Option Investor
Newsletter

Daily Newsletter, Monday, 12/22/2014

Table of Contents

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

Market Wrap

Market Sets New Highs

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

It looked like there was going to be a nice rally this morning and there was, for the Dow indices at least. Early electronic trading indicated a fairly strong gain across the board, aided by rallies in both Asia and Europe.

The international markets were being supported by our rally last week and what appeared to be a rebound in oil. The price for WTI and Brent had both been up in early trading until remarks from OPEC/Saudi Arabia sent them back below $56, a drop of more than 2%. The drop in oil capped gains in Europe and impacted futures trading here but the bulls were not routed by any means. Buyers were in the market today and lifted the SPX and Dow Jones Industrial Average to new highs.

Market Statistics

Today's action gave me the impression traders were stock picking. I say stock picking because the rally today was not so broad and there really wasn't a lot of news to drive it. All the major indices moved higher but the gains were not proportionate, ranging from a mere 0.26% for the NASDAQ to over 1% for the Dow Jones Transports.

The bias was towards the Dow Averages from the start. The industrials and transports were indicated higher in the pre-market, opened with at least a half percent gain and then extended those gains into the closing bell. The NASDAQ was the weakest of them all, opening in the red before moving higher later in the day. It finishing with a gain just over 0.25%. The S&P 500 opened positive but was barely able to hold above break even for the first part of the trading day. Later it was able to move higher as well, adding another 7 points and setting a new high.

Economic Calendar

The Economy

We only had one economic release today. There are a lot this week, mostly tomorrow because of holiday shortened trading. Today Existing Home Sales were reported as dropping 6.1%, a surprise drop that helped to trim gains in the pre-market session. All regions reported a drop in sales putting the annualized sales rate at 4.93 million and a 6 month low. The drop may be due to low inventory levels, which experienced a drop of 7% to 2.9 million homes currently on the market. On a year over year basis we are still trending above last year by 2.1%. The drop is well below expectations for a decline near 1%.

Moody's Survey of Business Sentiment is as positive as ever. Mark Zandi reports that sentiment “has been strong all year and is ending 2015 at record levels.” He also says that based on responses “sales, hiring and investment spending are all strong” as is expectations for next year which he says are “especially strong.” A new addition to the summary this week is in reference to credit conditions, which “has improved notably in recent weeks.” The last bit is encouraging as it could add another injection of stimulus into the economy.

There are 16 economic reports scheduled for tomorrow and Wednesday, Christmas Eve. Tomorrow ten, Wednesday 6 including housing, manufacturing, labor and GDP data. Tomorrow the headline event is likely to be the 3r revision to 3rd quarter GDP but will also include Durable Goods, Housing Index, Michigan Sentiment, Personal Income/Spending and New Home Sales. The previous estimate was 3.9%, current estimates for the estimate are now in the range of 4.2%. An upward revision will help support the idea of increasing economic momentum with an entire month until the first look at 4th quarter GDP.

The Oil Index

Oil was trading to the upside early this morning when traders thought it was rebounding. I never learned why it was rebounding, just that it was. Later, comments from OPEC/Saudi Arabia to the effect they (OPEC) wouldn't cut production and that they (Saudi Arabia) might even increase it to gain market share sent prices sinking. The minister making the comments even went on to blame the west for causing the oversupply and low price environment. Except for expectations that demand would help support prices in 2015 there is no sign of a bottom in oil. WTI lost more than 3% while Brent lost a little over 2%. The real carnage in the energy pits though was in natural gas, which lost more than 8% in today's session.

The Oil Index traded to the down side today, falling from resistance along the 3.5 month trend line. The index is now at a possible bullish peak, just under resistance. The indicators are bullish, but not indicating any great strength, and overbought in the near term. The index could move higher from here but without a real rebound in oil price that is unlikely. A retest of support is more likely with a target near 1,212. This is supported by MACD, the bearish peaks are convergent with the recent low and suggest that a retest of that low is likely.


The Gold Index

Gold hovered just below $1200 in early trading before a slow decline turned into serious selling. Spot gold slowly drifted down from $1195 until it broke support near $1190. Once support failed losses quickly accelerated, doubling from -0.5% to -1.0% and then -2.0%. The metal lost more than $22 by 2PM and looks poised to test support near $1150. Rising dollar value is pressuring gold lower and could continue to do so as long as fear of the Fed and rising interest rates is at bay.

I decided to look at the GLD today, the Spyder Gold Trust gold tracking ETF. This ETF tracks the price of gold with an average daily volume over 7 million and open interest over 2.2 million contracts. Today the ETF fell through a potential support at $114.50 with a long black candle. Indicators are bearish and moving lower with next target for support near $110.


In The News, Story Stocks and Earnings

Today is expected to be be UPS's busiest day of the season. There are only 2 days left until Christmas so last minute deliveries will be the cause. UPS is expecting today's volume to set a record as well. To put it into perspective, the company is estimating delivery of 394 packages every second. The company has been preparing for today by hiring more seasonal employees, just like competitor FedEX. Today the stock gained about 1% and set a new all time closing high.


Rite Aid received an upgrade today from Cowen&Company, and then one from Jim Cramer, that sent the stock up nearly 6%. This is just 2 days after a massive gain following earnings release. The report was better than expected and revealed turn-around plans that include closing under performing stores and reducing debt were advancing ahead of expectations. Today's upgrades sent the stock to a new 5 month high with strongly bullish indicators.


Gilead got some bad news today when competitor Abbvie received approval from ExpressScripts. The manager of prescription benefits announced that Abbvie's treatment for Hepatitis C would be its only offering for that class of the disease. The news did not help Abbvie, but really put a hurting on shares of Gilead. Abbvie fell less than 1%, Gilead fell more than 14%. Shares of Gilead shed nearly $15.50 and is approaching potential support near $90.


The Indices

The indices were positive today, led by the Dow Jones Transportation Average. The transports gained a little over 1% in today's session and are approaching the all time high set last month. Today's action extends the trend following bounce begun last week and is accompanied by mixed indicators. The stochastic has fired off the early signal and is moving higher but MACD momentum has yet to confirm. Current upside target is near 9,250 with the possibility of 9,500 on a break above resistance at 9,250.


The Dow Jones Industrial Average was runner up in today's action, gaining 0.87% and setting a new all time closing high. Today's close is less than one point above the all time high set 12/5/2014 and did not receive the fanfare that all time highs usually get. The indicators are mixed as with the transports but in line with the early stages of a bullish movement. MACD is bearish but quickly shifting and retreating to the zero line while stochastic is moving up after firing the weak trend following signal. It looks like the index is moving higher and possibly gaining momentum but there could be some resistance so caution is warranted. A pull back from here would find support near 17,500 and the short term moving average.


The S&P 500 ended with a gain of 0.31% after a day spent hovering just above break even. The index even dipped into negative territory, if briefly, before deciding it actually wanted to move higher. By the end of today's action the index extended the bounce begun last week and eventually set a new all-time closing high. While price action may have been a little weak, the indicators are rolling over into a stronger trend following signal then what we are currently seeing on the transports and industrials. The weak stochastic crossover is now confirmed by a zero line crossover on the MACD. This could lead momentum traders to begin entering the market and lift the index further.


The NASDAQ Composite brings up the rear today. The tech heavy index gained only 0.26% and is approaching the long term high set last month. The index is now less than 20 points below the high with indicators that suggest it will at least test those highs. MACD is bearish but in retreat and fast approaching the zero line, stochastic is moving higher following the weak trend following signal given last Thursday. If resistance is not broken the index could retreat to test support near 4,700 or lower near 4,600.


The Santa Rally is here and looks like it could keep moving higher. There are reasons to be cautious but the trends are up and the market is moving in line with the trends. The indices are bouncing from their respective long term support levels, many of which are coincident with long term trend lines, with indicators that remain consistent with the early phases of bullish movement.

One reason to be cautious is the impending holiday vacation. The time between Christmas and New Years is often market by erratic volumes and trading ranges, two factors that make technical analysis sketchy at best. Another reason to be cautious is the release of the third estimate for 3rd quarter GDP due out tomorrow morning, as well as all the rest of the data scheduled for tomorrow. This data could spur the rally on, but just as easily give reason for pause.

Until then, remember the trend!

Thomas Hughes

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New Plays

Outperforming The NASDAQ

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Market Vectors Semiconductor ETF - SMH - close: 55.37 change: +0.91

Stop Loss: 52.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.9 million
New Positions: Yes, see below

Company Description

Why We Like It:
The SMH is the Market Vectors Semiconductor Exchange Traded Fund (ETF) that tries to mimic the performance of the Market Vectors Semiconductor 25 index.

The top ten holdings in the ETF are Intel (INTC), Taiwan Semiconductor (TSM), Texas Instruments (TXN), Micron Technology (MU), ASML Holding (ASML), Applied Materials (AMAT), Broadcom Corp. (BRCM), NXP Semiconductor (NXPI), ARM Holdings (ARMH), and Analog Devices, Inc. (ADI).

The semiconductor industry has been outperforming the market most of the year. The NASDAQ composite is up +14% in 2014. The NASDAQ 100 index is up +19%. Yet the SMH is soaring with a +29.8% gain this year. Now after a week and a half correction the up trend looks ready to resume.

Traders bought the dip today near short-term technical support at the 10-dma. The SMH outperformed again with a +1.65% gain on Monday versus the NASDAQ's +0.33% gain. Tonight we are suggesting a trigger to open bullish positions at $55.75.

Trigger @ $55.75

- Suggested Positions -

Buy SMH stock (ETF) @ (trigger)

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

Buy the MAR $57 CALL (SMH150320C57) current ask $1.55

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

Daily Chart:



In Play Updates and Reviews

Off To A Strong Start

by James Brown

Click here to email James Brown

Editor's Note:
Our new bullish candidate we just added this weekend is off to a very strong start (symbol: SWIR).

We closed our CYNO trade this morning.


Current Portfolio:


BULLISH Play Updates

Barracuda Networks - CUDA - close: 38.01 change: +0.63

Stop Loss: 36.35
Target(s): To Be Determined
Current Option Gain/Loss: + 6.6%
Entry on November 18 at $35.65
Listed on November 12, 2014
Time Frame: Exit PRIOR to earnings on January 8th
Average Daily Volume = 247 thousand
New Positions: see below

Comments:
12/22/14: CUDA is looking strong today with another bounce near its 10-dma and a rally to new multi-month highs. Shares outperformed the major indices with a +1.6% gain.

Tonight we are raising the stop loss to $36.35.

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

12/22/14 new stop @ 36.35
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


INSYS Therapeutics - INSY - close: 42.68 change: -2.66

Stop Loss: 41.15
Target(s): To Be Determined
Current Option Gain/Loss: - 3.0%
Entry on December 18 at $44.00
Listed on December 17, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 479 thousand
New Positions: see below

Comments:
12/22/14: Biotech stocks had a rough day thanks to a -14% plunge in shares of Gilead Sciences (GILD). This weakness in GILD sparked some selling across the industry and shares of INSY underperformed the broader market with a -5.8% drop. INSY did start to bounce near support at its 10-dma. Given the relative weakness in INSY the last two days in a row I am suggesting that investors wait for a new bounce above $43.85 before considering new bullish positions.

Earlier Comments: December 17, 2014:
INSY is in the healthcare sector. They are part of the biotech industry. The company website describes Insys Therapeutics as "a specialty pharmaceutical company that develops and commercializes innovative drugs and novel drug delivery systems of therapeutic molecules that improve the quality of life of patients. Using our proprietary sublingual spray technology and our capability to develop pharmaceutical cannabinoids, Insys addresses the clinical shortcomings of existing commercial products. Insys currently markets two products, Subsys, which is sublingual Fentanyl spray for breakthrough cancer pain, and a generic version of Dronabinol (THC) capsules. Our lead product candidate is Dronabinol Oral Solution, a proprietary orally administered liquid formulation of dronabinol. Insys is also developing a pipeline of sublingual sprays, as well as pharmaceutical cannabidiol."

Biotech stocks can be tough to trade. Normally they are volatile with lots of headline risk. The right headline about a successful test or clinical trial or FDA approval can send shares soaring. The wrong headline could see a biotech stock crash or even gap down several points. Due to the nature of biotech work and how many companies get paid with milestone payments as they develop treatments their earnings are very lumpy.

INSY has managed to consistently beat Wall Street's bottom line estimates this year. The last four quarters in a row they have beaten the EPS estimates and three out of the four quarters they have beaten the revenue estimate as well. Their most recent quarterly results came out on November 11th.

INSY delivered a profit of $0.63 a share versus estimates of only $0.35. Revenues soared +99.7% to $58.3 million, above estimates. Since their report the stock has garnered some bullish analyst comments and multiple firms have price targets in the $51-57 zone.

INSY management is very optimistic and expects to complete four Phase III clinical trials in 2015. If successful it will significantly broaden their product line.

It is important to note that not all the news is good for INSY. A few weeks ago the Wall Street Journal (WSJ) ran a story about some shady marketing practices for INSY's Subsys painkiller. This is an under-the-tongue spray version of the painkiller fentanyl. Subsys has a very high risk of dependency and is currently only approved for cancer patients. Yet strangely enough only 1% of prescriptions were written by oncologists. Several doctors with the biggest number of Subsys prescriptions have also been under review or disciplined. The WSJ noted that the Office of the Inspector General of the U.S. Department of Health and Human Services and the U.S. Attorneys in the Central District of California and Massachusetts are all looking into the matter. This is significant because Subsys accounts for the vast majority of INSY's revenues. Thus far the stock does not seem to be worried about this story.

Shares have been building on the bullish trend of higher lows. The stock looks poised to breakout past resistance in the $43-44 area. The point & figure chart is already bullish and forecasting at $68 target.

If INSY can breakout it could see a short squeeze. The most recent data listed short interest at 65% of the very small 10.34 million share float.

Tonight we are suggesting a trigger to open bullish positions at $43.60. More conservative traders may want to wait for a breakout past the recent high at $44.00 instead.

I do consider this a higher-risk, more aggressive trade. Use small positions to limit your risk.

*small positions* - Suggested Positions -

Long INSY stock @ $44.00

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

Long FEB $45 CALL (INSY150220C45) entry $4.10

12/18/14 new stop @ 41.15
12/18/14 triggered on gap open at $44.00, suggested entry was $43.60
Option Format: symbol-year-month-day-call-strike


Sealed Air Corp. - SEE - close: 42.55 change: +0.35

Stop Loss: 40.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.7%
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:
12/22/14: SEE spent Monday's session consolidating sideways but still managed a +0.8% gain. We are going to try and reduce our risk by raising the stop loss to $40.85.

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

12/22/14 new stop @ 40.85
12/11/14 new stop @ 39.95
12/09/14 triggered @ 41.05
Option Format: symbol-year-month-day-call-strike


Sierra Wireless Inc. - SWIR - close: 45.40 change: +3.22

Stop Loss: 41.35
Target(s): To Be Determined
Current Option Gain/Loss: + 6.0%
Entry on December 22 at $42.85
Listed on December 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 861 thousand
New Positions: see below

Comments:
12/22/14: Our new play on SWIR is off to a strong start. The market applauded news that SWIR is acquiring Sweden-based Wireless Maingate AB For $90 million. SWIR said the deal will likely close in February and that Maingate will "accelerate our device-to-cloud mission".

Our suggested entry point to launch bullish positions was $42.85. Guess what? SWIR gapped open higher at $42.85 and then raced to a +7.6% gain on the day. I wouldn't chase it at current levels. We are raising the stop loss to $41.35.

Earlier Comments: December 20, 2014:
The Internet of Things (IoT) is going to be huge. Depending on who is making the forecast the size of just how huge it can become is staggering. Last year (2013) there were an estimated 300 million embedded connected devices in the IoT. IDC is estimating that could reach 15 billion connected devices by 2015. Cisco Systems (CSCO) is forecasting 25 billion devices connected to the Internet of Things by 2015 and 50 billion by 2020. Intel is forecasting up to 200 billion connected devices by 2020.

The backbone of the IoT is M2M communication. That's machine-to-machine communication. SWIR is the market leader with 34% of the market for cellular M2M embedded module market. According to the company marketing material, " Sierra Wireless is the global leader in machine-to-machine (M2M) devices and cloud services, delivering intelligent wireless solutions that simplify the connected world. We offer the industry's most comprehensive portfolio of 2G, 3G and 4G embedded modules and gateways, seamlessly integrated with our secure M2M cloud services. Customers worldwide, including OEMs, enterprises, and mobile network operators, trust our innovative solutions to get their connected products and services to market faster. Sierra Wireless has more than 900 employees globally and has R&D centers in North America, Europe and Asia." They make products for a wide array of industries including: automotive, transportation, industrial and infrastructure, security, field service, healthcare, consumer, energy, sales and payments, and networking.

Earnings have been improving. Back in July they reported their Q2 results that beat Wall Street's estimates on both the top and bottom line and management guided higher. SWIR announced their Q3 results on November 5th. Even after guiding higher the prior quarter they still beat estimates. Analysts were expecting a profit of $0.13 per share on revenues of $138.7 million. SWIR delivered $0.24 with revenues up +27.6% from a year ago to $143.3 million. That's a record quarter for revenue and up +6% from the prior quarter. Organic revenue growth was up +18.8%. Looking at the details of the quarter SWIR said their non-GAAP earnings were up +249% from a year ago.

SWIR raised their guidance again for the fourth quarter of 2014. They now expect EPS in the $0.25-0.28 range with revenues in the $145-148 million area. That's about +23% growth from a year ago. Analysts were only forecasting $0.17 per share on revenues of $142 million.

With this big surge in earnings and revenue growth it's not a surprise to see the stock outperforming. SWIR is up +74.5% in 2014 versus the NASDAQ's +14% gain. The point & figure chart for SWIR is forecasting a target near $53.

With a market cap around $1 billion I wouldn't be surprised if someone acquires SWIR, but that's pure speculation on my part. They have about $200 million in cash and no debt.

This past week saw shares of SWIR rally past resistance near $42.00 and close at multi-year highs. Tonight we are suggesting a trigger to open bullish positions at $42.85.

- Suggested Positions -

Long SWIR stock @ $42.85

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

Long MAR $45 CALL (SWIR150320C45) entry $3.60

12/22/14 new stop @ 41.35
12/22/14 triggered on gap higher at $42.85, trigger was $42.85
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Guess' Inc. - GES - close: 20.47 change: +0.04

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: - 3.9%
Entry on December 17 at $19.70
Listed on December 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
12/22/14: GES managed a bounce off its Monday morning lows but shares continue to struggle with short-term resistance near $20.60.

I am still cautious on this stock. Shares have not performed as expected. I'm not suggesting new positions at this time.

Earlier Comments: December 16, 2014:
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.

- Suggested Positions -

Short GES stock @ $19.70

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

Long MAR $20 PUT (GES150320P20) entry $1.70

12/17/14 triggered @ $19.70
Option Format: symbol-year-month-day-call-strike


Voxeljet AG - VJET - close: 7.45 change: -0.12

Stop Loss: 8.15
Target(s): To Be Determined
Current Gain/Loss: +24.7%
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:
12/22/14: It was a good day for VJET bears. This very oversold stock tested overhead technical resistance at its simple 10-dma and reversed lower. VJET underperformed the broader market with a -1.5% decline by the closing bell.

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

12/18/14 new stop @ 8.15
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


58.com Inc. - WUBA - close: 42.03 change: -0.09

Stop Loss: 41.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below

Comments:
12/22/14: WUBA underperformed the market by not participating in the widespread rally today. Yet shares are still not cooperating with our bearish designs. We're currently on the sidelines. Our suggested entry point for bearish positions is at $38.85.

Earlier Comments: December 18, 2014:
WUBA is part of the technology sector. They are one of several Chinese Internet stocks that see a lot of action in the market with big moves both directions. If you can catch one of WUBA's big moves it can be profitable.

The company has been compared to a Chinese version of Craiglist. They operate an online market for merchants and consumers in China. Growth has been significant. Their most recent earnings report was November 12th. WUBA reported their Q3 results with a profit of $0.09 per share when Wall Street was actually expecting a loss of 0.04 per share. Revenues in the third quarter soared +73% to $72 million. Gross margins improved +0.8% to 95.3%. WUBA management then raised their Q4 guidance.

It was a bullish earnings report and the stock soared. You can see the big move in mid November. Yet something happened a couple of weeks ago. Nearly all of the Chinese Internet stocks were crushed on December 8th. WUBA has struggled to recover. The recent bounce stalled at the 200-dma. Today's rebound attempt failed at the 50-dma. Shares have not participated with the big two-day rally in the U.S. market.

I consider this a technical trade. The company's sales growth and earnings results look bullish. Yet the stock is clearly not acting bullish. Plus, the bears do have some ammunition to build a case. If you tried to build a bearish story you could easily argue the stock is expensive with a P/E of 107. In their latest earnings report nearly all of WUBA's major expenses, including research and development, sales and marketing, and their operating expenses, all more than doubled from a year ago. While growth has been huge their growth is slowing. This year revenues are up +77% but they're expected to slow down to +54% in 2015.

WUBA has found recent support in the $38.90-39.00 area. Tonight I'm suggesting small bearish positions if WUBA can trade at $38.85. We want to limit our position size because the stock can be so volatile. You may want to use the options instead to help limit your risk. I would aim for the September and October lows in the $34.65-34.75 zone.

NOTE: I'm listing the April options only because the February or March options are not available yet. We should see new options available soon.

Trigger @ $38.85 *small positions to limit risk*

- Suggested Positions -

Short WUBA @ (trigger)

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

Buy the APR $35 PUT (WUBA150417P35)

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


Zulily, Inc. - ZU - close: 25.41 change: -0.10

Stop Loss: 26.05
Target(s): To Be Determined
Current Option Gain/Loss: + 1.9%
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:
12/22/14: Shares of ZU snapped a three-day winning streak. The stock did not participate in today's market rally, which is certainly encouraging if you're bearish. A new decline below $25.00 could be used as a bearish entry point (I'm suggesting $24.90 as a new trigger).

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

12/18/14 new stop @ 26.05
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

Cynosure, Inc. - CYNO - close: 29.00 change: +0.28

Stop Loss: 27.75
Target(s): To Be Determined
Current Option Gain/Loss: + 9.3%
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:
12/22/14: CYNO was underperforming the market the last few days. In the weekend newsletter we decided to exit positions this morning. CYNO opened at $28.70.

*small positions* - Suggested Positions -

Long CYNO stock @ $26.25 exit $28.70 (+9.3%)

12/22/14 planned exit
12/20/14 prepare to exit on Monday morning, Dec. 22nd.
12/18/14 new stop @ 27.75
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

chart: