Option Investor

Daily Newsletter, Monday, 8/25/2014

Table of Contents

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

Market Wrap

S&P 500 Touches 2000

by Thomas Hughes

Click here to email Thomas Hughes
The S&P 500 index crossed 2000 for the first time today, making the 29th new high, without much fanfare or excitement.


After a tentative start in Asia and Europe, US bulls geared up for a march to new highs today. Asian indices were mixed after a weekend of questioning how markets would react to last weeks economic data and speeches made by central bank leaders at the Jackson Hole Conference. European indices were mixed as well, at least in the early part of their trading day. The major EU indices were able to power to new one month highs once they got the signal from US markets the bulls were still in charge. Futures trading indicated that the major US indices would open not only higher, but with some at new highs and the S&P 500 facing the much anticipated 2000 mark. There was no economic data and very little earnings to impact early trading.

The early indication was for the SPX to open about 7 or 8 points above last weeks close but that was soon surpassed. After the open the markets drifted higher for the first 30 minutes until today's economic data was released. Housing data in the form of New Home Sales, released at 10AM, helped to propel the market to the intraday high. After lunch the markets tested near term intraday support before bouncing back up to close near the top of the day's range. The SPX didn't close above 2000 but it is really, really close and did make the 29th new high of the year.

Market Statistics

Absent from the market, again, was news from the Russian/Ukraine front. The aid convoy that entered Ukrainian soil last week did not result in escalations of tensions or violence over the weekend. Neither did other potential hot spots such as ISIS. Both remain as possible influencers of market direction so some caution is still warranted. Eyes and attention is focused on events scheduled for later in the week. The economic calendar is not jam packed but has a few important items on it. Tomorrow Durable Goods orders are expected to rise, primarily on transportation. Along with the durables report will be the Case-Shiller index, housing price index and consumer confidence. Wednesday mortgage index data is followed on Thursday with the usual jobless claims data and the 2nd estimate for 2nd quarter GDP. Current estimates have 2nd quarter GDP in line with the previous estimate of 4.0%. Thursday data wraps up with Pending home sales followed up by a full day on Friday. Two regional gauges of the economy, Chicago PMI and Michigan Sentiment, are accompanied by personal income and spending as well as PCE prices.

Economic Calendar

The Economy

New Home Sales fell -2.4% to a seasonally adjusted rate of 412,000. This is down from last month's revised level and below the expected 427,000. Last month's figure was revised up by 16,000 to 422,000. Of course, this figure is very volatile and comes with a margin of error of +/- 12%. Regardless, sales of new homes on a year to date basis are still trending higher than last year at this time.

According to Mark Zandi and Moody's Survery Of Business Confidence confidence amongst US business has never been higher. Sentiment, as measured by the survey, hit a record high since it's inception in 2003. More than half of participants are positive on the economy going forward while less than 10% have a negative outlook.

The Oil Index

Oil prices were mixed today, WTI lost about $0.40 while North Sea Brent crude gained about a quarter. High storage and increasing supply were balanced today by reports violence across the mid east. Hot spots were flaring in Libya, Iraq and else where but as yet have not impacted production or delivery. The Oil Index rose in today trading, buoyed by the rising tide of stocks and economic trends. The index gained a full percent today, moving up from the short term moving average and setting a new one month high. The index has been consolidating along long term support for over a month and now looks to be moving in line with long term trends. The indicators are bullish and consitent with a rising market with support between 1625 and 1650. There is resistance around 1,700 which could keep the index contained in the near term.

The Gold Index

Gold prices hovered within a dollar or two of last weeks closing prices but fell below $1280. Positive economics and statements from central bank leaders last week have helped to boost the dollar which in turn is putting pressure on gold. This is now the third day that gold prices have traded between $1275 and $1280 with $1275 emerging as near term support. There is still a chance of near term fears to drive prices back up in a knee jerk reaction but long term fundamentals are in support of low, if not lower, gold prices.

The Gold Index fell today as well, dropping below the short term 30 day moving average. The index lost over 1% in today's action and is now testing support along the lower boundary of the support/resistance “zone” the index has been trapped inside the last two months. The current trend, and trend following signal, is down so it looks like a drop below the zone is likely. However, the long term 150 day moving average is just below the zone and could provide some support and there is some evidence of that in the charts over the past 12 months.

I think it will come down as always to gold prices and expectations of gold production. On one hand prices are below levels where I would expect gold companies to be able to increase earnings (based on last quarters average realized prices) based on simple price increases. On the other, if production or sales of reserves from gold companies ramp up in an effort to make more revenue that would depresses gold prices and earnings potential even further. But yet another factor is low oil prices, which will lower all in sustained costs per ounce and increase profit margins.

In The News, Story Stocks and Earnings

Burger King hit the news this morning. Not for earnings but for merger and specifically a potential tax inversion. Burger King Worldwide has put in an offer for Canada based Tim Horton, a chain of coffee and donut restaurants. The deal would effectively lower the tax rate for US based BKW but is not the only reason for the offer. One sign of this is a lack of clause giving BKW an out if anti-inversion legislation were to move forward. Analysts see good for both companies in the deal as it would give Burger King a better position in the breakfast/coffee niche and open Tim Hortons up to a whole new level of business. Shares of both companies shot up by more than 20% on an intraday basis.

Burger King

Tim Horton's

Earnings season is just about over for this cycle but there are still 10 S&P 500 companies left to report. As an example of the earnings doldrums we are in today there were only 12 reports and less than 75 for the entire week. According to FactSet out of the 490 S&P companies that have reported so far 74% of them have increased EPS and 66% have increased sales. This is an improvement over last week for both figures. So far for the quarter earnings growth is 7.7%, nearly 3% higher than the 4.9% expected at the end of last quarter. Leading sectors for earnings growth include telecom, health care, consumer discretionary and materials with telecoms and financials at the top of the expected list for the current quarter. Also looking forward to the current quarter NVIDIA has the greatest upward change in expectation for Q3 based on a trailing 10 week time frame.

Shares of NVIDIA traded up today but not significantly. The price action today was tame and over the past 6 months choppy/sideways at best. Pulling out to a longer term chart of weekly prices we can see that the stock is trading beneath a long term resistance after trending up the past 18 months (Nov '12 to the present). The stock is showing support along the long term 150 day EMA which is coincident with several areas of bullish activity over the past 18 months. The chart doesn't look particularly bullish right now but long term buyers could keep pushing the stock up against resistance and if earnings play out as expected or better could produce a break out. The company reported EPS of $0.25 for the past quarter and is expected to report again November 11th. NVIDIA is a computer technology firm focusing on a full suite of 3D technologies for home, business and industry.

NVIDIA Weekly Prices

Goldman Sachs reported late Friday that it had reached an agreement with the FHFA on soured mortgages it had sold to Fannie Mae and Freddie Mac. The agreement has Goldman repurchasing the residential mortgage backed securities for $3.15 billion with reserves set aside for such a purpose. Shares of the stock gained close to 2% in today's session, the first since the announcement, but was halted at resistance set this past February. The indicators are bullish and pointing higher at this time but are not yet strong enough to suggest a break to new highs is developing.


The VIX has been trending lower since hitting its Russian induced peak three weeks ago. The volatility index traded down today but formed a spinning top, neither bullish or bearish, as traders await the rest of what the week will bring. The index is now below the 12.50 level and the range of the “new normal” in volatility. While being the new now, I will point out that these are the levels at which the VIX traded years before the housing bubble built up and burst, and that was back when the market was still in the secular bear range. The indicators now are bearish although momentum may be waning. Based on past performance I am expecting the VIX to drift lower, or at least below 12.50, unless and until the next brick in the wall of worry emerges, which very well may be Russia again.

The Indices

Trading was light and basically uneventful today even as the SPX flirted with 2000. At the open the rally was very broad, about 95% of S&P companies were in the green. By the end of the day that had tamed a little to about 80% but there were still more advancing stocks that declining. The SPX gained 0.48% in today's session, about 10 points, closing just shy of 2000 after trading above it for a few hours this morning. The index is still drifting higher following the long term trend bounce and trend following signals but the volume has yet to return to the market. The light volume is a concern but should return sooner rather than later. The indicators are still bullish though momentum gains may have stalled. Near term support is just below the current level in the range from 1950 up to 2000 with the long term trend line down around 1,900. Near term risks include geopolitics and economic data but the trends are still up so I am not expecting any negative surprises right now. Geopolitics are harder to predict. Without any bearish catalysts the market could continue to drift higher, even without increased volume. And, now that the index looks set to cross 2,000 it could bring some traders back into the market. In the end 2,000 is nothing more than a psychological round number; the trend is up and the signal is up, now it's time to wait and see what everybody else is going to do.

The Dow Jones Industrial Average led today's rally, closing with a gain of 0.49%. The blue chip average gained just over 75 points today, coming just short of a new all time intraday high. This index is also moving higher following a long term signal and is currently indicated higher. The momentum is bullish and increased with today's candle stick while stochastic continues to trend higher. Stochastic is closing in on the upper signal line, where a crossover would indicate underlying strength in the index. Both indicators are in line with the underlying bull trend in the index and pointing to higher prices. A failure to break above the current all time high could result in the index trading within the current range between 16,500 and 17,100 until further evidence is revealed.

The NASDAQ Composite drifted higher in today's trade, gaining 0.41%. The tech heavy index climbed 18.80 points to create another spinning top and another new 14.5 year high. Today's candle, and those of the last few trading days, looks to me like a market that is moving higher on the underlying trend but just not sure it is going up. The indicators are both bullish, the momentum is strong and stochastic has crossed the upper signal line. If this break out to new highs is valid and holds up it could take the index up to 5000 based on the height of the March-April correction and ensuing consolidation. Current support exists just below the current level at the previous 14.5 year high just below 4,500.

The Dow Jones Transportation Average was today's laggard. The transports gained only 0.29% compared to the near half percent gained by the others. The transports gained just over 24 points today, creating the fifth in a series of spinning tops forming just under the resistance of current all time highs set last month. The index is in mid bounce, from a long term trend line, and is accompanied by bullish indicators. Momentum has tapered off a bit while the index has been in indecision but remains strong while stochastic is also confirming strength. There is still the resistance of the current all time high but it looks like the transports could push to a new high. Low oil prices will surely help this index.

Today was very uneventful when you consider what has been going on in the world and the markets of late. In the nearest terms Russia, Ukraine and Iraq have been playing tug of war with better than expected earnings while rising but uncertain economic trends dominate the long term. Today nearly none of the near term strife was present in the market. The Ukraine/Russia conflict was absent from headlines and Iraq barely had a mention. Earnings season is basically over leaving the economic trends to hold sway.

There wasn't a lot of data released today either but that really isn't a bad thing. The market had time to take a breather and while doing so drifted up and touched all time high levels. There are still near term risks, geopolitics number one in my book, but until they rear their ugly heads the market is drifting up on the tide. Tomorrow the week will heat up with the release of durable goods orders and consumer confidence so be on the lookout. Until then, remember the trend!

Thomas Hughes

New Plays

A Tough Combination

by James Brown

Click here to email James Brown


Transocean Ltd. - RIG - close: 37.48 change: -0.49

Stop Loss: 40.01
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.4 million
New Positions: Yes, see below

Company Description

Why We Like It:
The oil drillers could be facing a significant downturn due to lower demand and rising supply. That's a tough combination for any business.

RIG is one of the biggest. According to the company website, "We are a leading international provider of offshore contract drilling services for energy companies, owning and operating among the world's most versatile fleets with a particular focus on deepwater and harsh-environment drilling. Our fleet of 79 mobile offshore drilling units includes the world's largest fleet of high-specification rigs consisting of ultra-deepwater, deepwater and premium jackup rigs. In addition, we have seven ultra-deepwater drillships and five high-specification jackups under construction."

The company's latest earnings report on August 6th looked pretty good. Wall Street was expecting a profit of $1.12 a share. RIG delivered $1.61 - blow out number. Revenues also beat estimates at $2.33 billion versus the $2.29 estimate but revenues were down from a year ago. Investors ignored the better than expected results. That's because the industry is facing a number of headwinds.

Day rates are dropping and more rigs are sitting idle. Analysts are lowering estimates due to rising down time. RIG's latest fleet update showed that out-of-service time for 2014 had risen by 28 days. Their 2015 projected out-of-service time had surged 236 days. That is significant when you consider that these rigs get paid hundreds of thousands of dollars per day they operate. Of course those numbers are coming down.

Angie Sedita, an analyst with UBS, said, "We believe dayrate pressure will persist given limited rig tenders (demand) and fierce competition, with dayrates already down 25%-40% from peak levels."

Raymond James analyst Praveen Narra provided more details on their bearish outlook. According to Narra:

After a decade of good times, the deepwater drilling rig market is facing a multiyear down-cycle. Historically, most offshore drilling cycles have been short-lived as there have usually been sudden demand shocks that tend to self correct relatively quickly. This time, it is more of a new rig supply problem compounded by a moderation in offshore spending from the suddenly “return driven” multinational major oil companies. That means this down-cycle should be more drawn out than usual. Specifically, we think the downturn will take about three years to play out with average floater day-rates falling about 25% with over 60 floating rigs needing to be stacked (either warm stacked or cold stacked). More importantly for investors, we think consensus 2016 floater estimates (on average) are still about 25% too high. Put another way, earnings multiples are not as attractive as some now think, in our view. Obviously, the lower-end, older floating assets will be hit the hardest. While everyone loses in this environment...

If you're curious a "stacked" rig is not in service. They can be warm stacked, which means they are idle but still have a crew and ready for deployment. A cold stacked rig has essentially been mothballed.

The bearish outlook for RIG is evident in the stock's decline. Shares just broke down under support near $38.00. The Point & Figure chart is bearish and forecasting at $30.00 target but this target could fall further. It is worth noting that there are a lot of traders already bearish on RIG. The most recent data listed short interest at 18% of the 327 million share float. That can spark short squeezes like the one back in April and again in June.

Tonight we are suggesting a trigger to launch bearish positions at $37.25.

Trigger @ $37.25

- Suggested Positions -

Short RIG @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the OCT $35 PUT (RIG141018P35) current ask $0.46

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Trim Their Morning Gains

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. markets shot higher at the opening bell but pared their gains by the close.

RFMD has been removed. FITB was stopped out.

Current Portfolio:

BULLISH Play Updates

Delta Air Lines - DAL - close: 40.52 change: +0.11

Stop Loss: 37.65
Target(s): To Be Determined
Current Option Gain/Loss: -0.6%
Entry on August 21 at $40.75
Listed on August 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 11 million
New Positions: see below

08/25/14: The transportation stocks struggled to keep pace with the broader market today. DAL was no exception and only added +0.2%.

I am not suggesting new positions at the moment.

Earlier Comments: August 20, 2014:
Delta is the world's second biggest passenger airliner on the planet. They serve almost 165 million customers a year. Believe it or not but they started back in 1924 as an aerial crop dusting company called Huff Daland Dusters. Now they have almost 80,000 employees and a fleet of more than 700 planes that fly to 334 destinations in 64 countries on six continents.

A lot of investors look at the airline stocks as value plays. That's easy to see given their cheap multiples. DAL has a P/E of 3.1. Yet the company is seeing growth as well. Last year the airlines were big winners with the market's 2013 rally. This year could be another strong one thanks to falling oil prices. There has been a lot of geopolitical headlines but none of them seem to be pushing oil prices higher. Instead crude oil prices are falling. That's a huge deal for the airline companies because fuel is their largest expense. DAL has the lowest fuel costs in the business because they own their own refinery. The company expects that their fuel hedging and refinery operations should cut their fuel costs by $350 million this year.

More than 60% of DAL's business is in the U.S. The country's slow economic improvement has helped fuel gains for DAL. The airline has beaten Wall Street's bottom line estimates four quarters in a row. Back in June they raised guidance. Their most recent earnings report was July 23rd where they delivered a profit of $1.04 a share, one cent above estimates. DAL management that said their pre-tax profit was $1.4 billion, which is a +70% improvement from a year ago. They ended the second quarter with debt at less than $8 billion, which is a 20-year low. DAL's margins have been improving. Management expects margin improvement to continue and should see a jump from 13.5% to 15-17% in the third quarter.

Technically DAL saw a correction from $42 to $35 (-16%) from its June highs. Investors bought the dip again near $35.00 in early August. Now DAL has built what appears to be a bullish double bottom. The current bounce from its August lows is breaking through resistance.

If this trend continues we want to hop on board. Tonight we're suggesting a trigger at $40.75. The 2014 high near $42.50 could be short-term resistance but longer-term DAL looks poised to breakout.

- Suggested Positions -

Long DAL stock @ $40.75

- (or for more adventurous traders, try this option) -

Long 2015 Jan $45 call (DAL150117C45) entry $1.70*

08/21/14 triggered @ 40.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Green Plains Inc. - GPRE - close: 44.65 change: +0.52

Stop Loss: 40.95
Target(s): To Be Determined
Current Option Gain/Loss: +9.5%
Entry on August 11 at $40.77
Listed on August 09, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.4 million
New Positions: see below

08/25/14: GPRE is still showing relative strength with a +1.1% gain on Monday. The stock is nearing what could be round-number resistance at $45.00. I'm not suggesting new positions at this time.

Earlier Comments: August 09, 2014:
GPRE has been a monster stock for investors over the last couple of years. Summer of 2012 the stock was trading for less than $5.00 a share. Today GPRE is trading at levels not seen since early 2006. The company is considered part of the basic materials sector. They're listed in the specialty chemicals industry. What they do is make ethanol and a lot of it.

According to the company website, "Green Plains is a vertically-integrated ethanol producer based in Omaha, Nebraska. We currently have an ethanol production capacity of approximately 1.0 billion gallons per year with our 12 plants." Another big part of their business is "Distillers grains are an important co-product of Green Plains’ ethanol production. At capacity our plants will produce approximately 2.9 million tons of distillers grains annually that will be used as a high-protein, high-energy animal fodder and feed supplement. Corn oil is also a co-product of ethanol production that is being extracted at all 12 of our plants."

Earlier this year GPRE made headlines when they purchased their own cattle-feed yard. Distiller's grain is a byproduct of the ethanol production process. Previously GPRE would try and sell it to ranchers as cattle feed. Sometimes that proved difficult to sell all of its distiller's grain. GPRE has decided a great way to handle the problem is buy their own cattle yard. They'll be able to raise their own cattle with the byproduct of their main business of ethanol production.

Of course ethanol is their main product and it could be a great year for GPRE. The company's input costs for their main ingredients of corn and natural gas have been falling in 2014. That's going to boost their ethanol margins. Piper Jaffray actually upgraded GBX in July on this dynamic and raised their price target on GPRE to $45.00.

It looks like the ethanol market is pretty healthy. The U.S. saw ethanol exports soar +56% in the first six months of 2014. Most of that went to Canada. Demand for ethanol could go up if some senators have their way. A handful of senators are pushing to boost the EPA's requirement on ethanol in our fuel. If they are successful it would raise the ethanol requirements by +40%.

The stock has displayed significant relative strength. The S&P 500 index is up +4.5% year to date. GPRE is up +108%. More and more mutual funds have been adding GPRE to their portfolio. Yet not everyone agrees with the bullish outlook on GPRE. Short interest is climbing as well. The most recent data listed short interest at 25% of the small 28.6 million share float. If this rally continues it could spark more short covering.

The last few days have seen GPRE consolidating sideways in the $39.50-40.60 zone. Tonight we are suggesting a trigger to open bullish positions at $40.75. We will try and limit our risk with a stop loss at $38.40.

We are not setting an exit target tonight but I will note that the point & figure chart is bullish and suggesting at $69.00 target.

- Suggested Positions -

Long GPRE stock @ $40.77

- (or for more adventurous traders, try this option) -

Long Dec $45 call (GPRE141220C45) entry $2.95*

08/23/14 new stop @ 40.95
08/14/14 GPRE announces $100 million buy back and doubles dividend to 8c.
08/13/14 new stop @ 39.25
08/11/14 trade opens on gap higher at $40.77, trigger was $40.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Microsoft Corp. - MSFT - close: 45.17 change: +0.02

Stop Loss: 42.90
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
Entry on August 14 at $44.08
Listed on August 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 36 million
New Positions: see below

08/25/14: The New York Times ran a story today that China is working on its own computer operating system to compete with huge American companies like Microsoft, Google, and Apple. This news might have acted as a brake on MSFT shares. The stock churned sideways in the $45.00-45.50 zone. Of course MSFT has been stuck under resistance near its July highs.

I am not suggesting new positions at this time.

Earlier Comments: August 13, 2014:
Microsoft Corp. is a technology behemoth. The company was founded in 1975. They have grown into a massive company with 128,000 employees around the world. Their software is used by billions of people every day. They also offer technology services, tablets, X-box gaming platform, networking and server software, and their Nokia division. MSFT has jumped head first into the cloud computing industry. Altogether MSFT generated almost $87 billion in sales the past 12 months with a net income of $22 billion.

Investors worried about MSFT and how the death of the PC would slowly chip away at its core products - mainly the Windows operating system and Microsoft Office. However, this past summer there has been evidence that the PC market isn't dead. Intel reported stronger than expected chip sales for PCs, especially to enterprise customers. Meanwhile MSFT stopped supporting the Windows XP operating system. MSFT released the XP system back in 2001. Their decision to stop providing updates means the XP system could become less secure to viruses, malware, and hacking. One analyst estimated that 25% of the PCs currently connected to the Internet were still running XP. That's millions and millions of computers that will need to either upgrade their software or likely be scrapped and upgraded to a new computer with a newer version of MSFT's software. The upgrade cycle could last a while.

Investors have been pretty optimistic since Satya Nadella was crowned CEO of MSFT back in February this year. He has been focusing the company on the cloud and it seems to be working. MSFT's commercial cloud revenues soared +147% with sales on track to exceed $4 billion a year. Even Bing, MSFT's search engine rival to Google, is improving. Bing's ad revenues rose +40% last quarter and snatched almost 20% of the search engine market. MSFT expects their Bing division to turn profitable in 2016.

MSFT's most recent earnings report on July 22nd was mixed. They missed the bottom line estimate by 5 cents. Yet revenues came in ahead of expectations. Wall Street was looking for quarterly revenues of $22.99 billion. MSFT reported $23.38 billion. Several analyst firms upgraded their outlook on MSFT following the earnings report. Many of the new price targets are in the $50 area.

Technically shares of MSFT have a bullish trend of higher lows. The stock saw some post-earnings depression in the second half of July but now that's over and investors are buying the dip.

Tonight I am suggesting investors open bullish positions tomorrow morning. We'll try and limit our risk with a stop loss at $41.75.

- Suggested Positions -

Long MSFT stock @ 44.08

- (or for more adventurous traders, try this option) -

Long 2015 Jan $50 call (MSFT150117c50) entry $0.45

08/23/14 new stop @ 42.90
08/14/14 trade begins. MSFT opens at $44.08
Option Format: symbol-year-month-day-call-strike

Skyworks Solutions - SWKS - close: 54.76 change: -0.39

Stop Loss: 49.95
Target(s): To Be Determined
Current Option Gain/Loss: +4.0%
Entry on August 07 at $52.65
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.3 million
New Positions: see below

08/25/14: SWKS saw some profit taking today with a -0.7% dip. The stock is poised to test its simple 10-dma soon. I am not suggesting new positions at this time. More conservative investors may want to raise their stop loss closer to $52.00.

Earlier Comments: August 2, 2014:
The semiconductor stocks have led the market higher most of the year but the SOX semiconductor index has reversed sharply in the last couple of weeks. This correction in the SOX has shaved its year to date gains to +13.9%. Shares of SWKS have not seen the same pullback and this semiconductor stock is up +82% this year and looks poised to keep the rally going.

Who is SWKS? According to the company website, " Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

SWKS is probably best known for being a component supplier for Apple's iPhones. SWKS is also supplying components to Amazon.com for that company's new Fire Phone.

SWKS soared in mid July following a better than expected earnings report. Wall Street was looking for a profit of 80 cents after SWKS guided higher to 80 cents in June. They still managed to surprise with a bottom line profit of 83 cents a share. Revenues soared almost 35% to $587 million, which was better than the $570 million estimate, up from $535 before SWKS's June guidance. SWKS management also raised their guidance going forward.

Following SWKS's much better than expected report there was a wave of bullish analyst comments. Several firms raised their SWKS price targets into the $60-65 zone. SWKS's bullish guidance is probably due to Apple's new iPhone 6, which is expected to be unveiled in September. Odds are good that SWKS will rally into Apple's product launch in September.

Shares of SWKS were showing relative strength on Friday with a bounce from support near $50.00 and a bullish engulfing candlestick pattern. We are suggesting a trigger to launch bullish positions at $52.65.

- Suggested Positions -

Long SWKS stock @ $52.65

- (or for more adventurous traders, try this option) -

Long Nov $55 call (SWKS141122C55) entry $2.86

08/13/14 new stop @ 49.95
08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike

WhiteWave Foods Co. - WWAV - close: 34.90 change: +0.59

Stop Loss: 31.40
Target(s): To Be Determined
Current Option Gain/Loss: -0.0%
Entry on August 19 at $34.91
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: see below

08/25/14: It took a little while to build up momentum but WWAV was in rally mode the second half of Monday's session. Shares outperformed the market with a +1.7% gain.

Earlier Comments: August 16, 2014:
Consumer tastes and buying habits are changing and more people are opting for more natural and organic foods.

WWAV is in the consumer goods sector. You might not recognize the name but they're behind brands like Silk, Horizon Organic, Land-O-Lakes, International Delight, Alpro, and Earthbound Farm Organic.

WWAV considers themselves "a leading consumer packaged food and beverage company that manufactures, markets, distributes, and sells branded plant-based foods and beverages, coffee creamers and beverages, premium dairy products and organic produce throughout North America and Europe. The Company is focused on providing consumers with innovative, great-tasting food and beverage choices that meet their increasing desires for nutritious, flavorful, convenient, and responsibly-produced products. The Company's widely-recognized, leading brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES* coffee creamers and beverages, Horizon Organic premium dairy products and Earthbound Farm' certified organic salads, fruits and vegetables. Its popular European brands of plant-based foods and beverages include Alpro and Provamel" (The Land-O-Lakes brand is licensed from the owners).

If you're looking for a company that is growing then keep an eye on WWAV. They have beaten Wall Street's estimates on both the top and bottom line at least four quarters in a row. The last three quarters management has been raising their guidance. In Q4 2013 WWAV's revenues were up +11.5%. The first quarter of 2014 saw revenues soared +36.5%.

Their latest report was August 7th. Analysts were looking for a profit of $0.22 on revenues of $815.6 million. WWAV delivered a profit of $0.23 with revenues climbing +39.5% to $837.9 million.

The natural and organic retailers might be facing tougher margins and stronger competition (WFM, SFM, TFM, NGVC) but that doesn't seem to be the case for a producer and distributor like WWAV.

You can see the big surge in the stock price on August 7th as traders reacted to the bullish earnings news and guidance. After consolidating gains the last few days shares of WWAV have started to push higher again. They have been outperforming the major market indices and WWAV closed at a new all-time highs on Friday.

We believe the rally continues but I am labeling this a more aggressive, higher-risk trade due to WWAV's recent volatility. The last several weeks have seen some significant swings.

Friday's intraday high was $34.06. We're suggesting a trigger to open bullish positions at $34.15.

- Suggested Positions -

Long WWAV stock @ $34.91

- (or for more adventurous traders, try this option) -

Long OCT $35 call (WWAV141018C35) entry $1.70*

08/19/14 trade opens on gap higher at $34.91, suggested entry point was $34.15.
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Cepheid - CPHD - close: 38.49 change: +0.30

Stop Loss: 40.25
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
Entry on July 28 at $39.20
Listed on July 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 680 thousand
New Positions: see below

08/25/14: The early morning gains in CPHD faded but shares still managed a +0.7% gain. I remain cautious. This stock's downward momentum has stalled.

More conservative traders might want to lower their stop loss.

I am not suggesting new positions at this time.

Earlier Comments: July 26, 2014:
CPHD is in the technology sector. If you look deeper the company operates in the scientific and technical instruments industry. According to the company's website, "Cepheid is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests. By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer."

CPHD, like most of the U.S. stock market, had a great 2013. Unfortunately the rally peaked in February-March 2014. This stock set its all-time highs in the $55-56 zone. Market watchers already know that momentum and high-growth names were crushed during the March-April market pullback. CPHD was no exception. The stock corrected from $55 to $40. It looked like CPHD was on the path to recovery but then the stock collapsed again in the last two weeks.

The problem is CPHD's earnings. The company reported earnings on July 17th. Their adjusted results for the second quarter of 2014 was a loss of 10 cents a share. That was better than Wall Street's estimate for a loss of 13 cents a share. CPHD delivered pretty solid revenue growth. Sales in the second quarter surged +21.4% to $116.5 million. That came in better than analysts were expecting. Yet CPHD's net results were down -40% from a year ago.

Listening to the company's management paints an optimistic outlook. CPHD's CEO John Bishop said they sold a record-setting 1,084 of their GeneXpert systems last quarter. That's more than all of 2012. Gross margins improved as well with margins rising from 45% to 49%. So why did the stock fall?

Investors sold the stock on disappointing guidance. CPHD expects 2014 revenues in the 4452-461 million zone. That's relatively close to Wall Street's $459 million estimate. Yet CPHD is forecasting EPS of 10 cents to 13 cents. That is significantly lower than analysts' estimates of 20 cents. You can see the reaction in CPHD stock with the big drop on July 18th.

The post-earnings sell-off continues and now CPHD is breaking down under significant support at the $40.00 level. The next stop could be the $36-35 area or lower. Currently the point & figure chart is bearish and forecasting at $29.00 target.

I would consider this a more aggressive trade. The latest data listed short interest at 16.8% of the 68.9 million share float.

Friday's low was $39.26. We're suggesting a trigger to open bearish positions at $39.00.

- Suggested Positions -

Short CPHD stock @ $39.20

- (or for more adventurous traders, try this option) -

Long SEP $40 PUT (CPHD140920P40) entry $2.35

08/13/14 new stop @ 40.25
07/31/14 new stop @ 40.51
07/28/14 triggered @ 39.20
Option Format: symbol-year-month-day-call-strike

Natural Grocers by Vitamin Cottage - NGVC - close: 18.93 change: -0.10

Stop Loss: 20.10
Target(s): To Be Determined
Current Option Gain/Loss: +2.7%
Entry on August 12 at $19.45
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 209 thousand
New Positions: see below

08/25/14: The market's early morning rally lifted NGVC to $19.36 before gains reversed. The stock underperformed the market with a -0.5% drop by the closing bell.

I am not suggesting new positions at this time. More conservative investors might want to lower their stop loss again.

Earlier Comments: August 11, 2014:
The last six to nine months have not been good for the natural food and organic-related retail chains. Whole Foods (WFM), The Fresh Market (TFM), Sprouts Farmers Market (SFM), and Natural Grocers have all underperformed the market by a wide margin.

According to NGVC's press release the company was "founded in Colorado by Margaret & Philip Isely in 1955, Natural Grocers was built on the premise that consumers should have access to affordable, high-quality foods and dietary supplements, along with nutrition knowledge to help them support their own health. The family-run store has since grown into a successful national chain with locations across Colorado, Texas, Utah, Wyoming, Oklahoma, Missouri, New Mexico, Montana, Kansas, Idaho, Nebraska, Arizona and Oregon, and employs over 2000 people. Although the company went public in July 2012, Isely family members continue to manage the company day to day, building on the foundation of their parents' business."

The good news is that the natural food and organic food craze is reaching a wider audience and more and more consumers are making healthier choices. The bad news is that this previously higher-margin business, in a notoriously low-margin industry, has drawn tons of competition. That has been the biggest challenge. Big players like Wal-mart and Target in addition to major regional grocery chains are all starting to offer more natural and organic wares. Meanwhile those already in the space are competing with each other as well. Margins are shrinking as competition heats up.

Shares of NGVC plunged back in May after the company lowered its same-store sales forecast for 2014. The stock dropped again on August 1st following its earnings report. Earnings were in-line with estimates but guidance was soft.

The path of least resistance is down and NGVG looks headed for its all-time lows in the $17.00 area.

The biggest risk with this bearish positions on NGVC is the crowd. There are a lot of investors already bearish on this stock. The most recent data listed short interest at 33.3% of the very, very small 5.1 million share float. That significantly raises the risk of a short squeeze.

We are suggesting bearish positions with a trigger to short NGVC at $19.45 but I am labeling this an aggressive, high-risk trade. NGVG does have options but most of the option spreads are too wide. We will try and limit our risk with a stop loss at $21.05.

*Aggressive Trade* Use small positions. - Suggested Positions -

short NGVC @ $19.45

08/21/14 new stop @ 20.10
08/12/14 triggered @ 19.45

Papa John's Intl. Inc. - PZZA - close: 39.54 change: +0.22

Stop Loss: 41.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.1%
Entry on August 25 at $39.56
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 368 thousand
New Positions: see below

08/25/14: Our new trade on PZZA did not see a lot of movement today. Shares opened higher at $39.56. There was a spike lower late morning to $38.52 but PZZA quickly recovered. The stock remains under resistance at $40.00 and its 10-dma. I would still consider new positions now at current levels or if you're nimble look for a failed rally near $40.00.

Earlier Comments: August 23, 2014:
Papa John's was founded back in 1985 and headquarter in Louisville, Kentucky. They have grown into the planet's third largest pizza delivery company. There are over 4,400 Papa John locations in all 50 U.S. states and 35 countries. The good news for PZZA has been their international growth. They're growing in the U.S. as well but international growth has been outperforming.

Last year was a banner year for the stock price. Shares virtually doubled from their 2013 low to their December 31st close. The rally kept going in 2014. However, momentum reversed in March when many of the momentum names were crushed. PZZA suffered a multi-week hammering with a drop from $55 to $40. Since then stock has struggled.

One of the biggest challenges for restaurant stocks has been food inflation. Food prices have been climbing sharply the past several months. In the U.S. food inflation is running about +20%. A lot of that is due to surging prices in meat, eggs, and dairy. Guess who uses a lot of cheese? PZZA does.

PZZA's earning trend has been shaky. They missed earnings last November. February's report was only in-line with estimates. May's announcement missed estimates. Their most recent earnings report was August 5th. Wall Street expected a profit of $0.42 a share on revenues of $384.8 million.

PZZA delivered a profit of $0.40 with revenues up +9.1% to $380.9 million. That's a miss on both counts. The company said same-store sales in North America were up +6% and overseas up +8.6%. That looks healthy. Yet their 40-cent profit lines up with a 39-cent profit a year ago. Sales are up but profits are flat? The biggest culprit is probably rising ingredient costs. Management did raise their 2014 guidance but even after they raised guidance it was still below Wall Street's consensus.

The company is still expecting relatively decent sales growth but it doesn't seem to be fast enough to satisfy Wall Street. The recent breakdown under support near $40.00 is bearish. The point & figure chart is bearish and forecasting a $32 price target.

Tonight we are suggesting bearish positions immediately. We're not setting an exit target yet. I will point out potential support on the weekly chart (see below). The path of least resistance for PZZA definitely looks lower.

FYI: PZZA does have options but the spreads are too wide to trade them.

- Suggested Positions -

Short PZZA stock @ $39.56

08/25/14 trade begins. PZZA gaps higher at $39.56

Sprouts Farmers Market, Inc. - SFM - close: 30.59 change: +0.25

Stop Loss: 30.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: Yes, see below

08/25/14: The bounce in SFM continued on Monday. Shares outpaced the broader market with a +0.8% gain. If this continues we will drop SFM as a bearish candidate.

We are still on the sidelines waiting for a new relative low. Our suggested entry point is $28.95.

Earlier Comments: August 18, 2014:
There is a growing pile of evidence that Americans are starting to eat healthier. It's about time. 66% of Americans are overweight and 33% of us are clinically obese. This new trend of healthier eating helps explain falling sales at restaurants like McDonalds and strong sales for rivals like Chipotle (which many consider to be a healthier choice). Today's trade isn't about restaurants. It's about the natural and organic trend in grocery stores.

Most people think of Whole Foods Market (WFM) when they consider natural and organic grocery chains. WFM is a dominant player with 388 stores. Sprouts (SFM) is catching up. The first Sprouts store started in Arizona back in 2002. Today they have more than 180 stores. Unfortunately for SFM they are facing the same issues WFM is.

Natural and organic foods used to offer higher margins in a notoriously low-margin business - grocery. It wasn't long before everyone has started promoting their natural and organic options. Traditional food chains as well as major nationwide players like Wal-Mart and Target. All of this competition is pressuring margins and sales growth.

Keep in mind, SFM is still growing. Their latest earnings report was August 7th and SFM beat estimates with a profit of 20 cents a share. That's a +43% jump in earnings from a year ago. Revenues were up +19.5% to 743.8 million, also above estimates. SFM management raised their 2014 guidance although this didn't have much impact since they only raised guidance to match Wall Street's consensus.

This issue doesn't seem to be growth. Investors are bearish on rising competition. It doesn't help that SFM isn't cheap with a current P/E of almost 52. It also didn't help that several major shareholders just sold 15 million shares at $30 a few days ago. This big sale doesn't breed confidence for investors.

Technically SFM appears to be in a major down trend of lower highs and lower lows. The P&F chart is bearish and forecasting at $23.00 target. SFM barely moved today in spite of a relatively widespread market rally.

Currently SFM is hovering just above support near $29.10. If this stock breaks down it could test its 2014 lows and potentially hit new ones. Tonight we're suggesting a trigger for bearish positions at $28.95.

Trigger @ $28.95

- Suggested Positions -

short SFM stock @ $28.95

- (or for more adventurous traders, try this option) -

Buy the DEC $27.50 PUT (SFM141220P27.5)

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


RF Micro Devices Inc. - RFMD - close: 11.67 change: -0.14

Stop Loss: 11.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 14.5 million
New Positions: see below

08/25/14: RFMD has underperformed the stock market four days in a row. Now this might just be a pause in the stock's significant bullish up trend. We're choosing to be more defensive here. Tonight we are removing RFMD as a potential candidate. Our trade did not open.

The story hasn't changed on RFMD so I would keep it on your watch list.

Trade did not open.

08/25/14 removed from the newsletter, trigger was $12.15



Fifth Third Bancorp - FITB - close: 20.44 change: +0.12

Stop Loss: 20.51
Target(s): To Be Determined
Current Option Gain/Loss: - 4.9%
Entry on August 06 at $19.55
Listed on August 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 10.2 million
New Positions: see below

08/25/14: Financial stocks were showing relative strength today. Shares of FITB managed to trade above potential resistance at $20.50 and its exponential 200-dma. Our stop loss was hit at $20.51.

- Suggested Positions -

Short FITB stock @ $19.55 exit $20.51 (-4.9%)

- (or for more adventurous traders, try this option) -

Nov $20 PUT (FITB141122P20) entry $1.20* exit $0.48** (-60.0%)

08/25/14 stopped out
08/21/14 new stop @ 20.51
08/06/14 trade begins. FITB gaps down at $19.55
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike