Option Investor
Newsletter

Daily Newsletter, Monday, 8/11/2014

Table of Contents

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

Market Wrap

Market Regains Footing

by Thomas Hughes

Click here to email Thomas Hughes
An apparent reduction in tensions between Russia and the west have helped the market regain some confidence.

Introduction

Today the market got off on a good foot. The reports of Russian troops leaving the region bordering the Ukraine sent a wave of relief around the globe that started last week and carried around the world and into today. Asian markets, particularly the Japanese Nikkei, had their best day in months. The Nikkei gained 2.38% with other Asian indices doing about half that well. In Europe the relief was equally euphoric and sent those indices higher led by the German DAX 1.9% increase. Early trading here at home was equally positive with the major indices indicated about a half percent higher as the trading day began. The mood was aided by a round of semi positive earnings from some big names like Priceline and AngloGold.

Market Statistics

Although the bulk of earnings season is behind us this week is still relatively full with some high profile names on the list. Today was dominated by Priceline but there are others such as Wal Mart on Thursday. The earnings week is important for the consumer products sector of the economy as many big names are reporting. One reporting today was Sysco, beating on the top line and coming in line with expectations on the bottom. As for economic data there was none to be had today and the rest of the week is fairly light to. At the open the SPX moved steadily upward until hitting the early high at 11:20 just a hair shy of 1945. From there the index drifted back down to find support around 1937, about 4.5 points above last weeks close. Afternoon trading saw the indices tread water between the daily low and near term resistance.

Economic Calendar

The Economy

As per usual on Monday's there was not much in the way of economic data. In fact, there is not a whole lot for the week. Eyes are focused on Treasury Budget and the JOLTs report released on Tuesday. Wednesday US retail sales and business inventories will be followed by jobless claims and import/export prices on Thursday. Friday the week will wrap up with PPI, long term TIC flows, Empire Manufacturing and Michigan Sentiment. Friday being the most important day for data in my view.

Also as usual is the weekly Survey of Business confidence conducted by Mark Zandi and Moody's. This week's summary is much as it has been over the past few months, very upbeat. Again poking its head up is a small note of caution from European and South American businesses but US business remain “upbeat” with a positive view going into next year. Hiring also remains “robust” according to the report and is in line with recent NFP reports.

The Oil Index

Global oil prices were mixed in today's session. WTI gained about a half percent while Brent lost about -0.25%. Both traded in tight ranges as traders await this weeks inventory and economic data as well as how geopolitical events will play out. The Oil Index was mixed as well, first trading higher than last weeks close and then later in the day moving down into the red. The index was up about a half percent or more before meeting resistance at the 1650 level. This is the previous all time intraday high and long term resistance that has been in play for the last two months. Support is just below the current levels at the previous all time closing high. The indicators are bearish at this time but consistent with a test of support along the current levels. A break below 1625 could take the index down to the long term trend line along the 1575 region while a break above could go to 1700 or 1725 in the near term. The long term trend is still up and the index is still consolidating above long term support.


The Gold Index

Gold prices fell slightly today as Russian troops reportedly move away from the regions bordering the Ukraine. Prices fell about -$2 and traded in a very tight range as traders weigh the chances of this development leading to a reduction in tension or deteriorating into a new standoff as has happened before. Today's price action was just under the $1310 level and a previous area of resistance but the tight range shows that the market does not quite believe the news.

The Gold Index traded to the upside, in line with equities, and aided in part by earnings from AngloGold. The index gained more than 1% to trade in the middle of a long term resistance zone formed last year as the index broke out of the long term pennant formation. This formation and resistance level was later confirmed this year on a retest. The zone is between the $100 and $105 levels. The indicators are bullish in the long but declining and divergent while short term daily charts are indicating a weak buy. The long term trend is down but the near to short term is less clear. There are some signs of support over the last year, along the $85 level, but with the index 15% above that level there are also signs of weakness that indicate the index could retest that support. I think in the end it will come down to gold prices.


AngloGold Ashanti LTD reported earnings today. This is the largest gold producer operations on three continents and ten countries. The company reported a 17% increase in output based on improved operation and lower-cost production in two of its newer mines. Earnings, while reversing a loss from the previous comparable quarter, were still below expectations and largely driven by reduction in marketing and exploration expenses. On an all-in basis costs dropped -19% to $836/oz while average realized price fell roughly half that amount. Total production in the quarter totaled 1.098 million ounces and the company says it is on track to deliver the same results this quarter. All in costs for this quarter are expected in a range just above currently reported cost.

Basically, the company was able to increase production, primarily because of two new mines, and reduce costs, mainly through non-gold producing activities while expecting the average cost of gold recovery to remain at or slightly above current levels. My take, if gold prices remain at or near current levels AU should meet or fall slightly short of revenue and earnings expectations for the current quarter. Today the stock rose more than 1% in intraday trading but met resistance at the $18 level. The stock has been trading sideways for at least 12 months with indicators that support the same. A break above $18 could go to $19 before meeting resistance while a drop below the short term moving average could find support at $17. Obviously, an increase or decrease in gold prices would have an affect on earnings projections and remains a driver for the miners.


In The News, Story Stocks and Earnings

Priceline reported earnings today that beat expectations but revealed that plans for investment would impact earnings going forward. The market at first did not like this news but soon found reason to reverse the early sentiment. The company reported earnings of $12.51 per share versus an expected $12.09. This is on the back of an increase in bookings, a good sign for Priceline and the economy in general. The stock opened lower, traded lower, and then found support sending it back up to make a new five month high. The stock is above a potential support area with weak but bullish indicators. Longer term resistance is about 4% higher than the current levels near $1375.


Sysco, the largest food purveyor on the market, reported earnings in line with estimates on revenue that was slightly above the expectations. The company reported sales increases on a full year and quarterly basis with adjusted earnings per share of $0.50. In the report CEO is cited saying "While business conditions remained challenging for our customers, we experienced improving trends in year-over-year sales and gross profit growth in the last four months of our fiscal year.” The stock responded by trading 3.5% higher today, halting at a long term resistance line set by an interesting candle formation last year.


Sector Watch

Since there are so many consumer products companies reporting this week I thought the Consumer Staples ETF XLP would be a good choice to look at today. The ETF tracks companies ranging from Proctor&Gamble and Colgate to Coca-Cola, Phillip Morris, Wal Mart and CVS. The ETF has been active during the recent pull back and was active today as well. Today's action carried the ETF just over 1% higher to test the short term moving average before falling back from resistance. The indicators are just showing a strong trend following signal as MACD momentum is crossing zero with today's candle. Current resistance is at the moving average and above around $45 on a break. Earnings will be important for direction this week with Thursday as a potential focal point, the day Wal Mart reports.


The Indices

The Dow Transports led the rally today with a gain of 0.79% at the close. The index is bouncing from a recently regained support level but was halted by the short term 30 day EMA. The index is in mid bounce, from a long term trend line, and indicated higher in the near term. Momentum is still bearish but in sharp decline while stochastic is showing a weak bullish crossover. The index has been a leader of the market for some time and may be back. The index still faces resistance but it appears as the long term trend is taking over. It is at least offering some near term support.


The tech heavy NASDAQ Composite was runner up in today's rally. The index gained 0.70% in today's action, regaining the short term moving average and a long term support level. This is a good sign for the bulls and could lead to some follow through buying provided new events don't throw the market off track. The indicators are still bearish at this time but also still consistent with a test of support. There may be more sidewise trading but the long term trend is still up. Now that earnings are more or less over with the longer term risks include economic data with geopolitics still a concern in the near to short term.


The SPX and Dow Jones Industrials brought up the rear in today's race for gains. The SPX leading with 0.29% versus the Dow's 0.09% increase. The broad market S&P 500 gained a little over 5 points, at the close, with intraday highs 8 points above that. The index is continuing a bounce begun at long term support just above a long term trend line but was met by resistance along the 30 day EMA. The indicators are similar to the other major indices in that stochastic is showing an early, weak, trend following crossover while MACD is in in sharp decline from bearish peaks. This set up is stronger than other "weak" signals because price action is so close to the trend line but still needs a confirmation and secondary strong signal to get really bullish. It'll be three weeks before the next round of macroeconomic data unfolds, ending with the NFP. There is room on my chart for the index to move comfortably sideways until then. This is plenty of time for such a signal to occur should the market and the data warrant it. Near term risk is of course Putin, who could cause a drop or a pop depending on what he decides to do tomorrow or the next day.


Today's laggard was the blue chip Dow Jones Industrial Average. The safe haven of dividends was not enough to attract buyers looking for deals in more aggressive investments. The blue chips gained a mere 16 points in today's action, and like the other major indices, met near term resistance at mid day. The index fell from resistance at the previous all time high but I don't think this will prove too strong a level as it was broken down pretty thoroughly before. The indicators are in line with a trend line bounce with stochastic firing off the early and weaker trend following signal. On a longer term basis, the index is back above the long term moving average but still hampered by resistance. A break above 16570 could see the index retest recent all time highs.


Today the market rose on reduced fear. Reduced fear leaves the market open to focus on long term trends. Long term trends are still up with no sign of them diminishing. In fact, if the Moody's Survey of Business Confidence is any indication not only are trends good, they are strengthening and look good to continue on until the end of this year and into next. If this is true then the current trend line bounce is another great entry for short to long term positions. There are some concerns for the near term but for now they are just concerns. They could build into real threats for the technical state of the market but for now I don't see it happening. This week does not have much in the way of long term catalysts but you never know what bit information the market will grab onto. Be on the lookout for retail sales, PPI, Empire Manufacturing, Michigan Sentiment and on Thursday, earnings from Wal Mart.

Until then, remember the trend!

Thomas Hughes


New Plays

Growing Competition

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Natural Grocers by Vitamin Cottage - NGVC - close: 19.68 change: -0.24

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 209 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
The last six to nine months have not been good for the natural food and organic-related retail chains. Whole Foods (WFM), The Fresh Market (TFM), Sprouts Farmers Market (SFM), and Natural Grocers have all underperformed the market by a wide margin.

According to NGVC's press release the company was "founded in Colorado by Margaret & Philip Isely in 1955, Natural Grocers was built on the premise that consumers should have access to affordable, high-quality foods and dietary supplements, along with nutrition knowledge to help them support their own health. The family-run store has since grown into a successful national chain with locations across Colorado, Texas, Utah, Wyoming, Oklahoma, Missouri, New Mexico, Montana, Kansas, Idaho, Nebraska, Arizona and Oregon, and employs over 2000 people. Although the company went public in July 2012, Isely family members continue to manage the company day to day, building on the foundation of their parents' business."

The good news is that the natural food and organic food craze is reaching a wider audience and more and more consumers are making healthier choices. The bad news is that this previously higher-margin business, in a notoriously low-margin industry, has drawn tons of competition. That has been the biggest challenge. Big players like Wal-mart and Target in addition to major regional grocery chains are all starting to offer more natural and organic wares. Meanwhile those already in the space are competing with each other as well. Margins are shrinking as competition heats up.

Shares of NGVC plunged back in May after the company lowered its same-store sales forecast for 2014. The stock dropped again on August 1st following its earnings report. Earnings were in-line with estimates but guidance was soft.

The path of least resistance is down and NGVG looks headed for its all-time lows in the $17.00 area.

The biggest risk with this bearish positions on NGVC is the crowd. There are a lot of investors already bearish on this stock. The most recent data listed short interest at 33.3% of the very, very small 5.1 million share float. That significantly raises the risk of a short squeeze.

We are suggesting bearish positions with a trigger to short NGVC at $19.45 but I am labeling this an aggressive, high-risk trade. NGVG does have options but most of the option spreads are too wide. We will try and limit our risk with a stop loss at $21.05.

Trigger @ $19.45 *Aggressive trade* Use small positions.

- Suggested Positions -

short NGVC @ $19.45

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Produce Broad-based Gains

by James Brown

Click here to email James Brown

Editor's Note:
The market delivered widespread gains on Monday but stocks retreated from their midday highs.

Our new GPRE trade has been triggered.


Current Portfolio:


BULLISH Play Updates

Green Plains Inc. - GPRE - close: 42.25 change: +1.77

Stop Loss: 38.40
Target(s): To Be Determined
Current Option Gain/Loss: +3.6%
Entry on August 11 at $40.77
Listed on August 09, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.4 million
New Positions: see below

Comments:
08/11/14: Our brand new trade on GPRE is off to a strong start. Our plan was to open bullish positions at $40.75. GPRE gapped higher at $40.77 and then surged to a +4.3% gain. If you missed the entry point this morning consider waiting for a pullback before launching new positions.

Earlier Comments: August 09, 2014:
GPRE has been a monster stock for investors over the last couple of years. Summer of 2012 the stock was trading for less than $5.00 a share. Today GPRE is trading at levels not seen since early 2006. The company is considered part of the basic materials sector. They're listed in the specialty chemicals industry. What they do is make ethanol and a lot of it.

According to the company website, "Green Plains is a vertically-integrated ethanol producer based in Omaha, Nebraska. We currently have an ethanol production capacity of approximately 1.0 billion gallons per year with our 12 plants." Another big part of their business is "Distillers grains are an important co-product of Green Plains’ ethanol production. At capacity our plants will produce approximately 2.9 million tons of distillers grains annually that will be used as a high-protein, high-energy animal fodder and feed supplement. Corn oil is also a co-product of ethanol production that is being extracted at all 12 of our plants."

Earlier this year GPRE made headlines when they purchased their own cattle-feed yard. Distiller's grain is a byproduct of the ethanol production process. Previously GPRE would try and sell it to ranchers as cattle feed. Sometimes that proved difficult to sell all of its distiller's grain. GPRE has decided a great way to handle the problem is buy their own cattle yard. They'll be able to raise their own cattle with the byproduct of their main business of ethanol production.

Of course ethanol is their main product and it could be a great year for GPRE. The company's input costs for their main ingredients of corn and natural gas have been falling in 2014. That's going to boost their ethanol margins. Piper Jaffray actually upgraded GBX in July on this dynamic and raised their price target on GPRE to $45.00.

It looks like the ethanol market is pretty healthy. The U.S. saw ethanol exports soar +56% in the first six months of 2014. Most of that went to Canada. Demand for ethanol could go up if some senators have their way. A handful of senators are pushing to boost the EPA's requirement on ethanol in our fuel. If they are successful it would raise the ethanol requirements by +40%.

The stock has displayed significant relative strength. The S&P 500 index is up +4.5% year to date. GPRE is up +108%. More and more mutual funds have been adding GPRE to their portfolio. Yet not everyone agrees with the bullish outlook on GPRE. Short interest is climbing as well. The most recent data listed short interest at 25% of the small 28.6 million share float. If this rally continues it could spark more short covering.

The last few days have seen GPRE consolidating sideways in the $39.50-40.60 zone. Tonight we are suggesting a trigger to open bullish positions at $40.75. We will try and limit our risk with a stop loss at $38.40.

We are not setting an exit target tonight but I will note that the point & figure chart is bullish and suggesting at $69.00 target.

- Suggested Positions -

Long GPRE stock @ $40.77

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

Long Dec $45 call (GPRE141220C45) entry $2.95*

08/11/14 trade opens on gap higher at $40.77, trigger was $40.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Hewlett-Packard Co. - HPQ - close: 35.20 change: +0.03

Stop Loss: 33.20
Target(s): To Be Determined
Current Option Gain/Loss: -0.4%
Listed on July 19, 2014
Entry on July 23 at $35.35
Time Frame: We will plan to exit prior to earnings on Aug. 20th
Average Daily Volume = 8.9 million
New Positions: see below

Comments:
08/11/14: HPQ rallied up to resistance at $35.50 and managed to tag $35.53 before giving back nearly all of its gains today. Overall the stock's performance was disappointing with the pullback.

Earnings are coming up on August 20th.

Conservative traders might want to move their stop closer to $34.00.

Earlier Comments: July 22, 2014:
Hewlett-Packard was famously started by two Stanford University students back in 1939 in a rented garage. The business that started inside a one-car garage has grown into a massive $65 billion company. Today the company makes printers, personal computers, software, IT services and infrastructure.

It has been a good year for old school technology companies. Microsoft (MSFT) is up +19.8% this year. Intel (INTC) is up +31.2%. HPQ is currently up +23.3%. All three of them are outperforming the major U.S. indices. What's also noteworthy is that all three appear to be benefitting from MSFT's decision to discontinue technical support for its Windows XP operating system.

In April this year Microsoft announced they would stop providing support for XP after 13 years. Instead of upgrading their software the data suggests that many consumers and business have chosen to upgrade their entire computer. Why is that significant? As of April over 25% of computers connected to the Internet were still using XP.

This upgrade cycle was definitely a boon for Intel (INTC). INTC recently reported significantly better than expected earnings and a lot of that was due to stronger PC sales, especially from business clients. This same story will probably be bullish for HPQ as well.

Shares of HPQ have been slowly marching higher and currently sit at two and a half year highs. The stock looks poised to breakout past its mid-June peak. Today's high was $35.29. We are suggesting a trigger to open bullish positions at $35.35.

The Point & Figure chart is forecasting a long-term target of $47.00. We probably won't hold on to HPQ that long since the company is scheduled to report earnings on August 20th.

- Suggested Positions -

Long HPQ stock @ $35.35

- or -

Long Sep $35 call (HPQ140920C35) entry $1.49*

07/23/14 triggered @ 35.35
*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


Skyworks Solutions - SWKS - close: 52.12 change: +0.85

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
Entry on August 07 at $52.65
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.3 million
New Positions: see below

Comments:
08/11/14: SWKS displayed some relative strength today. The rally reversed near resistance in the $52.50-52.75 area but shares still managed a +1.65% gain.

Considering today's performance I would wait for a rise past $52.75 before considering new bullish positions.

Earlier Comments: August 2, 2014:
The semiconductor stocks have led the market higher most of the year but the SOX semiconductor index has reversed sharply in the last couple of weeks. This correction in the SOX has shaved its year to date gains to +13.9%. Shares of SWKS have not seen the same pullback and this semiconductor stock is up +82% this year and looks poised to keep the rally going.

Who is SWKS? According to the company website, " Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

SWKS is probably best known for being a component supplier for Apple's iPhones. SWKS is also supplying components to Amazon.com for that company's new Fire Phone.

SWKS soared in mid July following a better than expected earnings report. Wall Street was looking for a profit of 80 cents after SWKS guided higher to 80 cents in June. They still managed to surprise with a bottom line profit of 83 cents a share. Revenues soared almost 35% to $587 million, which was better than the $570 million estimate, up from $535 before SWKS's June guidance. SWKS management also raised their guidance going forward.

Following SWKS's much better than expected report there was a wave of bullish analyst comments. Several firms raised their SWKS price targets into the $60-65 zone. SWKS's bullish guidance is probably due to Apple's new iPhone 6, which is expected to be unveiled in September. Odds are good that SWKS will rally into Apple's product launch in September.

Shares of SWKS were showing relative strength on Friday with a bounce from support near $50.00 and a bullish engulfing candlestick pattern. We are suggesting a trigger to launch bullish positions at $52.65.

- Suggested Positions -

Long SWKS stock @ $52.65

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

Long Nov $55 call (SWKS141122C55) entry $2.86

08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike


BEARISH Play Updates

Aaron's Inc. - AAN - close: 25.50 change: +0.21

Stop Loss: 27.10
Target(s): To Be Determined
Current Option Gain/Loss: +8.1%
Entry on July 30 at $27.75
Listed on July 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 809 thousand
New Positions: see below

Comments:
08/11/14: The stock market's widespread gains today helped keep the oversold bounce alive in shares of AAN. The stock added +0.8%. The next level of overhead resistance could be the $26.00 mark or its 10-dma at $26.24.

I do not see any changes from my prior comments.

AAN is oversold and due for a bounce. More conservative traders may want to take some money off the table now.

Earlier Comments: July 29, 2014:
Shares of AAN are down -3.7% for the year. Honestly, I'm surprised it's not down a lot more. The company is in the lease-to-own space for residential furniture, consumer electronics, home appliances and more. They have over 2,000 locations in the U.S. and Canada.

Back in February this year AAN reported earnings and guided lower. On April 15th AAN issued a new earnings warning and blamed it on the harsh winter weather. AAN reported earnings just a couple of weeks later and lowered guidance again. AAN issued yet another earnings warning on July 15th. Then when the company reported earnings on July 25th they lowered guidance yet again. With this many warnings I'm surprised investors have not left this stock like rats fleeing a sinking ship.

So why in the world were shares of AAN surging in May and June? Management has been battling with its second largest shareholder for months. In May they moved to declassify the board of directors. This means shareholders can remove all of the board members all at once if they choose to, on an annual basis. Naturally board members who want to keep their job tend to produce more shareholder friendly policies in a situation like this. I suspect this was the driving force behind the May-June rally.

Then the latest round of earnings warnings in July have completely erased all of their gains. Today shares of AAN are sitting near support at the $28.00 mark. The $27.85 level appears to be the level to watch. Tonight we're suggesting a trigger to launch bearish positions at $27.75.

I would consider this more aggressive trade. AAN is down significantly this month and could see another oversold bounce. Just because the path of least resistance is now down doesn't mean AAN can't ricochet higher once in a while.

NOTE: AAN does have options, which might be a way to limit your risk instead of shorting the stock. Unfortunately the option spreads look a bit too wide to actually trade them.

- Suggested Positions -

Short AAN @ $27.75

08/07/14 new stop @ 27.10
investors may want to take some money off the table now.
08/05/14 new stop @ 28.05
07/31/14 new stop @ 28.55
07/30/14 triggered @ 27.75


Cepheid - CPHD - close: 39.13 change: +0.43

Stop Loss: 40.51
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
Entry on July 28 at $39.20
Listed on July 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 680 thousand
New Positions: see below

Comments:
08/11/14: Shares of CPHD were upgraded to a "neutral" today. This helped the stock pop higher at $39.45 but the rally didn't make it much farther. CPHD slowly faded lower the rest of the session and closed with a +1.1% gain.

I do not see any changes from my weekend comments. At this point traders may want to wait for a clearly defined failed rally near $40.00 or a new relative low under $38.25 before considering new positions.

Earlier Comments: July 26, 2014:
CPHD is in the technology sector. If you look deeper the company operates in the scientific and technical instruments industry. According to the company's website, "Cepheid is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests. By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer."

CPHD, like most of the U.S. stock market, had a great 2013. Unfortunately the rally peaked in February-March 2014. This stock set its all-time highs in the $55-56 zone. Market watchers already know that momentum and high-growth names were crushed during the March-April market pullback. CPHD was no exception. The stock corrected from $55 to $40. It looked like CPHD was on the path to recovery but then the stock collapsed again in the last two weeks.

The problem is CPHD's earnings. The company reported earnings on July 17th. Their adjusted results for the second quarter of 2014 was a loss of 10 cents a share. That was better than Wall Street's estimate for a loss of 13 cents a share. CPHD delivered pretty solid revenue growth. Sales in the second quarter surged +21.4% to $116.5 million. That came in better than analysts were expecting. Yet CPHD's net results were down -40% from a year ago.

Listening to the company's management paints an optimistic outlook. CPHD's CEO John Bishop said they sold a record-setting 1,084 of their GeneXpert systems last quarter. That's more than all of 2012. Gross margins improved as well with margins rising from 45% to 49%. So why did the stock fall?

Investors sold the stock on disappointing guidance. CPHD expects 2014 revenues in the 4452-461 million zone. That's relatively close to Wall Street's $459 million estimate. Yet CPHD is forecasting EPS of 10 cents to 13 cents. That is significantly lower than analysts' estimates of 20 cents. You can see the reaction in CPHD stock with the big drop on July 18th.

The post-earnings sell-off continues and now CPHD is breaking down under significant support at the $40.00 level. The next stop could be the $36-35 area or lower. Currently the point & figure chart is bearish and forecasting at $29.00 target.

I would consider this a more aggressive trade. The latest data listed short interest at 16.8% of the 68.9 million share float.

Friday's low was $39.26. We're suggesting a trigger to open bearish positions at $39.00.

- Suggested Positions -

Short CPHD stock @ $39.20

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

Long SEP $40 PUT (CPHD140920P40) entry $2.35

07/31/14 new stop @ 40.51
07/28/14 triggered @ 39.20
Option Format: symbol-year-month-day-call-strike



Deutsche Bank - DB - close: 32.88 change: -0.42

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: +1.7%
Entry on August 04 at $33.45
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.9 million
New Positions: see below

Comments:
08/11/14: European markets were bouncing today and the German DAX produced an oversold bounce of +1.9%. That's not too surprising after a -10% drop from its July highs. What is surprising is DB's failure to participate. Shares of DB underperformed the market and fell -1.26%.

I am not suggesting new bearish positions in DB at this time. Keep an eye on the simple 30-dma near $35.00 as the level to watch.

Earlier Comments: August 2, 2014:
Banking scandals continue to plague the financials. Most of us are familiar with the mortgage loan scandal that has haunted the major U.S. banks for the last few years and finally seems to be fading away. Then some of the biggest international banks were hit with the Libor rate fixing scandal. Now some of the big banks are suffering with a dark pool trading scandal. Dark pools are essentially institutional trading that is concealed from the public markets.

If that wasn't bad enough Europe's economy is slowing down. The region was already struggling before the Ukraine-Russian conflict arose. Now with a growing list of sanctions against Russia the impact is starting to accelerate the economic slowdown in Europe. Plus the specter of financial stress in the European financial system has risen again with the recent collapse of Portugal's Banco Espirito Santo, which recently filed for creditor protection.

Add all of these factors together and you can see why shares of DB, one of Germany's biggest banks, might be struggling. The stock Broke down back in March this year and it's been sinking every since. The month of July saw shares consolidate sideways but DB has started to break out of this trading range. The Point & Figure chart is pretty ugly and suggesting a long-term $14 target.

Friday's intraday low was $33.69. I am suggesting a trigger to open bearish positions at $33.45.

- Suggested Positions -

Short DB stock @ $33.45

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

Long Oct $33 PUT (DB141018P33) entry $1.45*

08/07/14 new stop @ 35.55
08/04/14 triggered @ 33.45
*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


Fifth Third Bancorp - FITB - close: 19.60 change: -0.07

Stop Loss: 20.65
Target(s): To Be Determined
Current Option Gain/Loss: - 0.3%
Entry on August 06 at $19.55
Listed on August 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 10.2 million
New Positions: see below

Comments:
08/11/14: FITB is another financial stock that underperformed the broader market today. The early morning spike higher failed and shares closed in the red. Traders may want to wait for a new failed rally near $20.00 before initiating new positions or wait for a new low under $19.40.

Earlier Comments: August 5, 2014:
Fifth Third Bancorp started as the Bank of the Ohio Valley in Cincinnati back in 1858. According to the company's press release FITB is now "a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $133 billion in assets and operates 15 affiliates with 1,309 full-service Banking Centers, including 102 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,619 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third also has a 22.8% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest

The stock market's recent dip has reduced the S&P 500 index's 2014 gains to +4.9%. Yet the financial sector has been underperforming. The XLF financial ETF is only up +2.4%. Many of the banking stocks are weighing on the group. The regional banks have performed even worse with the KRE regional bank ETF down -6.9%. If you look at weekly chart of the KRE you'll notice a big bearish head-and-shoulders pattern that has formed over the last several months. This doesn't bode well for the group.

Banks have been struggling with little to no growth. Most are willing to lend but only to customers with the best credit ratings. Even if they do lend money the interest rates today are so low it's tough to make a profit. Housing prices continue to rise but the number of mortgages is shrinking.

FITB reported earnings on July 17th. Last quarter their mortgage banking revenues collapsed -67% from a year ago. FITB's profits plunged fro $591 million Q2 2013 to $439 million Q2 2014. The company did manage to beat Wall Street's estimates by 4 cents a share. Unfortunately FITB management lowered their revenue guidance.

Technically shares of FITB are bearish. They have broken the long-term bullish trend of higher lows (see the weekly chart). They have also recently broken below key support near $20.00.

Tonight we're suggesting bearish positions at current levels (no trigger). We'll try and limit our risk with a stop loss at $20.65.

- Suggested Positions -

Short FITB stock @ $19.55

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

Long Nov $20 PUT (FITB141122P20) entry $1.20*

08/06/14 trade begins. FITB gaps down at $19.55
*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


Six Flags Entertainment - SIX - close: 36.88 change: +0.01

Stop Loss: 39.15
Target(s): To Be Determined
Current Option Gain/Loss: +0.1%
Entry on August 06 at $36.90
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 909 thousand
New Positions: see below

Comments:
08/11/14: SIX was making headlines over the weekend and they were not happy ones. Bloomberg reported that Six Flag's Joker's Jinx, a 79 foot roller coaster, stalled on Saturday and left 24 riders stranded. It took five hours to rescue them. This is SIX's third reported ride malfunction in the last five weeks.

The stock failed to participate in the market's bounce today and shares closed virtually unchanged.

Investors may want to start adjusting their stop loss lower.

Earlier Comments: August 4, 2014:
Everyone loves to have fun. The trend of stay-cations that started during the financial crisis of 2008-2009 has probably driven a lot of traffic toward domestic amusement parks. Shares of SIX have definitely performed well these last few years with a rally from its 2010 lows near $8.00 to 2014 highs near $43.00. Unfortunately the momentum may be slowing down.

According to the company website, "Six Flags Entertainment Corporation is the world's largest regional theme park company with $1.1 billion in revenue and 18 parks across North America. The company operates 16 parks in the United States, one in Mexico City and one in Montreal, Canada. For more than 50 years, Six Flags has entertained millions of families with world-class coasters, themed rides, thrilling water parks and unique attractions including up-close animal encounters, Fright Fest® and Holiday in the Park®."

The last earnings report was July 21st. SIX managed to beat bottom line estimates but revenues were a miss. Wall Street expected Q2 revenues of $396 million. SIX only reported $376.5 million. On the plus side SIX said that their amusement park guests were spending more once they got into the park. SIX also reported +9% growth in their season pass business. Unfortunately, attendance was down -8% in the second quarter. Oddly enough SIX blamed the harsh winter on slower Q2 attendance and some analysts were questioning that excuse. Goldman Sachs recently removed SIX from their buy list following the revenue miss. SIX is growing but it is not growing fast enough to justify its current valuations. The stock is trading with a P/E ratio near 32 compared to the S&P 500's P/E closer to 16.

Technically shares of SIX appear to have formed a bearish double top with the peaks in March and June. Now SIX is on the verge of breaking a long-term trend line of support (see weekly chart below).

The post-earnings reaction low was $37.12 on July 21st. We are suggesting a trigger to open bearish positions at $36.90.

FYI: SIX does have options but the spreads are so wide they are untradeable.

- Suggested Positions -

Short SIX stock @ $36.90

08/06/14 triggered @ 36.90


Yandex N.V. - YNDX - close: 29.01 change: +0.01

Stop Loss: 31.10
Target(s): To Be Determined
Current Option Gain/Loss: -0.5%
Entry on August 07 at $28.88
Listed on August 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

Comments:
08/11/14: The stock market's focus remains on Russia and the Ukraine border. Late last week Russia indicated they were pulling away from the border. Yet today NATO said Russian troops are still there and have not retreated.

Meanwhile YNDX spiked higher at the open with the market's surge this morning. Yet YNDX failed at short-term resistance at the 10-dma. THis move could be used as a new bearish entry point.

Earlier Comments: August 6, 2014:
Officially registered in Amsterdam, YNDX is actually headquartered in Moscow. They are one of the largest internet companies in Europe. They're also the dominant search engine in Russia with almost 62% of all search traffic.

The company's latest earnings report on July 29th looks bullish. Earnings were 30 cents a share versus the estimate of 29 cents. Revenues soared +32% to 12.2 billion Russian rubles ($361.5 million). That was above estimates for revenues in the $340-358 million range. Their Q2 search queries were up +21% from a year ago. Plus, YNDX reported their number of advertisers was up +25% from a year ago and up +6% from the prior quarter.

In spite of all the bullish numbers investors used the post-earnings rally to sell. The stock action is bearish. The trend of lower highs has now turned into a new pattern of lower lows. Today's drop of -2.3% not only underperformed the market but it broke recent support in the $29.50 area.

The current geopolitical risks between Ukraine and Russia could be pressuring YNDX. The U.S. and Europe have launched multiple sanctions against Russia and Russian companies as a penalty for Russia's support of Ukraine separatists. Yesterday stocks sank sharply on news that Russia was building up troops on the Ukraine border again. It would appear that Russian President Putin will not back down. There is speculation that instead of an actual "invasion" that Russia will send troops across the border as a "humanitarian effort" to protect people. If that does happen the global equity markets are not going to react well and Russian stocks could be hurt the worst.

Tonight we're suggesting bearish positions now at current levels. We will start with a stop loss at $31.10, above the 20-dma and 100-dma.

- Suggested Positions -

Short YNDX stock @ $28.88

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

Long NOV $28 PUT (YNDX141122P28) entry $2.40*

08/07/14 trade begins. YNDX opens at $28.88
*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