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Daily Newsletter, Saturday, 11/15/2014

Table of Contents

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

Market Wrap

Another Lackluster Day but Still a Record High

by Jim Brown

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Market Statistics

For the last two weeks the Dow and S&P have been trading sideways but seemingly always able to close slightly higher in record territory. That streak ended for the Dow on Friday but we can't really say an 18 point loss was a disaster. It was a rounding error at most. Visa was the only Dow stock to lose more than $1.

The S&P narrowly missed ending in negative territory with a 0.49 point gain. That was enough to keep it closing over the 5 day average for 21 consecutive days and tied for the second longest streak since 1998. There was a 23 day streak back in July 1998. It was really close and a surge of buy orders in the last 3 minutes of trading pushed the index back over the average at 2039.07. This is a sign of how overbought the market is today.


There was a flurry of economic reports on Friday with the October Retail sales the most watched. Sales rose +0.3% in October and reversed the -0.3% decline in September. The two big losers were gasoline stations, which is obvious given the drop in gasoline prices, and electronics and appliances. Analysts said the drop from +4.7% in electronics sales in September to a -1.6% decline in October was the result of the iPhone schedule. Sales are counted when the phones are delivered to the stores not when customers buy them. Gasoline stations saw a -1.5% decline in sales.

Gains came from nonstore retailers at +1.9%, sporting goods and hobbies +1.2% thanks to consumers preparing for the arrival of winter sports and hunting season. Food service and bars rose +0.9% as consumers put food in their mouths using the savings from their recent gasoline fill ups.

The headline number of +0.3% was uninspiring but at least it was a gain. If you remove gasoline sales and sales of automobiles it jumps to +0.6% and a much better number. Obviously you can't whine about overall mediocre sales if the majority of the drop was due to falling gasoline prices.

Consumer Sentiment for November spiked nearly +3 points to 89.4 and a seven-year high. That is the highest reading since July 2007. The current conditions component rose nearly +5 points from 98.3 to 103.0 while the expectations component rose +1 point from 79.6 to 80.6. The falling gasoline prices and the outcome of the election were cited as reasons for the gain in the present conditions component. Shoppers said they feel the best about their economic situation since before the recession. This bodes well for the holiday shopping season and the stock market for the rest of the year.


Business inventories rose +0.26% for the September period. That is the average for the last three months and erases a decline to +0.13 in August. This is a lagging report and was ignored.

Import prices declined -1.3% in October to double the -0.6% decline in September. This is the fourth consecutive month of declining import prices and it does not take a genius to realize this was due to falling oil prices. If we take out the drop in oil prices the headline number would have only been down -0.1% and that is a significant difference. Oil prices declined -6.9% for the month. Export prices declined -1.0% and that was also due to lower prices for gasoline and diesel that we export.

Natural gas injections into storage totaled +40 Bcf last week as the cold weather increased demand significantly. We have been averaging about 90 Bcf into storage every week. I expect the withdrawal season to begin this week with net withdrawals from storage instead of injections. Nat gas inventories are -5.7% below year ago levels and -6.2% below the five year average. With another super cold surge of arctic air scheduled for this week those gas heaters and gas fired electrical plants are going to be running close to capacity.

The calendar for next week is pretty busy with the FOMC minutes the major event. The minutes for the prior meeting upset the market when they were released on Oct 8th and these have the same potential. These will tell us what the Fed heads were thinking about future rate hikes as they voted to end QE in late October. Particular attention will be paid to any comments about ending the "considerable period" language.

Next most important will be the Philly Fed Manufacturing Survey on Thursday. This is the proxy for the ISM and future Fed reports for November. Expectations are for a decent increase from 20.7 to 24.0.

Everything else in green is of market interest but they are not normally market movers. The new residential construction, NAHB Housing Index and the existing home sales will be the most important of that last group.

The Q3 earnings cycle is nearly complete. This is the last week with any real activity and LOW, HD, BBY, GMCR highlight a list heavy in retailers.


Amazon was in the news a lot last week. They stealth announced on Friday by updating a page on their websites that you can now get a Kindle for free for 30 days and Amazon pays the shipping both ways. If you decide to keep it over your 30 day "trial" then they will charge you for the device. They also announced a new software download that has a lot of new features like instant definitions of any highlighted word and the ability to share books among family members on their own Kindles that are registered to different Amazon accounts. I could go on but there is a long list of new features.

They also announced a settlement with Hachette Book Group on a new multi-year contract for sharing of ebook revenues. In the old contract for a $9 book sale Amazon would get $2.70, the publisher would get $4.72 and the writer $1.58. Amazon proposed a new sharing arrangement. Amazon suggested 35% for the publisher, 35% for the author and 30% for Amazon. The retailer is the largest ebook seller by far with 60% of the market so it is critical for publishers and authors to maintain positive relations with Amazon.

Everybody keeps beating Amazon up because they don't make any money. Bezos could turn on the profits at any time simply by making the decision to do it. Most people don't realize that Amazon has the biggest cloud on the planet and it is growing at the rate of 40% a year. The amount of data online doubles every year. They have five times as much capacity as the next 14 competitors combined. If the Amazon Web Services (AWS) division was spun off it would be valued in the $17-$20 billion range.

AWS has more than one million customers. Amazon has 11 cloud regions around the world. Each region has multiple datacenter clusters. There are 28 total clusters around the world. Each of those clusters has one or more datacenters, with the typical facility containing 50,000 to 80,000 servers. Gartner Research said Amazon has more than two million servers. If you compared them to Rackspace (RAX) they are not even on the same planet. Rackspace has 6 datacenters with a little more than 100,000 servers total. Microsoft has 17 regions with more than 1 million servers and Google has 3 regions with just over 1 million servers according to Steve Ballmer. A former Amazon engineer said the company may eventually end up with a datacenter in every state at the rate they are expanding. Amazon has a 27% share of the market followed by Microsoft at 10% and IBM and Google slightly less than that according to Synergy Research.

Revenue from AWS was $1.34 billion last quarter and they should exceed $4 billion for the year. Numerous Amazon associates and outside analysts believe AWS revenue will eventually exceed that of the retail side of Amazon. Portions of this Amazon commentary came from an article by Jack Clark at Global Tech. Amazon Cloud

Jeff Bezos is building a total business of unbelievable scale and long term Amazon will rule the online retail market even more than it does today. I have bought more than 50 items from Amazon since September 1st not counting ebooks. I rarely ever go shopping in my car.


Google saw the future and Google Wallet was not in it. Google announced it was terminating Google wallet for third-party digital purchases. Google cited a maturing industry as the reason for the cancellation. They said the landscape of mobile payments has become competitive and variable since the Wallet launched in 2012. No replacement will be offered. It will officially terminate on March 2, 2015. The Wallet will remain the payment system for the Google Play Store.

Google Glass may be headed the way of Google Wallet. Apparently developers are bailing from the project in record numbers and sales of the $1,500 test version of the product have died. Many developers are now saying that Glass will never become a consumer product but it may have some technical uses in some fields. Reuters contacted 16 major app builders and nine said they had stopped work on their projects or abandoned them because of a lack of customers or limitations of the device. Three others have switched from consumer development to development for specific business applications. Twitter also dropped support for the device.

Little Guy Games, said they were no longer developing for Glass because there was no market for the devices. Several key Google employees instrumental in developing Glass have now left Google for greener pastures. A Google Glass funding consortium headed by Kleiner Perkins Caufield & Byers and Andreessen Horowitz quietly deleted their website and forwarded clicks to the main Google Glass site. The Glass Collective, a funding consortium, also closed its website. Glu Mobile was the first to launch a game on Glass but has now discontinued work on it. Google is now selling Glass in bulk at a 50% discount to businesses. Apparently just having Google's name on something does not make it successful. Google shares have been struggling recently as the bloom fades from the company. Driverless cars, mysterious barges, monster wind farms, etc are not as profitable as Android phones and online advertising.


Shares of Virgin America (VA) were priced on Thursday at $23 and opened for trading on Friday. Shares rose to $30 at the close but that was pretty much guaranteed with only 12 million shares available to trade. Richard Branson will own 24.8% post IPO and Cyrus Capital Partners will own 32.8%. The airline has 66 planes and operates out of California with high traffic routes inland. They claim their cost structure is 30% lower than other carriers.


Movado Group (MOV) had a bad day. The company provided guidance for Q3/Q4 and apparently nobody is buying Movado watches. The company said the watches are not selling well overseas and some of their fashion brands including Lacoste and Scuderia Ferrari are also underperforming. They now expect Q3 earnings in a range of 86-87 cents and analysts were looking for $1.13. Revenue estimates were cut from $216.6 million to $188.6 million. For Q4 earnings are now expected to be between 18-23 cents and analysts had expected 50 cents. They also cut the full year forecast to $1.83 down from $2.44. Shares fell -31% on the news.


Shares of Baker Hughes (BHI) surged on Thursday afternoon after the Wall Street Journal said they were in talks to be acquired by Halliburton (HAL). Baker Hughes confirmed the story but warned there was no guarantee of a completed deal. Shares rallied from $49 to $62 but faded somewhat on Friday after another story broke that the deal negotiations were hung up on the purchase price and on the billions of dollars of assets that would have to be sold to get regulatory approval. Analysts say Halliburton may have to divest as much as 20% of Baker Hughes. Halliburton has discussed setting up a new unit to hold assets it is willing to divest. The combined company would have 39% market share in the onshore fracking market and more than double Schlumberger (SLB). Hughes Tool was started in 1909 and merged with Baker International in 1987. Halliburton started in 1914.

Analysts believe it will take something in the $70-$75 range to buy Baker Hughes. The stock traded at those levels as recently as July. The -31% drop in oil prices since June has decimated many of the stocks in the energy sector. Baker Hughes declined to $50 before the news broke about the talks.

Update: Late Saturday Halliburton said it intends to nominate a full slate of directors to replace the BHI board after negotiations broke down over price. The shareholder meeting is in April 2015. Baker Hughes published 3 letters to Dave Lesar, CEO of Halliburton, claiming the price was too low and the harsh negotiating tactics Halliburton was using were inappropriate and were trying to force a sale that undervalued the company. The company statement said, "Baker Hughes believes that Halliburton’s various attempts at coercive tactics, instead of being willing to negotiate a reasonable value for the Company's stock and despite having stated twice that they have room to increase the value of their offer, are attempts to control both sides of a negotiation and are entirely inappropriate." It looks like the war has begun.


Pandora (P) rallied +16% after CEO Brian McAndrews personally bought 25,000 shares in the open market for $465,000. He now holds 475,392 shares. The purchase was seen as a vote of confidence ahead of discussions with the Copyright Royalty Board (CRB) next week. The meeting with the CRB is expected to be on case theory rather than Pandora's strategy in copyright proceedings. Pandora filed a lengthy proposal the second week of October. The proceedings are in the discovery period that lasts until early December. Both parties have proposed different rate structures. Something has to change. On one streaming service a song was streamed more than 6 million times and the singer received only $104 in royalties.


Hertz (HTZ) announced on Friday it was going to restate earnings for 2012 and 2013 in addition to the previously announced restatement of 2011 earnings. The company already withdrew 2014 guidance after discovering a series of accounting errors. The review process and the restatement will not be completed until mid 2015. Shares dropped sharply on the news but recovered to lose only -4.6%.


Caesars Entertainment (CZR) said on Friday the company would run out of cash in 2015 and would be forced to file bankruptcy if it can't restructure its obligations through creditor agreements. The company burned through $550 million in the last 9 months and expects negative cash flow for the foreseeable future. The company has $25.5 billion in debt. They have reached preliminary agreements on a prearranged bankruptcy with six of its first-lien bondholders but there are plenty left representing billions in debt. The company was taken private in 2008 for $30.7 billion just as the financial crisis appeared. Without an agreement with everyone "there is substantial doubt in Caesars ability to continue as a going concern after Q4-2015." Shares were little changed on the news. Apparently trades believe they will get that agreement. Even if they do get an agreement for a prepackaged bankruptcy it is still a bankruptcy and the share value is sure to suffer. This looks like a good short to me. The spike in the shares last week was the news they had tentative agreements with those six bond holders. I would be surprised if they didn't take advantage of the share spike to do a secondary offering.


Oil prices may have firmed on Friday but gasoline prices are still in free fall. The price of gasoline in the futures market dropped to $1.99 briefly intraday on Friday. That is down from $3.15 back in June. Consumers are in for a real treat for their Thanksgiving drive to grandma's house. The national average for gasoline prices fell to $2.91 on Friday and it still has a long way to go to catch up with the falling oil prices. I paid $2.46 on Thursday in Denver with a few cents off for a loyalty card and I was very happy. Analysts are saying we could see average prices in the $2.75 range by the end of December but some states are already under that level.


Friday was the deadline for hedge funds to file their 13F forms showing changes in their portfolios for Q3. Here are some brief summaries from some of the big names.

Oberweis Asset Management sold all its 1.3 million shares in NQ Mobile (NQ). Valiant Capital Management bought 2.0 million shares of NQ for a 3.9% stake in the company. Research firm Muddy Waters LLC accused NQ of being a massive fraud about a year ago and the company undertook an extensive audit to prove otherwise. ChinaRock Capital Management owns 9.2 million shares or 18%.

Leon Cooperman's Omega Advisors sold its entire 1.3 million share stake in Qualcomm (QCOM). The company also sold 20.5 million shares in Sprint (S). They bought $36 million in Alibaba (BABA) and $59 million in Groupon (GRPN). Omega sold its $30.8 million stake in SeaWorld (SEAS).

Berkshire Hathaway (BRK.B) bought a $35 million stake in Express Scripts (ESRX) with 449,489 shares held at the end of the quarter. Holdings in GM rose +21% to 40 million shares and a stake Charter (CHTR) was doubled to 4.95 million shares with an increase in holdings of DirecTV (DTV) rising +28% to 30 million shares worth $2.6 billion. Berkshire also added to Walmart with a +3% gain and IBM with roughly a 1% gain. The company sold its 4 million stake in Deere (DE). Berkshire's total portfolio is valued at $117 billion.

Tiger Global Management added 12.8 million shares of Hertz (HTZ) and exited its stake in Dollar General (DG). Tiger's portfolio is valued at $6.85 billion, a drop of -$98.7 million for the quarter. Tiger also exited an $88 million stake in Qihoo 360 (QIHU) and cut its stake in Vipshop (VIPS) by 7.1 million shares. They added a new position in Bitauto (BITA) valued at $512 million.

Starboard Value bought 1.92 million shares or 2.4% of AOL. The company had exited a stake in AOL in 2012 after they were unsuccessful in getting their directors added to the AOL board. Shares of AOL rose +79% during the fight so Starboard did really well with their 5.1% stake at the time. They also added 7.72 million shares of Yahoo (YHOO). They are actively trying to force Yahoo to buy/merge with AOL and to spinoff its remaining stake in Alibaba and Yahoo Japan to avoid a high tax bill.

Starboard was successful in replacing all 12 directors at Darden (DRI) after the company sold Red Lobster against shareholder wishes. Basically the fully control Darden today and plan on making changes to increase profitability and sell off some non-core chains.

Bruce Berkowitz managed Fairholme Capital exited its positions in Fannie Mae and Freddie Mac. Investors in those companies lost a legal bid to force the bailed out companies to share profits with private holders. Fannie Mae shares lost -31% for the quarter while Freddie Mac dropped -32%.

Fairholme also exited a stake in Genworth Financial (GNW) just in time to avoid the -40% drop in the shares in November.

George Soros fund boosted holdings in Level 3 Communications (LVLT) by 3.64 million shares to triple his stake in the company. The fund also added 2.92 million shares of Dow Chemical (DOW). Soros cut his stake in Herbalife (HLF) by 2.85 million shares for a -73% decline. A $234 million stake in Console Energy (CNX) was exited along with a stake in Halliburton (HAL). Soros equity holdings declined -2.6% to $10.1 billion with positions in 234 companies. Sixty-nine of those were new positions.

John Paulson bought 5.7 million shares of Shire (SHPG) to increase his stake to 9.1 million shares worth $2.3 billion. Unfortunately he added those shares before the drop from $245 to $160 in October. That had to hurt! Paulson also bought 13 million shares of AbbVie the company that was trying to merge with Shire. Paulson's fund lost -14% in Q3 to extend his losses year to date to -25%. The fund added to its stake in Covidien (COV) now valued at $1.1 billion and added a new $292 million stake in PetSmart (PETM). The fund closed positions in TMO, FCX, QCOR and Hillshire Brands.

Paulson continued to hold his 10.23 million share stake in the SPDR Gold Trust (GLD). He has held his position at this level for five straight quarters. The value is down -40% from his entry point. Gold is currently in the longest slump since 1998 thanks to the sharply rising dollar. He started the position in 2009 and gold rose 70% from the 2008 lows before falling -28% in 2013 and the biggest annual drop in 30 years.

Jana Partners sold 200,000 shares of CBS class A shares and 4,127,149 class B shares. They also sold 10.4 million shares of SunEdison (SUNE). The fund added 975,000 shares of AMD, 300,000 shares of BABA, 2.7 million shares of AMGN, 8.05 million shares of Gollar General (DG), 842,000 shares of McDonalds (MCD) and 200,000 call options. They bought 7.0 million shares of RackSpace (RAX) and 1.3 million shares of Valeant Pharma (VRX). They increased their 1.0 million share stake in Ebay to 13 million and 5 million call options. They increased the stake in Hertz to 10.07 million shares and 9.0 million call options, up from 5.9 million shares and no options.

They raised their stake in PetSmart from 4.9 million shares to 9.7 million but dropped the 4.57 million call options from the prior quarter. It appears they may have exercised some of those calls.

Julian Robertson's Tiger Management opened a new 1.2 million share position in Alibaba. It is now their largest holding at 30% of their portfolio. Gilead (GILD) is 13% at 444,000 shares. Ebay is a new holding at 7% or 496,400 shares. Apple shares were cut from 17,500 to 15,900 and Facebook (FB) was cut from 341,500 to 303,400 shares and 6% of total holdings.

David Einhorn's Greenlight Capital opened 10 new positions.

Share amounts in millions.

Aecom Tech - ACM 3.04
Citizens Financial - CFG 8.0
Colony Financial - CLNY 0.87
Consol Energy - CNX 4.88
FCB Financial - FCB 1.35
Interpublic Group - IPG 2.43
Kennametal - KMT 0.58
Nokia - NOK 7.83
ON Semiconductor - ONNN 15.0
Synchrony Financial - SYF 2.11

Positions exited:

Chico's FAS - CHS 1.87
DSW Inc - DSW 0.18
Computer Sciences - CSC 2.32
Tempur Sealy - TPX 1.77

Changes:

Apple - AAPL 9.45 to 9.17
BioFuel - BIOF 1.43 to 3.63
BP - BP 1.48 to 2.06
McDermott - MDR 10.77 to 2.81
Micron - MU 40.34 to 30.47

A lot of traders are betting on a bottom in oil prices by investing in oil ETFs. Over the last month more money has flowed into those ETFs than any time in the last two years. The four biggest ETFs had 70.5 million shares outstanding on Wednesday and the most since May 2013 according to Bloomberg. More than 1 million ETF shares were being created every day with net inflows on all but 4 days since October 1st.

The two most popular ETFs were USO and UCO. The USO saw inflows of $183.8 million so far this month and the UCO added $62.2 million.

Markets

Volume was very low on Friday with only 6.0 billion shares. That was just slightly over the average for the week at 5.93 billion. There is definitely no conviction in the market. If volume was just a little higher I would be labeling it as a distribution event but the very low volume appears to be consolidation instead of distribution.

The problem is the lack of catalysts. Earnings are over and everyone expects the markets to move higher but there is no catalyst. There is nothing to make buyers want to jump into the market despite new marginal highs every day. As long as the markets are trading sideways there is no urgency to buy.

The reverse is also true. The longer we trade sideways the better the chance of some event that creates a headline the market does not like. Traders may start thinking the holiday rally has already occurred. We did rebound more than 10% straight up from the October correction. Conversely, the longer we stay at this level without a negative catalyst the stronger underlying support becomes.

One potential catalyst would be a rebound in the price of oil. The energy sector is a large part of the S&P and energy stocks are very oversold. If crude were to rebound to $80 or higher we should get a substantial rebound in energy equities that could trigger a move higher on the S&P.

The S&P may be clawing out a new high every day but with a PE of 17 there is not much institutional excitement for further PE expansion. However, 75% of actively managed funds are below their benchmarks and fund managers are going to be scrambling for additional gains over the next six weeks. They are being held back somewhat by the apparent index stall at the new highs. Nobody wants to throw their last pile of cash at the market only to have it roll over.

On the 5-day average chart you can see the flat lining currently in progress and the likelihood of a market dip in the near future. If you look to the left where the August rally sputtered to an end and the S&P fell back below the 5-day the selling was not bad. It was simply profit taking from the big +95 point gain from the August 8th low at 1910. The current bounce started at 1820 for a +220 point jump. Clearly we have a serious need for some profit taking.


Unfortunately the market never does what we expect in the timeframe we expect it. While a dip to reload would be the logical move the market has no memory and it can remain bullish far longer than those shorting the top can remain liquid.

The dip buyers are alive and well and every minor intraday dip is instantly bought. However, the bullish sentiment is at a four year high at 57.9% as evidenced by the AAII weekly poll. The last time sentiment was this high was December 23rd, 2010 at 65%. While this is a sentiment peak for the recent trend it is well under the historical high of 75% on Jan 6th 2000. In fact since 1987 bullish sentiment has been higher than 58% on 59 occasions. Even at the high of 65% in 2010 the market continued higher for several more weeks before rolling over.


Something else to note. While bullish sentiment rose +5.2% last week the bearish sentiment rose +4.3%. That is very rare to see them both rise at the same time. Those neutral on the market declined by -9.5%. Apparently the majority of investors have an opinion on direction because only 22.8% are neutral. Out of the 1,392 weeks since the survey started in 1987 there have been 238 weeks with the neutral reading below 22% so it is not that unusual for the market to be polarized.


I have been showing the chart below for several weeks and that upper resistance line has not changed. The S&P has come to a dead stop at that resistance and the odds are good we are going to see some profit taking before we move higher. While I said the odds are good they are not 100% because of the current bullish sentiment.

If we were to see a decent spike higher I am sure there would be some significant short covering. The setup for the bears has been so visible for the last two weeks that I am sure there are plenty of traders with short positions hoping for a drop next week.

The longer we stay at this level the stronger underlying support becomes. Currently that is about 2,033. If that level breaks it could trigger sell stops and we could be looking at 2,000 once again with pauses at 2,025 and 2,015. I am not expecting that but it is possible.


The Dow has now rebounded +1,850 points from the October low at 15,855 to Thursday's high at 17,705 in only four weeks. We are seriously overbought but the Dow is showing no indications of weakness. Like the S&P it is moving perfectly sideways with minimal incremental steps higher. Dow components Cisco and Walmart failed to energize a continued move higher when they reported earnings last week and there are no catalysts left for the Dow. We will have to rely on economics and/or M&A news.

Resistance is well above at 17,750 and initial support at 17,500.



The Nasdaq 100 ($NDX) remains our hope for a bullish breakout. The big cap techs just keep powering higher. Unfortunately they are also nearing resistance at 4,250. The NDX is well above the congestion from the prior two weeks and we can only hope the Dow and S&P charts look the same at the end of next week. The NDX consolidated from the 31st to the 11th and then began a strong move higher.


The Nasdaq Composite hit resistance at 4,700 on Thursday and was immediately sold. On Friday it appears the buyers stepped in but only a few. The volume was light and the gain of +8 was minimal. The next test of 4,700 will be critical. If the composite moves over that level it should be accompanied by a similar rise in the NDX and that would be very market positive. Watch 4,700 for direction next week.



The Russell 2000 normally leads in both directions. The Russell lost ground on Thr/Fri in what could be a signal the broader market is about to take profits. However, the Russell built up some decent support over the last two weeks as it consolidated in the 1160-1170 range. Friday's low was 1,172 so that support is still intact. If the Nasdaq indexes continue higher the Russell should tag along but it still has strong resistance at 1,180. Once over that level we can start breathing easier.

The small cap stocks tend to underperform in Q4 compared to large caps because of fund manager investing patterns around year end. Mark Hulbert, Favor Large Cap Stocks

While the Russell normally leads, the Nasdaq 100 was leading the charge last week. Let's hope that trend continues.



In short I expect some profit taking next week unless the Nasdaq rally accelerates over resistance. If that happens I think we could be off to the races for a pre Thanksgiving rally. I am not bearish on the market. I just think the rebound has run its course until we see some backing and filling. Investors don't want to buy a top. They would much rather buy after a couple days of declines. If we move higher without any profit taking I am not going to complain.

Random Thoughts

Russia or maybe I should say Valdimir Putin was all over the news last week. I am really starting to worry that Putin is going to do something stupid. Russia invaded the Ukraine again last week. Multiple columns of tanks, artillery, antiaircraft missiles and troop convoys were photographed by multiple news sources flooding into the Ukraine. Apparently Putin did not like the election of pro western officials and he is determined to secure eastern Ukraine as a land bridge to the Crimea regardless of the legality of the aggression.

Unfortunately nobody is going to stop him. Several European officials said they were not going to impose additional sanctions because "it might hurt the peace process." I doubt Putin cares about the peace process.

Australian Prime Minster Stephen Harper said in advance he was going to challenge Putin when he showed up at the G20 conference in Australia this weekend. When he was forced to greet all the attending heads of state he said to Putin, "I guess I’ll shake your hand but I have only one thing to say to you: You need to get out of Ukraine." Putin responded with the equivalent of sc*** you and told Harper "that getting out of Ukraine would be impossible because Russia is not there."

Putin quickly found he was not welcome at the event. On Saturday his press secretary said Putin was going to leave the conference a day early because of pressure from the various leaders over the Ukrainian situation. Numerous leaders used their podium appearances to mention the Ukraine crisis and apparently Putin did not like the constant negative press. President Obama gave an uncharacteristically direct speech saying Russian "aggression" in Ukraine is a threat to global security and the shooting down of MH17 has appalled the world in its callous disregard of human life. While the majority of leaders socialized at a barbeque Putin sat in a corner with Brazil's Dilma Vana Rousseff on opposite sides of a table for six. So how did you like being a pariah Mr. Putin?

I am assuming if he leaves he will take his warships with him. Yes, warships. Putin has a habit of sending a flotilla of warships ahead of him when he attends these meetings. In this case four warships arrived off the coast of Australia and made their prescience known. What kind of leader sends warships ahead of his arrival to basically threaten peaceful countries?

At the same time there have been multiple incursions of Russian military aircraft all around Europe. NATO scrambled to fighters on Saturday to chase away two Russian fighters. The number of incursions is up 300% over the prior month. This is just another way for Putin to warn everyone "We are here, we are not going away and there is nothing you can do about it."

Earlier in the week Russia announced plans to send long range nuclear bombers to the Gulf of Mexico. The Defense Minister said "We have to maintain Russia's military presence in the Western Atlantic and eastern Pacific, as well as the Caribbean and the Gulf of Mexico. Sending bombers on long range patrols is part of the drills. The flights will conduct "reconnaissance missions to monitor foreign powers' military activities and maritime communications." Russia also said it was upgrading its nuclear arsenal to maintain superiority over NATO and the USA. Russian Nuclear Upgrades

The message here is that Russia is more than capable of launching World War III if the U.S. keeps intervening in the European response to the Ukraine invasion. The minister also said Russia is adding full radar coverage by year's end to cover the Arctic, Alaska and northern Canada to "meet unwanted guests." As recently as June U.S. fighters intercepted Russian bombers off the California coast in what was called "cruise missile launch drills." That was the first time Russian planes had ventured offshore California in more than two years.

Last month a Russian submarine ventured into Swedish waters near Stockholm. The largest sub hunt since the Cold War was triggered by an emergency distress call in Russian that led to visual sightings by merchant ships before the submarine disappeared.

Russia is flexing its military muscle and identifying NATO and the U.S. as its enemy. One military analyst said Russia was looking for a provocation so they could escalate the confrontation and force NATO or the U.S. to back down.

Putin has small man syndrome. He is 5 foot 7 inches and he is surrounded by taller people. Small man syndrome or Napoleonic Complex is characterized by overly-aggressive or domineering social behavior to compensate for the person's short stature. Napoleon was 5 foot 6 inches. Putin is repeatedly photographed in manly actions like wrestling, hunting, bare-chested horseback riding, etc, in an effort to build up his image as being macho.

Putin sees President Obama as weak in military and foreign policy and he understands he has two more years before a new president takes office that may not be as docile as Obama. That means Putin should be expected to extend his aggression possibly to a wider foothold in Ukraine and possibly to other nations bordering Russia.

Europe can't really put up too much of a fight or Putin can cut off their natural gas supplies and they will freeze over the winter. Europe gets more than 30% of its gas from Russia.

Russia is stockpiling gold at a furious pace like they know what is coming. Russia bought 55 tonnes of gold in Q3 and far more than any other nation. All the central banks in the world including Russia bought a total of 93 tonnes in Q3. Putin has tripled gold reserves to around 1,150 tonnes. Why is Russia rushing to stockpile so much gold?


I fear we are getting closer to a flash point. Putin is starting to feel like a cornered rat and may need to strike out to reestablish his credibility. Russia just posted the slowest growth since 2000. The ruble is at an 11 year low. Russian oil exports supply about 65% of the country's budget and they just took a -35% hit because of the drop in oil prices. Capital is flowing out of Russia by the billions. Economic conditions inside Russia are deteriorating rapidly. Putin's popularity ratings were over 85% several months ago but are now beginning to decline.

In situations like this history is full of examples where the embattled leader turned to war to distract the populace from the problems at home. If that happens where does Putin draw the line? How will the U.S. respond to further blatant aggression in some other satellite country? Many of them are NATO countries and Putin perceives NATO as weak so that is where he would likely strike. Would NATO stand up to Putin or fold like the paper tiger he thinks they are?

The flash point could be the delivery of two Mistral-class warships from France to Russia. They are currently in a shipyard in Saint Nazaire France. Russia paid 1.2 billion euros to France to construct the warships. France succeeded in getting the warship sale excluded from the sanctions since the contracts had been signed several years ago. However, President Hollande imposed two conditions necessary for the completion of the sale. One of those conditions was for a cease-fire to be imposed in Ukraine and the second was tangible evidence of progress toward a political settlement over Ukraine's future. Neither of those conditions have been met. Russia has told France it has until the end of November to turn those warships over to Russia or face "grave consequences."

Everyone knows the Western Nations are locked in a confrontation with Iran over their nuclear program with a November 24th deadline for a resolution. Last week Putin announced a deal to build eight new nuclear reactors in Iran. The new equipment will be built in Iran and supposedly will be under the supervision of the IAEA. However, the announcement of the deal could not come at a worse time than a week before the deadline on shutting down Iran's nuclear enrichment program. Putin timed the announcement to make the western nations look like fools as the negotiations come to an end with Iran next week.

I fear we are headed for an unwanted confrontation at some point in the next two years. I really hope I am wrong.

The second topic this week has to be the rapidly approaching executive order to give amnesty to 5 million illegal immigrants without any constitutional basis. This is going to be released next week according to recent reports. Whatever your opinion on immigration the real point here is that President Obama is going to authorize it on his own over the objections of Congress and that is going to start a war in Washington.

In election exit polls conducted by The Polling Company more than 74% of voters believed that "President Obama should work with Congress rather than around Congress on immigration instead of separately." More than 92% of republicans, 80% of independents and 51% of democrats did not want Obama to enact executive amnesty on his own. Only 20% of voters wanted Obama to move forward on his own with an executive order.

More than 80% of Americans wanted newly created jobs to go to American workers not immigrants and that was across the entire country. (74% in Northeast, 80% midwest, 85% south and more than 80% in the west) Midterm Exit Polls

On Friday Vice President Biden said in addition to Obama's executive action the U.S. will offer "refugee status" to youths from El Salvador, Guatemala and Honduras. Up to 4,000 a year from each country will be allowed entry to the U.S. and immediately have full rights in the USA. This move comes after 68,000 children from those three countries entered the U.S. illegally last summer. However, the program only applies to children under 21 that have a parent already living in the USA.

I believe we should have comprehensive immigration reform but only if it follows the constitutionally mandated path. Congress makes the laws after serious debate that considers all the options and then the president signs them. This provides for laws that are enacted by the people's representatives after due process not by an individual that wants to impose his own standards on the population.

The Affordable Care Act may have entered a terminal phase. First the administration sharply lowered their estimates of how many people will be registered in the current plan renewal period from 13.1 million to 9.1 million. That compares to the 8 million that registered for 2014. Of those 8 million more than 1 million cancelled or defaulted on payments and are no longer insured by ACA. Of the 7.1 million people currently enrolled more than 80% receive subsidies. Unfortunately for many of those the subsidies may go away.

The Supreme Court agreed to hear the King vs Burwell case regarding subsidies in the ACA. The law clearly states that Federal subsidies are only available for policies issued through a healthcare exchange "established by the individual states." Only 16 states have built individual exchanges and are eligible for subsidies. Residents in the other 34 states are not eligible for subsidies but the administration allowed them anyway.

The Supreme Court will not have any leeway on this case since the law specifically spells out that subsidies are only to individual states. Most analysts believe the court will be forced to rule against subsidies since the language is clear. To rule in any other fashion would be to rewrite the law and the Supreme Court does not have that capability. The IRS originally refused to allow the subsidies to those people on the Federal exchange because that was not how the law was written but the president directed them to ignore the law and dole out the subsidies anyway.

Since 80% of enrolled people get a subsidy and 70% of the people enrolled in ACA are living in those 34 states about 4.6 million people would lose their subsidies. With the census numbers already well out of balance with 20% paying significantly higher premiums in order to subsidize the 80%, the removal of 4.6 million people from the program is going to be a disaster. The Rand Corp estimates that premiums for the 4.6 million that will lose subsidies will rise an average of 43%. The low risk individuals will bail immediately and forego insurance leaving only the high risk individuals that can't afford to be without insurance. The risk pool will immediately tilt towards the high risk side and rates for everyone would spike higher in the next renewal period. The individual and employer mandates would crumble because nobody could afford the increase in premiums.

The insurance companies are already losing money on the program despite a dramatic increase in rates. They are not concerned since the administration has agreed to cover all their losses for the first three years. That means the Federal Government will write them a check for their losses every year and taxpayers will foot the bill. This is expected to be in the hundreds of billions of dollars.

Lastly, despite the dramatic increase in premiums for individuals when the program was implemented in 2014 the rates for 2015 have increased another 5.6% to 35% and the program benefits have shrunk even more. For example the average increase in Colorado is between 22% and 35%. Networks are shrinking, deductibles are rising and co-pays for doctor visits and drugs are rising. The co-pay for my generic medicine I have been taking for 30 years went up from $8 to $75. A plan survey by HealthPocket found the average annual deductible rose 42% to $5,081.

The insurance companies are trying to find a level where they can make money and with health care costs rising and 80% of applicants getting subsidies they have to raise the rates for everyone in order to break even.

This law has survived numerous congressional attacks and court cases but it may have exhausted its nine lives. The republicans are not going to be agreeable to making modifications unless they get some of their own requests like the cancellation of the medical device tax and the cancellation of the Cadillac tax on company supplied health plans. There is going to be a monster fight over healthcare in 2015 and if the President follows through on the executive order amnesty it is only going to make the House and Senate even more opposed to doing anything he wants in the future.

Finding out last week that the architects of the ACA knew in advance they were going to have to lie to get it passed is only going to further inflame the public. MIT professor Jonathan Gruber and architect of the plan said he and President Obama agreed during a conference in the oval office that the plan would have to be worded in "tortured language" to confuse the Congressional Budget Office and the stupid American voters. The law was specifically written to be confusing so the "lack of transparency" would be a political asset meant to dupe the gullible public.

He and Obama came up with the business deduction scam. Gruber said "we just tax insurance companies, they pass on higher prices that offsets the tax break we get into being the same thing. It’s a very clever basic exploitation of the lack of economic understanding of the American voter." Numerous videos have come to light with Gruber making these comments in various forums. Gruber is also on video explaining that if states don't setup their own exchanges they will not be eligible for subsidies. That pretty well seals the deal for the Supreme Court. The administration paid Gruber $400,000 for consulting to help write the law and he is explaining on video how it was written.

Obamacare may not be dead but it is bleeding profusely and the opponents have a lot of ammunition left.

Retailers are preparing to go to war next week with the various Black Friday promotions that have turned into Black Week promotions. Several retailers have already launched their pre Black Friday sales. Walmart store managers have officially been told they are now free to match online prices starting November 14th. This is a fight to reduce the impact of showrooming where people look at an article in the store and then go home and order it online. If you are spending money this holiday season it would be wise to take your smartphone and scan the barcodes to look for the lowest advertised price and then show that price to the cashier.

Eaten your broccoli lately? McDonalds has now invented bubble-gum flavored broccoli to entice children to eat healthy. Unfortunately it did not work. Kids were confused by the taste and still refused to eat it.

More than 46 million turkeys will make the ultimate sacrifice for your Thanksgiving meal. Wholesale prices have risen 16% from 2013 to $1.24 per pound and the highest since records started in 1993. Retail prices average about $1.58 per pound. More than 20% of annual turkey consumption occurs on Thanksgiving. As of September 30th 297.2 million pounds of whole turkeys were in frozen storage. That is the lowest for that date since 2011. Gobble gobble!

Only 10 shopping days until Thanksgiving and 39 shopping days until Christmas.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"People have difficulty cutting losses, admitting an error, and moving on. I am rather frequently—and on occasion, quite spectacularly—wrong. However, if we expect to be wrong, then there should be no ego tied up in admitting the error, honoring the stop loss, selling the loser—and preserving your capital."

Barry L. Ritholtz

 


New Plays

Cloud-Computing Rally

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Barracuda Networks - CUDA - close: 35.34 change: +0.98

Stop Loss: 32.95
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 = 247 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
CUDA is part of the technology sector. This is a small cap company in the cloud computing space. According to the website, "Barracuda provides cloud-connected security and storage solutions that simplify IT. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployments. Barracuda's customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data security."

CUDA has only been a public company for little more than a year. Lately they have been on a roll with their earnings reports. CUDA has beaten Wall Street's estimates on both the top and bottom line four quarters in a row. The last two reports also included bullish guidance.

CUDA's most recent report was October 9th when they reported their Q2 results. Analysts were expecting a profit of $0.04 a share on revenues of $66.7 million. CUDA delivered a big beat with a profit of $0.8 on revenue growth of +18.9% to $68.7 million.

Management said their active subscribers grew +18% and their renewal rate was 96.5%. Their Next Generation Firewall solutions saw sales up +50% in the quarter. CUDA said sales were up across all geographically regions. Plus their gross margins were strong with an improvement to 81.7%. That's above the prior quarter's 80.4% and the year ago period 79.8%.

CUDA's guidance was bullish. Their Q3 estimates are for revenues in the $69-70 million range versus Wall Street's $69 million estimate. They expect a profit in the $0.04-0.05 zone compared to estimates of only $0.03. They raised their 2015 revenue guidance above their prior estimates but this was slightly below Wall Street's estimate. They also raised their 2015 earnings growth into the $0.22-0.24 range compared to analysts' consensus estimates of only $0.17.

Technically the stock has been soaring from its double bottom in the $24.00 area. The point & figure chart is bullish and forecasting a long-term target of $56.00. Right now CUDA is testing resistance in the $35.00 area. A breakout here could spark some short covering. The most recent data listed short interest at 9.7% of the very, very small 9.9 million share float.

We are suggesting a trigger to open bullish positions at $35.65.

Trigger @ $35.65

- Suggested Positions -

Buy CUDA stock @ (trigger)

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

Buy the 2015 Jan $35 call (CUDA150117c35) current ask $2.95

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Closing LOW On A High Note

by James Brown

Click here to email James Brown

Editor's Note:
We closed our bullish trade on Lowe's Companies (LOW) on a high note ahead of its earnings report.

Meanwhile our PTRY and P trades were stopped out.


Current Portfolio:


BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 47.74 change: -1.65

Stop Loss: 46.75
Target(s): To Be Determined
Current Option Gain/Loss: + 2.9%
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:
11/15/14: Thankfully AMBA did not confirm Thursday's bearish reversal pattern on Friday. Traders bought the dip near technical support at its rising 10-dma. I remain cautious here. On the weekly chart last week looks like a potential top. 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

11/13/14 Warning! Today's move is a potential bearish reversal
11/12/14 new stop @ 46.75
11/07/14 triggered @ $46.50
Option Format: symbol-year-month-day-call-strike

chart:


Burlington Stores, Inc. - BURL - close: 42.30 change: +0.04

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: + 3.0%
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:
11/15/14: Shares of BURL have spent the last two weeks consolidating sideways in the $41-43 zone. Traders bought the dip on Friday near the lower end of this range. I would wait for a breakout past $43.00 before considering new bullish positions.

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

chart:


Columbia Sportswear Co. - COLM - close: 41.14 change: +0.13

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: + 2.2%
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:
11/15/14: COLM has delivered a nearly non-stop rally. Shares are up 8 days in a row. They're also up 12 out of the last 13 sessions and up four weeks in a row. COLM after gains like these the stock is short-term overbought. Look for short-term support at the 10-dma or the $40.00 area.

I am not suggesting new positions at current levels.

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

chart:


Cynosure, Inc. - CYNO - close: 27.38 change: +0.18

Stop Loss: 25.35
Target(s): To Be Determined
Current Option Gain/Loss: +4.3%
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:
11/15/14: CYNO is a new trade launched this past week. It was encouraging to see shares holding up on Friday after its big gains Monday through Wednesday.

Tonight we'll raise the stop loss to $25.35. I am not suggesting new positions at this time.

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

11/15/14 new stop @ $25.35
11/12/14 triggered @ 26.25

chart:


Electronic Arts - EA - close: 41.47 change: +0.02

Stop Loss: 39.75
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 = 3.7 million
New Positions: Yes, see below

Comments:
11/15/14: Traders have been buying the dips in EA the last two weeks. Shares appear to be coiling for a bigger move higher. We are suggesting a trigger to open bullish positions at $41.75.

Earlier Comments: November 13, 2014:
EA is considered part of the technology sector. More broadly they are part of the entertainment industry. Previously EA was the biggest video game company on the planet but when Activision merged with Blizzard they stole the top spot. It remains a fight. EA has annual revenues of $4.1 billion while AVTI has annual revenues around $4.35 billion.

According to a company press release, "Electronic Arts (EA) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS, FIFA, Battlefield, Dragon Age, and Plants vs. Zombies."

Video games are big business. Microsoft (MSFT) has sold more than 83 million Xbox 360s. Rival Sony (SNE) has sold more than 80 million PlayStation 3s. Meanwhile, another company, Steam, is the biggest online retailer for downloadable PC games and has over 75 million users. Back in 2012 the global video game market was $78 billion. That grew to $93 billion in 2013. Research firm Gartner estimates that global video game sales (all formats) could hit $111 billion by 2015. In comparison the global movie box office is only about $38 billion in 2014.

EA continues to fight for market share and dominance in the gaming industry and they've seen success in 2014. The company has beaten Wall Street's earnings estimates on both the top and bottom line three quarters in a row. Their most recent quarterly report was October 28th. Analysts were expecting a profit of $0.53 a share on revenues of $1.16 billion. EA blew those numbers away with a profit of $0.73 and revenues up +17% to $1.22 billion. Gross margins surged thanks to rising digital sales. Mobile sales were also up strongly and in-game purchases soared.

EA offered bullish guidance for both their December quarter (EA's Q3) and their fiscal year 2015. The company raised their Q3 guidance to $0.90, which was above analysts' estimates. They also raised their 2015 guidance to $2.05, which is above Wall Street's estimate.

The stock reacted by soaring to new highs in late October. Since then shares of EA have been consolidating sideways in the $40-41 zone. It looks like that consolidation could be over with EA breaking out to new highs today. The Point & Figure chart is bullish and forecasting a long-term target of $60.00.

Analysts are expecting a strong holiday shopping season this year. The big drop in oil and thus gasoline prices is giving consumers a little extra spending money. The National Retail Federation is forecasting sales growth of +4.1% versus the normal 10-year average of +2.9%. That's a very broad retail outlook. It could be even stronger for video games this year.

Tonight we are suggesting a trigger to open bullish positions at $41.75.

Trigger @ $41.75

- Suggested Positions -

Buy EA stock @ $41.75

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

Buy the 2015 Jan $45 call (EA150117c45) current ask $0.66

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

chart:


International Paper Co. - IP - close: 54.43 change: -0.29

Stop Loss: 52.35
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
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:
11/15/14: IP has been a strong performer since the October market bottom. Shares are up five weeks in a row with a rebound from $45 to $55 (+22%).

More conservative traders may want to move their stop closer to the 10-dma (currently near $53.15). I'm not suggesting new positions at this time.

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

chart:


Blue Nile Inc. - NILE - close: 36.87 change: +0.06

Stop Loss: 34.95
Target(s): To Be Determined
Current Option Gain/Loss: - 1.0%
Entry on November 13 at $37.25
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 153 thousand
New Positions: see below

Comments:
11/15/14: Friday turned out to be a quiet session for shares of NILE. The stock drifted sideways in a narrow range near $36.85-37.00. The intraday high on Friday was $37.09. I would wait for a new rally past $37.20 before considering bullish positions.

Earlier Comments: November 12, 2014:
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.

*small positions* - Suggested Positions -

Long NILE stock @ $37.25

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

Long Dec $35 call (NILE141220c35) entry $2.85

11/13/14 triggered @ 37.25
Option Format: symbol-year-month-day-call-strike

chart:


Sonic Corp. - SONC - close: 25.09 change: -0.33

Stop Loss: 24.85
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:
11/15/14: I remain worried about SONC. Friday's display of relative strength (-1.2%) doesn't inspire any confidence. More conservative traders may want to exit early now. I am raising our stop loss to $24.85, which is just below the three-week trend line of higher lows. I am not suggesting 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

11/15/14 new stop @ 24.85
11/01/14 new stop @ 24.45
10/29/14 triggered @ 25.15
Option Format: symbol-year-month-day-call-strike

chart:


Zumiez Inc. - ZUMZ - close: $35.49 change: +0.07

Stop Loss: 33.35
Target(s): To Be Determined
Current Option Gain/Loss: + 3.9%
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:
11/15/14: ZUMZ garnered some bullish analyst coverage on Friday. Before the opening bell shares were given a new "buy" rating and a $42 target. That helped the stock gap higher at the open. Unfortunately the rally didn't last and shares faded back toward unchanged.

More conservative investors may want to move their stop loss to breakeven. I am not suggesting new positions.

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

chart:




BEARISH Play Updates


None. We do not have any active bearish trades.




CLOSED BULLISH PLAYS

Lowe's Companies - LOW - close: 58.58 change: -0.03

Stop Loss: 57.95
Target(s): To Be Determined
Current Option Gain/Loss: +6.4%
Entry on October 23 at $55.05
Listed on October 21, 2014
Time Frame: Exit Friday, November 14th, at the close
Average Daily Volume = 5.5 million
New Positions: see below

Comments:
11/15/14: LOW was a steady performer for us. Our plan was to exit positions on Friday at the closing bell. The company has earnings in a few days and we do not want to hold over the report.

- Suggested Positions -

Closed LOW stock @ $55.05 exit $58.58 (+6.4%)

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

NOV $55 call (LOW141122c55) entry $1.45 exit $3.70 (+155.1%)

11/14/14 planned exit
11/13/14 new stop @ 57.95, prepare to exit tomorrow at the close
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

chart:


The Pantry, Inc. - PTRY - close: 25.63 change: -0.48

Stop Loss: 25.70
Target(s): To Be Determined
Current Option Gain/Loss: + 4.9%
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:
11/15/14: PTRY has been retreating lower since its November 7th peak. It looked like shares might hold support at $26.00. Unfortunately the stock broke down on Friday and hit our stop loss at $25.70.

The story on PTRY has not changed. I would keep this stock on your watch list. A dip back toward its simple 50-dma might prove to be a bullish entry point.

*small positions to limit risk* Suggested Positions -

Closed PTRY stock @ $24.50 exit $25.70 (+4.9%)

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

DEC $25 call (PTRY141220c25) entry $1.60* exit $1.60 (+0.0%)

11/14/14 stopped out @ 25.70
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

chart:


CLOSED BEARISH PLAYS

Pandora Media, Inc. - P - close: 21.51 change: +3.06

Stop Loss: 20.05
Target(s): To Be Determined
Current Option Gain/Loss: - 5.3%
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:
11/15/14: Ouch! Pandora was one of the market's best performers on Friday with a +16.5% gain. The short covering squeeze amid news that the company's CEO bought 25,000 shares recently. It was the first significant stock purchase by a Pandora insider since shares have gone public, which is bullish. However, it was only a $500,00 buy.

It's possible bears decided to cover positions because Pandora is going to hold a meeting on November 18th regarding its royalty process (Pandora pays out a significant amount of its revenue as royalties on the songs). The timing of the insider buying ahead of a potentially important meeting could have instilled some fear in the shorts. Whatever the reason our play was stopped out at $20.05.

- Suggested Positions -

Short P stock @ $19.04 exit $20.05 (-5.3%)

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

2015 Jan $19 PUT (P150117p19) entry $1.71 exit $1.37 (-19.8%)

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

chart: