Option Investor
Newsletter

Daily Newsletter, Thursday, 10/2/2014

Table of Contents

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

Market Wrap

A Tough Day Turns Brighter

by Thomas Hughes

Click here to email Thomas Hughes
The markets fell today as growing global fears continue to weigh on the market, and then bounced from support.

Introduction

The market began today hovering around break even. Soon after the open mounting global fears sent the indices into near free fall. Unrest in China along with the recent weak data, a lack of detail from the ECB and ongoing issues with ISIS, Russia and the spreading Ebola crisis overwhelmed today's positive labor data during the early part of today's trading to sent the indices more than 1% lower.

The good news is that the markets hit support near mid-day, a level on the SPX coincident with my long term trend line, and bounced back. This doesn't mean the selling is over, just that bargain hunters and buy-on-the-dippers are still in the market. The SPX fell more than 20 points today but regained nearly 100% of that by 1:30PM. The mid-day bounce held and was improved upon during the afternoon, taking most of the indices into the green by the close of trading.

Market Statistics

Asian and EU indices were both in the red this morning following yesterday's massive sell off in equities. Asian indices closed lower while EU indices initially tried to rally back from their early lows. Expectations for the ECB to up the ante in terms of QE and stimulus had the DAX and other EU indices trading into the green until those expectations were dashed. The ECB made no moves today and provided very little in the way of details concerning any hopes for QE or what “additional measures” might mean. The bank will be making some purchases along the lines of previously announced actions but nothing new was revealed. According to the release the ECB sees a “moderate recovery still in place” although risks to the downside are present.

The protests in Hong Kong are heating up a little but the impact on overall Chinese economics and the US are slim. Protester's are calling for the current leadership to step down, a demand that has not been accepted. Expect to hear more about this in the coming days.

Economic Calendar

The Economy

Futures trading was flat this morning but turned slightly negative moving into the open. The data released today, good in my view, was not enough to hold up the market in the face of all the negative global headlines. First up on the list was the Challenger, Grey&Christmas report on planned lay offs. The number of lay off's planned in September fell -24% on a month to month basis to the lowest level in 14 years. This is following last month's drop that was also a long term low. This month's number of 30,477 puts us on pace for the lowest number of layoffs on an annual basis since 1997. This drop brings the year-to-date decline down to -6.2% and -24% compared to the same month last year. Entertainment and Leisure topped the list this month with significant losses associated with the gaming industry and Atlantic City. Year-to-date computer/technology still tops the list due to major lay offs by Microsoft and Hewlett Packard. This is great news for the labor market as it means that even less jobs are being lost, so long as jobs creation remains steady overall unemployment should go down.

Jobless claims also fell this week, across the board. Initial claims fell -8,000 to 287,000 on a revised and adjusted basis. This is just off of the long term lows set in the early part of September. Last weeks figure was revised higher by 2,000 but remained below the heavily watched 300K line. The four week moving average also fell, from a mild upward revision, by -4,250 to 294,750. The decline is above expectations and keeps first time claims near historic low levels. This also jibes with the low Challenger numbers as a sign of decreasing job turnover and an increasingly stable labor market. On a not-adjusted basis claims fell by -5.4%, seasonal factors had expected a decline of only -2.9%.


Longer term gauges of labor trends, continuing and total claims, both fell as well. Continuing claims fell by -45,000 to 2.398 million and a new 8 year low, total claims fell by -49,493, also a new long term low. Total claims is nearly 50% lower than at this same time last year, mostly due to the unemployment benefits extension which expired at the start of the year. Regardless, both continuing and total claims are in long term down trends and moving lower. This supports the idea that jobs creation is at least steady while at the same time job losses are in decline.

The ADP report yesterday also supports a steady if not strong-ish labor market. Tomorrow's NFP will put the speculation to rest, at last for this month. The vast majority of economists and analysts are looking for the number to be above 200,000 with a significant revision to last month.


