Option Investor

Daily Newsletter, Wednesday, 9/17/2014

Table of Contents

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

Market Wrap


by Thomas Hughes

Click here to email Thomas Hughes
The Fed did not fail to to proceed as expected.


The Federal Open Market Committee did not surprise the market today. The chosen path was pretty much in line with the broad consensus except for one thing. They left the words “considerable time” in the statement. However, before I get into that we need to back up to the beginning of the day. Global markets were mixed this morning in anticipation of commencement of the Fed meeting and release of the policy statement which happened at 2PM.

Asian markets were basically flat except for the Hang Seng which shot up 1% on hopes the Chinese government would stimulate the economy a little more. European indices were modestly higher on a combination of hope for Chinese stimulus and the FOMC. Futures trading was flat to negative in the wee hours of the morning. This lifted a little after CPI data was released, showing that inflation is not a problem, and turned positive going into the open. The SPX opened above 2,000 today and was able to hold that level int the close.

Market Statistics

Stocks moved slightly higher after the open, about 0.25%, led by the transports. This held for a while but after reaching the early peak around 10AM stocks drifted calmly sideways until 2PM. Of course, at 2PM this all changed. There was an initial struggle between the bulls and bears that lasted a few minutes, causing a sharp swing first higher, then lower and then back higher. Finally, after the rush to get in finally let up the markets fell back to support creating dojis on both the SPX and the DJI.

A couple of things to take note of today. First, the Dow set new all time closing and intraday highs. Second, the Dow Jones Transportation Average also set a new. It also did not fall back to support during the late afternoon like the other indices.

Economic Calendar


Ok, the FOMC decided to taper another $10 billion, as expected, leaving $15 billion for next month. They say that they expect the taper to end next month but that they are not on a “preset course”. This could mean maybe they don't end it next month, or maybe only taper $10 billion again and leave $5 billion for the next meeting.

As for the statement, they did leave the words “considerable time” in. This doesn't really mean anything because it is largely undefined and could change at the next meeting. Their outlook for the economy was “little changed” from the last meeting, according to statements from Janet Yellen during the press conference. She also said that the committee was “comfortable” with the phrase “considerable time” so it may stay in until they actually do raise rates. She went on to say that the goal at this time was to clearly communicate policy based on the data.

The Fed sees the economy as expanding moderately but that inflation is still cool, below the target rate. They see the labor market as not fully recovered and the reason why wage growth is progressing so slowly.

On interest rates she said the committee will use a target range, rather than a single point, once hikes begin. At that time the rate could fluctuate within the range as needed. Unwinding the balance sheet could take to the end of the decade.

Among current risks to the global economy the EU and low inflation topped the list. Today's decision came on an 8-2 vote with Plosser and Fisher dissenting.

Basically, nothing changed. The taper happened as expected. The FOMC indicated that next month is the likely end of tapering. Interest rates are still on track to be raised. When they are raised they will stay low for a “considerable time” before any real increase is made. All adding up to a modestly improving economy with expectations for continuing improvement into the foreseeable future.

The Economy

There was a good bit of data today as well. First up, released at 8:30AM, was CPI. The consumer price index fell for the first time in over 1.5 years, counter to an expected reading of 0.0%. The decline of -0.2% in August is due primarily to the drop in energy prices seen over the last two months. The drop also sparked a little talk about the possibility of deflation but I think it may be a little early to call that. It does take some heat off the Fed though. Core CPI remained unchanged from the July reading. The Mortgage Brokers Association gauge of mortgage applications jumped 7.9% last week, reversing a similar loss in the previous week. The refinance index climbed 10%.

The Current Account Balance was also released this morning. The estimated deficit for the 2nd quarter fell 3.7% to $98.5 billion. The first quarter was revised down by about $10 billion to $102.2. Compared to GDP the US government deficit fell a tenth of a percent to 2.3%.

The National Association of Home Builders released this month's reading of their home builder sentiment index. The index rose 4 points this month, climbing for the 4th month in a row to the highest level since November of 2011. All three components within the report,(sales, current traffic and future expectations) rose.

Moody's reaffirmed it's rating of Aaa for the US today saying the “outlook remains stable”. Moody's says the size and diversity of the US economy as well as the strength of the dollar and treasury market as global benchmarks.

