Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/16/2014

Table of Contents

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

Market Wrap

Maximum Volatility

by Jim Brown

Click here to email Jim Brown

The market gave traders a volatility headache with the Dow dropping -99 at the open rebounding to +246 midday and then crashing back to close at -112. That is fine if you were day trading but terrible for investors.

Market Statistics

You can blame today's volatility on Russia. The ruble has turned into rubble despite extreme measures by the Russian central bank. Russia is in a full blown currency crisis. After a -10.5% decline on Monday the ruble fell another -19% intraday today. This came despite the central bank hiking interest rates +6.5% to 17% and the injection of $80 billion in a failed effort to support the ruble. The next step in this scenario would be capital controls to prevent money from leaving the country or being converted into dollars or euros. The central bank pushed 3.1 trillion rubles into the banking system using 7 day repos in the second biggest auction since May.

The ruble has fallen from 38 to the dollar to a low of 80 to the dollar at Tuesday's lows. The value of the ruble has fallen -52% this year alone with a -14% drop this week alone. The -49% drop in oil revenue is a killer for the Russian economy. Russia gets 65% of its revenue from oil and the budget is based on $100 oil so they are in a world of pain. The central bank said the Russian economy could decline -4.7% in 2015 if oil prices remained below $60. Net capital outflows for 2014 could reach $134 billion and twice last year's total.

Traders said there were no bids to buy rubles and the decline was likely to continue. Multiple currency dealers halted trading in rubles because of the wild swings.

Apple halted sales of iPhones in Russia because of the currency decline. The online website disappeared and was replaced with a one line message saying "we will be back" and no other information.

Companies with operations in Russia could be expected to report significant hits to earnings as a result of the currency fluctuations. Those companies and their annual revenue from Russia include GM $7 billion, Pepsi $5 billion, Ford $3 billion, Mcdonalds $2.5 billion, John Deere $1.7 billion, Mondelez $1.2 billion, Citigroup $1.0 billion, Abbot Labs $525 million and Visa $471 million. Obviously that list only scratches the surface but suffice to say Russia is going to cause a significant ripple in the Q4 earnings stream.

The sharp decline in the ruble means far less exports into Russia and falling consumer sales as prices are hiked to offset the cheaper currency. With the ruble falling -52% in value over the last year that means the cost of imported goods doubled over the same timeframe because it now takes twice as many rubles to buy the same product. Raising interest rates to 17% is also going to be an extreme drag on business conditions inside Russia. With your money worth 50% less and interest rates 300% higher than a few months ago the Russian economy is going to implode.

This is going to be a significant hit to European countries with large imports into Russia. German is their biggest trading partner and this will be a devastating blow to the German economy. Europe's economic slide will accelerate with the flow of goods into Russia declining to a trickle.

Visualize the European map with Russia as a large economic sinkhole that is expanding around the edges into Europe. With Europe's economic woes increasing there is a much better chance that this will eventually drag the U.S. down as well.

The Russian RTS market plunged -13.17% and the biggest decline since 2008.


It was just announced that Putin was named "Man of the Year" for the 15th consecutive year with 68% of the votes. The closest runner up got 4%. The poll was conducted by the Public Opinion Foundation across 43 regions of Russia. If Russia continues its collapse he will probably get a lot less of the vote next year. However, you have to wonder how much government pressure was applied to the foundation to influence the vote. Truth is scarce in Russia.

The only bright spot in this equation is that the Fed is not going to raise rates for a long time because that would make the dollar that much stronger and further complicate the foreign exchange pressure on earnings and further slow the European countries.

Lastly, Russian banks have about $100 billion in debt that they can no longer roll over as a result of the economic sanctions on Russia. Those banks are prohibited from doing business with U.S. or EU banks so they will have to turn to the Russian government for a bailout. That $100 billion in debt has actually doubled since the ruble is only worth half as much. This Russian currency crisis may be a bottomless pit with no solution and could result in another debt default and/or social unrest. Having a loaf of bread or gallon of milk double in price over just a few months is not going to be unnoticed by the Russian consumer.

Oil prices fell to $53.60 overnight before rallying to $57.15 intraday. The rebound in oil prices powered the market higher but the gains did not last. Crude fell back to $55 just before the close and took the market with it. I published a monthly chart of crude last week showing the 200-month average as prior support. An astute reader emailed me saying crude prices declined -7.42% below the 200-month average in 2009 before rebounding and prices today are -7.4% below the same average today and that appears to be where prices are trying to consolidate. Whether that penetration level will repeat as a bounce point is of course unknown.


It was a light day for economics in the U.S. with new residential construction the only material report. Housing starts for November declined -1.6% to 1.028 million with 677,000 single-family and 351,000 multi-family starts. Housing permits, a forecast of future construction activity, declined -5.2% from 1.092 million to 1.035 million. Total completions declined -6.4% from 922,000 to 863,000.

There may have been some weather impact in the November numbers after that early winter storm came through in the middle of the month.

The big event for Wednesday is the FOMC meeting and the change in the post meeting announcement. Quite a few people expect them to remove the "considerable period" language and replace it with something that is data dependent. Bill Gross said there is no way they will change it because they are not going to raise rates for a considerable period. Jim Grant of Grant's Interest Rate Observer said they will remove it and change their bias to point towards future rate hikes.

I would be really surprised if they went that far. The Fed is very incremental. They do things in micro-steps and only after they have talked about it in their public comments to make sure the market is not surprised. While they have floated the trial balloon on removing the language there is no reason for them to hurry. With commodities in free fall and Russia's implosion likely to knock Europe into a deeper recession in 2015 they have to be careful what they do. They may be the U.S. central bank but they are also the banker for the world. What they do impacts markets around the world and the majority of those markets are in decline today.


The yield on the U.S. ten-year treasury declined to 2.07% on the currency turmoil. This compares to 1.77% on the London Gilt, 0.398% on the German Bund and 0.365% on the Japanese 10-year.


Bill Gross left PIMCO just in time. The $3.3 billion emerging markets fund held $803 million in Russian bonds at the end of September or roughly 21% of its assets. Those bonds have collapsed and become nearly worthless. The fund has declined -8% over the last month.

Bank of England Governor Mark Carney said the evaporating currency markets have the ability to cause widespread havoc especially in emerging markets. Equity markets in Dubai and Saudi Arabia each fell more than -7% and Indonesian policy makers were forced to support the rupiah after it hit a 16 year low.

Of the $15 billion in outstanding currency options on the ruble only one contract worth $5 million with expiration in 12 months is still profitable. The rest are well out of the money at the current exchange rate. New York based FXCM Inc, the third largest currency broker has stopped offering the ruble and Alpari UK has stopped allowing clients to open new positions.

In stock news GE warned that profits were going to be squeezed as a result of lower oil prices because of lower capital spending by oil companies. GE forecast earnings of $1.70-$1.80 compared to consensus estimates for $1.79. The company said it would grow between 2-5% in 2015 and that was also low. For any other company this would have caused an immediate decline in the stock price. GE shares did decline but they only lost a dime.


Federal Express (FDX) said it was buying logistics firm Genco, a specialist in handling product returns. No terms were given but rumors claim it was a $1.1 billion purchase. Genco had $1.6 billion in revenue in 2013. Genco handles more than 600 million returned items per year. With ecommerce growing there will be far more returns in the future.


Boeing (BA) announced a 25% increase in its dividend and boosted its authorized share repurchase program to a whopping $12 billion. Boeing had $4.8 billion remaining on its prior buyback program after spending $6 billion in 2014. The dividend rose from 73 cents to 91 cents. Q3 cash flow was lower than analysts expected but they promised at the time that Q4 would be very strong as deliveries accelerated. These moves appear to be confirming that promise.


Microsoft (MSFT) was cut to neutral by Bank of America (BAC) with a price target of $47. Shares closed at $45 after a -3.2% decline. The analyst said the stock performance since Satya Nadella took over as CEO had made the stock overvalued. Shares had risen +25% since the management change.


Google (GOOGL) shares fell -18 to close under $500 after JP Morgan cut price targets from $670 to $600 and lowered earnings estimates for Q4, 2015 and 2016. The analyst said search was moving more towards mobile and away from desktop. Also Bing was stealing market share and the company had a major contract renewal coming up from Apple that could go to Bing or Yahoo.


Tesla (TSLA) shares are falling as a result of the falling gasoline prices. The theory being that cheaper gas negates the need for an electric car. Unfortunately people are missing the point. Tesla is a luxury car that just happens to be electric. People who pay $100,000 for a car are not really concerned about the price of gasoline.


After the bell Darden Restaurants (DRI) posted earnings of 28 cents compared to estimates for 27 cents. Revenue rose +5% to $1.56 billion compared to estimates for $1.55 billion. Stronger demand in the Olive Garden stores drove the gains. Shares rose $1 in afterhours trading.


Amazon (AMZN) lost $10 after announcing that it had extended the deadline for Prime customers to shop and still get gifts before Christmas. Prime customers can order online before 11:59 PM ET on December 22nd while regular customers have to order by that same time on December 19th. If you live in a dozen major cities you can order as late as 10:AM on Christmas Eve and receive your item the same day for $5.99 shipping. This is a bonanza for procrastinators. Shares fell because of the weak market and a push by Google to shop on Google Shopping instead of Amazon. Google is going to launch a "buy" button on its search pages to compete with Amazon. This would be similar to Amazon's "one-click ordering" button.


Markets

It was an ugly day in the neighborhood to twist one of Mr. Rogers sayings. The Dow declined -102 at the open, rallied to +247 intraday and then crashed back to close at the lows of the day with a -112 point loss. The 350 point range ended at the lows and that is not a good sign for tomorrow.

The S&P broke below prior support at 1,985 at the open but spiked to 2,017 intraday on a major short squeeze as crude prices bounced nearly $4 off their lows. When the crude rebound failed and the chatter surrounding Russia increased it was lights out for the S&P and sellers hit it hard at the close.

There is no good news on the S&P decline. The 100-day average is now well behind us at 1,987 and the 200-day is comfortably below at 1,947. With 1,950 as sentiment support that 200-day average may have a chance of slowing the decline. Otherwise we are targeting a retest of 1,900.

The 50-week average at 1,928 would be our best chance of stopping a plunge to 1,900.

However, the S&P futures are up +7 at 8:30 ET. While that is positive the futures have been up strong the last two nights and the market sank anyway.

I have nothing positive to say about the S&P other than it is oversold and now -5% off its highs. In all the prior declines over the last two years with the exception of October, that 5% level was bought and a rebound followed. With tax selling in full bloom and extreme uncertainty coming out of Russia and Europe I would not count on a rebound this time around. This time may be different.



The Dow chart is similar to the S&P with a very large intraday spike that was sold hard to close on the lows of the day. The Dow is now almost -900 points off of its 17,958 closing high on December 5th. That is a -5% drop and other than round number support at 17,000 it could be a long drop to 16,360 or even lower to 16,000. We were just there in October so it is definitely possible. There were far fewer concerns in the market in October than we have today.

Home Depot was a big loser in the Dow after Nomura downgraded the stock on margin pressure and market share gained by Lowe's. Visa, Goldman Sachs, Nike and American Express were down on exposure to Russia. It was not a good day for the international stocks.



The Nasdaq fell -57 points on declines in Google and Apple. Google was downgraded to lose -18 points and Apple fell to a two month low on the halt on sales in Russia. Amazon lost $10 on the Google competition move.

Investors are simply taking profits across the board and these "excuses" just accelerate the trend.


The Nasdaq slid to a stop at the low of the day at 4,548 and just barely over weak support at 4,545. A breakdown here could blow past weak support at 4,485 and begin to target the October lows. Resistance is 4,650, which was prior support.


The Russell 2000 gave back less than a point thanks to a rebound in energy stocks. The 195 energy stocks in the Russell were positive most of the day and that kept the Russell in positive territory until just before the close. The Russell chart is unsupported with 1,115 the next level to watch. Small caps have held up better than large caps because they have less exposure to Europe and Russia.


I would love to tell you to buy the dip but the velocity of the market change on Tuesday afternoon really suggests there is more selling ahead. However, there could have been a lot of option expiration pressures in that downdraft and maybe those pressures have been erased. While that is a pleasant thought it is probably wishful thinking.

We need to follow the trend or wait on the sidelines. With the market already very oversold I see no future in trying to short stocks from here. Our best bet is to wait for a trend change. In this case we should be looking for as bottom that last more than a couple hours. There will be plenty of time to buy the market if a tradable rebound appears.

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Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 


New Plays

Two Words: Guiding Lower

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Guess' Inc. - GES - close: 19.74 change: -0.28

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

Company Description

Why We Like It:
Retail can be a tough business. Fashion is even worse. Customer tastes and shopping habits have been changing. It looks like GES has not done a very good job navigating the fashion-retail landscape.

The company is part of the services sector. The Guess? Brand covers apparel and accessories for men, women, and children. The company runs 494 retail stores in North America and 346 stores in Europe, Asia, and Latin America.

GES' performance for 2014 can be summed up with two words: guiding lower. When GES reported earnings in March, May, August, and in December the company has lowered guidance every single time. Their most recent report in December (its Q3 results) managed to beat Wall Street's earning estimate and yet diluted earnings per share were down 43% from a year ago. Revenues were also down -3.9%. Margins are contracting as well.

Management lowered their Q4 2014 and 2015 guidance on for earnings, revenues, and margins. Wall Street is starting to turn more cautious with lowered price targets or telling clients to avoid the stock altogether. As usual Wall Street is late to the game with shares of GES trading at five-year lows.

The last few days have seen GES consistently fail at its 10-dma. Today's close below significant round-number support at $20.00 looks like an entry point for bearish positions. We are suggesting a trigger to open bearish trades at $19.70.

Trigger @ $19.70

- Suggested Positions -

Short GES stock @ (trigger)

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

Buy the MAR $20 PUT (GES150320P20) current ask $1.65

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

On Their Lows

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market's major indices closed on their lows of the day. That does not bode well for tomorrow morning if you're bullish.

COLM hit our stop. NCR hit our bearish entry point.


Current Portfolio:


BULLISH Play Updates

Barracuda Networks - CUDA - close: 35.83 change: -0.82

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: + 0.5%
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:
12/16/14: CUDA displayed relative weakness on Tuesday with a -2.2% decline. More conservative investors may want to raise their stop loss again. 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

12/11/14 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: 29.00 change: +0.28

Stop Loss: 26.75
Target(s): To Be Determined
Current Option Gain/Loss: +10.5%
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:
12/16/14: Trading volume was a little light today but CYNO bucked the market's down trend and posted a gain. I don't see any changes from my recent comments.

More conservative traders may want to move their stop closer to $28.00. 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

12/13/14 new stop @ 26.75
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


Sealed Air Corp. - SEE - close: 41.23 change: +0.49

Stop Loss: 39.95
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
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:
12/16/14: SEE was also showing some relative strength today. The stock rebounded off its morning lows and closed up +1.2%. The relative strength is encouraging but I would still hesitate to launch new positions given the broader market weakness.

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

Cabot Corp. - CBT - close: $40.59 change: +0.65

Stop Loss: 42.05
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
Entry on December 12 at $39.75
Listed on December 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 414 thousand
New Positions: see below

Comments:
12/16/14: Uh-oh! CBT is moving the wrong way. Shares have ignored the market's weakness two days in a row. This could be a warning signal for bears. More conservative traders will want to seriously consider lowering their stop loss closer to the 10-dma near $41.35.

I am not suggesting new positions at this time.

Earlier Comments: December 11, 2014:
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.

- Suggested Positions -

Short CBT @ $39.75

12/12/14 triggered @ $39.75


NCR Corp. - NCR - close: 26.75 change: -0.43

Stop Loss: 28.55
Target(s): To Be Determined
Current Option Gain/Loss: +0.7%
Entry on December 16 at $26.95
Listed on December 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.25 million
New Positions: see below

Comments:
12/16/14: The sell-off in NCR continues and shares hit our suggested entry point at $26.95. The stock underperformed the major market indices with a -1.58% decline. I would still consider new positions at current levels.

Earlier Comments: December 15, 2014:
NCR is part of the technology sector. Company marketing material describes NCR as "the global leader in consumer transaction technologies, turning everyday interactions with businesses into exceptional experiences. With its software, hardware, and portfolio of services, NCR enables more than 485 million transactions daily across retail, financial, travel, hospitality, telecom and technology, and small business. NCR solutions run the everyday transactions that make your life easier. NCR is headquartered in Duluth, Georgia with approximately 29,000 employees and does business in 180 countries."

It has not been a good year for shares of NCR. The stock is down -19% in 2014. NCR's stock was already in a bearish trend of lower highs and lower lows before the company issued an earnings warning on October 20th. You can see the big gap down and plunge toward $23 on that session. Since the stock has seen a technical rebound that was boosted by the market's widespread surge off the October lows. Unfortunately for NCR the rally reversed at resistance near $30.00 while the broader market broke out to new highs.

Management lowered their Q3 and 2014 guidance on the 20th and essentially warned that Q4 would be disappointing as well. Chairman and CEO Bill Nuti commented on their results saying, "Our Retail Solutions business was challenged by customers spending more cautiously than anticipated and further delaying solution rollouts. These trends, along with difficult global macroeconomic conditions and foreign currency headwinds, had significant impacts on our performance in the third quarter, and we expect they will continue to impact our Retail Solutions business in the fourth quarter."

Traders have been selling every bounce with new resistance at the descending 10-dma. The point & figure chart is very bearish with a $20.00 target. The stock closed at new six-week lows today. Tonight I'm suggesting a trigger to open bearish positions at $26.95.

- Suggested Positions -

Short NCR stock @ $26.95

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

Long Jan $27 PUT (NCR150117P27) entry $1.35

12/16/14 triggered @ 26.95
Option Format: symbol-year-month-day-call-strike


TimkenSteel Corp. - TMST - close: 31.17 change: -0.02

Stop Loss: 33.35
Target(s): To Be Determined
Current Option Gain/Loss: - 0.1%
Entry on December 15 at $31.15
Listed on December 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 449 thousand
New Positions: see below

Comments:
12/16/14: Traders may want to wait on initiating new positions in TMST. The stock bounced twice near $30.50 today. I would not be surprised to see TMST retest resistance at $32.00 and that's where we can look for a new bearish entry point.

Earlier Comments: December 13, 2014:
TMST is in the basic materials sector. They were spun off into their own company back in July 2014 and after a +25% rally the stock peaked near round-number resistance at $50 a share in September. Then two things happened. The stock market corrected lower (mid September through mid October) and crude oil prices started dropping in earnest. While the market recovered from its correction the steel industry stocks did not.

According to company marketing materials, "TimkenSteel creates tailored steel products and services for demanding applications, helping customers push the bounds of what's possible within their industries. The company reaches around the world in its customers' products and leads North America in large alloy steel bars (6"+) and seamless mechanical tubing made of its special bar quality steel, as well as supply chain and steel services. Operating from six countries, TimkenSteel posted sales of $1.4 billion in 2013."

U.S. steel companies have been facing pricing pressures from cheaper imported steel. This has been a factor for the industry for a while. This year steel stocks are getting melted by the bear market in crude oil. Why is oil dragging steel stocks lower? That's because for companies like U.S. Steel (X) and Timkensteel (TMST) they do big business making steel products for the energy industry.

The energy exploration, drilling, and production accounts for 10% of the steel used inside the U.S. each year. There's a lot of metal on all of these oil and gas rigs. They put a lot of metal into the ground for drilling, especially fracking rigs with their horizontal drilling. The energy boom in the U.S. has been a boon for steel companies because the steel products they make for the energy sector have been a higher-margin business.

This year the price of oil has been cut in half with Saudi Arabia launching a not so secret war against all rivals in the oil industry including Iran, Russia, and the surging U.S. shale oil industry. If oil prices get too low the Saudis know that that U.S. oil production will fall when it becomes unprofitable. That's bad news for steel companies.

Shale oil and shale gas wells have a high depletion rate. That means drilling companies are constantly drilling new wells to keep up production. Yet if they stop or slow production because oil prices are too low that's going to cut demand for steel products, which is going to hurt companies like TMST in some of their highest margin business.

Shares of TMST just spent the last two weeks consolidating sideways in the $32-33 zone. Friday's move is a bearish breakdown under support at $32.00. Tonight we are suggesting a trigger to launch bearish positions at $31.15.

- Suggested Positions -

Short TMST stock @ $31.15

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

Long FEB $30 PUT (TMST150220P30) entry $2.55

12/15/14 triggered at $31.15
Option Format: symbol-year-month-day-call-strike


Voxeljet AG - VJET - close: 7.70 change: -0.57

Stop Loss: 8.65
Target(s): To Be Determined
Current Gain/Loss: +24.0%
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:
12/16/14: VJET spent most of Tuesday's session trading sideways. Shares still posted a loss thanks to the gap down at the open. I don't see any changes from my earlier comments.

More conservative investors may want to either take some money off the table and/or lower their stop loss again.

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: 23.20 change: -0.80

Stop Loss: 27.30
Target(s): To Be Determined
Current Option Gain/Loss: +10.4%
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:
12/16/14: ZU's slide continues with the stock down four days in a row. Today's drop underperformed the market with a -3.3% decline.

Traders may want to start lowering their stop loss. I am not suggesting new positions at current levels.

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



CLOSED BULLISH PLAYS

Columbia Sportswear Co. - COLM - close: 43.86 change: -0.19

Stop Loss: 43.45
Target(s): To Be Determined
Current Option Gain/Loss: + 8.0%
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:
12/16/14: The profit taking in COLM continued today and shares dipped to a new three-week low. Shares hit our stop loss at $43.45.

- Suggested Positions -

Long COLM stock @ $40.25 exit $43.45 (+8.0%)

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

2015 Jan $40 call (COLM150117C40) entry $1.75 exit $3.05 (+74.3%)

12/16/14 stopped out
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

chart: