Option Investor
Newsletter

Daily Newsletter, Thursday, 1/22/2015

Table of Contents

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

Market Wrap

ECB Follows Through!

by Thomas Hughes

Click here to email Thomas Hughes
After more than a year of talking the market up Mario Draghi and the ECB have followed through with “additional measures”.

Introduction

To say that all eyes were on the ECB this morning may be an understatement. The central bank has been talking the market up for a long time on hints and teases that there would be “additional measures” to QE programs and today was the day it was expected to come. After meany missed opportunities and months of deteriorating economic data the bank has finally followed through on its talk and added those measures. Today the ECB announced that it would be adding 60 billion euros a month of asset purchases in an open ended attempt to stimulate the European economy. This exceeded market expectations by 10 billion euros and was well received.

Asian indices have yet to feel the benefit of the ECB decision as they closed long before the announcement was made. Anticipation for the expected move had them mostly higher and they are indicated to open higher already. European indices were largely flat ahead of the statements due to fear the bank would not, or only, meet expectations. The surprise helped lift them by an average 1% once the details of the plan were laid out. These include the purchase of sovereign bonds from all EU countries, except maybe Greece, and that the plan would begin in March of this year. The target end is September 2016 but was left open as the bank would like to see a “sustained adjustment of the path of inflation” more in line with their goals.

Market Statistics

US futures were up from the start, boosted by earnings and economic data as well as the ECB. The S&P was indicated to open about 6 points higher and quickly matched that in the first minute following the opening bell. After hitting the early high the indices retreated to test yesterday's closing prices while the market digested the new ECB policies. Around 9:45 bottom was hit and from there the bulls took charge, driving the indices up by more than 1.5% on average. The ECB decision had a wide ranging impact and moved gold and the dollar as well as equities. Buying persisted all day leaving the major market indices at their highest levels of 2015 and very near to recent all time highs.

Economic Calendar

The Economy

Economic data was released with little fanfare today as the ECB press conference began at precisely the same time. First up was the FHFA Housing Price Index with a gain of 0.8%. This is for the November 2014 period so is rear looking at best. On a rolling 12 month basis prices are up 5.3%.

Initial claims fell by 10,000 but is still above 300K. The number of first time claims was reported as 307,000 with a 1,000 claim revision to last week's figures. The four week moving average climbed by 6,500 and is now above the 300K level for the first time since early September. It looks like claims are beginning to trend higher from the lows set in October. This is mildly alarming but is most likely attributable to seasonal employment adjustments rather than a reversal in trend. Whatever the case, claims need to be monitored as a sustained increase in this metric would indicate an increase in the pace of job losses. For now, claims remain near long term lows and at a level consistent with the long term improvement in labor.


Continuing claims rose by 15,000 versus an expected decline of similar proportion. Continuing claims was reported at 2.443 million with a revision of 4,000 to last week. This figure is a less volatile and better indication of underlying conditions and remains near long term lows as well. There has been an increase in this figure post-holiday's but it is not yet as sharp as in initial claims suggesting those being laid off are finding work or returning to work fairly quickly. This idea is supported by other data including Challenger planned layoffs, JOLTs job openings and the quits rate but also bears watching. An increase in jobless claims that persists into the future would not be a good sign.

Total claims is also presenting a red flag. The total number of jobless claims rose by 196,315 to 3.049 million and an eight month high. The total claims were on the rise steadily into the end of the year, as expected due to end of year lay-offs, and could rise further before settling back down. While at a high, the number of claims is still well below the year ago period, -17%, which was the first week of reporting after the expiration of benefits extensions that occurred at the beginning of 2014. Based on the other labor data I expect to see this begin to fall in the next few weeks. If not it will be time to take a new look at whats going on in the labor market.


There are two economic releases tomorrow, Leading indicators and Existing Home Sales, both scheduled for 10AM. Leading Indicators are forecast to have risen 0.5% last month, indicating an increase in activity this month. This is slightly higher than the consensus estimate from just a week ago. Existing Home Sales are expected to have risen in Decmeber to an annualized rate just above 5 million.

The Oil Index

Oil had been holding steady around $47.50 on talk from OPEC about an expected rebound. The bloc thinks a rebound is more likely to occur than a dip to below $40. A build in inventory reported by the EIA did not jibe with that sentiment and sent prices lower. WTI fell 3% from yesterday's settlement price and is now just a few cents above the long term low. It seems as if supply is still on the rise and pressuring prices but signs that production growth may be slowing are also beginning to appear. One such is a drop in the Bakken rig count.

The Oil Index rose in today's session despite the drop in the underlying commodity and is above the down trend line. The break of the short term down trend line is a positive sign for long term oil bulls but is as yet unconfirmed. Today's move was a mild testing of support but I think there could be more. Volatility could persist as oil prices seek and/or find bottom which will have a big impact on index prices. The indicators are currently bullish and pointing up leading me to think it could move up to the 1,350-1,400 level. If not, potential support is along the back of the down trend line and then the longer term up trend line near 1,250.


The Gold Index

Gold continues to rally. The ECB move is fueling the flight out of currency begun last week by the SNB and sent prices up another 1% to above $1,300. This is the first time gold has traded at this level in over 5 months. The way things are going it is hard to say where the end of this rally may be, especially with the FOMC meeting next week. Gold is back in demand with long term outlook bullish but at these levels is looking extended and vulnerable to pullback with $1250 looking like a good target to find support.

The gold miners ETF GDX tried to move higher today but couldn't hold it. The ETF opened with a gain, but traded down from the open all day, unlike the underlying metal which is making new highs. The positive is that today's action appears to confirm support at $22.25 and to be part of consolidation following the gapping move on Tuesday. The indicators are bullish and convergent with higher prices so unless the long term outlook in gold changes any pull backs in price would be a potential entry point. Current support is $22.25 with potential upside targets near $25 and $26. If support fails the ETF could retreat as much as $2.50 to the $20 level.


In The News, Story Stocks and Earnings

Earnings continue to roll in and are beginning to look a lot better than they did earlier this week. The big banks and oil are still a drag but the regional banks and transports are shining. A number of big name transportation companies reported today spanning trucking, airlines and the rails. JBHunt moved as much as 5% higher in today's session after reporting earnings that beat expectations. On a year over year basis earnings for the trucking company are up 21% in the quarter and 10% for the full year. Revenues are also up driven largely by a 6% increase in intermodal shipping, an increase that is emerging as a trend in the sector. Intermodal is big. Shares of JBHunt are now tackling resistance near the current all time high.


Union Pacific reported their 6th year of intermodal growth. This comes along with a 27% increase in EPS and a 20% increase in operating income that were both ahead of expectations. The rail carrier reports that low oil prices are helping the bottom line but may affect carrier volumes next year. The upside is that all the other businesses who are having trouble shipping because the rails are full of oil products may now find relief. Shares of the stock rose 5% in today's session to test resistance just below the all time high set at the end of last year. The indicators are bullish and in line with a trend following entry.


Not all reports were rosy. Sandisk, maker of flash memory storage devices released earnings yesterday after the bell and did not meet expectations. Revenue and earnings both fell short on a decline in sales that sparked a round of down grades today. The stock was hit hard in the pre-opening session and opened more than 12% lower and at a 9 month low. Buyers stepped in however and drove prices back to near break even.


Starbucks reported after the bell today. The coffee giant earned $0.80 per share, in line with expectations, and reported comp store sales increased by more than 5%. The comp sales numbers were above expectations and the 20th straight quarter of increases more than 5%. The stock jumped on the news and gained 2% in after hours trading.


The Indices

The ECB did it, and they did it bigger than expected. The bank allowed the market to think one thing, and then delivered it and more, providing catalyst for markets around the world. Once the news was out, and the details of the new plan discussed, the bulls came out in force and drove the indices up all day and into the close. Our markets began the day with a quick dip to touch base with support but once they began moving higher never looked back.

The Dow Jones Transportation Index led the charge, boosted by strong earnings and outlook from the sector. The index gained nearly 3% in today's action and is fast approaching potential resistance at the current all time high. The indicators are bullish and on the rise, confirming the move. Current upside target is near 9,250 with further targets near 9,500 and 10,000 provided the index can break to new highs.


The NASDAQ Composite made the next largest gain but fell short of the high mark set by the transports. Today's move is another confirmation of the long term trend as it tested support along the short term 30 day moving average confirmed by a bullish crossover on the stochastic and MACD. Support is the moving average with upside target at or near the current high around 4,800 with additional targets near 4,900 and 5000 on a break above resistance.


The S&P 500 and Dow Jones Industrial Average finished the day basically even near a 1.5% gain. The blue chips gained just under1.5% and blasted right through the short term moving average. The index is moving higher following a support/trend bounce and is showing an early buy. Stochastic is forming a bullish crossover but has yet to confirmed by MACD. MACD is very close to making a bullish crossover as well but has not quite made it. Target is now 18,000 with support just below the moving average near 17,500.


The S&P 500 gained just over 1.5% or 31.03 points. The broad market created a long white candle and also confirmed support along the short term moving average. The index is moving higher on a trend line bounce with increasingly bullish indicators and upside targets near the current all time highs. Stochastic has already fired off a trend following bullish crossover and MACD is in the process of confirming that signal. It is now exactly at zero and crossing over to bullishness. Resistance may be met at the all time highs, near 2090, with additional upside possible on a break above it. This could coincide with the FOMC meeting, or the release of 4th quarter GDP both scheduled to be released next week.


The markets are bouncing higher, in line with underlying trends. Economic data is good, outlook is fine and earnings are looking better and better every day. Now that Mario Draghi and the ECB has provided some support for the EU economy we can put to rest one fear, at least for now, and focus on the future of our own economic recovery. The next possible market mover is the FOMC, meeting next week and releasing a statement on Wednesday. After that is the GDP release on Thursday.

Until then, remember the trend!

Thomas Hughes


New Plays

Consistently Raising Guidance

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Burlington Stores, Inc. - BURL - close: 50.64 change: +0.48

Stop Loss: 48.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 22, 2015
Time Frame: Exit PRIOR to earnings in mid March
Average Daily Volume = 830 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
One of the best performing stocks last year was BURL. The stock gained +47% in 2014 versus the S&P 500's +11% gain.

According to the company website, "Burlington is a national off-price apparel, home and baby products retailer, operating in the United States and Puerto Rico. We offer great value to our customers by featuring high-quality, primarily branded apparel, home and baby products at "Every Day Low Prices", to deliver savings of up to 60-70% off department and specialty store regular prices. We operate more than 500 stores under the Burlington Coat Factory, Cohoes Fashions, Super Baby Depot, MJM Designer Shoes and Burlington Shoes nameplates."

The company has been on a roll and is poised to see earnings grow +100% in its current fiscal year. Management has been consistently raising estimates. Back in September they reported earnings that beat estimates on both the top and bottom line and raised their full year guidance. They beat again with their earnings report in December and raised guidance. Then on January 9th they raised guidance again. We are starting to see Wall Street analysts raise their price targets for BURL into the $58-60 zone.

Investors have been consistently buying the dips. Now shares are in the process of breaking out past round-number, psychological resistance at the $50.00 level. Tuesday's high was $50.90. Tonight I am suggesting a trigger to open bullish positions at $51.10.

Trigger @ $51.10

- Suggested Positions -

Buy BURL stock @ (trigger)

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

Buy the MAR $55 CALL (BURL150320C55) current ask $1.80

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

Daily Chart:



In Play Updates and Reviews

QE In Europe Fuels Another Day Of Gains

by James Brown

Click here to email James Brown

Editor's Note:
As expected the ECB did announce a new QE program. What surprised investors was the size. A bigger than expected asset buying program helped fuel gains across the market today.

SODA was stopped out this morning.


Current Portfolio:


BULLISH Play Updates

ACADIA Pharmaceuticals - ACAD - close: 32.57 change: +0.10

Stop Loss: 31.25
Target(s): To Be Determined
Current Option Gain/Loss: -1.6%
Entry on January 20 at $33.10
Listed on January 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.24 million
New Positions: see below

Comments:
01/22/15: It might be time to worry about our ACAD trade. Traders did buy the dip again near its rising 40-dma. That's the fourth time in the last four sessions. Yet ACAD only gained +0.3% versus the +1.7% gain in the NASDAQ. This relative weakness could be a warning signal.

Earlier Comments: January 17, 2015:
The biotech industry was a big outperformer last year. That outperformance looks like it could continue into 2015.

According to a company press release, "ACADIA is a biopharmaceutical company focused on the development and commercialization of innovative medicines to address unmet medical needs in neurological and related central nervous system disorders. ACADIA has a pipeline of product candidates led by NUPLAZID (pimavanserin), for which we have reported positive Phase III trial results in Parkinson's disease psychosis and which has the potential to be the first drug approved in the United States for this disorder. Pimavanserin is also in Phase II development for Alzheimer's disease psychosis and has successfully completed a Phase II trial in schizophrenia. ACADIA also has clinical-stage programs for chronic pain and glaucoma in collaboration with Allergan, Inc. and two preclinical programs directed at Parkinson's disease and other neurological disorders. All product candidates are small molecules that emanate from internal discoveries."

