Option Investor
Newsletter

Daily Newsletter, Monday, 8/18/2014

Table of Contents

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

Market Wrap

Tensions Ease, Markets Rise

by Thomas Hughes

Click here to email Thomas Hughes
Easing tensions in the world's geopolitical hot spots allowed the market to move higher and the NASDAQ to set a new high.

Introduction

New reports reveal that the stand off between the Ukraine and pr-Russian separatists is as yet unresolved but there has been some easing of tensions. The lack of escalation from either side following the convoy attack last Friday, along with news there has been some progress made in terms of the humanitarian effort, provided enough relief for global markets to shift focus back to fundamentals.

Asian markets started the global rally today but were only barely able to hold any of the gains. European markets were more firmly optimistic about the outcome and rose more than 1% on average with the German DAX leading at 1.68%. The US equity market was firmly higher with futures indicated up from the start of early pre-open trading. The futures trade gained some strength during the morning and carried it into the opening. The SPX was indicated about 11 points higher at the opening bell and quickly extended that gain to +15. Once at the daily high the market stayed within two points of that level until mid afternoon and into the close.

Market Statistics

Early focus was on the Ukraine but it's importance seems to be waning, again. The market response to each new even is waning as well. The risk of something else happening in the region is still present but today at least it did not provide a hindrance to trading. Rising to the forefront is a string of expected economic data topped off by minutes from the latest FOMC meeting. This week we will get CPI, building permits and housing starts on Tuesday followed by FOMC minutes on Wednesday. Thursday the weekly jobless claims are followed up by existing home sales, Philly Fed and the index of leading indicators. Also in focus this week is the annual conference of central bankers in Jackson Hole, Wyoming. There are a number of speeches expected from top bankers such as Janet Yellen, Mario Draghi (ECB) and Haruhiko Kuroda (BOJ).

Each event will be important but I think it will be the week as a whole and not any one data point that proves most important. There is a chance, maybe even a likelihood, that some of the data will be less than expected. That's OK so long as the data as a whole, including Fed outlook, are not too strong and not too weak. Too strong could lead the market to think that interest rates will rise sooner, too weak could lead the market to think the recovery is stalling.

Economic Calendar

The Economy

There was one bit of economic data released today in addition to Moody's weekly Survey of Business Confidence. The National Association Of Home Builders released their monthly report of home builder confidence. The index rose, unexpectedly, by two points to 55 from last months reading of 53. This is above the consensus estimates for the index to hold flat. All three components of the index gained this month, in all regions. This is the third month of gains in the index and the highest reading since January. While not overly strong the reading is expansionary and gaining strength. Tomorrow housing permits and housing starts are both expected to rise modestly but remain below the “critical” 1 million level.

Mr. Zandi is exuberant in his summary of the Survey Of Business Confidence. He says that “business confidence is rock solid”, in line with an economy “expanding above its potential. According to his report businesses are especially optimistic about prospects going into the end of the year and the beginning of next year. In addition, as in past weeks, he notes that hiring intent is strong across the board and supportive of +200K job growth per month. The one area of caution that keeps poking up is that South American and European companies are less upbeat.

The Oil Index

Oil prices took another big dip today, shedding more than a -$1.25 on an intraday basis. Rising storage levels, the end of the summer driving season, increasing supply from areas like Libya and a reduction in fear for areas like Iraq have all combined to bring WTI back below $96 and near the 6 month low set last week. It is possible that prices will remain low in the near to short term unless geopolitical risk or prospect for global demand growth provides catalyst. The good thing is that oil is now cheap for businesses to buy and will likely work its way through to the bottom lines of industries that rely on black gold.

The Oil Index traded flat today. The declining price of oil tugging it lower, the rising tide of stocks pulling it higher. The index has been trading in a tight range for several weeks and is caught inside two long term support/resistance lines based on previous all time closing and intraday highs. The indicators are consistent with support along this level and are in the early stages of a trend following buy signal but one that I think deserves some caution. In the end low oil prices are not good for oil producers but could lead to increased sales volume if not increased revenue. It also means that operating costs for oil services companies will be lower as well. How this will play out in the oil sector is a complicated question and one I think the market has yet to answer. A break outside of the current range between 1625 and 1660 could be the tell. A break below could take the index down to the long term trend line in the 1575-1600 region.


