Option Investor
Newsletter

Daily Newsletter, Thursday, 8/28/2014

Table of Contents

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

Market Wrap

Putin's At It Again

by Thomas Hughes

Click here to email Thomas Hughes
Reports from NATO that 1,000 Russian troops were operating on Ukrainian soil sent the market diving to support.

Introduction

Reports from NATO that include satellite photos have at least 1,000 Russian regulars engaged in military operations within the Ukraine. This, along with statements from the Ukrainian government to the effect Russia had invaded its territory, is what caused today's dive to support. The seemingly positive summit between Putin and the Ukrainian PM turned out to be the usual smoke screen for Putin's real objectives. The market reaction however, was not typical. Instead of moving sharply lower on the flight to safety we moved down only a little, did not break support and made up most of the losses before the close.

It appears as if the Putin effect is wearing off. As for reports of troops inside Ukrainian borders, didn't we already know that, or at least accept it as likely? An additional drag on Europe and early pre open trading here was weaker than expected German inflation data which raises speculation of whether the ECB will act to install new QE measures as hinted in Jackson Hole. The data, coupled with talks of further increased sanctions against Russia and rumors Russia would turn off the flow of natural gas to Europe this winter sent the DAX down by -1.12%.

Market Statistics

In other news, there were some positive developments that helped the market shrug off the newest Russian incursion, at least for now. The 2nd estimate to 2nd quarter GDP was above expectation and along with another good jobless claims report helped to lift futures off their lows during the early session. The markets were indicated down by about -7 points for the SPX and -75 for the Dow ahead of the data, afterward this moderated to about -4 for the SPX and -50 for the Dow and held going into the open. At the bell there was a broad move lower but one that quickly found support. The markets found intraday bottom and begun to move higher by 9:45, bolstered by better than expected pending home sales data. After that the indices moved higher and then tread water the rest of the day with the SPX hovering just shy of 2000.

Economic Calendar

The Economy

The 2nd estimate for 2nd quarter GDP rose by 0.2% to 4.2%. This is better than the expected 4.0% and has already caused a shift in estimates for the third quarter. The improvement is due to increases in corporate profits and spending and was aided by less drag from the trade component. The average estimated for the 3rd quarter was about 3.2% but now may get revised lower.

Initial claims for unemployment fell by -1,000 from an upward revision of 1,000 to hold flat from last weeks reported 298,000. This below the expected gain of 3,000 and the second week of claims below 300,000 since moving back above that level earlier this month. The four week moving average of claims also fell below 300,000 to 299,750 putting the average below 300,000 for the month. Initial claims are basically flat over the past 2 to 3 months but remain at low levels relative to the recovery. On an unadjusted basis claims fell by -841 or -0.3% versus the expectations for them to hold steady from last week. On a state by state basis GA and AL had the biggest increases in claims with 874 and 575. California and Fl had the biggest decreases with -8771 and -1462.


Continuing claims rose by 25,000 to 2.527 on top of a +2,000 revision to last weeks figures. This is just off of the 7 year low set last week and remains in line with the downtrend in claims. The total number of American receiving unemployment fell, by -50,674 to 2.466 million. This is just off the long term low set earlier this summer. Based on these numbers it appears as if the labor market is still improving. The number of claims on a near and long term basis continue to trend lower which points to increased activity in jobs availability and hiring. Next week we will find out the state of the labor market as it is the end of the month and the next round of ADP/Challenger/NFP/Unemployment is due out. The current expectation is for NFP to remain strong, above 200,000, with unemployment holding steady. This may be a low ball estimate considering that every piece of jobs data I have seen suggests that hiring has been steadily on the upswing.


Pending home sales, and index based on the number of contracts signed, was also a positive surprise. The index rose last month 3.3% to 105.9 from the previous 102.5. This makes the 4th out 5 months the index has risen. All regions but one experienced strong growth in pending sales except the mid west which suffered a mild contraction. The July reading is also the highest level since August of last year ad the third month it has been above 100. 100 is accepted as being average pending sales with readings above that showing strength. An analyst quoted within the report says that “favorable conditions” led to the increase including lower interest rates, greater inventory, lower median prices and other improvements in the economy such as jobs.

The Oil Index

Oil prices held steady today as geopolitical risk trumped rising supply. Current estimates have this years supply of crude exceeding demand but with ongoing issues in eastern Europe, Iraq and Libya that could change. Today's catalyst was of course the newest round of headlines centered on the Ukraine and sent oil prices slightly higher. Benchmark WTI crude gained about $0.65 in today's session matched by a -$0.25 decline in Brent.

The Oil Index traded higher today, perhaps because the thought that low oil prices could turn into increased sales and revenues. Regardless, the index gained just over a tenth of a percent in today's session. The index is moving up to the upper boundary of a recent trading range with bullish indicators. MACD is on the rise and so is stochastic, pointing to a retest of resistance around 1,700. Support is located just below the current level at 1,650. The test of 1,700 will be important as a break above would be an indication the longer term uptrend in the index is still in play.


The Gold Index

Gold prices reacted as expected to the news coming out of the Ukraine. The spot price for gold jumped more than $15 immediately following the news but that moderated to about $7.50 by late afternoon. It seems as if gold traders are becoming equally numb to Putin antics as equities traders. Today's action brought gold up to just shy of $1300 but was not able to cross over. Shortly after reaching the high prices fell quickly back to just above $1290. The positive revision to GDP and better than expected unemployment claims are the reason gold prices were not able to hold the highs. Improving US economics are boosting dollar value and is a dead weight for gold prices.

The Gold Index was carried higher with the price of gold but met with resistance. The index is still trapped within the trading range I have been following the last few weeks. This range, between $100 and $105, is coincident with long term support/resistance that has been important many times over the past 16 months. The index is trapped between a long term down trend tied to the price of gold and growing support, support that may be tied to expectations for improvement in the gold sector. In any event, the index has been in this range for two months now and has been churning inside it, driven by volatile gold prices and the Putin effect. The indicators are neutral at this time and without direction, a break out of the range is needed at this time to get bullish or bearish. Gold prices will likely dictate which direction that is. The longer term trend is still down and I don't see reason besides flight to safety for gold prices to go higher so I remain skeptical of any rallies here.


In The News, Story Stocks and Earnings

JP Morgan confirmed this morning that it had experienced a hacker attack and breach of data. The bank, along with four others, was targeted by an as yet unnamed source. JP Morgan said in it's statements that it was not witnessing any increased levels of fraud and that, “unfortunately”, companies of its size experience attacks nearly every day. The stock was negatively impacted by the news, dropping nearly a full percent and falling from a longer term resistance level dating back to March of 2003. The stock has been doing well since releasing earnings and finalizing its settlements with the DOJ and was indicated higher until this newest development. According to data from Factset the banking sector is expected to be one of the earnings leaders this quarter so today's drop may be presenting an opportune time to get in. JPM's next scheduled release is October 14th, about 6 weeks away. Current resistance is at $60 with strong support indicated a few dollar below along the $57.50 level.


Apple announced today, or at least confirmed, that it was holding a special release or announcement on September 9th. Speculation abounds that the company will be releasing it version of the iWatch or some other wearable device. They put up a message on their website that says that the media is invited to a special event 9/9/2014 “wish we could say more”. The news was enough for shares of the stock to buck today's trend and move higher, gaining more than a quarter percent. The stock has been trending higher ever since the split and is still bullish. At $102 per share the stock is highly affordable compared to pre split prices and could be attracting a whole new round of buyers. The product launch will be important for the company as a hot new product could put Apple firmly back at the top of the tech/gadget sector. Sales of a new device will have a positive impact on revenue and earnings. Not to mention that at these levels the dividend is still paying about 1.9%.


Abercrombie & Fitch reported earnings today in the wake of disappointing releases from Guess and Williams Sonoma yesterday. Abercrombie reported earnings of $0.17 per share, basically in line with consensus estimates, on weaker than expected sales. The company earned $12.9 million in the quarter and reaffirmed its current guidance to previously stated range. The expected range is below the current consensus estimates, a detail that helped to send the stock down by 10% in the pre market session. The stock fell only 5% at the open and created a long legged doji on high volume, 4 times the 30 day average. It is not clear where this one is going but it is clear there is interest here and deserves further watching.


The VIX

The VIX spiked today but nothing compared to the beginning of the month when Putin first sent his aid convoy towards the Ukraine. Today the fear index jumped only 3% to test resistance at the 12.50 level, not blow right through it. After the open the index moved higher,crossing above the resistance line only to be halted at the 30 day moving average. The index fell back from this resistance and ended the day below 12.50. It is possible that Putin will do something to increase fear in the market but right now it looks as if fear tested tested the market and failed. Thinking conversely, if a spike in the VIX matches a drop in the SPX a test/confirmation of resistance on the VIX would equate to a test of support in the SPX and that is what looks like happened today.


The Indices

The SPX opened a few points lower in today's action and then proceeded to move even lower, until hitting support. The index found support within 15 minutes of opening and traded above that level the rest of the day. Suppot kicked in right around 1991 and the previous all time high, an all time high the index broke just this week. Volume in the market is still low but the index appears to be moving higher without it. The indicators are bullish in the short term and consistent with higher prices in the long term although there is some weakness in the near term. There may be more testing of support tomorrow and into next week but it looks to me as if the index has reached a consolidation level during a longer upward movement above solid support. Near term resistance is of course Putin but also the fact we are waiting for important monthly macroeconomic data due out next week which is reason enough to wait and see what happens.


The Dow Jones Industrial Average fell -0.25% in today's session. The blue chip index opened just below the current all time high and traded down to near term support along the 17,000 level. The indicators are bullish though showing some near term weakness. However, like the SPX, the indicators are also consistent with higher prices in the short to long term. Current resistance is at 17,062 with near term support at 17,000 and short to long term support below that around the 30 day EMA moving average in the 16,800 region. Resistance may keep the index capped for now but the long term trend is still up and the index is indicated higher.


The Dow Jones Transportation Average also declined today, by -0.27%. Today's action brought the index down from that resistance, if marginally, before finding support. The transports have been trading up against resistance near the current all time high for a week and a half in a series of spinning tops. At best, today's candle is yet another spinning top in the series and not overly indicative of direction. The index appears to be consolidating beneath resistance following the recent trend line bounce and is above strong support. The short term moving average is just below the current level, providing near term support, as is the previous all time high, long term trend line and long term moving average. The Russian incursion and waiting for data will likely keep this index trading in the near term consolidation range but it looks like it is setting up for an additional bounce and break to new highs.


The NASDAQ Composite also fell about a quarter percent, logging in a drop of -0.26%. The tech heavy index, which has been a leader in the recent bounce, has made 8 new highs out of the last 9 sessions and was due for a little pullback. The indicators are bullish but weakening in the near term so there could be some more downside and/or consolidation. In the longer term the trend is up so I will be awaiting the next catalyst.


There is growing risk that the Russian incursion is going to impact the global economy. The build up of sanctions has been growing and is going to get bigger after today's developments. Just how it will affect the US economy is uncertain but one thing is certain, it'not affecting it now.

Volume was very light today and will likely remain so tomorrow and into next week. Monday is the official end of summer and could signal the return of the big money to the market. Also on the horizon is economic data. Tomorrow there are several key reports including personal income/spending, Chicago PMI and Michigan Sentiment but I think it is next weeks data that is more important. On top of the jobs bundle there is also other important macro data that will influence 3rd quarter GDP and prospects for the future.

The markets look like they are in a holding pattern right now, waiting to see what Russia will do, the volume to return and the data to be released.

Until then, remember the trend!

Thomas Hughes


New Plays

A Long Weekend Ahead

by James Brown

Click here to email James Brown

Editor's Note:

Volume on Friday could be the lowest of the year as traders pack up ahead of the long Memorial Day weekend.

The market participants still trading will likely be focused on Russia's slow-motion invasion into Ukraine. It would appear that Ukraine was starting to see some success versus the rebels. Russia decided to pick up the pace and now there are reports of Russian soldiers fighting along side the Ukraine rebels.

Everyone seems to agree that the U.S. will not get involved militarily but the growing list of sanctions from the West will have an effect on the global economy.

We are not adding any new trades in the Premier Investor newsletter tonight. Tomorrow is a wildcard. It could be incredibly dull or it could be volatile due to the light volume and rising geopolitical risk.




In Play Updates and Reviews

Russia Threatens The Rally

by James Brown

Click here to email James Brown

Editor's Note:
Stocks have seen the bull rally stall as a parade of negative headlines stream from the Ukraine-Russian border.

MINI hit our entry point.


Current Portfolio:


BULLISH Play Updates

Delta Air Lines - DAL - close: 39.89 change: -0.27

Stop Loss: 37.65
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
Entry on August 21 at $40.75
Listed on August 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 11 million
New Positions: see below

Comments:
08/28/14: DAL erased yesterday's small bounce. The stock looks poised to dip toward the $39-38 region.

Yesterday I suggested that if the market rally stalls, I suspect that DAL could dip toward support near $38.00 before bouncing and resuming its up trend.

If you're not willing to give DAL that much room then consider raising your stop loss.

I am not suggesting new positions at the moment.

Earlier Comments: August 20, 2014:
Delta is the world's second biggest passenger airliner on the planet. They serve almost 165 million customers a year. Believe it or not but they started back in 1924 as an aerial crop dusting company called Huff Daland Dusters. Now they have almost 80,000 employees and a fleet of more than 700 planes that fly to 334 destinations in 64 countries on six continents.

A lot of investors look at the airline stocks as value plays. That's easy to see given their cheap multiples. DAL has a P/E of 3.1. Yet the company is seeing growth as well. Last year the airlines were big winners with the market's 2013 rally. This year could be another strong one thanks to falling oil prices. There has been a lot of geopolitical headlines but none of them seem to be pushing oil prices higher. Instead crude oil prices are falling. That's a huge deal for the airline companies because fuel is their largest expense. DAL has the lowest fuel costs in the business because they own their own refinery. The company expects that their fuel hedging and refinery operations should cut their fuel costs by $350 million this year.

More than 60% of DAL's business is in the U.S. The country's slow economic improvement has helped fuel gains for DAL. The airline has beaten Wall Street's bottom line estimates four quarters in a row. Back in June they raised guidance. Their most recent earnings report was July 23rd where they delivered a profit of $1.04 a share, one cent above estimates. DAL management that said their pre-tax profit was $1.4 billion, which is a +70% improvement from a year ago. They ended the second quarter with debt at less than $8 billion, which is a 20-year low. DAL's margins have been improving. Management expects margin improvement to continue and should see a jump from 13.5% to 15-17% in the third quarter.

Technically DAL saw a correction from $42 to $35 (-16%) from its June highs. Investors bought the dip again near $35.00 in early August. Now DAL has built what appears to be a bullish double bottom. The current bounce from its August lows is breaking through resistance.

If this trend continues we want to hop on board. Tonight we're suggesting a trigger at $40.75. The 2014 high near $42.50 could be short-term resistance but longer-term DAL looks poised to breakout.

- Suggested Positions -

Long DAL stock @ $40.75

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

Long 2015 Jan $45 call (DAL150117C45) entry $1.70*

08/21/14 triggered @ 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


Green Plains Inc. - GPRE - close: 44.71 change: +0.11

Stop Loss: 41.85
Target(s): To Be Determined
Current Option Gain/Loss: +9.7%
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:
08/28/14: GPRE bounced off short-term support near $44 and its 10-dma but gains were mild.

More conservative investors may want to use a stop closer to $43.00. I'm not suggesting new positions at this time.

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*

08/27/14 new stop @ 41.85
08/23/14 new stop @ 40.95
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: 44.88 change: +0.01

Stop Loss: 42.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
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:
08/28/14: MSFT recovered from its morning lows to close virtually unchanged on the session. Shares still look poised to sink towards $44.00.

I am not suggesting new positions at this time.

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

08/23/14 new stop @ 42.90
08/14/14 trade begins. MSFT opens at $44.08
Option Format: symbol-year-month-day-call-strike


Skyworks Solutions - SWKS - close: 55.54 change: +0.68

Stop Loss: 49.95
Target(s): To Be Determined
Current Option Gain/Loss: +5.5%
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:
08/28/14: SWKS was looking healthier today with another bounce near $54 and a +1.2% gain by the closing bell. Shares could see a new high tomorrow if this momentum continues.

I am not suggesting new positions at this time. More conservative investors may want to raise their stop loss closer to $52.00 or $52.50

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


Ubiquiti Networks - UBNT - close: 45.48 change: -0.35

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 902 thousand
New Positions: Yes, see below

Comments:
08/28/14: UBNT is testing what should be short-term support at its 10-dma. I don't see any changes from my earlier comments.

Earlier Comments: August 26, 2014: UBNT is in the technology sector. The company operates in the wireless technology and networking industry. According to the company press release, "Ubiquiti Networks is closing the digital divide by building network communication platforms for everyone and everywhere. With over 20 million devices deployed in over 180 countries, Ubiquiti is transforming under-networked businesses and communities. Our leading edge platforms, airMAX, airFiber, UniFi, UniFi Video, UniFi VoIP, mFi and EdgeMAX combine innovative technology, disruptive price performance and the support of a global user community to eliminate barriers to connectivity."

The company has been consistently beating earnings estimates. They just wrapped up their fiscal year 2014 with the earnings report on August 7th, 2014. The company managed to beat estimates all four quarters. Their 2014 Q4 numbers showed sales up +54% from a year ago while EPS were up +70%.

It has been a rocky year for the stock price in spite of the company's earnings track record. If you recall the stock market suffered a pullback in March this year. The high-growth stocks and momentum names were hit pretty hard. UBNT was one of those that was punished and shares collapsed from $55 to $30 over the next several weeks. Since then UBNT has been slowly recovering.

Right now the stock is on the verge of breaking through resistance. A new breakout could spark some short covering. The most recent data listed short interest at 32% of the small 26.6 million share float.

We are suggesting a trigger to open bullish positions at $46.75.

Trigger @ $46.75

- Suggested Positions -

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

Buy the OCT $48 call (UBNT141018C48)

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


WhiteWave Foods Co. - WWAV - close: 35.06 change: +0.30

Stop Loss: 31.40
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
Entry on August 19 at $34.91
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
08/28/14: WWAV bounced off its 10-dma to close above the $35.00 level. As long as the market cooperates this stock looks poised to rally.

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

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

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

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

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

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

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

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

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

- Suggested Positions -

Long WWAV stock @ $34.91

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

Long OCT $35 call (WWAV141018C35) entry $1.70*

08/19/14 trade opens on gap higher at $34.91, suggested entry point was $34.15.
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Mobile Mini, Inc. - MINI - close: 39.48 change: +0.44

Stop Loss: 41.40
Target(s): To Be Determined
Current Option Gain/Loss: - 1.8%
Entry on August 28 at $38.80
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 265 thousand
New Positions: see below

Comments:
08/28/14: Our new trade on MINI is open. Shares opened this morning at $38.89 and quickly hit our suggested entry point at $38.80. The stock managed an intraday bounce but the rebound failed at round-number resistance at the $40.00 mark. I would still launch new bearish positions at current levels.

Earlier Comments: August 27, 2014:
The mobile storage space might be facing some headwinds. MINI provides commercial storage, construction storage, residential storage, and mobile offices. According to the company's website, "Mobile Mini, Inc. is the world's leading provider of portable storage solutions through its total lease fleet of over 213,000 portable storage and office units with 135 locations in the United States, United Kingdom and Canada. Mobile Mini, Inc. went public in 1994 and trades on NASDAQ under the symbol MINI. Mobile Mini offers customers a wide range of portable storage and office products in varying lengths and widths with an assortment of differentiated features such as: proprietary security systems, multiple door options and 100 different configuration options."

Sales are growing but MINI is developing a trend of missing earnings or delivering lackluster results. MINI missed Wall Street's EPS estimates back in February and April. The latest earnings report was July 30th. Revenues were almost +10% from a year ago but earnings were down. MINI reported a 23-cent profit, which was in-line with estimates but down from 25 cents a year ago. Investors crushed the stock following the late July earnings report. MINI was already weak through most of July and then got hammered from $43 to under $38 on its earnings news.

The stock's long-term up trend might be in jeopardy. The company is not growing fast enough to justify its P/E above 40. The stock's oversold bounce from the post-earnings sell-off has stalled at technical resistance at the exponential 200-dma. Now it appears that MINI is beginning to roll over.

Today's low was $38.93. I'm suggesting a trigger at $38.80 to open bearish positions.

- Suggested Positions -

Short MINI stock @ $38.80

08/28/14 triggered @ 38.80


Natural Grocers by Vitamin Cottage - NGVC - close: 18.07 chg: -0.62

Stop Loss: 20.10
Target(s): To Be Determined
Current Option Gain/Loss: +7.1%
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:
08/28/14: The sell-off in NGVC is picking up speed again. The stock fell -3.3%. Shares are testing short-term support near $18.00 again.

If $18.00 fails the next support level is $17.45.

I am not suggesting new positions at this time. More conservative investors might want to lower their stop loss again.

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

08/21/14 new stop @ 20.10
08/12/14 triggered @ 19.45


Papa John's Intl. Inc. - PZZA - close: 39.42 change: -0.07

Stop Loss: 41.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
Entry on August 25 at $39.56
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 368 thousand
New Positions: see below

Comments:
08/28/14: PZZA still isn't moving. Investors may want to wait for a close under $39.00 before considering new positions.

Earlier Comments: August 23, 2014:
Papa John's was founded back in 1985 and headquarter in Louisville, Kentucky. They have grown into the planet's third largest pizza delivery company. There are over 4,400 Papa John locations in all 50 U.S. states and 35 countries. The good news for PZZA has been their international growth. They're growing in the U.S. as well but international growth has been outperforming.

Last year was a banner year for the stock price. Shares virtually doubled from their 2013 low to their December 31st close. The rally kept going in 2014. However, momentum reversed in March when many of the momentum names were crushed. PZZA suffered a multi-week hammering with a drop from $55 to $40. Since then stock has struggled.

One of the biggest challenges for restaurant stocks has been food inflation. Food prices have been climbing sharply the past several months. In the U.S. food inflation is running about +20%. A lot of that is due to surging prices in meat, eggs, and dairy. Guess who uses a lot of cheese? PZZA does.

PZZA's earning trend has been shaky. They missed earnings last November. February's report was only in-line with estimates. May's announcement missed estimates. Their most recent earnings report was August 5th. Wall Street expected a profit of $0.42 a share on revenues of $384.8 million.

PZZA delivered a profit of $0.40 with revenues up +9.1% to $380.9 million. That's a miss on both counts. The company said same-store sales in North America were up +6% and overseas up +8.6%. That looks healthy. Yet their 40-cent profit lines up with a 39-cent profit a year ago. Sales are up but profits are flat? The biggest culprit is probably rising ingredient costs. Management did raise their 2014 guidance but even after they raised guidance it was still below Wall Street's consensus.

The company is still expecting relatively decent sales growth but it doesn't seem to be fast enough to satisfy Wall Street. The recent breakdown under support near $40.00 is bearish. The point & figure chart is bearish and forecasting a $32 price target.

Tonight we are suggesting bearish positions immediately. We're not setting an exit target yet. I will point out potential support on the weekly chart (see below). The path of least resistance for PZZA definitely looks lower.

FYI: PZZA does have options but the spreads are too wide to trade them.

- Suggested Positions -

Short PZZA stock @ $39.56

08/25/14 trade begins. PZZA gaps higher at $39.56


Transocean Ltd. - RIG - close: 38.41 change: -0.18

Stop Loss: 40.01
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.4 million
New Positions: Yes, see below

Comments:
08/28/14: RIG isn't moving either. The stock has been moving sideways since Tuesday's bounce.

Currently we are on the sidelines with a suggested entry point at $37.25. However, if this bounce continues we might consider a different entry point near resistance in the $39.50 area.

Earlier Comments: August 25, 2014:
The oil drillers could be facing a significant downturn due to lower demand and rising supply. That's a tough combination for any business.

RIG is one of the biggest. According to the company website, "We are a leading international provider of offshore contract drilling services for energy companies, owning and operating among the world's most versatile fleets with a particular focus on deepwater and harsh-environment drilling. Our fleet of 79 mobile offshore drilling units includes the world's largest fleet of high-specification rigs consisting of ultra-deepwater, deepwater and premium jackup rigs. In addition, we have seven ultra-deepwater drillships and five high-specification jackups under construction."

The company's latest earnings report on August 6th looked pretty good. Wall Street was expecting a profit of $1.12 a share. RIG delivered $1.61 - blow out number. Revenues also beat estimates at $2.33 billion versus the $2.29 estimate but revenues were down from a year ago. Investors ignored the better than expected results. That's because the industry is facing a number of headwinds.

Day rates are dropping and more rigs are sitting idle. Analysts are lowering estimates due to rising down time. RIG's latest fleet update showed that out-of-service time for 2014 had risen by 28 days. Their 2015 projected out-of-service time had surged 236 days. That is significant when you consider that these rigs get paid hundreds of thousands of dollars per day they operate. Of course those numbers are coming down.

Angie Sedita, an analyst with UBS, said, "We believe dayrate pressure will persist given limited rig tenders (demand) and fierce competition, with dayrates already down 25%-40% from peak levels."

Raymond James analyst Praveen Narra provided more details on their bearish outlook. According to Narra:

After a decade of good times, the deepwater drilling rig market is facing a multiyear down-cycle. Historically, most offshore drilling cycles have been short-lived as there have usually been sudden demand shocks that tend to self correct relatively quickly. This time, it is more of a new rig supply problem compounded by a moderation in offshore spending from the suddenly “return driven” multinational major oil companies. That means this down-cycle should be more drawn out than usual. Specifically, we think the downturn will take about three years to play out with average floater day-rates falling about 25% with over 60 floating rigs needing to be stacked (either warm stacked or cold stacked). More importantly for investors, we think consensus 2016 floater estimates (on average) are still about 25% too high. Put another way, earnings multiples are not as attractive as some now think, in our view. Obviously, the lower-end, older floating assets will be hit the hardest. While everyone loses in this environment...

If you're curious a "stacked" rig is not in service. They can be warm stacked, which means they are idle but still have a crew and ready for deployment. A cold stacked rig has essentially been mothballed.

The bearish outlook for RIG is evident in the stock's decline. Shares just broke down under support near $38.00. The Point & Figure chart is bearish and forecasting at $30.00 target but this target could fall further. It is worth noting that there are a lot of traders already bearish on RIG. The most recent data listed short interest at 18% of the 327 million share float. That can spark short squeezes like the one back in April and again in June.

Tonight we are suggesting a trigger to launch bearish positions at $37.25.

Trigger @ $37.25

- Suggested Positions -

Short RIG @ (trigger)

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

Buy the OCT $35 PUT (RIG141018P35)

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