Option Investor
Newsletter

Daily Newsletter, Thursday, 10/16/2014

Table of Contents

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

Market Wrap

Mr. Toad's Wild Ride

by Thomas Hughes

Click here to email Thomas Hughes
The market experienced another wild day of trading while Ebola fears cloud long term economic trends.

Introduction

The market experienced yet another day of wild trading. The major indices dropped over 1% at the open only to bounce of support again. Like yesterday, the wild swing in stock prices was led by the small caps and transportation. Ebola fear has gripped the market, or is being used as an excuse, but long term economic trends remain intact. Today's data reveals that there is some slowing but activity in general remains positive and expansionary.

Early morning trading was likely affected by Europe and Asia. Both of those markets were sharply lower. There weren't any major headlines out of Asia but Greece has emerged as an issue in the EU again. The country may be exiting the bail-out sooner than expected, counter to current plans, in order to stave off a change in governing parties. Other factors at play overseas are rising fear of deflation in Europe.

Market Statistics

Index futures were indicated sharply lower from the earliest. The S&P 500 and Dow Jones Industrials were both more than 1% lower. This moderated somewhat throughout the morning but was largely unaffected by data or earnings. Stocks fell at the first ring of the bell with decliners outpacing advancers by more than 9:1. The negative spin did not last long, the market rose from the first trade and climbed steadily higher throughout the morning. By mid day all the majors indices were in the green. They hit the daily high around 1:45PM then moved lower to test support, bounce and then hover just above break even into the close. Only the Dow was unable to remain positive today. It looks to me like there is some stock picking going on, particularly among the small caps and transports. Based on CSX's projections for double digit growth next year I can understand why.

Economic Calendar

The Economy

There were quite a few economic events today. All were positive although a few showed some decline. The weekly jobless claims was a positive surprise, falling against expectations to a near 15 year low. Claims fell by -23,000 from last week's unrevised number to come at 264,000, analysts had been expecting a gain of about 7,000. This is the lowest since April, 15 2000 and yet another sign that job losses and turnover are slowing. The four week moving average also fell, losing -4,250 and coming in at 283,500, also a near 15 year low. Claims rose on a not adjusted basis, by 5%, but much less than expected. Seasonal factors had been expecting a gain closer to 15%. The biggest gains in new claims occurred in NY, TX and CA for a net increase of 8,554. The biggest declines in new claims were in OK, ID for a total of -314.

Continuing Claims rose by 7,000 this week. This is from an upward revision of 1,000 to 2.389 million. The four week moving average fell, in line with the recent down tick in claims, by -10,000 to 2.403 million and another new low. This low dates back to June of 2006 and will likely be broken in the coming weeks, initial claims are falling and that usually leads to a decline in continuing claims. This will also likely show up as a decline in total claims, which fell in this weeks data. The total number of Americans on unemployment fell by -38,946 to a new low of 2.088 million.


Industrial Production and Capacity Utilization figures were released at 9:15AM. Industrial production rose 1%, more than double the expectations. On a year over year basis production is also up, by 3.2%. The gains were led by mining, manufacturing and utilities. Capacity Utilization also rose more than expected. This figure rose 0.6% to 79.3% versus an expected utilization rate of 79%, 10% higher than last year in the same month.


The Philadelphia Federal Reserve Manufacturing Business Outlook Survey declined this month but was better than expected and expansionary. The diffusion index declined by nearly 2 points to 20.7, still positive and showing steady expansion in the region. This decline follows a four year high set last month. The current activity, shipments and employment components all declined this month but new orders rose and the future outlook remains positive.

The National Association Of Home Builders Index of Home Builder Confidence fell 5 points this month, after posting four straight months of gains. The index fell to 54 from 59 and is still indicating expansion. Current conditions and home buyer traffic were both reported lower for the month but according to NAHB chairman Kevin Kelly this dip merely returns us to trends set earlier this summer and is “in line with the gradual pace of the housing recovery.” The dip in this index is also not too surprising as the previous month was a 9 year high.

The Oil Index

Oil added it's own spin to the market today. The roiling issues plaguing the oil market persist and sent prices first down by over -1.5% and then up by over 1.5%. During the early part of the session prices fell below $80, for about 15 minutes, when buyers stepped into the market. It is not clear if this was physical buying, short covering or speculation but the move carried oil back to $85 where it met resistance. I don't know where oil is going from here but someone thinks $80 oil is a good price.

The Oil Index has been suffering from the decline in oil prices and today bounced from a long term support. The index climbed more than 2.25% after initially opening sharply lower. The index moved up from a long term support line, broke above resistance and held that level into the close. The indicators remain bearish but are retreating from a peak. This could be a bottom, maybe even the bottom, but the indicators are convergent with the decline so I would expect to see prices retest support before moving higher.


The Gold Index

Gold traded in a range today, but not quite as wildly as oil. Prices hovered in a $10 range around $1240 and closed even with the open, creating a spinning top. Near term momentum is up and may increase in the near future but there is some resistance around $1250, as evidenced by yesterday's action.

St. Louis Fed President Jim Bullard suggested today the Fed could, or should, continue QE past October. This could be done by not tapering the final $15 billion or even by increasing purchases. His reasoning was the Fed should continue to taper while the market is selling off in order to see how it would affect economic conditions. He of course said the decision was data dependent which from my view, is still improving and not indicative of a Fed that will be adding to QE anytime soon.

The Gold Index traded in similar fashion, creating a doji-like spinning top with noticeable wicks at both ends. This is the smallest candle formed by the index since dropping below the $80 support level. The index has been consolidating and appears to be nearing a point of possible equilibrium. The indicators are bullish but could be setting up for another bearish signal. At this point the index is still below long term support within a long term downtrend so it looks more likely for the index to continue lower than it does to move up. However, the index is tied to gold prices. If conditions develop to lift gold back above $1250 then the index could break above resistance. Most of the senior miners are scheduled to start reporting the week after next. Resistance is at $80 with a downside target near $65 if resistance holds.


In The News, Story Stocks and Earnings

Apple was in the news again, surprise surprise. The held another product launch and made some announcements that will surely impact earnings in the current quarter. They launched the iPad air. It is super thin and super cool looking but still just another iPad. They announced that developers would be able to start working on apps for the iWatch next month which will give them a few months lead in order to create the apps that will power the device. Most importantly and why I saved it for last Tim Cook announced that Pay would start working on Monday. Alongside this is the news that 500 banks are now supporting the service. This will be a cash cow for Apple as they are projected to receive $0.15 of every $100 spent using Pay. Shares opened lower along with the broader market this morning, traded higher but were not able to hold it. Prices fell back to close just above $95.


United Health Care reported that revenue and earnings both grew more than 20% on a year over year basis. This resulted in a 7% increase in earnings over the same period last year. The results and current performance caused the company to raise full year guidance to just above previous guidance. Shares of the stock jumped more than 4% today, breaking the $85 level. The indicators are line with a move toward resistance but not very strong, it could be range bound with $85 as a potential pivot point. Resistance is around $87.50 with support near $80.50 and the bottom of yesterday's candle.


Delta Airlines reported this morning as well. The air carrier reported better than expected top and bottom line results on a number of factors including increased passenger and cargo revenues and higher gross margins. The company reported $1.20 per share, 2 cents ahead of the projections. The company expects passenger and cargo trends to continue into the next quarter and is expecting to see more growth in 2015. Shares of the stock moved more than 2.5% higher in today's action coming to a one week high. The indicators are bearish in the near term but momentum has peaked and may be turning. Stochastic is showing support along the $30 level with $35 potential resistance. It looks like this one wants to move higher, and low oil is helping it, but the Ebola issue could hold it back in the near to short term.


BB&T reported $0.71 per share this morning, in line with estimates. The company reported strong loan and core deposit growth and primary drivers of the result. Fee income and improvements to credit quality are also mentioned in the report. Improvements to business and traffic are going to be aided in the coming quarters by an expansion into new territories such as Texas and Kentucky. Shares of the stock fell on the news before the open, in line with the broader market, moved lower after the open and bounced from support just beneath $35. The bounce was strong but not strong enough to regain yesterday's closing price. Resistance is now at $36 with increasing bearish momentum and stochastic setting up for a potential bearish signal, a combination pointing to a test of support.


The Indices

As today's title implies, the market went on another wild ride. First, early sellers brought them down by more than -1%, then later buyers sent them right back up with overall movement on many of them over 2% for the day. I'll start with the Dow Jones Industrial Average. This is the only major index to close in the red. The blue chips lost -0.15% after trading in a range close to 3% of index value. Today's action created a nice doji that appears to be confirming support at 16,000. This is the second day of trading in which price action crossed this level, bounced and created a long lower shadow. Bearish momentum is still on the rise so further testing of support could occur but for now it looks like support is there. Stochastic has yet to fall below the signal line and in fact has been trending flat just above it for a few days, another indication of support. The question is what kind of support is it and what kind of news will emerge to help or hinder it? This could be a bounce but I would like to see the index get above 16,250 before making any bets. Resistance is 16,250 with support at 16,000.


The SPX closed just about as close to break even with being break even as it can get. The index finished higher by just over 1 point, or 0.01%. The broad market traded in a range over 2% today, creating a small bodied candle with long upper and lower shadows. This is very similar to market action in the Dow Jones and likewise, is confirming an area of support near 1850. The index is below some potentially important resistance levels but creating a nice looking entry point for the near term. Momentum has just peaked from a long term extreme while stochastic is making a bullish crossover. Additionally, stochastic never fell below the lower signal line indicating some underlying strength. If support holds the index could move as much as 40 points higher in the near term, with 1900 as likely resistance.


The NASAQ Composite also closed just above break even. The tech heavy index gained only 0.05% in today's session. Unlike the first two indices, this one opened at support and moved higher all day, closing just shy of the top of the candle. Total movement for the day: over 2.75%. This index is finding support along the 4,100 level after breaching 10% correction yesterday and today. The indicators are bearish, below resistance and the recently broken trend line, but at very extreme levels. Well, momentum at least. It is at an extreme bearish peak and convergent with a retest of support but stochastic is like the others and showing longer term support. Prices could very easily snap back from here and move up to the 4,400 level in the near term. Risks are Ebola headlines and earnings, which could lead all the indices lower.


Now, on to the transports. The Dow Jones Transportation Average gained 1.12% today, more than a full percent ahead of the others. Today's move is a follow up to a test of support that occurred with yesterday's candle. Yesterday's action in the transports is very similar to today's action in the SPX, DJI and COMP which makes today's action look pretty good. The index is moving up from support at 7,750 with indicators consistent with a trend following bounce, assuming the correction is over or near over. Based on the report from CSX yesterday I think that the long term trend will take over eventually, once the Ebola fears calm down.


I don't typically do the Russell 2000 but today I will. The small cap index gained 1.25% today, after trading in a 3% range, to break above resistance. The indicators are in line with a trend following signal and are about to fire with strength. MACD is about to cross the zero line and stochastic is about to make a strong bullish crossover, one in which %K crosses %D when %D crosses above the lower signal line. Out of all five this index looks the most bullish and in line with prevailing trends. The Russell led us into this correction and this chart looks like it is leading us out of it too. An added positive, and maybe I'm grasping at straws, is that the correction in this index, based on the indicators, was not very strong.


Price action today looks pretty positive. The correction may not be over, there could be some more downside, but it looks like we have found some solid support. It's not likely we're going to see the market bounce straight up but a bounce is brewing. The number one near term risk is Ebola. The wrong headline at the wrong time could send the market back into a tailspin. However, keep in mind that despite Ebola fears and sluggish, slow growth in the rest of the world America is still growing. The economic trends are up, expansionary and gaining traction.

Until then, remember the trend!

Thomas Hughes


New Plays

Relative Strength

by James Brown

Click here to email James Brown


NEW BULLISH Plays

The Pantry, Inc. - PTRY - close: 24.08 change: +0.05

Stop Loss: 22.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 190 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
This is a simple relative strength trade. PTRY has been almost bullet proof against the market's recent weakness. Instead of following the major indices lower PTRY has soared to new four-year highs.

The company website says, "Headquartered in Cary, North Carolina, The Pantry, Inc. is a leading independently operated convenience store chain in the southeastern United States and one of the largest independently operated convenience store chains in the country. As of September 25, 2014, the Company operated 1,518 stores in thirteen states under select banners, including Kangaroo Express, its primary operating banner. The Pantry's stores offer a broad selection of merchandise, as well as fuel and other ancillary services designed to appeal to the convenience needs of its customers."

PTRY is a small cap stock that has been dead money for years. That seemed to change with their last earnings report. When PTRY delivered earnings on July 30th they beat estimates on both the top and bottom line. The stock soared and broke out past key resistance. Several analysts have raised their earnings estimates on PTRY since that report.

Shares are currently hovering just under short-term resistance at $24.40. We are suggesting a trigger to launch small bullish positions at $24.50. I am suggesting small positions to limit our risk. Looking at a long-term weekly chart of PTRY you could argue that the $25.00 level might be resistance. We will try and limit our risk with a stop loss at $22.90, just under today's low.

Trigger @ $24.50 *small positions to limit risk*

- Suggested Positions -

Buy PTRY stock @ (trigger)

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

Buy the DEC $25 call (PTRY141220c25) current ask $1.55

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

Annotated Chart:



In Play Updates and Reviews

Quite A Few Bounces Today

by James Brown

Click here to email James Brown

Editor's Note:
The performance in the large cap indices was not that impressive but there were plenty of stocks rebounding higher today.

MRO hit our bullish entry trigger.

Several bearish plays were closed today. CBS, GEOS, JCI, RIG, and RKT all hit our new lowered stops.


Current Portfolio:


BULLISH Play Updates

Marathon Oil - MRO - close: 33.50 change: +0.77

Stop Loss: 31.30
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
Entry on October 16 at $33.15
Listed on October 15, 2014
Time Frame: Exit prior to earnings on Nov. 3rd
Average Daily Volume = 5.5 million
New Positions: see below

Comments:
10/16/14: Our new bullish trade on MRO is off to a strong start. Shares outperformed the broader market with a +2.35% gain today. Our trigger to open positions was hit at $33.15.

Earlier Comments: October 15, 2014:
Oil and energy stocks have been crushed in the last several weeks thanks to plummeting crude oil prices. Oil recently hit new four-year lows. Investors are worried this collapse in oil prices will impact margins for the producers. We won't know until earnings results come out but right now the sell-off in shares of MRO look extremely overdone. The stock has collapsed from multi-year highs near $41.50 to new 2014 lows near $31 in less than two months. That's a 25% correction (and technically a bear market).

MRO is a global energy company. They explore for, produce, and market oil and natural gas. They are also involved in the oil sands mining in Canada and the big shale oil and gas basins in the United States. The company has operations in Angola, Equatorial Guinea, Ethiopia, Gabon, Kenya, Libya, Norway, the United Kingdom, and the Kurdistan region of Iraq.

Today shares of MRO briefly traded below their 2014 lows set in February this year around $31.60. The double bottom intraday in the $31.35-31.40 area looks like a potential bottom. We want to speculate on an oversold bounce. I do consider this a more aggressive, higher-risk trade so keep position size small.

We are suggesting an entry trigger at $33.15. Plan to exit prior to MRO's earnings report in early November.

- Suggested Positions -

Long MRO stock @ $33.15

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

Long NOV $33 call (MRO141122c33) entry $1.90*

10/16/14 triggered @ 33.15
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Noodles & Co. - NDLS - close: $21.66 change: -0.05

Stop Loss: 19.90
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
Entry on October 15 at $21.21
Listed on October 14, 2014
Time Frame: 3 to 5 weeks
Average Daily Volume = 444 thousand
New Positions: see below

Comments:
10/16/14: NDLS saw a brief spike lower at the open but shares spent most of the day consolidating sideways. The next challenge for the bulls is getting past the late August highs in the $22.00-22.60 area.

Earlier Comments: October 14, 2014:
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.

- Suggested Positions -

Long NDLS stock @ $21.21

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

Long NOV $22.50 call (NDLS141122c22.5) entry $1.20*

10/15/14 triggered @ 21.21
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Jacobs Engineering Group - JEC - close: 45.23 change: -1.49

Stop Loss: 48.25
Target(s): To Be Determined
Current Option Gain/Loss: + 1.4%
Entry on October 15 at $45.88
Listed on October 13, 2014
Time Frame: 3 to 6 weeks
Average Daily Volume = 1.0 million
New Positions: , see below

Comments:
10/16/14: It was a good day for JEC bears. The stock's bounce attempt failed under its 10-dma again. Shares settled at new lows with a -3.1% decline. Today's move looks like a new bearish entry point.

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.

*consider small positions to limit risk*

- Suggested Positions -

Short JEC stock @ $45.88

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

Long NOV $47.50 PUT (JEC141122P47.50) entry $2.65*

10/15/14 triggered on gap down at $45.88, suggested entry was $46.15
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Knowles Corp. - KN - close: 19.55 change: +0.45

Stop Loss: 20.30
Target(s): To Be Determined
Current Option Gain/Loss: +24.1%
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:
10/16/14: KN bounced back toward round-number resistance near $20.00 and stalled. Tonight I'm inching our stop loss down to $20.30. More conservative investors may want to just take profits now.

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*

10/16/14 new stop @ 20.30
10/15/14 new stop @ 20.65
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


SodaStream Intl. Ltd. - SODA - close: 21.09 change: -0.12

Stop Loss: 21.75
Target(s): To Be Determined
Current Option Gain/Loss: +5.4%
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:
10/16/14: SODA did not see a lot of follow through on its prior two-day bounce. Shares stalled at short-term resistance near $21.50. I don't see any changes from my prior comments.

Traders may want to take profits early now. 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

CBS Corp. - CBS - close: 51.18 change: +0.43

Stop Loss: 51.05
Target(s): To Be Determined
Current Option Gain/Loss: + 6.8%
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:
10/16/14: After a seven-week drop it looks like shares of CBS are finally seeing an oversold bounce. Shares spiked above their 10-dma today and hit our stop loss at $51.05. I warned readers yesterday that we could get stopped out today.

- Suggested Positions -

Short CBS stock @ $54.75 exit $51.05 (+6.8%)

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

2015 Jan $55 put (CBS150117P55) entry $3.40* exit $5.90** (+73.5%)

10/16/14 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 @ 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

chart:


Geospace Technologies - GEOS - close: 31.18 change: +1.48

Stop Loss: 30.05
Target(s): To Be Determined
Current Option Gain/Loss: - 2.4%
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:
10/16/14: GEOS did not cooperate. The stock has produced a sharp, two-day bounce and shares hit our stop at $30.05 today. After yesterday's performance I warned readers we would likely get stopped out today.

NOTE: The option spreads have been pretty ugly the last few days with all the market volatility. That hurt us.

- Suggested Positions -

Short GEOS stock @ $29.35 exit $30.05 (-2.4%)

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

NOV $30 put (GEOS141122P30) entry $2.60* exit $1.25** (-51.9%)

10/16/14 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 @ 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

chart:


Johnson Controls Inc. - JCI - close: 40.69 change: +0.79

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: +10.5%
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:
10/16/14: I have cautioned readers the last few days that the $40.00 area might be round-number support for JCI. The stock managed a pretty strong bounce today and closed up +1.9%. Our stop loss was hit at $40.65.

Prior support in the $43-44 area should be new resistance.

- Suggested Positions -

Short JCI stock @$45.40 exit $40.65 (+10.5%)

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

2015 Jan $45 PUT (JCI150117P45) entry $2.25 exit $5.10* (+126.6%)

10/16/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
10/15/14 new stop @ 40.65
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

chart:


Transocean Ltd. - RIG - close: 30.15 change: +0.71

Stop Loss: 30.35
Target(s): To Be Determined
Current Option Gain/Loss: +20.5%
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:
10/16/14: Our bearish play on RIG has been one of our best trades of the year. After six weekly losses in a row RIG is starting to see an oversold bounce. Shares pierced their 10-dma and hit our stop loss at $30.35.

The put option trade on RIG, which we closed yesterday, probably was our best trade of the year (an estimated +2,333%).

- Suggested Positions -

Short RIG @ $38.20 exit $30.35 (+20.5%)

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

OCT $35 PUT (RIG141018P35) entry $0.27* exit $6.57 (+2,333.3%)

10/16/14 stopped out
10/15/14 new stop @ 30.35
10/15/14 planned exit for the October puts
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

chart:


Rock-Tenn Co. - RKT - close: 46.01 change: +0.87

Stop Loss: 46.10
Target(s): To Be Determined
Current Option Gain/Loss: -3.0%
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:
10/16/14: The bounce in RKT continued today with a +1.9% gain. Shares rallied up to their 10-dma intraday. Our new stop loss was hit at $46.10.

I would keep an eye on RKT. If this bounce fails in the $46-47 zone it could prove to be a new bearish entry point.

- Suggested Positions -

Short RKT stock @ $44.75 exit $46.10 (-3.0%)

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

NOV $45 PUT (RKT141122P45) entry $2.35* exit $1.70** (-27.6%)

10/16/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
10/15/14 new stop @ 46.10, caution, RKT has produced a potential bullish reversal pattern
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

chart: