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Daily Newsletter, Wednesday, 11/5/2014

Table of Contents

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

Market Wrap

Bulls Get Their Republican Win

by Keene Little

Click here to email Keene Little
The rally from October was supposedly due to an expected win by Republicans in both Houses, which is supposed to be good for the stock market. But statistics show the bulls may have misplaced faith in this.

Wednesday's Market Stats

The Republicans will take over the Senate and they increased their control in the House, which was anticipated, and it's part of the reason why the market has rallied strongly in the past three weeks. The rally was also helped by Japan's surprise QE2IB (QE to Infinity and Beyond) program but now that the bulls have what they wanted we have to wonder what else will drive the market higher. Following this morning's gap up there was no follow through. And one problem with the idea that a Republican-controlled Senate and Congress is that statistics show it's actually not helpful to the market, especially right after the midterm elections.

Statistics show that over time the stock market has not done well under a Republican-controlled Congress but the market does supposedly likes the idea of gridlock. This of course begs the question: what the heck have we had for years now? But a Democratic president and Republican Congress will likely be even more gridlocked and that's what the market likes (stay out my business is the general feeling). But in the short term there's evidence (scant though it may be) that the weeks following this kind of an election are not favorable for the market, which suggests at least a larger pullback before heading higher into next year.

There's also a good chance we'll see a sell-the-news reaction soon after these elections. The market could push higher for another day or two (or not) but the rally priced in this win and with an extremely overbought and overbullish market it's ripe for at least a larger pullback. As I'll cover in the charts, the price pattern for the rally is looking close to complete, which is another reason I'm now looking for at least a correction to the rally before heading higher. There is a more bearish possibility that says the rally from October 15th, once completed, will also complete the 5-1/2 year bull market.

The market was more interested in the election results than any economic indicators this morning so the ADP Employment and ISM Services reports were generally ignored. The ADP report showed 230K jobs added, which was generally in line with expectations and an improvement over September's 225K (revised up from 213K). The ISM Services number was 57.1, a little less than the 58 that was expected and less than the 58.6 we had in September.

Because of the election results the futures had rallied strong in the overnight session and we started the day with a big gap up. It quickly turned into a gap n crap start and the techs quickly closed this morning's gap while it took until this afternoon's decline for the RUT to do the same thing. The blue chips held up better, indicating some defensiveness in today's market. Now the question is whether the bulls can add any more to the rally or if it's all baked into the cake and now we'll see profit taking.

I think it will be important to watch the DOW carefully here since it has pushed up to important trendline resistance and how it does here will tell us more about how well the bulls can be expected to do, even if it's just for a higher move only into next week. Starting off with the weekly chart of the DOW, you can see how the straight-up rally from October 15th has now slammed back into the trend line along the highs from May 2011 - May 2013. This trend line has stopped rallies since December 2013 (with minor pokes above the trend line. Interestingly, a trend line along those minor pokes is only marginally higher and it was tagged with today's high at 17485. From a purely trendline analysis perspective this is the perfect spot for a bear attack.

Dow Industrials, INDU, Weekly chart

The daily chart below is a closer view of the trend lines in play at the moment. You can see the trend line along the highs from December 2013 - July 2014 is where the September rally stopped. Will it have better luck this time? Tomorrow the trend line sits near 17500 so that's the level the bulls need to break through in order to open the gate to higher levels (such as 18K). Maybe they'll jump over resistance with a gap up after running the futures higher tonight (the usual method this market deals with resistance). Above 17500 the bears should stay away but with a rally that's gone too far too fast I would not want to chase it higher from here since any break of resistance could be just a stop run that gets reversed quickly.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,500
- bearish below 17,150

There's another trend line in play for the DOW right here -- using the log price scale (the weekly and daily charts above are using the arithmetic price scales) shows the uptrend line from November 2012 - February 2014, which is approaching 17540. So maybe a quick run up in the morning, nab some stops, ring the bell at the trend line and then reverse back down. Obviously I can only guess how much further this rally could run but for the sake of the bulls it should at least pull back soon. A rally that has gone too far too fast into a flameout would not be a good thing for investors, especially if they're chasing it higher and find no chairs when the music stops. But if the buyers can keep the market headed higher for the rest of the week I see upside potential first to the 17750 area and then 18K.

Dow Industrials, INDU, 60-min chart

SPX also has a few trend lines that are in play here but a bit higher than what we have for the DOW. Using the log price scale we have the uptrend line from November 2012 - February 2014 near 2042 on Thursday. Crossing the same level is the trend line along the highs from July-September. Slightly higher is the trend line along the highs from April 2010 - May 2011, currently near 2049. That gives us a trendline resistance zone at 2042-2049, about another 20-25 points above today's high. That would have the DOW up around the 17750 area that I mentioned above.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2055
- bearish below 1985

Above 2050 would have SPX looking bullish with the break above its trend lines but I have 2055 as the key level to the upside based on a price projection for its wave pattern, shown on the 60-min chart below. The 1st wave of the move up from October 15th extended and when that happens it's typical for the 3rd through 5th waves to achieve equality with the 1st wave, which is the 2055 projection. That opens up the upside target zone to roughly 2042-2055. An early warning for the bulls would be a break of the uptrend line from October 15th, which SPX has been walking up since testing it with Tuesday morning's low. Currently near 2017 it means the bulls need to keep at this and not let price break below this afternoon's low near 2016.

S&P 500, SPX, 60-min chart

NDX has been oscillating around the 4150 level since gapping up to it last Friday. The bulls will see the sideways choppy consolidation as a bullish continuation pattern while the bears see topping action. As for additional upside potential, there's a trend line along the highs from April 2010 - April 2012, currently near 4202. Century-level resistance at 4200 is also potential resistance. A little higher is the 127% extension of the September-October decline, a common reversal Fib. So watch that area for a possible top if reached. NDX would close last Friday's gap near 4100 and a drop below that level would be a good indication the top is in for now and we'll have to evaluate the pullback/decline for evidence for what will follow (the same as for the DOW and SPX).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4200
- bearish below 4100

Continue to keep a close eye on how the semiconductors are doing. The SOX has rallied strongly with the rest of the market, which supports the bullish move. But it's now having trouble with its broken uptrend line from November 2012 and is close to its September 19th high near 659 (about 10 points higher). I think it's going to form a double top (triple top if you include the double top in July and September) and the bearish divergence, as can be seen on the RSI on the weekly chart below) is calling out to the bulls "Danger Will Robertson, Danger!" This is looking like a short play just waiting to get triggered (with a decline below 640).

Semiconductor index, SOX, Weekly chart

After gapping up last Friday, like NDX, the RUT has stalled and hasn't been able to find enough buyers to push it higher. The underperformance by the techs and small caps is indicative of defensiveness following the strong rally off the October low. The RUT made it up to its broken uptrend line form March 2009 - October 2011 (green trend line on its chart below) and its 78.6% retracement of its July-October decline, at 1176. The RUT would turn at least short-term bullish above 1180 and it could make it back up to its March and July highs near 1213 (triple top?). But if it drops back down from here and closes last Friday's gap near 1155 I think it would be signaling the top is in place and we'll have to watch to see what kind of pullback/decline develops next. If we're getting ready to start the next bear market decline it will likely be the RUT out in front again.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1180
- bearish below 1155

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A week ago I had mentioned the TRAN's strong rally up close to its trend line along the highs from 2010-2011-2014, near 8833 at the time. With yesterday's rally it finally rang the bell at the trend line, now near 8870. With the overbought conditions I think it would be a risky bet on a breakthrough (for anything more than a minor poke above the line. The higher-odds scenario suggests at least a pullback before heading higher and the longer-term chart suggests we could now start back down to the bottom of the expanding triangle that has formed since July. One idea is that we'll see the right side of a diamond top form in the coming months, something I'll track until the idea is negated.

Transportation Index, TRAN, Daily chart

As I had mentioned last week, the U.S. dollar's rally pattern from May would look best with one more marginal new high to complete a 5-wave move up, which it has now done. If it gets above 88 it would look like something more bullish than a 5th wave to complete the leg up from May but at the moment, especially with bearish divergence against the September high, it looks like the dollar's rally could complete at any time now. The short-term pattern suggests it make it closer to the 88 area but it shouldn't push much higher than that. Dollar bulls need to pull stops up tight here. We should get at least a larger pullback to correct the rally from May and possibly something more bearish if the dollar is going to head back down to the bottom of a large sideways triangle since 2008-2009, which mean back down to the $75 area next year. But I continue to believe we'll get a larger rally in the dollar in the coming years, one that will take the dollar up to 110 if not 120. The dollar still smells "less bad" than the other fiat currencies.

U.S. Dollar contract, DX, Weekly chart

The metals have been hammered the past two weeks and gold dropped $118 from a high near 1255 on October 21st to today's low near 1137. In so doing it gave up price-level support near 1180, a level that has supported gold since 2010. It could be heading for the next price-level support line near 1000. It's not likely to be a straight move down to there and with gold now significantly oversold on its daily chart we could see a bounce start at any time. But as depicted on the weekly chart below, I see the potential for gold to hit 1090 before it gets a bigger bounce/consolidation into early 2015. At that level it would retrace 50% of its 2001-2011 rally and it would likely be a good setup for an oversold bounce. Then another leg down towards the 1000 support line in 2015, potentially lower towards the 62% retracement of its 2001-2011 rally, near 893.

Gold continuous contract, GC, Weekly chart

Silver has dropped down to an older broken downtrend line from November 2012 - August 2013, currently near 15.15 (this morning's low was 15.12). This downtrend line was broken in February, acted as support during the pullback into April and is now being tested again. Stronger support should be a price-level S/R near 14.65 and being as oversold as it is on the daily chart we could see a stronger bounce start at any time. As with gold, I think silver will work its way lower into at least early 2015 but we could first see a bounce back up to price-level S/R at 18.60 before dropping again into early next year. The downside target I'm projecting on its weekly chart below is 12.25 by the end of April 2015 where it would find trendline support and potentially put in its final low for its 2011-2015 bear market.

Silver continuous contract, SI, Weekly chart

Along with most commodities, oil has dropped sharply since June and especially since its little consolidation in September. I've had a downside projection for the leg down from June at 74.60, which is where the 2nd leg of the decline from August 2013 would achieve 162% of the 1st leg down. That's also near the prior low at 74.95 in October 2011 so there's reason to expect support in the %75 area and we're now close enough to suggest oil bears need to be very careful -- it's time to draw stops tight. If the 3-wave move down from August 2013 is the completion of another leg inside its larger sideways triangle following the May 2011 high then we'll see the start of another choppy rally to the top of the triangle, currently near 110. But as labeled in red, if the decline from August 2013 is going to turn into a 5-wave move down we'll get just a choppy bounce correction over the next few months for the 4th wave before heading lower in the 5th wave, potentially down to the $70 area by mid-2015.

Oil continuous contract, CL, Weekly chart

Thursday has no market-moving economic reports but Friday will be important as we get the NFP numbers. Before the open tomorrow, at 7:45 AM ET, we'll get to hear what the ECB rate decision will be. While it's not expected, they could surprise the market with some kind of QE announcement. After all, it's important to keep up with the Jones's (Japan in this case).

Economic reports and Summary

On the charts I have us in the 5th waves for each of the indexes for the rally from October's low. The final 5th wave is commonly put in on a news-related spike, which we got with this morning's gap up. So was that it? Is the top in place? It's too early to tell and with some upside potential shown for the different indexes I'm certainly not ready yet to declare a top in place. But it's probably very close, as in hours or days away. Be careful about chasing this rally any higher from here. Whether a high will be THE high or just another in what will become a much larger rally can't be known yet. That will become clearer only after evaluating the pattern of the next pullback/decline. In the meantime the short-term outlook says be prepared for at least a larger pullback.

Depending on your trading/investing horizon, now is a good time to pull stops up tight on long positions if you'd rather not give up all of the gains since October 15th since that's the level, if broken, would indicate the longer-term uptrend has been broken. In other words, longer-term investors can wait for that break before abandoning ship. But if you don't want to give back that much then pull your stops up tight and use the key levels I've given on the charts to trigger your exit. For short traders, use the key levels to indicate when it's safe to get back in the water and trade with the bears (how's that for a mixed metaphor?). If you're following the markets during the day, use the uptrend lines from October 15th, a break of which would be a good signal we hit the bend at the end of the trend.

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

Bullish Guidance

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Columbia Sporswear Co. - COLM - close: 40.01 change: +0.88

Stop Loss: 38.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 138 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
COLM has been consistently beating earnings expectations all year long. The company is part of the consumer goods sector.

According to a company press release, "Columbia Sportswear Company is a leader in the global outdoor and active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company has assembled a portfolio of global brands whose products are sold in approximately 100 countries. In addition to the Columbia brand, Columbia Sportswear Company also owns the Mountain Hardwear, Sorel, prAna, Montrail and OutDry brands."

The trend of earnings in 2014 has been strong with COLM beating Wall Street's earnings estimates four quarters in a row and raising guidance three out of four quarters. Their most recent earnings report was October 30th. Analysts were looking for a profit of $0.87 per share on revenues of $632.29 million. COLM delivered earnings growth of +20% to $0.93 a share. Revenues soared +29% to $675.3 million.

Management then raised their full year 2014 earnings and revenue guidance above analysts' estimates. COLM expects 2014 sales to hit $2.06 billion, which is +22% improvement above 2013. They also expect gross margins to rise 130 basis points from a year ago. COLM is guiding 2014 net income to rise +35% to $1.80 per share.

COLM's president and chief executive office, Tim Boyle, said they expect 2015 net sales to grow at a double-digit rate above their new 2014 estimate of $2.06 billion. They plan to hit mid-teen operating margins.

COLM appears to have strong sales momentum as we head into the crucial holiday shopping season. Retail analysts are expecting industry wide sales to be above average this year. Low gasoline prices provide a great tailwind for all the consumer goods companies.

Technically shares of COLM found support near $34-35 dating back to their prior highs (see the long-term chart below). The rebound has accelerated thanks to the company's earnings report and bullish guidance. Now COLMN is breaking out past resistance at $40.00 and its simple 200-dma. We are suggesting a trigger to open bullish positions at $40.25.

Trigger @ $40.25

- Suggested Positions -

Buy COLM stock @ (trigger)

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

Buy the 2015 Jan $40 call (COLM150117C40) current ask $1.65

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

S&P 500 Hits New High, NASDAQ & Russell Struggle To Follow

by James Brown

Click here to email James Brown

Editor's Note:
The big cap S&P 500 hit a new high on Wednesday but the NASDAQ composite and the small cap Russell 2000 index struggled to follow it higher.

COH hit our bearish entry trigger.


Current Portfolio:


BULLISH Play Updates

Natus Medical Inc. - BABY - close: 33.95 change: -0.04

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
Entry on October 31 at $34.97
Listed on October 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 282 thousand
New Positions: see below

Comments:
11/05/14: BABY is still churning sideways near the $34.00 level. The only good news seems to be the trend of higher lows, which should blossom into new highs again.

I would wait for a new rally past $34.30 before initiating new positions.

Earlier Comments: October 30, 2014:
BABY is in the healthcare sector. The company makes medical equipment to treat newborns. The company's online profile describes NATUS as "a leading manufacturer of medical devices and software and a service provider for the Newborn Care, Neurology, Sleep, Hearing and Balance markets. Natus products are used in hospitals, clinics and laboratories worldwide. Our mission is to improve outcomes and patient care in target markets through innovative screening, diagnostic and treatment solutions."

If you like companies with consistent growth then BABY might work for you. The company has beaten Wall Street's top and bottom line estimates for the last five quarters in a row!

BABY's most recent earnings report was October 22nd. Wall Street was looking for a profit of $0.31 a share on revenues of $87.7 million. BABY delivered $0.33 with revenues rising more than 5% to $89.9 million.

Management then raised their guidance. They expect EPS in-line with analysts' estimates but they offered slightly bullish guidance on Q4 revenues, which should come in above consensus estimates.

Jim Hawkins is BABY's President and CEO. Mr. Hawkins commented on his company's third quarter results saying:

"I am very pleased with our third quarter results as we achieved record revenues and earnings. Both revenue and earnings exceeded the top end of guidance. I am most satisfied with our 63% gross profit margin as well as recording over 5% organic revenue growth. Consistent organic revenue growth and improving margins have been major goals for Natus in 2014 and our results demonstrate significant progress to the achievement of these goals.

I remain excited about our Peloton Hearing Screening Service business as we added 17 hospitals during the quarter and we ended the quarter with 39 hospitals under contact. Including contracts already signed during October, we have exceeded our 2014 goal of 40 hospitals under contract by the end of the year."

Technically shares have been showing relative strength and held up very well during the market's correction between mid-September through mid-October. The stock's recent performance has pushed shares to new all-time highs. Today's intraday high was $34.24. I am suggesting a trigger to open bullish positions at $34.35.

- Suggested Positions -

Long BABY stock @ $34.97

10/31/14 trade opened on gap higher at $34.97, suggested trigger was $34.35


Burlington Stores, Inc. - BURL - close: 42.33 change: +0.23

Stop Loss: 39.85
Target(s): To Be Determined
Current Option Gain/Loss: + 3.1%
Entry on October 30 at $41.05
Listed on October 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 663 thousand
New Positions: see below

Comments:
11/05/14: Traders were buying the dip in BURL this afternoon. Shares look poised to breakout to new highs tomorrow.

Retail-related names could also see movement tomorrow as investors sift through the handful of monthly same-store sales numbers that still get reported.

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.

- Suggested Positions -

Long BURL stock @ $41.05

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

Long DEC $40 call (BURL141220c40) entry $3.10

11/01/14 new stop @ 39.85
10/30/14 triggered @ 41.05
Option Format: symbol-year-month-day-call-strike


Lowe's Companies - LOW - close: 56.94 change: -0.32

Stop Loss: 55.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.4%
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:
11/05/14: Caution! The rally in LOW could be rolling over. The early morning gains faded and LOW underperformed with a -0.5% loss. Today's session created a bearish engulfing candlestick reversal pattern.

Tonight I am raising our stop loss to $55.85. I am not suggesting new positions at this time.

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*

11/05/14 new stop @ 55.85
11/01/14 new stop @ 55.35
10/23/14 triggered @ 55.05
Option Format: symbol-year-month-day-call-strike


The Pantry, Inc. - PTRY - close: 25.92 change: +0.00

Stop Loss: 24.85
Target(s): To Be Determined
Current Option Gain/Loss: +5.8%
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:
11/05/14: The sideways consolidation in PTRY is narrowing. Shares actually closed unchanged on the session. Normally these pennant shaped consolidation patterns of higher lows and lower highs are neutral but more often than not the preceding trend resumes. That means PTRY should be poised to pick up the rally again.

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*

11/01/14 new stop @ 24.85
10/30/14 new stop @ 23.80
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: -0.36

Stop Loss: 24.45
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:
11/05/14: In our original play description for SONC I warned readers that the stock's old 2007 highs near $26.00 could be resistance. We might be witnessing SONC struggle with that resistance today. Shares inched just high enough to hit a new seven-year high ($25.94) and then reverse. The stock found short-term support at $25.00 and its 10-dma late this afternoon.

Investors may want to see a new rally above $25.50 before considering new positions.

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

11/01/14 new stop @ 24.45
10/29/14 triggered @ 25.15
Option Format: symbol-year-month-day-call-strike


Zumiez Inc. - ZUMZ - close: $33.63 change: +0.32

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: - 1.5%
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:
11/05/14: ZUMZ popped at the open and then spent the rest of the day churning sideways. Shares managed to outperform the market with a +0.9% gain.

ZUMZ might outperform again tomorrow because after the bell tonight the company reported strong same-store sales. Analysts were expecting +2.6% October same-store sales. ZUMZ just reported +3.1%.

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

11/01/14 new stop @ 32.45
10/29/14 triggered @ 34.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Coach, Inc. - COH - close: 33.02 change: +0.02

Stop Loss: 34.65
Target(s): To Be Determined
Current Option Gain/Loss: - 0.7%
Entry on November 05 at $32.80
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.6 million
New Positions: see below

Comments:
11/05/14: COH spiked lower this morning but there was no follow through. Shares bounced back to hover near $33.00 the rest of the day. The stock did trade low enough to hit our suggested entry point at $32.80.

I would wait for a new relative low (under $32.70) before initiating new positions.

Earlier Comments: November 4, 2014:
The Coach brand could be dying and may never regain its previous cachet in the luxury goods market. The company describes itself as, "Coach, established in New York City in 1941, is a leading design house of modern luxury accessories and lifestyle collections with a rich heritage of pairing exceptional leathers and materials with innovative design. Coach is sold worldwide through Coach stores, select department stores and specialty stores, and through Coach’s website at www.coach.com."

Unfortunately for COH their sales have been falling for quite some time. They're currently in the midst of a turnaround plan but they're not seeing results fast enough and investors are losing their patience. The company's most recent earnings report was October 28th. COH beat Wall Street's estimates on both the top and bottom line but the devil is in the details.

Analysts were expecting COH's Q1 (calendar Q3) results to be $0.45 per share on revenues of $1.01 billion. The company delivered $0.53 cents and revenues hit $1.04 billion. Sadly, at 53 cents per share, COH's earnings are still down -31% from a year ago. At $1.04 billion, revenues dropped -9.7%. Margins also contracted from a year ago.

A key metric to watch for any retailer is same-store sales. The company gets about 65% of their total sales in the North American market. Sales were down -19%. Same-store sales were off -24%. That was actually better than analysts' estimates of -25.5%. A year ago COH's same-store North American sales were -6.8%. Last quarter they were -17%. You can see the trend is getting worse.

Disastrous sales in the N. America were offset by +4% sales growth internationally. Yet again it's the details that paint the real picture. Japan saw sales drop -12%, which was the eighth quarter of declines in a row. COH saw sales in China rise +10% but that's down from +20% the prior quarter.

Coach's CEO Victor Luis blamed their terrible results on rising competition and "intensified promotional activity". He's right. It's a tough market for the luxury handbag and accessory business. COH's main rival, Michael Kors (KORS) just reported their earnings results today. KORS also beat Wall Street's top and bottom line estimates. Yet KORS warned of slowing growth and same-store sales. That's terrible news as we approach the key holiday shopping season. KORS blamed slower spending in North America and less mall traffic.

Both companies face challenges. COH may not be able to recover. They were once a highly coveted, luxury brand. Yet today they get 70% of their revenues from their discount stores. That could prove to be an impossible job to reverse this trend now that customers expect to buy COH products at a discount. The high-end customer may have moved on.

- Suggested Positions -

Short COH stock @ $32.80

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

Long 2015 Jan $30 PUT (COH150117P30) entry $0.75

11/05/14 triggered @ $32.80
Option Format: symbol-year-month-day-call-strike


Pandora Media, Inc. - P - close: 18.18 change: -0.67

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: + 4.5%
Entry on October 30 at $19.04
Listed on October 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 7.1 million
New Positions: see below

Comments:
11/05/14: The sell-off in Pandora was picking up speed today. Shares underperformed with a -3.5% decline.

Earlier Comments: October 29, 2014:
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.

- Suggested Positions -

Short P stock @ $19.04

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

Long 2015 Jan $19 PUT (P150117p19) entry $1.71

10/30/14 trade begins. P opens @ $19.04
Option Format: symbol-year-month-day-call-strike


Twitter, Inc. - TWTR - close: $40.37 change: -0.53

Stop Loss: 43.05
Target(s): To Be Determined
Current Option Gain/Loss: - 1.6%
Entry on November 04 at $39.75
Listed on November 03, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 27.9 million
New Positions: see below

Comments:
11/05/14: Good news! TWTR did not see a lot of follow through on yesterday's potentially bullish reversal. The stock did spike up toward $42 but gains quickly faded. The stock underperformed the major indices with a -1.29% decline. Traders may want to wait for a new relative low under $39.75 before initiating bearish positions.

Earlier Comments: November 3, 2014:
TWTR is considered part of the technology sector. The company runs a micro-blogging, communication platform. Users can express themselves but they're limited to 140 characters. The platform is part of the social media industry, which constantly gets a lot of attention from Wall Street.

TWTR came public with its IPO about one year ago. The stock priced at $26.00 and shares ended their first day of trading (November 7, 2013) at $44.90. It has been a roller coaster ride for the stock price. TWTR almost hit $75.00 in December last year and then fell to $30 by May 2014. The company has seen incredible growth but even with the growth its valuations fuel a lot of critics. Their P/E ratio is negative. The stock is trading around 20 times its annual revenues and over 100 times next year's earnings.

The stock's most recent earnings report was October 28th and Wall Street was not happy with the results. Analysts were expecting a profit of $0.01 per share on revenues of $351.59 million. TWTR delivered $0.01 cent, matching estimates, and revenues soared +114.9% to $361 million in the quarter.

TWTR's advertising revenue grew +109% to $320 million from the same quarter a year ago. International revenues were up +176%. With all of this growth and the revenue beat, why did TWTR's stock crash on this report?

The reason is user growth. The company's user growth appears to be slowing down. TWTR's Monthly Active Users (MAUs) hit 284 million in the third quarter. That's an improvement of 13 million from the same quarter a year ago. Wall Street was expecting 285 million MAUs and the whisper number was around 290 million or higher.

The 284 million MAU number is a +4.8% growth rate from the same quarter a year ago. Yet a year ago MAUs were growing +6.4%. The prior quarter Q2 2014 MAUs were growing +5.9%. You can see the concern here. TWTR's valuations are based on extremely strong growth, which is it seeing in its ad revenues, but if users aren't growing then ad revenues will likely stall as well.

Management issued Q4 revenue guidance in the $440-450 million range versus consensus estimates around $448 million. This is another reason traders could have hit the sell button. At least five firms downgraded TWTR following these results.

The stock plunged from the high $40s to low $40s on this earnings report. There has been almost no oversold bounce and now shares are hitting new three-month lows near support at $40.00.

Tonight we are suggesting a trigger to open bearish positions at $39.75. I do want to caution readers that there was a rumor of an activist investors getting involved with TWTR but nothing has been confirmed yet. Should that that story prove to be true it could spark some short covering.

- Suggested Positions -

Short TWTR stock @ $39.75

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

Long DEC $40 PUT (TWTR141220P40) entry $2.69

11/04/14 triggered @ $39.75
Option Format: symbol-year-month-day-call-strike