Option Investor
Newsletter

Daily Newsletter, Thursday, 12/11/2014

Table of Contents

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

Market Wrap

Really, Again?

by Thomas Hughes

Click here to email Thomas Hughes
Data driven rally derailed by debt ceiling impasse.

Introduction

The market found support today after a round of steady and strong economic data lifted GDP expectations. Stock indices were moving higher until an impasse in the House stalled what had been a bipartisan spending bill and put the government at risk of shut down.

Labor data reveals that seasonal weakness is in line with expectations while retail sales and business inventories suggest the economy is gaining momentum. At the same time import and export prices fell, primarily on the down turn in energy prices. The data was well received and helped reverse some of the negative sentiment that has been sparked by plunging oil prices. The news also caused some speculation among economists who have begun to ramp up projections for final 3rd quarter and first estimates for 4th quarter GDP.

Market Statistics

Asian markets were not so lucky. They closed in the red, in the wake of yesterday's oil led decline in US market and amplified by another weak economic report from Japan. The latest news is the leading indicator of capital expenditure in the country has fallen by more than 6%, counter to expectation, and ending a four month streak of increases.

Investors in Europe were focused on the latest data from the ECB. The central bank reported that the latest round of low interest loans was met with better demand than the previous one. While the effects are unclear, the fact that the ECB is doing something and that EU banks are taking advantage of it helped to lift European indices. European markets were able to close off of their lows, led by the DAX which was able to gain 0.64% in today's session.

Our markets were positive from the very start of early electronic trading. Futures were indicated higher by a half percent or so and were able to hold those levels going into the 8:30AM release of economic data. After the release, a triple shot today, futures held steady and gained strength into the opening bell. After the bell trading was calm, but quickly moved the indices up by more than 1%.

Today's high was reached about 10:30AM, shortly after the final economic release of the morning. After that, trading was steady and held the indices in a tight range just below the intra-day high until 2PM. At that time the expected vote on spending, which was reported to have bipartisan support, was delayed causing the market to pare gains and retreat to today's opening levels.

Economic Calendar

The Economy

Jobless claims, US Retail Sales and Import/Export Prices were all released at 8:30AM. Initial jobless claims held steady with a loss of only 3,000 from last week's unrevised number. This week first time claims were reported at 297,000, below the heavily watched 300,000 level and the four week moving average. The average gained 250 this week, but remains below 300,000 as well. The down trend in first time claims may have come to an end but remains near long term lows levels and consistent with overall labor trends. This most recent spike in claims was expected, now lets see if it subsides, as expected. Based on the NABE and NFIB reports released earlier this week I expect to see claims fall back to the long term low.


On a not adjusted basis first time claims rose by 31.9%, slightly below the 33.2% expected by the seasonal factors. On a year to date basis not adjusted claims are down more than 16%. New York and Wisconsin led with declines of 2,979 and 2,293. California and Texas both had declines in claims far greater, -13,819 and -6,313 respectively.


Continuing claims gained a whopping 142,000 this week, counter to expectations for them to hold steady. This is a red flag but not a concern unless it becomes a trend. Because continuing claims lag initial claims by a week the spike could simply be the increase in initial claims working its way through the system. Balancing this out is a drop in the total number of claims, which shed 95,846. This is down from last week which was a three month high but is also near the long term low and consistent with the long term decline in overall unemployment levels.


Retail sales was much better than expected. The Census Bureau reports that estimated sales of retail level products rose by 0.7%. This is ahead of the consensus 0.4% expected by analysts and the fastest pace of retail sales growth in 8 months. It also comes with upward revisions to the previous month which raise October sales to 0.5% from 0.3%. Compared to last year sales are up 5.1% versus November 2011 and are up 4.7% year to date. Ex-Autos sales were also higher, rising 0.5% versus the expected 0.2% and last month's 0.4%. These numbers are inline with other data which suggests that momentum is building in the economy.

Import and export prices both declined in November. Import prices fell by 1.5%, export prices by 0.9%. The 5th monthly decline in prices, driven by fuel. The November decline is the largest monthly decline since June of 2012.

Business Inventories was released at 10AM and is on the rise. November inventories were reported as rising 0.2%, better than an expected decline of 0.1%. Inventories are part of GDP and along with retail sales helped to spur some comments to the effect that 3rd and 4th quarter GDP estimates could be raised. Current Q3 final numbers are now in a range above 4% while the 4th quarter is being estimated in a range that now goes as high as 4%.

The Oil Index

Oil had a volatile session today, first up nearly 1.5% and then down by 1% or more. WTI was flirting with $60 a barrel with Brent not far behind, just below $64. There is still no sign of support in oil so I am expecting more volatility here.

The Oil Index tried to claw its way higher today, after hitting an 18 month low yesterday. The index was not able to hold the gains and closed flat for the day. The index is in downtrend with bearish indicators pointing to lower prices. MACD momentum is convergent with the decline and stochastic is crossing the lower signal line. There may be a pull back to test resistance but the trend is down until oil prices stabilize.


The Gold Index

Gold traded in a tight range, just below $1230 and the two month high. Prices are being supported by long term economic prospects and expectations of higher interest rates and pressured by strengthening dollar. Inflation expectations are just that, expectations, because inflation hasn't really materialized yet so support could waver. On the other hand, the rally in the dollar is real and expected to continue which should add pressure to gold.

It's a real conundrum to be sure, the bottom may be in for gold because we know that inflation is bound to come, but whether or not a rally has started is in serious doubt. The hurdle, or perhaps the focal point, will be the trifecta of central bank meetings scheduled for next week. The FOMC leads by releasing their statements on Thursday, followed up by the ECB and the BOJ on Friday. Until then it looks like gold could ratchet higher with $1250 as a target.

The Gold Index traded lower today but held above long term support. The index shed over 1% and fell below the 30 day moving average but so far is being held by long term support. The indicators continue to weaken which suggests that this test of support is not over. Current support is $66.59, the 100% retracement of the 2008-2011 bull market in gold. Index prices will be tied to gold prices and if move below the retracement have a target near $60, another potential support. The index may be bottoming, along with gold, but that is not confirmed. The index will likely hover near these levels, as it has been the last 30 days, until the central bank meetings next week.


In The News, Story Stocks and Earnings

There were a few names in the news this morning. First up, earnings from Lululemon. The maker of yoga pants and other accessories reported earnings ahead of expectations. The company reported EPS of $0.42 versus the expected $0.38 along with an increase in comp store sales. The only negative was that they fell short on revenue, possibly due to discounting or sales shortfalls. The news was met with approval and caused the stock to gap up and move higher at the open. Shares of LULU had gained nearly 10% at the close of today's session and are approaching a potential resistance line.


Starboard Value announced it had taken stakes in both Staples and Office Depot, adding to speculation the two companies will merge. The activist investor in now holds 6% in Staples and 10% in Office Depot. Shares of both companies popped in early trading and gapped up at the open. Office Depot led with a gain of more than 12% but both closed off of their highs. These will both likely be active now that interest is on the rise.


Ciena reported a loss this morning but traders did not care. The surprise loss was due to shrinking margins but news that its converged optical networks, which create faster computer connections, was growing helped to support prices. Shares of Ciena gained close to 8% after gapping higher at the open and closed at a three month high. This one appears to be moving higher after bottoming within a long term rang, indicators are bullish but weak with a possible upside target near $20.


The Indices

The markets were moving higher with purpose today until political shenanigans once again caused buyers to evaporate. Stock indices were as much as 1.5% higher before the vote was suspended and never was able to recapture the gains. Later in the afternoon it looked like the bulls might try to stage a comeback rally but their efforts were not enough. Despite the impasse in Congress the indices were still able to maintain positive levels into the close, led by the Down Jones Transportation Average.

The Trannies closed with a 0.78% gain after reaching an intraday high a little more than 1.5% above yesterday's close. Today's action pivoted around the 30 day moving average and was not able to maintain the upper side. The indicators are bearish, but weak, and convergent with the recent down turn in prices. It looks like the index may continue to test support with a target near 8,750 in the near term. Longer term the index is still in an uptrend with strong indications the trend will continue. The most recent trend following peak in MACD is a multi-year extreme and convergent with higher prices.


The NASDAQ Composite managed to hold onto a gain of just over a half percent. The tech heavy index gained 0.52% and was able to hold onto support along the short term moving average. Unlike the transports, the techs never fell below this level which is now near term support. The indicators are weak and in decline, indicating the likelihood of further testing of support. Should the moving average fail to hold next target will be 4,600 and then 4,500 on a deeper pull back to the long term trend line. While the near term is looking weak, the longer term analysis remains positive. The trend is still up and the most recent trend following signals are convergent with higher prices.


The S&P 500 finished the day with a gain of only 0.45% after reaching close to 1.5% at the height of the day. This index began below the short term moving average, surged above it, and then fell back below it by the close. The indicators are bearish and leading the index to test support, but first targets for strong, longer term, support is just below the current level. This target is consistent with the September top and a quick consolidation that occurred over the 1st of November, near 2020. If this does not hold then next target is just below that near 2,000 and the long term trend line. As with the first two, the near term looks weak but the longer term analysis is in line with higher prices. The index is trending higher with indicators convergent with higher prices.


The Dow Jones Industrial Average brought up the rear today, as it often does. The blue chips are just not as interesting as the techs, the transports or the broader market. Today the Dow closed with a gain of 0.36% after nearly erasing all of yesterday's losses. This index was also unable to hold above the short term 30 day moving average and is accompanied by bearish indicators. Near term support appears to be present along the 17,500 round number but that may not hold. If not then next target is near 17,100. As with the others, the near term looks weak but the long term still looks bullish and in line with at least a retest of the most recent highs.


The market really wanted to bounce back today and by all accounts it was doing a pretty good job of it. That is, until our elected officials who are responsible for maintaining our nation and the well being of our citizens failed to vote, again. The failure was enough to cause the market to pare gains, but not enough to out-right sell off. I think perhaps there is still hope that something will happen before the weekend, and maybe indifference since the last time didn't seem to affect the economy very much.

If not for the lack of action in Congress today would have been a pretty good day. The market was bouncing from support,in line with long term trends, on positive economic data, data that shows increasing momentum in the economy and data that sparked increased speculation of positive GDP revisions.

The technical trends are up, the economic trends are up and the market is down. This usually equals “buy on the dip” and I don't see any reason for that not to be true now. However, since the indices still look weak and the FOMC is due to meet next week some caution is due.

Until then, remember the trend!

Thomas Hughes

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New Plays

About To Break Support

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Cabot Corp. - CBT - close: $40.15 change: +0.16

Stop Loss: 42.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 414 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
CBT got its start over 130 years ago. Today they are a chemical company with a wide range of products and sales of more than $3.6 billion annually. Company literature describes Cabot as "a global specialty chemicals and performance materials company, headquartered in Boston, Massachusetts. The company is a leading provider of rubber and specialty carbons, activated carbon, inkjet colorants and cesium formate drilling fluids and has market-leading positions in fumed silica, aerogel, and elastomer composites."

It is worth noting that CBT does have exposure to the oil and gas drilling industry. CBT makes a number of products involved in the process of drilling and treating oil and gas. Given the weakness in the oil and gas industry it could be accelerating CBT's decline.

Their earnings results have not been very inspiring. Their most recent report was October 28th. CBT managed to beat the bottom line but revenues came in below estimates. Management warned the company is facing "uncertain global macroeconomic conditions." CBT pointed to slowing growth in China, Europe, and South America as potential hazards.

Technically the stock looks like a bearish momentum candidate with a steady stream of lower lows and lower highs. The last half of October and the first half of November formed a pennant consolidation pattern. CBT's breakdown from the consolidation also broke through what should have been significant support in the $41.50-42.00 zone. Now shares of CBT are poised to breakthrough round-number support at the $40.00 level. The stock has also broken down below some very long-term trend lines dating back to 2009 (not shown on the chart below).

Tonight we are suggesting a trigger to launch bearish positions at $39.75. The option spreads are too wide to trade so we'll have to trade the stock.

Trigger @ $39.75

- Suggested Positions -

Short CBT @ $39.75

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

A Handful Of New Stops

by James Brown

Click here to email James Brown

Editor's Note:
The market's rally faded intraday and stocks were sinking into the closing bell on Thursday.

Today's intraday weakness could be a warning sign for bulls. Tonight we have updated several stop losses.


Current Portfolio:


BULLISH Play Updates

Columbia Sportswear Co. - COLM - close: 44.67 change: +0.25

Stop Loss: 43.45
Target(s): To Be Determined
Current Option Gain/Loss: +11.0%
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:
12/11/14: COLM sprinted higher this morning but the rally stalled at its late November peak. COLM spent the rest of the day fading lower. We are going to try and reduce our risk by raising the stop loss to $43.45.

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

12/11/14 new stop @ 43.45
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: 36.84 change: +0.58

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: + 3.3%
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:
12/11/14: CUDA displayed relative strength again with a +1.5% gain on Thursday. That compares to the NASDAQ's +0.5% advance. This looks like a bullish breakout past resistance in the $36.00 area.

Tonight we are raising the stop loss to $34.85.

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

12/11/14 new stop @ 34.85
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: 28.74 change: +0.12

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: + 9.5%
Entry on November 12 at $26.25
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 201 thousand
New Positions: see below

Comments:
12/11/14: CYNO spent most of Thursday inside a $1.00 range. Traders were buying the dip this afternoon while most of the market was sinking. The bullish trend of higher lows remains in place. I don't see any changes from my prior comments.

More conservative traders may want to raise their stop loss. 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


Isis Pharmaceuticals - ISIS - close: 61.87 change: +1.02

Stop Loss: 54.85
Target(s): To Be Determined
Current Option Gain/Loss: +16.2%
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:
12/11/14: ISIS soared again this morning. Shares hit a new all-time high and traded above $65.00. Unfortunately the rally faded and ISIS pared its gains to +1.6% but that was still enough to outperform the major U.S. indices.

I want to repeat yesterday's caution. ISIS is up sharply in just the last few sessions. It's short-term overbought. More conservative traders may want to start taking some money off the table.

I am not suggesting new positions.

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

12/09/14 new stop @ 54.85
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


MDC Partners Inc. - MDCA - close: 22.06 change: -0.17

Stop Loss: 20.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 09, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 227 thousand
New Positions: Yes, see below

Comments:
12/11/14: MDCA spent the session consolidating sideways near the $22.00 level. If shares don't show some strength soon we are likely to remove MDCA as an active candidate.

Currently we are on the sidelines with a suggested entry point at $23.55.

Earlier Comments: December 9, 2014:
MDC Partners (MDCA) is a marketing firm. The company describes itself as "one of the world's largest Business Transformation Organizations that utilizes technology, marketing communications, data analytics, insights and strategic consulting solutions to drive meaningful returns on Marketing and Communications Investments for multinational clients in the United States, Canada, Europe, Asia and Latin America."

After an incredible performance in 2013 where MDCA's stock rallied from $8 to $26 (+225%) this year has been a disappointment. That might be due to the company's earnings, which have been pretty hit or miss. On a longer-term perspective 2014 merely looks like a massive consolidation (see the weekly chart below).

The company's most recent earnings report was October 29th. They missed bottom estimates while beating the revenue number. The stock initially sold off but investors bought the dip and MDCA has been outperforming the market recently.

Miles Nadal is the Chairman and CEO. He commented on their Q3 performance saying, "This was yet another strong quarter for our business, and it is shaping up to be another exceptionally strong year as we are on pace to deliver on all of our financial objectives. But what's most exciting is that we have established a solid foundation for what we believe will be an even better year in 2015... It's our continuing and unwavering belief that our organization is healthy, strong and strategically better positioned than all of our competition." Nadal also said, "2014 shaping up to be our best year to-date." Commenting on the Q3 results, "revenue increased 13% over the last year to nearly $327 million, with organic revenue a record 8.2%. Second, our adjusted EBITDA increased 8% to $42.5 million with margins of 13%... Nearly 8% of our revenue is now outside of North America, up from 6% a year ago. We continue to see robust organic growth in foreign markets up 30% per year."

It's worth noting that MDCA is a small cap stock and doesn't get a lot of analyst coverage. Yet investors seem to be bullish on it. The stock is up five weeks I a row and shares are up almost +30% from their October lows.

Technically shares are in breakout mode. They broke through the 200-dma, resistance near $22.50, and its long-term trend line of lower highs, all in the last few weeks.

Tonight we are suggesting a trigger to launch bullish positions at $23.55. However, I would consider this a slightly more aggressive trade. Investors may want to limit their position size to reduce risk.

Trigger @ $23.55 (consider smaller positions)

- Suggested Positions -

Buy MDCA stock @ $23.55


Micron Technology - MU - close: 35.19 change: +0.33

Stop Loss: 34.45
Target(s): To Be Determined
Current Option Gain/Loss: + 0.3%
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:
12/11/14: I'm long-term bullish on MU but short-term the trading action could be flashing a caution sign. The rally attempt in MU today failed at its 10-dma. The SOX semiconductor index and the SMH semiconductor ETF are both overbought and due for a dip. If this industry sees more profit taking MU will not be exempt. Tonight we'll try and reduce our risk with a stop loss at $34.45.

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

12/11/14 new stop @ 34.45
11/24/14 triggered @ $35.10
Option Format: symbol-year-month-day-call-strike


Sealed Air Corp. - SEE - close: 41.93 change: +0.56

Stop Loss: 39.95
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
Entry on December 09 at $41.05
Listed on December 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
12/11/14: The relative strength in SEE continues with shares up another +1.35% on Thursday. SEE is now up seven out of the last eight trading days. I wouldn't be surprised to see some profit taking if the S&P 500 slips to a new relative low.

Tonight we'll move the SEE stop loss up to $39.95.

Earlier Comments: December 8, 2014:
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.

- Suggested Positions -

Long SEE stock @ $41.05

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

Long Jan $40 CALL (SEE150117C40) entry $1.90

12/11/14 new stop @ 39.95
12/09/14 triggered @ 41.05
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Voxeljet AG - VJET - close: 7.92 change: +0.04

Stop Loss: 8.65
Target(s): To Be Determined
Current Gain/Loss: +20.0%
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:
12/11/14: VJET tried to bounce but gains faded to virtually unchanged by the closing bell. Shares are very oversold and could see a bounce at any time. We're going to try and protect some gains with a new stop loss at $8.65.

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

12/11/14 new stop @ 8.65
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: 26.09 change: -0.34

Stop Loss: 27.30
Target(s): To Be Determined
Current Option Gain/Loss: - 0.7%
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:
12/11/14: This morning the U.S. government said November retail sales came in a lot higher than economists were expecting. Shares of ZU briefly spiked higher but the rally stalled at technical resistance at the simple 10-dma. ZU was underperforming the market by the closing bell with a -1.28% decline. This intraday reversal at resistance is very encouraging if you're a bear on ZU. Yet traders may want to wait for a new relative low before initiating new 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

12/10/14 Caution! The recent action in shares of ZU could spell trouble.
12/08/14 triggered @ 25.90
Option Format: symbol-year-month-day-call-strike