Option Investor
Newsletter

Daily Newsletter, Thursday, 11/20/2014

Table of Contents

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

Market Wrap

Who Needs The World

by Thomas Hughes

Click here to email Thomas Hughes
The difference between overseas and US economies was put into further contrast today.

Introduction

The market was down from the very earliest, but bounced back to set a new high. Economic data from Europe is to blame for the early dip although there was some negative news from China as well. Flash PMI in China fell to 50 indicating neither a gain nor a loss of activity. Asian markets were mostly flat on the news and had little impact on early morning trading. One ray of light among all this international gloom was a rise in imports and exports for Japan, the second monthly rise in a row and a sign that maybe Abenomics is helping a little bit after all.

European flash PMI fell to new lows, the November reading for the entire EU is 51.4. The reading fell to 52.1 in Germany, expansionary but a decline form last month and less than expected. France is worse, falling to 47.6. These numbers underline the shaky nature of the EU recovery and added fuel to speculation of potential central bank action from the ECB. European indices were down on the news but managed to claw their way back to break even by the close, largely aided by US data and the rally that carried our indices to new highs today.

Market Statistics

As I said, futures trading was negative this morning. The S&P 500 was indicated about 8 points lower ahead of the 8:30AM release of economic data and then fell to new lows of the premarket session. Jobless claims and CPI were both decent but not enough to spark the round of buying we saw later in the day.

The market opened lower and then quickly moved down, only to hit bottom and bounce back within the first 30 minutes of trading. At 10AM surprisingly strong numbers from the Philly Fed, the Conference Board and the National Association of Realtors provided lift to break the market out to what would become new highs, for some indices at least. The market drifted above break even for most of the afternoon and then strengthened into the closing bell.

Economic Calendar

The Economy

There was quite a lot of data released today and as a whole are pointing to an ongoing uptrend in economic activity.An uptrend that is expected to continue through the end of the year and into the start of 2015. First up was CPI. The Consumer Price Index was unchanged in October. This was due to a big decline in energy prices which offset gains in other areas such as housing. Ex-food and energy prices rose 0.2% for the month and are up 1.7% on a 12 month basis. This is below the Fed target rate for inflation.

Initial claims for unemployment fell, by -2,000, to 291,000. This is from an upward revision of 3,000 to last week's figures so is a wash on a week to week basis. The four week moving average fell by -1,750 to 287,000. On a not adjusted basis claims fell by -7.4%, slightly more than the -7.2% predicted by the seasonal factors and down -12.7% from last year at this time. First time claims remain low and at levels consistent with the ongoing recovery in labor.


Continuing claims fell by -73,000 to a new low. This low dates back to 12/16/2000 and extends the downtrend in this metric. Last week's number was revised higher by 11,000. The total number of claims for unemployment rose by 81,659 to 2.183 million. This is the highest number of total claims since early September and could be an indication that the overall decline in unemployment is stalling. However, with all the other labor data, it could also be an indication of an increase in the participation rate; if more people are participating in the workforce it may be harder for those who are unemployed to find new work, kind of a bad news is good news scenario. The LPI rose last month, perhaps it will rise again this month.


Philly Fed, the Index of Leading Indicators and Existing Home Sales were all released at 10AM. All were better than expected and point to continuing economic expansion. I'll start with the Philly Fed because it was the biggest surprise, rising to 40.8 in November, nearly double the October reading. This is much better than the small decline expected by analysts and makes me wonder who may have made a mistake. The rise is due to increases in new orders, shipments and employment. The employment index rose by 10 points to a 3.5 year high, the hours worked index also rose, from -1.3 to 7.8. The forward looking component of labor was positive for the next 6 months. Among the special questions asked in this month's survey was about hiring intent and outlook for the next year. Answers indicate that business in the Philly region are expecting to be hiring more employees for the next 12 months.

The Index of Leading Indicators rose by 0.9% from last month's reading of 0.7%. This is better than the expected 0.6% and indicating the economy is gaining momentum. All components of the index rose in October indicating a broad and strong expansion, according to economists quoted in the report. The coincident indicator also rose, by 0.1%, while the lagging index fell by -0.1%, indicating the past two months were basically unchanged from what we already knew.

Existing home sales rose by 1.5% in October, to an annualized rate of 5.62 million. This is the second month of gains and the first time that sales have shown a gain from last year. Last month was revised higher, to 5.18 million.

The Oil Index

With everything else going on in the world of oil economic trends helped to underpin price today. WTI and Brent both gained more than 1.25% while natural gas rose by over 2%. Cold weather is helping to lift both oil and gas.

The Oil Index also gained a little more than 1.25%, helping confirm support at 1430 and the 23.6% retracement of the October correction. Both MACD and stochastic confirm support and are rolling over into a bullish signal. MACD has already begun to tick back up and stochastic right behind it. Together, the two are looking pretty strong but there is still resistance at 1485 to break through. This move is going to be impacted greatly by oil price direction, which is still in question. OPEC is still a wild card but it's in their interest to keep prices as high as the market will bear. Another factor that could keep supporting oil prices is weather. The winter is looking pretty cold from where I am sitting and the colder it is, the more oil and gas we'll use and the higher prices will go.


The Gold Index

Gold prices rose today to trade just below $1195. Reports are, physical buyers of gold are stepping into the market due to low prices. If so, and if this continues, the bottom in gold may indeed be in. However, I still think it is too soon to say because there are some near term factors that could pressure gold lower, specifically dollar strength. The rally in the dollar has stalled of late but is still at four year highs and susceptible to moves expected by both the ECB and BOJ that could weaken their respective currencies and drive the dollar higher. Gold faces resistance at $1200.

The Gold Index also traded higher today. The index gained over 2% from yesterday's close and is still above the 100% retracement line. This line could be support, assuming a reversal of the long term downtrend, but just as easily not. The index is in a long term down trend, driven by low gold prices, and there is no evidence yet of that having changed. The indicators are currently bullish but suggestive that the move above the retracement line is a whipsaw. The MACD is showing what could be a double top and stochastic is weak in the longer term and overbought in the shorter term. Additionally, price action is currently caught in technical resistance at the point of the triangle I drew around the October price pattern. Resistance is between $70-$72.50 with possible support around $66.00 and then $60.00.

Gold prices, as always, will drive the course of this trade and presents an interesting conflict. If the bottom in gold is in then so might a bottom in the Gold Index, but if not the long term downtrend will continue.


In The News, Story Stocks and Earnings

Retail was the sector in focus today. Several well known retailers reported today, both before and after the bell. Best Buy reported before the bell, beating street estimates. The struggling electronics retailer reported EPS of $0.32 versus the expected $0.25. Revenue also beat. Comparable store sales increased 2.2% and was largely the reason for the improvements; there was an expectation for store traffic to decline. The company also issued positive forward guidance for the holiday shopping season. Shares of the stock jumped more than 7% during today's session, breaking above resistance set last January when the stock gapped down more than 20%.


Ross Stores reported after the bell, also beating estimates. The clothing retailer reported earnings of $0.92 per share, a nickel above estimates. The company also reaffirmed current guidance, guidance that is slightly below analyst estimates. The report was met with approval and sent shares soaring in after hours trading and could open at a new high tomorrow.


Gap Stores also reported after the bell. The teen retailer reported earnings and revenue that rose from last year, but not enough to match estimates. The company also lowered guidance for the upcoming quarter. The news sent shares of this stock down in after hours trading following a gain of 1.5% in today's session.


The retail Spyder XRT gained over 1.5% today. Price action created a long white candle and completed a text book continuation signal. Over the past 7 trading days the ETF created a long white candle, moving up from a break above resistance, followed by a week of consolidation ending in another long white candle that breaks to another new high. The indicators are also bullish and support the signal. MACD is bullish and ticking up, stochastic is strong and on the cusp of a bullish crossover. Upside target for this move is equal to the distance from the October bottom to the early November high, about $11.50, putting it just over $101. By all accounts the holiday season is going to be a good one and the retail sector is responding accordingly.


The Indices

The market opened lower today, hurt by continued poor economic performance in Europe and Asian. However, the poor international data helped to contrast our own economic data and show it for what it is, good and not dependent on international trade.

The NASDAQ Composite led today's rally. The techs climbed just over a half percent, falling short of a new closing high. The index is trending higher and setting up for a potential move higher. The indicators are bullish but have declined from their peak, set at the beginning of the month. Momentum has retreated to near zero but that is not overly concerning for now as stochastic is still high in the upper signal zone and indicating underlying strength. Stochastic is also flattening out, rolling over and about to produce a bullish crossover. Current support is indicated around 4,650 with resistance less than a point above today's close.


The Dow Jones Transportation Average were another leader in today's rally with a 0.46% gain. The trannies did not set a new high but came close, and helped confirm support along the 9000 level. The indicators are still in decline but are beginning to show signs of rolling over, stochastic most notably. Current upside targets include 9,250 in the near term with resistance near 9,125.


The S&P 500 only gained 0.20% but was able to set a new closing high. The broad market gained just over 4 points to close above 2050. The indicators are in decline, as with the others, but also showing some underlying strength. The current MACD peak is an extreme dating back for several years and stochastic is still high in the upper signal zone. The trend is up and at this time there is no indication from price action that is ending. A decline in indicators is natural during the consolidation of an uptrend and that is what looks like is happening now. Support is around 2020 with little in the way of resistance.


The Dow Jones Industrial Average brings up the rear in today's action. The blue chip index only gained 0.19% but was able to set a new all time high above 17,700. The indicators are similar to the other indices and like the others, indicative of some underlying strength. The decline in the indicators is reason to keep tight stops but as yet not a concern as it is setting us up for a possible leg higher. First target for support on a pull back is 17,500 and then 17,250 with upside targets near 18,000.


The market is moving higher on a wave of economic recovery. The data says it all, things are not only steady but beginning to gain momentum. The rest of the world isn't doing great but do we really need it if our own economy is gaining momentum? At the end of the day exports are only about 15% of GDP.

To date, the economy has been improving in fits and starts. One sector would improve, then another, and then another, but not all at once and yet the stop-and-go nature of the recovery has produced economic growth. I have thought for some time that there could be a real surge in activity if each independent segment of the economy were to improve at once and this could be it. The Philly Fed number may be a one off and something we won't see from any other data but what if it isn't? The leading indicators are on the rise and gaining momentum, the labor market is improving and gaining momentum and there is a lot of optimism going into the end of the year and next year. With all of this in mind it is really hard to be a bear....but that could change. There is a lot of data being released next week, all on Tuesday and Wednesday because of the holiday. One that jumps out is the 2nd estimate for 3rd quarter GDP.

Until then, remember the trend!

Thomas Hughes


New Plays

Relative Strength In Tech

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Seagate Technology - STX - close: 65.54 change: +0.92

Stop Loss: 62.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: Yes, see below

Company Description

Why We Like It:
STX is in the technology sector. The company makes hard disk drives, solid-state drives, and additional computer memory and storage systems.

STX's main rival is Western Digital (WDC). The two have something of a duopoly on the global hard drive and storage business. STX has suffered a bit of a public relations problem when a study came out earlier this year that showed WDC's hard drives had a longer (average) life span than STX drives. The news has helped WDC steal some market share from STX but both companies are still seeing strong growth.

Back in July STX announced their Q4 results and guided higher for their Q1 (calendar Q3). The company's Q1 numbers were better than expected and above their July guidance thanks to big demand for their PC, gaming, and cloud storage products. Management noted they are definitely seeing better than expected momentum in their cloud-computing systems.

STX's most recent earnings report was October 27th. Wall Street expected a profit of $1.24 a share on revenues of $3.6 billion. STX beat both estimates with a profit f $1.34 a share and revenues of $3.79 billion. The EPS number was up +22% from the prior quarter and up +4% from a year ago. Revenues were up +8.5% from a year ago and up +15% against the prior quarter.

Management said they have confidence in their future cash flow generation which is why they raised their quarterly dividend from $0.42 to $0.54. STX's guidance for the current quarter is $3.7 billion in revenues, which is above Wall Street's estimate.

Technically shares have recovered from a brief November pullback and now the stock is hitting all-time highs. The point & figure chart is bullish and forecasting a long-term $94 target.

Today's breakout past resistance at $65.00 looks like a bullish entry point. I'd like to see just a little bit more confirmation. Tonight we are suggesting a trigger to open bullish positions at $65.75.

Trigger @ $65.75

- Suggested Positions -

Buy STX stock @ $65.75

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

Buy the 2015 Jan $65 call (STX150117c65) current ask $2.67

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

New Closing Highs

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 and the Dow Industrials both posted new all-time closing highs. It was also encouraging to see the small cap Russell 2000 reversing yesterday's loss.

Our new CSX trade has been triggered.

Do not forget that normal November options expire after tomorrow!


Current Portfolio:


BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 50.60 change: +0.89

Stop Loss: 46.75
Target(s): To Be Determined
Current Option Gain/Loss: + 8.8%
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:
11/20/14: AMBA has been volatile the last few days. Thankfully shares rebounded off their Thursday lows near $47.50. The stock is on track for its sixth weekly gain in a row.

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


Columbia Sportswear Co. - COLM - close: 43.31 change: -0.36

Stop Loss: 41.45
Target(s): To Be Determined
Current Option Gain/Loss: + 7.6%
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:
11/20/14: After big gains yesterday shares of COLM took Thursday off to consolidate a bit. I don't see any changes from yesterday's comments.

COLM does have potential resistance in the $44-45 zone as shares have seen some intraday peaks that reversed in this range. Thus more conservative investors will want to seriously consider taking some money off the table right here.

I am not suggesting new positions.

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

11/19/14 new stop @ 41.45, readers may want to take some money off the table right here.
11/12/14 new stop @ 39.25
11/06/14 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike


CSX Corp. - CSX - close: 37.29 change: +0.42

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
Entry on November 20 at $37.10
Listed on November 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 7.2 million
New Positions: see below

Comments:
11/20/14: Our new play on CSX has been triggered. The stock broke through resistance near $37.00 and hit our entry point at $37.10. CSX closed near its high for the day, which bodes well for tomorrow.

Earlier Comments: November 19, 2014:
CSX is in the services sector. They run a railroad and intermodal transport business that covers much of the U.S. and Canada. According to the company website, "CSX Corporation, together with its subsidiaries based in Jacksonville, Fla., is one of the nation's leading transportation suppliers. The company's rail and intermodal businesses provide rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers.

Overall, the CSX Transportation network encompasses about 21,000 route miles of track in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec. Our transportation network serves some of the largest population centers in the nation. Nearly two-thirds of Americans live within CSX's service territory.

CSX serves major markets in the eastern United States and has access to over 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. The company also has access to Pacific ports through alliances with western railroads."

The railroad stocks have been showing relative strength as the broader U.S. economy slowly improves. Weekly average carloads have hit levels not seen in years. CSX's most recent earnings report was October 14th and it was a record breaker with record revenue, operating income, net earnings and EPS.

Wall Street was expecting a profit of $0.48 per share on revenues of $3.18 billion. CSX reported $0.51 a share, which is a +13% increase from $0.45 a year ago. Revenues were up +7.9% to $3.22 billion. Management said that "This performance was supported by volume increases of 7 percent, with broad-based growth across nearly all markets CSX serves." It was CSX's third earnings beat in a row.

CSX's Executive Vice President of Sales and Marketing and Chief Commercial Officer, Mr. Clarence Gooden, said, "The underlying macro-economy remains strong and the data and our experience suggest a positive outlook for growth." CSX is expecting steady growth in the fourth quarter and they see growth improving to double-digit earnings growth and margin strength in 2015.

When asked about the drop in oil prices CSX does not think the drop in oil will impact their business. CSX management said they have already signed more than 50% of their 2015 contracts. There has been some speculation that coal could impact the rail business but CSX believes domestic coal volumes will remain strong as utilities continue to rebuild their inventories.

Investors might like to know that CSX saw some big gains in October over M&A speculation. Evidently Canadian Pacific (CP) had approached CSX about a merger but CSX rejected the offer. That has revived the idea that the railroad industry could see more M&A.

Shares of CSX have spent the last few days consolidating sideways in the $36.40-37.00 zone. A breakout could be a new entry point. I'm suggesting a trigger to open bullish positions at $37.10.

- Suggested Positions -

Long CSX stock @ $37.10

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

Long 2015 Jan $37 call (CSX150117c37) entry $1.30

11/20/14 triggered @ 37.10
Option Format: symbol-year-month-day-call-strike


Barracuda Networks - CUDA - close: 35.51 change: +0.02

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: -0.4%
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:
11/20/14: CUDA dipped toward short-term technical support at its 10-dma before bouncing. Unfortunately the $36.00 level has been acting like resistance the last couple of days.

I am not suggesting new positions at the moment.

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: 27.33 change: +0.85

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: +4.1%
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:
11/20/14: If you're a bull on CUDA then today was encouraging. Shares managed to recoup a lot of the stock's losses in the last couple of sessions. I would still hesitate to launch new positions but technically the stock looks a bit better today.

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

11/19/14 new stop @ 25.90
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: 43.15 change: -0.30

Stop Loss: 39.75
Target(s): To Be Determined
Current Option Gain/Loss: + 3.4%
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:
11/20/14: Thursday was a quiet session for EA. Investors were likely waiting to hear GameStop's (GME) earnings report. Unfortunately GME's report was a disaster. GameStop missed the profit estimate, missed the revenue estimate, and guided lower. Shares of GME are down about -10% after hours. It's unclear how much this will affect shares of EA but I would expect EA to see some volatility tomorrow morning.

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

11/20/14 Caution. EA could be volatile tomorrow in reaction to GME's earnings report
11/17/14 triggered @ 41.75
Option Format: symbol-year-month-day-call-strike


International Paper Co. - IP - close: 53.74 change: -0.58

Stop Loss: 52.85
Target(s): To Be Determined
Current Option Gain/Loss: +0.8%
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:
11/20/14: Heads up! We need to turn a bit more cautious on IP. The stock was overbought and due for a pullback. Seeing shares down two days in a row isn't that surprising. However, today's display of relative weakness includes a close below short-term technical support at the 10-dma.

Tonight I am moving the stop loss to $52.85. 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

11/20/14 new stop @ 52.85
11/12/14 new stop @ 52.35
11/10/14 triggered @ 53.30
Option Format: symbol-year-month-day-call-strike


Take-Two Interactive - TTWO - close: 26.94 change: +0.10

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

Comments:
11/20/14: TTWO spent most of the day inside a 50-cent range. We are still on the sidelines with a suggested entry point at $27.30.

In the EA update above I mentioned how GME's earnings report tonight might influence trading in the video game makers. TTWO could see some volatility tomorrow morning in reaction to GME's report.

Earlier Comments: November 18, 2014:
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)

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




BEARISH Play Updates

Nu Skin Enterprises - NUS - close: 40.14 change: +0.17

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:
11/20/14: We will give NUS one more day. If shares don't start to show some weakness tomorrow then we will most likely drop it. Currently 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