The Gold Index

Gold prices deflated today in response to the news of reduced tensions between Russia and the Ukraine. The move down was not as pronounced as it has been in the past on similar news and could be reflecting a lack of trust in Putin. He's backed down before, sending the price of gold down and the price of stocks up, only to reverse himself and drive gold up and stocks down. It's almost enough to suspect him of rigging the markets. The long term trend is still down although the flight to safety driven by geopolitical tensions have established a potential support zone. Today gold lost about $7 in the early part of the day, dropping below $1300, only to regain it by the close of the session.

The Gold Index opened lower today but rose during the afternoon, posting a small gain by the close. Despite today's rise this is the second day the index is trading below my resistance line and potential reversal point. The indicators remain weak and in line with range bound trading in the short term. Near term support is just below the current level along the short term 30 day moving average with a potential long term support below that along the 150 day EMA. AS it stands it appears as if the index is caught between long term resistance growing long term support. The support is questionable as the index is tied to gold prices and gold prices are elevated on flight to safety, not valuation. Until there is clear direction in gold prices this index may remain trapped between these levels with the possibility of a squeeze forming as long term pressures build from both sides of the trade.


In The News, Story Stocks and Earnings

The dollar store wars heated up today with a bid for Family Dollar from Dollar General. This is on top of the already binding merger agreement Family Dollar has with Dollar Tree which hit the news last month. The deal values outstanding shares of Family Dollar at $78.50 each, a premium over the previous offer. The news sent shares of FDO up more than 5%, surpassing the $78.50 offer. Dollar Tree reports earnings on Thursday.


Earnings season is mostly behind us but there are still a few companies left to report. Out of the 500 S&P companies there were 31 left as of the start of the week this morning. Out of those that have reported so far 73% have beaten earnings estimates while 64% have beaten sales estimates. The average earnings growth rate is 7.6%, well ahead of the expected range of 5-6% going into the season.

This week there are not a whole lot of reports but it is a big week for retail in general and teen retail/home improvement in particular. There are at least 10 big name retailers on the list this week including Home Depot and Lowes on the home improvement front and Cato, American Eagle, Aeropostale, TJ Maxx, Dicks, Target and Petsmart rounding it out. The retail Spyder XRT traded to the upside today in line with the general market. The ETF is still trading near the middle of the long term range but is at a one week high. The indicators are bullish and there is support just below the current level along the short and long term moving averages.


The Consumer Discretionary Spyder XLY also traded up, gaining just shy of 0.90% in today's session. This ETF is trading just below long term resistance and a all time high levels. This ETF is in the process of moving higher following a long term moving average bounce and accompanied by rising indicators. Although indicated higher, it is just below resistance so a break out is needed in order to confirm another move higher. This week could do it provided the retailers give us good news. There are spots of weakness in the sector, some retailers are hitting the nail on the head while others are struggling to keep up.


Urban Outfitters reported today, after the bell. The teen clothing retailer reported earnings that were basically in line with expectations. EPS of $0.49 per share was in line with estimates while revenues were a little better than expected. Forward outlook was not quite as expected and helped to send the stock down in the after hours session. The culprit is declining margins which is hurting bottom line results. The stock had been up during the regular session but fell more than 1% after the bell.


The Indices

The markets made a nice rebound today. The rally started even before the bell and carried through right into the close of trading. Although the Transports led the market today it was the NASDAQ which was the real winner. The tech heavy NASDAQ composite index only gained 0.97%, weak compared to the Dow Transports 1.71%, but managed to set a new 14 year high. This is the first new high for the index since the summer correction began at the beginning of July. The index broke above the 4,500 level and closed at the top of today's range. The indicators are bullish and indicate higher prices are likely on the way. This move is a continuation of the trend following signal that appeared last Thursday and could carry the index another 100 points higher in the short term.


The Dow Jones Transportation Average was today's points leader with a 1.71% gain. The Trannies moved more than 141 points higher and created a long white candle. Today's candle is noticeable larger than any candles dating back for several months and similar to candles that have formed at the start of other trend following movements. Lending weight to the bullish argument today's candle formed above the short term moving average and above the previous all time high. The indicators are also strongly bullish with today's action creating a sharp move up in momentum. Support is currently at 8,250 with resistance just above at 8,500 near the current all time high. The long term trend is up and this move looks good to at least test the all time high if not set a new one in the near term.


The Dow Jones Industrial Average was also one of today's big movers. The blue chip index gained 1.06% in today's session, creating a long white candle and breaking above the short term moving average which is just above the all time high set by the index this spring. The indicators are bullish and showing a strong movement upwards in line with the underlying trends. Previous trend following bounces originating at the long term 150 day EMA have been worth up to 1000 points or more over a short term basis of 2 to 3 months. There is still near term resistance ahead at the 17,000-17,100 level on a technical basis.


The S&P 500 brought up the rear in today's action, posting a modest 0.85% gain. The broad market index gained 16.68 points and closed at the top of today's range. The candle formed was a white one and bullish, just not one that I would call overly large. The index is moving higher and in mid bounce, similar to the other indices. The SPX is approaching resistance with bullish indicators confirming a long term trend line bounce. There could be some consolidation as the index moves up to test resistance but previous bounces of this nature have not lingered long once the movement began. The bounce has already produced about 60 points of movement with that as a potential upside target provided the index can break above resistance. The long term trend is up, the prevailing signal is up and there as of yet there has been no sign of that ending.


It looks like the long term trend has taken control of the market. The Russia/Ukraine stand off will hang over our heads for some time to come I expect but at least for now the technical picture remains undamaged. The July correction found support at long term levels and has now reversed in favor of the long term trend. Today new data showed us that home builder sentiment is on the rise which is a good sign that other areas of the housing sector may be improving as well.

Without the threat of geopolitical risk the market was able to move up on the data in anticipation of what is to come this week. Tomorrow there are two key pieces of forward looking housing data, starts and building permits, with existing home sales later, FOMC minutes and Leading Indicators later in the week. So long as the data supports the steady improvement in the economy we have been experiencing I think the rally will go on. The FOMC minutes may give us some sign of when interest rates will rise but I am not really expecting much out of it except the same old data dependent song.

Until then, remember the trend!

Thomas Hughes


New Plays

Wilting Under The Competition

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Sprouts Farmers Market, Inc. - SFM - close: 29.55 change: +0.05

Stop Loss: 30.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
There is a growing pile of evidence that Americans are starting to eat healthier. It's about time. 66% of Americans are overweight and 33% of us are clinically obese. This new trend of healthier eating helps explain falling sales at restaurants like McDonalds and strong sales for rivals like Chipotle (which many consider to be a healthier choice). Today's trade isn't about restaurants. It's about the natural and organic trend in grocery stores.

Most people think of Whole Foods Market (WFM) when they consider natural and organic grocery chains. WFM is a dominant player with 388 stores. Sprouts (SFM) is catching up. The first Sprouts store started in Arizona back in 2002. Today they have more than 180 stores. Unfortunately for SFM they are facing the same issues WFM is.

Natural and organic foods used to offer higher margins in a notoriously low-margin business - grocery. It wasn't long before everyone has started promoting their natural and organic options. Traditional food chains as well as major nationwide players like Wal-Mart and Target. All of this competition is pressuring margins and sales growth.

Keep in mind, SFM is still growing. Their latest earnings report was August 7th and SFM beat estimates with a profit of 20 cents a share. That's a +43% jump in earnings from a year ago. Revenues were up +19.5% to 743.8 million, also above estimates. SFM management raised their 2014 guidance although this didn't have much impact since they only raised guidance to match Wall Street's consensus.

This issue doesn't seem to be growth. Investors are bearish on rising competition. It doesn't help that SFM isn't cheap with a current P/E of almost 52. It also didn't help that several major shareholders just sold 15 million shares at $30 a few days ago. This big sale doesn't breed confidence for investors.

Technically SFM appears to be in a major down trend of lower highs and lower lows. The P&F chart is bearish and forecasting at $23.00 target. SFM barely moved today in spite of a relatively widespread market rally.

Currently SFM is hovering just above support near $29.10. If this stock breaks down it could test its 2014 lows and potentially hit new ones. Tonight we're suggesting a trigger for bearish positions at $28.95.

Trigger @ $28.95

- Suggested Positions -

short SFM stock @ $28.95

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

Buy the DEC $27.50 PUT (SFM141220P27.5) current ask $1.55

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Small Caps Lead Stocks Higher

by James Brown

Click here to email James Brown

Editor's Note:
After underperforming last week the small caps outperformed with a +1.4% gain on Monday. If this trend continues it could boost investor sentiment.

Our plan was to close the HPQ trade this morning.


Current Portfolio:


BULLISH Play Updates

Green Plains Inc. - GPRE - close: 43.18 change: +0.95

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: +5.9%
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:
08/18/14: GPRE rebounded off what looks like new short-term support near $42.00. The stock outperformed the major indices with a +2.2% gain on Monday.

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*

08/14/14 GPRE announces $100 million buy back and doubles dividend to 8c.
08/13/14 new stop @ 39.25
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


Microsoft Corp. - MSFT - close: 45.11 change: +0.32

Stop Loss: 41.75
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
Entry on August 14 at $44.08
Listed on August 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 36 million
New Positions: see below

Comments:
08/18/14: The rally in MSFT continues with the stock up five days in a row. Shares are nearing what will likely be short-term resistance in the $45.50-45.70 zone from its July highs. I would expect a dip once it reaches that level.

Earlier Comments: August 13, 2014:
Microsoft Corp. is a technology behemoth. The company was founded in 1975. They have grown into a massive company with 128,000 employees around the world. Their software is used by billions of people every day. They also offer technology services, tablets, X-box gaming platform, networking and server software, and their Nokia division. MSFT has jumped head first into the cloud computing industry. Altogether MSFT generated almost $87 billion in sales the past 12 months with a net income of $22 billion.

Investors worried about MSFT and how the death of the PC would slowly chip away at its core products - mainly the Windows operating system and Microsoft Office. However, this past summer there has been evidence that the PC market isn't dead. Intel reported stronger than expected chip sales for PCs, especially to enterprise customers. Meanwhile MSFT stopped supporting the Windows XP operating system. MSFT released the XP system back in 2001. Their decision to stop providing updates means the XP system could become less secure to viruses, malware, and hacking. One analyst estimated that 25% of the PCs currently connected to the Internet were still running XP. That's millions and millions of computers that will need to either upgrade their software or likely be scrapped and upgraded to a new computer with a newer version of MSFT's software. The upgrade cycle could last a while.

Investors have been pretty optimistic since Satya Nadella was crowned CEO of MSFT back in February this year. He has been focusing the company on the cloud and it seems to be working. MSFT's commercial cloud revenues soared +147% with sales on track to exceed $4 billion a year. Even Bing, MSFT's search engine rival to Google, is improving. Bing's ad revenues rose +40% last quarter and snatched almost 20% of the search engine market. MSFT expects their Bing division to turn profitable in 2016.

MSFT's most recent earnings report on July 22nd was mixed. They missed the bottom line estimate by 5 cents. Yet revenues came in ahead of expectations. Wall Street was looking for quarterly revenues of $22.99 billion. MSFT reported $23.38 billion. Several analyst firms upgraded their outlook on MSFT following the earnings report. Many of the new price targets are in the $50 area.

Technically shares of MSFT have a bullish trend of higher lows. The stock saw some post-earnings depression in the second half of July but now that's over and investors are buying the dip.

Tonight I am suggesting investors open bullish positions tomorrow morning. We'll try and limit our risk with a stop loss at $41.75.

- Suggested Positions -

Long MSFT stock @ 44.08

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

Long 2015 Jan $50 call (MSFT150117c50) entry $0.45

08/14/14 trade begins. MSFT opens at $44.08
Option Format: symbol-year-month-day-call-strike


Skyworks Solutions - SWKS - close: 54.30 change: -0.09

Stop Loss: 49.95
Target(s): To Be Determined
Current Option Gain/Loss: +3.1%
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:
08/18/14: Apple's new iPhone 6 was making headlines today after some photos leaked over the weekend. SWKS is a supplier to Apple for their iPhone. As we get closer to AAPL's iPhone launch in late September it could boost shares of SWKS.

Today SWKS just hovered near its highs.

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

08/13/14 new stop @ 49.95
08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike


WhiteWave Foods Co. - WWAV - close: 33.97 change: +0.46

Stop Loss: 31.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: Yes, see below

Comments:
08/18/14: WWAV managed to outpace the market's rally with a +1.3% gain on Monday. This is another new high for the stock and shares are poised to breakout past $34.00 soon.

Our suggested entry point is $34.15.

Earlier Comments: August 16, 2014:
Consumer tastes and buying habits are changing and more people are opting for more natural and organic foods.

WWAV is in the consumer goods sector. You might not recognize the name but they're behind brands like Silk, Horizon Organic, Land-O-Lakes, International Delight, Alpro, and Earthbound Farm Organic.

WWAV considers themselves "a leading consumer packaged food and beverage company that manufactures, markets, distributes, and sells branded plant-based foods and beverages, coffee creamers and beverages, premium dairy products and organic produce throughout North America and Europe. The Company is focused on providing consumers with innovative, great-tasting food and beverage choices that meet their increasing desires for nutritious, flavorful, convenient, and responsibly-produced products. The Company's widely-recognized, leading brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES* coffee creamers and beverages, Horizon Organic premium dairy products and Earthbound Farm' certified organic salads, fruits and vegetables. Its popular European brands of plant-based foods and beverages include Alpro and Provamel" (The Land-O-Lakes brand is licensed from the owners).

If you're looking for a company that is growing then keep an eye on WWAV. They have beaten Wall Street's estimates on both the top and bottom line at least four quarters in a row. The last three quarters management has been raising their guidance. In Q4 2013 WWAV's revenues were up +11.5%. The first quarter of 2014 saw revenues soared +36.5%.

Their latest report was August 7th. Analysts were looking for a profit of $0.22 on revenues of $815.6 million. WWAV delivered a profit of $0.23 with revenues climbing +39.5% to $837.9 million.

The natural and organic retailers might be facing tougher margins and stronger competition (WFM, SFM, TFM, NGVC) but that doesn't seem to be the case for a producer and distributor like WWAV.

You can see the big surge in the stock price on August 7th as traders reacted to the bullish earnings news and guidance. After consolidating gains the last few days shares of WWAV have started to push higher again. They have been outperforming the major market indices and WWAV closed at a new all-time highs on Friday.

We believe the rally continues but I am labeling this a more aggressive, higher-risk trade due to WWAV's recent volatility. The last several weeks have seen some significant swings.

Friday's intraday high was $34.06. We're suggesting a trigger to open bullish positions at $34.15.

Trigger @ $34.15

- Suggested Positions -

Buy WWAV stock @ (trigger)

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

Buy the OCT $35 call (WWAV141018C35) current ask $1.45

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




BEARISH Play Updates

Aaron's Inc. - AAN - close: 25.79 change: +0.79

Stop Loss: 26.10
Target(s): To Be Determined
Current Option Gain/Loss: +7.1%
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:
08/18/14: AAN followed up Friday's big drop with a pretty decent bounce on Monday. Shares rebounded +3.1%. It's worth noting that today's session is an inside day (inside the prior day's range) so it really don't tell us much.

We are going to turn more defensive here and lower the stop loss to $26.10.

I am not suggesting new positions at this time.

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

08/18/14 new stop @ 26.10
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: 37.89 change: +0.24

Stop Loss: 40.25
Target(s): To Be Determined
Current Option Gain/Loss: +3.3%
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:
08/18/14: CPHD failed to keep pace with the market's rally on Monday. Shares only gained +0.6%.

While the path of least resistance appears to be lower I am not suggesting new positions at this time.

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

08/13/14 new stop @ 40.25
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: 33.01 change: +0.08

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
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:
08/18/14: The last few days have been pretty choppy for the German DAX index. On Friday the German stock market lost -1.4%. Today it bounced with a +1.68% gain. Yet shares of DB did not participate with the stock gaining few cents today.

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: 20.02 change: +0.29

Stop Loss: 20.65
Target(s): To Be Determined
Current Option Gain/Loss: - 2.4%
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:
08/18/14: It was a different story for FITB. Shares did show some relative strength with a +1.4% gain. The stock is testing round-number, psychological resistance at the $20.00 mark. More conservative investors may want to ratchet down their stop loss.

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


Financial Engines, Inc. - FNGN - close: 35.62 change: +1.08

Stop Loss: 36.60
Target(s): To Be Determined
Current Option Gain/Loss: -2.7%
Entry on August 15 at $34.70
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 663 thousand
New Positions: see below

Comments:
08/18/14: It was not a good day for FNGN bears. The stock broke down under support and hit new 2014 lows on Friday. This drop was erased with a +3.1% bounce today. FNGN tested short-term resistance at $36.00 intraday.

I am not suggesting new bearish positions at this time.

Earlier Comments: August 12, 2014:
FNGN is in the financial sector. They provide investment advice, retirement planning services and more. According to the company's press release they describe themselves as "America's largest independent investment advisor, is dedicated to making high-quality retirement help available to everyone — regardless of how much money they have. We’re proudly independent, which means we don’t sell products or earn commissions based on our investment recommendations. The companies that choose to work with us offer our services to their workers as a valuable employee benefit."

Shares of FNGN went public back in 2010 at $12.00. They opened at $15.00 on their first day of trading. Since then the stock has definitely had its ups and downs. Shares took off in July 2012 and soared to a high of $70 in December last year thanks to a very bullish stock market performance in 2013.

Unfortunately 2014 has been a very disappointing year as FNGN continues to frustrate investors. When FNGN reported earnings on February 20, 2014 they missed estimates by a penny, missed the revenue number, and guided lower for 2014. When FNGN reported earnings in May they missed by 2 cents, missed the revenue number, and guided lower for 2014. Their most recent earnings report was July 31st and FNGN managed to beat Wall Street's bottom line estimate by 2 cents. Revenues were in-line with (lowered) expectations. Yet FNGN management lowered their guidance for 2014. Is anyone picking up on a trend here?

The disappointing earnings results have fueled a six-month decline. Shares are now in a bear market. FNGN is currently testing support near the $35.00 level. The recent low was $34.88. Tonight we're suggesting a trigger to open bearish positions at $34.70.

I am tempted to label this a more aggressive, higher-risk trade because of the short interest. The most recent data listed short interest at 16.7% of the 50.8 million share float. That does raise the risk of a short squeeze. If you have noticed investors have been using the rallies to exit.

You could try and limit your risk with put options but the option spreads are pretty wide so we're not listing them here.

We are not setting an exit target tonight but I will point out that the Point & Figure chart is bearish and forecasting a $24.00 target.

- Suggested Positions -

Short FNGN stock @ $34.70

08/15/14 triggered @ 34.70


Natural Grocers by Vitamin Cottage - NGVC - close: 18.70 change: +0.18

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: +3.9%
Entry on August 12 at $19.45
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 209 thousand
New Positions: see below

Comments:
08/18/14: After last week's decline NGVC produced an oversold bounce and snapped a seven-day losing streak. If this bounce continues we can watch for resistance near $20.00.

Earlier Comments: August 11, 2014:
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.

*Aggressive Trade* Use small positions. - Suggested Positions -

short NGVC @ $19.45

08/12/14 triggered @ 19.45


Six Flags Entertainment - SIX - close: 37.54 change: +0.69

Stop Loss: 38.15
Target(s): To Be Determined
Current Option Gain/Loss: -1.7%
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:
08/18/14: The stock market's broad-based bounce on Monday morning sparked some short covering in SIX. The stock spiked up toward technical resistance at its simple 300-dma. SIX should have additional resistance at $38.00.

We are going to try and reduce our risk by lowering the stop loss to $38.15.

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

08/18/14 new stop @ 38.15
08/06/14 triggered @ 36.90


Yandex N.V. - YNDX - close: 29.04 change: +0.63

Stop Loss: 31.10
Target(s): To Be Determined
Current Option Gain/Loss: -0.6%
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:
08/18/14: YNDX was not immune to the market's widespread rally on Monday. Shares added +2.2%. The stock looks like it might be stuck in the $28-30 zone.

More conservative investors might want to lower their stop closer to $30.00.

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



CLOSED BULLISH PLAYS

Hewlett-Packard Co. - HPQ - close: 35.34 change: +0.27

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
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:
08/18/14: We decided in the weekend newsletter that HPQ was not working for us and adjusted our plan to exit on Monday morning. The gap higher this morning was a bonus. Shares opened at $35.51 before trimming its gains.

- Suggested Positions -

closed HPQ stock @ $35.35 exit $35.51 (+0.5%)

- or -

Sep $35 call (HPQ140920C35) entry $1.49* exit $1.44 (-3.3%)

08/18/14 planned exit, HPQ gapped higher at $35.51
08/16/14 prepare to exit on Monday morning
08/12/14 new stop $33.90
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

chart: