Option Investor

Daily Newsletter, Monday, 9/8/2014

Table of Contents

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

Market Wrap

And The Market Churns

by Thomas Hughes

Click here to email Thomas Hughes
The equity markets continued to churn today in the wake of last weeks less than expected jobs report.


The week opened with mixed feelings in the wake of last weeks lack luster NFP report. Needless to say, the 142,000 jobs added in August was well below expectations, including my own. Analysts, pundits, the media, you name it all are in dismay over the number. What does it mean and how does it affect the market. The general consensus of opinion is split between a combination of factors that probably all had some affect on today's trading. First, August and September data is always weak and subject to major revisions. Second is that it is an anomaly and likely to be revised higher in next month's data, which jibes with the first opinion. Third is that even if it is real it may not matter that much because despite the low number of new jobs created, overall unemployment fell.

My take on the number; one month's data does not make a trend plus the fall in unemployment along with falling jobless claims and planned layoffs are a combination of signs that job turnover is on the decline and retention is on the rise. In light of overall economic recovery, employment growth and the goal of “full employment” declining job loss is equally as good as increasing job creation.

Market Statistics

Asian and European markets were mixed to start the week. Our NFP data and weaker than expected Chinese trade data were to blame although the tenuous cease fire between the Ukraine and Russia helps to limit the losses. In China exports grew above expectations but imports fell in the face of an expected rise leading to fear of slow down. Market volume was very light across Asian market as some were closed for a holiday. In Europe indices were mostly lower but lifted into the close with some regaining positive territory. EU trade data was strong but not enough to overcome fear of slowing brought on by the weaker than expected Chinese imports.

The data had a little effect on trading here, the early futures trade was slightly lower with the indices indicated only a few points below Friday's close. At the open trading was very light, volume still has not returned to the market, and hung just below flat line for the first 15 minutes before moving down to the early low just above 2000 for the SPX. Later in the day the indices fell to a new intraday low; 1995 for the SPX, 17,080 for DOW and 4570 for the NASDAQ. The late afternoon release of Consumer Credit data put a bottom in and noticeably helped the indices move higher with the SPX regaining the 2000 level.

Economic Calendar

The Economy

As typical for a Monday there were no US economic announcements this morning except for Moody's weekly Survey Of Business Confidence conducted by Mark Zandi. This week's report ready much like it has each week this summer. According to his results business confidence is upbeat and strong looking forward to the end of the year. Hiring intentions among his responders is high, in line with the downtrend in unemployment and unemployment claims and inconsistent with the August jobs report. Mr. Zandi is one opinion I have heard suggesting the NFP will be revised higher next month.

At 3PM consumer credit numbers were released. The number was hotter than expected at 9.7% over last month totaling $3.2 trillion. Both revolving and non revolving credit surged with non revolving topping 10%. The gains were led by a jump in auto loans. The data was encouraging and helped to lift the markets off of the afternoon lows. A rise in consumer credit is a sign that the consumer is spending but also that credit conditions have loosened, the caveat is that credit conditions have loosened.

There are a few important releases scheduled for the week. Tomorrow JOLTs job openings data is followed by Wholesale Inventories on Wednesday. Thursday is the weekly jobless claims data along with Retail Sales, Michigan Sentiment and Business Inventories on Friday. Next week, next week is the next FOMC meeting where there will likely be some new fed speak and another taper of QE.

In the UK a growing chance that Scotland will vote for independence has emerged. Aside from the obvious changes in currency for the pound, euro and whatever the Scots decide to use it is unclear how this may affect the US economy. UK is a large trading partner of course, and Scotland is about 25% of the UK economy so there could be some backlash however small.

The Oil Index

Oil prices fell to a fresh 8 month low today on rising fear of slowing demand growth on top of high supply and storage levels. WTI fell more than $1.25 in early trading, falling below $92 for the first time since early February. Brent also saw a decline but not quite as sharp as West Texas Intermediate. The Oil Index also fell today, dropping -1.75% in today's session. Today's drop was sharp but looking back over the past two months the index is still trading more sideways than down. This is considering the fact that oil prices are down nearly -12% in the last two months compared to the Oil Index less than -6%.

Today's drop has brought the index down into a long term support region marked by the previous all time and all time intraday highs. The indicators are a little bearish but in line with longer term support at these levels. Near term momentum could bring the index down to the bottom of this range or even to the long term trend line but for now, the trend is still up. Current support is indicated about 1,625 and just below along the long term trend line.

The Gold Index

Gold fell another $15 today, on an intraday basis, to move below $1255. This is a continuation of the drop began last week as the flight to safety effect wore off in favor of global macroeconomic conditions. The strengthening US economy helped to boost dollar value and interest rate speculation that had been pressuring gold. The real catalyst though was last weeks move by the ECB that really sent gold to new lows. Spot gold is now trading just above potential long term support at $1250 with no real reason for investors to get long and lower prices indicated on the charts.

The Gold Index responded as expected to today's drop in gold prices and fell another -3%. This is the third down movement out of 5 days and has extended the drop below the 150 day moving average. Momentum is on the rise and could carry it down to the $90 level in the near term. Longer term support is between $85 and $90 for this index and is where I suspect the long term bottom may be located based on the two bounces from that level we saw earlier this year. That being said we'll what happens when and if the index gets there.

In The News, Story Stocks and Earnings

Apple is scheduled to reveal their newest product/innovation or what-have-you tomorrow. There has been a lot of speculation about what is going to be unveiled so there is a huge chance for the market to be disappointed. An iWatch, some other kind of wearable, a larger phone, a new iPhone in general or something else will have to be pretty spectacular to top previous product launches. What really matters though is will whatever it is sell? Will it sell enough to improve earnings, and will it do this without cutting into sales of other products? We'll find out tomorrow. Today the stock lost about -0.70% and traded just under the 30 day moving average. The stock appears to be supported here, at least in the near term, following the drop last week. The market is obviously waiting for the press conference tomorrow and could go either way. I would be careful about any knee jerk type reactions that might ripple through this market tomorrow, especially during the event, and cause false signals. If Apple is still going up there will be plenty of time to get in.

On the earnings front nearly all 500 S&P 500 companies have reported for this cycle. Fact Set reports 74% of them have beaten the mean estimate for earnings growth while 64% have beaten on sales. Looking forward to Q3 the expected earnings growth is 6.5%, down from the 8.9% at the beginning of the quarter and 6.9% for this quarter. This is due to a large number of earnings downgrades that have occurred since late June. Telecom is expected to lead in earnings growth, with consumer discretionary and more specifically Pulte to be the big drag on the index. Currently 76 companies have issued negative guidance for the coming earnings season while only 27 have issued positive expectations.

Campbell's, which reported today, is one of the very last S&P 500 companies to report in the cycle. The company met expectations for earnings and revenues but added another negative guidance for FactSet to put on their list. Reason for the poor guidance, a “challenging consumer environment”. Probably more like consumers are eating fresh soup more than canned. The stock lost more than -2.5% on the news, trading on heavy volume. However, support kicked in at long term support limiting the fall and creating a nice looking doji in the process. The bullish indicators are weakening and about to turn bearish but with the amount of volume, doji candle and proximity to long term support might not stay that way long. Support is around the $43 level with resistance above in the $44-$45 range. Some speculation that Campbell's could be a takeover target emerge today as well which could lend some support to the stock.

Boeing announced a very large order from Ryanair which sent the stock trading higher. Ryanair is going to buy 100 737 MAX jetliners valued at $11 billion. Shares of Boeing moved over 2.5% higher in a climb from the 30 day moving average on the news. The indicators are bullish and in line with an early/weak signal that could take the stock up to test resistance in the range between $130 and $135. Longer term there is resistance ahead.

Darden Restaurants and Olive Garden announced that they would be selling 1000 “all you can eat” coupons for $100. The “all you can eat pasta pass” was made available on line and I am sure by now sold out. The gimmick generated $100,000 in sales and some publicity but compared to the +$3.5 billion brought in by Olive Garden each year is just a drop in the bucket. Shares of the stock popped on the news but fell back from resistance. Resistance is right around $48.50 and the bottom of the gap formed at the last earnings release. The indicators are very weak and do not lead me to believe the stock is moving higher at this time.

The Indices

There really wasn't a whole lot to move the market today or even this week. Early trading was sluggish due at least in part to the NFP numbers and perhaps a little “wait and see”. Later in the day the consumer credit report was enough for near term support to come into the market at least enough for the SPX to regain 2,000. The broad market had lost as much as -0.50% during the day, dropping below 2,000 for a while, but was able to close above it with a loss of only -0.31%. Today's action was yet another spinning top in a series that has been going on for two weeks. The index is trading above the previous all time high and establishing what looks like a solid base of support. The indicators have been in decline and have receded from extreme levels, possibly setting up for another trend following signal.

Support has been evident between 1990 and 2000 several times over the past two weeks and appears to be moving up to the high end of the range over 2,000. A drop below 1990 would be a little bearish at this time but would find the short term moving average in the near term and the long term moving average in the short term so if there were to be any pull back right now I think it would be another buy on the dip opportunity. That said I don't see much catalyst for either rally or reversal this week so the index may just keep churning until the FOMC meeting next week.

The Dow Transports lost -0.32%, just a bit more than the broader S&P 500 index. The transports however have not been trading sideways but are just off an all time high. Today's move brought the index gently down to test support at the recently broken previous all time high. Momentum is bullish and on the rise although there is a possible divergence forming in the MACD. Stochastic is strong in the upper end of the range and producing a follow up signal to the strong trend following signal given off last month.

The Dow Industrials fared a little better in today's action. The blue chip index lost only -0.15% in today's session. This index is trading in a tight sideways range, similar to the broader SPX, but is below resistance instead of above it. Looking to the transports we can see it traded in a similar range as well, just before breaking out to its current high. Since the transports are a recognized leader of the industrials it looks like a break out for the industrials is possible in the near to short term. The indicators are both bullish but showing near term weakness, weakness that is being supported by a rising level of strong support that is now in the 16,750-17,000 range. The index looks like it is being pressed up into resistance and wants to break through, it just needs a reason.

The NASDAQ did not lose in today's session. The tech heavy index traded higher most of the day finishing with a +-0.20 % gain. This is the second day of gains for this index and has it up near the current all time high. The indicators are still bullish here but like the others, are showing some near term weakness. The next couple of days are going to be important simply on a technical basis. Without much catalyst to drive trading the long term trends and fundamentals will have to do it on their own. A pull back from this level will find support around the 4,500 level coincident with the short term moving average with additional support about 100 points below that along the longer term 150 day moving average.

There really isn't much on the horizon that I see as a major catalyst for the market this week. Economic data is very light, earnings is very light and for now, the geopolitical scene is quiet. Traders will have to decide for themselves which way the market is going and that means, I think, more indecision. Looking ahead I see that next week is the September FOMC meeting and that is more than enough in my book to keep the market churning along just the way it has been. This week may just be a gimme while we wait on the fed. Adding to that there is quite a bit of economic data next week including regional manufacturing reports and housing data.

Until then, remember the trend!

Thomas Hughes

New Plays

An Exceptional First Six Months of 2014

by James Brown

Click here to email James Brown


Gentherm Inc. - THRM - close: 51.36 change: +1.30

Stop Loss: 47.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 529 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Sales of automobile and light trucks are soaring in the U.S. According to Autodata the nation's auto sales hit an annualized pace of 17.53 million units in August. That's the best pace since early 2006. One group that is cashing in on this trend are the auto part manufacturers, which are clearly outperforming the actual auto makers.

THRM is one such auto parts company. They are probably best known for their climate controlled car seats. According to the company's website, "Gentherm is a global developer and marketer of innovative thermal management technologies for a broad range of heating and cooling and temperature control applications. Automotive products include actively heated and cooled seat systems and cup holders, heated and ventilated seat systems, thermal storage bins, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), cable systems and other electronic devices. The Company's advanced technology team is developing more efficient materials for thermoelectric and systems for waste heat recovery and electrical power generation for the automotive market that may have far-reaching applications for consumer products as well as industrial and technology markets. Gentherm has more than 8,300 employees in facilities in the U.S., Germany, Mexico, China, Canada, Japan, England, Korea, Malta, Hungary and the Ukraine."

What is you might find really interest is THRM's power generation segment. THRM says that "Nearly two-thirds of the energy produced by a typical gasoline engine is lost through waste heat. A thermoelectric device can capture some of that waste heat and convert it to electricity." They began working on this project back in 2004. THRM now expects this product to be completed in 2015. They also have a similar business of capturing wasted heat in energy-intensive manufacturing plants, like cement production, glass, and metal production, and generating electric instead of letting the heat escape into the atmosphere.

THRM's sales have been surging. Back in March 2014 they reported their Q4 report and beat estimates on both the top and bottom line while management raised their 2014 guidance. They have continued to beat estimates all year. Their most recent report was August 1st. Wall Street was looking for a profit of $0.36 a share on revenues of $190.51 million. THRM reported $0.46 with revenues rising +28.5% to $206.2 million. Management raised their 2014 guidance again.

In their earnings press release THRM's President and CEO Daniel R. Coker said,

"The excellent results in this year's second quarter followed a very strong first quarter and capped off an exceptional first six months of 2014. We achieved record levels of revenue and profit in both periods and every one of our operations met or exceeded its goals. Revenues for this year's second quarter were again driven by a significant year-over-year increase in sales of our Climate Control (CCS) systems. Operational efficiencies continued to increase in the first half of this year, and our gross margins improved significantly year over year and were again at the high end of our expected range."

The company delivered earnings growth of +106% last year. This year their EPS growth is poised to hit +78%. Naturally the stock is performing well as investors look for growth. Shares suffered some profit taking in late July but have since recovered. Now THRM is hitting new all-time highs.

Tonight we are suggesting new bullish positions at the opening bell tomorrow morning. We'll try and limit our risk with a stop loss at $47.75.

(launch bullish positions now)

- Suggested Positions -

Buy THRM stock @ (the opening bell)

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

Buy the DEC $55 call (THRM141220C55) current ask $2.95

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

Annotated Chart:

In Play Updates and Reviews

Still Buying Dips

by James Brown

Click here to email James Brown

Editor's Note:
Stocks did not move very much on Monday but traders were still buying the dips this afternoon.

BBY hit our entry trigger. We closed the NGVC trade this morning.

Current Portfolio:

BULLISH Play Updates

Best Buy Co. - BBY - close: 32.14 change: -0.25

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -1.4%
Entry on September 08 at $32.60
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.3 million
New Positions: see below

09/08/14: Our new trade on BBY has been triggered. The stock rallied toward its late August highs and then reversed. More conservative investors might want to wait for a breakout past $32.80 before initiating new bullish positions.

Earlier Comments: September 6, 2014:
It's tough to be bearish when investors are buying bad news. The U.S. economy is slowly improving there have been nagging concerns over the U.S. consumer. If that wasn't bad enough Amazon.com has become the dominant player in consumer electronics. So why are investors buying shares of BBY?

First here's a brief description from the company website: "Best Buy Co., Inc. is the world's largest consumer electronics retailer, offering advice, service and convenience – all at competitive prices – to the consumers who visit its websites and stores more than 1.5 billion times each year. In the United States, more than 70 percent of Americans are within 15 minutes of a Best Buy store and BestBuy.com is among the largest ecommerce retailers in the United States. Additionally, the company operates businesses in Canada, China and Mexico. Altogether, Best Buy employs more than 140,000 people and earns annual revenues of more than $40 billion."

The last few years have seen BBY suffer from the online showroom phenomenon. Where customers come in, look at merchandise in BBY's showroom, and then go home and buy it online (usually at Amazon.com). The company has been desperately fighting this issue for a couple of years and they have made progress. However, sales continue to suffer.

BBY reported earnings on August 26th. Wall Street expected a profit of $0.31 on revenues of $8.98 billion. BBY beat the bottom line estimate with $0.44 but revenues only hit $8.9 billion. More importantly management guided lower. They expect same-store sales declines in both the third and fourth quarter. So why are investors buying the stock? It could be a case of all the bad news is already price in. Some consider BBY to be a value play at current levels.

If investors are willing to buy the bad news then it could be tough to be bearish. The shorts could be in trouble. The most recent data listed short interest at 9.5% of the 288.6 million share float. A breakout higher could spark some short covering. The point & figure chart is already bullish and suggesting at $49.00 target.

Traders bought the post-earnings sell-off in August and they bought the dip again this past week. Now BBY is on the verge of hitting new multi-month highs. We're suggesting at trigger to open bullish positions at $32.60.

- Suggested Positions -

Long BBY stock @ $32.60

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

Long 2015 $35 call (BBY150117c35) entry $1.48*

09/08/14 triggered @ 32.60
*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: 44.72 change: -0.02

Stop Loss: 43.25
Target(s): To Be Determined
Current Option Gain/Loss: + 9.7%
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

09/08/14: Monday was a very quiet day for shares of GPRE, which closed virtually unchanged on the session. More conservative traders might want to move their stop closer to $44.00 instead. 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*

09/04/14 new stop @ 43.25
09/03/14 new stop @ 42.75
08/30/14 new stop @ 42.25
08/27/14 new stop @ 41.85
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

Southwest Airlines - LUV - close: 32.86 change: +0.03

Stop Loss: 31.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.9 million
New Positions: Yes, see below

09/08/14: A drop in crude oil this morning helped boost some of the airline stocks. Yet shares of LUV failed to rally react. The stock did trade above $33.00 but it failed to hit new highs. We are still on the sidelines.

Earlier Comments: September 6, 2014:
Airline stocks have been big winners this year. A big drop in the price of crude oil has been a blessing since fuel is the biggest expense for airliners. Year to date the S&P 500 index is up +8.5%. The XAL airline index is up +26.2%. Yet shares of LUV are up an astounding +74.25%.

According to the company's press release, "Dallas-based Southwest Airlines continues to differentiate itself from other carriers with exemplary Customer Service delivered by more than 45,000 Employees to more than 100 million Customers annually. Based on the most recent data available from the U.S. Department of Transportation, Southwest is the nation's largest carrier in terms of originating domestic passengers boarded. The airline also operates the largest fleet of Boeing aircraft in the world to serve 93 destinations in 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and five near-international countries via wholly owned subsidiary, AirTran Airways. Southwest is one of the most honored airlines in the world, known for its triple bottom line approach that takes into account the carrier's performance and productivity, the importance of its People and the communities it serves, and its commitment to efficiency and the planet."

Earnings are coming in better than expected. When LUV reported on July 24th Wall Street was looking for a profit of $0.61 a share on revenues of $4.95 billion. LUV reported a profit of $0.70 with revenues up almost 8% to $5.01 billion. Demand for domestic air travel has been strong. Shares of LUV have been showing significant relative strength.

Traders bought the dip on Friday at short-term technical resistance on the simple 10-dma. That left LUV to end the week near all-time highs. Tonight we are suggesting a trigger to buy calls at $33.25.

Trigger @ $33.25

- Suggested Positions -

Buy LUV stock @ (trigger)

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

Buy the 2015 Jan $35 call (LUV150117c35)

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

Morgan Stanley - MS - close: 34.86 change: +0.23

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: + 0.3%
Entry on September 03 at $34.75
Listed on September 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.8 million
New Positions: see below

09/08/14: MS displayed some relative strength on Monday. The stock hit a new 2014 high before paring its gains. Shares did manage a +0.6% gain. Overall I don't see any changes from my prior comments.

Earlier Comments: September 2, 2014:
MS is in the financial sector. They're one of the biggest players in the financial services industry. The stock has been outperforming its peers by a significant margin. Citigroup (C) is still down -0.8% for 2014. Goldman Sachs (GS) is only up +1.0%. JP Morgan (JPM) is up +1.6% and BAC is up +3.3% in 2014. The XLF financial ETF is up +6.8% year to date. Yet MS is up +9.4%.

The company has managed to build its revenues on stronger wealth management business. The company has beaten Wall Street's earnings estimates four quarters in a row.

Their most recent earnings report was July 17th. Analysts were expecting a profit of 55 cents a share on revenues of $8.18 billion. MS delivered $0.60 a share with revenues coming in at $8.61 billion. The company's profit has more than doubled from a year ago.

The stock has spent months consolidating sideways under resistance near $33.50. This past month has seen a bullish breakout higher. Now broken resistance near $33.50 should be new support. MS is currently testing short-term resistance near $34.50.

Tonight we're suggesting a trigger to open bullish positions at $34.75.

- Suggested Positions -

Long MS stock @ $34.75

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

Long 2015 Jan $35 call (MS150117C25) entry $1.70*

09/03/14 triggered @ 34.75
*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: 46.47 change: +0.56

Stop Loss: 42.90
Target(s): To Be Determined
Current Option Gain/Loss: +5.4%
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

09/08/14: MSFT continues to show relative strength and added another +1.2% on Monday. These are multi-year highs for the stock. Investors may want to move their stop loss closer to the 50-dma or closer to the $44.50 area.

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: 56.52 change: +0.24

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: +7.4%
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

09/08/14: The next couple of days could be interesting for shares of SWKS. The hype around Apple's (AAPL) product launch tomorrow could boost AAPL or it could spark a sell-the-news reaction in AAPL. The question for us is if AAPL's stock rallies or falls will it drag its part suppliers, like SWKS, along with it.

We are going to take a bit more defensive posture and up the stop loss to $54.40.

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

09/08/14 new stop @ 54.40
09/06/14 new stop @ 53.65
We may want to exit this week following AAPL's Sept. 9th announcement
09/04/14 new stop @ 52.65
08/30/14 new stop @ 52.45
08/13/14 new stop @ 49.95
08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike

Ubiquiti Networks - UBNT - close: 46.97 change: +0.67

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
Entry on September 02 at $46.75
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 902 thousand
New Positions: see below

09/08/14: Bullish analyst comments on UBNT this morning helped the stock gap open higher. UBNT managed to maintain a good chunk of those early gains and closed up +1.4%. In the prior newsletter I suggested an alternative entry point of waiting for a close above $47.50 before initiating new positions. That could happen soon.

Earlier Comments: August 26, 2014: UBNT is in the technology sector. The company operates in the wireless technology and networking industry. According to the company press release, "Ubiquiti Networks is closing the digital divide by building network communication platforms for everyone and everywhere. With over 20 million devices deployed in over 180 countries, Ubiquiti is transforming under-networked businesses and communities. Our leading edge platforms, airMAX, airFiber, UniFi, UniFi Video, UniFi VoIP, mFi and EdgeMAX combine innovative technology, disruptive price performance and the support of a global user community to eliminate barriers to connectivity."

The company has been consistently beating earnings estimates. They just wrapped up their fiscal year 2014 with the earnings report on August 7th, 2014. The company managed to beat estimates all four quarters. Their 2014 Q4 numbers showed sales up +54% from a year ago while EPS were up +70%.

It has been a rocky year for the stock price in spite of the company's earnings track record. If you recall the stock market suffered a pullback in March this year. The high-growth stocks and momentum names were hit pretty hard. UBNT was one of those that was punished and shares collapsed from $55 to $30 over the next several weeks. Since then UBNT has been slowly recovering.

Right now the stock is on the verge of breaking through resistance. A new breakout could spark some short covering. The most recent data listed short interest at 32% of the small 26.6 million share float.

We are suggesting a trigger to open bullish positions at $46.75.

- Suggested Positions -

Long UBNT stock @ $46.75

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

Long OCT $48 call (UBNT141018C48) entry $2.10*

09/02/14 triggered @ 46.75
*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

WhiteWave Foods Co. - WWAV - close: 35.72 change: +0.65

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
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

09/08/14: WWAV was also showing some relative strength today with a +1.85% gain. The stock is hovering just below new resistance near $36.00.

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*

09/06/14 new stop @ 33.90
09/02/14 new stop @ 32.90
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

On Assignment Inc. - ASGN - close: 29.82 change: +0.14

Stop Loss: 30.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 509 thousand
New Positions: Yes, see below

09/08/14: ASGN managed to eke out another gain. The stock is hovering under resistance near $30.00. If we see a close above $30.00 I'll likely remove this stock as a bearish candidate. I do not see any changes from the Thursday night new play description below:

Earlier Comments: September 4, 2014:
The U.S. labor market is slowly improving. Naturally you might think that would be good news for temporary labor and staff placement services. ASGN is one such company. According to their press release, "On Assignment, Inc. is a leading global provider of in-demand, skilled professionals in the growing technology, healthcare, and life sciences sectors, where quality people are the key to success. The Company goes beyond matching résumés with job descriptions to match people they know into positions they understand for temporary, contract-to-hire, and direct hire assignments. Clients recognize On Assignment for its quality candidates, quick response, and successful assignments. Professionals think of On Assignment as career-building partners with the depth and breadth of experience to help them reach their goals."

The company has beaten Wall Street's earnings estimates three quarters in a row. Their latest report was July 30th. Analysts were expecting a profit of $0.36 a share on revenues of $470.9 million. ASGN reported a profit if $0.56, significantly above expectations, yet revenues were only $468.6 million.

ASGN said their gross margins were up from a year ago and the prior quarter. They offered bullish EPS guidance for the next quarter but their revenue guidance was below Wall Street's estimates. Investors chose to focus on the revenue miss and the lower revenue guidance. Shares of ASGN collapsed more than 20% the next day. The stock has produced an oversold bounce but that bounce is fading.

Currently ASGN appears to have short-term support in the $29.00-29.20 zone. We're suggesting a trigger to open bearish positions at $28.90.

Trigger @ $28.90

- Suggested Positions -

Short ASGN stock @ (trigger)

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

Buy the Oct $30 PUT (ASGN141018P30)

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

Mobile Mini, Inc. - MINI - close: 39.09 change: -0.03

Stop Loss: 40.10
Target(s): To Be Determined
Current Option Gain/Loss: - 0.7%
Entry on August 28 at $38.80
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 265 thousand
New Positions: see below

09/08/14: MINI sprinted higher this morning. Fortunately for the bears the rally reversed at resistance near $40.00 and its simple 30-dma. If shares continue to sink tomorrow investors may want to launch new bearish positions.

Earlier Comments: August 27, 2014:
The mobile storage space might be facing some headwinds. MINI provides commercial storage, construction storage, residential storage, and mobile offices. According to the company's website, "Mobile Mini, Inc. is the world's leading provider of portable storage solutions through its total lease fleet of over 213,000 portable storage and office units with 135 locations in the United States, United Kingdom and Canada. Mobile Mini, Inc. went public in 1994 and trades on NASDAQ under the symbol MINI. Mobile Mini offers customers a wide range of portable storage and office products in varying lengths and widths with an assortment of differentiated features such as: proprietary security systems, multiple door options and 100 different configuration options."

Sales are growing but MINI is developing a trend of missing earnings or delivering lackluster results. MINI missed Wall Street's EPS estimates back in February and April. The latest earnings report was July 30th. Revenues were almost +10% from a year ago but earnings were down. MINI reported a 23-cent profit, which was in-line with estimates but down from 25 cents a year ago. Investors crushed the stock following the late July earnings report. MINI was already weak through most of July and then got hammered from $43 to under $38 on its earnings news.

The stock's long-term up trend might be in jeopardy. The company is not growing fast enough to justify its P/E above 40. The stock's oversold bounce from the post-earnings sell-off has stalled at technical resistance at the exponential 200-dma. Now it appears that MINI is beginning to roll over.

Today's low was $38.93. I'm suggesting a trigger at $38.80 to open bearish positions.

- Suggested Positions -

Short MINI stock @ $38.80

09/06/14 new stop @ 40.10
08/28/14 triggered @ 38.80

Transocean Ltd. - RIG - close: 37.26 change: -0.34

Stop Loss: 39.05
Target(s): To Be Determined
Current Option Gain/Loss: + 2.5%
Entry on September 03 at $38.20
Listed on August 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.4 million
New Positions: see below

09/08/14: RIG continues to sink and underperformed the market with a -0.9% decline on Monday. More importantly shares have closed below potential support at its August low. The stock is now trading at levels not seen in nearly 10 years.

Earlier Comments: August 25, 2014:
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.

- Suggested Positions -

Short RIG @ $38.20

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

Long OCT $35 PUT (RIG141018P35) entry $0.27*

09/06/14 new stop @ 39.05
09/03/14 trade begins. RIG gaps higher at $38.20
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/02/14 remove the trigger ($37.25) and short RIG now at current levels.
Option Format: symbol-year-month-day-call-strike


Natural Grocers by Vitamin Cottage - NGVC - close: 18.83 chg: -0.10

Stop Loss: 20.10
Target(s): To Be Determined
Current Option Gain/Loss: +3.1%
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

09/08/14: NGVC has not been moving very much. The stock appears to have found support in the $18-19 zone. We decided in the weekend's newsletter to exit this trade on Monday morning. The stock gapped down at $18.84.

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

short NGVC @ $19.45 exit $18.84 (+3.1%)

09/08/14 planned exit this morning
09/06/14 prepare to exit on Monday morning
08/21/14 new stop @ 20.10
08/12/14 triggered @ 19.45