Option Investor
Newsletter

Daily Newsletter, Tuesday, 11/18/2014

Table of Contents

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

Market Wrap

Finally a Real Breakout

by Jim Brown

Click here to email Jim Brown

The three major averages all broke out to new highs on better than expected economic news.

Market Statistics

The rally started overseas when investor confidence in Germany rose for the first time in 11 months. The German ZEW report spiked to +11.5 in November after a -3.6 in October. That was very unexpected and suggests the gloom and doom over Germany's economic demise is overblown.

We also learned that Japan's Prime Minister Shinzo Abe cancelled a scheduled tax hike for next year as a result of the Japanese economy falling into a steep recession. The cancellation of the tax hike also boosted global equities. The fist tax hike last April is believed to have caused the recession.

Just before the U.S. markets opened the Producer Price Index for October rose unexpectedly by +0.2% after a -0.1% decline in the prior month. Strong demand in services offset a decline in prices for goods. For the trailing 12 months price inflation at the producer level is still lagging at +1.5%. The core rate, not counting food and energy, declined -0.1%.

The hidden number in this report was the -0.4% decline in goods prices. That was the 4th consecutive monthly decline and it is accelerating. Energy good led the decline with a -3.0% drop due to a -5.8% drop in gasoline prices. Offsetting these declines in goods was a +0.5% rise in services demand.

More good news came from the NAHB Housing Market Index. The headline number rose from 54 to 58 for November. This suggests that the drop from 59 to 54 in October was just a blip and may have been influenced by external headlines. Sentiment advanced in all regions with sentiment in the Northeast spiking 12 points to 51 and the first time over neutral territory at 50 since March 2006.

The single family sales component rose from 57 to 62 and the six month outlook rose from 64 to 66. Builders reported stronger buyer traffic and a higher number of signed contracts. That has failed to result in closed sales because of the difficulty of getting loan approvals.


Internet E-Commerce sales rose from $75.0 billion to $78.1 billion in Q3 or a gain of +4% from Q2. That was a gain of +16.2% over the $67.2 billion in Q3-2013. E-Commerce sales have risen in 23 consecutive quarters even when brick and mortar sales have declined. Amazon had sales of $20.58 billion in Q3 or roughly 26% of the E-Commerce total.

International capital flows exploded higher in September to $164.3 billion. That was up from $52.1 billion in August. While China and Japan were net sellers of securities in September but other countries and foreign investors were big buyers. Money is flooding out of Russia and Europe because for their economies and geopolitical concerns. The U.S. may not have a roaring economy but it is still the best house in a bad neighborhood.

Net purchases of corporate bonds rose to $20.7 billion after seeing outflows average outflows of $7 billion for each of the prior 5 months. That was a serious reversal.

The economic calendar for Wednesday has the FOMC minutes and the highlight of the week. Analysts will be parsing every word looking for the end of the "continued period" statement. Personally, now that Japan has fallen into a deep recession I seriously doubt the Fed is going to be a factor until late 2015 unless there is a strong rebound from Japan and Europe. They can't take a chance they will push the U.S. back into a recession with a premature rate hike.


Today was retail earnings day with multiple companies reporting. Dow component Home Depot (HD) reported earnings of $1.15 compares to estimates for $1.13. Revenue of $20.5 billion barely beat estimates of $20.467 billion. Same store sales rose +5.8% compared to estimates for 5.0%. Home Depot shares declined after the company reaffirmed full year guidance of $4.54 that was in line with estimates. Investors always want more. A perfectly good earnings report and the stock was trashed because they did not raise guidance. On the bright side the dip from Monday's close at $98 to the low of the day at $86 was an error and the stock closed down only -$2 at $96.

The NYSE looked into the -10% crash right at the close and decided it was a fat finger trade and all trades below $93.33 were cancelled.


Urban Outfitters (URBN) reported earnings of 35 cents that missed estimates of 42 cents. That was also well below the 47 cents earned in the year ago quarter. Revenue rose +5% to $814.5 million and also missed estimates of $818 million. Higher expenses, poor execution and sluggish performance at the Urban Outfitter branded stores caused the earnings miss. The Free People stores saw sales rise +25% and Anthropologie sales rose +4.2%. Same store sales declined -7% at Urban Outfitters.


Dick's Sporting Goods (DKS) reported earnings of 41 cents that beat estimates by a penny. Revenue of $1.53 billion matched forecasts. The company said sales were hurt by continued weakness in golf and hunting equipment sales. This has been a complaint before. Overall sales rose +1.1% but they were down -8.9% at the Golf Galaxy stores. They projected earnings for Q4 between $1.18-$1.28 with consensus at $1.21 so that was a slight improvement. Same store sales are expected to rise 1-2% in Q4. Shares traded fractionally lower on the news.


TJX Companies (TJX) shares fell about $2 at the open but recovered to close positive with a fractional gain. Earnings of 85 cents matched estimates but revenue of $7.36 billion missed estimates of $7.44 billion. Same store sales rose +2% compared to +5% in the year ago quarter. The company warned of currency translation issues and additional expenses that will be incurred in Q4 and guided to a range of 86-90 cents and analysts were expecting 94 cents. Considering the revenue miss and the guidance warning the shares performed great to end the day with a gain.


Jack in the Box (JACK) reported a 20% increase in earnings to 54 cents that beat by a penny and revenue of $344.68 million that beat estimates of $342.28 million. This was the third consecutive year of 30% earnings growth. Same store sales are expected to rise 1-2% in Q4 with a 8-10% rise in sales at Qdoba stores. JACK said their positive earnings growth was the result of strong sales at Qdoba stores. Shares gained $1 on the news.


Vipshop Holdings (VIPS) reported earnings of 8 cents that beat estimates by a penny. Revenue of $882.6 million beat estimates of $852.12 million. The company guided for Q4 revenue between $1.20-$1.22 billion and analysts expected $1.21 billion. Active customers increased by +9% to 9.5 million. Total orders grew +118% to 25.5 million. Shares declined -$1.25 in afterhours on the news.


Medtronic (MDT) reported adjusted earnings of 96 cents that matched estimates. Revenue of $4.37 billion beat estimates of $4.36 billion. Comparable sales growth was up +5% the the highest in six quarters. The company guided for the full year to a range of $4.00-$4.10, up from $3.62 in 2013. Medtronic said it was still committed to the $43 billion Covidien (COV) acquisition despite the changes to rules on tax inversions. Shares rallied 5% on the news.


The Keystone XL pipeline died in the Senate this evening when the votes totaled 59 to 41 in favor of passing. In order to pass it needed 60 votes. In order to overcome a presidential veto they would need 67 votes. The $8 billion pipeline will eventually be approved and built once the new crop of senators take office in January. There is no rational reason for not building the pipeline. We already have 2.6 million miles of pipelines in the USA. Another 450 miles is not going to be dramatic. The pipeline can transport 830,000 bpd of oil from Canada and the Bakken to the Gulf of Mexico and refinery row.

This is cheap oil from our northern neighbor and not a security risk. Shipping oil in tankers from the Middle East is very fraught with security risks in times of political stress. Remember the oil embargo back in the 1970s? Having more oil from Canada and the Bakken will only lower gasoline prices in the USA. We will still have to import more than 6.0 mbpd from overseas so this is not the answer to our energy security problem. It is however a step in the right direction. The oil is coming to America. It is currently coming by train and creating so much congestion on the railroads that crops can't get to market. Our shale glut is only scheduled to last another 2-3 years and then production will decline again. We need this pipeline and it will eventually be approved.

Russia is rapidly increasing its gold reserves. In Q3 they added 55 metric tons out of 96 tons acquired by global central banks. The bank of Russia said today Russia has purchased about 150 metric tons so far in 2014. That is twice the amount purchased by all the other central banks combined. Russia has tripled gold reserves since 2005 to 1,185 metric tons according to the most recent IMF data.

Why is Putin buying so much gold? What is he planning that he needs that large of a gold reserve? China, India and Russia have been accumulating gold and talking about a new currency. If those nations put forth a currency backed by gold the dollar would crash. The U.S. depends on the dollar being the official reserve currency for the world. It keeps countries buying dollars and keeps the dollar strong. If a gold backed currency representing 50% of the world's population were to appear life as we know it would end. I know that sounds harsh but it is true. What would our economy be like if the dollar was suddenly worth 75% less? We don't want to know.

There was also a rumor this week that the ECB may consider buying gold as a hedge against future inflation caused by the current stimulus programs.


If you are a really diehard runner, I mean a REALLY diehard runner, then the Badwater Ultramarathon is for you. The world's toughest foot race will return to Death Valley in 2015. The 135 mile marathon will be held in July in Nevada's Badwater Basin. The starting point is 282 feet below sea level and crosses three mountain ranges to California's Whitney Portal at 8,300 feet. Runners from 25 countries are expected to compete. The average temperature in July in Death Valley is 116 degrees. That does not sound like a marathon. It sounds like suicide.

Markets

Volume on the S&P has been 20% below the 30 day average. Despite the breakout to new highs across the three major averages the volume today remained low at only 6.1 billion shares. There is little conviction at these levels. The Volatility Index has actually risen over the last week despite the market gain.

I expected some profit taking this week but the minor decline on Monday did not qualify. Apparently I am the only one that believes we are overbought. The S&P finally broke through resistance at 2,040 to close at 2,051.80. The next material resistance is 2,075-2,100. The breakout puts to rest at least temporarily the concerns about a failure at that 2,040 resistance level. The breakout appears to have legs.


The Dow also broke out but finished well off its highs thanks to the fat finger trade in home Depot at the close along with a large number of sell on close orders. Those sell orders knocked -42 points off the high of 17,735 at 3:15 PM.

The Dow chart is not as bullish as the S&P but it is still a continued gain after two weeks of sluggish momentum and consolidation in place. Next resistance should be in the 17,800 range but traders seem to be focused on that 18,000 level. Support is now 17,600.



The Nasdaq 100 ($NDX) charged higher with a .67% gain to lead all the major indexes. I said last week the strength in the big cap techs was going to lead the market higher and that is coming to pass. Apple gained another $1.48 to a historic high at $115.48. The next challenge for the NDX is 4,250 and it should test that level on Wednesday.


The Nasdaq Composite crept just slightly over 4,700 to 4,702 and a new 14-year high at the close. This is serious resistance and we could easily see some backing and filling at that level on Wednesday. Any further gain should trigger additional short covering and it appears we could see that over the next two weeks.



The Russell 2000 continues to lag, which is normal for late November. There is something in fund buying patterns for late in Q4 that favors big caps. As long as the Russell does not implode we should be ok. Weakness in late November is ok but not a sharp decline.


I still believe we are overbought but don't fight a bull market. The dip buyers are alive and well and any decline will be another buying opportunity. The week before Thanksgiving is normally choppy but Thanksgiving week is normally bullish.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 


New Plays

Breaking Out From Its Trading Range

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Take-Two Interactive - TTWO - close: 27.03 change: +0.61

Stop Loss: 25.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.6 million
New Positions: Yes, see below

Company Description

Why We Like It:
TTWO is considered part of the technology sector. The company makes video games. They're probably best known for their Grand Theft Auto franchise, L.A. Noire, and Red Dead Redemption.

According to the corporate website, "Headquartered in New York City, Take-Two Interactive Software, Inc. is a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. The Company develops and publishes products through its two wholly-owned labels Rockstar Games and 2K. Our products are designed for console systems and personal computers, including smartphones and tablets, and are delivered through physical retail, digital download, online platforms and cloud streaming services."

If you read the Electronic Arts (EA) trade in the Premier Investor newsletter than you already know how big the video game market is and how fast it's growing. Unfortunately the earnings cycle for most video game companies has a lot of peaks and valleys. TTWO's latest earnings report on October 29th is a good example.

The company's Q3 2013 quarter was strong thanks to their record-breaking launch of the Grand Theft Auto V game. One year later revenues plunged -89% to $134.5 million in Q3 2014. That was still above Wall Street's estimate of only $111 million. TTWO said they lost $0.44 a share, which was 15 cents better than analyst expectations.

TTWO management then issued mixed guidance but most of it was bullish. The company expects their current quarter to see a profit in the $1.34-1.45 range compared to Wall Street's estimates of $1.20. Yet TTWO guided revenues below consensus estimates.

They also raised their 2015 guidance and expect profits in the $1.05-1.30 range compared to prior guidance in the $0.80-1.05 zone. TTWO also raised their revenue guidance but was less than Wall Street expected.

TTWO's results and guidance was good enough to spark a big rally in the stock. Likely due to the high amount of short interest. The most recent data listed short interest in TTWO at almost 20% of the 73.8 million share float. The fact that TTWO has not seen any correction following its post-earnings rally probably has bears in a panic.

TTWO has spent the last two weeks consolidating its gains in a sideways manner. Now it's breaking out from this trading range and hitting new 2014 highs. This move could spark more short covering.

Today's high was $27.19. I am suggesting a trigger to open bullish positions at $27.30.

Trigger @ $27.30

- Suggested Positions -

Buy TTWO stock @ $27.30

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

Buy the 2015 Jan $28 call (TTWO150117C28) current ask $0.95

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Market Rally Resumes

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market rally resumes as investors quickly forget yesterday's worries about a global growth slowdown.

CUDA hit our entry trigger.

NILE and ZUMZ were stopped out.


Current Portfolio:


BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 49.67 change: +0.89

Stop Loss: 46.75
Target(s): To Be Determined
Current Option Gain/Loss: + 6.8%
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:
11/18/14: AMBA was racing higher this morning. The stock hit an intraday high of $53.00. That was a +8.6% rally from yesterday's close. Unfortunately AMBA did see some profit taking and pared its gains down to +1.8%. Shares remain under round-number resistance at $50.00. 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


Burlington Stores, Inc. - BURL - close: 41.33 change: -0.89

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: + 0.7%
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:
11/18/14: Abandon ship!

Most of the market was in rally mode this morning. BURL was too but its rally reversed about 20 minutes after the opening bell. The stock plunged to a -2.1% decline. There is still short-term support at $41.00 and likely stronger support near $40.00 and its 50-dma but we don't want to risk it given today's relative weakness.

Tonight we are suggesting an immediate exit tomorrow morning. If BURL dips to $40 and bounces then I might reconsider.

- Suggested Positions -

Long BURL stock @ $41.05

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

Long DEC $40 call (BURL141220c40) entry $3.10

11/18/14 prepare to exit tomorrow morning.
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: 41.65 change: +0.35

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: + 3.5%
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:
11/18/14: COLM has been a machine lately with shares consistently inching higher just about every day. The stock is now up ten days in a row.

COLM could see profit taking at any time. Look for support near $40.00. I'm not suggesting new positions at this time.

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


Barracuda Networks - CUDA - close: 36.02 change: +0.72

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: +1.0%
Entry on November 18 at $35.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 247 thousand
New Positions: see below

Comments:
11/18/14: Our new play on CUDA has been triggered. The stock displayed relative strength today with a +2.0% gain. Our entry point was hit at $35.65.

Earlier Comments: November 15, 2014:
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.

- Suggested Positions -

Long CUDA stock @ $35.65

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

Long 2015 Jan $35 call (CUDA150117c35) entry $3.15

11/18/14 triggered @ $35.65
Option Format: symbol-year-month-day-call-strike


Cynosure, Inc. - CYNO - close: 26.90 change: -0.95

Stop Loss: 25.35
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
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:
11/18/14: Warning! The action in shares of CYNO today was bearish. The company issued a press release about a new product this morning but nothing in the release looks like a catalyst for today's profit taking. The stock opened higher and then collapsed with a -3.4% decline.

Technically today's move has created a bearish engulfing candlestick reversal pattern. These patterns need to see confirmation but more conservative traders may want to exit now anyway. 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

11/18/14 caution: potential bearish reversal today
11/15/14 new stop @ $25.35
11/12/14 triggered @ 26.25


Electronic Arts - EA - close: 42.87 change: +1.47

Stop Loss: 39.75
Target(s): To Be Determined
Current Option Gain/Loss: + 2.7%
Entry on November 17 at $41.75
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.7 million
New Positions: see below

Comments:
11/18/14: Bullish analyst comments on EA today helped the stock surge higher. EA outperformed the broader market with a +3.5% gain. This is encouraging since EA was starting to look stuck in the $40-42 zone.

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.

- Suggested Positions -

Long EA stock @ $41.75

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

Long 2015 Jan $45 call (EA150117c45) entry $0.71

11/17/14 triggered @ 41.75
Option Format: symbol-year-month-day-call-strike


International Paper Co. - IP - close: 54.98 change: +0.14

Stop Loss: 52.35
Target(s): To Be Determined
Current Option Gain/Loss: +3.2%
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:
11/18/14: IP is inching closer and closer to potential round-number resistance at $55.00. After a five-week rally I would expect a pullback. 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




BEARISH Play Updates

Nu Skin Enterprises - NUS - close: 38.28 change: -1.12

Stop Loss: 41.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 17, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.78 million
New Positions: Yes, see below

Comments:
11/18/14: NUS followed the market higher this morning but the rally stalled under what should be round-number, psychological resistance at $40.00. I do not see any changes from last night's new play description. Our suggested entry point for bearish positions is $37.90.

Earlier Comments: November 17, 2014:
NUS is in the consumer goods sector. They make and sell personal care products. What makes NUS an interesting story is that they're part of the multi-level marketing industry.

Multi-level companies have come under fire in recent years. Herbalife (HLF) gets a lot of headlines with some big investors calling HLF a pyramid scheme. NUS was under investigation in China but seemed to get off the hook with only a minor fine a few months ago. Whatever your opinion of multi-level companies the business outlook for NUS is challenging.

NUS has guided lower (a.k.a. earnings warning) four quarters in a row. Their most recent quarterly report was November 5th. They beat Wall Street earnings estimates of $0.93 a share with a profit of $1.12 but that is still down -37% from a year ago period.

Revenues were down -29.7% to $638.8 million. The company reported that sales slowed in all geographical regions. They had lower revenues, lower margins, and struggled with currency fluctuations.

NUS management then guided lower for the fourth quarter. They expect a profit in the $0.72-0.77 range versus analysts' estimates in the $1.01 range. NUS lowered their Q4 revenue guidance into the $590-610 million versus consensus estimates of $659 million.

There was also a story that came out a few hours before NUS' Q3 results that NUS has confirmed an undisclosed SEC probe into the company. That's never good news.

There are also rumors that NUS is suffering serious cash flow issues and has years worth of inventory.

All of this bad news sparked a big drop in NUS' stock. The oversold bounce has failed. Now shares are breaking down under key support near $40.00. The next level of support could be in the $32-30 zone. The point & figure chart is bearish with a $25.00 target.

Tonight we are suggesting a trigger to open bearish positions at $37.90 with a stop loss at $41.55. NUS can be a volatile stock so I am suggesting we limit our position size to reduce risk. You may want to use put options to limit risk to the cost of your option.

Trigger @ $37.90 *small positions to limit risk*

- Suggested Positions -

Short NUS stock @ $37.90

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

Buy the 2015 Jan $35 PUT (NUS150117p35)

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



CLOSED BULLISH PLAYS

Blue Nile Inc. - NILE - close: 34.96 change: -0.61

Stop Loss: 34.95
Target(s): To Be Determined
Current Option Gain/Loss: - 6.2%
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:
11/18/14: NILE continued lower after yesterday's drop and gave up another -1.7%. Our stop loss was hit at $34.95.

*small positions* - Suggested Positions -

Closed NILE stock @ $37.25 exit $34.95 (-6.2%)

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

Dec $35 call (NILE141220c35) entry $2.85 exit $1.15 (-59.6%)

11/18/14 stopped out
11/13/14 triggered @ 37.25
Option Format: symbol-year-month-day-call-strike

chart:


Zumiez Inc. - ZUMZ - close: $33.84 change: -0.14

Stop Loss: 33.35
Target(s): To Be Determined
Current Option Gain/Loss: - 2.3%
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:
11/18/14: ZUMZ delivered a disappointing performance. Instead of following the market higher today shares traded below support at the bottom of its multi-week bullish channel. ZUMZ fell just low enough to tag our stop loss at $33.35 before paring its losses.

- Suggested Positions -

Closed ZUMZ stock @ $34.15 exit $33.35 (-2.3%)

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

DEC $35 call (ZUMZ141220C35) entry $1.60 exit $1.05 (-34.3%)

11/18/14 stopped out
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: