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Newsletter

Daily Newsletter, Wednesday, 10/29/2014

Table of Contents

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

Market Wrap

Buy the Rumor, Sell the News

by Keene Little

Click here to email Keene Little
There were no surprises out of today's FOMC announcement and that was met with disappointment. The hopeful bulls (and/or scared bears) created a strong 2-week rally on expectations for more Fed help. Not so fast was the message from the Fed.

Wednesday's Market Stats

The market had been rallying strong for the past two weeks, ever since some Fed heads started hinting that they might remain more accommodative and for a longer period of time than what had been feared. The strong September-October decline was blamed on worry about the Fed pulling liquidity out of the market. Once there were hints the Fed could remain more accommodative the bears panicked and started some vicious short covering while the bulls rejoiced at the good news (well, an expectation of good news) that QE4 is right around the corner.

The end result was the strongest 2-week rally that we've seen in the past three years. But is it a "real" rally or is it a short-covering rally? Knowing that the strongest rallies actually occur during bear markets we have to question the authenticity of this rally. Bear market rallies tend to be retraced just as quickly as it took for the rally once the reason for hope has been removed.

Bear market rallies are based on hope and the pattern for a bear market decline is often called the "slope of hope" as sharp rallies are followed by stronger declines. What we don't know yet is whether the 2-week rally we've had is just the first in what will become many hope-filled rallies in the next bear market. Or are we into another rally leg to a new high? The answer is not clear yet but with some indexes making new highs (TRAN) it remains a possibility that the bears need to respect.

Today's FOMC announcement was not supportive of the past 2-week rally. The hope for more was not met with assurances from the Fed and the first reaction to the announcement was a selloff in the stock market. Perhaps it was simply a typical "buy the rumor, sell the news" reaction as the market fully priced in what the Fed is going to do. Treasury yields spiked down (bonds were bought), suggesting the Fed will continue to support the bond market, but gold sold off while the dollar spiked up, which suggests less monetary stimulus from the Fed. So we've got mixed signals from the various markets and only with some additional time will we see how this shakes out.

It's hard to believe it's been two years since the Fed announced QE3 with their $85b/month purchases of Treasuries and mortgage debt. The taper program has been whittling the amount down and today they announced the expected completion of the program. Keep in mind though that they're not removing the money they've pumped into the system; they're stopping the purchase of more but they'll continue to roll over expiring debt by purchasing new debt, which may have been the reason Treasury yields spiked down this afternoon -- bond demand will still be there. Still, the removal of the added liquidity that the market has enjoyed for the past two years with this program is now stopping.

Also disappointing the stock market today was their statement, "The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month."

The use of the words "substantial improvement" in the labor market scares bulls. They want to see more evidence the Fed is nervous about the economy and therefore hint that more accommodation may be required. The Fed included the language "considerable time" when it comes to an anticipated change in their federal funds rate (which they refer to as "policy accommodation"), leaving themselves an open door in both directions for further changes. If they find labor employment and inflation change more than expected in the next several months they'll adjust their accommodative policy accordingly. This is of course nothing new but it means the market will be hanging on every word from the Fed heads over the next weeks/months.

The Fed talked about including a lot more data, such as what's happening in the global economy, to help them decide when it will be time to make a change to their policy accommodation. One bone the Fed did throw to the bulls (do bulls chew on bones?) was their statement that the Committee "currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." The Fed is saying they no longer will use labor conditions or inflation targets to determine their policy accommodation decisions but will now look for much more data to help them decide. In the meantime, savers be damned, debt holders be loved. The message has been clear for a long time -- the Fed wants spenders, not savers.

The bottom line is that there were no surprises out of the FOMC announcement and that's actually what disappointed the bulls. They were really hoping for at least some hints of more accommodation, which is what the past 2-week rally was all about, and not getting it could cause some problems for the rally. Now it's time for some more direct intervention to prevent the bears from getting a toehold (wink).

The 2-week rally that we had obviously looks bullish. New highs appear to be right around the corner. But what makes it a dangerous time to join the bulls is how quickly the market rallied. As mentioned earlier, the sharpest rallies occur during bear markets and this rally was indeed a sharp one. John Hussman, President of the Hussman Investment Trust, has made a lot of noise lately about how dangerous this market is for investors. Based on his bearish opinion he is usually immediately discounted by bullish investors. My mere mention of his name here will likely have many of you immediately skimming the rest of this and looking for more evidence that supports your bullish perspective. It's natural to do that (it's what has made our country so divided as people look for only what supports their views).

