Option Investor
Newsletter

Daily Newsletter, Thursday, 10/9/2014

Table of Contents

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

Market Wrap

The Volatility Coaster

by Thomas Hughes

Click here to email Thomas Hughes
The markets experienced another big day riding on the volatility coaster.

Introduction

Volatility is in the house, that is for sure. Today the market experienced yet another huge move and not one to the upside. Markets cooled off in the afterglow of yesterday's rally as traders and investors weigh the Fed Minutes against this mornings data, cautionary words from Mario Draghi, downgraded global growth prospects and earnings expectations to settle more than 2% lower.

Needless to say the Fed remains a mystery despite the transparency they strive for. A year ago the current unemployment rate, 5.9%, would have been seen as a reasonable trigger for the Fed to act on interest rates. Now the "threshold" has been reached but there is still no real indication of when rates will go up. The move is now tied to inflation with no concrete evidence of it rising or when rate hikes will be.

Market Statistics

Asian markets were largely higher this morning following the near 2% move in the US indices yesterday. The Japanese Nikkei was the only notable index to lose ground, due in large part to yen strength and dollar weakness. European indices were more mixed on the raft of central banking news. First off the Bank Of England held rates steady at historic lows. Second ECB chief Mario Draghi made some statements about the state of the EU economy and how no real recovery could happen without structural reforms, a call he has been making for quite some time. EU markets fell to break even following the statements and held those levels into the close.

Our own markets were modestly lower this morning, not too surprising following such a large move as we saw yesterday. The SPX was indicated about 6 points lower before the 8:30AM data release and then moderated that to about -3 afterward. Today's data was positive and in line with the trends. The employment picture continues to brighten and wholesale inventories are on the rise.

The markets remained negative into the open at which time they began a slow and steady decline. Then late morning, at the close of European trading, selling picked up and the market slide reached new lows. The SPX shed more than 40 points at the height of today's decline but as it has over the past week it found support along the long term trend line. The SPX and other indices bounced from support multiple times today before closing on a down beat near the days lows.

Economic Calendar

The Economy

Initial claims for unemployment fell this week versus an expected rise. Claims fell by -1,000 from last weeks upward revision of +1,000 to 287,000. This is now the 6th week that claims have been below 300,000 and trending near long term lows. The four week moving average also fell, by -7,250, to a new low not seen since February, 2006. Economist had been expecting a gain this week, if mild. On an unadjusted basis initial claims rose by just over 30,000, in line with seasonal adjustment factors. On a state by state basis NJ and IN led with increases of 615 and 482 respectively while CA and MI led with declines of -7,715 and -2,082.

I take this as a sign that job turnovers and job losses to the economy continue to decline as suggested by the last round of monthly data. Challenger says job cuts are at long term lows while JOLTs job openings are long term highs and the KC Fed Index Of Labor Market Conditions says improvement is gaining momentum.


The longer term gauges of employment claims, continuing and total claims, both also fell in this weeks data. Continuing claims fell by -21,000 to 2.381 million, a new low dating back to 5/27/2006. The moving average of this figure also fell to a new low. The total number of Americans fell by -44,363, also making a new low and now nearly 50% below last years levels. This is due in large part to benefit extensions that expired at the beginning of the year but also to the down trend in unemployment and uptrend in job creation. In any case, both of these figures are trending lower and setting new lows, in line with other data showing improvements in the labor market.


Wholesale inventories were released at 10AM and helped stop the market's fall, at least for a little while. The headline number showed an increase of +0.7%, about twice the expected growth. This is alongside a drop in wholesale sales of an equal amount, -0.7%. The previous month was also revised higher. On a year over year basis inventories are up 7.9% and sales are up 5.8%.

The Oil Index

Oil prices were under pressure yet again, losing another -1.86% and falling to near $85 a barrel for the first time in a year and half during the open session. After the close prices fell even further, dropping below $85 for the first time in about 2 years. Rising stockpiles and a lack of threat to global infrastructure are competing with a seeming schizophrenic Saudi Arabia and lowered global growth outlook to direct prices.

Low prices will spark moves by big players in the industry as proven by the Saudis. The two headlines focused on the Saudis that I saw today are at odds with each other and lead me to think...I don't know what. Maybe Art Cashin comment that there is an element of James Bond afoot is correct. The first headlined covered the Saudis announced supply cuts and how that is hoped to help stabilize prices while the second went over the Saudi scheme to maintain market share by discounting prices to China. Others in the industry that may be feeling the squeeze from low prices are the shale players. The lower oil prices get the more thier margins get squeezed; the break even point for fracking and shale oil production is roughly $80.

The Oil Index fell today, breaking long term support and setting a new 6 month low. The index has now been in decline for 5 straight weeks and is beginning to look a little extended. The indicators are still bearish but the MACD is spotty and a little divergent. The peaks are reflective of the volatility in the oil pits we've seen over the last few weeks. Today's candle opened just above 1,500, long term support, and moved steadily lower all day. The index is now below support and likely to remain there until oil prices stabilize and/or move higher.


The Gold Index

Gold prices surged yesterday after the FOMC minutes and were able to hold those gains today. The minutes revealed the Fed is bullish on the economy, wary of Europe, and incredibly non-committal on interest rate hikes with the latter most important for gold traders.With today's move gold prices have rebounded nearly 3% since hitting long term support earlier this week. My long term targets have been met so now it's time to look for the next near to short term mover of gold.

Fed policy and outlook for interest is the underlying current with stronger dollar coming in a close second from a long term perspective. Closer in will be inflation data. Of course other data will need to hold to current trends but it is the inflation data that the Fed is watching in terms of interest rates so that is the data I think will move gold. Inflationary data and a sooner hike to rates will likely be bearish while non-inflationary data and later rate hikes likely be bullish. Until then, and until the equities markets calm down, gold prices could remain volatile. Today's action was positive but came to a halt at a potential area of resistance, $1225.

The Gold Index moved lower, counter to today's bounce in the underlying commodity. The index is closely tied to gold prices so this is a little surprising. However, the gold stocks made their move yesterday and today sold off in line with the general market today. Today's move began just below the recently broken long term support which may now become resistance. The index is now just above long term lows set just this week and appears to be consolidating. The index is below resistance at this time but if the bounce in gold holds then I suspect that the index will not move lower. The indicators are the same as before, momentum is bearish but weak and weakening while stochastic shows a market that has been oversold for a month. Divergence in MACD adds to the idea the index is at a turning point but no guarantee of reversal. Current resistance is between $82.50 and $85 with support just below the current levels around $75.


In The News, Story Stocks and Earnings

Alcoa could not buck today's sell-off despite blowing away earnings projections. The aluminum giant and bell-weather of the economy beat on an increase of sales and decrease of costs that overcame a rise in aluminum prices. This sparked a rally in the stock yesterday in the after-hours session that carried into early trading this morning. The stock opened higher but then sold off hard throughout the day along with the broader market. The earnings were good but with the cloud that has grown over future global prospects maybe too good for the market to expect improvement in the near future. Shares are now trading below the long term trend but above short term support. Indicators are bearish but still consistent with support, stochastic in particular shows that there is some accumulation going on at these levels. Current support is at $15 with resistance at $16 and a short term target near $18 on a move higher.


Carl Icahn sent his letter to Apple today and moved the market, a little. He basically kissed Tim Cooks Apple and told him he was a great CEO and that shares of Apple were undervalued. He thinks the shares could be worth twice as much as they are now and spurred a 1% move higher. I sure wish I could do that, move the market in my favor, doesn't everybody think their shares are undervalued? The sell off in the broad market hurt the rally in Apple, which was capped at only 0.37% by the end of the day. Not discounting Mr. Icahn's view the stock looks like it is in a consolidation during an uptrend. The stock has been, split adjusted, trending higher all year and has been in this consolidation since moving above $100 post split. The indicators are neutral to bullish and consistent with a consolidation.


Pepsi reported earnings this morning. The Taste Born In The Carolina's reported organic revenue growth over 3% and delivered an earnings beat that may put critics to rest. The company was expected to report $1.29 on the high end of estimates and surpassed that with EPS of $1.36. The results to date are so good that the board has raised guidance for profit growth to 9% for the year. This may put an end to calls for the company to separate snacks and drinks segments of the company but probably not. Shares of Pepsi gapped at the open, moving nearly 3% higher at one point this morning before selling took over and brought prices below yesterday's close. The stock is in an uptrend and trading at all time highs but it may be at an end. The indicators are highly divergent from the highs and suggestive of a pull back.


The Indices

The indices were not able to hold yesterday's gains and fell hard in today's action. They began to fall and then slowly sank throughout the day until hitting bottom mid afternoon. From that point on the indices, led by the Dow Jones Transportation Average, bounced along support levels until the end of the day. The transports lost nearly -2.5% today, creating a long black candle and the third such in the last two weeks. The index is moving lower in the near term and that is supported by MACD. The momentum indicator is creating larger peaks in tandem with each new low in the transports and indicative of lower prices or at least holding along current lows. The index has broken the long term trend and is now in danger of confirming that move. Support is just below along 8,500 with next support around 7,825.


The S&P 500 fell -2.07%, coming to rest exactly on the long term trend line. Volatility in the broad market is increasing but has yet to break trend. The indicators are bearish but still in line with the underlying trend, unlike those on the trannies. MACD is a little spotty, like on the Oil Index mentioned earlier, no doubt a result of the backing-and-filling the market has been doing this week. Stochastic is meanwhile rolling over in the early stages of the trend following signal and appears to show support. If the index should move lower tomorrow it will break the trend line and could lead to a further correction, perhaps down to 1900 or lower. For now the trend is still in play with indicators that appear to be in line with a trend following entry.


The NASDAQ Composite is next up with a lost just over -2.00% for the day. The techs were hit as hard as any others today and set a new 6 week closing low. The index is now sitting exactly on support, as is the SPX, and is accompanied by indicators suggestive of support and the early stages of a trend following entry signal. Bearish MACD has peaked and is in decline while stochastic is rolling over. This is consistent with the index as it corrects to trend as it appears to be and have done. Support is at the current level, 4370. A break below here, with confirmation, could lead to a deeper correction down to near 4,200.


The Dow Jones Industrial Average was the mildest decliner of the day, losing only -1.97%. The blue chip index also created a long black candle and broke down to set a new low. The index is giving support a real testing but the indicators are still consistent with it holding. MACD is in decline as on the SPX and COMP and stochastic is rolling over, readings consistent with previous tests of support.


This has been a rockier correction than the last few but a correction to trend I think it is. It has been hard to maintain my stance recently but the indicators don't lie. I may not be reading them right but for now they suggest that the market is trading along support following a correction. Long term support could break down but it has not yet. Earnings season has just started and so far, based on Alcoa, things are good. The negative is that now future growth is in question with the blame laying in a couple of places.

China is slowing, but it has been for a couple of years and is still growing over 7%. Europe is slowing and that is a more pressing concern but again, it has been weak for a long time. Sanctions against Putin are in effect with no real indication on how they will affect global GDP. Additionally there are the mid term elections that we have scheduled just next month which could shift power in Congress. All things hanging over the market and that may weigh it down but there is still good in the economy too. We are still growing and there is of yet no sign of it stopping. In fact, based on the labor data, it appears as if the economy could be accelerating. Perhaps earnings season will give us a clue.

Until then, remember the trend!

Thomas Hughes


New Plays

Small Caps Lead The Way Down

by James Brown

Click here to email James Brown

Editor's Note:

No new trades tonight.

Stocks are getting whipsawed back and forth, which can make trading exceedingly difficult. The Dow Jones Industrial Average just delivered its seventh triple-digit move in a row. The last three days have seen a surge in volatility with the Industrial average down -272 points, +275 points, and down -335 points today.

The S&P 500 has also been very choppy over the last several days. Both the S&P 500 and the NASDAQ have built a bearish trend of lower highs over the last three weeks. At the moment the S&P 500 sits on prior technical support on its simple 150-dma. I suspect we are going to see this large cap index drop toward round-number support at the 1900 level, which is also near stronger technical support at its simple 200-dma.

The outlook for the small cap Russell 2000 index looks worse. The $RUT has broken down under major support in the 1,080 area after having spent the nearly all of 2014 building a major topping formation.

Such a drop might fuel a rally in the volatility index (VIX) toward its 2013-2014 highs in the 21-22 zone, which would hopefully signal a new market bottom.

Momentum would suggest we trade down tomorrow but there is a chance that bears do a little short covering ahead of the weekend. With so much uncertainty we are not adding new plays tonight.




In Play Updates and Reviews

No Follow-Through Higher

by James Brown

Click here to email James Brown

Editor's Note:
The stock market failed to see any follow through on yesterday's potential bullish reversal.


Current Portfolio:


BULLISH Play Updates


None. We do not have any active bullish trades.





BEARISH Play Updates

CBS Corp. - CBS - close: 50.72 change: -1.87

Stop Loss: 54.25
Target(s): To Be Determined
Current Option Gain/Loss: + 7.4%
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:
10/09/14: CBS has erased yesterday's bounce with a sharp -3.5% drop. Shares are nearing what is potential round-number support at the $50.00 level. I am not suggesting new positions at this time.

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: 22.77 change: -0.55

Stop Loss: 25.25
Target(s): To Be Determined
Current Option Gain/Loss: +6.5%
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:
10/09/14: The late morning rally attempt in FLDM failed under resistance near $24 and its 10-dma. Shares managed to underperform with a -2.35% decline on the session. I'm not suggesting new positions at this time.

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*

10/07/14 new stop @ $25.25
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


Geospace Technologies - GEOS - close: 28.16 change: -1.08

Stop Loss: 34.05
Target(s): To Be Determined
Current Option Gain/Loss: + 4.1%
Entry on October 08 at $29.35
Listed on October 07, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 273 thousand
New Positions: see below

Comments:
10/09/14: GEOS continues to sink on above average volume. I would still consider new positions at current levels.

Earlier Comments: October 7, 2014:
The U.S. is currently experiencing an energy boom with the highest levels of oil and natural gas production in decades. All that production requires a ton of exploration. Using sound waves and seismic technology to find and define trapped oil in the earth's crust has been a growing trend. You might think business would be booming for a company like GEOS but the company seems to be struggling.

Their website defines the company as "Geospace Technologies designs and manufactures scientific instrumentation and equipment used by the global petroleum industry to acquire more seismic data in new and better ways. Geoscientists look for oil and gas with sound. They use our instruments and equipment to collect seismic data that in turn creates images of potential or existing oil-and gas-bearing formations in the earth's subsurface. Seismic is the one of the most reliable and commonly used technologies in the petroleum industry's global quest to find, develop and efficiently produce hydrocarbon resources." GEOS also has a niche business for graphics with their "commercial graphics business segment manufactures and sells thermal imaging solutions and distributes dry thermal film products primarily to an array of graphic display industry sectors (screen print, point-of-sale, signage and textiles)."

GEOS' earnings report in May this year delivered a big earnings miss. You can see the gap down in the chart as traders reacted to it. Their most recent earnings report in August was also a disappointment with GEOS missing Wall Street's top and bottom line estimates. Its quarterly revenues were down -48% from a year ago and their net income was down -78% from a year ago.

Investors have been selling every rally. Bears have caught on too. The most recent data listed short interest at 23% of the very small 12.7 million share float. The point & figure chart is suggesting a long-term $14.00 target.

This is a simple momentum trade where the path of least resistance is down. Tonight we're suggesting a trigger to open bearish positions at $29.35. The high amount of short interest does raise the risk of a short squeeze so you may want to consider the put options.

- Suggested Positions -

Short GEOS stock @ $29.35

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

Long NOV $30 put (GEOS141122P30) entry $2.60*

10/08/14 triggered @ 29.35
*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: 42.28 change: -1.94

Stop Loss: 45.55
Target(s): To Be Determined
Current Option Gain/Loss: + 6.9%
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:
10/09/14: JCI plunged -4.38% to new 2014 lows. The next level of support looks like the $40.00 area.

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

10/07/14 new stop @ 45.55
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: 24.21 change: -1.04

Stop Loss: 26.75
Target(s): To Be Determined
Current Option Gain/Loss: +6.0%
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:
10/09/14: It was another rough day for KN with a -4.1% decline. Tomorrow should be worse. After the closing bell tonight KN lowered its earnings guidance. Shares are trading down near $22 after hours. I am not suggesting new positions.

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*

10/07/14 new stop @ 26.75
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: 35.71 change: -0.94

Stop Loss: 37.30
Target(s): To Be Determined
Current Option Gain/Loss: + 8.0%
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:
10/09/14: The bounce in MINI appears to be struggling with today's -2.5% decline. The last few days are shaping up to look like a bear-flag consolidation pattern.

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


Raven Industries - RAVN - close: 22.71 change: -1.20

Stop Loss: 25.55
Target(s): To Be Determined
Current Option Gain/Loss: +6.9%
Entry on October 06 at $24.39
Listed on October 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 121 thousand
New Positions: see below

Comments:
10/09/14: There was no follow through on yesterday's bullish candlestick reversal pattern. Instead RAVN plunged to a new two-year closing low.

Earlier Comments: October 4, 2014:
RAVN is in the industrial goods sector. It's a small cap that does not get a lot of coverage on Wall Street. The company was founded in Sioux Falls, South Dakota back in 1956. Today they have three main business segments.

Their applied technology segment creates agricultural equipment to boost farm production. Their engineered film business creates high performance plastic films and sheeting. Their Aerostar business uses high-altitude balloons to make "of tethered aerostats, aerospace platforms, Vista radar systems and surveillance solutions, providing complete situational awareness for a multitude of needs." One of the company's more novel products is a line of military decoys that are essentially balloons shaped to look like tanks, jet fighters, and missiles.

Unfortunately business is struggling and the stock has plunged -41% year to date. Falling commodity prices has undermined demand for agricultural equipment. This could be a weak part of the business for the next few quarters. The Aerostar segment is also seeing revenue declines and it's not expected to improve any time soon.

RAVN is actually developing a trend of earnings misses. The company has missed Wall Street's EPS estimates three quarters in a row. They've missed the revenue estimate two of the last three quarters. RAVN management expects the current quarter to see double-digit declines in net income.

The current sell-off has created a sell signal on the point & figure chart that suggests an $18.00 target.

Tonight we are suggesting an immediate entry on Monday morning to open bearish positions. We'll try and limit risk with a stop loss at $26.25. More conservative investors may want to consider a stop closer to $25.00 instead. (NOTE: RAVN does have options but the bid/ask spreads are too wide to trade them.)

- Suggested Positions -

Short RAVN stock @ $24.39

10/07/14 new stop @ 25.55
10/06/14 trade begins. RAVN opens at $24.39


Transocean Ltd. - RIG - close: 29.82 change: -1.34

Stop Loss: 32.25
Target(s): To Be Determined
Current Option Gain/Loss: +21.9%
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:
10/09/14: RIG is still showing relative weakness and lost another -4.3% today. The close under potential support at $30.00 is good news for the bears. We will adjust our stop loss to $32.25, which is just above Monday's high.

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*

10/09/14 new stop @ 32.25
10/08/14 new stop @ 32.55
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


SodaStream Intl. Ltd. - SODA - close: 21.46 change: +0.34

Stop Loss: 23.25
Target(s): To Be Determined
Current Option Gain/Loss: +3.8%
Entry on October 07 at $22.30
Listed on October 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 897 thousand
New Positions: see below

Comments:
10/09/14: SODA finally managed an oversold bounce and ended up +1.6% for the session. I am not suggesting new positions at this time.

Earlier Comments: October 6, 2014:
SODA is in the consumer goods sector. The company makes in-home beverage machines and the consumable flavor packets and carbonation systems that allow consumers to make their own drinks. The stock IPO'd back in November 2010. They came to market with 5.4 million shares at $20.00 each. SODA's first trade was $24.75 on November 3, 2010. Several months later SODA was testing the $80.00 level. It's been a rocky road for SODA but today the stock is down -41.7% in 2014 and down -64.4% from its 2013 highs near $76.

Why is SODA in decline? The company is facing growing competition. For a long time SODA was a rumored takeover target. Wall Street speculated that companies like Coca-Cola (KO) or PepsiCo (PEP) or Dr. Pepper Snapple Group (DPS) might buy SODA. There was even a rumor that Starbucks (SBUX) might have been interested. None of these rumors panned out.

Now SODA is facing competition from KO who has teamed up with Keurig Green Mountain (GMCR) to make their own in-home soda machine. PEP has teamed up with Bevyz, a European company, who has their own machine, and the two will soon rollout packets with PepsiCo flavors.

The market is worried that against these heavyweights SODA will lose market share. It seems that sales are already disappointing Wall Street. Shares of SODA collapsed in January this year on a big earnings miss. Their most recent earnings report was July 30th and while SODA beat the EPS estimates, management lowed their 2014 guidance.

The path of least resistance is down. We are suggesting a trigger to open bearish positions at $27.35 but I am cautioning investors to consider this a higher-risk, more aggressive trade. There is a still a risk that SODA will be bought. Almost a month ago there was a story overseas that SODA was in talks with a British hedge fund to buy the company near $40 a share. Most recently there have been stories that foreign beer makers like SABMiller and Diageo might be interested in buying the company.

If SODA gets cheap enough someone might try and buy it. Yet that doesn't mean SODA won't sink toward $20.00 a share first. Part of the risk is the rumor mill. If there are any convincing rumors of an impending deal we could see SODA spike higher. The most recent data listed short interest at 31.7% of the small 20.8 million share float. That increases our risk. You may want to buy a put option to limit your risk to the price of the option.

*small positions, higher-risk trade*

- Suggested Positions -

Short SODA stock @ $22.30

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

Long NOV $27.50 PUT (SODA141122P27.5) entry $5.30

10/07/14 new stop @ 23.25
10/07/14 Trigger was $27.35, trade opens on gap down at $22.30
10/07/14 SODA issues an earnings warning before the opening bell
Option Format: symbol-year-month-day-call-strike


The ExOne Company - XONE - close: 18.21 chang6: +0.36

Stop Loss: 20.25
Target(s): To Be Determined
Current Option Gain/Loss: +18.2%
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:
10/09/14: XONE produced a mini roller coaster ride today with swings in both directions. Shares ended up +2.0% but still under short-term resistance near $20.00 and its 10-dma.

More conservative investors may want to take profits now.

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*

10/07/14 new stop @ 20.25
10/06/14 new stop @ 21.75
10/04/14 new stop @ 22.55
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