Option Investor
Newsletter

Daily Newsletter, Wednesday, 11/12/2014

Table of Contents

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

Market Wrap

Selling Outlawed

by Keene Little

Click here to email Keene Little
It's at about this time that bears realize the market has outlawed any selling. All pullbacks, tiny as they are, get immediately bought and the market powers higher. Bullish sentiment, and especially the lack of bearish sentiment as bears throw in the towel, makes for a vulnerable market.

Wednesday's Market Stats

The market struggled a little bit today, more so for the blue chips than the techs and small caps. The relative strength in the higher-beta names was a bullish sign for the market since it was more of a risk-on than risk-off kind of day. But we're seeing more evidence behind the numbers that the rally could be in trouble soon and while there's no indication yet that the bears are about to have their turn in the sun, there are reasons for bulls to exercise more caution here.

Equity futures had sold off some last night as European markets declined. There was some disappointment after the Bank of England (BOE) gave a less-than-enthusiastic forecast for the coming year, downgrading both its economic and inflation forecast. They believe England will only see 1% inflation (I think they'll be struggling with deflation like most of Europe next year). It's likely we'll see continual downgrades in Europe for a while. The U.S. stock market gapped down but it was just another buying opportunity and the indexes were immediately pushed back up. Another morning selloff to a higher low was another buying opportunity. The end result of this back and forth is creating narrow-range days as the market is able to make only marginal new highs each day. But the new highs is good for the headlines.

The bears are far and few between right now as bearish sentiment, according to the latest AAII survey, has now dropped to its lowest level since 2005. The rally from October has just about everyone convinced in the end-of-year rally scenario and we're again hearing new predictions for much higher prices, like we were hearing into the September high. It doesn't mean they're wrong but when everyone gets on the same side of the boat it's generally better to don your life vest and crawl over the other side and try to stay away from the panicking crowd when they end up tipping the boat over. We have again reached that point and it's amazing how quickly the mood has completely shifted from the extreme bearishness in mid-October. Not only price volatility has increased; sentiment has become wildly volatile as well.

There was a recent article in Bloomberg (October Is Forgotten) in which the Credit Suisse Fear Barometer (CSFB), which compares put/call option prices three months OTM, is now at its lowest level in more than a year. Even the end-of-year rally into December 2013 did not produce bearish readings as low as today's. The previous low level that is being matched by today's low level was back in August 2013. One driving factor has been the expectation that Japan's, and soon Europe's, QE efforts will continue to push stock markets higher. It would appear everyone is now buying into this theory.

According to Peter Cecchini of Cantor Fitzgerald LP, investors might be placing too much faith in what the central banks will be able to do when it comes to helping the stock market. As I've said for years, the primary benefit or QE is psychological, not the actual money. As long as people feel bullish they'll continue to plow more money into stocks. As Cecchini notes, "The size of stimulus from Japan's central bank is minuscule compared to the $18.5 trillion market value of the S&P 500, while ECB bond buying 'will be a backstop, not a pitching machine.'" At the moment investors are feeling invincible, convinced the central banks of the world are working in concert to power stock markets higher.

The Lipper Weekly Fund Flows report for last week shows a continuation of net inflows into mutual funds but most of that went into taxable bond funds and only a minor amount into equity funds. Digging into the numbers for equity funds shows most of it went into non-domestic funds rather than U.S. funds. The net result was actually a net withdrawal from U.S. equity funds of about $1B and most of that came out of the large cap funds. That hasn't prevented broader market indexes from making new highs because a lot of money continues to pour into the ETFs, with SPY taking the biggest share. But as the rally has progressed it's again doing it on the backs of a smaller number of stocks. This is very visible on the NYSE advance-decline line chart below:

NYSE Advance-Decline Issues, Daily chart

The chart above shows the significant negative divergence that is showing up at recent price highs for the market, which doesn't mean the rally will fail here and now but it does mean that those who are chasing it higher (the retail investors) are very likely going to be the ones left holding the bag while in their canoe hoping to make it up the creek without a paddle and not able to find a chair when the music stops. The new highs since last week are not getting the kind of buying participation it needs to continue much further.

Another indication of potential trouble ahead is being telegraphed by the NYSE McClellan Oscillator, as shown in the chart below. As Tom McClellan writes in his newsletter, the initial thrust to a peak is typically not the price peak for the market. It simply shows the momentum behind the move. But when the oscillator starts back down, indicating a loss of momentum, while prices continue higher it's when investors should be very careful about chasing the market higher. At the moment it's merely a warning sign.

NYSE McClellan Oscillator, Daily chart

So while we've got some market breadth warning indicator lights going off, it doesn't mean the engine driving this thing is going to immediately seize up. Price is king and that's what we have to watch to see when price tells us the rally might be finished. In the meantime bears need to continue to be patient and bears need to be cautious. Stops on long positions should be tucked in tighter.

The SPX weekly chart below shows how close price now is to the trend line along the highs from April 2010 - May 2011, which is currently near 2053. Considering where we are in the rally pattern from October I don't believe the rally will extend beyond that trend line, and that's if it's even reached. What's not clear at this point is whether the October-November rally will complete all of the 5th wave in the move up from October 2011 or just the 1st wave of the 5th wave. The risk for those who want to hold on during a pullback, with the expectation that the rally will continue into next year, is that the pullback could turn into a more serious decline. Only after we get a pullback/decline will we have a better sense of what should follow. But in either case, we should be looking for at least a pullback very soon.

S&P 500, SPX, Weekly chart

The daily chart below also shows the trend line along the highs from July-September, which is currently near 2045. In between is the broken uptrend line from November 2012 - February 2014, near 2051. That gives us an upside target zone by these trend lines at 2045-2053.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2055
- bearish below 2001

The rally from the pullback on October 22nd had been contained in a parallel up-channel, as can be seen on the 60-min chart below. SPX then dropped out of the channel, did a little back-test and then ran out sideways. From an EW perspective, the 1st wave (up to the October 22nd high) is an extended wave and it's common in that case to see the 3rd through 5th waves achieve equality with the 1st wave, which is the projection shown at 2055. That opens the target zone slightly to 2045-2055. It doesn't mean SPX will get there, or stop there, but it's a potentially important area to watch for a top.

S&P 500, SPX, 60-min chart

With SPX rolling over and out of the parallel up-channel it's giving us the appearance of a rolling top following the November 3rd high. In addition to the 5th wave being a choppy ending pattern, the fact that it's creating a rolling top says the rally shouldn't have much more gas left in the tank. All the indexes have this rolling-top pattern and therefore bulls are being forewarned here.

The DOW has a little more upside potential if it's going to reach its trend line along the highs from May 2011 - May 2013, which is currently up near 17820, another 200 points higher. That would have SPX blowing through its resistance zone on its way to 2060-2070 so we'll see how SPX does if it reaches 2055. This morning the DOW found support at its broken trend line along the highs from December 2013 - July 2014 and its uptrend line from November 2012, both near 17520. It's possible to look at today's candle as a hanging man doji but it would not be confirmed bearish until the DOW drops back below support and this morning's low.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,500
- bearish below 17,278

Last week NDX had formed a sideways triangle continuation pattern, which typically leads to the final move (up in this case). From an EW perspective a 4th wave triangle is a common pattern and it leads to the 5th wave. A sideways triangle is filled with choppy moves, which it was, and if that choppy price action continues into a choppy rally it's usually a very good sign that the 5th wave is going to form an ending diagonal (rising wedge). It's an ending pattern and so far this week's price action supports that interpretation, which shouldn't gain many more points. In fact it's possible this afternoon's high was the completion of the pattern.

The small rising wedge for this week's choppy rally points to a possible top around the 4200 area (today's high was 4199) while the daily chart points to a little higher potential. The trend line along the highs from April 2010 - April 2012 is currently near 4215 and the 127% extension of its September-October decline is near 4233. Above 4235 would be a bullish move but at the moment the EW count and the ending pattern suggests this rally could top out at any time.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4235
- bearish below 4126

The ending diagonal 5th wave idea is shown on the 15-min chart below. It argues for a top sooner rather than later, potentially at this afternoon's high. The pattern for the 5th wave, up from November 6th, is hard to decipher and the wave count is my best guess at the moment. The matching wave labels on MACD support the count but it means it will need to turn back down right here right now. If it continues higher we'll then have at a minimum a larger rising wedge but it remains an ending pattern regardless and therefore not a good time to chase it higher from here. A drop below this afternoon's low near 4187 would be a bearish heads up and below yesterday's mid-morning low near 4174 would confirm the rally is likely done.

Nasdaq-100, NDX, 15-min chart

The RUT has reached an interesting level, which is an important level for the bulls to break through. The September high, at 1183.85, was slightly broke today with a high at 1187.20. Coinciding with that level is the broken uptrend line from March 2009 - October 2011, which stopped the rally into the previous high on November 3rd. Was today's push higher in the final hour just a stop run to be followed by a quick reversal tomorrow morning? It wouldn't be the first time. But if today's rally holds it will open the door to the March and July highs near 1213. At the moment we only have a test of the September high, potentially mirroring the double top in July when it tested the March high.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1185
- bearish below 1160

While it looks like the stock indexes are forming rounding topping patterns we've got the opposite for bond prices, represented by the 20-year Treasury Bond ETF, TLT. As can be seen on its 120-min chart below, the rounding bottom is following the sharp move back down after peaking on October 15th (the same day that the stock market did its v-bottom reversal). With bonds and stocks continuing to trade inversely, the rounding bottom supports the idea that we should be looking for a coming rally in the bond market (declining yields) and a decline in the stock market. The reversal for both is just taking its sweet old time.

20+ Year Treasury ETF, TLT, 120-min chart

Following this week's rally above the trend line across the highs from July-September, the TRAN headed for a longer-term trend line across the highs from May 2013 - July 2014, which it almost tagged with yesterday's high at 9104. For its rally from October 2011 the 5th wave, which is the ramp up from October, would equal the 1st wave 9430.80, shown on its daily chart below. That's the upside potential if it can get above the trend line, near 9135 on Thursday and 9142 on Friday.

Transportation Index, TRAN, Daily chart

Last week the U.S. dollar made it up to the projection near 88 were the 5th wave of its rally from May equals 162% of its 1st wave. That should be good enough for at least a larger pullback over the next couple of months to correct the May-November rally before starting back up again. If the dollar continues to hold above its downtrend line from May 2009 - June 201, near 86.94, that would keep it bullish. But at the moment it could be just a throw-over that will lead to a head-fake break.

U.S. Dollar contract, DX, Weekly chart

Following gold's strong rally last Friday it has struggled to hold onto those gains. The rally had taken gold right up to price-level resistance near 1180, which had been support since June 2013. Once that support level broke on October 31st it's natural for it to turn into resistance. It's hard to determine at this point whether the next higher-odds move will be down to the 1090 area (50% retracement of its 2001-2011 rally) or head up to the top of its down-channel from 2011-2012, currently near 1250. For now, it remains bearish below 1180.

Gold continuous contract, GC, Weekly chart

Oil's short-term pattern continues to support the idea we'll see a low near 75 before getting a bigger bounce. Much below 74.50 would point to a drop below 70 but bullish divergence on the daily chart suggest oil bears need to tighten their stops.

Oil continuous contract, CL, Weekly chart

There are no market-moving economic reports Thursday morning so it will be up to overseas markets to help define where our market will start.

Economic reports and Summary

We've reached the point in the rally, especially with what looks like rounding tops being put in place, where it's too risky to be long the market but too early to be short. A rounding top is difficult to play because it's a slow reversal and the dips keep pulling in the buyers while shorts keep getting stopped out and soon give up trying. As the market runs out of buyers it becomes more vulnerable to a stronger decline and I think that's where we are. The topping process can take weeks, sometimes months, and it's typically a good time for traders to exercise patience and not get sucked into every little squiggle. These are the times when traders send their brokers' kids to college since they're the only ones making money from your trade commissions.

The market sentiment says the central banks of the world are accomplishing what they need most -- to keep investors feeling bullish and buying. They continue to suck in the unsuspecting while smart money offloads inventory (it's what creates the rounding top). The strong inflows of money into equity funds in the past couple of weeks (although slowing in the past week, which is another reason why the market is slowly rolling over) tells us the retail investor has literally bought into the idea of an end-of-year rally. But keep in mind that what's obvious to many is obviously wrong. Don't go with the crowd, or at least recognize when you're with the crowd and be ready to be one of the first to jump out.

All in all, you have to figure the Fed has certainly accomplished their goal. This cartoon says it all:

Good luck, trade safe 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

Potential Short Squeeze Candidate

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Blue Nile Inc. - NILE - close: 36.85 change: +0.55

Stop Loss: 34.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 153 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
NILE is in the services sector. "Blue Nile, Inc. is the original online jeweler. The company offers a smarter way to buy engagement rings, wedding rings, and fine jewelry by providing in-depth educational materials and unique online tools that place consumers in control of the jewelry shopping process. Blue Nile has some of the highest quality standards in the industry and offers thousands of independently certified diamonds and fine jewelry at prices significantly below traditional retail. Blue Nile can be found online at www.bluenile.com." (source: company press release)

The company has struggled to meet expectations. They had missed Wall Street's revenue estimates three quarters in a row. Their Q2 report was August 5th. Not only did NILE miss estimates but they guided lower. The stock dipped to $23.10 on its August report and that appears to be the low for the year. All the bad news may be priced in.

More importantly, after missing estimates for multiple quarters, NILE actually met estimates when they announced their Q3 results on October 30th. The company's Q3 results were a profit of $0.14 a share and revenues of $105.76 million, which is a +7% improvement over a year ago. International sales were a bright spot for the company with an increase of +25%.

Management then offered relatively bullish guidance of $0.42-0.47 a share for the fourth quarter versus consensus estimates of $0.43. NILE expects revenues of $159-174 million versus Wall Street's estimate of $162 million. This optimistic guidance sparked a short squeeze and the stock soared from about $30 to almost $35.

NILE has been able to hold on to these gains. The last two weeks has been a sideways consolidation phase for the stock. The shorts have to be terrified. NILE said they have bought back 1.2 million shares of their own stock this year. They didn't have a lot of stock outstanding to begin with. The most recent data listed short interest at 26% of the 11.75 million share float. Since NILE does not trade a lot of volume (only 153K on average) that is a significant amount of short interest.

Currently the National Retail Federation is expecting holiday shopping to rise +4.1% this year. That is above last year's +3.1% improvement and above the +2.9% 10-year average. Forester Research is estimating that online shopping will see a +13% improvement over last year. This should be a decent environment for NILE this year.

If NILE breaks out to new relative highs it could see another short squeeze. Tonight we are suggesting a trigger to open small bullish positions at $37.25. We do want to keep our position size small because NILE can be volatile.

Trigger @ $37.25 *small positions*

- Suggested Positions -

Buy NILE stock @ $37.25

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

Buy the Dec $35 call (NILE141220c35) current ask $2.75

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

Annotated Chart:



In Play Updates and Reviews

Twitter Soars On Its Analyst Day

by James Brown

Click here to email James Brown

Editor's Note:
Shares of Twitter (TWTR) soared +7.4% on its analyst day presentation. The rest of the market spent Wednesday's session consolidating sideways.

CYNO hit our entry trigger.
SNCR has been removed.
COH hit our stop loss.


Current Portfolio:


BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 49.39 change: +0.20

Stop Loss: 46.75
Target(s): To Be Determined
Current Option Gain/Loss: + 6.2%
Entry on November 07 at $46.50
Listed on November 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.6 million
New Positions: see below

Comments:
11/12/14: AMBA is still flirting with round-number resistance near $50.00. Shares did manage to outperform the major indices with a +0.4% gain.

Tonight we are moving our stop loss up to $46.75. I am not suggesting new positions at this time.

Earlier Comments: November 6, 2014:
AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June this year and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. I mention GPRO because AMBA happens to make the HD camera sensors in many of GPRO's products. As GPRO rallies it could be giving AMBA a boost and GPRO expects record sales this holiday season. I find it interesting that GPRO has been chopping sideways the last few weeks while AMBA has hit new highs.

Another note on GPRO, the company reported earnings on October 30th and beat estimates on both the top and bottom line. GPRO management then raised their earnings guidance significantly above Wall Street's estimates. That should spell good news for AMBA's business with GPRO.

GPRO isn't the only one with strong earnings. AMBA's rally has been helped by consistent earnings growth. The company has beat Wall Street's estimates on both the top and bottom line for the last four quarters in a row. Their most recent earnings report in September saw AMBA's management raise their revenue guidance.

Shorts are getting killed. As the rally continues AMBA could see more short covering. The most recent data listed short interest at 26.7% of the small 28.0 million share float.

Currently AMBA is bouncing from the $44.00 level after a two-day pullback. If this rebound continues we want to hop on board. The company will likely report earnings in early December so our time frame is the next four to six weeks.

- Suggested Positions -

Long AMBA stock @ $46.50

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

Long DEC $50 call (AMBA141220C50) entry $2.15

11/12/14 new stop @ 46.75
11/07/14 triggered @ $46.50
Option Format: symbol-year-month-day-call-strike


Burlington Stores, Inc. - BURL - close: 42.73 change: +1.18

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: + 4.1%
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:
11/12/14: The cold weather across the country is making headlines. That could have consumers thinking about buying new coats, which would be good news since BURL sells a lot of coats.

Shares of BURL displayed relative strength with a +2.8% rally toward its recent highs.

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

11/10/14 new stop @ 40.65
11/01/14 new stop @ 39.85
10/30/14 triggered @ 41.05
Option Format: symbol-year-month-day-call-strike


Columbia Sportswear Co. - COLM - close: 40.86 change: +0.10

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: + 1.4%
Entry on November 06 at $40.25
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 138 thousand
New Positions: see below

Comments:
11/12/14: I just mentioned the cold weather as a potential boon for BURL. This morning CNBC mentioned COLM as a potential play on colder weather.

Last year was one of the coldest winters in the U.S. in several years. This year there is speculation that it could be the coldest winter in decades.

Shares of COLM drifted sideways today. We are raising our stop loss to $39.25.

Earlier Comments: November 5, 2014:
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.

- Suggested Positions -

Long COLM stock @ $40.25

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

Long 2015 Jan $40 call (COLM150117C40) entry $1.75

11/12/14 new stop @ 39.25
11/06/14 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike


Cynosure, Inc. - CYNO - close: 27.40 change: +1.25

Stop Loss: 24.75
Target(s): To Be Determined
Current Option Gain/Loss: +4.4%
Entry on November 12 at $26.25
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 201 thousand
New Positions: see below

Comments:
11/12/14: Our brand new play on CYNO is off to a strong start. The stock opened at $26.04 and spent the entire day marching higher. CYNO sprinted past the broader market with a +4.78% gain. Our trigger to open bullish positions was hit at $26.25.

Earlier Comments: November 11, 2014:
CYNO is in the healthcare sector. The company is part of the medical equipment industry. According to a company press release, "Cynosure designs, manufactures and markets medical devices for aesthetic procedures and precision surgical applications worldwide that enable plastic surgeons, dermatologists and other medical practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular and benign pigmented lesions, remove multi-colored tattoos, revitalize the skin, liquefy and remove unwanted fat through laser lipolysis, reduce cellulite, clear nails infected by toe fungus and ablate sweat glands."

Their flagship product is the PicoSure laser workstation, designed to remove tattoos. This laser technology produces ultra-short bursts of energy to the skin in trillionths of a second. The company recently gained FDA approval to use their PicoSure system to treat acne scars and wrinkles.

CYNO's earnings results have been mixed. Their Q1 report back in May missed estimates by four cents even though revenues were up +52% from a year ago. The stock sold off on this report. They followed that with a Q2 report in July that beat estimates as revenues soared +45% from a year ago. Growth slowed a bit in their latest report in October.

Analysts were expecting 25 cents a share on revenues of $70 million. CYNO met expectations on the bottom line while the top line grew +18% to $71.5 million.

CYNO's Chairman and CEO Michael Davin commented on the quarter saying, "Cynosure delivered record third-quarter revenue of $71.5 million, up 18 percent year-over-year as revenue in each of our direct sales channels improved from the same period in 2013. North American laser revenue increased 17 percent, revenue from our Asia Pacific subsidiaries rose 46 percent, while our European direct sales channel was up 7 percent. Product and technology innovation, expanded indications and new international marketing clearances continue to drive favorable results for the Company."

Discussing his company's outlook Davin said, "We are on schedule to launch our next flagship platform in 2015 for non-invasive fat removal, and we believe this large addressable market represents a significant growth opportunity for the Company."

Technically shares have broken out from a six-month consolidation in the $19-24 range. The rally following its October earnings report lifted CYNO above key resistance at $24.00 and its 200-dma. Shares have already retested this level as support and now the stock is breaking out to multi-month highs. The point & figure chart is bullish with a $31.50 target.

Tonight I am suggesting small bullish positions if CYNO can trade at $26.25. We want to keep our position size small to limit our risk.

*small positions* - Suggested Positions -

Long CYNO stock @ $26.25

11/12/14 triggered @ 26.25


International Paper Co. - IP - close: 54.05 change: +0.43

Stop Loss: 52.35
Target(s): To Be Determined
Current Option Gain/Loss: +1.4%
Entry on November 10 at $53.30
Listed on November 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.8 million
New Positions: see below

Comments:
11/12/14: The rally continues in IP. The stock is on track for its fifth weekly gain in a row. Tonight we are moving the stop loss to $52.35.

Earlier Comments: November 8, 2014:
IP is part of the consumer goods sector. According to a company press release "International Paper (IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging and uncoated papers. Headquartered in Memphis, Tenn., the company employs approximately 65,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2013 were $29 billion (which included our now divested xpedx business)."

The company has been facing a lot of headwinds this year but they still managed to beat Wall Street's earnings estimates three quarters in a row. Their most recent earnings report was November 4th. Analysts were expecting a profit of $0.89 per share on revenues of $6.0 billion. IP reported a profit of $0.95 with revenues beating estimates at $6.05 billion.

The company saw significant improvements in its operating profits in all three categories: industrial packaging, printing papers, and consumer packaging. Management expects a surge in packaging orders in the fourth quarter.

Wall Street loves the company's focus on delivering value to shareholders. IP is almost done with their $1.5 billion stock buyback program they announced in September 2013. They also raised their dividend 14% from $1.40 to $1.60. This is IP's third consecutive fourth quarter double-digit dividend increase. The stock now sports a 3.0% yield.

IP's CEO said they were looking seriously at converting part of their business into a master-limited partnership (MLP). This would be another shareholder friendly step as MLPs do not pay federal tax if the return most of their cash to shareholders.

The stock's current rally has produced a buy signal on the point & figure chart with a long-term target at $70.00. This last week has seen shares of IP break out to new multi-year highs. It is also on the verge of breaking out from a major channeling pattern on its weekly chart (see below).

Tonight we are suggesting a trigger to open bullish positions at $53.30.

- Suggested Positions -

Long IP stock @ $53.30

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

Long 2015 Jan $55 call (IP150117c55) entry $1.21

11/12/14 new stop @ 52.35
11/10/14 triggered @ 53.30
Option Format: symbol-year-month-day-call-strike


Lowe's Companies - LOW - close: 58.22 change: +0.22

Stop Loss: 57.40
Target(s): To Be Determined
Current Option Gain/Loss: +5.8%
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:
11/12/14: LOW is climbing towards next week's earnings report. Shares added another +0.3% today. The 10-dma is up to $57.44. We will raise our stop loss to $57.40.

We are planning to exit this trade on Friday. 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

11/12/14 new stop @ 57.40
11/11/14 new stop @ 56.95
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: 26.34 change: +0.07

Stop Loss: 25.70
Target(s): To Be Determined
Current Option Gain/Loss: + 7.5%
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:
11/12/14: PTRY spent another day bouncing along short-term support near $26.00.

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*

11/11/14 new stop @ 25.70
11/08/14 traders may want to take some money off the table here.
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: 25.14 change: +0.07

Stop Loss: 24.45
Target(s): To Be Determined
Current Option Gain/Loss: -0.0%
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:
11/12/14: I am growing concerned with our SONC trade. Shares are just drifting sideways on either side of the $25.00 level. If SONC doesn't improve soon we'll likely drop it. I am not suggesting new positions at this time.

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: $35.89 change: +1.95

Stop Loss: 33.35
Target(s): To Be Determined
Current Option Gain/Loss: + 5.1%
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:
11/12/14: Right on cue shares of ZUMZ bounced from its trend of higher lows. The stock raced to a +5.74% gain and a new two-year high.

We are updating the stop loss to $33.35.

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

11/12/14 new stop @ 33.35
11/01/14 new stop @ 32.45
10/29/14 triggered @ 34.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Pandora Media, Inc. - P - close: 18.79 change: +0.20

Stop Loss: 20.05
Target(s): To Be Determined
Current Option Gain/Loss: + 1.3%
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:
11/12/14: The competition continues to line up against Pandora. Today Google's YouTube announced an $8-$10 a month music service. Surprisingly shares of Pandora weathered this news well and managed a +1.0% gain.

I am not suggesting new positions at this time.

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

11/08/14 new stop @ 20.05
10/30/14 trade begins. P opens @ $19.04
Option Format: symbol-year-month-day-call-strike


Twitter, Inc. - TWTR - close: $42.54 change: +2.95

Stop Loss: 43.05
Target(s): To Be Determined
Current Option Gain/Loss: - 7.0%
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:
11/12/14: We knew today was going to be volatile. I've been warning readers about it all week. TWTR held its analyst day today. Pressure was mounting on TWTR CEO Dick Costolo. Management offered a slick presentation on how they will make changes to achieve their goal of building the largest daily audience in the world.

One new strategy is that TWTR will create an "instant timeline" to immediately fill your twitter feed with content the company thinks you might want (and that probably means more ads to put in your twitter feed).

Twitter also plans to improve their private messaging features. They also plan to introduce new apps and services based on the twitter platform.

It looks like the bulls outnumbered the bears and the stock shot higher with a +7.45% gain. The intraday high was $42.94. Our stop loss is at $43.05. More conservative traders may want to exit now but we're going to hang on. Today could have been a one-day pop and most of the damage is already done. I am not suggesting new positions at this time.

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

11/12/14 TWTR soars following its analyst day presentation.
11/04/14 triggered @ $39.75
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Synchronoss Technologies - SNCR - close: 49.31 change: -3.44

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 10, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 504 thousand
New Positions: see below

Comments:
11/12/14: Ouch! It was a rough day for SNCR. Shares reversed sharply lower and underperformed the market with a -6.5% decline. Our trade has not opened yet. Given today's relative weakness we are removing SNCR as a candidate.

Trade did not open.

11/12/14 removed from the newsletter, suggested entry was $54.15.

chart:


CLOSED BEARISH PLAYS

Coach, Inc. - COH - close: 35.16 change: +0.87

Stop Loss: 34.65
Target(s): To Be Determined
Current Option Gain/Loss: - 5.6%
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:
11/12/14: The bounce in COH continued on Wednesday. Shares are up five days in a row. Today saw the bounce pick up speed (+2.5%). I suspect it's short covering. Whatever the reason COH hit our stop loss at $34.65.

- Suggested Positions -

Short COH stock @ $32.80 exit $34.65 (-5.6%)

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

2015 Jan $30 PUT (COH150117P30) entry $0.75 exit $0.25 (-66.6%)

11/12/14 stopped out
11/11/14 Traders may want to exit early, COH is not cooperating
11/05/14 triggered @ $32.80
Option Format: symbol-year-month-day-call-strike

chart: