Option Investor
Newsletter

Daily Newsletter, Monday, 10/20/2014

Table of Contents

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

Market Wrap

To Bounce Or Not

by Thomas Hughes

Click here to email Thomas Hughes
Poor results from IBM failed to curb today's rally.

Introduction

Trading today was mixed, right from the start. Asian markets were up on the US bounce last week, Europe was down on economic woe and US markets were just plain mixed. The early futures trade was positive, then terrible earnings from IBM sent them sharply lower. Before the bell traders figured out IBM was probably an isolated event and the futures moderated but did not indicate a positive open. IBM dropped more than 10% in the early morning session and helped to send the Dow down by more than 100 points. The Dow struggled to fully regain the loss attributable to IBM but the broader market was able to move into the green early on. The indices all moved steadily higher all day, knocking out a few near term resistance levels along the way.

The Ebola factor has retreated quite a bit since Friday. There were no negative developments over the weekend and the new czar has been met with mixed response. I have heard opinions ranging from one end of the spectrum to the other but no real news that I can find about what he has or is doing. What I can find is centered on the potential for political controversy, which is why I think he was hired in the first place. Regardless, no new patients have popped up and no new centers of possible contagion.

Market Statistics

There are quite a few things on the horizon that could affect the market this week. First, China will release 3rd quarter GDP numbers overnight tonight. Next, earnings are coming in full force. IBM reported a big miss this morning, shrugged off as an outlier event, but nonetheless damaging to the market. Next is economics. There is a little bit of data this week, some housing numbers, weekly jobless claims, CPI and leading indicators.

Next week is a much bigger week and one that may overshadow trading this week. Next Tuesday is the October FOMC meeting and Friday is the first estimate for 3rd quarter GDP. The Fed is expected to end the taper as planned, an idea supported by Fed president Rosengreen this morning. He says, counter to Bullard last week, that the Fed should end the taper on time, which is by all accounts this month, next week.

Economic Calendar

The Economy

There were no economic reports today, as is common on Monday. We did get the weekly Survey Of Business Confidence from Moody's and Mark Zandi. The weekly report is as it has been all year. He says that business sentiment in the US remains strong. South America is a little weak due to Brazilian elections, the EU due to poor economic conditions. In the US hiring intentions are strong and sentiment into the end of the year and 2015 remains high. The addition to take note of is that there is no evidence of Ebola, the recent market weakness or overseas economies affecting outlook in the US.

The Oil Index

Oil prices fell today during the early part of the session only to bounce back late in the day. WTI fell more than a dollar while Brent fell nearly two dollars from Friday's closing prices. Plenty of global supply combined with news of increases to infrastructure in places like Kurdistan and Iran helped to keep prices low. There weren't any new developments in the Saudi/OPEC story although a small field shared by Saudi Arabia and Kuwait was shut down due to environmental reasons. OPEC meets next month and is being closely watched for signs of production cuts and/or division among the members. Until then supply, data and the FOMC could have an impact on oil prices.

The Oil Index climbed today, after opening lower. The index gained about a half percent but fell short of resistance near 1425. The indicators are mixed but in line with support in the near to short term. Stochastic is making a weak bullish crossover, reflecting the bounce seen last week. MACD has made an extreme peak, coincident with the recent low, pointing to a likely retest of support. Bearish momentum is in decline at this time so I would expect it to hit resistance before testing support. In the near term there is support at 1400 with short to longer support below that around 1350. Resistance is currently at 1425.


The Gold Index

Gold prices extended their rally today, climbing about $5. Gold is now trading above $1240 and closing in on $1250. $1250 has provided both support and resistance in the past, most recently resistance just last week. Near term momentum is still to the upside and without a catalyst in sight could continue testing $1250. China GDP could spark a move in gold, as could US data this week, but I am looking to the FOMC next week and then 3rd quarter GDP as potential movers of the metal.

The Gold Index traded to the upside today as well, but is still trading near long term lows. The index has become dissociated with gold prices and is not bouncing higher off of its lows as is the underlying commodity. This is likely due to uncertainty over long term gold prices as well as upcoming earnings among the gold miners. The reports aren't going to be great but I think they won't be as bad as some may fear. Gold prices hit a low but the average realized price is likely to be in-line or below the previous quarter and costs should come down due to lower oil prices.

Poor earnings from the miners could send the Gold Index down to long term lows around $65. The current long term trend is down, the index is consolidating below resistance and is accompanied by indicators consistent with a trend following sell signal. Current support is around the $75 level and may hold until earnings begin to come out.


In The News, Story Stocks and Earnings

Earnings are the story of the week; there are at least 500 companies scheduled to report. So far, 82 of the 500 S&P 500 companies have reported. 68% of them have beaten the average estimate for earnings growth and 63% have beaten sales growth projections. This is slightly below average for EPS growth and slightly above average for sales growth. The current projections for Q3 earnings is growth of 5.1%., 0.6% above the projections last week, due largely to upside surprises in the financial sector. To date only 4 out of 10 sectors are above estimates but we are still early in the season. This week we can expect 118 reports from S&P companies, more than 10%, bringing the total up to 20% for the season. The next two weeks will bring an additional +50% of S&P companies so will be quite busy.

IBM was the top earnings name, at least before the closing bell. Big Blue reported top and bottom line earnings that were well below the average estimate, well below, very low. The news was not expected and cast many doubts on the turn-around plans for the company. One of the headwinds faced by IBM is the impact of cloud-based computing on its core business, in effect it is hurting itself. Shares of the stock were sold off during the pre-open session, sending prices down about 15%. Buyers stepped in throughout the day, driving prices off the lows but only recovering a few percentage points on more than four times average daily volume.


Valeant reported before the bell too. The pharma giant missed on revenues but beat on earnings by a fair margin. The company reported total revenue grew by over 30% from the previous comparable quarter, impressive nonetheless. They also reported organic sales growth of 19% with notable increases in some of its key brands. Company executives were also able to raise full year guidance to a range above previous guidance and Wall Street estimates. Shares of the stock rose nearly 2% in today's trading, moving up from the short term moving average.


Chipotle Mexican Grill and Apple both reported after the bell, and both beat the street, Apple soundly. Chipotle reported EPS of $4.18 versus an estimated $3.84 with an smaller beat on the top line. The fast casual chain reported comp sales up over 20% on a build in traffic, but also on an increase in prices that helped to maintain margins. Outlook for next year remains in line with current consensus. Shares of the stock traded all day ahead of the report and then fell in after hours trading on 2015 growth prospects.


Apple also beat the street, but by a much nicer margin. The gadgets company reported revenue and earnings above estimates as well as providing strong revenue guidance for the next quarter and full year. The results are driven, of course, by sales of the iPhone 6 and 6+ but also by strong performance across the entire suite of products. Shares of Apple traded higher all day and surged after hours, breaking above resistance, the $100 level and the short term 30 day moving average.


The Indices

The market took a big hit this morning when IBM reported earnings. The good news is that the market was able to shake it off in favor of other, more favorable reports. The initial drop in IBM caused a near 100 point decline in Dow futures, resulting in an 80 point drop at the open. Although it took the entire day, the Dow Jones was able to push its way off of the low and back into the green. The blue chips finished the day up by 0.12%.

Today's range was much smaller than it has been over the past week or so, and created a small bodied candle. Price action was not able to move above the intraday high set on Friday, which could become near term resistance for this index. The indicators are once again in line for a trend following entry, but it is still early and unconfirmed while at the same time the short term analysis suggest a retest of support. Bearish MACD is in retreat but also convergent with the recent correction and indicative of such a test of support. Support is indicated at 16,000 with a weaker support level just above that around 16,250. Stochastic is consistent with this analysis and showing the early, and weak, trend following bullish crossover. A retest of support could set the index and the indicators up for the stronger signal sometime the next week or two.


The NASDAQ Composite made the largest move today, gaining 1.35%. The tech heavy index was not impacted by IBM and created a long white candle. Price action in this index was able to break Friday's high but is still under, and approaching, potential resistance. The index has about 60 points to go before hitting the 14-year high set this past March. Indicators are identical to the Dow Jones; momentum remains bearish but is retreating from an extreme peak while stochastic is showing a bullish crossover and confirming longer term support.


The Dow Jones Transportation Average and the S&P 500 closed within a few hundredths of a percent from each other. The transports edging out the broader market by only 0.07% with a gain of 0.98%. The trannies were also unaffected by IBM's poor results, moving up 80 points from Friday's close. The index has now moved up 5 days in a row and is trading just beneath resistance. Unlike the first two, which have a little room to move higher before hitting resistance, this index closed just beneath the 30 day moving average and the June all-time high just below 8,225. The index appears to be leading the others higher on this bounce and that is evident in the indicators as well. The bearish MACD peak is in retreat and very nearly at the zero line, much closer than the others, and stochastic is showing the early signal with a small bounce off the lower signal line by %D. I don't think this is just a dead-cat bounce but I am expecting a retest of support in some form or another. Current resistance is 8,225 as mentioned with support at 8,000 and 7,750.


The S&P 500 made the smallest advance today, only 0.91%. Today's candle is a long white, but not overly strong, although it does break a potential resistance line at 1,900. While a good sign, I won't be convinced without a move past 1,925. In the meantime the index is moving upward, on the bounce, with indicators in line with an early trend following signal. This leads me to think the index will move up to resistance in the near term. However, like the others, the indicators are convergent with the correction and highly suggestive of a retest of support.


The bounce looks like it could be good, or at least like it wants to be good. The correction took us down to 10% in some cases and has presented many market participants with the entry they have been looking for many years. The FOMC or the GDP could be the catalyst but until then there has been some damage done to the market that will take some time to fix. The good news is that we are building a pretty good base. The economic trends are still up and earnings season, x-IBM, has been pretty good. There are still some near term headwinds and reasons to wait but I think at worst those will provide another entry. Don't forget, China GDP is tonight which will likely set the tone for early trading tomorrow.

Until then, remember the trend!

Thomas Hughes


New Plays

Another Short Squeeze Candidate

by James Brown

Click here to email James Brown


NEW BULLISH Plays

INSYS Therapeutics, Inc. - INSY - close: 39.03 change: +1.47

Stop Loss: 36.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 540 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
INSY is a short squeeze candidate. The company is part of the healthcare sector, more specifically biotechnology. They currently market two drugs. One is their Subsys, which is a sublingual fentanyl spray to quickly treat pain for cancer patients. Thus far the product seems to be off to a strong start. INSY also markets a generic Dronabinol product to help treat chemotherapy induced nausea as well as anorexia related to patients with AIDS.

INSY is also developing treatments with cannabidiol, which has made headlines in the past. Cannabidiol is a component of marijuana that does not provide patients with a high. INSY has been working with cannabidiol to develop a treatment for Dravet Syndrome, a form of childhood epilepsy.

INSYS was recently granted orphan drug designation for its cannabidiol treatment for glioblastoma multiforme, which is the most aggressive version of malignant brain tumors in humans. Yet this good news has been offset by bad news that the FDA rejected the company's application for a new Dronabinol oral solution. The feds claim INSY submitted an incomplete study plan on the treatment's safety.

There is also the spectre of a federal investigation. Shares of INSY collapsed back in May after it was unveiled that one doctor in Michigan was fraudulently prescribing hundreds of INSY's Subsys painkiller treatment. This has sparked an investigation into INSY' marketing practices.

Technically shares of INSYS have been trending higher with a pattern of higher highs and higher lows. The most recent low happened to be on the day investors reacted to the FDA rejection on its dronabinol oral treatment. INSY was down about -10% intraday and then rebounded to a huge gain (Oct. 15th).

If this rally continues INSY could see a short squeeze. The most recent data listed short interest at 68.6% of the extremely small 10.19 million share float.

Tonight we are suggesting a trigger to open bullish positions at $40.25. More aggressive traders might want to consider a trigger just above $39.50 instead.

Please note that I am labeling this a higher-risk, more aggressive trade. Biotechs are already dangerous do to headline risk. INSY could be volatile with all the short interest.

Trigger @ $40.25 *Small positions to limit risk*

- Suggested Positions -

Buy INSY stock @ (trigger)

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

Buy the NOV $45 call (INSY141122c45) current ask $1.50

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

Annotated Chart:



In Play Updates and Reviews

Traders Were In A Buying Mood Today

by James Brown

Click here to email James Brown

Editor's Note:
Investors quickly bought the dips this morning and the market delivered a relatively widespread gain.


Current Portfolio:


BULLISH Play Updates

Marathon Oil - MRO - close: 34.26 change: +0.33

Stop Loss: 31.30
Target(s): To Be Determined
Current Option Gain/Loss: +3.3%
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:
10/20/14: MRO continues to rebound and just posted its fourth gain in a row. Yet shares are still struggling with short-term resistance at its 10-dma.

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: $22.66 change: +0.60

Stop Loss: 20.75
Target(s): To Be Determined
Current Option Gain/Loss: +6.8%
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:
10/20/14: The rally in NDLS seems to be getting stronger. The stock outperformed the market with a +2.7% gain and closed above potential resistance at its late August highs.

The 10-dma has risen to $20.92. We will move the stop loss up to $20.75.

I am not suggesting new positions at this time.

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*

10/20/14 new stop @ 20.75
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


The Pantry, Inc. - PTRY - close: 24.00 change: +0.10

Stop Loss: 22.90
Target(s): To Be Determined
Current Option Gain/Loss: -2.0%
Entry on October 17 at $24.50
Listed on October 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 190 thousand
New Positions: see below

Comments:
10/20/14: PTRY saw a spike down at the open but the weakness didn't last long. Shares recovered but spent most of the day drifting sideways.

Investors might want to look for a new rally past $24.25 or $24.55 before initiating new positions.

Earlier Comments: October 16, 2014:
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.

*small positions to limit risk* Suggested Positions -

Long PTRY stock @ $24.50

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

Long DEC $25 call (PTRY141220c25) entry $1.60*

10/17/14 triggered @ $24.50
*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


The ExOne Company - XONE - close: 21.97 change: -2.00

Stop Loss: 20.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 626 thousand
New Positions: Yes, see below

Comments:
10/20/14: Ouch! Most of the 3D printing stocks traded lower today. DDD was the exception with a gain. XONE was a significant underperformer with a -8.3% decline. I don't see any news to account for today's relative weakness. If shares don't recover soon we'll drop it as a candidate.

Earlier Comments: October 18, 2014:
This is a technical trade because the fundamentals are just not there for XONE. The last couple of earnings reports have been terrible. Revenues are hit or miss. The last quarterly report from XONE showed revenues up +21% over a year ago but gross margins were almost cut in half (45% down to 22% margins). Net income has been missing estimates.

Who is XONE? They are part of the new 3D printing industry. XONE provides services and printers for the industry. The whole group, with maybe the exception of SSYS, has been struggling. Yet the 3D printing stocks have also seen a huge bounce in the last couple of weeks. Of course that might be all short covering.

It is the high short interest that makes XONE an interesting bullish candidate. If this market bounce continues then this stock could see another big short squeeze. The most recent data listed short interest at 45% of the very small 8.7 million share float.

Right now the oversold bounce in XONE has stopped at round-number resistance near $25.00 and technical resistance at its simple 50-dma. A breakout could spark a big move higher. However, this is a volatile stock. We could just as easily see XONE spike to a new high above $25 and then reverse sharply lower. Look at the intraday range on the last couple of sessions. If you can't handle that much volatility then this may not be the trade for you.

(NOTE: You could check out shares of VJET. They have a similar pattern and could also see a big short squeeze but VJET is a little less volatile and has less short interest.)

We should consider this a higher-risk trade. Tonight we're listing an entry point to open bullish positions at $25.35. We'll use a stop a little below Friday's low. You may want to use the call options to limit your risk.

Trigger @ $25.35 *Small positions to limit risk*

- Suggested Positions -

Buy XONE stock @ (trigger)

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

Buy the NOV $25 call (XONE141122C25)

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




BEARISH Play Updates

Jacobs Engineering Group - JEC - close: 45.40 change: -0.56

Stop Loss: 48.25
Target(s): To Be Determined
Current Option Gain/Loss: + 1.0%
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:
10/20/14: JEC did not see any follow through on Friday's bounce. Instead shares reversed and underperformed with a -1.2% decline.

Traders may want to consider a breakdown under $45.00 as an alternative 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: 18.71 change: -0.11

Stop Loss: 20.30
Target(s): To Be Determined
Current Option Gain/Loss: +27.3%
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:
10/20/14: KN tried to rally this morning but the spike failed near $19.60. KN closed near its lows for the session, which does not bode well for tomorrow.

Investors may want to start taking some money off the table. KN is now down -43% from its late August high (about seven weeks ago).

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


Mistras Group - MG - close: 16.11 change: +0.01

Stop Loss: 17.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 81.5 thousand
New Positions: Yes, see below

Comments:
10/20/14: MG spent all day long testing support near the $16.00 level. Shares did hit an intraday low at $15.96. Our suggested entry point is $15.85. I don't see any changes from my prior comments.

Earlier Comments: October 18, 2014:
MG is in the services sector. The company evaluates the structural integrity of infrastructure. A company press release describes MG as "a leading 'one source' global provider of technology-enabled asset protection solutions used to evaluate the structural integrity of critical energy, industrial and public infrastructure. Mission critical services and solutions are delivered globally and provide customers with asset life extension, improved productivity and profitability, compliance with government safety and environmental regulations, and enhanced risk management operational decisions."

Unfortunately, for MG investors the company is developing a habit of missing Wall Street's earnings estimates. They've missed three quarters in a row. Their most recent report was October 7th. Wall Street expected a profit of 12 cents a share. MG only delivered 4 cents.

This big earnings miss produced the spike down you see on the daily chart. There has been almost zero bounce and now MG has drifted lower to major support at the $16.00 level. A breakdown here would be very bearish. The Point & Figure chart is already forecasting a long-term bearish target of $6.00.

Tonight we are suggesting a trigger to launch bearish positions at $15.85. I am suggesting caution. This stock does not trade very much. Average volume is very low. That should make traders cautious. I'm suggesting very small positions or try and put options to limit risk.

Trigger @ $15.85 *Very small positions to limit risk*

- Suggested Positions -

Short MG stock @ (trigger)

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

Buy the NOV $17.50 PUT (MG141122P17.50)

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


SodaStream Intl. Ltd. - SODA - close: 20.78 change: -0.12

Stop Loss: 21.60
Target(s): To Be Determined
Current Option Gain/Loss: +6.8%
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:
10/20/14: The weakness in SODA continues with shares failing at its 10-dma. 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

10/18/14 new stop @ 21.60
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