Option Investor

Daily Newsletter, Thursday, 9/18/2014

Table of Contents

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

Market Wrap

Day After Follow Through

by Thomas Hughes

Click here to email Thomas Hughes
The market followed through and set another new high for the Dow Jones Industrials and Transports in the wake of yesterday's FOMC meeting.


The market followed through with yesterday's bullish move in the wake of the September FOMC meeting. The Dow Jones Industrials confirmed the rally by setting another new high, led by the Transportation Average. Today's rally actually began early this morning with the open of the Asian markets and carried through into the European market and then our own. Asia was up across the board and so was Europe, despite the hotly debated Scottish vote for independence. I thought there may be some sign of how it was going this morning but so far nothing has been said. The first reports are expected in tonight around 9PM but the read I get is that it will be no.

Market Statistics

US futures were higher from the start with the major indices indicated about a quarter point higher. This strengthened a little after the 8:30AM release of economic data that showed a surprise drop in jobless claims and continued steadiness in the housing sector. Stocks moved higher at the open and strengthened somewhat into the first hour. Mid morning the indices pushed a little higher and the SPX set a new intraday all time high. Afternoon trading saw the indices wrestle with a little near term resistance before closing at new highs.

Economic Calendar

The Economy

We got a few releases today besides the weekly jobless claims. Housing starts and building permits were both released at 8:30AM along with the claims data. Starts and permits both fell this month but revisions to last month make the drops a wash. Housing starts fell 14% to an annualized rate of 956,000 units. This is below the expected drop to 1.04 million but the previous data was revised up to 1.12 million from 1.09. This puts the two month average above the 1 million mark, much better than the headlines would lead you to believe. These numbers are not robust but are steady enough to maintain current economic trends and expectations. Building permits fell less, 5.6%, to an annualized rate of 998,000. The previous month was revised slightly higher to 1.06 million from 1.055 million.

The big surprise today was jobless claims which did not get as much attention as the drop in housing starts/permits. Initial claims for unemployment fell by 36,000 to 280,000, the lowest level of claims since May of 2007. Last weeks number was revised higher by 1,000 making the net drop from last week 35,000. The four week moving average also fell, dropping back below the 300,000 level. On a non adjusted basis claims rose by just over 6,000 or 2.7% while seasonal factors had expected a jump of more than 15%. New Jersey and Illinois lead with increases of +2,918 and +912 while California and New York led those with declines posting drops of -10,968 and -2,811.

The drop in claims is in line with other employment gauges which shows that the labor market is making further improvements. The data, along with the other gauges I mentioned, are also not in line with the most recent jobs report. As I have suggested before, in the current environment robust jobs creation is less important on a single month basis when less jobs are being lost at the same time and I think this is evident in the decline of overall unemployment.

Longer term metrics of labor conditions, continuing and total claims, both fell as well. Continuing claims fell by 63,000 to a new 14 year low of 2.429 million while total claims fell by over 110,000 to set a new long term low of 2.264 million. Based on these numbers it does indeed appear as if longer term unemployment is on the decline. Of course the participation rate is going to be called into question but I am not too worried about that as we are still in the middle of huge demographic shift from the Boomers to the Gen X'rs and Millenials.

At 10AM the Philly Fed reinforced the trend in labor conditions. The diffusion index fell from last month's long term high to a still strong reading of 22.5. This is a 5.5 drop from last month's 28. Despite the drop in the headline number the numbers within the number were good. The employment index rose 9.1 to 22, new order rose to 15.5 and the future employment index rose to 37.6 from 24.7, all showing optimism for the future with the employment components at 4 year highs. Prices paid and received both rose moderately but remain tame.

The Oil Index

Oil prices slid close to 1.5% today as high US supply outweighed the threat of potential production cuts from OPEC. Yesterday's spike up was driven on reports that Saudi Arabia had already made some cuts to production. The report, along with the shut down of Libya's Sharara oil field, underpinned the market despite the unexpected build in US stockpiles. OPEC ministers responded by saying to the effect that production cuts could come in 2015 but did not make any moves toward cutting levels now even, though the Saudis already have. Sharara, only recently reopened and brought to full production, represents about 1/3 of Libyan production and was shut down because of an attack on an attached refinery.

The Oil Index also fell today but remains above the long term trend line. Today's move brought the index down 0.64% to sit just above the trend line. The indicators are still weak but inline with the trend following bounce that appears to be unfolding. Price action today is as expected following the weak stochastic signals that I highlighted yesterday. Oil prices will have a big impact on the sector moving forward but for now it is still trending higher. There is strong support between 1600 and 1625 along the trend line; a confirmed break below this level could take it down as much as 50 to 100 points in the near to short term.

The Gold Index

Gold continues to fall. This morning spot gold was down as much as $17-$18 trading around the $1215 level. Later in the day that moderated to -$10 or so with a close on the US session below $1225 for the 2nd day in a row. The fundamental picture of strengthening dollar, strengthening US economy, expected end of taper and rise of interest have all pushed gold down to long term low levels. Today's action, while not a bottom, shows that there are some buyers for gold at this level. Prices could decline further, the actual low is near $1190 I think, but there is are a lot of possible support levels between $1190 and $1225 that prices could bounce from now that Fed expectations have been met.

The Gold Index also fell today, dropping below the lower boundary of the potential near term support I described yesterday. The index is moving lower on the fall in the underlying commodity but is also fast approaching an area of long term support, an area where it has bounced from before. The long term trend is down and the current move is down so I am still bearish, definitely in the near to short term, but there is other evidence that the index is approaching what could be long term support. Not only was there some buying along the $90 level today, the market is oversold and there is a divergence in the MACD. These do not mean the index is or even will find support, they are just warning signs to take note of. Down side targets remain at $90 (reached today), $85 and $80.

In The News, Story Stocks and Earnings

The dollar continues to surge on strong US developments. Upward trending data, the end of taper, rising interest rates, BOJ and EU stimulus of their respective countries, have all driven values of euros and yen down in relation to dollars. The Dollar Index, which is euro heavy, jumped at the open to begin trading at the 12 month high set last year. During the day the index sold off, creating a pretty nasty black candle but the indicators are strong so I would not count this rally out just yet,especially considering that we are emerging from QE while the EU is only really just entering it. Both stochastic and MADC peaks are convergent with the rally, indicative of underlying strength, and pointing to higher prices. There could be a consolidation or correction but I would be surprised if there wasn't at least a retest of the $85 level in the near to short term. On a pullback $84 is looking good for potential support.

ConAgra Food reported earnings this morning. The very large supplier of consumer and commercial food products reported earnings that were above estimates and triple the previous quarter. Consumer sales were flat while commercial sales increased but it was lower expenses that provided the lift to earnings. The company continues to expect growth in the upper single digits and was able to reaffirm guidance for the next quarter and full year slightly above consensus estimates. The stock jumped close to 5% today and is now approaching the top of the 12 month range.

Oracle reported earnings after the bell. Among other things in the report CEO Larry Ellison is stepping down in favor of current co-presidents taking the role. The company reported earnings and revenues basically in line with estimates but did not impress the markets. The stock was down more than 3% in the after hours market and will likely open lower tomorrow. It is not unusual for this stock to gap up or down following the earnings.


The VIX fell today, dropping below support at 12 and moving down to close at the low end of today's range. The index is moving lower and that move is now confirmed by the indicators. The MACD is making the zero line cross with today's candle and stochastic has rolled over following the bearish cross two days ago. Now, on a technical basis this index is moving lower but tomorrow is quadruple witching day for options so there is really no telling what it may do between the open and the close of trading.

The Indices

The markets quietly moved up to set new all time closing highs ahead of quadruple witching day tomorrow. The new high set by the Dow Transports yesterday was followed by another one today and confirmed by a new high in the Dow Industrials. Yesterday, while the other major indices were held to support the transports were able to rise nearly 1%. Today things were reversed, the other indices all moved more than a half percent while the trannies were held to just a quarter point. Today's candle is very small and not unusual following a large move like yesterday's. The indicators are bullish and on the rise although divergence is still present. However, if you consider that MACD retreated all the way to zero, held there, and then returned to bullishness this new peak could be considered a new signal. With that in mind it is possible that the indicators are pointing to another short term movement to the upside. Support is around 175 points below the current level,around 8,500, should the divergence produce a pull back or correction.

The SPX made the next smallest move today, just under a half percent at 0.49%. The broad market tentatively crept up to the all time high, pushed up against it, fell back a little, pushed back against it and then crept across, fell back, crept across and finally was able to close above. Today's rally was broad with all ten S&P sectors on the rise. Volume is also on the rise, at least when I look at the chart of the S&P 500 Index Tracking Stock SPY. Today's move was not real strong but it was broad and helped to strengthen the signal that began to form yesterday. MACD hasn't quite reached the zero line yet but stochastic is rolling over in line with the trend. The index looks to be making a trend following bounce from the short term 30 day moving average with a target above 2050 in the near to short term.

The Dow Jones Industrial Average moved up by 0.64% and set a new all time high. Now the blue chips are confirming Dow Theory and the new highs set by the transports yesterday and today. Today's price action looks a little stronger as well, creating a much larger candle and completing a three day continuation pattern of long white candle, spinning top, long white candle all while breaking out to the new high. The indicators are also stronger here. MACD is confirming the weak stochastic signal while the stochastic has finished rolling over and is now pointing higher. This index also appears to be bouncing from support in line with the long term trend. Upside targets start about 250 points higher for the near term provided no unseen hurdles unseat the rally.

The NASDAQ Composite, which has been lagging the other indices in terms of setting new highs, climbed the most today. The tech heavy index, hampered this week by tomorrows Alibaba IPO, climbed 0.68% higher coming just short of matching the current 14+ year high. The indicators are also weaker here as well, the MACD persists in bearishness though weakly while the stochastic has at least produced the weak and early trend following crossover. This index also appears to be making a trend following bounce, just a step behind the rest. Targets on a break to new highs are between 4,700 and 4,800 in the near to short term. Oracle may weigh on the index tomorrow, as might Alibaba but it isn't listed on the NASDAQ and any pre-IPO selling should be over so it's hard to say. Of course, Yahoo is part of the NASDAQ and they are quite closely tied to Alibaba.

The markets followed through on yesterday's FOMC bounce and set new highs today. The indicators are in line with a trend following bounce and the economic data supports the same. Housing is still steady, the jobs market is still improving, long term unemployment is coming down and the Fed is progressing just as expected. Tomorrow could be a volatile one for many reasons but my long term outlook remains positive. The Scottish referendum will be either a boon or a blessing, Alibaba may or may not say open-sesame to profits and triple witching is just triple witching so watch out. Oh, and the leading indicators will be released as well.

Until then, remember the trend!

Thomas Hughes

New Plays

The Internet Of Things Is Coming!

by James Brown

Click here to email James Brown


Broadcom Corp. - BRCM - close: 41.44 change: +0.51

Stop Loss: 39.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.1 million
New Positions: Yes, see below

Company Description

Why We Like It:
We are quickly approaching a world where everything can and will be connected. Broadcom plans to make it happen by leading the world into the Internet of Things.

Who is Broadcom? The company describes itself as "a global leader and innovator in semiconductor solutions for wired and wireless communications. Broadcom products seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments. With the industry's broadest portfolio of state-of-the-art system-on-a-chip solutions, Broadcom is changing the world by Connecting everything."

By connecting everything they mean it. From broadband technology to cloud infrastructure to wireless and wearables to home networking, to automotive, appliances, bandwidth to backhaul, GPS to GPON, processors to powerline, set-top box to small cells, wearables to Wi-Fi, Broadcom is designing chips for to connect it.

What is the Internet of Things? It's a hot buzzword right now and one we will hear a lot more often over the next few years. Gartner, the world's leading information technology research company, described the Internet of Things (abbreviated as IoT) as the "network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment." One concept to help envision this idea is making dumb electronic devices smart. It could be anything from your coffeemaker to your refrigerator.

Gartner estimates that the IoT, "which excludes PCs, tablets and smartphones, will grow to 26 billion units installed in 2020." That is a 30-fold increase from 2009. Cisco Systems (CSCO) believes that the number of connected items could hit 50 billion by 2020. That's six devices for every person on the planet. Gartner is estimating that the products and services for the IoT will generate more than $300 billion in sales by 2020.

The IoT sounds like the next technology revolution. While it's only a few years away that might be too far in the future for some investors to consider. Right now everyone is focused on Apple's (AAPL) new smartphone the iPhone 6. BRCM just happens to be a major supplier for AAPL's new phone.

AAPL revealed their new phone last week. The reviews have been a little over-the-top. Descriptions of the Iphone 6 have been glowing. Some are calling it the "best smartphone on the planet" or the "best smartphone ever made!" One professional reviewer described the new iPhone 6 as the fastest iPhone yet. First-day pre-orders for AAPL's new phone hit a record-breaking four million phones. That is double the number of pre-orders for the iPhone 5 two years ago. There are estimates that AAPL could sell between 60 to 70 million iPhone 6s by the end of 2014. It certainly sounds like they have a hit on their hands and that's good news BRCM.

There was another story out recently that hinted BRCM may have won the contract to supply chips to AAPL's new smart watch as well. AAPL's new watch is expected in 2015.

Meanwhile BRCM continues to see earnings growth. They have beaten analysts' EPS estimates four quarters in a row. Shares of BRCM are currently trading at multi-year highs. The point & figure chart is forecasting a long-term target of $63.00.

Tonight BRCM closed at $41.44 with a high of $41.49. I am suggesting a trigger to open bullish positions at $41.60. The $40.00 level is short-term support so we'll put our stop loss at $39.45.

Trigger @ $41.60

- Suggested Positions -

Buy BRCM stock @ (trigger)

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

Buy the 2015 Jan $43 call (BRCM150117C43) current ask $1.50

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

Annotated Chart:

In Play Updates and Reviews

Large Caps At New Highs

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 index and the Dow Industrials both ended Thursday at all-time closing highs.

AGCO hit our entry trigger.

Current Portfolio:

BULLISH Play Updates

Archer-Daniels-Midland - ADM - close: 52.06 change: +0.86

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: +2.6%
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

09/18/14: ADM displayed relative strength today with a +1.67% gain. This is a new all-time high.

We will adjust our stop loss to $49.75.

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*

09/18/14 new stop @ 49.75
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: 34.96 change: +0.44

Stop Loss: 31.75
Target(s): To Be Determined
Current Option Gain/Loss: +7.2%
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

09/18/14: BBY also managed to outperform the major indices with a +1.2% gain. Yet the stock hit a wall of resistance at the $35.00 mark.

Investors may want to raise their stop loss.

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

Hewlett-Packard Company - HPQ - close: 37.01 change: +0.34

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

09/18/14: HPQ continued to bounce as expected. Yet shares did not quite make it to our suggested entry point at $37.15. It got close. The intraday high was $37.11. I suspect that HPQ will hit our entry point tomorrow morning.

Earlier Comments: September 17, 2014:
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 $0.80

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

Southwest Airlines - LUV - close: 35.23 change: +0.80

Stop Loss: 32.75
Target(s): To Be Determined
Current Option Gain/Loss: +6.0%
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

09/18/14: LUV continues to soar and outperformed the major indices and the transportation index with a +2.3% gain.

We will adjust the stop loss to $32.75.

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

09/18/14 new stop @ 32.75
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: 36.13 change: +0.57

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: + 4.0%
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

09/18/14: Shares of MS continue to show relative strength with a +1.6% gain versus the +0.48% move in the S&P 500 and the +0.97% rise in the XLF financial ETF.

Bloomberg pointed out that shares of MS have hit their highest levels since the financial crisis really took hold when Lehman Brothers went bankrupt in September 2008.

According to Christian Bolu, a bank analyst at Credit Suisse, MS is "enjoying the payoffs" from "years of investment to fix and rebuild the business... Morgan Stanley is will positioned to benefit from an improving operating environment and a more favorable interest-rate backdrop."

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: 46.68 change: +0.16

Stop Loss: 44.45
Target(s): To Be Determined
Current Option Gain/Loss: +5.9%
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

09/18/14: MSFT lost a little momentum this week. Shares have spent almost two weeks consolidating gains with a sideways churn under new resistance near $47.00. A breakout past $47 might be a new entry point.

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: 32.27 change: +0.88

Stop Loss: 29.30
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
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

09/18/14: PPC has flapped its way higher and rallied past resistance at the $32.00 level. Shares were showing relative strength with a +2.8% gain on Thursday.

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: 37.27 change: +0.44

Stop Loss: 35.85
Target(s): To Be Determined
Current Option Gain/Loss: +6.8%
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

09/18/14: It looks like Wall Street approves of WWAV's announcement to buy So Delicious Dairy Free for $195 million. According to the press release, "Best known by consumers for its plant-based beverages, creamers, cultured products and frozen desserts under the So Delicious Dairy Free brand, So Delicious was founded in 1987 by Mark Brawerman, who was CEO until 2013. Based in Eugene, Ore., So Delicious' products are 100% plant-based and its entire product offering is non-GMO verified."

Shares of WWAV gapped open higher this morning and closed up +1.1%.

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: 46.41 change: +0.01

Stop Loss: 48.25
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
Entry on September 18 at $46.25
Listed on September 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 976 thousand
New Positions: see below

09/18/14: AGCO briefly traded at new relative lows this morning. The stock fell just enough to hit our suggested entry point at $46.25 before bouncing back to close unchanged on the session. Today's intraday low was $46.23. I am suggesting investors wait for a new drop under $46.20 before initiating new positions.

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.

- Suggested Positions -

Short AGCO @ $46.25

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

Long NOV $45 PUT (AGCO141122P45) entry $1.25*

09/18/14 triggered @ 46.25
*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

Mobile Mini, Inc. - MINI - close: 38.53 change: -0.04

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

09/18/14: Traders sold the rally in MINI this morning. Shares did not participate in the market's rise, which is good news for the bears. The $38.00 level remains short-term support.

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: 35.15 change: +0.38

Stop Loss: 38.05
Target(s): To Be Determined
Current Option Gain/Loss: + 8.0%
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

09/18/14: RIG spiked down toward $34.00 this morning before bouncing. Technically today's session looks like a one-day bullish reversal pattern. Shares are oversold and due for a bounce. Do not be surprised to see a rally toward technical resistance at the 10-dma (near 36.30). 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