Option Investor
Newsletter

Daily Newsletter, Tuesday, 7/8/2014

Table of Contents

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

Market Wrap

Small Cap Reversal?

by James Brown

Click here to email James Brown

The U.S. stock market accelerated lower for its worst two-day drop in weeks. Suddenly everyone's worried about a correction with small caps leading the way. Market Statistics:

Stocks do not need a reason to go down. That was a common thought discussed in the financial media today. A few pundits suggested that stocks were weak thanks to disappointing economic data out of Germany. All of the European markets were down across the board with Britain, Germany, and France all down -1.25% or worse. European banks were leading the decline with a -6% plunge in the last three days.

Mike Santoli of Yahoo Finance suggested that the market rally was just tired and we were due for a pullback. His thoughts echoed several Wall Street analysts this morning. Jeffrey Saut, chief investment strategist at Ramond James, said "I think we are vulnerable to a 10 percent to 12 percent decline in the weeks ahead." Citigroup also voiced concerns of a "severe" pullback in U.S. stocks. Elliot Spar, with Stifel, Nicolaus & Co, probably said it best with his comment, "This market could go down for any reason or no reason at all. It looks like we got the latter."

Small cap and momentum stocks led the decline today. The Russell 2000 index fell -1.22% and the NASDAQ composite lost -1.34%. The volatility index (VIX) was up +10% intraday and settled with a +7% gain. This puts the VIX two-day gain at about 20%. To keep that in perspective the VIX is only up a couple of points from last week's seven-year low.

Money was looking for safe havens and U.S. bonds were the winner. The yield on the 10-year bond dropped to 2.56% today. Precious metals and oil all closed in the green but the gains were so small we might as well say they were unchanged on the session. Gold ended the day at $1,316.60 an ounce. Silver closed at $21.02. Oil settled at $103.36 a barrel. Art Cashin warned investors to keep an eye on the 10-year bond yield. A drop under 2.55% could be a warning signal.

Momentum stocks and high-beta names were the market's worst performers today. Market watchers were quick to speculate if we might see another correction in the momentum names like the one we saw in March. Just four months ago the momentum names were crushed with a six-week sell-off that left large chunks of the market relatively unscathed. After a huge bounce from their April lows many of these momentum names were trading at lofty valuations.

Facebook (FB), the world's biggest social network, is trading at 43 times forward earnings. FB closed down -3.8% today and it's down -7.7% from its July 1st close near $68. Yelp Inc. (YELP), an online business and restaurant guide, is trading for 70 times forward earnings and shares plunged -6.6% today. YELP is down -10.9% from its July 2nd close near $79.40. Shares of Pandora (P), one of the largest online streaming music companies, trades for 150 times forward earnings and the stock crashed -7.3% today and is off -13.5% from its July 2nd close near $30.

A few of the market's biggest decliners today are:

It was a quiet day for economic data in the U.S. so investors took the cues from overseas. Unfortunately Europe continues to struggle with a slowing economy. Yesterday Germany reported a disappointing number for its industrial production. Economists were expecting a small gain but German industrial production fell -1.8%. Today Britain followed suit and reported a negative industrial production number, down 0.7%. Germany is also seeing a slowdown in exports. May exports were down -1.1% and imports dropped -3.4%. Meanwhile the Organization for Economic Cooperation and Development (OECD) said their leading indicators for Germany dropped for the third month in a row.

This slowing momentum in Germany is a major warning signal for Europe. Germany has been the growth engine for the region. They have the biggest economy and account for almost 30% of the Eurozone's GDP. If Germany is struggling to keep growth alive what does that say for the rest of the region? Most of the southern European nations are already in recession.

Back home in the U.S. we did see Richmond Federal Reserve President Jeffrey Lacker making headlines. Lacker is currently not a voting member on the Federal Open Market Committee but analysts were still listening as they try to glean clues to the Fed's next move. Lacker spoke at an event in North Carolina today. In his speech he said inflation had likely bottomed and would start to move higher. He did express concern over the lack of growth. Lacker confessed that his previous estimate for growth above 3 percent in the near future "is unlikely" and expects U.S. growth in the 2 to 2 1/2 percent range. Lacker concluded with,

"I expect growth to continue at about the modest pace we've seen over the first five years of this expansion. While the acceleration that many have been forecasting for right around the corner would be welcome, that scenario seems less likely than a scenario in which growth continues to be held back by household cautiousness, low productivity growth and restrained housing markets."

One of the biggest stories today was the demise of Crumbs. A few years ago the gourmet cupcake fad exploded in major metropolitan areas. Crumbs Bake Shop (Crumbs Holdings, symbol: CRMB) came to market right at the peak of the fad in 2011. The stock's IPO price was $13 a share. Today it settled at 4 cents as the company announced it was shutting its doors.

When CRMB went public they had 37 stores in six states. They quickly ballooned to over 50 stores in 10 states. The future looked bright as customers rushed to pay upwards of $4.50 for a 4-inch, 600 calorie cupcake. Unfortunately fads normally fade and this one was no different. The company lost $10.3 million in 2012. That surged to a -$18.2 million loss in 2013. Rising competition and the post-craze drop in traffic was a one-two punch that CRMB could not recover from.

(CRMB's stock price history and the last remaining CRMB cupcake)

At least someone in New York must be a Rahm Emanuel fan and acting on the idea, "never let a serious crisis go to waste." An ingenious eBay seller has listed what they claim could be the last Crumbs Bake Shop cupcake up for auction. The eBay listing reads,

"Crumbs is shutting its doors forever, leaving behind nothing but... well, crumbs. Except for this last, precious cupcake -- the Holy Grail of confections from chain bakeries that have closed.

Bid on this still-delicious soon-to-be relic, and you'll be able to tell your grandchildren that you devoured the last Crumbs cupcake."

You can view the eBay listing here. The current bid is a surprising $250.00.

Tesla Motors (TSLA) was also in the news after the Beijing Municipal Science and Technology Commission issued a new report on their plans to build 10,000 electric car charging stations by 2017. Unfortunately for Tesla the current designs do not fit Tesla's cars. China wants to desperately solve their air pollution crisis. Promoting electric vehicles is a great step. Yet there is no worldwide agreed upon standard for rapid-charging systems. Europe, the U.S., Japan, and Tesla all have different configurations. China's will be the fifth proposed standard. In other news Tesla is also being sued by a Chinese businessman who had registered the trademark Tesla in China. The businessman is currently suing Tesla to stop selling and marketing cars in China. The case goes to court on August 5th.

chart of Tesla (TSLA)

Alcoa (AA) is the largest producer of aluminum in America. They officially kicked off the Q2 earnings season tonight. Wall Street has been bullish on the stock. The company has beat earnings estimates eight out of the last ten quarters. They did it again tonight. Analysts were expecting a profit of 12 cents a share for the second quarter. AA delivered 18 cents. Revenues came in at $5.84 billion, which was better than the $5.65 billion estimate.

AA has been trying to transform themselves and building up their value-added business. This division for AA just delivered their best quarter ever. This "downstream" business accounts for 59% of Alcoa's revenues but 70% of its profits. Alcoa is forecasting strong growth in the aerospace industry of 8 to 9% this year. They also reaffirmed their forecast for 7% growth in global aluminum demand in 2014. The stock ended today at $14.85 and is currently trading near $15.00 after hours. AA shares have surged +39 percent this year versus a +6.2 percent gain in the S&P 500 and a +2.7 percent climb in the Dow Jones Industrials, which AA used to be a component.

chart of Alcoa (AA)





Major Indices:

The S&P 500 lost -0.7%. It's down about 21 points from last week's closing high of 1985. That's only a one percent pullback and yet people are already waving the correction flag. That seems a little premature. The S&P 500 did bounce near short-term support at 1960, which happens to be near the bottom of its short-term bullish channel.

If this index breaks down below 1960 and its 20-dma (currently near 1957) then we could be in for a drop toward its 50-dma closer to 1920. If 1920 fails then 1900 should be round-number, psychological support. A drop to 1900 would only be a -4.2% decline. In a normal stock market we tend to see a -10% correction once or twice a year. Currently the S&P 500 has not seen a 10% pullback in over 1,000 days.

chart of the S&P 500 index:

Intraday chart of the S&P 500 index

The pullback in the NASDAQ composite index looks a lot uglier with a -1.3% drop. You can see where the index bounced off its prior March 2014 peak, which is an area that also coincided with its 20-dma on the daily chart. The NASDAQ is down almost 100 points from last week's high. That is a -2% drop in two days. Thanks to the underperformance in the momentum names everyone is suddenly worried we might see another sell-off like the one in March where the NASDAQ lost almost 9% (to its April lows).

If the NASDAQ breaks down below the March peak then 4300 is the next likely level of support. A really ugly drop could pull the NASDAQ down to its long-term trend line of higher lows on the weekly chart.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index ($RUT) had everyone's attention today. Small caps underperformed with a -1.2% decline. This index is already down almost 3% from last week's closing high. Not only has the $RUT reversed hard at resistance near its March peak but today's drop has broken a multi-week trend line of higher lows.

Jim warned readers in his weekend commentary that if the $RUT failed near its March peak it could form a bearish double top pattern. Odds of a double top just skyrocketed with this sharp, two-day reversal in the $RUT. This index did bounce near its 30-dma today but the nearest support could be down in the 1040-1050 area. This area should be underpinned by its 50-dma and 200-dma.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index

Looking at tomorrow there will be a lot of focus on the Federal Reserve's minutes from the last FOMC meeting. Last month the Fed reduced its QE program by another $10 billion, which was expected. At the current pace the Fed's QE program will end this year. The market has been trying to speculate on when the Fed will start raising interest rates. In the last two weeks we've seen some major banks move up their estimates on when the Fed will start to hike rates. Instead of the second half of 2015 there are more analysts expecting a rate hike in the first half of next year.

In the past when the market suddenly worried about the Fed hiking rates sooner than expected the market sold off. That doesn't appear to be the case today. The U.S. hasn't seen a rate hike since 2006. As long as inflation remains tame the Fed should be in no rush to raise rates. The minutes will hit the news wires around 2:00 p.m. eastern tomorrow.

The market does face geopolitical risk. The fighting continues in Ukraine between the Kiev government and pro-Russian rebels. The U.S. stock market also continues to ignore the civil war brewing in Iraq. What about Israel? Will stocks remain this sanguine if the situation between Israel and Gaza escalates?

Over the weekend Hamas, a Palestinian terrorist group, fired dozens of rockets and mortars into Israel. The Israelis responded with airstrikes on Hamas weapon sites and tunnels used to attack Israel. Today Hamas managed to launch rockets into Tel Aviv. There is new intelligence that would suggest Hamas now has up to 400 long-range rockets. That is four times more than Israeli intelligence estimated. The rockets that landed in Israel's second biggest city did not kill anyone but Israel is considering an invasion into Gaza before they do. The Israeli military is calling up 40,000 reservists for a potential ground assault.

Odds are investors will ignore the geopolitical headlines tomorrow and focus on the stock market technicals and earnings season. Currently analysts expect S&P 500 companies to deliver 5 percent earnings growth in the second quarter and 3 percent revenue growth. Thus far there have been four negative earnings pre-announcements for every one positive pre-announcement. One has to consider the idea that all the bad earnings news is already priced in. All of the negative earnings pre-announcements has already lowered the bar and we might actually see stocks rally on earnings news. Of course the real key will be guidance. The second quarter is already in the rearview mirror. Investors want to know what corporations are expecting for the second half of 2014. The pace of earnings will pick up speed next week.

In other news the Wall Street Journal turned 125 years old today. Their first issue was July 8th, 1889. It cost two cents for all four pages. You can view the front page of their first issue right here.

James







New Plays

Chicken Littles Cry "Correction"

by James Brown

Click here to email James Brown

Editor's Note:

We are seeing a divergence in the market again. Stocks have delivered a two-day pullback this week. Yet the S&P 500 index is only down -1% from last week's record highs. The small cap Russell 2000 index is down nearly -3%. The NASDAQ composite is down -2%.

Do investors have cold feet ahead of the Q2 earnings season? Are they worried about corporate results missing expectations? Of is this just normal profit taking after last week's rally?

The two-day drop has erased about one week of gains in the NASDAQ and only about three days of gains for the S&P 500. It feels a little early for all the chicken littles to be crying "market correction" right now.

That doesn't mean I would jump into new bullish positions tomorrow. Corrections can be sharp and ugly. I'd rather wait and watch for a bounce before considering new positions.

No new positions tonight.




In Play Updates and Reviews

Momentum Names Get Crushed

by James Brown

Click here to email James Brown

Editor's Note:
Traders were selling anything that might be considered a momentum or high-growth stock.

FLEX, IR, MOBI, and SMCI hit our stop losses today.
NLNK has been removed.


Current Portfolio:


BULLISH Play Updates

Bitauto Holdings - BITA - close: 46.05 change: -3.41

Stop Loss: 43.45
Target(s): To Be Determined
Current Gain/Loss: - 3.6%

Entry on June 30 at $47.75
Listed on June 28, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 933 thousand
New Positions: see below

Comments:
07/08/14: High-beta momentum names were hammered lower on Tuesday. BITA was no exception. Shares plunged -8.8% at their worst levels of the day only to bounce at round-number support at $45.00. After today's big drop more conservative investors may want to raise their stop closer to the $45.00 area.

I am not suggesting new positions at this time.

Earlier Comments: June 28, 2014:
According to BITA's website, Bitauto Holdings Limited is a leading provider of internet content and marketing services for China's fast-growing automotive industry. Bitauto manages its businesses in four segments: the bitauto.com advertising business, the EP platform business, the taoche.com business, and the digital marketing solutions business. They were founded in 2000 and headquartered in Beijing, China.

BITA has partnerships with all the major Chinese Internet portals like Sina, Tencent, Yahoo! China, Alibaba, Netese, Qihoo360, and Tom. They have sales networks in more than 70 cities.

The company is developing a trend of beating analysts' estimates. Their most recent quarterly report was May 8th with their Q1 results. Wall Street expected a profit of 16 cents on revenues of $54.3 million. BITA delivered a profit of 18 cents with revenues climbing +46.6% to $56.9 million. The company has also made significant progress with its gross margins, which jumped to 79.1%.

This trend is likely to continue. Earnings are up +296% from 2010 to last year (2013). Sales are up +246% over the same time frame. Wall Street is expecting BITA's profits to rise 50 percent in 2014.

It's not surprising to see why. Millions of Chinese people are entering the middle class. That means surging demand for automobiles. China is now the biggest auto market on the planet with almost 20 million new cars purchased every year. The U.S. is having a good year for new cars sales too but we are only on track for 16.7 million vehicles this year.

Currently shares of BITA are hovering near their highs and what looks like resistance in the $47.00 area. The stock peaked to $47.00 back in March this year and it's been trying to breakout past this area the last several days.

Please note I do consider a more aggressive, higher-risk trade. BITA has been a volatile stock in the past. Investors may want to use small positions to limit their risk. We are not setting any targets tonight but the point & figure chart is bullish and forecasting at $57.00 target.

*small positions to limit risk*

Current Position: long BITA stock @ $47.75

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

Long Oct $50 call (BITA141018C50) entry $5.40*

07/08/14 readers may want to raise their stop after today's big drop
06/30/14 triggered @ 47.75
*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: 41.78 change: -0.21

Stop Loss: 39.90
Target(s): To Be Determined
Current Gain/Loss: - 0.2%

Entry on June 17 at $41.85
Listed on June 14, 2014
Time Frame: 10 to 12 weeks
Average Daily Volume = 23 million
New Positions: see below

Comments:
07/08/14: MSFT only fell -0.5% versus the -1.3% drop in the NASDAQ and -0.7% decline in the S&P 500. Traders bought the dip at its 20-dma for the third time in four sessions.

If this market decline continues I would expect MSFT to dip toward $41.00 and possibly its 50-dma.

Earlier Comments: June 14, 2014:
It's back to the future with old-tech heavyweights making progress on Friday. Semiconductor giant Intel (INTC) surprised the market with an announcement Thursday night. INTC raised their revenue guidance due to stronger PC sales. That's right, they said stronger PC sales. Intel chips are in about 80% of the world's PCs. Unfortunately the PC has been declared dead for years due to the explosion of laptops, smartphones, and tablets. It is true that PC shipments have been falling for the last eight quarters in a row. IDC expects PC shipments to fall another -6% in 2014. If that's true then what's the story behind Intel's positive guidance? It might be Microsoft.

Microsoft ended support for its Windows XP operating system in April this year. No more support means they would no longer provide patches or virus updates to protect your system from hackers. With credit card data being stolen a constant threat for businesses the lack of support for XP has sparked an upgrade cycle, especially among corporations.

There does seem to be some disagreement on just how long and how big of an effect this upgrade cycle will last. Was it a one quarter bump or will it last throughout the rest of 2014? An FBR analyst estimates that 25% of the PCs connected to the Internet still run Windows XP. That is a very large number so the upgrade cycle for Microsoft could last a while. It could be bigger than expected too.

Not only are consumers and businesses going to upgrade their operating system from Windows XP to Windows 8 but they will most likely buy an upgraded copy of Microsoft Office. MSFT will likely sell a few more copies of SQL server as well.

The MSFT story is not just about software either. The company seems to be making in-roads into the healthcare sector with their Surface Pro 3 tablets. MSFT is also slugging it out with Sony in the game console wars. Consumers bought $3.6 billion in video games in the first quarter of 2014. MSFT's line up of games for its Xbox One looks pretty good following the annual E3 conference last week.

Technically shares of MSFT are in a long-term up trend and hitting 14-year highs. As an investor would you rather buy a 10-year bond with a 2.6% yield or MSFT with a 2.7% yield and good chance for price appreciation?

More conservative investors may want to wait for a rally past $42.00 before initiating positions.

current Position: long MSFT stock @ $41.85

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

Long 2015 Jan $45 call (MSFT150117c45) entry $1.16

06/30/14 new stop @ 39.90
06/17/14 triggered @ 41.85
Option Format: symbol-year-month-day-call-strike



SoftBank Corp. - SFTBY - close: 36.85 change: -0.60

Stop Loss: 35.35
Target(s): To Be Determined
Current Gain/Loss: +0.4%

Entry on June 17 at $36.68
Listed on June 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 499 thousand
New Positions: see below

Comments:
07/08/14: Internet-related names were big underperformers today. SFTBY has significant stakes in several internet-related companies. I'm surprised shares only fell -1.6%. The stock found support at its 50-dma.

Keep in mind that SFTBY is a Japanese company. The Asian market could drop tomorrow in reaction to the U.S. sell-off today. If that happens then SFTBY might gap down tomorrow morning.

I am not suggesting new positions at this time. Resistance remains overhead near $38.50.

Earlier Comments: June 16, 2014:
SoftBank Corp. has been referred to as the Warren Buffet of Technology although a better comparison is probably to Buffet's Berkshire Hathaway. They are a holding company with hundreds of businesses. According to the company website SFTBY has 235 subsidiaries and 108 affiliates (including 150 consolidated subsidiaries and 83 equity method companies). SoftBank Group possesses both advanced infrastructure and diverse services and content, and invests in promising companies working in the Internet field.

SFTBY owns 80.2% of Sprint Corp., 33.3% of eAccess Ltd., 100% of WILLCOM, Inc., 33.3% of Wireless City Planning Inc., 58.5% of GungHo Online Entertainment, and 42.5% of Yahoo Japan Corp. They also own 34% of Renren Inc., which is considered the Chinese version of Facebook. They also own 36.7% of Alibaba Corp., which is a much larger and more profitable version of Amazon.com. That's on top of owning SoftBank Telecom, SoftBank BB Corp. and SoftBank Mobile.

SFTBY's combined telecom assets makes the company one of the largest telecom/wireless players in Japan. In 2013 they added 4.1 million new subscribers and more than double the 1.19 million subscriber gain by NTT DoCoMo and 2.8 million for AU, which is owned by KDDI. Softbank added 47% of the Android phones activated in Japan and 39% of the iPhone 4s and 5c models. Both metrics are the largest in Japan and shows how Softbank is gaining market share.

Their Renren investment could be a big. China already has the largest Internet audience on the planet and it's only going to get bigger. Currently Renren has about 200 million users. This will grow. Like Facebook, Renren is developing its mobile platform. Renren is currently valued at about $8 per user but this seems extremely low considering what Facebook paid for WhatsApp.

SFTBY's majority stake in Sprint is starting to pay off. Sprint has had a rough few years working through its merger with Nextel. Sprint later acquired Clearwire. It looks like Sprint is now in recovery mode after adding +477,000 subscribers in Q4 2013 versus losing -337,000 in Q4 2012. SFTBY wants to acquire T-Mobile and combine it with Sprint. Currently 75% of U.S. customers are on AT&T or Verizon. SFTBY calls them an American duopoly but they believe by combining Sprint, the third largest carrier, with T-Mobile, the fourth largest, the combined company could compete with AT&T and Verizon, which would be good for competition and ultimately consumers.

Today the real allure of SFTBY is its 37% ownership of Alibaba. Amazon.com (AMZN) is an Internet powerhouse with sales of $86 billion in 2013 and a net profit of $274 million. Alibaba dwarfs AMZN with 2013 sales of $160 billion and a profit of $2.16 billion. Right now it looks like Alibaba will IPO this summer. Analysts have been estimating they could be the biggest IPO in history with a value of $160 to 185 billion.

There were new numbers out on Alibaba today with the company stating that its Q4 revenues only rose +39% to $1.9 billion. That's down from 62% growth in Q3. Margins retreated from 51.3% to 45.3% on higher marketing costs. This spooked investors today into thinking that maybe the valuation may not be in the $160-185 billion range.

We believe that SFTBY's shares are very undervalued and when the Alibaba IPO does hit this stock could soar. Tonight we're suggesting investors launch positions tomorrow morning at current levels. Depending on your trading style this could be an aggressive entry point. Technically SFTBY still has resistance in the $38-39 zone. More conservative investors may want to wait for SFTBY to close above $39.00 before initiating new positions. The risk of not launching positions now is that we do not know when Alibaba is going to announce its IPO. It could be any day and likely in the next few weeks. We will plan on exiting after Alibaba's first day of trading.

Current Position: Long SFTBY stock @ $36.68

06/30/14 new stop $ 35.35
06/17/14 trade opens. SFTBY gapped down at $36.68
note: SFTBY does not have options.



Waste Connections, Inc. - WCN - close: 48.44 change: +0.01

Stop Loss: 47.85
Target(s): 49.85
Current Gain/Loss: +1.4%

Entry on June 25 at $47.75
Listed on June 21, 2014
Time Frame: exit before earnings on July 21st
Average Daily Volume = 464 thousand
New Positions: see below

Comments:
07/08/14: WCN weathered the market's sell-off today relatively well. Shares briefly traded under technical support at the 10-dma before bouncing back to close virtually unchanged. I am not suggesting new positions at this time.

Earlier Comments: June 21, 2014:
According to the company website, Waste Connections is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets.

Through its R360 Environmental Solutions subsidiary, the Company also is a leading provider of non-hazardous oilfield waste treatment, recovery, and disposal services in several of the most active natural resource producing areas in the United States, including the Permian, Bakken, and Eagle Ford Basins. Waste Connections serves more than two million residential, commercial, industrial and exploration and production customers from a network of operations across the United States. We also provide intermodal services for the movement of solid waste and cargo containers in the Pacific Northwest.

We seek to avoid highly competitive, large urban markets and instead target markets where we can attain high market share either through exclusive contracts, vertical integration or asset positioning. We also target niche markets, like exploration and production, or E&P, waste treatment and disposal services, with similar characteristics and, we believe, higher comparative growth potential.

Apparently the company's strategy is working. WCN is developing a pattern of beating Wall Street's earnings estimates on both the top and bottom line. WCN's model is generating more profit than its rival with EBITDA margins of 34% compared to its larger rival Waste Management's 24% margins.

WCN is seeing strong growth in its oil field waste business. The company said that its E&P (oil) waste business surged +20% in the first quarter of 2014. It's traditional solid waste business grew +5.5%. Management is optimistic with 2014 off to a strong start. Revenues are up. Free cash flow is up. Margins are improving. They expect to see 12% to 15% growth this year.

Technically shares of WCN just broke out from a two-week consolidation and closed at all-time highs. One could argue that WCN produced a big, inverse head-and-shoulders pattern over the last several months. The point & figure chart is bullish and suggesting a $62 price target.

WCN does have options but the option spreads are too wide to trade.

Current Position: Long WCN stock @ $47.75

06/25/14 triggered @ 47.75



BEARISH Play Updates

The TJX Companies, Inc. - TJX - close: 53.85 change: +0.44

Stop Loss: 54.25
Target(s): To Be Determined
Current Gain/Loss: -0.4%

Entry on June 25 at $53.65
Listed on June 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.5 million
New Positions: see below

Comments:
07/08/14: TJX shrugged off the market's widespread decline and rebounded +0.8%. Shares remain under resistance at $54.00.

I would hesitate to launch new positions tomorrow.

Earlier Comments: June 24, 2014:
According to their website, the TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. With over 3,200 stores in the U.S., Canada and Europe, 3 e-commerce sites and approximately 191,000 Associates at the end of 2013, we see ourselves as a global, off-price, value retailer and our mission is to deliver great value to our customers through the combination of fashion, brand, quality and price.

The stock has been a strong performer on Wall Street for years. Shares of TJX are up 2008 lows near $10 a share to until they peaked near $64.00 late last year. It would appear the long-term momentum is fading.

TJX, along with most retailers, are facing a tough consumer market. Big ticket items like new homes and automobiles are selling well. Smaller purchases like fashion and apparel have been tough unless you're in the luxury market.

The U.S. Commerce Department reported that consumer spending fell -0.1% in April, marking the first decline in a year. It is worth noting that consumer spending was up the prior two months, but that didn't help TJX first quarter sales. TJX reported earnings on May 20th. Their Q1 results (ending April) were 64 cents a share on revenues of $6.49 billion. That was three cents less than Wall Street's estimate of 67 cents a share on revenues of $6.59 billion.

TJX management said their Q1 same-store sales growth was only +1%, which was below guidance. TJX then lowered their 2015 guidance. There has been some speculation that TJX could be losing some market share to the return of JC Penney (JCP).

The issue could be bigger than just one or two stores fighting for market share. The U.S. consumer is facing higher prices. Consumer price inflation is up, especially for everyday items. Over the past twelve months the CPI has risen +2.1%. The price of meat, chicken, eggs, and fish is up +7.7%. The price of fruits and vegetables are up +3.2%.

The consumer is also facing higher gasoline prices. AAA said the national average on gas had risen to $3.68 per gallon. That is the high for this time of year. AAA is currently forecasting a range of $3.55 to $3.70 per gallon. Fortunately, they are hoping that gasoline prices will not hit $4.00 a gallon. However, that could change quickly if the violence in Iraq escalates and terrorist start to impact Iraq's oil exports. Another issue here at home is talk of raising the U.S. federal tax on gasoline from 18.5 cents per gallon to 30.5 cents over the next two years. Call your senator if you do not want that tax to go up.

All of these price increases are weighing on most Americans who are stuck with flat or very low wage gains. Oddly enough consumer confidence just hit a six-year high today. Hope springs eternal but just because consumers are hopeful doesn't mean they're actually spending more money.

Technically shares of TJX are bearish. It has a trend of lower highs and lower lows and just broke down under support near $54.00. We are not setting a bearish target tonight but I will point out that the point and figure chart is bearish and forecasting at $45.00 target.

Current Position: short TJX stock @ $53.65

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

Long Oct $50 put (TJX141018P50) entry $1.05*

06/30/14 new stop @ 54.25
06/25/14 triggered @ 53.65
*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




CLOSED BULLISH PLAYS

Flextronics Intl. - FLEX - close: 10.93 change: -0.08

Stop Loss: 10.75
Target(s): $11.75
Current Gain/Loss: + 4.4%

Entry on June 00 at
Listed on May 31, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.9 million
New Positions: see below

Comments:
07/08/14: The stock market's theme today was sell the high-growth, momentum names. This pushed FLEX to a low of $10.74 before it bounced. Our stop loss happens to be $10.75.

closed Position: Long FLEX stock @ $10.30 exit $10.75 (+4.4%)

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

Oct $10 call (FLEX1018C10) entry $0.80 exit $1.07 (+33.7%)

07/08/14 stopped out
06/16/14 new stop @ 10.75
06/07/14 set target at $11.75
06/03/14 triggered @ 10.30
Option Format: symbol-year-month-day-call-strike

chart:



Ingersoll-Rand Plc - IR - close: 61.38 change: -0.96

Stop Loss: 61.65
Target(s): To Be Determined
Current Gain/Loss: - 3.4%

Entry on June 20 at $63.85
Listed on June 10, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: see below

Comments:
07/08/14: The selling in IR continued today with a -1.5% drop. Shares broke down below $6200 and its mid June lows. Our stop was hit at $61.65. Technically IR has formed a bearish head-and-shoulders pattern over the last three weeks. This mini H&S pattern is forecasting a drop to $60.00.

closed Position: Long IR stock @ $63.85 exit $61.65 (-3.4%)

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

Sept $65 call (IR140920C65) entry $2.36* exit $1.25** (-47.0%)

07/08/14 stopped out
07/07/14 IR has closed below its 20-dma. Readers may want to exit early now
07/02/14 recent activity is not very encouraging. Readers may want to exit early.
06/30/14 new stop @ 61.65
06/20/14 triggered on gap higher at $63.85
suggested entry point was $63.75
*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

chart:



Sky-mobi Limited - MOBI - close: 6.79 change: -0.60

Stop Loss: 7.19
Target(s): To Be Determined
Current Gain/Loss: -7.5%

Entry on June 26th $ 7.77
Listed on June 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 696 thousand
New Positions: see below

Comments:
07/08/14: Our aggressive trade on MOBI did not pan out. High-growth, momentum-type names were the market's biggest underperformers today and MOBI was swept up in the selling frenzy. Shares plunged -8.1% and closed below potential support at $7.00 and its 50-dma. Our stop loss was hit along the way at $7.19.

Earlier Comments: June 25, 2014:
This can be a volatile stock. Traders may want to consider limiting their position size to reduce their risk.

closed Position: Long MOBI stock @ $7.77 exit $7.19 (-7.5%)

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

Oct $10 call (MOBI141018c10) entry $0.85 exit $0.50* (-41.1%)

07/08/14 stopped out
07/07/14 MOBI continues to show relative weakness. Readers may want to exit immediately
06/26/14 trade opens. MOBI opened @ 7.77
Option Format: symbol-year-month-day-call-strike

chart:



NewLink Genetics - NLNK - close: 26.72 change: -1.14

Stop Loss: 25.85
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on July -- at $--.--
Listed on July 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 327 thousand
New Positions: see below

Comments:
07/08/14: High-growth, more aggressive stocks were crushed today and NLNK collapsed with a -8.4% drop. Shares are now under their 200-dma.

Our trade has not opened yet so we're choosing to remove NLNK as an active candidate.

Trade did not open.

07/08/14 removed from the newsletter. suggested trigger was $28.25

chart:



Super Micro Computer, Inc. - SMCI - close: 24.25 change: -1.20

Stop Loss: 24.15
Target(s): To Be Determined
Current Gain/Loss: + 8.5%

Entry on June 09 at $22.25
Listed on June 07, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 467 thousand
New Positions: see below

Comments:
07/08/14: SMCI is another example of high-growth stocks getting killed today. Shares fell to $23.79 intraday before bouncing off its 30-dma. The stock closed with a -4.7% decline. Our stop loss was hit at $24.15.

closed Position: long SMCI stock @ $22.25 exit $24.15 (+8.5%)

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

Oct $22.50 call (SMCI141018C22.50) entry $2.25* exit $3.15** (+40.0%)

07/08/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
06/28/14 new stop @ 24.15
06/16/14 SMCI rallies +10.7%
06/09/14 triggered @ 22.25
*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

chart: