Option Investor
Newsletter

Daily Newsletter, Tuesday, 10/14/2014

Table of Contents

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

Market Wrap

Slip Sliding Away

by Jim Brown

Click here to email Jim Brown

A sharp decline in oil prices greased the skids and the Dow slid back to negative territory after a +143 point intraday gain.

Market Statistics

The drop in oil prices helped power the Dow Transports to a +2.6% gain but that was also well off the highs. The markets roared off to strong gains at the open but could not hold them after Germany slashed its economic outlook for 2015.

Spiking to +143 intraday and then falling back to negative territory is a bearish event suggesting the selloff is not over despite the S&P and Nasdaq finishing slightly positive.

The only economic report this morning was the NFIB Small Business Optimism Index. The headline number declined in September from 96.1 to 95.3 and a 3-month low. Those businesses planning on making capital expenditures declined from 27% to 22%. Those planning to increase employment declined to a five month low down from 10% to 9%. The high was 13% in July. Those expecting earnings to improve declined to -19% and the lowest level since April.

This was not a positive report. Nearly all of the components declined slightly. The two positive components were "a good time to expand," which rose from 9% to 13% and those expecting the economy to improve rising to a net of -2% and the highest level since May. Available employment openings also declined from 26% to 21%. That is the lowest level in 8 months.

Overseas economic news from China was also weighing on the market. Light truck sales in China declined -16% in September. A competitor to Caterpillar said Q4 sales could be down -70% to -80%. China is clearly slowing and the government is refusing to add additional stimulus.

The economic calendar for Wednesday is highlighted by the Fed Beige Book, an update of the economic conditions in each of the Fed's districts.

The Producer Price Index (PPI) is expected to be flat to only slightly higher by +0.1%.

The Philly Fed Manufacturing Survey on Thursday is expected to decline from 22.5 to 19.5 in October. This is also a critical report considering the worries over slowing global economies.


The rest of the week has a flurry of Fed speakers with five on Thursday alone.


Crude prices plummeted again to levels not seen since June of 2012 for WTI and August 2010 for Brent. There were multiple catalysts but fears about shrinking global demand was the underlying theme. Germany cut its expected growth rate for 2014 from +1.8% to +1.2% and slashed 2015 estimates from +2.0% to +1.3%. With Germany the strongest economy in Europe the outlook for all of Europe is not good. The IEA cut its global growth estimates to 3.3% for 2014 and 3.8% for 2015, down from 3.4% for 2014 and 4.0% for 2015.

The IEA cut demand estimates for 2014 by -200,000 bpd to 92.4 mbpd. This is still a rise of +700,000 bpd for the full year. They cut 2015 demand growth estimates from +1.4 mbpd to +1.1 mbpd.

Global supplies rose +910,000 bpd in September to 93.8 mbpd and +2.8 mbpd more than the same period last year. Non-OPEC supply has risen sharply in 2014 by +2.1 mbpd. OPEC output surged to a 13-month high at 30.66 mbpd thanks to a recovery in Libya to 800,000 bpd and higher output from Iraq. Non-OPEC supply rose +495,000 bpd in September to 56.7 mbpd.

However, global refinery demand for crude oil rose to record highs in August to 79 mbpd, up +1.4 mbpd from the same period in 2014.

Demand is rising despite the headline cut by the IEA. They only cut their demand "growth" estimates. The problem today is more of a fear over global economic weakness and the potential for Europe to fall back into recession for the third time since 2008. Recessions weaken oil demand. China is also slowing and they are the second largest consumer of oil.

Saudi Arabia and Iran traded shots last week saying they were going to discount oil to Asia by the most since 2008. With Saudi discounting rather than cutting production to support prices it means a price war has begun. Saudi Arabia needs $86 a barrel to make their budgets and with prices under $86 they will have to produce more to make up the difference. More oil on an already flooded market will only push prices lower if they are serious about causing Iran and Russia pain. By pushing prices lower they are also going to pressure the U.S. shale market and retard future investment in drilling. If crude goes much lower it will force marginal producers to curtail production.

Iran and the six western nations meet again next week to discuss the nuclear problem. Iran claims it is not going to back down from its desire to continue enriching uranium and dissidents continue to claim Iran is working on a bomb in secret. The deadline for an agreement is November 24th and the western nations have said there will be no extension. If no agreement is reached the sanctions will immediately return and Iran's ability to ship oil will be drastically curtailed. This could help support oil prices but that is still over a month away.

The sharp drop in oil is great news for consumers because gasoline prices will be under $3 nationwide in the near future. This will put more money in their pockets for the holiday shopping season and increase profits for companies like the airlines where oil is a major expense.



The weak global economy and the sharply rising dollar continue to weigh on commodities in general. This will lower inflation pressures and make the Fed's job harder to hit their inflation targets at 2%. Once the current equity market weakness ends the metals prices will weaken and further depress the commodity index.


The sinking global economics and comments from Fed vice Chair Stanley Fischer sent treasuries to new highs and yields to new 15-month lows. The ten-year closed at 2.2% but several noted analysts said they expect this to be the high for bonds as long as U.S. economics continue to improve. I would not hold my breath on that with the rest of the world sinking.


The Q3 earnings cycle shifted into second gear today with several high profile reports. JP Morgan (JPM) reported adjusted earnings of $1.36 ($5.6 billion) compared to consensus estimates of $1.39. Legal costs knocked -26 cents off their earnings per share. Revenue rose +5.4% to $25.2 billion and beating estimates for $24.4 billion. Investment banking revenues declined -6% to $2.7 billion. Equity trading revenue declined -1% to $1.23 billion. Fixed income trading revenue rose +15% to $6.11 billion.

CEO Jamie Dimon said the bank would probably double its $250 million a year cyber-security budget within five years after hackers stole personal information from 76 million household accounts. Shares declined on the earnings news.


Citigroup (C) saw earnings increase +6.6% to $3.44 billion or $1.15 per share on an adjusted basis. Analysts were expecting $1.12. Consumer loans rose +2.8% and credit card debt rose +1.1%. Revenue from fixed-income markets rose +5% to $2.98 billion. Total trading revenue rose +6.7%. Equity trading revenue rose +14% to $763 million. Global consumer banking revenue rose +4.4% to $9.64 billion with North America bringing in $4.99 billion. Shares were up +$1.57 on the news.


Wells Fargo (WFC) reported earnings of $1.02 ($5.41 billion) despite completing 40% fewer home loans. They added $48 billion in mortgage loans and they projected lower volume for Q4 as well. Credit card balances rose +11% to $28.3 billion. Overall loans rose by +3.7% to $838.9 billion led by a +13% increase in commercial and industrial loans. Profits from the wealth management, brokerage and retirement segment rose +22% to $550 million. Investment banking fees declined -7% to $371 million. Shares of WFC fell -3% on the report.


Johnson & Johnson (JNJ) posted adjusted earnings of $1.50 ($4.75 billion) on a 5% rise in revenue to $18.47 billion. Consensus estimates were for $1.42 per share. The company sold more than $2 billion YTD in its new blockbuster Hepatitis C drug Olysio with $800 million in Q3. However, Olysio was taken in conjunction with Gilead's Sovaldi treatment and Gilead just released a new drug, Harvoni, which will no longer need the addition of Olysio. That is going to weigh on Olysio sales in the future. However, JNJ raised full year guidance for the third time to $5.92-$5.97, up from the July forecast of $5.85 to $5.92. Shares declined -$2 on the news to a six-month low.


After the bell Intel (INTC) reported earnings of 66 cents (+12% to $3.32 billion) compared to estimates of 65 cents. Revenue rose +7.9% to a record $14.6 billion and beating estimates of $14.4 billion. Intel said analyst estimates for Q4 may be low due to a strong refresh cycle in the corporate PC world. Intel is expecting revenue of $14.7 billion +/- $500 million. Analysts were expecting $14.5 billion. Gross margin is expected to be 64% compared to estimates of 62%.

The company shipped more than 100 million processors in Q3 and the first time over that 100 million level. Revenue for the PC processor division rose +8.9% to $9.19 billion. Server processor revenue rose +16% to $3.7 billion. Notebook processor revenue jumped +21% with desktops rising +6%. IDC reported last week that PC shipments fell -1.7% in Q3 but it did not appear to hurt Intel. Sales of desktops are increasing now that Windows XP is no longer supported. Intel is on track to ship more than 40 million tablet processors in 2014. That is a new market for Intel. They are giving manufacturers subsidies to entice them to use Intel chips. Those subsidies caused a $1.04 billion loss in that division in Q3. The CEO said they are about to begin shipping a new and faster tablet processor that will not include a subsidy. Shares rose about 50 cents in afterhours.


CSX Corp (CSX) reported earnings of 51 cents, up +12%, compared to estimates of 48 cents. Revenue rose +8% to $3.2 billion. Revenue and earnings were both records. CSX said it expected to "sustain double-digit earnings growth and margin expansion in 2015. Freight volumes rose +7% helped by shipments of oil, coal, drilling pipe and frac sand. Agriculture shipments rose +13%, autos +8% and coal +7%. He said they were moving 3 oil trains a day away from shale fields while delivering pipe and sand back to those fields. CSX operates more than 21,000 miles of track in 23 eastern states. Shares rose about 60 cents in afterhours.


The earnings cycle is just getting started and guidance has not been exciting. So far in October 17 companies have given positive guidance and 34 issued negative guidance with 30 reporting in line with estimates.

October Earnings Guidance

Earnings for the rest of the week are headlined by GS, EBAY, NFLX, GOOG, IBM and SNDK. However, all the companies reporting on Thursday are important to the overall earnings picture.


Markets

The Dow rallied from the open to +143 by noon and then rolled over on no specific news. The Dow declined to close down -6 points and was the weakest index. The S&P rallied to +25 points and then declined to close with only a +3 point gain. The Nasdaq rallied to a +68 point gain only to slide into the close with only a +13 point gain.

The Russell 2000 was the big winner with a +1.2% gain of +12 points. However, that was well off the +26 point intraday high. The spike in the small caps energized the market in the morning but it did not last. The small caps were also the most heavily shorted so any positive news would affect them the most.

The opening rally across all markets was mostly short covering. Numerous oversold stocks were up strongly at the open in typical short squeeze fashion but then faded quickly when there was no follow through.

There could have been some Intel earnings fear in the market after the very bearish forecast by Microchip Technology last Friday. Saying the semiconductor industry was entering a 2-3 quarter correction crushed the markets on Friday. With Intel reporting tonight there could have been a large number of investors afraid Intel was going to confirm that forecast. However, after the Intel earnings and positive comments the S&P futures were up strongly at +9 for a few minutes suggesting tomorrow's open will be positive. They have since faded to +6 and there is still a lot of darkness before the dawn.

The S&P broke below the 200-day average on Monday and did not even come close to that 1,905 level in today's rebound with the high at 1,898. The longer we stay under the 200-day the stronger that resistance will become. If we end the week under the 200-day it would suggest a much lower decline ahead.

The lack of any meaningful gains on the S&P is bearish. The lack of follow through on Monday afternoon's decline is somewhat bullish. However, giving back the intraday gains tilts the scales into the bearish category. The positive futures after Intel's earnings are the wildcard for Wednesday.

In technical speak the S&P made another lower high and lower low at 1,871 and that means the sellers were still active. The S&P is very short term oversold but nothing prevents it from becoming more oversold. We are due for a real short squeeze bounce instead of the half hearted one at today's open.

Resistance is going to be today's high at 1,899, round number resistance at 1,900 and the 200-day at 1,905. Initial support should be today's low at 1,871 followed by 1,865 and 1,840 if the initial support fails.


The Dow chart is also negative with another lower high, lower low. Support at 16,368 has failed and the next material support is 16,025. The key will be whether any opening bounce on Wednesday is sold. Traders defended yesterday's low at 16,310 with some dip buying at the close to end at 16,315. The Dow was helped by Boeing, 3M and Caterpillar and dragged down by Chevron, Johnson & Johnson and Visa.

If you looked only at the Dow chart without considering any external factors like Intel's earnings I would not be a buyer. The double close under 10,368 is bearish. Fortunately external events do matter and Intel will be a positive influence at Wednesday's open.



The Nasdaq set a new low by .05 of a point at 4,212. I don't think that qualifies as a technical breakdown. If anything that is a successful defense of Monday's support low. I know I am grasping at straws here but I will take what I can get. Prior support at 4,250 is now resistance and the high today was 4,246. Nasdaq futures are up +13 points late Tuesday and that is hardly a roaring reaction to the Intel earnings but it is positive.

If we move down from here there is little support before the 4000-4040 level. There is a lot of congestion between 4050-4150 that could act as eventual support but no clear levels exist at least in my opinion.



The Russell 2000 may have been the strongest index but it was also the most oversold. That means a short squeeze would lift it the most. The Russell could find weak support at 1,040 followed by 1,010.

The Russell is down -13% from its highs and could decide to rebound at any point now that the technical correction has been achieved. However, any further declines from here could target the bear market level at 966.


If the futures hold in positive territory overnight we should see a rebound at the open. The key question will be whether that rebound is sold again as it has been over the last two days or will it be the start of a recovery. We will not know that until next week.

I would not bet the farm on any new long positions but I feel the distinct need to nibble on longs at this level. However, I would close those positions if we start to make new lows on the S&P.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

Click the advertisement below for a free trial to the Couch Potato Trader newsletter.

 


New Plays

Is The Bad News Priced In?

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Noodles & Co. - NDLS - close: $20.93 change: +0.29

Stop Loss: 19.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 14, 2014
Time Frame: 3 to 5 weeks
Average Daily Volume = 444 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
NDLS stock has had a rough start. The company held its IPO in mid 2013. The initial surge send shares of NDLS from the low $30s to over $50. Once the newness left the stock was left to churn water.

NDLS spent most of 2013 struggling and failing to breakout past $50.00 again. The last twelve months have been bearish with a trend of lower highs and lower lows. The company has disappointing results to blame for the sell-off in its stock price.

Currently NDLS has 410 locations in 31 states in the U.S. Management has suggested their long-term goal is 2,500 restaurants. That could be a challenge considering the recent sales slowdown. Their most recent earnings report was in August. You can see the big drop on the daily chart. NDLS missed estimates and lowered its 2014 guidance. Investors were not too keen on falling same-store sales growth either.

Bears have been right on this stock for months. The biggest critique is that shares of NDLS are expensive at over 50 times the trailing 12 month earnings. While the bears may be right, NDLS is expensive, the stock's bearish momentum has stalled.

It is possible that all the bad news is priced in after a -42.5% drop this year. NDLS has seen a higher low and more recently a bullish breakout above its simple 50-dma. You'll also notice that NDLS has completely ignored the market's recent weakness. The major indices have been crashing but NDLS has been slowly marching higher.

If this strength continues NDLS could see some short covering. The most recent data listed short interest at 12.6% of the very small 21.3 million share float. The point & figure chart is already bullish and suggesting a long-term target at $27.00.

Tonight we are suggesting small positions if NDLS can trade at $21.21 or higher. If triggered I'm suggesting a target in the $24.50-25.00 zone but we will plan on exiting prior to the company's earnings report in mid November.

Trigger @ $21.21

- Suggested Positions -

Buy NDLS stock @ (trigger)

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

Buy the NOV $22.50 call (NDLS141122c22.5) current ask $1.05

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

Annotated Chart:



In Play Updates and Reviews

Stocks Trim Their Midday Gains

by James Brown

Click here to email James Brown

Editor's Note:
The market's oversold bounce stalled midday and equities closed near their lows on Tuesday.

FLDM and RAVN hit our new stop losses. MINI was closed this morning.

Prepare to exit our option position on the RIG trade tomorrow.


Current Portfolio:


BULLISH Play Updates


None. We do not have any active bullish trades.





BEARISH Play Updates

CBS Corp. - CBS - close: 49.93 change: +1.02

Stop Loss: 51.05
Target(s): To Be Determined
Current Option Gain/Loss: + 8.8%
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:
10/14/14: CBS managed to bounce up to $50.75 before paring its gains. Shares still closed up +2.0%, which was enough to outperform the major U.S. indices. The simple 10-dma should be resistance (currently near $51.50, although our stop is at $51.05).

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


Geospace Technologies - GEOS - close: 27.88 change: +0.29

Stop Loss: 30.05
Target(s): To Be Determined
Current Option Gain/Loss: + 5.0%
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:
10/14/14: GEOS has managed to bounce two days in a row. Shares may need to test technical resistance at the 10-dma before it resumes the down trend. I'm not suggesting new positions at the moment.

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: 40.34 change: +0.10

Stop Loss: 41.25
Target(s): To Be Determined
Current Option Gain/Loss: +11.1%
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:
10/14/14: Shares of JCI were downgraded again. That's the second time in two days. This morning's downgrade sent shares to a new low at $39.23.

Investors may want to take profits now. I'm not suggesting new positions.

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


Jacobs Engineering Group - JEC - close: 46.70 change: +0.45

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

Comments:
10/14/14: JEC spent today's session churning sideways and managed to end on an up note with a +0.9% gain. Yet shares remain in the $46-48 trading range. I don't see any changes from last night's new play description.

Earlier Comments: October 13, 2014:
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)

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


Knowles Corp. - KN - close: 20.26 change: +0.41

Stop Loss: 21.75
Target(s): To Be Determined
Current Option Gain/Loss: +21.3%
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:
10/14/14: KN is still trying to hold round-number support near the $20.00 level. Shares bounced but pared their gains to +2.0%.

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


Transocean Ltd. - RIG - close: 28.97 change: +0.05

Stop Loss: 30.55
Target(s): To Be Determined
Current Option Gain/Loss: +24.2%
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:
10/14/14: Weakness in crude oil prices weighed heavily on the energy sector stocks today. Yet shares of RIG are already so oversold they didn't move much. Instead RIG tried to bounce again and again stalled at short-term resistance near its 10-dma.

More conservative investors may want to take profits now.

NOTE to option traders: Our October $35 put only has three days left. I'm suggesting an immediate exit tomorrow morning at the opening bell. The current bid/ask spread is $6.30/6.95.

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*

10/14/14 prepare to exit our option trade tomorrow morning
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: 44.02 change: -0.46

Stop Loss: 46.55
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
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:
10/14/14: The relative weakness in RKT continued today with another -1.0% decline. We will move our stop loss down to $46.55.

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*

10/14/14 new stop @ 46.55
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: 20.95 change: +0.61

Stop Loss: 21.75
Target(s): To Be Determined
Current Option Gain/Loss: +6.1%
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:
10/14/14: SODA saw an oversold bounce today. The stock almost made it to $21.50 before paring its gains. Even with the afternoon slide SODA still added +2.99%.

Traders may want to take profits early. 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


CLOSED BEARISH PLAYS

Fluidigm Corp. - FLDM - close: 22.77 change: +0.64

Stop Loss: 23.25
Target(s): To Be Determined
Current Option Gain/Loss: +4.4%
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:
10/14/14: Today's oversold bounce in FLDM was enough to pierce technical resistance at its 10-dma. Shares hit our new stop loss at $23.25 (actually they saw a small midday gap higher at $23.27).

- Suggested Positions -

Short FLDM stock @ $24.35 exit $23.27 (+4.4%)

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

NOV $25 PUT (FLDM141122P25) entry $2.75* exit $2.90** (+5.4%)

10/14/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

chart:


Mobile Mini, Inc. - MINI - close: 38.28 change: +1.50

Stop Loss: 37.30
Target(s): To Be Determined
Current Option Gain/Loss: + 4.0%
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:
10/14/14: Shares of MINI have not been cooperating. After yesterday's relative strength we decided to close this trade Tuesday morning. The stock gapped open at $37.23 and then surged to a +4.0% gain before stalling at its 50-dma.

- Suggested Positions -

Short MINI stock @ $38.80 exit $37.23 (+4.0%)

10/14/14 planned exit
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

chart:


Raven Industries - RAVN - close: 23.48 change: +0.37

Stop Loss: 23.75
Target(s): To Be Determined
Current Option Gain/Loss: +2.6%
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:
10/14/14: Today's oversold bounce in RAVN was enough to trade above its 10-dma. Our stop was hit at $23.75.

Our trade is closed but I would keep RAVN on your watch list. We might see another bearish entry point down the road.

- Suggested Positions -

Short RAVN stock @ $24.39 exit $23.75 (+2.6%)

10/14/14 stopped out
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

chart: