Option Investor
Newsletter

Daily Newsletter, Thursday, 10/23/2014

Table of Contents

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

Market Wrap

Earnings Trump All

by Thomas Hughes

Click here to email Thomas Hughes
Once again, a slew of strong earnings trump fear

Introduction

Although international markets began the day weak, a slew of strong earnings from some major US companies spurred US markets higher. Companies including GM, ComCast, 3M, United Airlines and maybe most importantly Caterpillar all reported strong earnings, top and bottom line. The reports, coupled with the forward looking statements, helped propel today's rally. Economic data also played a part. Jobless claims rose, but only slightly, in the near term but continue to decline in the longer term. Also, the Leading Indicators suggest that the pace of growth increased in October.

Market Statistics

The day started with Asian indices flat to negative on a mixed CPI reading. The headline, 50.4, is expansionary and at a 3 month high but within the data factory orders have fallen to a 5 month low. This data had a mild affect on European markets as well but was eventually shrugged off in favor of other positive factors.

Index futures were indicated higher from the earliest part of the morning aided by a lack of bad news. Once earnings began to come out the indices all began to drift higher, reaching a peak just before the 8:30AM release of data. The SPX was indicated higher by about 17 points and then added to that following the data and going into the open of trading. Market breadth was high, with over 90% of S&P companies trading higher, after the opening bell.

The market was up more than 1% in the first 15 minutes and added to that gain into the first of hour of trading. Rally mode was in full effect today, the market marched higher all day until hitting a peak around 2:30, just before reports a Dr. in New York was being tested for Ebola. This news was shrugged off but could emerge as a headwind if the test is positive. The market retreated from the high on the news but held onto to most of today's gains.

Economic Calendar

The Economy

Today's data was dominated by jobless claims. Initial claims for unemployment rose by 17,000 from a 2,000 claims upward revision to last weeks data. This week initial claims were reported at 283,000, still well below the 300,000 level I have been watching all year. The four week moving average continued to decline, showing the underlying trend in the numbers. This week's average of 281,000 is the lowest level since May,6, 2014. The jump in claims this week is mild and does not break the trend. Overall, initial claims are in decline and have been doing so ever since dropping below 300K. This is evident in the continuing and total claims numbers.

Continuing claims fell by 38,000 from last weeks un-revised number. This is the lowest level of continuing claims since December 23, 2000. The four week moving average also declined, setting a new low. Total claims fell by 15,056 to 2.073 million. This is also a new low and an extension of the down trend in total unemployment claims we have seen all year. Based on these numbers I have to say I think that NFP will be steady to strong when it comes out in two weeks, and that unemployment should fall. I also think this has positive spin for GDP estimates which are due out next Friday.


On a not-adjusted basis claims fell -6.7% this week, about half of the expected decline. On a year over year basis claims are down more than -18%. Pennsylvania, Michigan and Texas led with increases in claims of +4,000, 3,210, and 1,615 respectively. Pennsylvania reported the increase is due to administrative and support positions, waste management and remediation, construction and food service. No mention of oil industry or affiliated jobs. I bring this up because of the drop in oil prices and speculation of the impact on US shale oil businesses. Iowa and Florida had the biggest declines, -781 and -640.

The Conference Board released their reading of the Index of Leading Economic Indicators at 10AM. The index rose by 0.8%, ahead of last month's un-revised reading of 0.0% and July's increase of 1.1%. The Coincident Index rose by 0.4% and the Lagging Index rose by 0.1%. The reading shows an increase in strength and could lead to a stronger than expected GDP number next week. “The outlook for improving employment and further income growth are expected to support the moderate expansion in the U.S economy for the remainder of the year.” said Ataman Ozyildirim, Economist at The Conference Board.

Tomorrow the only release is New Home Sales. This could be a positive surprise, based on the better than expected existing home sales figures. Next week is when things could get really hot, on the economic front at least. The FOMC meeting is on Monday/Tuesday and the 3rd Quarter GDP 1st estimate is Friday. Current estimates are between 2.5% and 3.0%, depending on the source.

The Oil Index

Oil prices moved higher today, climbing by more than 1%. Better than expected economic data and earnings are largely the cause. WTI moved higher but Brent was the star of the day, gaining nearly 2%. Additional factor affecting oil today are new signs of division between OPEC members. The Libya OPEC minister is the latest member calling for cuts to production, counter to the stance apparently being taken by Saudi Arabia. Today's move up confirms near term support but does not represent a long term base just yet. OPEC meets in two weeks, beginning November 6th, and could very well reduce production.

The oil sector got a lift from stabilizing oil prices and then moved higher along with the broader market. Today's move brought the Oil Index up by roughly 1.85% but did not break yesterday's high. The index is moving higher in the near term but the bounce may be losing some steam. It is trading below a potentially strong resistance level near the 1480-1500 level and is ripe for profit taking. I'm still anticipating a retest of support, based on convergence with MACD, which could take it down to 1,425 or 1,400. The big oil companies begin to report next week so there may be sideways trading until then.


The Gold Index

Gold prices fell today. Strong economic data put to rest, I think, any lingering thought that the Fed would extend QE next week. This, along with stronger dollar and a lack of safety-seekers, helped to drag gold down by just over -1.25%. Spot prices finished the session just below $1230, after briefly touching $1250 two days ago. I think gold prices may now hover near this level, perhaps in a range between $1200 and $1250, because of two reasons. First, the end of taper and QE. This will/has been strengthening the dollar and should continue to do so. Stronger dollar typically leads to weaker gold. Second, interest rates are bound to come up soon. Strong data that leads to the end of QE and stronger dollar also leads to inflation and that leads to investment in gold; gold as a hedge against inflation. Unless one side or the other gets a clear indication of future direction prices are likely to remain volatile

The gold sector fell today, along with the underlying commodity, and could be leading the way lower. The Gold Index broke below the lower boundary of its near term triangle consolidation pattern and dropped below $75. The index is moving lower, in line with the long term down trend, with targets around $70 and $65. Both stochastic and MACD are consistent with this signal. Near term risks include the FOMC meeting and how they impact gold prices along with earnings due out next week. I suspect that the reported quarter will not be as bad as feared but outlook for the current quarter and next could be diminished.


In The News, Story Stocks and Earnings

Earnings stoked the rally before and after the bell. At least a dozen important names reported today, including GM, Caterpillar and 3M before the open and Microsoft, Pandora and Amazon after the close. Aside from isolated areas of weakness, earnings continue to be good, if not great. GM, Comcast, 3M, United Airlines, Microsoft and Caterpillar all reported above expectations, Caterpillar probably being the most impressive. The international equipment company reported earnings of $1.72, about 21% above expectations. The company reported strong sales as well as improvements to operations and margins. The gains were made on a large improvement in mining as well as oil service equipment. Shares of the stock jumped in the pre-market session and extended the move to over 5% during the day. The stock is now trading just below potential resistance at $100.


United Airlines also reported a substantial improvement to earnings. The airline earned $2.75 in the quarter, $0.07 above expectations. The gains are due to increases in traffic and revenues along with reduced costs. Ancillary revenue per passenger increased by 10% while cargo revenue increased nearly 20%. The increase in cargo is interesting in light of UPS recent announcement that they expect to see record volumes this holiday season. If so United Airlines could see a similar increase of traffic into the end of the year, further boosting revenues. Shares of the stock fell during the pre-market but regained the loss during the day. Shares moved into the green and gained nearly 2% by the end of trading. Today's move brought the stock up to potential resistance at $50. Near term momentum is still to the upside with a target for more substantial resistance near $52.50.


Microsoft traded higher during the open session but was capped at resistance. The stock tried to move above $45 but was pushed back while traders waited for earnings to be released. Wall Street expected earnings in the range of $0.48, about a dime less than last quarter. Actual results were much better than expected though and helped to boost shares above $45. Revenue of $23.20 billion is more than $1B, roughly 5%, ahead of estimates and expected to remain strong into the end of the year.


Amazon was expected to report a much larger loss than last quarter and yet another quarter without a profit. Amazon did not disappoint, in fact, it did not disappoint too much. The online retail giant fell short on revenue and earnings, earning less and losing more than expected. Forward guidance is also short of expectations, based largely on shortfalls in media revenue.The stock has been under pressure for several months, ever since raising the price on the Prime service, and will likely remain so. Today's action kept share price just above break even until after the release at which time it dropped -5% instantly, then extended that to -10%. I would expect to see more downside in this name tomorrow.


The Indices

The market started higher today, was boosted by earnings and kept on moving. The only thing to stand in the way today was a new Ebola headline. As of yet there is no word if the Dr. has Ebola or not but the important thing is that the market did not go running for the hills. Today's move was led by the Dow Jones Transportation Average. This is not surprising given the strong earnings from UAL today along with other reports so far this season. The outlook for the transportation is good and only getting better. Everything I see, read and hear points to improving traffic flow, revenues and earnings.

The Trannies moved more than 2% today, piercing resistance at 8,500 and creating another long white candle. The index has been marching steadily higher since hitting bottom two weeks ago and is indicated higher. It is beneath resistance at the moment and in possible consolidation but the indicators are strong. I'm gonna be watching the range between 8,250 and 8,500 over the next few days with the thought it could break to the upside. If so, this would be an upside target on the index about 750 points above the current level.


The NASDAQ Composite was another strong index among a day of strong movement. The tech heavy index climbed 1.60% today, moving above one resistance line only to come a little short of the next. Regardless, today's move extends the move above the recently regained long term trend line and is accompanied by bullish indicators. Stochastic is currently moving higher while confirming long term support and MACD momentum is on the rise. Upside target for next potential resistance is around 4,490-4,500 with support expected along the trend line around 4,400. Tomorrow could be volatile as traders move in and out of Microsoft, Amazon and Pandora which all released after the bell.


The Dow Jones Industrial Average powered 1.32% higher today. The blue chip index moved above yesterday's high and met resistance at 16,750. Today's action turned the indicators bullish so it looks likely the index will be testing resistance again. MACD made the bullish zero line crossover and stochastic %D is moving higher following the early signal. It is possible this resistance level could hold tomorrow, going into the weekend ahead of the FOMC meeting, but I think the market is going higher in the short to long term.


The SPX brought up the rear today with a gain of only 1.23%. Despite this shortcoming the broad market was able to move back above the long term trend line before meeting resistance. The index touched my resistance near 1965 and then fell back, but was able to hold above the long term trend line. The indicators are bullish and pointing higher so I am expecting a test of resistance at least. Longer term there is still a chance, even a likelihood, for the index to retest long term support but it just isn't happening yet that I can tell.


The market moved steadily higher today, driven by earnings and economic trends. Earnings are coming in ahead of expectations and labor market trends continue to improve. Tomorrow there will be more earnings and more economic data so the upward trend in equity prices could continue. The only economic data expected is new home sales and there is a chance for positive surprise.

Earnings reports delivered today after the bell will affect early trading tomorrow along with others from names like Bristol Meyers and Ford. Poor reports could stall the rally but there are other hurdles as well. The FOMC is on Tuesday and that may keep short term traders out of the market over the weekend.

Until then, remember the trend!

Thomas Hughes


New Plays

Bearish Reversal At Resistance

by James Brown

Click here to email James Brown


NEW BEARISH Plays

The Dow Chemical Co. - DOW - close: 47.68 change: +0.07

Stop Loss: 50.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 8.4 million
New Positions: Yes, see below

Company Description

Why We Like It:
DOW is the largest chemical company in the U.S. by sales. They make a huge variety of products from industrial chemicals, plastics, and agricultural chemicals. A main component for a lot of these is oil. The recent plunge in crude oil should be bullish for DOW and help boost margins.

The company recently reported earnings on October 22nd and they did see some margin improvement. DOW delivered a profit of 72 cents a share on revenues of $14.4 billion compared to analysts' estimates of 67 cents on revenues of $14.3 billion. Yet this better than expected quarterly report did not do much for the stock price. Shares spiked toward resistance near $50.00 and its 200-dma and then collapsed. Today was not much better. DOW hinted that they plan to cut expenses by $1 billion over the next three years and shares barely budged. The market soared with widespread gains and DOW eked out a seven-cent gain.

Technically DOW is broken. The big sell-off from its September highs sliced through all of its support levels. Now the oversold bounce appears to be failing.

I would consider this more of a technical trade. The current failed rally looks like a potential entry point for bearish trades. We'd like to see a little follow through lower. Tonight we are listing a trigger at $47.25. More conservative traders may want to see a drop under $47.00 instead.

Trigger @ 47.25

- Suggested Positions -

Short DOW stock @ (trigger)

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

Buy the Dec $45 put (DOW141220P45) current ask $1.14

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Small Caps Lead The Rally

by James Brown

Click here to email James Brown

Editor's Note:
The small cap Russell 2000 outperformed its large cap rivals with a +1.78% gain today.

Overall the market is starting to look a little overbought with the big bounce from its October lows.

LOW hit our entry trigger.

We want to exit our JEC trade tomorrow morning.


Current Portfolio:


BULLISH Play Updates

INSYS Therapeutics, Inc. - INSY - close: 38.38 change: -0.31

Stop Loss: 37.45
Target(s): To Be Determined
Current Option Gain/Loss: -4.6%
Entry on October 21 at $40.25
Listed on October 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 540 thousand
New Positions: see below

Comments:
10/23/14: INSY's performance the last few days has been very disappointing. The stock rallied to a new two-week high today and then reversed giving it all back.

We may want to seriously consider an early exit right now. I am not suggesting new positions. We will move the stop loss to $37.45.

Earlier Comments: October 20, 2014
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.

*Small positions to limit risk* - Suggested Positions -

Long INSY stock @ $40.25

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

Long NOV $45 call (INSY141122c45) entry $1.60*

10/23/14 new stop @ 37.45
10/23/14 INSY is not cooperating. Investors may want to exit early now.
10/21/14 triggered @ 40.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Lowe's Companies - LOW - close: 54.96 change: +1.02

Stop Loss: 52.40
Target(s): To Be Determined
Current Option Gain/Loss: -0.2%
Entry on October 23 at $55.05
Listed on October 21, 2014
Time Frame: Exit PRIOR to earnings on November 19th
Average Daily Volume = 5.5 million
New Positions: see below

Comments:
10/23/14: Our new play on LOW has been triggered. The stock rallied past $55.00 intraday and hit our suggested entry point at $55.05.

Today's intraday high was $55.19. If you're looking for an entry point consider waiting for a rise past $55.20 as an alternative entry.

Earlier Comments: October 21, 2014:
LOW is in the services sector. They run the second biggest chain of home improvement stores in the country. Their 1,837 stores offer more than 200 million square feet of retail space through the U.S., Canada, and Mexico.

The company's most recent earnings report was back in August. LOW beat Wall Street's top and bottom line estimates. Revenues were up +18.2% from a year ago. Gross margins saw some improvement. Same-store sales were up +4.4%, which was impressive. Management provided a small reduction in their full year revenue guidance but this failed to have much impact on the stock. Shares of LOW gapped down on its earnings news and investors bought the dip at support near $50.00.

Since this August earnings report we've seen homebuilder confidence hit nine-year highs while shares of LOW were hitting all-time highs in the $54-55 zone. Investors keep track of the housing market because LOW's business seems to rise and fall with real estate.

The stock market's recent volatility drug LOW back to support near $50.00 and once again traders bought the dip. There was a recent analyst note that was cautious on LOW and its rival Home Depot. The analyst noted that a slow down in sales for building materials would suggest the slowdown should hit retailers too. We may have to wait for LOW's earnings report to see if the analyst is right. In the mean time shares of LOW just ended at an all-time closing high.

If you believe the U.S. economy will continue to improve and the labor market will continue to see job growth then home improvement retailers like LOW and HD should see steady improvement as well.

We are not setting an exit target tonight but I will point out that the point & figure chart is bullish and forecasting a long-term $75.00 target for LOW.

Use a trigger at $55.05 to open bullish positions. We will most likely exit ahead of LOW's earnings report on November 19th.

- Suggested Positions -

Long LOW stock @ $55.05

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

Long NOV $55 call (LOW141122c55) entry $1.45*

10/23/14 triggered @ 55.05
*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


Marathon Oil - MRO - close: 34.73 change: +0.70

Stop Loss: 33.40
Target(s): To Be Determined
Current Option Gain/Loss: +4.8%
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:
10/23/14: Good news! MRO did not see any follow through on yesterday's ominous bearish reversal candlestick. Shares bounced with a +2.0% gain today.

We will raise the stop loss to $33.40.

I am not suggesting new positions.

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*

10/23/14 new stop @ 33.40
10/21/14 new stop @ 32.45
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: $21.46 change: -0.97

Stop Loss: 21.19
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
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:
10/23/14: I warned readers last night that the pullback in NDLS may not be over yet. The fact that NDLS displayed so much relative weakness today (-4.3%) while most of the market was in rally mode is not good news. Shares also closed below their 10-dma, which should have offered some support.

Tonight we are adjusting the stop loss to $21.19.

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*

10/23/14 new stop @ 21.19
10/21/14 new stop @ 20.95
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: 24.08 change: +0.14

Stop Loss: 23.30
Target(s): To Be Determined
Current Option Gain/Loss: -1.7%
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:
10/23/14: I am growing more cautious on our PTRY trade. Shares added +0.5% today but the S&P 500 added +1.2% and the NASDAQ soared +1.59%.

Tuesday's low was $23.37. We will move the stop loss to $23.30.

I am not suggesting 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*

10/23/14 new stop @ 23.30
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




BEARISH Play Updates

Jacobs Engineering Group - JEC - close: 47.31 change: +1.60

Stop Loss: 48.25
Target(s): To Be Determined
Current Option Gain/Loss: - 3.1%
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:
10/23/14: Shares of JEC are not cooperating so it's time to abandon ship. The stock outperformed the market with a +3.5% gain today and looks poised to challenge resistance near $48.00.

We want to exit this trade immediately tomorrow morning.

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*

10/23/14 prepare to exit tomorrow morning
10/21/14 Caution! Today could be a bullish reversal in JEC
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: 19.29 change: +1.16

Stop Loss: 20.05
Target(s): To Be Determined
Current Option Gain/Loss: +25.1%
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:
10/23/14: The market's widespread rally helped shares of KN produce an oversold bounce. The stock soared +6.39% to test resistance at its simple 10-dma. If this rally continues tomorrow it could spark some serious short covering.

We are leaving our stop at $20.05 for now since $20.00 should be round-number resistance. Yet more conservative traders may want to exit immediately to lock in potential gains.

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*

10/23/14 KN is bouncing. Traders may want to lock in gains now!
10/21/14 new stop @ 20.05
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: 16.12 change: +0.14

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:
10/23/14: MG is still not participating in the market's broad-based rally.

We are still waiting for a new relative low at $15.85.

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