Tomorrow's economic calendar is no less full with three key reports on top of the weekly jobless claims. Housing starts and building permits will be released at 8:30 along with jobless claims then at 10 the Philly Fed will release its regional survey.

The Oil Index

Oil, WTI, lost a half percent today in a session of flat trading following yesterday's big bounce. One thing hurting prices today was an unexpected build in crude inventories. The build in inventory is an additional reason why crude could remain at the current low level. According to some analysts Saudi Arabia and OPEC could cut production in order to curb rising global supply and raise prices so this potential development will need to be monitored.

The Oil Index moved higher before the open but sold off during the day. The drop in prices today and the fear of further drops in prices taking their toll. The move was halted at support just above 1,625, a level coincident with the bull flag pattern and break out that formed in May. The indicators are still weak but have begun to rollover in line with the long term trend line bounce begun earlier this week. Bearish MACD is receding in the near term and consistent with support in the long term; stochastic is forming the early, weak, trend following signal. There could be some more action along support but unless oil prices fall significantly further the trend is up and the index looks set to retest resistance near 1,700.

The Gold Index

Gold traded flat today until after the Fed meeting, then it fell. At first the metal lost only a few dollars but as the afternoon progressed the loss deepened to $10, $15 and then finally $17 for the US session. The spot price of gold is now at a 9 month low and fast approaching the long term low set last year. Now that gold is really moving it is very possible that momentum could carry it quickly down to $1200 or lower.

The Gold Index fell as well, losing over 2.5%. The index broke through the top of the support zone between $90 and $92.50 and is heading down to the lower end of that range. Today's candle is extreme and very bearish looking but may be signifying exhaustion in the move, at least in the nearer terms. The MACD is showing a divergence in the near term while stochastic is also overbought. This does not mean its time to buy, just that the target support level of $90 will need to be watched closely for signs of break through or reversal.

In The News, Story Stocks and Earnings

Home builder Lennar reported strong earnings today, reflecting the growing improvements in the housing sector. The company was expected to earn only $0.67 per share but stunned the market reporting $0.78 per share. This comes on strong gains in new orders, back logs of orders, a 26% increase in revenue and a 30 basis point improvement to gross margins. The stock responded by gapping up at the open, above one resistance line, and then climbing close to 6% on high volume. The indicators are bullish and pointing to higher prices with resistance just above at $42.50.

Federal Express also wowed the market with earnings today. The package carrier reported $2.10, $0.15 better than expected. The beat is due to strong volumes and a successful price increase for delivery. The company also reported they are planning to increase prices again this fall and reaffirmed full year guidance. The stock surged 3.25% on high volume to reach a new all time high. After a pop like today it is very possible to see a pullback but the indicators are bullish and point to strength.

General Mills also reported today, but did not impress the market. The food company reported a top and bottom line miss driven by weak industry trends and high costs related to merchandising. They did however reaffirm full year guidance in the range of $3.0 to $3.10 per share. The stock dropped nearly 4.5% on the news and is approaching a potential long term support near the $50 level.


The VIX traded in a wild range today that suggests a lot of orders got cleared off the books. The volatility index surged higher by close to 20%, touching resistance at $15, before reversing to fall 12% by the close. The candle has a very long upper wick as well and is an added indication of resistance. The indicators are bullish but have peaked and are in line with the index moving lower from resistance. Because it is also expiration week I expect there may be some more volatility in this index tomorrow and Friday.

The Indices

The indices traded higher today but did not hold the intraday highs, except for the transports. The broad market S&P 500 index gaining the least, only 0.9%. The index was able to open above 2,000 and hold that level into the close which is a plus. Today's action created a doji but looks more of a continuation/consolidation than to me than an impending reversal. The indicators, though still bearish, are peaking and consistent with the long term trend. Stochastic is forming the early, weak, trend following signal. There could be some more sideways action in the near term but the short and long term seem to be setting up for another move up. Support is still in the 1,990-2,000 range with resistance just above today's high at the current all time high.

The Dow Jones Industrial Average created a candle nearly identical to the SPX, the only difference being the blue chips set a new all time high. The indicators are also nearly identical to the SPX, with one significant difference; the weak stochastic signal is being confirmed by a MACD zero line crossover. This adds the weight of market momentum to the move and could help to carry it higher in the near to short term. Support exists between 17,000 and 17,150 with no technical resistance save today's intraday high.

The NASDAQ Composite also traded in a similar range to the SPX and DJI but held a little more of the gain, creating a spinning top rather than a doji. I think, however, that in terms of today's action there is little difference. The tech index is setting up for a potential break to new highs but is lagging the broad market and blue chips. This is also evident in the indicators which confirm support over the short to long term but have yet to roll over in the near term. The index is bouncing off long term support, in line with the prevailing trend, so it looks like it will catch up over the next few days to a week. Support is at 4,500 with resistance at the current all time high.

The Dow Jones Transportation Average did not fall back late in the day. The transports, which have been leading the markets for quite some time, powered higher by 1% to set another new all time high. The indicators are bullish but are showing a growing divergence in the near term that could lead to a correction in the index. The stochastic is looking particularly weak at this time but that could easily change if the market follows through on today's movement. Strong, long term support exists about 400 points below the current level around 8,250 and the long term trend line.

The market was very calm today, waiting on the Fed, and then it wasn't. Price action indicates a real tug of war was going on between the bulls and bears, a tug of war that may have been amplified by upcoming options expiration this Friday. In the end though,the bulls won, at least for today. The indices all closed higher with the historical bull-market-leading Dow Transportation Average leading the way with a new all time high.,P. There are some near term obstacles to overcome, such as the Scottish Referendum and the Alibaba IPO on Friday, but the long term trends are still up. The economy has been improving, the Fed sees it improving and today's data confirms that is still the case. At some point in the future that will change but it hasn't yet so I remain bullish on the indexes. It is possible there could be news on the Scottish vote as early as the morning so it could be affecting early trading.

Until then, remember the trend!

Thomas Hughes

New Plays

Another "Old" Tech Winner

by James Brown

Click here to email James Brown


Hewlett-Packard Company - HPQ - close: 36.67 change: +0.41

Stop Loss: 35.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 17, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 11.1 million
New Positions: Yes, see below

Company Description

Why We Like It:
Old technology giants are have recaptured the market's attention. The S&P 500 is only up about 7% this year. Yet companies like Intel (INTC) are up +34%, Microsoft (MSFT) is up +25%, and HPQ is up +29.5%. HPQ covers a lot of ground in the technology sector.

According to the company website, "HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. With the broadest technology portfolio spanning printing, personal systems, software, services and IT infrastructure, HP delivers solutions for customers’ most complex challenges in every region of the world."

What that marketing talk is trying to say is HPQ has got you covered. They make computers, computer peripherals, printers, servers, software, data storage. Plus, they offer cloud services, big data solutions, and cyber security. They are also expected to introduce a 3-D printer in the future.

Technically shares of HPQ have been slowly marching higher with investors consistently buying the dips. You can see the technical support at the stock's rising 50-dma. Now after a two-week pullback investors have started buying the pullback in HPQ again.

We want to hop on board if HPQ confirms this reversal higher. Tonight we're suggesting a trigger to open bullish positions at $37.15. We're not setting an exit target tonight but I will note the point & figure chart is forecasting at $47 target.

Trigger @ $37.15

- Suggested Positions -

Buy HPQ stock @ (trigger)

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

Buy the 2015 Jan $40 call (HPQ150117C40) current ask $0.73

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

Afternoon Gains Faded

by James Brown

Click here to email James Brown

Editor's Note:
Stocks initially rallied following the Fed meeting today but the market's afternoon gains faded.

It was a relatively quiet day for our Premier Investor play list.

Current Portfolio:

BULLISH Play Updates

Archer-Daniels-Midland - ADM - close: 51.20 change: -0.06

Stop Loss: 48.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.9%
Entry on September 11 at $50.75
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.3 million
New Positions: see below

09/17/14: Wednesday was a mellow day for shares of ADM, which consolidating sideways near its highs. Traders may want to start adjusting their stop loss higher.

Earlier Comments: September 10, 2014:
Sometimes it pays to be in the middle. ADM does not farm so falling grain prices don't hurt but actually help. The company is the middleman between producers (farmers) and retailers.

According to the company website, "Every day, the 31,000 people of Archer Daniels Midland Company turn crops into renewable products that meet the demands of a growing world. At more than 270 processing plants, we convert corn, oilseeds, wheat and cocoa into products for food, animal feed, industrial and energy uses. We operate the world's premier crop origination and transportation network, connecting crops and markets in more than 140 countries on six continents."

"Archer Daniels Midland Company is one of the largest agricultural processors in the world. Serving as a vital link between farmers and consumers, we take crops and process them to make food ingredients, animal feed ingredients, renewable fuels and naturally derived alternatives to industrial chemicals."

The earnings picture has been improving. The upcoming harvest could really boost ADM's margins. American farmers are looking at a potential record-breaking crop of corn and soybeans. Estimates suggest the crop will be so big it will exceed the nation's permanent storage by 694 million bushels. That's enough to fill about 174,000 jumbo hopper rail cars.

Shares of ADM are currently at all-time highs. The breakout past round-number resistance at $50.00 is bullish. We are suggesting a trigger to open bullish positions at $50.75.

- Suggested Positions -

Long ADM stock @ $50.75

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

Buy the 2015 JAN $50 call (ADM150117c50) entry $2.36*

09/11/14 triggered @ 50.75
*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

Best Buy Co. - BBY - close: 34.52 change: -0.28

Stop Loss: 31.75
Target(s): To Be Determined
Current Option Gain/Loss: +5.9%
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

09/17/14: BBY ended a string of five up days in a row with today's profit taking. Traders did buy the dip and trimmed its losses to just -0.8%.

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*

09/16/14 new stop @ 31.75
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

Southwest Airlines - LUV - close: 34.43 change: -0.10

Stop Loss: 31.95
Target(s): To Be Determined
Current Option Gain/Loss: +3.5%
Entry on September 09 at $33.25
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.9 million
New Positions: see below

09/17/14: Transportation stocks were showing strength today but the airlines sat this one out. The airline stocks produced minor declines and LUV slipped 10 cents.

More conservative investors may want to raise their stop higher.

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.

- Suggested Positions -

Long LUV stock @ $33.25

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

Long 2015 Jan $35 call (LUV150117c35) entry $1.25

09/16/14 new stop @ 31.95
09/11/14 speculation that oil might have reversed higher today
09/09/14 triggered $ 33.25
Option Format: symbol-year-month-day-call-strike

Morgan Stanley - MS - close: 35.56 change: +0.45

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: + 2.3%
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

09/17/14: MS displayed relative strength today with a +1.28% gain. The stock is on track for its seventh weekly gain in a row.

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: 46.52 change: -0.24

Stop Loss: 44.45
Target(s): To Be Determined
Current Option Gain/Loss: +5.5%
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

09/17/14: MSFT announced it is raising its dividend by +11% to $0.31 a share. The stock didn't move that much today. Shares are consolidating sideways in the $46-47 zone. If MSFT doesn't show some strength soon it might break its six-week trend of weekly gains.

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

09/11/14 new stop @ 44.45
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

Pilgrim's Pride - PPC - close: 31.39 change: -0.45

Stop Loss: 29.30
Target(s): To Be Determined
Current Option Gain/Loss: -0.5%
Entry on September 16 at $31.55
Listed on September 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

09/17/14: PPC gave back a good chunk of yesterday's rally with a -1.4% decline today. I don't see any changes from my earlier comments. Traders could wait for a bounce form current levels or wait for a breakout past $32.00 as an alternative entry point to open bullish positions.

Earlier Comments: September 15, 2014:
Last year the U.S. stock market was up about +30%. Shares of PPC rallied almost +100%. This year the S&P 500 is up about +7%. Yet shares of PPC are up +90%. One reason is rising demand for protein and another is falling feed costs.

According to the company website, "Pilgrim's Pride Corporation employs approximately 35,700 people and operates chicken processing plants and prepared-foods facilities in 12 states, Puerto Rico and Mexico. The Company's primary distribution is through retailers and foodservice distributors. Pilgrim's is the second-largest chicken producer in the world, with operations in the United States, Mexico and Puerto Rico. Our corporate headquarters is in Greeley, Colorado. We have the capacity to process more than 36 million birds per week for a total of more than 9.5 billion pounds of live chicken annually. The company exports chicken products to customers in approximately 105 countries, including Mexico." (FYI: The company is majority owned, about 75%, by Brazilian meat producer JBS SA, symbol: JBSAY).

The cost to feed millions and millions of chickens is the number one expense for a chicken farmer. The price of corn and soybeans has been falling. Currently both grains are at multi-year lows. That means PPC's margins should improve. The good news is that U.S. farmers are looking at a record-breaking harvest of corn and soybeans again this year. That should continue to push grain prices lower.

Technically shares of PPC are riding their long-term trend of higher lows. Shares got ahead of themselves in July and sold off following its earnings report at the end of the month. Yet investors bought the dip at technical support on the rising 50-dma. Now after consolidating sideways for the last few weeks PPC is starting to rally again.

Today's intraday high was $31.39. We're suggesting a trigger to open bullish positions at $31.55.

- Suggested Positions -

Long PPC stock @ $31.55

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

Long 2015 Jan $35 call (PPC150117C35) entry $1.40*

09/16/14 triggered @ $31.55
*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

WhiteWave Foods Co. - WWAV - close: 36.83 change: +0.03

Stop Loss: 35.85
Target(s): To Be Determined
Current Option Gain/Loss: +5.5%
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

09/17/14: The stock market saw an increase in its volatility after the Fed meeting this afternoon. WWAV managed to avoid any volatility and quietly drifted sideways under the $37.00 level.

I am not suggesting new positions at this time.

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*

09/16/14 new stop @ 35.85
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

AGCO Corp. - AGCO - close: 46.40 change: -0.03

Stop Loss: 48.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 976 thousand
New Positions: Yes, see below

09/17/14: AGCO attempt at a rally failed under the $47.00 level. Shares closed near their lows for the session. The stock looks poised to breakdown tomorrow.

Earlier Comments: September 16, 2014:
Farmers do not like to buy new equipment when the price of their crops is falling.

According to the company website, "AGCO is a global leader focused on the design, manufacture and distribution of agricultural machinery. We support more productive farming through a full line of tractors, combines, hay tools, sprayers, forage equipment, tillage, implements, grain storage and protein production systems, as well as related replacement parts. Our products are available in more than 140 countries worldwide."

AGO management has noted weakness in multiple parts of the world this year. Their most earnings report was July 29th. They managed to beat bottom line estimates by 8 cents with a profit of $1.77 a share. Yet revenues dropped by almost 10% and missed the revenue estimates. To make matters worse AGCO management lowered their 2014 guidance by a significant margin. A few analysts expect the company's earnings to fall over the next 18 months.

Part of the challenge is the business climate for farmers. Falling crop prices affect farmer sentiment and they tend to spend less. Unfortunately for AGCO the U.S. has seen falling commodity prices for a while and it's getting worse. The recent rise in the dollar is forcing grain prices lower. Plus the American farmer is expecting a record-breaking harvest this year. They are expecting so much grain (corn and soybeans) that it will exceed the nation's ability to store it all. That doesn't bode well for farmer sentiment either.

Technically shares of AGCO are bearish. Investors have been selling the rallies since the peak in 2013. Back in July the stock broke down under a long-term, multi-year trend line of support. Now after a four-week consolidation near $48.00 the stock has started to breakdown again.

Tonight we're suggesting a trigger to open bearish positions at $46.25. We are not setting an exit target yet but I will note the point & figure chart is projecting at $40.00 target.

Trigger @ $46.25

- Suggested Positions -

Short AGCO @ (trigger)

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

Buy the NOV $45 PUT (AGCO141122P45) current ask $1.20

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

Mobile Mini, Inc. - MINI - close: 38.57 change: -0.45

Stop Loss: 40.10
Target(s): To Be Determined
Current Option Gain/Loss: + 0.6%
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

09/17/14: MINI is showing relative weakness again and lost -1.1% on the session. Shares did bounce from short-term support near $38.00. Investors may want to wait for a drop under $38.00 before initiating new 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: 34.77 change: -0.60

Stop Loss: 38.05
Target(s): To Be Determined
Current Option Gain/Loss: + 9.0%
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

09/17/14: The sell-off in RIG is accelerating. The stock is off another -1.7% today and hitting new multi-year lows. Tonight we'll lower our stop loss to $38.05. More conservative traders may want to use a significantly lower stop.

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*

09/17/14 new stop @ 38.05
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