Option Investor

Daily Newsletter, Thursday, 12/11/2014

Table of Contents

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

Market Wrap

Really, Again?

by Thomas Hughes

Click here to email Thomas Hughes
Data driven rally derailed by debt ceiling impasse.


The market found support today after a round of steady and strong economic data lifted GDP expectations. Stock indices were moving higher until an impasse in the House stalled what had been a bipartisan spending bill and put the government at risk of shut down.

Labor data reveals that seasonal weakness is in line with expectations while retail sales and business inventories suggest the economy is gaining momentum. At the same time import and export prices fell, primarily on the down turn in energy prices. The data was well received and helped reverse some of the negative sentiment that has been sparked by plunging oil prices. The news also caused some speculation among economists who have begun to ramp up projections for final 3rd quarter and first estimates for 4th quarter GDP.

Market Statistics

Asian markets were not so lucky. They closed in the red, in the wake of yesterday's oil led decline in US market and amplified by another weak economic report from Japan. The latest news is the leading indicator of capital expenditure in the country has fallen by more than 6%, counter to expectation, and ending a four month streak of increases.

Investors in Europe were focused on the latest data from the ECB. The central bank reported that the latest round of low interest loans was met with better demand than the previous one. While the effects are unclear, the fact that the ECB is doing something and that EU banks are taking advantage of it helped to lift European indices. European markets were able to close off of their lows, led by the DAX which was able to gain 0.64% in today's session.

Our markets were positive from the very start of early electronic trading. Futures were indicated higher by a half percent or so and were able to hold those levels going into the 8:30AM release of economic data. After the release, a triple shot today, futures held steady and gained strength into the opening bell. After the bell trading was calm, but quickly moved the indices up by more than 1%.

Today's high was reached about 10:30AM, shortly after the final economic release of the morning. After that, trading was steady and held the indices in a tight range just below the intra-day high until 2PM. At that time the expected vote on spending, which was reported to have bipartisan support, was delayed causing the market to pare gains and retreat to today's opening levels.

Economic Calendar

The Economy

Jobless claims, US Retail Sales and Import/Export Prices were all released at 8:30AM. Initial jobless claims held steady with a loss of only 3,000 from last week's unrevised number. This week first time claims were reported at 297,000, below the heavily watched 300,000 level and the four week moving average. The average gained 250 this week, but remains below 300,000 as well. The down trend in first time claims may have come to an end but remains near long term lows levels and consistent with overall labor trends. This most recent spike in claims was expected, now lets see if it subsides, as expected. Based on the NABE and NFIB reports released earlier this week I expect to see claims fall back to the long term low.

On a not adjusted basis first time claims rose by 31.9%, slightly below the 33.2% expected by the seasonal factors. On a year to date basis not adjusted claims are down more than 16%. New York and Wisconsin led with declines of 2,979 and 2,293. California and Texas both had declines in claims far greater, -13,819 and -6,313 respectively.

Continuing claims gained a whopping 142,000 this week, counter to expectations for them to hold steady. This is a red flag but not a concern unless it becomes a trend. Because continuing claims lag initial claims by a week the spike could simply be the increase in initial claims working its way through the system. Balancing this out is a drop in the total number of claims, which shed 95,846. This is down from last week which was a three month high but is also near the long term low and consistent with the long term decline in overall unemployment levels.

Retail sales was much better than expected. The Census Bureau reports that estimated sales of retail level products rose by 0.7%. This is ahead of the consensus 0.4% expected by analysts and the fastest pace of retail sales growth in 8 months. It also comes with upward revisions to the previous month which raise October sales to 0.5% from 0.3%. Compared to last year sales are up 5.1% versus November 2011 and are up 4.7% year to date. Ex-Autos sales were also higher, rising 0.5% versus the expected 0.2% and last month's 0.4%. These numbers are inline with other data which suggests that momentum is building in the economy.

Import and export prices both declined in November. Import prices fell by 1.5%, export prices by 0.9%. The 5th monthly decline in prices, driven by fuel. The November decline is the largest monthly decline since June of 2012.

Business Inventories was released at 10AM and is on the rise. November inventories were reported as rising 0.2%, better than an expected decline of 0.1%. Inventories are part of GDP and along with retail sales helped to spur some comments to the effect that 3rd and 4th quarter GDP estimates could be raised. Current Q3 final numbers are now in a range above 4% while the 4th quarter is being estimated in a range that now goes as high as 4%.

The Oil Index

Oil had a volatile session today, first up nearly 1.5% and then down by 1% or more. WTI was flirting with $60 a barrel with Brent not far behind, just below $64. There is still no sign of support in oil so I am expecting more volatility here.

The Oil Index tried to claw its way higher today, after hitting an 18 month low yesterday. The index was not able to hold the gains and closed flat for the day. The index is in downtrend with bearish indicators pointing to lower prices. MACD momentum is convergent with the decline and stochastic is crossing the lower signal line. There may be a pull back to test resistance but the trend is down until oil prices stabilize.

The Gold Index

Gold traded in a tight range, just below $1230 and the two month high. Prices are being supported by long term economic prospects and expectations of higher interest rates and pressured by strengthening dollar. Inflation expectations are just that, expectations, because inflation hasn't really materialized yet so support could waver. On the other hand, the rally in the dollar is real and expected to continue which should add pressure to gold.

It's a real conundrum to be sure, the bottom may be in for gold because we know that inflation is bound to come, but whether or not a rally has started is in serious doubt. The hurdle, or perhaps the focal point, will be the trifecta of central bank meetings scheduled for next week. The FOMC leads by releasing their statements on Thursday, followed up by the ECB and the BOJ on Friday. Until then it looks like gold could ratchet higher with $1250 as a target.

The Gold Index traded lower today but held above long term support. The index shed over 1% and fell below the 30 day moving average but so far is being held by long term support. The indicators continue to weaken which suggests that this test of support is not over. Current support is $66.59, the 100% retracement of the 2008-2011 bull market in gold. Index prices will be tied to gold prices and if move below the retracement have a target near $60, another potential support. The index may be bottoming, along with gold, but that is not confirmed. The index will likely hover near these levels, as it has been the last 30 days, until the central bank meetings next week.

In The News, Story Stocks and Earnings

There were a few names in the news this morning. First up, earnings from Lululemon. The maker of yoga pants and other accessories reported earnings ahead of expectations. The company reported EPS of $0.42 versus the expected $0.38 along with an increase in comp store sales. The only negative was that they fell short on revenue, possibly due to discounting or sales shortfalls. The news was met with approval and caused the stock to gap up and move higher at the open. Shares of LULU had gained nearly 10% at the close of today's session and are approaching a potential resistance line.

Starboard Value announced it had taken stakes in both Staples and Office Depot, adding to speculation the two companies will merge. The activist investor in now holds 6% in Staples and 10% in Office Depot. Shares of both companies popped in early trading and gapped up at the open. Office Depot led with a gain of more than 12% but both closed off of their highs. These will both likely be active now that interest is on the rise.

Ciena reported a loss this morning but traders did not care. The surprise loss was due to shrinking margins but news that its converged optical networks, which create faster computer connections, was growing helped to support prices. Shares of Ciena gained close to 8% after gapping higher at the open and closed at a three month high. This one appears to be moving higher after bottoming within a long term rang, indicators are bullish but weak with a possible upside target near $20.

The Indices

The markets were moving higher with purpose today until political shenanigans once again caused buyers to evaporate. Stock indices were as much as 1.5% higher before the vote was suspended and never was able to recapture the gains. Later in the afternoon it looked like the bulls might try to stage a comeback rally but their efforts were not enough. Despite the impasse in Congress the indices were still able to maintain positive levels into the close, led by the Down Jones Transportation Average.

The Trannies closed with a 0.78% gain after reaching an intraday high a little more than 1.5% above yesterday's close. Today's action pivoted around the 30 day moving average and was not able to maintain the upper side. The indicators are bearish, but weak, and convergent with the recent down turn in prices. It looks like the index may continue to test support with a target near 8,750 in the near term. Longer term the index is still in an uptrend with strong indications the trend will continue. The most recent trend following peak in MACD is a multi-year extreme and convergent with higher prices.

The NASDAQ Composite managed to hold onto a gain of just over a half percent. The tech heavy index gained 0.52% and was able to hold onto support along the short term moving average. Unlike the transports, the techs never fell below this level which is now near term support. The indicators are weak and in decline, indicating the likelihood of further testing of support. Should the moving average fail to hold next target will be 4,600 and then 4,500 on a deeper pull back to the long term trend line. While the near term is looking weak, the longer term analysis remains positive. The trend is still up and the most recent trend following signals are convergent with higher prices.

The S&P 500 finished the day with a gain of only 0.45% after reaching close to 1.5% at the height of the day. This index began below the short term moving average, surged above it, and then fell back below it by the close. The indicators are bearish and leading the index to test support, but first targets for strong, longer term, support is just below the current level. This target is consistent with the September top and a quick consolidation that occurred over the 1st of November, near 2020. If this does not hold then next target is just below that near 2,000 and the long term trend line. As with the first two, the near term looks weak but the longer term analysis is in line with higher prices. The index is trending higher with indicators convergent with higher prices.

The Dow Jones Industrial Average brought up the rear today, as it often does. The blue chips are just not as interesting as the techs, the transports or the broader market. Today the Dow closed with a gain of 0.36% after nearly erasing all of yesterday's losses. This index was also unable to hold above the short term 30 day moving average and is accompanied by bearish indicators. Near term support appears to be present along the 17,500 round number but that may not hold. If not then next target is near 17,100. As with the others, the near term looks weak but the long term still looks bullish and in line with at least a retest of the most recent highs.

The market really wanted to bounce back today and by all accounts it was doing a pretty good job of it. That is, until our elected officials who are responsible for maintaining our nation and the well being of our citizens failed to vote, again. The failure was enough to cause the market to pare gains, but not enough to out-right sell off. I think perhaps there is still hope that something will happen before the weekend, and maybe indifference since the last time didn't seem to affect the economy very much.

If not for the lack of action in Congress today would have been a pretty good day. The market was bouncing from support,in line with long term trends, on positive economic data, data that shows increasing momentum in the economy and data that sparked increased speculation of positive GDP revisions.

The technical trends are up, the economic trends are up and the market is down. This usually equals “buy on the dip” and I don't see any reason for that not to be true now. However, since the indices still look weak and the FOMC is due to meet next week some caution is due.

Until then, remember the trend!

Thomas Hughes

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New Option Plays

Networking New Highs

by James Brown

Click here to email James Brown


F5 Networks - FFIV - close: $132.38 change: +1.67

Stop Loss: 129.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 965 thousand
Entry on December -- at $---.--
Listed on December 11, 2014
Time Frame: Exit PRIOR to earnings on January 21st, 2015
New Positions: Yes, see below

Company Description

Why We Like It:
It has become a hostile world for corporations and their biggest weakness is online security. It feels like every day we hear about another company getting hacked. Last year the big story was Target (TGT). This year there were several companies, including Home Depot (HD). Just recently the current story is the terrible hacking incident at Sony, specifically their Sony movie studio. Fortunately for FFIV all of this plays to their strength as more corporations seek to beef up their cyber security.

According to company marketing, "F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

FFIV introduced a host of new products late last year and they have been knocking it out of the park with their "good, better, best" pricing strategy. Earnings this year have been consistently strong. Their report in January 2014 beat earnings on both the top and bottom line and FFIV raised guidance. The company did it again in April and July by beating Wall Street's estimates on both the top and bottom line and raising guidance.

Their most recent earnings report was October 29th, which was the company's fiscal year 2014 Q4 results. GAAP earnings came in at $1.26 a share. That's up 18% sequentially and up +23% from a year ago. Non-GAAP net income was $1.57 a share versus $1.26 a year ago. Their quarterly revenues rose +6% sequentially and +17.8% year over year to $465.3 million. Their fiscal year 2014 saw total revenues up +17% to $1.73 billion.

John McAdam, FFIV's president and chief executive officer, commented on their results saying,

"The fourth quarter of fiscal 2014 was a solid finish to a year characterized by positive customer and partner response to our Synthesis architecture, the array of new products we rolled out in fiscal 2013, our Good Better Best pricing strategy, and the enhanced capabilities of our BIG-IQ management platform... During the quarter, product revenue grew 20 percent from the fourth quarter of 2013, driven by strong sequential growth of Enterprise sales in the Americas and solid year-over-year growth in EMEA and APAC. Contributing to that growth, rising concern over the increasing number and variety of security threats helped stimulate demand for our security solutions and drive sales of our Better and Best software bundles, which include our most popular security products. This quarter, we will expand our portfolio of security offerings with the launch of our WebSafe and MobileSafe anti-malware solutions, available as software modules on TMOS, and Defense.Net, cloud-based DDoS protection that complements our on-premise DDoS solution."

FFIV management issued guidance that was in-line with Wall Street who had finally raised their estimates on the company. Speaking of Wall Street, analysts are bullish on the stock. FFIV has seen several price target upgrades in recent months with numbers like $136, $140, $150, and $151 a share. The point & figure chart is even more bullish with a long-term target of $182.00.

Investors have been consistently buying the dips and FFIV has a bullish trend of higher lows. Today shares are consolidating sideways beneath short-term resistance in the $133.50-133.75 area. Tonight we are suggesting a trigger to buy calls at $133.80.

Earnings are expected on January 21, 2015, so we'll plan on exiting ahead of the report. I don't see any February options available so we'll use the normal January calls that expire on the 17th.

Trigger @ $133.80

- Suggested Positions -

Buy the Jan $135 CALL (FFIV150117C135) current ask $3.25

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

Daily Chart:

In Play Updates and Reviews

Stocks Rise On Retail Sales Only To Fade On Oil

by James Brown

Click here to email James Brown

Editor's Note:

Better than expected U.S. retail sales data from November helped send stocks higher this morning. Unfortunately yesterday's worries about falling oil prices returned as crude oil dropped to new five-year lows.

Current Portfolio:

CALL Play Updates

DineEquity, Inc. - DIN - close: 99.93 change: +0.76

Stop Loss: 97.35
Target(s): To Be Determined
Current Option Gain/Loss: +283.3%
Average Daily Volume = 154 thousand
Entry on November 05 at $91.55
Listed on November 04, 2014
Time Frame: Exit PRIOR to December 20th option expiration
New Positions: see below

12/11/14: DIN managed to outpace the major indices with a +0.76% gain today. The stock is still trying to breakout past round-number resistance at the $100 level.

I'm not suggesting new positions at the moment because our December options expire in a few days. However, if you have a longer time frame then a breakout past $100.50 could be used as a new bullish entry point.

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

12/10/14 new stop @ 97.35
12/06/14 only two weeks left on our December options
11/29/14 new stop @ 96.85
11/26/14 new stop @ 94.85, traders may want to take profits here!
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

The Hain Celestial Group, Inc. - HAIN - close: 113.02 change: +0.39

Stop Loss: 111.35
Target(s): To Be Determined
Current Option Gain/Loss: +36.1%
Average Daily Volume = 615 thousand
Entry on November 26 at $110.25
Listed on November 25, 2014
Time Frame: Plan on exiting PRIOR to the stock split
New Positions: see below

12/11/14: The U.S. stock market rolled over this afternoon and HAIN followed it lower. This stock looks like it could test the $112 area soon.

I am not suggesting new positions at this time.

Earlier Comments: November 25, 2014:
"Our business continues to benefit from strong growth trends in the organic and natural, better-for-you segment of consumer packaged goods."

That quote is from HAIN's CEO after the company reported its latest earnings results in early November. He's right. Consumers are choosing healthier foods and it looks like a major trend change that could benefit HAIN for a long time.

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

HAIN's results have definitely confirmed the trend in consumer spending. They have beaten Wall Street's estimates and guided higher in three out of the last four earnings reports.

The Q4 report in late August this year saw revenues up +26% to $583.8 million. Management raised their guidance as they now expect sales growth of +27% to +30% in 2015.

The company reported their 2015 Q1 numbers on November 6th and sales are accelerating. Wall Street was expecting a profit of $0.67 on revenues of $640.27 million. HAIN delivered a profit of $0.68, which is a +31% increase from a year ago. Revenues were up +34.6% to $642.6 million. These are really impressive results when you consider that includes a voluntary recall of their HAIN nut butters back in August.

Commenting on their Q1 results, Irwin Simon, Founder, President, and CEO of the company said, "We are pleased with another strong start to our fiscal year across all of our segments on a worldwide basis with the highest quarterly net sales in the Company's history."

"Our diverse portfolio of brands and products across multiple categories and our customer base across various channels of distribution enabled us to deliver double-digit sales growth even with the impact of the nut-butter recall initiated in August."

Accompanying these results their Board of Directors also approved a 2-for-1 stock split but shareholders needed to approve an increase in the number of shares outstanding first. The company's annual meeting was a few days ago and shareholders did approve the stock split. That headline came out tonight, after the closing bell.

The 2-for-1 stock split will occur in December. The shareholder record date is December 12th, 2014. The ex-dividend date is expected to be December 29th (this is when HAIN will begin trading post-split).

Shares of HAIN have been consolidating sideways beneath resistance at $110 for the last three weeks. The stock displayed relative strength today and looks poised to breakout past this resistance. The 2-for-1 stock split news could be the catalyst it needed. After hours tonight shares are trading around $110.50. We are expecting HAIN to gap open higher tomorrow morning. I'm suggesting a trigger to buy calls on HAIN if shares trade at $110.25 or higher.

We are not setting an exit target tonight but I will point out that the point & figure chart is bullish and forecasting a long-term $131.00 target.

- Suggested Positions -

Long 2015 Jan $115 call (HAIN150117c115) entry $1.80

12/09/14 new stop @ 111.35
11/29/14 new stop @ 109.85
11/26/14 triggered @ $110.25
Option Format: symbol-year-month-day-call-strike

The Home Depot - HD - close: 100.27 change: +1.33

Stop Loss: 97.25
Target(s): To Be Determined
Current Option Gain/Loss: +18.2%
Average Daily Volume = 6.4 million
Entry on December 08 at $100.25
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/11/14: HD shot higher this morning and hit a new record, $101.40, before the stock followed the market's afternoon slide. Shares still closed above $100 but if the market accelerates lower tomorrow I would expect HD to follow. The $98-99 area has bee short-term support this week. That might hold if the market's dip isn't too deep.

The path of resistance for HD is higher as long as the broader market participates.

Earlier Comments: December 6, 2014:
Shares of HD ended the week at an all-time closing high, just below the $100 mark. The company had a bit of a rough start to 2014. They missed estimates on both the top and bottom line when they reported back in February and management lowered their forward guidance. They missed estimates again in May. Momentum changed with their August earnings report as HD beat Wall Street's bottom line estimate and raised their 2015 guidance.

HD appears to be benefitting from the growing U.S. economy. Falling unemployment means more people are working. Homebuilders are feeling confidence. The U.S. is seeing strong housing starts. Consumers are remodeling their homes. The do-it-yourself trend remains strong. HD is starting to see growth in the "connected home" concept, which is part of the Internet of Things (IoT) with remote control garage doors, home monitoring, thermostats, and light fixtures.

HD is in the services sector. According to the company website, "The Home Depot is the world's largest home improvement specialty retailer, with 2,269 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2013, The Home Depot had sales of $78.8 billion and earnings of $5.4 billion. The Company employs more than 300,000 associates."

Investors were keenly focused on the company's latest earnings report, HD's Q3 report, which came out on November 18th. Analysts wanted to know if the massive data breach reported by HD in September would negatively impact sales. It looks like the data breach has been overlooked by most if HD's customers.

Wall Street was looking for Q3 results of $1.14 per share on revenues of $20.47 billion. HD said their earnings per share rose +21% to $1.15 (up from $0.95 a year ago). Revenues improved +5.4% to $20.52 billion. The company said their overall comparable store sales were up +5.2% while inside the U.S. comps were up +5.8%. Online sales surged +40%.

HD gave relatively bullish guidance. They still expect +21% earnings growth in 2015. However, they noted that current guidance does not include any probable losses from the data breach. Last year Target (TGT) was a high-profile company that confessed to a huge data breach where millions of customer credit card data was stolen. This year Home Depot has been another high-profile company targeted by hackers.

HD said approximately 56 million cards may have been compromised. They have since plugged the hole in their cyber security. HD did confess in a recent SEC filing that they are facing 44 civil lawsuits in U.S. and Canada in response to the data breach. In spite of all the bad news investors continue to bid the stock higher.

Since HD's earnings report in November the stock has received several price target upgrades. The point & figure chart is also bullish and forecasting at $110 target.

Friday's November jobs report shows that the U.S. economy could be picking up speed, which would be bullish for HD. It looks like shares are going to breakout past significant round-number, psychological resistance at the $100 level.

Tonight we are suggesting a trigger to buy calls at $100.25.

Interesting factoid: HD's last stock split was a 3-for-2 split back in 1999 in the $90-100 range. I'm not predicting they will announce a new split but you never know.

- Suggested Positions -

Long FEB $105 CALL (HD150220C105) entry $1.21

12/08/14 triggered @ 100.25
Option Format: symbol-year-month-day-call-strike

iShares Russell 2000 ETF - IWM - close: 116.12 change: +0.46

Stop Loss: 113.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 40 million
Entry on December -- at $---.--
Listed on December 10, 2014
Time Frame: exit prior to January option expiration
New Positions: Yes, see below

12/11/14: After yesterday's market decline the market managed a bounce this morning. Yet as crude oil sank below $60.00 a barrel for the first time since 2009 the equity market began to retreat.

I don't see any changes from last night's new play description.

Earlier Comments: December 10, 2014:
The IWM is the exchange traded fund (ETF) that mimics the performance of the small cap Russell 2000 index.

Wednesday proved to be a rough day for U.S. equities. The Dow Jones Industrials were off as much as -285 points near its lows for the session. It closed down -268 (-1.5%). The S&P 500 and the NASDAQ composite also dropped with -1.6% and -1.7% declines, respectively. Small caps tend to be more volatile so it's not surprising that the Russell 2000 index dropped -2.1% on the session.

So why are we adding a bullish trade on the IWM if they underperformed today? Just as the small caps tend to underperform on the way down they also tend to outperform on the way up. We are speculating that the market's current pullback will be over soon. Let me repeat this is a speculative bet that dip buyers are still out there. The average hedge fund manager has drastically underperformed the market this year and is desperate to generate some last minute gains before the year is over. Therefore they are likely to use this market pullback as an entry point for bullish positions.

Tonight we are suggesting a buy-the-dip trigger on the IWM at $115.00. This ETF has found support in the $114.35-115.00 area multiple times in the last few weeks. I would keep positions small to limit risk.

Trigger @ $115.00 *small positions*

- Suggested Positions -

Buy the Jan $115 CALL (IWM150117C115)

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

Starbucks Corp. - SBUX - close: 83.12 change: +0.46

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: - 4.8%
Average Daily Volume = 4.0 million
Entry on December 10 at $83.55
Listed on December 09, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/11/14: SBUX has spent most of this week consolidating sideways inside the $82-84 zone. Shares retested short-term resistance at $84.00 again today.

I don't see any changes from last night's comment. If this market pullback continues we could easily see SBUX test its 10-dma near $82.00. If the market really sinks then SBUX might retest support near $80.00. A bounce from either level could be used as a new bullish entry point.

Earlier Comments: December 9, 2014:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results have only been so-so this year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks like it's about to change.

Five-Year Plan

SBUX recently announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company just launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

Wall Street is bullish on the stock. Several firms have upgraded shares recently. Carter Worth, chief market technician at Sterne Agee, thinks SBUX could rally +10% to +15% in the short-term. JP Morgan raised their price target to $89. Goldman Sachs just added SBUX to their conviction buy list with a $95 target. Piper Jaffray has a $100 target. The same analyst at Piper believes SBUX's stock could double in the next four years. The point & figure chart is bullish and forecasting at $105.00 target.

The breakout past its all-time highs set in Q4 of 2014 is very bullish. This pullback is a gift. Tonight we are suggesting a trigger to buy calls at $83.55.

- Suggested Positions -

Long Feb $85 CALL (SBUX150220C85) entry $2.29

12/10/14 triggered @ 83.55
Option Format: symbol-year-month-day-call-strike

The Sherwin-Williams Co. - SHW - close: 254.21 change: +7.41

Stop Loss: 249.45
Target(s): To Be Determined
Current Option Gain/Loss: +336.2%
Average Daily Volume = 526 thousand
Entry on November 05 at $231.00
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/11/14: SHW charged higher this morning following news that Credit Suisse had raised their price target on the stock from $240 to $260 a share. The analyst there believes the new contract with Lowe's (LOW) will be beneficial.

SHW shot to the $255 area this morning and hovered near this level most of the session. Tonight we will raise the stop loss to $249.45.

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

12/11/14 new stop @ 249.45
12/09/14 new stop @ 245.65
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: 55.03 change: +0.23

Stop Loss: 54.45
Target(s): To Be Determined
Current Option Gain/Loss: +327.3%
Average Daily Volume = 2.4 million
Entry on October 17 at $47.15
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/11/14: The SMH eked out a small gain today like most of the major indices. Yet the action was bearish with the rally fading this afternoon under short-term resistance now at the 10-dma.

I am repeating my suggestion that more conservative investors take profits now. Tonight we will update the stop loss to $54.45. I am not suggesting new positions at this time.

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

12/11/14 new stop @ 54.45
11/29/14 new stop @ 53.85
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

PUT Play Updates

Currently we do not have any active put trades.