Factory Orders was the one negative report in today's bundle of data. Orders fell more than expected, -10.1%, posting the largest drop on record. This is of course following last month's largest increase on record, also over 10%. The swing in month to month factory orders is due primarily to the $100 billion contract announced by Boeing in late August. The orders for 100 jetliners accounts for nearly the entire 10% swing and was largely expected with the consensus estimated for September orders around -9.5%. Stripping the volatile transportation sector factory orders fell a more modest -0.1%.

Tomorrow is of course a big day for data. The NFP, unemployment rate, hourly earnings, average work week and ISM services index are all on tap. Next week things are a lot quieter on the economic front with only the FOMC meeting minutes standing out at this time.

The Oil Index

Oil prices were volatile once again. Today prices for WTI dropped more than -1.25% in early trading only to reverse and move into the green by the close of the session. Brent crude remained under pressure, primarily on news from the Saudis, losing more than a half percent. According to reports the Saudis may begin to discount oil prices for China in order to maintain market share, a move that could cause oil prices to fall further. This is counter to the idea they would restrict production in order to raise prices. When Art Cashin was talking about it on TV he suggested there may be an element of “James Bond” about it, referencing ISIS and Russia's use of oil to finance their respective agendas and how low oil prices would hurt their plans.

The Oil Index fell along with WTI in the early part of the day, and along with WTI and the rest of the market bounced from long term support. The index fell over 1.5% in early trading, touching the 1,500 long term support line, and then bouncing back to regain most of the day's losses. The index has been in decline for over a month now and has broken the long term trend. Today's action is suggestive of a bottom but one that is untested or confirmed. The indicators are bearish and convergent with lower prices so I would expect to see the index trade lower and at least retest support in the near to short term.


The Gold Index

Gold traded flat today, hovering around the $1215 level, as economics, central banks, global unrest and flight to safety competed for dominance. The rising number of global hot spots, all small and near term in and of themselves, are beginning to add up and are helping to support gold prices. Gold has been trading between $1200 and $1220 for two weeks now and may be at a pivotal juncture. Falling below $1200 could lead to more selling and another significant drop. The fundamental picture of economic improvement and upcoming rising interest rates are behind golds fall to the current levels and unless there is some sign that rates will rise much sooner than expected the move may already be priced in. The labor data tomorrow and the FOMC minutes next week are the biggest potential movers of gold on my radar at this time and may provide some more clues. Until then I think caution is due and a tightening of stops on bearish plays in this sector wise.

The Gold Index fell today, inline with equities but not so much with gold, and then bounced from a long term support line. The index fell below support at $82.35 before hitting intra day bottom and bouncing into the green. The index was able to move higher by nearly 1% but was unable to move above the long term support line. It is however above near term support with indicators that lead me to believe a snap back is possible. Not only is the index trading along long term support levels it is oversold in the near and short terms with increasingly divergent momentum. The index has bounced from this level under these conditions twice in the last 12 months with significant gains.


The $82.35 level will be very important over the next few days while data is being released and up until the FOMC meeting. Gold prices are the number one driving influence on the gold sector and how they react to the data, the minutes and the global headlines will indicative of longer term direction. Should the index fall below this level and confirm it could be headed down to next lower support around $66 and full retracement of the 2008-2012 bull market in gold.

In The News, Story Stocks and Earnings

Warren Buffet made two headlines today. The first was that Berkshire Hathaway was buying The Van Tuyl Group, the nations 5th largest operator of car dealerships spanning the country. The deal was not discussed in detail but he did say he saw value in the highly fragmented market. This could be telling in light of yesterday's better than expected car/truck sales data. The other headline was that he bought stocks during yesterday's sell off, a positive sign for the bulls.

The IMF lowered it's growth forecast for the fourth quarter and 2014 citing “clouds on the horizon”. They say the global economy is not where they thought it would be 6 months ago. On top of geopolitical concerns there is the specter of normalizing monetary to be concerned with along with the threat of Ebola.

Today Tesla announced the upcoming release of “D”. They didn't say what “D” is, just that it would be here next week. The announcement sparked a lot of conjecture, much of it humorous, and a 4% spike in shares of the stock. This announcement is a bit of grandstanding by Elon Musk and could lead to a drop in share price next week once “D” is unveiled. Of course, it is Tesla and Elon Musk so I have a little faith in whatever it is. Shares of Tesla are still below the long term trend line and in danger of reversing, at least into a sideways pattern. If “D” doesn't do it for investors shares of TSLA could retreat to $225.


Exxon Mobil announced that Ebola is affecting their business in West Africa. It is impacting current operations as well as plans for drilling off-shore of Liberia. The company is banning travel to affected areas by its employees while the epidemic is still unchecked. This is in the wake of the first US case, confirmed yesterday. The man in question is reported to have helped a woman who later died from the disease. Liberian officials are reportedly in the process of bringing charges against the man for lying on his exit questionnaire. Shares of Exxon fell on the news but bounced from a long term support line.


A report from the New York times said there were reports that JP Morgan had experienced another data breach but the reports were unconfirmed. An unnamed source was cited in the article but follow up paragraphs suggested it may have merely been fall out from the first breach. A JPM spokesperson was quoted denying the charge in the article and then later the company issued a statement denying as well. Shares of the stock fell in today's session and were not able to regain the loss, as was the broader market. JPM closed with a loss around -0.75% with bearish indicators. The stock is below resistance and indicated lower to support near $57.50.


Earnings seasons starts next week, officially, with the release from Alcoa on Wednesday. The company is expected to improve earnings by 16% over the previous quarter, largely driven by the deal with Boeing announced over the summer. The company has been on a tear over the last year as the economy slowly regained its footing, more than doubling in value. The uptrend ended this summer when the stock hit long term resistance and subsequently broke the long term trend line. Today Alcoa fell another 2% below trend on fear of global slow down and bounced from short term support. This support is right around $15 and confirmed by the indicators with a wicked MACD divergence and bullish stochastic crossover. Alcoa may trade sideways into next week until earnings at which time EPS and future projections will play an important role.


The Indices

After making a big move to the downside the markets were able to bounce back. All the major indices were able to power into positive territory and most were able to stay there into the close. The leader today was the Dow Jones Transportation Average. The trannies closed with a gain of 0.81% after falling more than 1% this morning. Today's action brought the index down below the long term trend line and support coincident before the bounce began. By the close the index was back above trend but still looking a little bearish in the near term. The index appears to bouncing from the trend line, in line with expectations, but is yet to be confirmed by the indicators. Momentum and stochastic are still moving lower in the near term but also still consistent with support in the short term. Based on market action over the past two years I expect this to follow through but would still like to see the NFP report, and maybe even the FOMC minutes next week before committing to that stance.


The NASDAQ Composite also finished in the green, posting a gain of 0.18%. The tech heavy index also fell to support and then bounced, although it did not break its trend line. Today's candle formed a long legged doji/hammer that helps support the idea of support and an end to the current correction.The long term trend is up and this is looking like a correction to trend. The indicators are still bearish and convergent with lower prices so I would expect at least a test of support that may take the index below 4,400 in the near term. The last correction to this trend line, during the April-May period this year, the index bounced along the line in consolidation for 4-5 weeks, a time span would put us well into earnings season now and a reasonable target for a bounce providing the market holds to trend.


The S&P 500 and Dow Jones Industrial Average both ended the day flat. The SPX up by a hundredth, the DJI down by two. Both forming hammer dojis on support after falling more than 1% on an intraday basis. The broad market S&P 500 bouncing precisely from the long term trend line with indications similar to the NASDAQ and transports. The indicators are bearish in the near term, pointing to a test of support, but also indicative of support over the short term.

The SPX is now trading along long term, secular support, and under near to short term resistance based on global events, not local ones. If the trend holds and the bulls come back, as it looks like they want to, the SPX could get squeezed between support and resistance until it pops out in one direction or another. Based on the data and my own long term view I think the bulls will win.


The Dow Jones Industrial Average is well above its trend line but long term support was tested none the less. The index broke below 16,800, the top of the range I have described as strong support in earlier wraps, and then bounced back. The indicators are still bearish here as well, but are also still the weakest and indicative of short to long term support. 16,800 will likely be important tomorrow, and maybe into next week, but it looks like support is still there.


I am a long term bull and I can't help it. I have this view of changing demographics that I can't shake and can only see the economy improving into the long term. That being said there have been a lot, a copious amount if you will, of reason to be fearful in the near and short term. I could list them all here but why beat a dead horse, or pick apart the wall of worry, and that's what I think this has been. A correction built on a wall of worry and today the indices touched long term trend lines and bounced. I don't know if this means the market will reverse tomorrow but I do take it as a sign that I am not 100% wrong in my analysis and that the long term trend is intact.

Tomorrow the NFP may be the trigger to spark another rally and it may not but I do expect to see it confirm the labor trends we have been witnessing. It doesn't have to be strong, it just has to be steady. Steady is what we have had and that is what we need. If the economy gets too hot then the Fed will have to act, if it stalls they will have to act, but if it stays steady they can hold off on interest rate hikes until …..

Until then, remember the trend!

Thomas Hughes


New Plays

Your Personal Cloud

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Synchronoss Technologies - SNCR - close: 45.37 change: +0.91

Stop Loss: 42.89
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 479 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
The smartphone is becoming more and more ubiquitous. There were one billion smartphones sold in just 2013. Today's consumer is putting more and more of their selves and their data on their smartphone. What happens to all that data when a user loses their phone? Wireless companies have started storing user data in the cloud to solve that problem. SNCR is one such cloud solution provider to big wireless carriers.

The company website says "Synchronoss founded in December 2000, is a world leader in cloud solutions and software-based activation serving communication service providers across the globe. Our proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world."

SNCR is also offering their cloud services straight to consumers. This has grown to millions of subscribers.

The company has been consistently beating Wall Street's earnings estimates. The last three quarters in a row have seen SNCR beat both the top and bottom line estimate. Revenues have been averaging +27% growth over the last three quarters. Its revenue growth for its cloud services has been growing about +75% (year over year) the last three quarters in a row.

This huge growth has helped lift shares of SNCR to multi-year highs. Shares have been relatively resilient during the market's current pullback. Traders bought the dip today and SNCR displayed relative strength with a +2.0% gain on Thursday. The stock looks poised to breakout and if that occurs shares could see some short covering. The point & figure chart is bullish with a $53 target.

Tonight we're suggesting a trigger to open bullish positions at $46.10.

Trigger @ $46.10

- Suggested Positions -

Buy SNCR stock @ (trigger)

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

Buy the DEC $50 call (SNCR141220c50) current ask $2.10

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

Annotated Chart:



In Play Updates and Reviews

Stocks Deliver Lunchtime Bounce

by James Brown

Click here to email James Brown

Editor's Note:
Weakness continued this morning but equities managed a bounce midday that trimmed losses or erased them altogether.

SMCI hit our stop loss.


Current Portfolio:


BULLISH Play Updates

Interactive Brokers Group - IBKR - close: 25.09 change: +0.07

Stop Loss: 23.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 533 thousand
New Positions: Yes, see below

Comments:
10/02/14: IBKR continues to ignore the market's recent volatility but if the stock doesn't move soon we may end up dropping it as a candidate.

I don't see any changes from the weekend newsletter's new play description.

Earlier Comments: September 27, 2014:
IBKR was founded 37 years ago and has grown its business to where it executes almost one million trades a day. Barron's has rated IBKR the third best online broker three years in a row.

According to a company press release, "Interactive Brokers Group, Inc., together with its subsidiaries, is an automated global electronic broker that specializes in catering to financial professionals by offering state-of-the-art trading technology, superior execution capabilities, worldwide electronic access, and sophisticated risk management tools at exceptionally low costs. The brokerage trading platform utilizes the same innovative technology as the Company's market making business, which specializes in routing orders and executing and processes trades in securities, futures, foreign exchange instruments, bonds and funds on more than 100 electronic exchanges and trading venues around the world."

"As a market maker, we provide liquidity at these marketplaces and, as a broker, we provide professional traders and investors with electronic access to stocks, options, futures, forex, bonds and mutual funds from a single IB Universal AccountSM. Employing proprietary software on a global communications network, Interactive Brokers Group continuously integrates its software with a growing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention."

This year has not seen any significant increase in trading volumes at the exchanges. If anything volume has been mediocre at best. Yet IBKR has consistently reported stronger year over year DARTs the last several months. DARTs stand for daily average revenue trades. IBKR is also reporting improvement in customer accounts created. I will point out that IBKR is seeing tougher year over year comparisons for its monthly DARTs as the rate of improvement seems to be slowing yet this trend hasn't stopped the stock price.

Shares of IBKR have been consolidating sideways for months. The consolidation started last December when IBKR's 2013 stalled. Since then IBKR has been slowly churning sideways but that changed earlier this month with a bullish breakout to new multi-year highs. The point & figure chart has turned very bullish with a long-term target near $48.50.

The market's recent weakness has pulled IBKR low enough to retest prior resistance as new support. Friday's bounce could be an entry point. We are suggesting a trigger to open bullish positions at $25.60.

Trigger @ $25.60

- Suggested Positions -

Buy IBKR stock @ (trigger)

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

Buy the 2015 Jan $26 call (IBKR150117c26)

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




BEARISH Play Updates

CBS Corp. - CBS - close: 52.34 change: -0.47

Stop Loss: 54.25
Target(s): To Be Determined
Current Option Gain/Loss: + 4.4%
Entry on September 22 at $54.75
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.1 million
New Positions: see below

Comments:
10/02/14: I am urging caution on our CBS trade. The weakness continues but CBS produced a pretty decent bounce from its intraday low near $50.50. This is potentially a bullish reversal from round-number support at $50. The simple 50-dma has fallen to $54.18. We'll move our stop loss down to $54.25.

Earlier Comments: September 20, 2014:
Television is a cutthroat business. Companies fight with affiliates, content providers, distribution rights, and more. They need to because traditional TV has been dying for years as more and more consumers forgo television for their computer, tablet, or even smartphone to get their media. Companies like Netflix also steal viewership. Granted the major networks have invested a lot to build up their own "second screen" viewership but it's unclear if the investment is paying off.

Who is CBS? According to the company website, "CBS Corporation (NYSE: CBS.A and CBS) is a mass media company that creates and distributes industry-leading content across a variety of platforms to audiences around the world. The Company has businesses with origins that date back to the dawn of the broadcasting age as well as new ventures that operate on the leading edge of media. CBS owns the most-watched television network in the U.S. and one of the world's largest libraries of entertainment content, making its brand – "the Eye" – one of the most recognized in business. The Company's operations span virtually every field of media and entertainment, including cable, publishing, radio, local TV, film, outdoor advertising, and interactive and socially responsible media. CBS's businesses include CBS Television Network, The CW (a joint venture between CBS Corporation and Warner Bros. Entertainment), Showtime Networks, CBS Sports Network, TVGN (a joint venture between CBS Corporation and Lionsgate), Smithsonian Networks, Simon & Schuster, CBS Television Stations, CBS Radio, CBS Television Studios, CBS Global Distribution Group (CBS Studios International and CBS Television Distribution), CBS Interactive, CBS Consumer Products, CBS Home Entertainment, CBS Films and CBS EcoMedia."

Shares of CBS peaked near $68.00 back in early March 2014, marking what looks like the end of a strong two-year rally from its 2011 lows. The challenge seems to be revenues. The last couple of earnings reports have seen CBS beat Wall Street's EPS estimates. How they are doing that could be cost cutting or financial engineering. CBS has announced significant stock buybacks and accelerated repurchases in 2014. Yet revenues keep falling.

Back in May, when CBS reported its Q1 earnings, revenues for the quarter were down -4.6% from a year ago. When CBS reported its Q2 results in early August this year, revenues were down -5.4%. Management tried to soften the blow with news they were doubling their stock buyback from $3 billion to $6 billion. Yet the stock continues to fall. Investors are probably worried about the falling revenue numbers.

Technically shares of CBS are testing major support at its trend line of higher lows (see the weekly chart) and support near $55.00. It also appears that CBS has created a bearish head-and-shoulders pattern, albeit one with two right shoulders (which is not uncommon). Thus a breakdown under $55.00 would be very negative for the stock price.

The May 2014 intraday low was $55.01. Tonight I am suggesting a trigger to launch bearish positions at $54.75.

- Suggested Positions -

Short CBS stock @ $54.75

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

Long 2015 Jan $55 put (CBS150117P55) entry $3.40*

10/02/14 new stop @ 54.25
10/01/14 new stop @ 55.05
09/30/14 new stop @ 55.65
09/22/14 new stop @ $56.35
09/22/14 triggered @ 54.75
*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


Fluidigm Corp. - FLDM - close: 23.62 change: -0.23

Stop Loss: 26.05
Target(s): To Be Determined
Current Option Gain/Loss: +3.0%
Entry on October 01 at $24.35
Listed on September 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 290 thousand
New Positions: see below

Comments:
10/02/14: FLDM dipped to new relative lows under $23.00 before trimming its losses. I don't see any changes from my recent comments. Broken support near $25.00 should be new resistance.

Earlier Comments: September 30, 2014:
FLDM is in the healthcare sector. The company makes microfluidic systems. It's part of the medical laboratories and research industry. The company was founded in 1999.

The website describes the company as "Fluidigm develops, manufactures, and markets life science analytical and preparatory systems for growth markets such as single-cell biology and production genomics. We sell to leading academic institutions, clinical laboratories, and pharmaceutical, biotechnology, and agricultural biotechnology companies worldwide. Our systems are based on proprietary microfluidics and multi-parameter mass cytometry technology, and are designed to significantly simplify experimental workflow, increase throughput, and reduce costs, while providing excellent data quality. Fluidigm products are provided for Research Use Only. Not for use in diagnostic procedures."

The stock looks like a momentum name that has lost its mojo. 2013 was an incredible year for the stock with a rally from the $15 area to almost $40. FLDM continued to push higher in the first quarter of 2014 and almost hit $50. Then someone yanked the rug out from beneath the stock in late March.

If you recall March was rough for high-growth and high-beta names in general. Once FLDM broke down in March the path of least resistance has been down with investors selling every major rally at resistance.

The company had a pretty good earnings report in May. Yet an earnings beat and raised guidance back in May failed to inspire any new buying. Instead shares sold off sharply. Their most recent earnings report in July showed a +57% surge in revenues but that failed to meet Wall Street's estimates. The company is still losing money on a net income basis.

Now FLDM is breaking down under significant support near $25.00. The next major support level is $20.00. The Point & Figure chart is very bearish and forecasting a long-term target near $10.00.

Traders could launch positions now. We are suggesting a trigger to open bearish positions at $24.35. You may want to consider using options. The most recent data listed short interest at 9.5% of the small 26.2 million share float.

- Suggested Positions -

Short FLDM stock @ $24.35

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

Long NOV $25 PUT (FLDM141122P25) entry $2.75*

10/01/14 triggered @ $24.35
*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


Johnson Controls Inc. - JCI - close: 44.68 change: +0.61

Stop Loss: 46.05
Target(s): To Be Determined
Current Option Gain/Loss: + 1.6%
Entry on September 23 at $45.40
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: see below

Comments:
10/02/14: JCI saw an oversold bounce with today's +1.3% gain. Shares are nearing what should be short-term resistance at the simple 10-dma near $45.00. More conservative traders may want to use a stop closer to $45.00.

Earlier Comments: September 22, 2014:
The auto part makers were a bright spot in the market for quite a while. Yet JCI has been underperforming its peers for weeks. Now the whole group has reversed sharply lower.

Investors might be growing cautious as earnings growth slows down. Investor's Business Daily noted that the forecast for some of these auto parts makers is getting softer.

Technically the group appears to be rolling over and JCI could be leading the way lower with a bearish breakdown under a long-term trend of higher lows. It doesn't help that JCI now has a "death cross" with the 50-dma falling under its 200-dma, which itself is starting to roll over.

Today's low was $45.66. We are suggesting a trigger for bearish positions at $45.40.

- Suggested Positions -

Short JCI stock @$45.40

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

Long 2015 Jan $45 PUT (JCI150117P45) entry $2.25

09/30/14 new stop @ 46.05
09/23/14 triggered @ $45.40
Option Format: symbol-year-month-day-call-strike


Knowles Corp. - KN - close: 25.53 change: +0.09

Stop Loss: 28.05
Target(s): To Be Determined
Current Option Gain/Loss: +0.9%
Entry on September 30 at $25.75
Listed on September 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

Comments:
10/02/14: KN tagged new lows this morning before bouncing back into positive territory. Investors may want to consider lowering their stop loss.

Earlier Comments: September 29, 2014:
Knowles Corp. has been around since 1946 but until recently was part of Dover Corp. (DOV). Knowles (KN) was spun off early this year.

What exactly does KN do? According to a company press release "Knowles Corporation is a market leader and global supplier of advanced micro-acoustic solutions and specialty components serving the mobile communications, consumer electronics, medical technology, military, aerospace and industrial markets. Knowles has a leading position in micro-electro-mechanical systems microphones, speakers and receivers which are used in smartphones, tablets and mobile handsets. Knowles is also a leading manufacturer of transducers used in hearing aids and other medical devices and has a strong position in oscillators (timing devices) and capacitor components which enable various types of communication."

KN has sales of more than $1 billion a year. Yet revenues have been falling. It seems to be getting worse. Back in April they reported a -1% drop in revenues. Their last quarterly report showed a -5.3% decline in revenues.

Technically the stock has been stuck in a $28.00-34.00 trading range for months. That changed in the last few days. KN has broken down below the bottom of the range. Its recent attempt at an oversold bounce already appears to be failing.

Tonight we're suggesting a trigger to open bearish positions at $25.75, which would be a new low. We are not setting an exit target tonight but I will note the point & figure chart is bearish and forecasting an $18 target.

Bear in mind that KN does have slightly elevated short interest at more than 10% of the 85 million share float. You may want to consider put options instead of shorting the stock.

- Suggested Positions -

Short KN stock @ $25.75

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

Long NOV $25 PUT (KN141122P25) entry $1.20*

09/30/14 triggered @ 25.75
*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


Mobile Mini, Inc. - MINI - close: 35.05 change: -0.14

Stop Loss: 37.30
Target(s): To Be Determined
Current Option Gain/Loss: + 9.7%
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:
10/02/14: MINI touched new lows for the year before rebounding back towards round-number support/resistance at $35.00. I am not suggesting new positions at this time.

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

09/30/14 new stop @ 37.30
09/25/14 MINI's failure to drop today might be a warning sign.
09/22/14 new stop @ 37.85
09/06/14 new stop @ 40.10
08/28/14 triggered @ 38.80


Transocean Ltd. - RIG - close: 31.58 change: +0.53

Stop Loss: 32.75
Target(s): To Be Determined
Current Option Gain/Loss: +17.3%
Entry on September 03 at $38.20
Listed on August 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.4 million
New Positions: see below

Comments:
10/02/14: I have been warning readers all week that the $30.00 level might be support for RIG. Shares dipped to $30.18 before reversing into a +1.7% gain. Traders may want to take profits now. We are inching our stop loss down to $32.75.

I am not suggesting new positions at this time.

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.

- Suggested Positions -

Short RIG @ $38.20

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

Long OCT $35 PUT (RIG141018P35) entry $0.27*

10/02/14 new stop @ 32.75
10/01/14 new stop @ 33.10
09/30/14 new stop @ 33.75
09/27/14 investors may want to take some profits now
09/25/14 new stop @ 34.50
09/22/14 new stop @ 34.75
09/20/14 new stop @ 37.55
09/17/14 new stop @ 38.05
09/06/14 new stop @ 39.05
09/03/14 trade begins. RIG gaps higher at $38.20
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/02/14 remove the trigger ($37.25) and short RIG now at current levels.
Option Format: symbol-year-month-day-call-strike


The ExOne Company - XONE - close: 19.00 change: +0.04

Stop Loss: 23.05
Target(s): To Be Determined
Current Option Gain/Loss: +14.6%
Entry on September 29 at $22.25
Listed on September 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 523 thousand
New Positions: see below

Comments:
10/02/14: XONE closed virtually unchanged on the session, which is probably good news considering how oversold the stock is on a short-term basis. I am not suggesting new positions at this time.

Earlier Comments: September 27, 2014:
Stock prices are supposed to be driven by corporate earnings. It's tough to be bullish when a company continues to miss analyst expectations.

XONE is considered part of the industrial goods sector. They make 3D printers and associated materials. According to a company press release, "ExOne is a global provider of 3D printing machines and printed products, materials and other services to industrial customers. ExOne's business primarily consists of manufacturing and selling 3D printing machines and printing products to specification for its customers using its in-house 3D printing machines"..."ExOne also supplies the associated materials, including consumables and replacement parts, and other services, including training and technical support, necessary for purchasers of its machines to print products."

Unfortunately for the bulls XONE has developed a pattern of missing earnings estimates. They missed estimates back in March, in May, and again in August this year. The most recent report was August 13th. Wall Street expected a loss of 18 cents a share. XONE delivered a loss of 32 cents. Revenues rose +21% to $11.2 million but that failed to meet expectations. XONE's gross profit plunged from $4.2 million a year ago to $2.5 million thanks to crashing gross margins.

Shares of XONE are now at record lows. The company held its IPO back February 2013. The IPO price was $18.00 a share and the first day of trading saw XONE gap open at $23.66 and close up at $26.52. Today XONE is below its opening trade and might be headed for $18.00.

I do consider this an aggressive, higher-risk trade because there is already a lot of short interest. The most recent data listed short interest at 52.8% of the very small 8.7 million share float. That significantly raises the risk of a short squeeze. Therefore traders may want to limit their positions or just choose the put options to limit risk.

Tonight we are suggesting bearish positions on Monday morning (no trigger).

*Higher Risk Trade: consider smaller positions* Suggested Positions -

Short XONE stock @ $22.25

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

Long NOV $20 PUT (XONE141122P20) entry $1.40*

10/01/14 new stop @ 23.05
09/30/14 new stop @ 25.05
09/29/14 trade begins. XONE gaps down at $22.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Super Micro Computer, Inc. - SMCI - close: 27.37 change: -1.21

Stop Loss: 26.90
Target(s): To Be Determined
Current Option Gain/Loss: -7.7%
Entry on September 29 at $29.15
Listed on September 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 389 thousand
New Positions: see below

Comments:
10/02/14: Shares of SMCI followed the NASDAQ lower and like the NASDAQ it bounced from its intraday lows. Unfortunately the movement in SMCI was a lot more volatile with shares plunging toward their 50-dma near $26.00. SMCI also closed down -4.2% and there is no explanation for this relative weakness.

I strongly suspect this is just temporary volatility. The bullish story on SMCI has not changed. I would keep this one on your watch list.

- Suggested Positions -

SMCI stock @ $29.15 exit $26.90 (-7.7%)

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

2015 Jan $30 call (SMCI150117c30) entry $2.40* exit $1.50** (-37.5%)

10/02/14 stopped out
09/29/14 triggered @ 29.15
*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

chart: