Option Investor
Newsletter

Daily Newsletter, Monday, 10/13/2014

Table of Contents

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

Market Wrap

Market Falls In Quiet Trade

by Thomas Hughes

Click here to email Thomas Hughes
The market fell again as traders await the deluge of data and earnings scheduled for later this week.

Introduction

The market fell in a day of quiet holiday trading. The Columbus Day holiday had market volumes down and possibly accelerated this mornings fall. The major indices moved lower in the range of -1% during the early half of today's session but bounced from the early lows to hover around break even most of the day. A number of global events impacted trading today, as well as anticipation for earnings and economic data later this week.

First up was better than expected trade data from China; data that was unable to reverse bearish sentiment. Exports rose by more than 15% on a year-over-year basis, outpacing imports and leaving the trade balance a positive $31 billion. Despite this news Asian indices fell, led by the Nikkei's loss of -1.15%. The news was able to lift European indices, which also received a dose of good news from closer to home. Reports say Putin has ordered Russian troops to return to their bases now that “training exercises” are over helped to lift EU indices into the green.

Market Statistics

Our own indices were indicated to open flat to negative for most of the early session. The markets opened marginally lower, bounced into positive territory within the first 5 minutes and then fell back to test early support by 10:15AM. The indices traded sideways for most of the morning, hitting the daily low around 10:45AM. From that point until late in the day the indices traded in a range right around break even with the bias toward the upside. Then, late in the day, I think it was the Ebola headlines that sent the market lower.

There were a few major headlines from that front today starting with the CDC chief blaming a break down of protocols on the Texas nurse contracting the disease. The next was outcry from nursing unions and hospital organizations that claim they have received no training and no support, effectively shifting the blame back to the CDC. Then, around 3PM the CDC announced that there could be more cases showing up in the next couple of days. The Ebola effect on the market is an unknown at this time but something we will be dealing with into the foreseeable future.

Economic Calendar

The Economy

Not much data today but of course the weekly Survey Of Business Confidence conducted by Moody's and Mark Zandi. This week's summary is a little different than it has over the past few months. It leads off with a notable decline in foreign business sentiment, particularly in South American and to a lesser degree Europe. After that it picks right up where it has been all summer. Mr. Zandi reports that business sentiment is notably high, as it has been all year, and that hiring intent remains strong. Planned lay-off's are also low and expectations into the end of the year remain high.

The Oil Index

Oil prices took a big hit today as OPEC's stance toward oil prices became a little more official. WTI fell by -1% but Brent took the biggest hit, falling more than -2%. OPEC, which is suffering deep division within its ranks over oil prices, is not planning on cutting production in order to support prices, according to statements from the Kuwait oil minister. This is along with Saudi Arabia's willingness to accept lower prices in order to retain market share. WTI traded just below $85 in today's session with Brent hovering just above $88. OPEC is scheduled to meet next month so I expect to hear a lot more about these stories before then.

The Oil Index sank to a new low today, falling about a half percent in today's action. The index had at first surged higher but downward pressure caused by falling oil prices pushed the index below support. The index is now trading along the 1430 support line with increasingly bearish indicators. Stochastic is oversold and may remain that way into the short term but it is the MACD that is the most troubling. Downward momentum has been increasing with each leg of the decline and is convergent with lower prices or a retest of the current lows following a bounce. There could be a bounce or consolidation from the current level but it would face resistance around 1480. A break below current support could take it down to 1400 and 1350 in the near term.


The Gold Index

Gold prices climbed about 0.60% today, adding $7 to Friday's closing price. Today's action took the metal up to $1230 and higher in electronic trading. The metal has been bouncing from the long term lows around $1190 and is being buoyed by the Fed's lack of direction on interest rates. Rates are surely going up, which is why gold has fallen to these levels, but when is still in question and the Fed really isn't giving us any concrete clues. Momentum is currently to the upside so gold will likely move higher into the near term until the next major catalyst emerges. The Beige Book could be it, along with the data coming out this week.

The Gold Index traded to the upside today, in line with the upward trajectory of gold. The index gained over 4% in today's action but is still below long term support. The index has been consolidating for about a week, ever since gold hit bottom last week, and is winding up for a move. Direction is unclear and tied to gold prices but I think that long term buyers may be in this market. A break out of the current consolidation pattern will be the tell. A break back above support will help to confirm this theory. An upside target, provided the index can break the $82.50-$85 level, is around $110 with a downside target near the the $65 level. The senior miners are scheduled to report around the end of the month and into the first week of November.


In The News, Story Stocks and Earnings

Earnings season is definitely in the news. The season began last week but really starts in earnest this week. The financial sector will be the focus but there are still enough other reports to give meaningful insight into sectors ranging from technology to the consumer to transportation and others. According to data from FactSet the expectation for earnings growth stands at 4.5%. This is about half the expectations at the beginning of the quarter due to downgrades in 9 out of 10 S&P sectors. We can expect this number to be beaten based on past performance. Over the past 12 quarters 72% of companies reported above average for both sales and earnings resulting in an increase of average earnings of 2.3% by the end of each quarter. So far 27 S&P 500 companies have reported with 19 of those beating the average estimate for earnings and 19 beating the average estimate for sales. With this in mind earnings growth this quarter could be as strong as 6.8% or more, in-line or slightly below the last quarter. The telecom sector is still expected to lead with the largest increase in earnings.

The Financial Sector is also expected to post impressive bottom line gains. The average expected increase in EPS for the banking sector is nearly 11%. If this sector beats by 2.3% they could report earnings improvements of over 13%. Today the Banking Index traded to the downside, along with the broader market. The index fell about a quarter percent in today's trading. The index is near to a two month low and trading beneath the 150 day moving average. The indicators are bearish and point to lower prices with a target about a dollar below the current prices. It looks like the banks are moving lower in the near to short term but the index may also be at a bearish peak. Based on price action over the past year the index has been in similar situations several times before only to bounce right back.


JP Morgan lost about -0.40% today, after trading positive for much of the afternoon. The bank is below the resistance of the long term high and now trading near long term support. The stock is still trading above the long term moving average but has bearish indicators. Momentum is not strong but to the downside and convergent with a further test of support. Support is now indicated around $57.50 with earnings being reported in the morning.


Wells Fargo is also reporting tomorrow. This bank traded lower as well, losing about -0.63% in today's action. The stock is trading in a similar pattern to JPM and is below recently set long term highs and above long term support. The indicators are convergent with lower prices with the current target along support about a quarter below today's close.


The Indices

The markets moved lower today and appeared to have found support until late day news sent traders seeking the exits. The late afternoon drop was accelerated by a new announcement from the CDC that more Ebola cases related to the Texas nurse could pop up. I am not surprised by this, a little shocked, but that is all I will say about that.

Today's move lower was led by the Dow Jones Transportation average and is the third day of losses greater than 2%. The index, and the others, has now formed 3 long black candles in a row and is gaining momentum. MACD increased with today's move and is convergent with lower prices, or a retest of current lows should a bounce occur. Stochastic is moving lower but still holding on to a little strength as it has not yet crossed the lower signal line. If the selling continues my targets are 250, 500 and 750 points lower... but with earnings season at hand the market could reverse at any time.


The S&P 500 fell -1.65% today, extending its move below the long term trend line. The broad market was the second biggest loser today and is also gaining momentum. The index broke support at 1,900, creating a third long black candle and creating a 5 month low. MACD momentum is on the rise and convergent with low or lower prices in the near and short term. Stochastic is low in the range, oversold in the near term but still holding above the lower signal line. The break of 1,900, if confirmed, could take the index as low as 1800 in the near term with possible support around 1,850.


The NASDAQ Composite fell -1.46% today, extending its move below support and the long term moving average. The index is moving lower in identical fashion to the other indices and is gaining momentum. The MACD peaks are converging with price action along with weak and down trending stochastic. Stochastic is still holding on to a little strength, like the others, but is very close to breaking the lower signal line. The index is about 115 points above support with no indication of this move halting at this time.


The Dow Jones Industrial Average had the smallest decline of the day, only -1.35%. The blue chips fell after breaking support are gaining momentum, as are the other indices. The MACD peaks are increasing along with each new low in the index, pointing to lower prices and/or retesting current lows. The index is about 100 points above next estimated support with resistance above 16,500. If the index moves lower from here it will set a lower low and be in danger of a more prolonged downward movement.


It looks like traders and investors are still waiting for something and the waiting is adding to the depth of the correction. The more market participants wait, and the longer they wait, the deeper the correction could go. Today the Ebola news helped the correction reach new levels and may have provided another reason to wait. The only thing I can see that is causing the correction is mounting fears, one fear after another, mounting one after another smothering bullish perceptions. Each fear is short term in nature, although important, while the underlying trends are long term. The long term US economic trends are still up and as yet, un-impacted by global events.

No doubt this week will be dominated by the Fed's Beige Book, earnings, expectations, economic data and how the market interprets all of it. In between it all global growth and geopolitical issues will add their twist to market action as well as the spreading Ebola story. Tomorrow there is no data so unless there is a major international headline I think market action will be dominated by earnings. Expect to hear from JP Morgan, Wells Fargo and Citigroup before the opening bell and then Intel after the close. Others reporting tomorrow worth taking note of include CSX, JB Hunt, Dominos and Johnson&Johnson.

Until then, remember the trend!

Thomas Hughes


New Plays

Consistently Missing Estimates

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Jacobs Engineering Group - JEC - close: 46.25 change: -0.46

Stop Loss: 48.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 13, 2014
Time Frame: 3 to 6 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

Company Description

Why We Like It:
JEC is part of the services sector. Although you might consider it an industrial considering what they do. JEC provides technical services and construction services around the world. They were founded in 1947 and now have about 200 offices around the world.

Unfortunately for JEC most of the world is seeing an economic slowdown. That is pressuring sales. JEC is developing a trend of missing earnings and has missed Wall Street's EPS estimate four quarters in a row.

The stock started to see an oversold bounce in early October but that bounce has stalled under its 10-dma and the $48.00 area. Now JEC is down -25.8% this year and poised to continue its underperformance.

I do want to note that the timing of this trade might be a little aggressive. Momentum is clearly lower but the major market indices are starting to look a little oversold and could bounce. Traders may want to start this trade with small positions to limit their risk.

We are suggesting a trigger to open bearish positions on JEC at $46.15.

Trigger @ $46.15 *consider small positions to limit risk*

- Suggested Positions -

Short JEC stock @ (trigger)

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

Buy the NOV $47.50 PUT (JEC141122P47.50) current ask $2.50

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

Annotated Chart:



In Play Updates and Reviews

Bears Refuse To Let Go

by James Brown

Click here to email James Brown

Editor's Note:
The stock market's selling intensified this afternoon and equities closed on their low for the session. That doesn't bode well for tomorrow.

We have updated nearly all of our stop losses tonight.

RKT hit our entry trigger.

Prepare to exit our MINI trade.


Current Portfolio:


BULLISH Play Updates


None. We do not have any active bullish trades.





BEARISH Play Updates

CBS Corp. - CBS - close: 48.91 change: -1.00

Stop Loss: 51.05
Target(s): To Be Determined
Current Option Gain/Loss: +10.7%
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:
10/13/14: CBS has broken down under round-number support at $50.00. We are lowering the stop loss to $51.05. More aggressive traders may want to keep their stop above the 10-dma instead (currently near $52.00).

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*

10/13/14 new stop @ 51.05
10/11/14 new stop @ 52.55
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: 22.13 change: +0.07

Stop Loss: 23.25
Target(s): To Be Determined
Current Option Gain/Loss: +9.1%
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:
10/13/14: FLDM followed the market most of the session. Like the market FLDM saw its bounce fail midday. Yet unlike the market FLDM did not sell-off this afternoon.

We will lower oust stop loss to $23.25, about 15 cents above today's high.

I am not suggesting new positions in FLDM 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*

10/13/14 new stop @ 23.25
10/11/14 new stop @ $24.05
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: 27.38 change: -0.78

Stop Loss: 30.05
Target(s): To Be Determined
Current Option Gain/Loss: + 6.0%
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:
10/13/14: Hmm... after a six-day drop it looks like GEOS finally managed a little oversold bounce with a +0.76% gain today. I am lowering our stop loss to $30.05. More conservative traders may want to lower their stop even further. I'm not suggesting new positions at this time.

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*

10/13/14 new stop @ 30.05
10/11/14 new stop @ 30.55
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: 40.24 change: -1.03

Stop Loss: 41.25
Target(s): To Be Determined
Current Option Gain/Loss: +11.4%
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:
10/13/14: JCI was downgraded this morning. That helped push the stock to another -2.49% loss. Please note the $40.00 level has been support in the past. There is a good chance that JCI will bounce in the $40.00 area. I am not suggesting new positions and investors may want to take profits soon.

Today's high was $41.18. We will lower the stop to $41.25.

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

10/13/14 new stop @ 41.25, traders may want to take profits near $40.00
10/11/14 new stop @ 43.25
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: 19.85 change: -2.61

Stop Loss: 21.75
Target(s): To Be Determined
Current Option Gain/Loss: +22.9%
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:
10/13/14: KN has seen back to back days of big volatility. Shares opened higher at $23.57 but that proved to be today's top. The combination of last week's earnings warning and today's market weakness helped drive KN to a -11.6% decline today.

We will move our stop loss down to $21.75. I'm 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*

10/13/14 new stop @ 21.75
10/11/14 new stop @ 25.05
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: 36.78 change: +1.21

Stop Loss: 37.30
Target(s): To Be Determined
Current Option Gain/Loss: + 5.2%
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:
10/13/14: I cannot find a reason for MINI's recent relative strength. Shares definitely outperformed the market today with a +3.4% gain. We are throwing in the towel. Plan on exiting immediately tomorrow morning.

- Suggested Positions -

Short MINI stock @ $38.80

10/13/14 prepare to exit tomorrow morning
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: 23.11 change: +0.53

Stop Loss: 23.75
Target(s): To Be Determined
Current Option Gain/Loss: +5.2%
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:
10/13/14: RAVN also managed a bounce today but its bounce stalled at technical resistance at the 10-dma. Today's intraday high was $23.63. We will move our stop loss down to $23.75.

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

10/13/14 new stop @ 23.75
10/11/14 new stop @ 24.25
10/07/14 new stop @ 25.55
10/06/14 trade begins. RAVN opens at $24.39


Transocean Ltd. - RIG - close: 28.92 change: +0.19

Stop Loss: 30.55
Target(s): To Be Determined
Current Option Gain/Loss: +24.3%
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:
10/13/14: RIG's intraday bounce reversed near resistance in the $30.00 area. Today's intraday high was $30.32. We will move our stop loss down to $30.55.

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*

10/13/14 new stop @ 30.55
10/11/14 new stop @ 31.05
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


Rock-Tenn Co. - RKT - close: 44.48 change: -1.06

Stop Loss: 47.05
Target(s): To Be Determined
Current Option Gain/Loss: +0.6%
Entry on October 13 at $44.75
Listed on October 11, 2014
Time Frame: Exit prior to earnings on November 3rd
Average Daily Volume = 809 thousand
New Positions: see below

Comments:
10/13/14: Our new play on RKT is now open. We were expecting a breakdown under $45.00 and RKT did not disappoint. Shares lost -2.3% and closed on their lows for the session.

Please note our new stop loss at $47.05.

Earlier Comments: October 11, 2014:
RKT is in the consumer goods sector. You probably see their products every day since RKT makes corrugated and consumer packaging. The company is based in Georgia but they operate in the U.S., Canada, Mexico, Chile, Argentina and China. Unfortunately, unlike the U.S., most of those countries are seeing their economies slow down.

RKT's earnings performances have been all over the map this past year with big swings between beats and misses. Investors have been confused and the stock has been consolidating sideways for over a year. It looks like the end of the consolidation is at hand with a breakdown to new 52-week lows.

The market's recent weakness is pushing RKT out of a massive bearish wedge pattern (seen on the weekly chart below). Investors could launch bearish positions now. We're suggesting a trigger to launch positions at $44.75 instead just in case the $45.00 level is support.

We are not setting an exit target tonight but the point & figure chart is bearish with a quadruple-bottom breakdown sell signal that is currently forecasting at $40.00 target.

- Suggested Positions -

Short RKT stock @ $44.75

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

Long NOV $45 PUT (RKT141122P45) entry $2.35*

10/13/14 triggered @ 44.75
*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


SodaStream Intl. Ltd. - SODA - close: 20.34 change: -0.30

Stop Loss: 21.75
Target(s): To Be Determined
Current Option Gain/Loss: +8.8%
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:
10/13/14: SODA slipped another -1.45% and shares are testing round-number, psychological support at the $20.00 level. Friday's intraday high was $21.63. We will move our stop loss down to $21.75. 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

10/13/14 new stop @ 21.75
10/11/14 new stop @ 22.75
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