Hussman has studies past stock market peaks and believes we're repeating the pattern of past peaks, including the recent 2-week rally. He was out beating the drum about the dangers of this market back in September when he identified it as a time of increased risk from a "severely overvalued, overbought, overbullish syndrome of conditions ... that is then followed by a clear deterioration in market internals." Those were in fact the conditions at the September high. Hussman recently pointed out what typically follows the first breakdown into an oversold short-term low. He refers to the subsequent rallies as "fast, furious, prone-to-failure" advances and believes that's what we just experienced. Off the September highs we had breaks of longer-term uptrend lines and the 50- and 200-dma's that were then followed by a "fast and furious" advance. The only question that remains now is whether it's going to be "prone to failure."

Quoting from Hussman's latest market observations, he notes the following:

My impression is that we are observing a similar dynamic at present. Though we remain open to the potential for market internals to improve convincingly enough to at least defer our immediate concerns about market risk, we should also be mindful of the sequence common to the 1929, 1972, 1987, 2000, and 2007 episodes:
1) an extreme syndrome of overvalued, overbought, overbullish conditions (rich valuations, lopsided bullish sentiment, uncorrected and overextended short-term action);
2) a subtle breakdown in market internals across a broad range of stocks, industries, and security types;
3) an initial 'air pocket' type selloff to an oversold short-term low;
4) a 'fast, furious, prone-to-failure' short squeeze to clear the oversold condition;
5) a continued pairing of rich valuations and dispersion in market internals, resulting in a continuation to a crash or a prolonged bear market decline."

Bullet #5 is of course important here. We don't know if this 2-week rally will result in a further selloff but if it does then the pattern suggest the selloff will be more severe than the preceding rally. In that case bullish positions for the November opex cycle will be at risk. But if we've got at least one more new high left in this market then we need to identify some upside targets to watch for.

I'll start off tonight's chart review with a weekly chart of the DOW to point out some levels of interest. Using the log price scale, you can see the perfect test back on October 15th of the trend line along the highs from 1971-1972-1987. Not seen on the chart, this line was support at the 2002 and 2003 lows but then was broken in 2008. It was then resistance to the rally into the May 2011 high but then recovered in March 2013. It's been tested multiple times since then and continues to act as support. The market obviously thinks this trend line is important so it's an important line for the bulls to defend. A drop below the October 15th low, at 15855, would be a strong sell signal.

Dow Industrials, INDU, Weekly chart

The uptrend line from October 2011 - November 2012 was broken at the beginning of October and is currently nearing 17100 so if there's at least a little more upside on Thursday keep an eye on that level for potential resistance. If the DOW joins the TRAN to new highs we could see a rally up to at least the trend line along the highs from last December-July-September, currently near 17490. The continuation of the bearish divergences doesn't prevent a new high but it makes it a risky bet from here.

The daily chart of the DOW, below, is using the arithmetic price scale, which shifts the positions of the longer-term trend lines. The uptrend line from October 2011 - November 2012, referenced on the weekly chart above, drops down to near the October low, as shown on the daily chart below. The broken November 2012 - February 2014, which is not shown on the weekly chart, was tested today, which sets up a potential bearish kiss goodbye from here if Thursday sees more selling. The bearish wave count calls the 2-week rally just a bear-market rally that will be followed by strong selling. The bullish wave count calls for just a pullback, shown in green, before heading higher into November-December. It could press higher before pulling back but if it simply continues to power higher without a pullback it's going to make it even more vulnerable to a sharp selloff.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,100
- bearish below 16,500

I've been trying to figure out the wave pattern of the rally off the October 15th low as a way to help determine whether it's likely just bear-market rally or something more bullish. Unfortunately the pattern leaves the door open for both possibilities. I can't even get a higher-odds probability to peak its head out. The 30-min chart below shows a couple of idea and when the wave count doesn't help enough I resort to trend lines/channels and in this case a rising wedge, which is bearish. Today's pullback broke the bottom of the wedge, near 16985, just before the FOMC announcement. The uptrend line will be near 17035 at tomorrow's open and a bounce up to the line for a back-test followed by a kiss goodbye would be a sell signal.

Dow Industrials, INDU, 30-min chart

If the DOW pushes up to at least a minor new high tomorrow, it could test the broken uptrend line from November 2012, near 17102 tomorrow morning. It would be another potential setup for the start of at least a larger pullback so watch for a setup to play the short side if it breaks down from the 16985-17100 area. But if the DOW makes it much above 17100 and stays above then we'd have a bullish move, especially if it pops out the top of the rising wedge pattern, near 17200 by the end of the day tomorrow.

Yesterday SPX closed slightly above its broken uptrend line from November 2012 - February 2014, currently near 1980. But it's struggling with price-level S/R near 1985 and today's candle is a long-legged doji at resistance. This candlestick is usually a sign that the market has lost its way and that typically means it's lost its momentum. Commonly seen at/near tops, a red candle on Thursday would create a sell signal. We can't know yet whether any selling from here would be just a pullback before pressing higher later in November or if we'll start a more significant decline. The bearish potential suggests the short side would be the better trade and then monitor it for signs of being just a corrective pullback vs. a more impulsive (bearish) decline.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1985
- bearish below 1890

The 60-min chart below shows the oscillation around the broken uptrend line from November 2012, which created the long-legged doji on the daily chart. SPX is also struggling near the 78.6% retracement of its September-October decline, at 1976.76, which is one of this market's favorite retracement levels (for a deep retracement, which often gets both sides leaning in the wrong direction). Because of the trend line and 78.6% retracement, any further rally would be bullish, although the 2010-2020 area would likely be tough resistance, especially with an overbought market.

S&P 500, SPX, 60-min chart

Like SPX, NDX finished with long-legged doji, which was inside yesterday's candle. An inside day and a doji are often interpreted as indecision days, or days of rest, so that's clearly what we could have here. But the setup the short-term pattern shows loss of momentum at the current high and at least a pullback before heading higher (the bullish case) should be expected. The bearish case says the sharp rally off the October 15th low will be completely retraced and quickly. It's not a good place to be pressing bullish bets, especially if it drops back below price-level S/R near 4050. It remains bullish above that level but again, not it's not a place where I'd be adding bullish positions.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4050
- bearish below 3870

The RUT is the index that I've been using for the past few weeks to point out the likelihood for at least a high bounce following the September-October decline. But I thought it would rally some, pull back into the end of October and then rally some more into early- to mid-November. It instead decided it didn't need a pullback and simply rallied up to potential resistance at its downtrend line from July-September and its broken uptrend line from October 2011 - November 2012. The two trend lines cross near 1156 on Thursday so it would be more bullish above that level (on a closing basis since we know intraday breaks of S/R are common). At the moment the RUT is also struggling with its 200-dma, near 1146 (where it closed today), and the 62% retracement of its July-October decline, at 1147.43. It's a good place for at least a rest and we'll find out soon if the bulls feel they need a rest or not.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1157
- bearish below 1104

Off the October 15th lows, the TRAN had one of the strongest rallies of all the indexes. It's beckoning the other indexes to follow since at the moment we've got bearish non-confirmation of its high but not for the DOW. The TRAN not only retraced its September-October decline but did so in about half the time. It looks like one of those "too much, too fast" kind of moves and frankly looks like a short-covering rally typically seen during bear markets (as discussed earlier with John Hussman's quotes). At this morning's high, at 8793, it came close to its trend line along the highs from 2010-2011-2014, about 40 points higher. The question for bulls is whether or not they think the TRAN will have better luck this time getting through the trend line, especially with volume tapering off as the rally has progressed and now overbought.

Transportation Index, TRAN, Daily chart

It's been a while since I've reviewed the chart of home builders and I thought now's a good time since it looks poised to start the next leg down. A 3-wave bounce off the August 7th low fits well as an expanded flat a-b-c correction (good Fib wave relationships) and the rally up to the top of its down-channel from February looks complete. This is a good setup for a short play on the group (ITB or XHB) and I'd use a stop just above 506 on the DJUSHB index.

DJ U.S. Home Construction index, DJUSHB, Daily chart

The rally into last February's high completed an a-b-c bounce correction to its 2006-2009 decline and retraced a little more than 62%. Notice the rounding top pattern on the monthly chart of the home builders near the 62% retracement level (31.80):

DJ U.S. Home Construction index, DJUSHB, Monthly chart

Traders in the U.S. dollar looked as though they were surprised by the FOMC announcement today. The dollar spiked up, which fits with the larger pattern calling for one more minor new high to complete the 5th wave in the move up from last May. It should be only a minor new high, perhaps near 87, before starting a larger pullback. As depicted on its weekly chart below, the bullish wave count calls for a pullback into early 2015 before starting a stronger rally that will easily break above 87 and head up toward 110, if not 120, into 2016. But if it's going to stay trapped inside a larger sideways triangle that it's been in since 2008-2009 we will see the dollar work its way back down toward 75 later in 2015/2016.

U.S. Dollar contract, DX, Weekly chart

Gold should not have much more to its current pullback before heading higher. I do see the potential for a test of its October 6th low, near 1183, but it would likely be accompanied by bullish divergence and be a good setup to play the long side on gold. For the rest of this year I'm expecting gold to rally, probably coinciding with a larger pullback for the dollar, before starting a stronger decline that will likely take gold below 1000. I continue to look for an end-of-year rally (not straight up) to about 1325 before turning bearish again.

Gold continuous contract, GC, Daily chart

Oversold and showing some daily bullish divergence at its recent low, oil looks ready for a larger bounce/consolidation before heading lower early next year. Oil would look a little more bullish back above its broken uptrend line from 2011-2012, currently near 85.45, but for the moment I think we'll see a multi-month consolidation before it heads lower, eventually making it down to the $70 area in early 2015. If it works its way up to its broken uptrend line from 2011-2012 by next March we'll see it reach maybe 87 before heading down toward 70. That would then set up a large bounce correction in 2015 so I don't think we'll see oil hang around the $70 level for very long, assuming it will eventually make it down to there. For now I see oil holding the low 80's for the rest of this year.

Oil continuous contract, CL, Weekly chart

There will be no market-moving economic reports in the morning so the market will be on its own to face however market participants are going to react to today's FOMC news.

Economic reports and Summary

The combination of a rally that has been, in John Hussman's words, "fast, furious, prone-to-failure" and with indexes up against resistance with short-term bearish divergence, it's not a good time to be pressing bullish bets. We could get another rally leg on Thursday, especially if the pullback this afternoon was designed to suck in some shorts that will be used for short-covering fuel, but I'd be more interested in looking at a new high, with more bearish divergences, as a shorting opportunity. It might be good for just a trade for a larger pullback but it has the potential to turn into a strong decline, reversing the 2-week rally. Either way I'd continue to exercise caution on Thursday since we've seen plenty of times where the market is "helped" the day after a disappointing reaction to the FOMC announcement. We can't have the market acting disappointed since that might scare Mom and Pop investors.

The big question remains -- are we going to get new highs for the indexes out of this rally? The TRAN says yes, since it's already there. But the bounce pattern is far from clear and it's just as easy to argue it's only been a fast and furious bout of short covering, which leaves the market vulnerable to a downside disconnect without the shorts in place. It's usually why bear market rallies are followed by even stronger selling; bulls panic out of their long positions, having thought new highs were assured, while bears chase the move lower, afraid of missing the decline they were sure was coming but got chased away.

If we do get new highs out of this rally there's a turn window around the middle of November, perhaps right after the midterm elections. Because the rally has been so fast I think it's dangerous to chase it to the upside from here. But a new high with bearish divergences would have me looking to short it. As always, timing is everything so trade safe.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Plays

Growth Has Stalled

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Pandora Media, Inc. - P - close: 19.23 change: -0.51

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 7.1 million
New Positions: Yes, see below

Company Description

Why We Like It:
Pandora is in the services sector. The company provides streaming music over the Internet and through your mobile device. They have over 200 million registered users and over 76 million active users.

It has been a really rough year for shares of Pandora. The stock is down over 50% from its all-time high of $40.44 set in March this year. Traders have been selling the rallies for months. If you only looked at the profit numbers you might be surprised by Pandora's performance.

Pandora's most recent earnings report was October 23rd. They beat analysts' estimates with a profit of 9 cents per share. That's a +50% improvement from a year ago. Revenues were up +41.5% from a year ago to $239.6 million, which also surpassed analysts' estimates. Pandora said listener hours soared +25% to almost 5 billion hours in the third quarter versus a year ago. The company's guidance was actually somewhat bullish with Pandora guiding slightly above consensus estimates on both the top and bottom line.

Given this impressive growth from 2013 you might think the stock would be soaring. Unfortunately for Pandora shareholders the company is seeing growth actually slow down and that's due to significant competition.

The 4.99 billion listener hours last quarter may have been up from a year ago but it's down -1% from the second quarter. The company's active users came in at 76.5 million users in the third quarter. That's up +5.2% from a year ago but it's virtually flat versus the 76.4 million from the prior quarter.

The slowdown is likely a result of too much competition. There are a ton of streaming music services like Rdio, Deezer, Grooveshark, Xbox Music, Sony Music Unlimited, and Songza. Yet the major competitors for Pandora are probably Spotify, Amazon.com's Prime Music, Apple's iTunes radio, which will soon merge with Beats Music, and finally Google has their Google Play Music All Access service. If all the competition wasn't enough Pandora also has to contend with music labels constantly fighting to raise the royalties that Pandora has to pay.

There are plenty of bears in this name. The most recent data listed short interest at 13.2% of the 197.2 million share float. Given the stock's recent performance, the slowing growth, and rising competition, the bears should have the upper hand. The stock's performance has produced a bearish signal on the point & figure chart, which is forecasting a long-term target of $11.00.

Tonight we are suggesting bearish positions at the opening bell tomorrow morning. More conservative traders could wait for a new relative low under $18.90 instead. The next support level might be the $15.00 area.

(Launch positions tomorrow morning)

- Suggested Positions -

Short P stock @ (the opening bell)

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

Buy the 2015 Jan $19 PUT (P150117p19) current ask $1.71

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Wobble As Feds End QE3

by James Brown

Click here to email James Brown

Editor's Note:
In a widely anticipated move the Federal Reserve officially announced the end of QE3. The market ended slightly lower.

SONC and ZUMZ hit our entry points.

We want to exit our DOW and MG trades tomorrow morning.


Current Portfolio:


BULLISH Play Updates

Burlington Stores, Inc. - BURL - close: 40.45 change: +0.11

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

Comments:
10/29/14: BURL rebounded from its intraday low but we are still waiting on a bullish breakout.

Earlier Comments: October 27, 2014:
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)

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


INSYS Therapeutics, Inc. - INSY - close: 41.70 change: +2.68

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: +3.6%
Entry on October 21 at $40.25
Listed on October 20, 2014
Time Frame: Probably exit prior to earnings on Nov. 11th
Average Daily Volume = 540 thousand
New Positions: see below

Comments:
10/29/14: INSY a broker put an "overweight" rating on INSY and gave the stock a $51 price target this morning. Shares soared +6.8% in reaction to this news and finally broke through resistance near the $40 level.

NOTE: Earnings are coming up on November 11th. We will likely exit prior to 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*

10/29/14 New analyst upgrade and price target send INSY higher
10/28/14 new stop @ 37.75, Investors will want to consider an early exit now!
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 Format: symbol-year-month-day-call-strike


Lowe's Companies - LOW - close: 55.81 change: -0.25

Stop Loss: 53.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.4%
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:
10/29/14: The stock market saw its rally pause and the major indices closed lower following the FOMC announcement. Shares of LOW also saw some mild profit taking and snapped a four-day winning streak.

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


The Pantry, Inc. - PTRY - close: 25.53 change: +0.10

Stop Loss: 23.30
Target(s): To Be Determined
Current Option Gain/Loss: +4.2%
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:
10/29/14: Momentum continued in PTRY today and shares outperformed the market with a +0.39% gain.

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


Sonic Corp. - SONC - close: 25.19 change: +0.12

Stop Loss: 23.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
Entry on October 29 at $25.15
Listed on October 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 738 thousand
New Positions: see below

Comments:
10/29/14: As expected the rally in SONC continued and shares hit our suggested entry point at $25.15 today.

This is a new multi-year high and should be a bullish breakout past round-number resistance at $25.00.

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.

- Suggested Positions -

Long SONC stock @ $25.15

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

Long DEC $25 call (SONC141220C25) entry $0.95

10/29/14 triggered @ 25.15
Option Format: symbol-year-month-day-call-strike


Zumiez Inc. - ZUMZ - close: $33.06 change: -0.77

Stop Loss: 31.45
Target(s): To Be Determined
Current Option Gain/Loss: - 3.2%
Entry on October 29 at $34.15
Listed on October 28, 2014
Time Frame: Exit prior to earnings in early December
Average Daily Volume = 296 thousand
New Positions: see below

Comments:
10/29/14: Our brand new trade on ZUMZ has been triggered. Shares briefly traded to a new two-year high above $34.00 and hit our suggested entry trigger at $34.15 before paring its gains. Unfortunately ZUMZ underperformed the major market indices with a -2.2% pullback.

I am not suggesting new positions with ZUMZ under $34.00.

Earlier Comments: October 28, 2014:
ZUMZ is in the services sector. The company is considered a specialty retailer. The website describes the company as "a leading multi-channel specialty retailer of action sports related apparel, footwear, equipment and accessories, focusing on skateboarding, snowboarding, surfing, motocross and BMX for young men and women. As of October 4, 2014 we operated 594 stores, included 545 in the United States, 34 in Canada, and 15 in Europe. We operate under the name Zumiez and Blue Tomato. Additionally, we operate ecommerce web sites at www.zumiez.com and www.blue-tomato.com."

Apparel retailers as a group have been pretty hit or miss this year. Yet the sports-related names have been doing okay. ZUMZ's focus on sports-related clothing and equipment might insulate it from the normally finicky teen crowd.

ZUMZ's latest earnings report was back in September. You can see the gap down on the daily chart. ZUMZ beat EPS estimates by 4 cents as earnings grew +35%. Yet revenues only rose +11.9% and missed analysts' estimates. More importantly management issued somewhat soft EPS guidance. The good news for investors is that the post-earnings sell-off did not see any follow through. Instead ZUMZ continues to build on its multi-month trend of higher lows.

I suspect investors might be willing to over look guidance that was a couple of cents below Wall Street's estimates in favor of a company that continues to grow same-store sales. ZUMZ has a pretty good track record with the retailer reporting same-store sales growth that beat analysts' estimates several months in a row. Their latest sales data was very impressive. On October 8th ZUMZ said their net sales in September rose +12.5% while their comparable store sales soared +6.6% compared to estimates for only +2.7% growth.

The current rally has lifted ZUMZ stock to new 2014 highs and the point & figure chart is bullish and forecasting a long-term target of $46.00. Tonight we are suggesting a trigger to open bullish positions at $34.15. We will plan on exiting prior to ZUMZ's next earnings report in early December.

- Suggested Positions -

Long ZUMZ stock @ $34.15

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

Long DEC $35 call (ZUMZ141220C35) entry $1.60

10/29/14 triggered @ 34.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

The Dow Chemical Co. - DOW - close: 47.38 change: -0.60

Stop Loss: 50.25
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
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:
10/29/14: DOW managed to underperform the broader market with a -1.25% decline. Yet today was also the second day out of the last three that shares of DOW seemed to find support near the 10-dma, which is curving higher.

We are choosing to be defensive here and suggest an early exit tomorrow morning. Naturally more aggressive traders may want to let the play ride and maybe just lower your stop loss.

The newsletter will plan on an exit at the open tomorrow.

- Suggested Positions -

Short DOW stock @ $47.25

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

Long Dec $45 put (DOW141220P45) entry $1.20

10/29/14 prepare to exit tomorrow morning
10/24/14 triggered @ 47.25
Option Format: symbol-year-month-day-call-strike


Mistras Group - MG - close: 16.24 change: +0.11

Stop Loss: 17.05
Target(s): To Be Determined
Current Option Gain/Loss: - 2.5%
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:
10/29/14: MG is not cooperating with us either. The stock broke down to multi-year lows on Monday and then bounced back the same day. Since then MG is now up three days in a row and displayed relative strength today.

The relative strength is a potential warning signal for the bears. We are suggesting an immediate exit to cut our losses early.

*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

10/29/14 prepare to exit tomorrow morning
10/27/14 triggered @ $15.85
Option Format: symbol-year-month-day-call-strike