Option Investor
Newsletter

Daily Newsletter, Thursday, 5/29/2014

Table of Contents

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

Market Wrap

And Another New High

by Thomas Hughes

Click here to email Thomas Hughes
First Quarter GDP was negative, as generally expected, setting the stage for a second quarter rebound.

Introduction

The overnight session was quiet, Asian and European indices tread water awaiting the release of the second estimate for US 1st quarter GDP. The number, -1%, in line with many expectations and yet another confirmation the 1st quarter was a bust. We knew this and the market reacted as expected, without fanfare. Other data released today helped to confirm the current state of the economy. Employment claims fell and pending home sales rose. Futures trading was positive this morning ahead of the 8:30AM releases of data and remained that way up until the open. Also keeping overseas markets in check, an upcoming round of central bank meetings. The ECB meets next week and is expected to enact some form of QE. The BOJ meets the following week and is not expected to change its policy. The following week the FOMC meets and is expected to taper as usual.


The S&P 500 was indicated to open about 4 points higher throughout the morning. At the open trading was mild but in the green. The S&P quickly moved up to roughly +4 and a little higher and held that level right up until pending home sales at 10AM. Pending sales, a measure of contracts signed and a forward looking indicator of potential sales, rose but not by as much as expected. Upon hearing this the markets faltered, but only for a moment. The S&P dipped oh so briefly into the red before quickly moving back up to the high of today's range where it remained until the early afternoon hours. Around 2:30 the afternoon trading picked up and sent the indices a little higher. The SPX moved up to around +9 and another new high. The Dow and Nasdaq were both right behind. Trading remained steady throughout the afternoon and into the close. The last few minutes of trading saw the market gain a little more strength as it moved to the days high just before the close.


The Economy

US 1st quarter GDP was revised lower to -1%. This is more than a full percent below the previous estimate of +0.1% and the first negative month in three years. It was generally expected to be negative but the reported number is double the consensus estimate. The market reacted without much care for the reward looking number in favor of the forward looking expected bounce in 2nd quarter GDP. Analysts are expecting a 3.8-4% rebound in the current quarter. So far the data has been supporting this expectation. The end of the month is this weekend which means that next week we'll get a boat load of economic releases including ADP, Challenger, NFP and Unemployment.

Initial claims for unemployment fell this week by -27,000 to 300,000. The previous weeks figure was revised up by 1,000 for a net drop of -28,000 this week. The drop basically wipes out the gain in claims last week and puts the number back at the low end of the 12 month range. Initial claims remain steady at this time, neither a plus or a minus for the my outlook at this time. More importantly are the longer term numbers that continue to decline. The four week moving average fell by -11,250 to hit another new low not seen since August 11th, 2007, according to the seasonally adjusted and annually revised data. On an unadjusted basis claims fell -5.4% to 271,865. I think going forward a drop below 300K claims or a move above 350,000 claims could be an indicator of strength/weakness in the economy.


Continuing claims fell by -17,000 to 2.631 million, the lowest level since November 17,2007. The previous week was revised lower making the total drop from last weeks report -22,000. Continuing claims continues to downtrend and is suggesting, at least to me, that while turnover in jobs remains steady, finding jobs is becoming easier and easier. At the same time total claims are also in decline. Total claims fell again this week, by -66,969, to another long term low. This could be an indication of job seekers moving out of the market but I suspect not. Jobs creation was strong the past two months and is expected to be strong this time around as well.


Pending home sales, released at 10AM, rose but not by as much as expected. The index of pending sales rose by 0.4 to 97.8, only 0.4% and a far cry from the expected 4.0%. This number gave the markets pause for about 15 or 20 minutes, just long enough to read into the report and get a better glimpse of the future. Economists are quoted within the report as saying they expect the housing market to grow, for sales to “trend higher” over the next few months at least. One reason is a build in inventory and the recent dip in mortgage rates, both expected to attract more buyers.

The Ten Year Treasury

The yield on the ten year treasury fell again today, dropping below 2.5%. Today's decline was met with support around the 2.4% level.


The Dollar

The dollar weakened a little today but remains in an uptrend. The Yen remains range bound and near the lower end of the range, held in place by Abenomics and the current no-more-QE stance of the BOJ. The euro has been moving lower over the past few weeks driven by the expectation of some form of QE from the ECB, which Draghi has said could come as early as the next meeting. Should the ECB follow through the euro could weaken further against the dollar, and perhaps against the yen as well. Until then economic data and expectations will drive the euro. The dollar index is above the midpoint of its 7 month range with bullish indicators, weakly bullish indicators, and a little room to move higher before reaching resistance.


Gold Is Falling

I guess the market finally got the memo I was bearish on the gold sector. Gold prices have fallen close to $50 this week and are approaching the $1250 level. The strengthening of the dollar over the past few weeks, coupled with improving data and the fed/taper outlook have been a big driver of the decline. Gold prices may find some support around $1250 but this will need to be watched closely. I still haven't seen, heard or read a reason to get long on gold. The Gold Index has responded to the sell off in gold by dropping hard, falling from the support turned resistance line I have been tracking over the last month. Low gold prices can only hurt already low earnings expectations for the gold miners and could carry the index even lower. The index made a small bounce today from just above $85 but it was very weak and failed to break above the mid point of yesterday's long black candle. The indicators are strongly bearish and are pointing to a retest of the 2013 lows near $82. This will be an important support level as a break below here could lead to a drop to the $66.50 level, the 2007 low and a full retracement of the 2009-2011 bull market in gold and gold stocks.


Oil Climbs Higher

Oil prices found support today around the $102.50 level. After initially trading to the downside crude prices gained in later trading. Economic data helped to boost oil prices but a drop in gas inventories was what really helped to give prices a lift. A rise in oil inventories was completely offset by a decline in gasoline supplies. The drop signals a strong start to the summer driving season and is a bullish sign for oil over the next few weeks and months. At the same time a near complete disruption of Libyan supply had Brent prices moving higher as well. WTI rose about $0.85 in today's session. The Oil Index, bolstered by higher prices and demand outlook, wrestled with the resistance of a previous all time high. The index gained about a half percent today and was able to move above resistance by the close. I wouldn't call this a confirmed break out by any means but one could be on the way. The indicators are still a little bearish but could be setting up with a weak/early entry signal, it just depends on said confirmed break out. In any event, now is probably a good time to look for possible trades in the oil sector.


Story Stocks

Earnings, and in particular retail earnings, were in the news today. A handful of retailers spanning the sector reported a mixed bag of results. Clothing retailer Abercrombie&Fitch beat expectations while Costco failed to. Popeye's, maker of delicious fried chicken, also beat with an impressive gain in profits and revenue. Abercrombie's results have be taken with a grain of salt though, they beat the expectations of an -$0.18 loss per share with a -$0.17 loss instead. The company also reaffirmed its guidance for full year earnings in the range of $2.15-$2.35. The results were enough to bring share prices back up from yesterday's one month lows but not enough to break the 30 day moving average.


Costco missed expectations but made an actual profit for its investors. Costco reported $1.07, 2 cents shy of estimates, on a 6% gain in comp store sales. Profit for the company is up 3% with a 5.6% increase in membership fee revenues. Total revenue of $25.23 billion was about a half billion short of estimates. Higher costs was one reason cited for the miss. Costco trade to the upside today in a wide range centered on the 30 day EMA.


The Retail Spyder (XRT) traded up today but remains at/near the center of a trading range. The ETF has been hovering around the mid point of that range for the past few months and is trading at that level now. Today's action brought the ETF back above the midpoint and the 30 day moving average with mildly bullish indicators. Over the longer term the indicators are fairly neutral and point to a possible state of near equilibrium and lack of direction for this sector. MACD and stochastic are both near the midpoint of their respective ranges and bobbing along that level. Both are currently bullish but neither are definitive.


The Indices

The SPX is moving higher after breaking through resistance. This move follows a bounce from the long term trend line and is accompanied by bullish indicators. Momentum is on the rise and gaining strength. Stochastic is overbought in the nearer terms and bullish in the short term with plenty of room to move higher. Economic trends are still good, if a little hit or miss still as today's pending sales and GDP reminded us. These trends and the expectation of an economic bounce back should carry the index higher. The market is rallying but the rally is not very strong at this time. There is also risk of divergence in both MACD and Stochastic that bears watching. If the data next week does not inspire confidence then the index could very easily be taken back to longer term support along the trend line. Until then however the index is advancing and supported by indicators.


The Dow's march higher left it a hairs breadth away from new all time closing highs. This move has been foreshadowed repeatedly by the Transportation Average which has made yet another new high today. The Dow is accompanied by indicators that are weakly bullish and exhibiting an early trend following signal. MACD has turned just turned bullish again with today's candle. The stochastic has made a weak bullish crossover; the %K has crossed but %D is flat and not yet fully rolled over. Resistance is currently at 16,750, a break above here could easily take the index up to the 17,000 levels.


The Tranports made yet another new high. This leading index has been leading the markets higher for at least the past 12 months. The index is currently more than 28% higher than 12 months ago (DJI is about 9.5% higher and the SPX is up about 16.5% in the same time). This index is showing strength in the candles and in the indicators. The index has traded up and into the green for the past days along with bullish indicators. MACD is strongly bullish and rising, stochastic is trending higher into the upper signal zone. While we must always be cautious as traders I see no reason to fear reversal in this index tomorrow and into next week. Once the data starts rolling in it's a different story but until then the transports are rallying.


The techs were among today's leaders and helped to power the Nasdaq Composite a half percent higher. The tech heavy index is still about midway between the recent bottom and the long term highs set in early March. Today's action brought the index to a potential resistance area around 4,250 with bullish indicators. MACD and stochastic are both indicating the index higher with a target at or near the current highs.


The markets seem to all be marching higher. The broad S&P is making new highs. The Industrials are tickling new highs and being led higher by the Transports. The Techs and smaller caps are doing their best to get back to high levels and are closing in fast. Next week will be important for the market as it will be filled with monthly macroeconomic events. Tomorrow's trading could subdued, there are only a few economic and earnings releases scheduled and I think all eyes will looking toward next week as a whole and next Friday in particular. Until then the SPX could drift along these new levels, perhaps test support, while the market awaits and gets ready for the NFP. Expectations are high for a rebound in the second quarter, let's see if the data still supports it.

Until then, remember the trend!

Thomas Hughes


New Plays

When Is The Next Dip?

by James Brown

Click here to email James Brown

Editor's Note:

Is it time for another market dip? A few of the indices look a bit overbought here.

The S&P 500 is hitting new all-time highs. Yet it's looking a little short-term overbought here. If you study the daily chart you'll notice that recent dips have only last two or three days. Investors may want to wait for the next two or three day pullback and then jump into new positions.

I also want to point out that the small cap Russell 2000 index has stalled. The $RUT rallied on Tuesday but has not participated the last couple of sessions. At the same time "smart money" is buying bonds and the yield on U.S. 10-year notes hit new relative lows today.

We are not adding any new trades tonight. I will list a few stocks on my watch list. These symbols (below) might qualify as short-term bullish candidates.

Additional Trading Ideas:

Consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:

(bullish ideas)
LAZ, WOR, SAIA, FLEX, DO, TSO, VLO, WNR, INT, UA, GIL, SGY,




In Play Updates and Reviews

Slow Drift Higher

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market's major indices continued a slow drift higher on Thursday.


Current Portfolio:


BULLISH Play Updates

American Airlines Group Inc. - AAL - close $39.82 change: +0.02

Stop Loss: 37.25
Target(s): to be determined
Current Gain/Loss: -1.1%

Entry on May 28 at $40.25
Listed on May 17, 2014
Time Frame: 9 to 12 weeks
Average Daily Volume = 10.3 million
New Positions: see below

Comments:
05/29/14: AAL is still hovering just below resistance at the $40.00 level. Investors may want to wait for a close above $40.00 before initiating positions.

Earlier Comments:
AAL is in the services sector. AAL is the merger between US Airways and American Airlines (AMR). The new company, American Airlines Group, is the largest carrier with nearly 6,7000 flights a day, over 330 destinations, to more than 50 countries, with over 100,000 employees worldwide.

This $17 billion merger was threatened by the U.S. Justice department last year. Regulators tried to block the merger on fears the new company would be too big, hold too much power, and reduce competitiveness and thus pricing for consumers. A U.S. district judge just recently approved a settlement worked out between AAL and the Justice Department where the new company agreed to sell certain assets to competitors. Getting the legal hurdle for its merger out of the way it's one more worry that investors can forget.

The airlines would also like to forget about winter. The 2014 winter season was brutal for the airline industry. In January and February the Bureau of Transportation Statistics said 6.05% of all domestic flights were cancelled. That number dropped to 4.6% of all flights cancelled in March. Put them all together and you have the worst winter cancellation rate in 20 years. Yet this news has failed to stop the rally in airline stocks. Granted AAL did consolidate sideways for a few weeks but now it is only a couple of points away from new eight year highs.

AAL just recently released data on April. Their revenue passenger miles for April were up 4.7 percent to 18.1 billion in 2014 versus April 2013. Odds are this number is going to improve since summers tend to be more bullish for the airline business.

Wall Street seems keen on shares of AAL. Goldman Sachs recently put a $46 price target on the stock. In the latest 13F filings it was revealed that Paulson & Co had raised their stake in AAL from 8.5 million shares to 12.2 million. Meanwhile David Tepper is the hot fund manager everyone loves and his Appaloosa Management has AAL as its second largest holding. In the last quarter Appaloosa increased their AAL stake by 22.5%.

current Position: Long AAL stock @ $40.25

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

Long Aug $40 call (AAL140816C40) entry $2.65*

05/28/14 triggered @ 40.25
*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



Arrowhead Research - ARWR - close: 13.22 change: -0.11

Stop Loss: 10.75
Target(s): to be determined
Current Gain/Loss: + 9.7%

Entry on May 27 at $12.05
Listed on May 19, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.3 million
New Positions: see below

Comments:
05/29/14: I cautioned readers yesterday that ARWR might tag its 50-dma and pullback. Sure enough the stock rallied up to technical resistance at its 50-dma, near $13.75, and reversed.

I am not suggesting new positions at this time.

Earlier Comments:
ARWR is in the healthcare sector. The company is in the biotech industry. Biotech stocks peaked in early March as investors started selling momentum and high-growth names. ARWR was definitely a target for profit taking after a rally from $2.00 a share back in July 2013 to over $25 in March 2014.

Biotech analysts believe ARWR has a lot of potential. The company is working on a treatment for hepatitis B and should have new data available in the third quarter this year. If successful the hepatitis B treatment could be a multi-billion drug as there are over 300 million patients around the world. ARWR currently has a market cap of about $600 million but a Deutsche bank analysts believes ARWR's market cap could surge to $4-to-$5 billion if its hepatitis B treatment is approved. ARWR is also developing new treatments on its RNAi technology.

Make no mistake, this is an aggressive trade. ARWR is an early stage biotech firm with no revenues. Any investment is a belief they will bring successful clinical data and eventually get FDA approval for its drugs in development.

Technically after a drop from $25 to $10 most of the air has been let out of the prior bubble. As investors return to risk on trades we think ARWR could outperform.

Current Position: Long ARWR stock @ $12.05

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

Long Sep $12.50 call (ARWR140920C12.5) entry $3.40*

05/27/14 triggered @ 12.05
*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



Delta Air Lines - DAL - close: 40.14 change: -0.13

Stop Loss: 36.45
Target(s): to be determined
Current Gain/Loss: + 6.6%

Entry on May 05 at $37.65
Listed on May 03, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 13.5 million
New Positions: see below

Comments:
05/29/14: DAL saw a little bit of profit taking after yesterday's rally to new highs.

On CNBC's Fast Money tonight they noted that someone purchased 15,000 January 2015 calls at the $45.00 strike. Someone is making a big bet that DAL will close above $45 over the next several months.

Yesterday I warned readers that DAL is nearing its trend line of higher highs, where shares have failed multiple times. DAL looks like it might hit that trend line (resistance) in the $41.00-41.25 area.

More conservative traders may want to take profits near $41.00.

More conservative traders may want to adjust their stop higher. I am not suggesting new positions at this time.

Current Position: long DAL stock @ $37.65

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

Long Sept $40 call (DAL1420i40) entry $2.20*

05/28/14 DAL is nearing potential resistance at its trend line of higher highs.
05/12/14 new stop @ 36.45
05/07/14 new stop @ 35.75
05/05/14 triggered @ 37.65
*option entry price is an estimate since the option did not trade at the time our play was opened.



The Dow Chemical Co. - DOW - close: 52.47 change: +0.70

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: + 2.4%

Entry on May 27 at $51.25
Listed on May 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 9.5 million
New Positions: see below

Comments:
05/29/14: DOW is still showing relative strength. Shares posted their fourth gain in a row. I am not suggesting new positions at current levels.

Earlier Comments:
DOW is in the basic materials sector. The company supplies chemical products as raw materials. As Wall Street searches for returns and yield DOW will likely continue to show up on their radar screen.

The company has been doing a good jog on maintaining cost controls and returning capital to shareholders. The Q1 2014 earnings report showed net profits surged +75% from a year ago. The first quarter was their sixth consecutive quarter of year-over-year earnings growth.

Dow has raised their dividend by 15% and now sports a 3.0% yield. They plan to complete a $4.5 billion stock buyback program in 2014.

In spite of higher feedstock and energy costs DOW still managed to see margins grow. They expect 2014 to see this margin growth gain further momentum.

Wall Street has been upgrading the stock and raising earnings forecasts.

Shares of DOW are in a long-term up trend (see weekly chart below). Yet the last couple of months have seen shares consolidating gains in a sideways move near $50. This consolidation looks like it's about over. DOW is poised for a breakout higher.

Current Position: Long DOW stock @ $51.25

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

Long Sep $50 call (DOW140920C50) entry $2.88*

05/27/14 triggered @ 51.25
*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



Extra Space Storage Inc. - EXR - close: 52.31 change: +0.05

Stop Loss: 49.90
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on May -- at $--.--
Listed on May 28, 2014
Time Frame: Exit PRIOR to June 13th
Average Daily Volume = 583 thousand
New Positions: Yes, see below

Comments:
05/29/14: EXR delivered a relatively mellow performance on Thursday. I do not see any changes from my earlier comments.

Earlier Comments:
EXR is a REIT. The company is in the self-storage business. They currently own and/or operate 1,000 self-storage properties in 38 states with over 59 million square feet of rentable space.

Americans do love their stuff and they have a hard time letting go of it. Their love affair with holding on to more stuff could be a good reason EXR's stock has soared from its 2009 lows. Oh and the company has been consistently performing over and over again. The latest results were in-line with analysts' estimates but it was also their 14th quarter in a row of double-digit growth.

EXR just raised their dividend +17.5% to 47 cents a share. This new dividend is payable on June 30th to shareholders of record on June 13th (the ex-dividend date). We want to exit prior to the ex-dividend date.

Technically EXR is hovering at all-time highs. Traders just bought the dip today near $52 and its simple 10-dma. We are suggesting a trigger to open bullish positions at $53.05 (more aggressive traders can just buy it now). If we are triggered at $53.05 we'll start with a stop loss at $49.90.

Longer-term investors may want to hold on to this stock. The point & figure chart is bullish with a $67 target.

Trigger @ 53.05

Suggested Position: buy EXR stock @ (trigger)



BEARISH Play Updates

Aegerion Pharma. - AEGR - close: 31.63 change: -0.70

Stop Loss: 32.55
Target(s): to be determined
Current Gain/Loss: unopened

Entry on May -- at $--.--
Listed on May 20, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.4 million
New Positions: Yes, see below

Comments:
05/29/14: AEGR underperformed both the broader market and the biotech stocks today.

We are still on the sidelines and waiting for a new low.

Earlier Comments:
AEGR is in the healthcare sector. The company is a biotech firm that develops treatments for rare diseases. This stock delivered a tremendous rally from October 2012 to October 2013. That's when shares revered at the $100 level and it's been downhill ever since. Exacerbating AEGR's decline has been the company's earnings warning. They lowered guidance back in January and they lowered guidance again when they reported earnings on May 7th.

The stock gapped down sharply following the May 7th report and there has been no oversold bounce. Wall Street was expecting revenues of $33.6 million for the quarter. The company only reported $27 million.

AEGR seems to be facing challenges with its only marketed product, Juxtapid. This is an oral treatment for homozygous familial hypercholesterolemia. This is a genetic disorder characterized by extremely high levels of cholesterol, especially the LDL (bad) cholesterol.

Most of the company's sales are in the U.S. Last quarter a large chunk of its sales in Brazil evaporated with a -70% decline due to an investigation into anticorruption laws in Brazil.

There are concerns that AEGR may have to lower the price for its Juxtapid treatments, which currently cost in the $250,000-$300,000 a year range. There are competing treatments for a lot less money. There is also a worry that there may be fewer customers than previously believed. There were some claims that Juxtapid might have the potential to treat 3,000 patients in the U.S. Yet homozygous familial hypercholesterolemia only affects one in a million people. That means there are closer to 300 potential patients in the U.S.

The company is also facing an investigation from the U.S. Department of Justice for comments made by AEGR's CEO when he appeared on CNBC's Fast Money program last year.

The company seems to be facing a lot of negatives and is clearly in a bear market with lower as the path of least resistance. Currently shares of AEGR are testing round-number support at $30.00. We want to wait for a breakdown below $30.00 and launch bearish positions at $29.50. If triggered we will try and limit our risk with a stop loss at $32.55.

Traders should consider this an aggressive, higher-risk trade. Not only can AEGR see big intraday swings but there is a risk of a short squeeze. The most recent data listed short interest at 30% of the small 28.39 million share float. So far the shorts have been right.

We're not setting an exit target tonight but the $20.00 level looks like it could be significant support.

Trigger @ $29.50

Suggested Position: short AEGR stock @ (trigger)

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

Buy the Sep $30 PUT (AEGR140920P30)



The Fresh Market, Inc. - TFM - close: 30.00 change: +0.08

Stop Loss: 31.55
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on May -- at $--.--
Listed on May 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 995 million
New Positions: Yes, see below

Comments:
05/29/14: TFM was little changed today. Shares continue to drift sideways near $30.00.

I do not see any changes from the weekend newsletter's new play description.

Earlier Comments:
TFM is in the services sector. The company is considered a specialty retailer in the grocery industry. It's been a rocky, painful road for TFM investors as the stock has produced a roller coaster ride lower from its 2012 highs. This past week saw TFM shares fall to new all-time lows and breakdown below round-number support at the $30.00 level. Shares did pop more than +10% higher on Friday morning as investors reacted to the company's earnings report out Thursday night.

TFM reported Q1 earnings of 43 cents a share. That was down -6.5% from a year ago but was in-line with analysts' estimates. Traders were likely expecting a miss and when TFM met estimates it sparked some short covering. The stock does have a high amount of short interest. Unfortunately for the bulls the rally didn't last and TFM's +10% gains faded to just +1.5% on Friday.

TFM's Q1 revenues did come in better than expected and management reaffirmed their 2014 guidance (near the low end of Wall Street's estimates). Investors were not happy with the big drop in TFM's margins. Q1 gross margins fell from 35.3% a year ago to 34.4%.

TFM is facing the same pressures that its larger rival Whole Foods Market (WFM) is facing. More and more grocers are getting into the fresh and organic food market. Sprouts Farmers Market, Kroger, Wal-mart, and regional competitors like HEB and Trader Joe's are all hopping on the natural food bandwagon. All this competition is going to continue to squeeze TFM's margins.

At least one analyst firm thinks TFM's 2014 outlook is too optimistic and does not take into account tougher competition and the impact that rising food inflation will have on margins.

The trend is down but this could be a volatile short to play. There are already a lot of bears in the name. The most recent data listed short interest at 19% of the small 44.3 million share float. That raises the risk of a short squeeze. TFM can see these sharp three or four day rallies that lift shares more than 10% before they run out of steam again.

Tonight we are suggesting a trigger to open bearish positions at $28.45. That's just below Thursday's all-time low. If triggered we'll use a stop loss at $31.55, above Friday's high. We're not setting an exit target tonight. It's worth noting that the point & figure chart is bearish and forecasting at $20.00 target.

Consider using small positions or use the put option to limit your risk. I want to remind you that this could be a volatile trade.

Trigger @ $28.45 *small positions*

Suggested Position: short TFM stock @ (trigger)

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

Buy the Sep $30 PUT (TFM140920P30)

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



The TJX Companies, Inc. - TJX - close: 54.45 change: +0.15

Stop Loss: 57.10
Target(s): To Be Determined
Current Gain/Loss: +0.3%

Entry on May 28 at $56.41
Listed on May 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.5 million
New Positions: see below

Comments:
05/29/14: TJX spent Thursday's session drifting sideways.

We would still consider new bearish positions in TJX now at current levels but more conservative traders may want to wait for a drop under last week's low at $53.87 before initiating positions.

Earlier Comments:
TJX is in the services sector. The company runs off-price apparel and home fashion retail outlets with brand names under T.J.Maxx, Marshalls, HomeGoods, and more. TJX has over 1,000 locations.

Retail has had a tough time this year. Disappointing Q4 Christmas shopping season results were then followed by one of the worst winter seasons in years. TJX has not been immune to the issue. The company reported Q4 earnings results and missed estimates and then lowered guidance for Q1 and full year 2015. They did it again just a few days ago when they reported their Q1 results. TJX missed estimates on both the top and bottom line and then management lowered their guidance for 2015 again.

Shares collapsed last week following the new earnings earning and the oversold bounce has already failed. TJX has also broken down through some long-term bullish trend lines (see weekly chart below).

There are a few analysts saying the sell-off is overdone and traders should buy this weakness but no one seems to be listening. There could be more analysts coming out and trying to call a bottom on TJX, which might spark some short-term rallies but the path of least resistance is down.

Currently the point & figure chart is bearish and forecasting at $45 target.

current Position: short TJX stock @ $54.61

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

Long Oct $52.50 PUT (TJX141018P52.50) entry $1.70*

05/28/14 trade begins. TJX opened at $54.61
*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