Option Investor
Newsletter

Daily Newsletter, Monday, 10/27/2014

Table of Contents

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

Market Wrap

Ahead Of The Fed

by Thomas Hughes

Click here to email Thomas Hughes
Once again we're waiting on the Fed.

Introduction

Once again the market is waiting on the Fed. The October FOMC meeting begins tomorrow and is expected to result in the end of QE. Although generally accepted as being the end, this does not mean the Fed will do as expected, giving the market plenty of reason to pause.

Monday trading began in Asia, where indices were mixed. There was little news out of the sector today leaving last week's US rally and poor economic data from the EU to dominate trading. In the EU an early rally quickly lost steam as the aforementioned poor economic data overpowered positive results from the recent EU bank stress tests. The stress test results; most of the banks revealed to be under-capitalized last year have corrected the issue. The data; weak manufacturing data from Germany and a new report showing German business sentiment near a two year low.

Early trading here was muted. The futures trade was negative across the board, indicating a slightly lower open for the major indices. Earnings released this morning failed to stimulate the rally, leaving early trading weak into the opening bell. After the open volume remained weak and trading lack luster. The SPX opened down about 3 points and quickly sank to the daily low, about 13 points below Friday's close. The market hit bottom about 10AM and then bounced back to test break even. The SPX was never able to move into positive territory but other indices like the Dow Jones Industrials, Dow Transports and NASDAQ Composite were. Afternoon trading was primarily sideways and ended with the indices flat to positive from last week's closing price.

Market Statistics

Additional factors affecting today's trade include the elections in Brazil and new Ebola news. In Brazil the leftist, anti-business incumbent was reelected. This is a negative for Brazil but only peripherally important to us. Ebola hits much closer to home; there was some good news as well as bad. The good news is that more people are being cleared from risk. The bad is that a young boy is the next possible victim. Fingers crossed he's clear. While traders took note, the market did not spin wildly out of control on the news.

Economic Calendar

The Economy

Moody's weekly Survey of Business Confidence remains very positive. Although there is still weakness in Europe and South America US business are still optimistic about the future. Mr. Zandi reports that there is still no sign of an impact on confidence due to Ebola or market volatility. The outlook into next year remains strong and over half of those surveyed report they are hiring. According to his take the survey reveals that US business confidence “reflects an economy growing above its potential”.

Pending home sales rose but not as much as expected. The number of contracts signed, not actual sales, rose by only by 0.3%. Although weaker than expected pending sales are now in positive territory for the first time in 11 months, rising 1% for the year. The index is above the 100 level for the fifth month and at the second highest level since last September. While this shows that there is not robust demand at this time the long term trend in pending sales is steady to up. Credit conditions were listed as a headwind to buyers unable to find financing.

There is a lot of data left to come out this week. Aside from the FOMC announcement Wednesday there are 12 others reports this week. Tomorrow is Durable Goods Orders, Consumer Confidence and the Case-Shiller 20 City Index. Wednesday is Mortgage Index. Thursday is weekly jobless claims along with the first estimate for 3rd quarter GDP. Friday is Personal Income and Spending, Employment Cost Index, Michigan Sentiment and Chicago PMI. GDP is likely the most important piece after the FOMC but all data points tie together for the big picture. Next week will also be a big data week as this Friday is the end of the month.

The Oil Index

Oil prices fell today, breaking $80 early this morning. The latest development is a downgrade of 2015 price targets for WTI and Brent from Goldman Sachs. Their new target for WTI is $75 in the first quarter of 2015. The downgrade caused WTI to drop below $80 but was unable to keep it there. Buyers stepped in to drive prices back above $80 by mid morning. At settlement WTI was only down a single penny from Friday's close, trading at $81.00. Goldman thinks oil is going lower on supply/demand issue and prices may be heading that direction but OPEC is still an unknown factor. They hold their meeting in about 2 weeks and could curb production as many of the members have been calling for.

The Oil Index dropped 2% at the open and traded lower during the day. By the close it had recovered some of the loss but did not move past opening price. Today's drop took the index back down to a potential support and today's price action suggests it was found. The index is retracing the bounce begun two weeks ago and is approaching a good target for support at 1,400. The indicator are bullish but weak, in line with the recent bounce and support in the 1,350-1,400 range. I've been looking for a retest of the longer term support based on the convergence with bearish MACD during the pullback. It looks like it may have started to test it but I don't think it is over yet. The big oil companies report this week and they will likely be market moving.


The Gold Index

Gold prices were basically flat today, trading just below $1230. Prices are hovering in the middle of a potential range between $1200 and $1250 on rising economics, stronger dollar, the end of QE and the uncertain onset of higher interest rates. Today's trade was of course affected by anticipation of the Fed and could foreshadow price action up until the release at 2:15PM Wednesday. At that time the only thing that I can see that would send gold prices lower for a sustained period would be if QE didn't end, or if it increased. Every other line of thinking leads me eventually to normalizing rates, inflation and higher gold prices.

The Gold Index traded lower today as well. The index lost about -1.5% on an intraday basis but closed off of the low. The index is still drifting lower and below near term support at $75. If this persists my downside target remains near $65 but there is a serious divergence from the indicators if it is moving lower. If not there will be resistance possible at $75, and then between $80 and $82.50. Aside from the Fed meeting and gold prices earnings are due from the senior minors towards the end of the week. I expect earnings will be down, but also for cost to be lower as well.


In The News, Story Stocks and Earnings

Earnings season is in full force. According to FactSet 208, just over 40%, of S&P 500 companies have reported so far. Of those 75% have reported EPS growth above the average estimate with 60% above the average for sales. The current projection for 3rd quarter earnings is an average 5.6% among all S&P 500 companies, up from last week's 5.1% and the second week of increase. This is due to strong performances from 6 out 10 of the S&P sectors. So far only two sectors are posting negative earnings growth.

Twitter was the big name in earnings today, although there were others. Shares of the stock lost nearly -3% today, trading down from an apparent support/resistance level at $50. There was heavy option volume on out of the money puts and calls, expecting a fairy large move after the bell. The heavily criticized social media giant was expected to report EPS of $0.01 and met that expectation. The company reported earnings of $361 million, ahead of projections, and more than 100% above last year at this time. The results were not enough for the bulls and shares sank more than -10% in after hours trading.


Merck&Company reported before the bell but did not inspire much action. The pharma giant reported earnings that were slightly above expectations on a 4% drop in sales. The sales drop is due, according to the report, on divestiture of assets earlier in the year. Current results allowed execs to narrow guidance within the previously given range. Current full year non-GAAP EPS is now $3.46-$3.50. Shares of the stock fell more than -2% on the news, dropping from the short term moving average. The indicators are bullish but weak. Current support is indicated at $52.50 with resistance at $57.50.


The Indices

After the initial dip the market recovered and was basically flat the rest of the day. The major indices hovered around break even most of the afternoon with a final push at the end of the day that took most of them into the green. The SPX was the only index to close in the red and then only by a small margin. The broad market lost -0.15% in a very light session of wait and see what happens.

Today's action took the index down to test the 1950 level and just above the long term trend line where it met support. By the close the index moved higher and above 1960, another near term bullish support level. The indicators are bullish and pointing to higher prices in the near term but I am still anticipating a retest of support. This is based on the convergence between bearish MACD and the recent near 10% correction. Current upside target is 2000 with long term support between 1850 and 1900.


The NASDAQ Composite poked its head into positive territory twice today. The tech sector moved up and found resistance at 4,490 both times but was able to close in the green. Today's action took the index to a new short term high with bullish indicators. MACD is moving higher into the near term as well, in line with underlying long term trends, while stochastic is moving higher following a bullish crossover. The bounce has been strong, but looking at price action may be losing some steam or is pausing for breath. Either scenario I think hinges on the FOMC meeting which I see as pivotal with or without the technicals. The index is trading at resistance coincident with the July highs and could easily move lower from here if given a reason. My first target for support is along the long term trend line near 4,400.


The Dow Jones Industrial Average gained 0.07% today after testing a long term support at 16,750. The blue chips are now above the July high and a potentially strong area of support. Support is aided by the short term 30 day moving average and accompanied by bullish indicators. The index appears to be moving up in the near term with a target of 17,200 in the near term. The longer term outlook is the same as the first two; I'm bullish near and long term but still expecting some kind of retest of support before the real rally begins.


The Dow Jones Transportation Average led today's move, as it has been doing all year. Strong earnings and positive guidance for next year from several big names last week is most likely why. The trannies gained 0.67% in today's session and are approaching the current all time high. This is quite significant in light of the recent correction and suggests that the others will move up to test long term resistance as well. The all-time high has emerged as a potential point for profit taking and/or other selling activities as it is the most obvious target now. Today's move confirmed support at 8,500 with strong bullish indicators so I would not start placing bearish trades just yet, however, caution is warranted so I bring it up. If resistance fails a break to new highs would be very bullish and I will have to rethink my retest-of-support theory.


While looking over the DJT I skimmed a few transportation names I know. One that stood out today is CSX. The rail carrier recently reported double digit profit growth and guided the same for next year. The stock has been trending up steadily since then and is indicated higher on both the long term weekly charts and short term daily charts. The move over the last two weeks tested support along the 150 day moving average and moved higher on more than twice average daily volume.


The market looks like it is in rally mode and waiting for the Fed. The transportation average, the market leader, is moving higher and about to retest the all-time high. With economics and earnings pushing it the index could easily break right above and lead the entire market higher. Only the Fed and the data stands in the way. So far the data remains steady to positive, in the sweet spot the market likes, and I don't think the Fed will do anything too surprising this meeting. So long as the earnings are good the market should be happy.

Until then, remember the trend!

Thomas Hughes


New Plays

Off-Price Retailer

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Burlington Stores, Inc. - BURL - close: 40.56 change: +0.94

Stop Loss: 38.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 663 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Christmas is less than 60 days away. This year retail spending is expected to surge. The National Retail Federation is forecasting sales during the holiday shopping season to rise +4.1%. Analyst firm Deloitte LLP is expecting a +4.5% improvement. Last year we only saw +2.8% growth and the 10-year average is +2.9%.

If we take into account the positive impact low gasoline prices will have then the estimates above might be too low. Fuel prices are down nearly 20% from their early 2014 highs. That is a huge boost for consumer spending. Oil looks like it will continue to sink so the trend should continue.

The off-price retailers have been outperforming their regular price peers. BURL is part of the off-price group. According to their company website, "Burlington is a national off price retailer offering style for less for the entire family and the home with up to 65 percent off department store prices every day. Departments include ladies' dresses, suits and sportswear, juniors, accessories, menswear, family footwear, children's clothing, furniture and accessories for baby at Baby Depot, home décor and gifts, along with the largest selection of coats in the nation for the entire family. Burlington has 520 stores in 44 States and Puerto Rico."

Credit Suisse recently noted that BURL has delivered three years in a row of strong same-store sales growth. They did it again when the company reported earnings in early September. BURL said their same-store sales grew +4.7% in their second quarter, compared to estimates for +2-3% growth. Management also noted that their gross margins improved by 50 basis points to 38.2%.

Wall Street was expecting a loss of 8 cents per share on revenues of $1.03 billion. BURL delivered a loss of only one cent and revenues were up +8.2% to $1.05 billion. It was a big improvement from a loss of 19 cents a year ago. More importantly management raised their 2015 guidance for both their earnings and revenue estimates.

The bears will argue that BURL is expensive. It's hard to argue with them since BURL currently sports a P/E near 58. However, investors continue to buy the stock and now shares are poised for another bullish breakout. New highs could spark some short covering. The most recent data listed short interest at 13% of the very small 29.3 million share float.

Tonight we are suggesting a trigger to open bullish positions at $41.05.

Trigger @ $41.05

- Suggested Positions -

Buy BURL stock @ (trigger)

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

Buy the DEC $40 call (BURL141220c40) current ask $2.95

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

Annotated Chart:



In Play Updates and Reviews

Locking In Potential Gains On KN

by James Brown

Click here to email James Brown

Editor's Note:
We closed our bearish play on Knowles Corp. (KN) to avoid any post-earnings volatility. The put option proved to be a big winner.

MRO and NDLS hit our stop losses today. MG hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

INSYS Therapeutics, Inc. - INSY - close: 38.90 change: -0.09

Stop Loss: 37.45
Target(s): To Be Determined
Current Option Gain/Loss: -3.4%
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:
10/27/14: The market delivered a quiet session on Monday and INSY drifted sideways.

I remain cautious on this trade and we're not suggesting new positions.

INSY will likely report earnings in the next two or three weeks and we plan to exit before the announcement.

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: 55.47 change: +0.14

Stop Loss: 53.65
Target(s): To Be Determined
Current Option Gain/Loss: +0.8%
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:
10/27/14: Another day, another gain for shares of LOW. The stock tagged another record high today. I don't see any changes from my earlier comments.

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


The Pantry, Inc. - PTRY - close: 24.11 change: -0.37

Stop Loss: 23.30
Target(s): To Be Determined
Current Option Gain/Loss: -1.6%
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:
10/27/14: It was not a good day for PTRY bulls. Today's pullback essentially erased Friday's rally. More conservative investors may want to raise their stop closer to the $24.00 area.

I am not suggesting new positions at this time.

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


Sonic Corp. - SONC - close: 24.66 change: -0.25

Stop Loss: 23.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 738 thousand
New Positions: Yes, see below

Comments:
10/27/14: The stock market did not see a lot of movement on Monday. The same can be said for SONC. After shares gapped open lower at $24.71 the stock churned sideways.

I do not see any changes from the weekend newsletter's new play description below.

Earlier Comments: October 25, 2014:
"Service at the speed of sound." That was SONIC's original slogan after the company was rebranded from a chain of Top Hat root beer stands decades ago. Today the company has over 3,500 locations in 44 states. That makes SONIC the largest chain of drive-in restaurants in the United States.

Shares of SONC saw big gains in 2013. The rally continues in 2014 but it has been a much more volatile year for the share price. Yet in spite of all the ups and downs SONC is still respecting the long-term bullish trend of higher lows. Now with strong earnings numbers the stock it hitting multi-year highs.

SONC recently reported its Q4 results on October 21st. Same-store sales in the quarter were up +4.6% and margins improved 150 basis points. Net profits came in at 34 cents a share, which is a 62% improvement from the same period a year ago. Revenues were up +3.1%, which beat Wall Street's estimates.

Management guided in-line and SONC expects profit growth of 18-20% in 2015. Multiple analyst firms raised their price target on SONC stock follow these results. The stock's rally has produced a buy signal on the point & figure chart that is forecasting a long-term target near $35.00.

Friday's high was $25.07. Tonight we are suggesting a trigger to open bullish positions at $25.15. We will start with a stop loss at $23.75. I will point out that the 2007 highs in the $25.30-26.20 area is potential resistance so this might be considered a more aggressive entry point.

Trigger @ $25.15

- Suggested Positions -

Buy SONC stock @ (trigger)

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

Buy the DEC $25 call (SONC141220C25)

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




BEARISH Play Updates

The Dow Chemical Co. - DOW - close: 46.49 change: -1.72

Stop Loss: 50.25
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
Entry on October 24 at $47.25
Listed on October 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 8.4 million
New Positions: see below

Comments:
10/27/14: The pullback in shares of DOW resumed today with a -3.5% drop and a close under its 300-dma. This move could be used as a new bearish entry point.

Earlier Comments: October 23, 2014:
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.

- Suggested Positions -

Short DOW stock @ $47.25

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

Long Dec $45 put (DOW141220P45) entry $1.20

10/24/14 triggered @ 47.25
Option Format: symbol-year-month-day-call-strike


Mistras Group - MG - close: 16.09 change: +0.10

Stop Loss: 17.05
Target(s): To Be Determined
Current Option Gain/Loss: - 1.5%
Entry on October 27 at $15.85
Listed on October 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 81.5 thousand
New Positions: see below

Comments:
10/27/14: MG spiked down to new multi-year lows this morning. Shares dipped to $15.80. Our trigger to open bearish positions was hit at $15.85. Unfortunately there was no follow through. The stock bounced and closed up on the session.

I am not suggesting new positions with MG above $15.90.

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.

*Very small positions to limit risk* - Suggested Positions -

Short MG stock @ $15.85

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

Long NOV $17.50 PUT (MG141122P17.50) entry $1.85*

10/27/14 triggered @ $15.85
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Marathon Oil - MRO - close: 33.00 change: -1.50

Stop Loss: 33.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
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:
10/27/14: Oil-related stocks suffered on Monday as crude oil resumed its decline. MRO gapped open lower at $33.90 and then plunged to a -4.3% drop on the session. Our stop was hit at $33.75.

- Suggested Positions -

Closed MRO stock @ $33.15 exit $33.75 (+1.8%)

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

NOV $33 call (MRO141122c33) entry $1.90* exit $1.39** (-26.8%)

10/27/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
10/25/14 new stop @ 33.75
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

chart:


Noodles & Co. - NDLS - close: $21.14 change: -0.61

Stop Loss: 21.19
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
Entry on October 15 at $21.21
Listed on October 14, 2014
Time Frame: Exit PRIOR to earnings on November 5th
Average Daily Volume = 444 thousand
New Positions: see below

Comments:
10/27/14: The profit taking in NDLS resumed on Monday with a -2.8% drop toward the $21 area. Our stop loss was hit at $21.19. The next level of significant support might be $20.00 or its 50-dma (also near $20).

- Suggested Positions -

Closed NDLS stock @ $21.21 exit $21.19 (-0.1%)

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

NOV $22.50 call (NDLS141122c22.5) entry $1.20* exit $0.85** (-29.1%)

10/27/14 stopped out
10/25/14 plan on exiting prior to earnings on Nov. 5th
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

chart:


CLOSED BEARISH PLAYS

Knowles Corp. - KN - close: 18.80 change: -0.31

Stop Loss: 20.05
Target(s): To Be Determined
Current Option Gain/Loss: +26.0%
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:
10/27/14: KN continues to show relative weakness and lost another -1.6% today. Our plan was to exit positions at the opening bell this morning to avoid holding over the stock's earnings report this afternoon. KN opened at $19.05.

After the close tonight the company beat estimates by one cent but then guided lower. Shares spiked down to $15.00 after hours and KN is currently trading near $17.25. If the company had delivered a strong report the stock could be significant higher instead.

- Suggested Positions -

Short KN stock @ $25.75 exit $19.05 (+26.0%)

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

NOV $25 PUT (KN141122P25) entry $1.20* exit $6.00** (+400.0%)

10/27/14 planned exit this morning.
**option exit price is an estimate since the option did not trade at the time our play was closed.
10/25/14 prepare to exit immediately on Monday morning
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

chart: