Option Investor
Newsletter

Daily Newsletter, Monday, 12/8/2014

Table of Contents

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

Market Wrap

Market Slips On Oil

by Thomas Hughes

Click here to email Thomas Hughes
Weak data from Asia and wildly declining oil prices had traders on edge but renewed support from the nations economists is pointing to increased growth in the US.

Introduction

The day started out with equities in the red and they never recovered the loss. The drop was due primarily to the decline in oil but was also impacted by other factors. At first it seemed like mixed economic signals would hold the bulls and the bears in check. Weaker than expected data from Japan and China plus an upgrade of US GDP expectations had a mixed effect on global trading. Asian market were largely higher while those in Europe and the US were both down. In Japan weak 3rd quarter GDP was revised lower, to -1.9%, adding pressure on both the government and the BOJ to do more to support the floundering economy. In China weak trade data shows that imports and exports declined in November. This is of course in the face of a strengthening US economy as demonstrated by the much stronger than expected NFP numbers last Friday.

Market Statistics

Global events had their impact but the real drag on the market comes down to two things; McDonald's and oil prices. McDonald's reported weak sales and weak same store comps, driving its share price down by close to -4%. Oil prices also fell nearly -4% and carried the oil complex with it; Exxon and Chevron, both Dow Components, were down -2% and -3% respectively.

The indices were indicated lower from the earliest. The SPX was indicated to open lower by about 5 points and that held steady until the bell. After the opening bell the market held steady for the fist 20 minutes or so and then moved up to test last weeks closing prices. Today's high had been reached by 10AM and then the market began to drift lower. A little after noon the market began to sell off and quickly fell to a new daily low. Selling persisted, led primarily by the aforementioned stocks and sector, into the afternoon before intr-aday bottom was hit. Today's declines were not recovered but the indices were able to close off of the low.

Economic Calendar

The Economy

There was no US economic data this morning but the latest survey from NABE reflects growing optimism over the economy. According to the National Association of Business Economist the consensus estimate for 2015 US GDP growth has risen to 3.1% from the previously estimated 2.1%. The latest survey also shows that unemployment is expected to fall to 5.4% by the end of next year. Inflation is only expected to rise a tenth, to 1.7%, while consumer spending is expected to gain a half percent. Housing and wages are both also expected to improve next with production levels the only area expected to see declines.

The government is scheduled to run out of money again this Thursday. According to the latest reports congress is close to reaching a deal to ensure there isn't a shut down similar to the one we had in October 2013.

According to Mark Zandi's latest report Moody's Survey of Business Confidence has risen to new, record, highs. In fact, the words he uses are “surged to record highs”. He goes on to say that confidence in the US is “booming” while it is only strong in Asia. Europe and South America are still struggling but at least in Europe they are “getting better”. He says that “US businesses are extraordinarily upbeat” and that “prospects into next year are especially strong”.

There is some important data coming up this week. Tomorrow look for whole sale inventories and the JOLTs report on job openings. One of the key metrics of the JOLTs report is the quits rate which measures the number of jobs open due to voluntary separation. It is considered a good indicator of labor market health as more people will leave their job when the labor market is strong because they are more confident of finding new and/or better work. Wednesday the Treasury Budget is the only release and then on Thursday jobless claims, retail sales, import/export prices and business inventories. Friday wraps the week with PPI and Michigan Sentiment. Retail sales are expected to rise by nearly a half percent to 0.7% while PPI is largely expected to remain unchanged.

The Oil Index

Oil prices continued to slide today as yet another major analyst lowered its outlook. Morgan Stanley issued a report stating its 2015 forecast for Brent crude price is around $53 a barrel. One major issue for the down grade is over supply which the company blamed on OPEC. Morgan Stanley says that without intervention from OPEC the market will become imbalanced and could push prices even lower. WTI and Brent both fell on the news, roughly 4%, to new 5 year lows. With little to support prices it is possible that WTI and Brent could keep sliding until it is obvious demand and supply are in balance.

The Oil Index fell -4% today as well, and broke through support at 1336. The index is approaching a 25% loss from its peak last summer and in danger of further declines. Low oil prices and high supply are a bad combination for the oil producers and could combine to drive them even lower. Assuming a down trend in the index, the indicators are in line with a bearish trend following signal. MACD is moving up to make a new bearish peak and stochastic is making a strong bearish crossover. One potential target for this move is about 75 points lower along a long term trend line dating back to a series of bottoms in 2010, 2011 and 2012.


The Gold Index

Gold prices firmed today and made their way back above $1200, closing the US session near $1203. There was some movement into the metal on the decline in equities as well as relative dollar weakness which both helped lift prices. Gold climbed about $20 from the low to trade just below $1210 before hitting resistance. Prices remain volatile and trading around $1200 with no clear fundamental factor driving them. Gold may be bottoming but it is not time to be chasing prices. Aside from day to day swings based on economic data and news the next major catalyst in this market may be the convergence of central bank meetings scheduled for next week.

The Gold Index fell today but bounced from support. The index bounced from the long term support line with a small candle and weakening indicators. It appears to be testing long term support and could continue to do so into the near term. Support is located at $66.59, the 100% retracement of the 2008-2011 bull market in gold. If support holds this would be the first confirmation of this level and could lead to a rise in price. If the retracement doesn't hold the index will likely move down to the long term set last month at least. This level would be the next target to find support but will depend on gold prices.


In The News, Story Stocks and Earnings

Three main stocks were the root cause in today's Dow drop. McDonald's, Chevron and Exxon. McDonald's fell nearly 4% in the premarket session. The global fast food mega giant reported sales were down 6% worldwide with noticeable declines in comp store sales and US sales. This is counter to expectations for the company to at least maintain sales volume and highlights the growing decline in old school fast food versus its competitors who are more conscious of consumer food trends. The stock dropped below potential support with bearish indicators. Watch the $93.85 level for signs of resistance with downside targets near $90. Next earnings is 1/22/2015.


Chevron and Exxon both fell with the drop and bear market in oil. Chevron fell 3.75% to hit support along the 106.75 level. This level is the low set in October and could be a bottom for the stock. Indicators are consistent with support but oil prices could sweep the stock lower if they keep falling. If Chevron breaks this level it will be a new 12 month low and could carry the stock lower.


Exxon fell less, only 2.25%, and is still well above the lows set in October. Shares of this stock are approaching support, about $1.50 below the current level, with the October low still $2.50 below that. If oil falls further, or persists at the current levels, Exxon could sink to this low, near $87.50. The indicators are suggestive of support but like with Chevron, won't hold up to much if oil prices keep tanking. At these levels both stocks are paying decent dividends, Exxon 3% and Chevron 4%, so could attract some buyers and add to volatility.


Diamond Foods released earnings after the bell today and reported much better than expected. The company reported $0.28 per share, 4 cents ahead of estimates, and sent share prices higher in after hours trading. Looking at the chart the stock has been trading sideways to down over the last two weeks, building up to today's report. Today, the stock broke down through the 30 day moving average, dropping from resistance at $30, with bearish indicators. MACD is peaking to the downside and stochastic is making a double bearish crossover, that is, it is crossing the lower signal line at the same time %K is crossing %D. The set up looked pretty bearish going into the close but may prove to be a decent entry point if the after hours action holds up tomorrow.


The Indices

The indices fell today, the biggest decline in weeks. The losses were led primarily by the energy sector but the broader market was not immune. Surprisingly, the Dow Jones Transportation Index had the largest decline of the major indices, falling 1.30%. The decline was halted at the 9,000 level, just above the short term 30 day moving average and a level looking like support. The indicators are still showing decline but so long as support keeps holding the declines are serving to alleviate technical overbought conditions. Both MACD and stochastic are consistent with support in the short term as well, with 9,000 the first most obvious target. A break below this level could bring the index down do 8,750.


The NASDAQ Composite fell only -0.84% but is looking a little more top heavy than the transports. The index is creating similar price action but the indicators are much weaker. Stochastic is dipping below the upper signal line and MACD momentum is gaining bearishness. The index is a little extended as well and could easily drop back down to the 30 day moving average, about 65 points lower. The short and long term trends are up but it is possible a near term crest has been reached. There is some data due out this week that could sustain prices but the next major economic event is the FOMC meeting in ten weeks.


The S&P 500 lost 0.73% today and is approaching potential round number support at 2,050. Today's action found support at 2,055 but the indicators are declining so further testing of support is likely. MACD is gaining momentum to the downside and stochastic is about to cross below the upper signal line. The index could continue lower based on the indicators alone but there is additional support just below in the form of the 30 day moving average and then below that along 2,020 near the September peak. The index could be cresting a peak, about to pull back or merely consolidating. It has made quite a substantial gain in the last 6 weeks and profit taking is never a bad idea, but how low a dip will go is very questionable. The trend is up and the economic data supports it so any dip that materializes now will be a buying opportunity for me.


The Dow Jones Industrial Average made the smallest decline today despite containing some of the hardest hit companies. The blue chips, as a whole, lost only 0.59% compared to the losses sustained by Chevron, Exxon and McDonald's. The index created a medium bodied black candle and formed a potential dark cloud cover pattern, similar to price action in the other indices. The indicators are also creating bearish signals and indicative of a test of support but there is no real reason I can see for one to occur, today's drop being driven by oil prices which are bad for oil companies but great for everyone eles. First target, on a decline, is the short term moving average about 300 points lower.


It looks like the indices are setting up to test support. Depending on which index you are looking at support could be just beneath current levels or up to 1.5% lower. Several reasons exist for such a pullback to occur but all boil down to locking in profits ahead of the upcoming triple shot of central bank meetings.

There is still important economic data between now and the FOMC meeting that could influence the market. This week is a little light but includes jobless claims, JOLTS, PPI, Michigan Sentiment and business/wholesale inventories. Next week is pretty full, aside from the FOMC there are nearly 2 dozen reports including reads on housing, manufacturing and leading indicators. The trends are up, as are the economic expectations, so any test of support will likely be a buying opportunity. Especially if they are driven by another decline in oil prices.

Until then, remember the trend!

Thomas Hughes

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New Plays

Packaging & Containers

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Sealed Air Corp. - SEE - close: 40.81 change: +0.49

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: Yes, see below

Company Description

Why We Like It:
SEE is part of the consumer goods sector. They're in the packaging and containers industry. The company describes itself as "Sealed Air is a global leader in food safety and security, facility hygiene and product protection. With widely recognized and inventive brands such as Bubble Wrap brand cushioning, Cryovac brand food packaging solutions and Diversey brand cleaning and hygiene solutions, Sealed Air offers efficient and sustainable solutions that create business value for customers, enhance the quality of life for consumers and provide a cleaner and healthier environment for future generations. On a pro forma basis, Sealed Air generated revenue of $8.1 billion in 2011 and has approximately 26,300 employees who serve customers in 175 countries."

The U.S. economy is improving and that should mean a strong tailwind for SEE. The company has seen earnings growth improve. The last two quarters in a row SEE has beaten Wall Street's estimates on both the top and bottom. If that wasn't good enough they also raised their guidance two quarters in a row.

SEE's most recent earnings report was October 29th. Analysts were expecting a profit of $0.45 a share on revenues of $1.94 billion. SEE said earnings were up +24% from a year ago to $0.52 a share. Revenues rose +3.3% to $1.98 billion.

Jerome A. Peribere, President and Chief Executive Officer of SEE commented on their quarterly performance. He said, "Our financial and operational performance in the third quarter exceeded our expectations across all key metrics. Net sales increased 3.6% on a constant dollar basis, Adjusted EBITDA margin surpassed 15%, and Adjusted EPS increased 24%. Adjusted gross profit margin increased 120 basis points as a result of our continued disciplines and value-added selling approach across all regions and divisions. Despite macro-economic uncertainties, currency headwinds and volume declines in the North American protein market, we are increasing our 2014 outlook for Adjusted EBITDA and Adjusted EPS and expect to generate approximately $540 million in free cash flow."

SEE's new 2014 guidance is $1.70-1.75 a share versus Wall Street's $1.65-1.70 estimate. The stock has been strong following this report. Instead of correcting lower in mid November SEE merely consolidated sideways. Now it's rested and ready to run. Shares are up five days in a row and ignored the market-wide weakness today.

Today's intraday high was $40.87. I am suggesting a trigger at $41.05 to open bullish positions. We're not setting a target tonight but I will note the point & figure chart is forecasting a long-term target of $61.00.

Trigger @ $41.05

- Suggested Positions -

Buy SEE stock @ (trigger)

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

Buy the Jan $40 CALL (SEE150117C40) current ask $1.80

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

Intraday Chart:

Daily Chart:



In Play Updates and Reviews

Stocks Turn Lower on Monday

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. markets, the European markets, and the Japanese market all posted losses on Monday.

Another big drop in crude oil sparked heavy selling in energy-related stocks. This drug the market lower.

We have removed MSFT as a candidate. TASR hit our new stop loss.


Current Portfolio:


BULLISH Play Updates

Columbia Sportswear Co. - COLM - close: 44.40 change: -0.20

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.3%
Entry on Novo:tember 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:
12/08/14: COLM slipped -0.44% versus a -0.7% drop in the S&P 500 and a -0.8% decline in the NASDAQ. Shares found short-term support near $44.00 but COLM is in jeopardy of breaking down under its 10-dma.

There is no change from my prior comments. This stock continues to look overbought. Investors may want to take profits early. 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

11/29/14 new stop @ 42.85
11/25/14 new stop @ 42.25
11/24/14 new stop @ 41.85
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


Barracuda Networks - CUDA - close: 35.51 change: +0.45

Stop Loss: 33.85
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:
12/08/14: CUDA displayed relative strength today with a +1.28% gain and a breakout over its 10-dma. The 10-dma had me worried last week since CUDA had been struggling with it. The next challenge will be prior resistance in the $36.00 area.

I am not suggesting new positions.

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

12/06/14 new stop @ 33.85
11/22/14 new stop @ 33.65
11/18/14 triggered @ $35.65
Option Format: symbol-year-month-day-call-strike


Cynosure, Inc. - CYNO - close: 28.93 change: -0.02

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: +10.2%
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:
12/08/14: CYNO managed to hit a new multi-month high at $29.37 before eventually fading back to virtually unchanged. I don't see any changes from my prior comments. More conservative traders may want to move their stop loss closer to $27.00.

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

11/19/14 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: 46.01 change: -0.65

Stop Loss: 44.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.2%
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:
12/08/14: EA snapped a four-day winning streak with today's 65-cent drop. Let's hope the $45.00 level holds as support or we could see EA hit our stop at $44.85.

I am not suggesting new positions at this time.

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

12/04/14 new stop @ 44.85
11/29/14 new stop @ 42.85
11/22/14 new stop @ 40.85
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


Isis Pharmaceuticals - ISIS - close: 56.99 change: +4.23

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: + 7.0%
Entry on November 25 at $53.25
Listed on November 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: see below

Comments:
12/08/14: It was a big day for shares of ISIS after the company issued a press release on Sunday. ISIS reported that its Phase 2 Data for the ISIS-FXI Rx for the prevention of Venous Thrombosis in patients undergoing total knee replacement surgery saw very positive data. This news and the fact that two firms raised their price target on ISIS helped send the stock higher. Shares soared +8.0% to closet at new multi-month highs.

I am not suggesting new positions at this time.

Earlier Comments: November 24, 2014:
ISIS is part of the healthcare sector. They operate in the biotech space. Biotech stocks have been crushing the market this year. The BTK biotech index is up +43.4% year to date. ISIS is only up +2.2% but it has come a long way from its May 2014 lows near $22.25. The last seven months have produced a +135% rally.

According to a company press release, "Isis is exploiting its leadership position in antisense technology to discover and develop novel drugs for its product pipeline and for its partners. Isis' broad pipeline consists of 34 drugs to treat a wide variety of diseases with an emphasis on cardiovascular, metabolic, severe and rare diseases, including neurological disorders, and cancer.

Isis' partner, Genzyme, is commercializing Isis' lead product, KYNAMRO, in the United States and other countries for the treatment of patients with homozygous FH. Isis has numerous drugs in Phase 3 development in severe and rare and cardiovascular diseases. These include a novel triglyceride lowering drug, ISIS-APOCIIIRx, for patients with familial chylomicronemia syndrome; ISIS-TTRRx, which Isis is developing with GSK to treat patients with the polyneuropathy form of TTR amyloidosis; and, ISIS-SMNRx, which Isis is developing with Biogen Idec to treat infants and children with spinal muscular atrophy, a severe and rare neuromuscular disease. Isis' patents provide strong and extensive protection for its drugs and technology."

Part of the challenge with biotech stocks is their volatility. Biotechs can be extremely sensitive to any headline. The right or wrong headline about an FDA approval or clinical trial results can send a biotech stock soaring or crashing in a heartbeat.

Another challenge is earnings. Many of the smaller biotech names suffer from very lumpy earnings based on milestone payments by partners. For example, last quarter ISIS saw their quarterly revenues soar almost +90% yet they still missed Wall Street revenue estimate.

Most bulls on this stock will point to the company's pipeline. ISIS has a very broad pipeline so it's not just a one-trick pony. You can view their current pipeline here on this webpage: ISIS pipeline.

The stock has been stair-stepping higher with investors buying the dips as prior resistance acts as new support. Last week the stock garnered a new price target upgrade to $62.00. ISIS will also present at a couple of analyst conferences in early December that might offer more catalysts to keep the rally going. The big bounce from its 2014 lows has produced a huge buy signal on the Point & Figure chart that is projecting a long-term target of $73.00.

More aggressive investors may want to open bullish positions now. I am suggesting we wait for a rally past the November high ($53.12) and use a trigger to open positions at $53.25.

- Suggested Positions -

Long ISIS stock @ $53.25

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

Long 2015 Jan $55 call (ISIS150117C55) entry $3.15

12/08/14 ISIS soars +8% on clinical trial data and bullish analyst price upgrades
11/25/14 triggered @ 53.25
Option Format: symbol-year-month-day-call-strike


Micron Technology - MU - close: 36.02 change: -0.47

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: + 2.6%
Entry on November 24 at $35.10
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 24.8 million
New Positions: see below

Comments:
12/08/14: Semiconductor stocks were not immune to the market's pullback today. MU essentially erased Friday's gains. Traders bought the dip near its rising 10-dma.

More conservative investors may want to start raising their stop loss.

Earlier Comments: November 22, 2014:
MU is in the technology sector. The company is part of the semiconductor industry. They make memory chips. According to a company press release, "Micron Technology, Inc., is a global leader in advanced semiconductor systems. Micron's broad portfolio of high-performance memory technologies—including DRAM, NAND and NOR Flash—is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron's memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications."

The semiconductor space has been a strong performer this year with the SOX semiconductor index up +23.9% in 2014. That outperforms the NASDAQ's +12.8% and the S&P 500's +11.6% gain. MU is beating all of them with a +57.7% rally in 2014.

The company has been beating Wall Street's earnings and revenue estimates all year long. Their most recent report was MU's Q4 results that came out in September. Analysts expected a profit of $0.81 on revenues of $4.15 billion. MU delivered $0.82 as revenues soared +48.7% to $4.23 billion.

Management then raised their Q1 revenue guidance into the $4.45-4.70 billion range, which was above analysts' estimates. They also announced at $1 billion stock buy back program. Following its results and the buy back news the stock has seen several price target upgrades. Many brokers have price targets in the low to mid $40s. One firm has a $60 target.

Technically shares have been stuck under resistance in the $34.85 area since July. A rally past $35.00 would create a new buy signal on MU's point & figure chart. Tonight I am suggesting a trigger to open bullish positions at $35.10.

- Suggested Positions -

Long MU stock @ $35.10

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

Long 2015 Jan $35 call (MU150117C35) entry $2.01

11/24/14 triggered @ $35.10
Option Format: symbol-year-month-day-call-strike


Seagate Technology - STX - close: 66.24 change: -0.16

Stop Loss: 64.85
Target(s): To Be Determined
Current Option Gain/Loss: - 0.4%
Entry on November 21 at $66.52
Listed on November 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

Comments:
12/08/14: STX spent Monday's session consolidating sideways and closed virtually unchanged on the session. Traders should stay cautious here. I am not suggesting new positions at the moment.

Earlier Comments: November 20, 2014:
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.

- Suggested Positions -

Long STX stock @ $66.52

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

Long 2015 Jan $65 call (STX150117c65) entry $3.10

12/06/14 new stop @ 64.85
11/21/14 trade opened on gap higher at $66.52, suggested trigger was $65.75
Option Format: symbol-year-month-day-call-strike


Veeva Systems - VEEV - close: 30.54 change: -0.43

Stop Loss: 29.70
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 991 thousand
New Positions: Yes, see below

Comments:
12/08/14: VEEV underperformed the market with a -1.3% decline. Shares also closed below their 10-dma for the first time in days. If shares don't improve soon we might drop VEEV as an active candidate.

Currently our suggested entry point for bullish positions is $32.05.

Earlier Comments: December 4, 2014:
Wall Street loves a growth stock and this company is growing quickly.

VEEV is in the technology sector. They're part of the healthcare information technology industry. A company press release describes Veeva Systems Inc. as "a leader in cloud-based software for the global life sciences industry. Committed to innovation, product excellence, and customer success, Veeva has more than 200 customers, ranging from the world's largest pharmaceutical companies to emerging biotechs. Veeva is headquartered in the San Francisco Bay Area, with offices in Europe, Asia, and Latin America."

The company held its IPO in 2013 and shares priced at $20.00 and traded up to $49.00 four days later. The next eight months were painful as VEEV's stock drifted down to the $17.50 area. Fortunately shares have reversed thanks in large part to VEEV's earnings.

The company has beaten Wall Street's estimates on both the top and bottom line and guided higher the last three quarters in a row. Their most recent report was November 25th. Analysts were expecting a profit of $0.08 per share on revenues of $78.97 million. VEEV reported a profit of $0.09 while revenues soared +52.4% from a year ago to $83.8 million. They said their subscription service revenues in the third quarter rose +58% from a year ago. Their third quarter operating income doubled from $10.0 million to $19.9 million.

VEEV's management raised their Q4 guidance on both the top and bottom line. The stock soared the next day (Nov. 26th) and hit new eight month highs. Shares have since corrected but investors are buying the dip near support in the $30 area. Further gains could spark some serious short covering. Depending on the source, current short interest is between 22% and 55% of the relatively small 37.1 million share float.

This stock is volatile so I am suggesting investors limit their position size to reduce risk. Tonight we are suggesting a trigger to open bullish positions at $32.05.

Trigger @ $32.05

- Suggested Positions -

Buy VEEV stock @ (trigger)

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

Buy the JAN $32 CALL (VEEV150117c32)

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




BEARISH Play Updates

Voxeljet AG - VJET - close: 8.58 change: -0.68

Stop Loss: 9.65
Target(s): To Be Determined
Current Gain/Loss: +13.3%
Entry on December 04 at $ 9.90
Listed on December 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 372 thousand
New Positions: see below

Comments:
12/08/14: VJET's sell-off continued on Monday with another -7.3% decline on top of Friday's -6.9% plunge. Tonight we are moving the stop loss down to $9.65.

I am not suggesting new positions at the moment.

Earlier Comments: December 2, 2014:
VJET is in the technology sector. The company is part of the 3D printer industry. A company press release describes VJET as "a leading provider of high-speed, large-format 3D printers and on-demand parts services to industrial and commercial customers. The Company's 3D printers employ a powder binding, additive manufacturing technology to produce parts using various material sets, which consist of particulate materials and proprietary chemical binding agents. The Company provides its 3D printers and on-demand parts services to industrial and commercial customers serving the automotive, aerospace, film and entertainment, art and architecture, engineering and consumer product end markets."

Unfortunately this industry has been struggling. Q3 earnings results were disappointing almost across the board with 3D printing companies either posting earnings misses, lowering guidance, or both. VJET happens to fall in the both category.

VJET reported its Q3 results on November 13th. Analysts were expecting a loss of €0.03 for the quarter. The actual results were significantly worse with VJET reporting a loss of €0.41. That compares to a profit of €0.11 in Q3 2013. Management lowered their guidance following the Q3 earnings report.

The industry is facing a new competition in printer giant Hewlett-Packard (HPQ). Everyone knew that HPQ would eventually jump into the 3D printer market and HPQ has finally announced they will next year. HPQ recently gave a presentation saying their 3D printer technology will use "multi-jet fusion" which will generate speeds 10 times faster than current 3D printers.

Shares of VJET have been underperforming the market with a bearish trend of lower highs and lower lows. The point & figure chart is bearish and forecasting at $6.00 target.

Today VJET is setting at all-time lows and poised to break what should be round-number, psychological support at the $10.00 mark. Tonight we are suggesting a trigger to open bearish positions at $9.90.

Please note I do consider this a more aggressive, higher-risk trade. There is already a lot of short interest in this name. The most recent data listed short interest at 22% of the very small 12.4 million share float. That poses the risk of a short squeeze should VJET ever bounce. You may want to use put options to limit your risk to the cost of the option.

*higher-risk, more aggressive trade* - Suggested Positions -

Short VJET stock @ $9.90

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

Long 2015 Jan $10 PUT (VJET150117P10) entry $1.05

12/08/14 new stop @ 9.65
12/04/14 triggered @ $9.90
Option Format: symbol-year-month-day-call-strike


Zulily, Inc. - ZU - close: 26.47 change: +0.22

Stop Loss: 27.30
Target(s): To Be Determined
Current Option Gain/Loss: - 2.2%
Entry on December 08 at $25.90
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: see below

Comments:
12/08/14: Our new play on ZU has been triggered. Shares spiked down at the open and fell to $25.74. Our suggested entry point to open bearish positions was hit at $25.90. Unfortunately the stock bounced and outperformed the major indices with a +0.8% gain on the session.

I would wait for a new decline under $26.00 before considering new bearish positions.

Earlier Comments: December 6, 2014:
ZU is in the services sector. They're considered part of the discount variety store industry. Yet the company doesn't have any retail locations. Instead they operate online. ZU focuses on the "flash sales" model with 72 hour sales (and occasionally 24 hour sales).

The website describes the company as follows, "zulily (http://www.zulily.com) is a retailer obsessed with bringing moms special finds every day—all at incredible prices. We feature an always-fresh curated collection for the whole family, including clothing, home decor, toys, gifts and more. Unique products from up-and-coming brands are featured alongside favorites from top brands, giving customers something new to discover each morning. zulily was launched in 2010 and is headquartered in Seattle with offices in Reno, Columbus and London."

If you do any research on ZU you'll hear a lot about the business model. It makes sense. The company doesn't suffering from all the hassles and expenses of normal retail locations. The constantly rotating nature of their flash sales model generates a sense of urgency for the buyer. It seems like a great idea. The last couple of earnings reports have been better than Wall Street expected. Yet the stock is getting crushed.

ZU's most recent report was their Q3 results on November 4th. Wall Street was expecting ZU to lose between 3 to 4 cents per share on revenues of $285.4 million. ZU reported a profit of $0.02, which is up from $0.00 a year ago. Revenues soared +71.5% to $285.8 million.

Management said it was a good quarter for ZU. Darrell Cavens, CEO of zulily, said, "This was a strong quarter where we hit several key milestones— the business reached a billion dollars in revenue on a trailing 12 month basis and the majority of our North American orders now come from mobile." They also saw their active customers surge +72% from a year ago to 4.5 million. Their average purchase was up +4%. In spite of all the good news the stock plunged -20% the next day.

The reason appears to be guidance and valuations. ZU issued Q4 guidance, the critical holiday shopping season, that was below analysts' estimates. Another major issue is valuation. At current prices ZU is still valued at $2 billion for a company with a net income of only $11.5 million. Their current P/E is about 202. They do seem to be growing rapidly but evidently not enough to justify current valuations.

Eventually shares will get cheap enough that the selling stops. Where that bottom is no one knows yet. The point & figure chart is bearish and forecasting at $14.00 target. There are a lot of investors betting on new lows. The latest data listed short interest at 31% of the 41.7 million share float.

We think ZU heads lower but I consider this a more aggressive, higher-risk trade. The big short interest could make ZU volatile. Tonight we're suggesting small bearish positions if ZU can trade at $25.90. You may want to use the put options to limit your risk.

NOTE: ZU's IPO priced at $22.00. It's possible that $22 could be potential support.

*small positions to limit risk* - Suggested Positions -

Short ZU stock @ $25.90

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

Long Jan $25 PUT (ZU150117P25) entry $1.15

12/08/14 triggered @ 25.90
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Microsoft Corp. - MSFT - close: 47.70 change: -0.73

Stop Loss: 47.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 28.6 million
New Positions: see below

Comments:
12/08/14: MSFT does not want to cooperate. The market did see a widespread decline today so it's not surprising to see MSFT in the red. Yet MSFT underperformed the market with a -1.5% drop. Our trade has not opened yet. Tonight we are removing MSFT from the newsletter.

I'd keep an eye on the $45.00 level. A bounce from $45 might be a better entry point.

Trade did not open.

12/08/14 removed from the newsletter, suggested entry was $49.15

chart:


TASER Intl. - TASR - close: 24.82 change: +0.67

Stop Loss: 23.25
Target(s): To Be Determined
Current Option Gain/Loss: -1.6%
Entry on December 04 at $23.63
Listed on December 03, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.9 million
New Positions: see below

Comments:
12/08/14: Ouch! I warned readers that TASR was a volatile stock. We tried to limit our risk by raising the stop loss to $23.25 in the weekend newsletter. Today shares were hit with some bad news. First there was an analyst downgrade. Second there was a story about some management shake up with both the COO and President either resigning or being fired. These two factors happened to hit on a day the broader market was weak. Shares of TASR plunged -12.7% intraday and traded below $22 before trimming its loss to just -6%. Our stop loss was hit at $23.25.

- Suggested Positions -

Long TASR stock @ $23.63 exit $23.25 (-1.6%)

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

Mar $25 CALL (TASR150320C25) entry $2.20 exit $2.05 (-6.8%)

12/08/14 stopped out
12/06/14 new stop @ 23.25
12/04/14 triggered on gap higher at $23.63, suggested trigger was $23.25
Option Format: symbol-year-month-day-call-strike

chart: