Be Determined
Current Option Gain/Loss: + 5.2%
Average Daily Volume = 763 thousand
Entry on November 17 at $92.25
Listed on November 15, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/22/14: DECK encountered some profit taking on Friday with shares retreating from its Friday gap higher. The stock did manage another gain for the week and is now up four weeks in a row.

I will note that technically Friday's session has created a bearish engulfing candlestick reversal pattern. These patterns need confirmation but it's a red flag.

Tonight we'll move the stop loss to $89.75. More conservative traders may want to consider a stop closer to the $91.50 area instead.

Earlier Comments: November 15, 2014:
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.

- Suggested Positions -

Long 2015 Jan $95 call (DECK150117c95) entry $3.80

11/22/14 new stop @ 89.75
11/17/14 triggered $92.25
Option Format: symbol-year-month-day-call-strike


DineEquity, Inc. - DIN - close: 96.07 change: +0.17

Stop Loss: 93.85
Target(s): To Be Determined
Current Option Gain/Loss: +50.0%
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

11/22/14: DIN has been a very strong performer from the market's mid October bottom. Shares have surged higher six weeks in a row. DIN is clearly overbought but that doesn't mean it can't grow more overbought.

Tonight we are moving the stop loss to $93.85. I suspect the $99-100 area is resistance and that range would be a great place to exit.

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

11/22/14 new stop @ 93.85
11/19/14 new stop @ 92.75
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: 174.46 change: +1.96

Stop Loss: 169.85
Target(s): To Be Determined
Current Option Gain/Loss: +190.5%
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

11/22/14: FDX displayed relative strength on Friday with a +1.1% gain. More importantly the stock has broken out from its two-week trading range in the $170-173 zone. I would not be surprised to see FDX retest $173.00 as new support before moving higher.

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

11/17/14 new stop @ 169.85
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


Northrop Grumman - NOC - close: 138.45 change: +0.91

Stop Loss: 135.90
Target(s): To Be Determined
Current Option Gain/Loss: -36.6%
Average Daily Volume = 1.0 million
Entry on November 21 at $140.25
Listed on November 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/22/14: Our brand new play on NOC has been triggered. The market's sharp rally on Friday morning boosted NOC. The stock gapped open higher at $140.00 and spiked to $140.59 before paring its gains. Our suggested entry point to buy calls was hit at $140.25.

At this time nimble traders may want to consider trying to buy a bounce from $138.00 but I am suggesting readers wait for a new rally past $140.25.

Earlier Comments: November 20, 2014:
One might have assumed that when Washington politics cut $500 billion from the U.S. defense budget over the 2012-2021 time frame it would have been bearish for defense sector stocks. Yet the group has been an outperformer in the stock market and delivered amazing gains last year. The defense-related juggernauts like NOC continue to perform well in 2014. This stock is currently up +20% in 2014 versus a +10.8% gain in the S&P 500.

According to their company website, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." What does that mean? It means NOC makes bombers, unmanned drones, cyber security solutions, and logistics. If you're curious, C4ISR stands for command, control, communications, computers, intelligence, surveillance, and reconnaissance.

The fact that the world seems to be growing more dangerous, not less dangerous, should be a bullish undercurrent that lifts the defense sector. NOC should benefit because the American public does not have the stomach for another war. That means the U.S. will use more and more unmanned technology like NOC's drones.

The company has been performing well this year and NOC has raised guidance the last four quarters in a row. They reported their Q3 results on October 22nd. It was NOC's eight consecutive quarter in a row of earnings growth. Wall Street was looking for a profit of $2.14 a share on revenues of $5.9 billion. NOC delivered $2.26 a share. That's up +6% from a year ago. Revenues beat estimates at $5.98 billion.

NOC management has been trying to diversify their customer base and international sales are expected to hit 13% of total revenue in 2014 compared to 10% last year. NOC's Q3 saw its total backlog soar +8% to $38.5 billion from the prior quarter.

Once again management has raised their guidance. NOC expects 2014 earnings in the $9.40-9.50 zone compared to prior guidance of $9.15-9.35. Wall Street was estimating $9.35.

Shares of NOC have spent the last three weeks consolidating gains in the $135-140 zone. The point & figure chart remains bullish and is forecasting at $158.00 target. Given the stock's bullish trend of higher lows NOC could see a breakout soon.

Tonight I am suggesting a trigger to buy calls at $140.25.

- Suggested Positions -

Long 2015 Jan $145 call (NOC150117c145) entry $1.50

11/21/14 triggered @ 140.25
Option Format: symbol-year-month-day-call-strike


PriceSmart Inc. - PSMT - close: 94.03 change: -0.22

Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: + 1.7%
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

11/22/14: PSMT followed the market higher on Friday morning and it followed the market lower as shares faded from its gap higher. PSMT could be stuck in the $93-97 zone. We are turning more defensive here. Tonight we're moving the stop loss to $92.85. I am not suggesting new positions at this time.

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

11/22/14 new stop @ 92.85
11/19/14 new stop @ 91.45
11/10/14 triggered @ 92.75
Option Format: symbol-year-month-day-call-strike


PowerShares QQQ (ETF) - QQQ - close: 103.87 change: +0.20

Stop Loss: 102.45
Target(s): To Be Determined
Current Option Gain/Loss: +42.9%
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

11/22/14: The QQQ tagged another new 14-year high on Friday morning at $104.69. The trend of higher highs and higher lows is bullish but after a five-week rally we need to be cautious. The QQQ has found support at its rising 10-dma in the last couple of weeks. Today the 10-dma is at $103.02. Tonight we're moving our stop loss to $102.45.

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

11/22/14 new stop @ 102.45
11/12/14 triggered @ 102.35
Option Format: symbol-year-month-day-call-strike


The Sherwin-Williams Co. - SHW - close: 242.05 change: -0.19

Stop Loss: 238.25
Target(s): To Be Determined
Current Option Gain/Loss: + 98.8%
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

11/22/14: Shares of SHW have been soaring although the stock encountered a tiny bit of profit taking on Friday. Shares gapped open higher and almost hit $245 before reversing.

More conservative traders will want to seriously consider taking some profits here. SHW is overbought and up six weeks in a row. We are moving our stop loss higher to $238.25.

I am not suggesting new positions at this time.

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

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

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

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

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

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

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

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

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

- Suggested Positions -

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

11/22/14 new stop @ 238.25
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: 53.72 change: +0.31

Stop Loss: 52.25
Target(s): To Be Determined
Current Option Gain/Loss: +263.6%
Average Daily Volume = 2.4 million
Entry on October 17 at $47.15
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/22/14: The semiconductor stocks have been showing relative strength. The SMH managed to breakout past its 2014 highs.

I would be tempted to take profits here with the SMH near a trend line of higher highs (see chart). However, tonight we are moving the stop loss up to $52.25.

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

11/22/14 new stop @ 52.25
11/20/14 new stop @ 51.40
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


Under Armour, Inc. - UA - close: 69.30 change: -1.11

Stop Loss: 67.90
Target(s): To Be Determined
Current Option Gain/Loss: -37.5%
Average Daily Volume = 2.6 million
Entry on November 21 at $71.05
Listed on November 19, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

11/22/14: Shares of UA just barely eked out another weekly gain. The stock is now up four weeks in a row. Unfortunately Friday's session could spell trouble. Most of the market spiked higher on Friday and UA was no exception.

Our suggested entry point was $71.05. UA gapped higher at $71.19. Like most of the market UA also faded from its morning highs. The stock closed with a -1.5% decline. I don't see any news to account for UA's relative weakness on Friday. Technically Friday's session has created a bearish engulfing candlestick reversal pattern. That should be traders on the defensive.

I am not suggesting new positions at the moment.

Earlier Comments: November 19, 2014:
UA is in the consumer goods sector. "Under Armour, the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. Under Armour's wholly owned subsidiary, MapMyFitness, powers one of the world's largest Connected Fitness communities. The Under Armour global headquarters is in Baltimore, Maryland." (source: company press release)

Apparel sales can be tricky as fashion fads come and go. Yet right now athletic wear has been gaining traction. Athletic wear sales are up +9% in the past year. Two giants in this industry, Nike (NKE) and Under Armour (UA), are outperforming the group.

NKE is the giant with annual sales of $28.8 billion. UA is a tenth the size of NKE at $2.87 billion a year in sales. It's not surprising to see UA outgrowing its rival. NKE managed +15% sales growth in the third quarter. UA delivered 30%. NKE reported gross margins of 46.6%. UA has gross margins of 49.6%. Both companies delivered earnings growth of more than 20% year over year.

UA is impressive because its apparel sales have been rising +30% for the last three quarters in a row. Apparel is important because it's 75% of UA's business. Currently UA only has 2% of the global athletic apparel market and many believe it has significant room to grow.

Investors were a little concerned when apparel sales only grew +25.6% in the third quarter. However, UA has been consistently beating Wall Street's earnings estimates on both the top and bottom line four quarters in a row. They have also raised guidance four quarters in a row.

Their most recent earnings report was October 23rd. UA delivered earnings of $0.41 a share with revenues up +29.7% to $937.9 million. Analysts were only expecting $0.40 on revenues of $925 million.

Management raised their Q4 guidance but they warned that growth would slow down to only +22% in 2015. It's worth noting that UA has a history of under promising and over delivering. The stock initially sold off on this guidance but investors quickly bought the dip. Shares of UA have broken through the two-month trend line of lower highs and technical resistance at the 50-dma. The point and figure chart is bullish and forecasting an $87 target.

The plunge in gasoline prices is a tailwind for retailers and it should be a strong holiday shopping season. Another bonus for UA could be the weather. Last year winter was colder than normal and UA had strong sales of their coldgear line. This year we could see the coldest winter in decades, which could also bode well for UA.

UA has spent the last few days consolidating sideways in the $68.00-70.00 range. Today saw UA showing relative strength (+1.6%) and breaking out past resistance at $70.00. The intraday high was $70.72. More aggressive traders may want to buy calls now. I am suggesting a trigger at $71.05 to buy calls.

- Suggested Positions -

Long 2015 Jan $75 call (UA150117c75) entry $1.60

11/21/14 trade opened on gap higher at $71.19
Option Format: symbol-year-month-day-call-strike


United Rentals, Inc. - URI - close: 114.71 change: +0.19

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: + 8.8%
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

11/22/14: URI is another stock that gapped open higher on Friday morning and then faded lower the rest of the day. Shares closed back under resistance at the $115.00 level.

I am not suggesting new positions at this time. We will try and reduce our risk by moving the stop up to $112.25.

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

11/22/14 new stop @ 112.25
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: 56.50 change: +0.53

Stop Loss: 57.35
Target(s): To Be Determined
Current Option Gain/Loss: -41.0%
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

11/22/14: The stock market's bullish open on Friday morning saw FMC gap open higher. Yet the rally failed to breakout past technical resistance at the sliding 50-dma.

I am not suggesting new positions at the moment. We are moving the stop loss down to $57.35. Friday's high was $57.17.

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

11/22/14 new stop @ $57.35
11/04/14 triggered @ $55.85
Option Format: symbol-year-month-day-call-strike



Keurig Green Mountain, Inc. - GMCR - close: 140.37 change: - 2.13

Stop Loss: (removed)
Target(s): To Be Determined
Directional call play
Current Option Gain/Loss: +41.2% Closed 11/19/2014
Call spread:
Current Option/Gain loss if you sold the NOV $160 call: -$1.17
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

11/22/14: GMCR was crushed following its earnings report thanks to disappointing guidance.

Our trade initially started with a directional call play, which worked well if you exited before earnings (our suggested strategy).

We eventually added a call spread, which was looking pretty good prior to the post-earnings crash. We chose to hold the spread over the earnings report, which turned that trade into a loss.

- Suggested Positions -

(Directional call play) closed 11/19/14 at the open.
NOV $150 call (GMCR141122C150) entry $6.17 exit $10.50 (+41.2%)

- or -

(Call spread)

Long NOV $150 call (GMCR141122C150) entry $6.17 exit $0.00

- plus -

(On November 3rd, 2014, Sell the November $160 call)
Short NOV $160 call (GMCR141122C160) sold short @ $5.00 exit $0.00

11/22/14 Call spread closed/expired with a loss of $1.17
11/20/14 GMCR crashes on its earnings guidance
11/19/14 GMCR beats earnings but guides lower
11/19/14 Closed the directional call play this morning
November $150 call @ $10.50 (+41.2%)
11/18/14 Prepare to close the directional call play (Nov $150 call) tomorrow morning at the opening bell.
If you chose the call spread, you have a choice to make. We are keeping the call spread open over the earnings report.
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: 163.19 change: +0.74

Stop Loss: 156.85
Target(s): To Be Determined
Current Option Gain/Loss: +438.2%
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

11/22/14: The transportation stocks have been very strong as the market rebounded from its mid October low. A big drop in crude oil prices played a big part in the transport rally.

Our plan was to exit positions on Friday at the closing bell.

If you only played the directional call trade the November $143 call closed with a bid of $18.30 on Friday.

Meanwhile our maximum gain on the call spread was capped at +900%.

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

(directional call play)
NOV $143 call (IYT141122c143) entry $3.40 exit $18.40 (+438.2%)

- plus -

(call spread)
NOV $143 call (IYT141122c143) entry $3.40 exit $18.40
(sell short the Nov $159 call on October 29th)
Short NOV $159 call (IYT141122c159) entry $1.80 exit $4.40

11/20/14 prepare to exit tomorrow at the closing bell!
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