You can view ACAD's current pipeline of drugs in development on this web page.

Shares of ACAD shot higher in early September after the FDA gave the company a breakthrough therapy designation for its NUPLAZID treatment for Parkinson's. Currently there is an estimated 6.3 million people around the world who suffer with Parkinson's and there is no cure. If ACAD can eventually get this therapy approved then the drug could generate an estimated $1 billion in sales in jut the United States.

There is speculation that ACAD is an acquisition target by a larger biotech or pharmaceutical company. That has got to scare the bears in this name. Believe it or not but there are a lot of bears shorting ACAD. The most recent data listed short interest at about 30% of the 79 million-share float. That's plenty of fuel for a short squeeze.

Technically traders have been buying the dips in ACAD near its rising 40-dma. You can see the bullish trend of higher lows and ACAD just bounced on it Friday. This looks like a good spot to speculate on a follow through higher.

We always consider trading biotech stocks as a higher-risk, more aggressive trade. The right or wrong headline can send biotech stocks crashing or soaring overnight. You might want to use call options to limit your risk. Tonight we are suggesting a trigger to open bullish positions at $33.10.

*small positions to limit risk* - Suggested Positions -

Long ACAD stock @ $33.10

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

Long FEB $35 CALL (ACAD150220C35) entry $1.00

01/20/15 triggered @ 33.10
Option Format: symbol-year-month-day-call-strike


Sprouts Farmers Market - SFM - close: 35.45 change: +0.03

Stop Loss: 33.45
Target(s): To Be Determined
Current Option Gain/Loss: +7.3%
Entry on December 29 at $33.05
Listed on December 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
01/22/15: Analyst firm Cowen & Co. started coverage on SFM with an "outperform" this morning. Cowen believes that companies like SFM will continue to benefit from more discerning shoppers who care more about quality than price. Thus competition from traditional grocers, who have been adding more organic fare, should not be a serious threat to SFM.

This bullish outlook helped SFM gap open higher this morning but the rally failed near yesterday's highs. SFM faded back toward unchanged by the closing bell.

I am not suggesting new positions.

Earlier Comments: December 23, 2014:
SFM is in the services sector. They operate in the grocery store industry. According to the company, "Sprouts Farmers Market, Inc. is a healthy grocery store offering fresh, natural and organic foods at great prices. The Company offers a complete shopping experience that includes fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, baked goods, dairy products, frozen foods, natural body care and household items catering to consumers' growing interest in health and wellness. Headquartered in Phoenix, Arizona, the Company employs more than 17,000 team members and operates more than 190 stores in ten states."

Back in the fourth quarter of 2013 the health food and natural grocery stores saw their stocks peak and begin a multi-month decline. The market was worried about growing competition. The organic and "natural" trend had allowed companies like SFM and WFM to enjoy wider margins than traditional grocery stores. Now everyone seems to be trying to cash in on the organic trend.

Shares of SFM were almost cut in half with their drop from its 2013 peak to the 2013 low this past spring. Since then it appears that SFM has found a bottom. That might be thanks to steady earnings growth. SFM has beaten Wall Street's bottom line earnings estimates the last four quarters in a row. Back in May they guided higher but since then their guidance has only been in-line with consensus estimates.

The recent strength in the stock is encouraging. Shares are now challenging resistance in the $32-33 area. Should SFM breakout it could see some short covering. The most recent data listed short interest at 12.9% of the 124 million share float.

Tonight we are listing a trigger to launch bullish positions at $33.05.

- Suggested Positions -

Long SFM stock @ $33.05

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

Long MAR $35 CALL (SFM150320C35) entry $1.10

01/15/15 new stop @ 33.45
12/29/14 triggered @ 33.05
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Discovery Communications - DISCA - close: 30.06 change: +0.61

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.7%
Entry on January 14 at $30.57
Listed on January 13, 2015
Time Frame: Exit PRIOR to earnings on Feb. 19th
Average Daily Volume = 3.8 million
New Positions: see below

Comments:
01/22/15: The oversold bounce in DISCA is eating away at our potential gains. The market's widespread rally today was tough on our bearish candidates. DISCA added +2.0% and the close above $30.00 is a potential warning signal for bearish traders.

Earlier Comments: January 13, 2015:
We have heard for a long time that content is king. Discovery has some great content. So why is the stock suffering so poorly? The stock market posted double-digit gains last year and yet shares of DISCA was one of the market's worst performers with a -23.8% decline.

According to company marketing materials, "Discovery Communications (Nasdaq: DISCA, DISCB, DISCK) is the world's #1 pay-TV programmer reaching nearly 3 billion cumulative subscribers in more than 220 countries and territories. Discovery is dedicated to satisfying curiosity, engaging and entertaining viewers with high-quality content on worldwide television networks, led by Discovery Channel, TLC, Animal Planet, Investigation Discovery and Science, as well as U.S. joint venture network OWN: Oprah Winfrey Network. Discovery also controls Eurosport International, a premier sports entertainment group, including six pay-TV network brands across Europe and Asia. Discovery also is a leading provider of educational products and services to schools, including an award-winning series of K-12 digital textbooks, through Discovery Education, and a digital leader with a diversified online portfolio, including Discovery Digital Networks."

It looks like the revenue picture has soured for DISCA. Back in February 2014 the company reported earnings and raised their revenue guidance. One quarter later, when they reported in July, they lowered the top end of their guidance. Then in November, when they reported earnings, DISCA missed Wall Street's revenue estimate and management lowered their revenue guidance.

In a recent interview Discovery's CEO said they are having trouble monetizing all of their content. The advertising environment has gone soft and they haven't figured out why there is a lull in ad spending.

Research is forecasting that online video watching will more than double by 2020. A USB analyst believes online will eventually pose a significant threat to more traditional TV watching trends and companies. Another analyst, this time with Sanford Bernstein, believes the huge declines in TV viewership will continue. Analyst Todd Juenger said, "We believe ad-supported TV is in the early stages of a structural decline." That's long-term bearish for TV. DISCA needs to do a better job of monetizing their content online.

Technically DISCA looks very bearish. The oversold bounce from November stalled in the $36 area several time. The point & figure chart is bearish and forecasting at $23.00 price target. Today DISCA is breaking down to new 52-week lows.

We are suggesting a trigger to open bearish positions at $30.90. Plan on exiting ahead of DISCA's earnings report in mid February.

- Suggested Positions -

Short DISCA stock @ $30.57

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

Long FEB $30 PUT (DISCA150220P30) entry $1.20

01/15/15 new stop @ 30.85
01/14/15 triggered on gap down at $30.57, trigger was $30.90
Option Format: symbol-year-month-day-call-strike


Lions Gate Entertainment - LGF - close: 28.66 change: +0.41

Stop Loss: 31.05
Target(s): To Be Determined
Current Option Gain/Loss: +0.7%
Entry on January 15 at $28.85
Listed on January 14, 2015
Time Frame: Exit prior to earnings on February 5th
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
01/22/15: LGF followed the market higher on Thursday. Fortunately for us the bounce failed at resistance near $29.00. A new decline under $28.50 could be used as a bearish entry point.

Earlier Comments: January 14, 2015:
Everyone loves the movies. While 2014 had some pretty big hits total box office receipts for the industry were $10.3 billion. That's a -5% drop from the 2013. "The Hunger Games: Mockingjay - Part 1" was one of the most successful films last year with a gross of $309 million.

LGF is the studio that makes the Hunger Games movies. According to the company, "Lionsgate is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, channel platforms and international distribution and sales. The Company currently has more than 30 television shows on over 20 different networks spanning its primetime production, distribution and syndication businesses."

In addition to The Hunger Games, LGF also makes the new Divergent films, which could be a big hit although probably not as big as Games. The company has also seen success in television with hits like Mad Men, Nurse Jackie, and Orange is the New Black. However, the stock tend to trade around its movie releases. That could prove challenging.

The last Hunger Games move is now last year's news. Shares of LGF could lack any serious catalyst to move the stock until the next round of movies come out. The next Divergent movie ("Insurgent") is expected to come out in March this year. Meanwhile the Mockingjay - Part 2 doesn't hit theaters until November 2015. If the stock's action is any indication then Wall Street is not very enthusiastic over the next Divergent movie.

Shares failed multiple times in the $35.50 area from mid November through December 1st. This is now a new lower high on the weekly chart (see below). While the broader market rallied in December, shares of LGF were under performing. That underperformance has continued into 2015.

Investors have taken notice of LGF's weakness. The most recent data listed short interest at 18% of the 84 million share float. The point & figure chart has turned bearish and is currently forecasting at $24 target but that could get worse.

Today LGF is about to test support at $29.00. A breakdown there could be our entry point. Tonight we're suggesting a trigger at $28.85.

- Suggested Positions -

Short LGF stock @ $28.85

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

Long FEB $30 PUT (LGF150220P30) entry $2.10

01/15/15 triggered @ 28.85
Option Format: symbol-year-month-day-call-strike


Tribune Media Co. - TRCO - close: 55.78 change: +1.68

Stop Loss: 56.65
Target(s): To Be Determined
Current Option Gain/Loss: -3.4%
Entry on January 21 at $53.95
Listed on January 20, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 501 thousand
New Positions: see below

Comments:
01/22/15: The stock market's broad-based rally today, thanks to the ECB news, helped fuel gains in TRCO. Shares surged +3.1% but stalled just below resistance at $56.00 and its simple 10-dma. I'm not suggesting new positions at the moment. Let's see if this rally reverses like it should.

Earlier Comments: January 20, 2015:
Traditional television is dead. That's been the story for a long time with falling viewership in traditional television for several years. Yet that didn't stop a big rally in shares of TV companies like CBS and TRCO in 2013.

According to the company's marketing material, "Tribune Media Company (TRCO) is home to a diverse portfolio of television and digital properties driven by quality news, entertainment and sports programming. Tribune Media is comprised of Tribune Broadcasting's 42 owned or operated local television stations reaching over 50 million households, national entertainment network WGN America, available in approximately 71 million households, Tribune Studios, and Tribune Digital Ventures, including Gracenote, one of the world's leading sources of TV and music metadata powering electronic program guides in televisions, automobiles and mobile devices. Tribune Media also includes Chicago's WGN-AM, the national multicast networks Antenna TV and THIS TV. Additionally, the Company owns and manages a significant number of real estate properties across the U.S. and holds other strategic investments in media."

Last year was a rough one for TRCO. The stock peaked about $90 in July. It's now down about -40% from that high. We could argue that it's all about the TV advertising market. The Wall Street Journal ran an article in November last year suggesting that the entire industry is seeing a structural slowdown as more and more ad spending moves to digital outlets. Yet the last couple of earnings reports from TRCO came in significantly above expectations. Revenues are growing year over year. So is TRCO an exception or were the revenue comparisons to a year ago just really, really bad?

If price is truth then investors are bearish on TRCO. The stock's big oversold bounce in October last year turned into a bearish double top near $70.00. More recently shares have been sinking with a steady trend of lower highs. Today the point & figure chart is bearish and forecasting at $42 target.

Shares of TRCO were showing relative weakness again today with a -2.3% drop and a breakdown under support at $55.00. The intraday low was $54.23. Tonight I'm suggesting a trigger to open bearish positions at $53.95.

- Suggested Positions -

Short TRCO stock @ $53.95

01/21/15 triggered @ 53.95


Zulily, Inc. - ZU - close: 19.93 change: +0.41

Stop Loss: 21.65
Target(s): To Be Determined
Current Option Gain/Loss: +23.1%
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:
01/22/15: ZU was not immune to the market's widespread rally today. Shares rose +2.1%. Look for resistance near $21.00 or its simple 10-dma (currently 20.90).

I am not suggesting new positions at this time.

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) -

(option trade was closed on Jan. 16th, 2015)
Jan $25 PUT (ZU150117P25) entry $1.15 exit $4.40 (+282.6%)

01/16/15 planned exit for the January $25 puts
01/15/15 new stop @ 21.65
Prepare to exit the January put option tomorrow morning
01/08/15 new stop @ 23.55
01/03/15 new stop @ 24.10
12/29/14 new stop @ 24.45
12/27/14 new stop @ 25.15
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 BEARISH PLAYS

SodaStream Intl. - SODA - close: 19.32 change: +0.79

Stop Loss: 18.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.2%
Entry on January 05 at $19.42
Listed on January 03, 2015
Time Frame: Exit PRIOR to earnings in late February
Average Daily Volume = 946 thousand
New Positions: see below

Comments:
01/22/15: This morning shares of SODA were upgraded from a "sell" to a "hold". This sparked some short covering and SODA gapped open higher at $19.00 before surging to a +4.2% gain on the session. Our stop loss was at $18.85 so the gap open closed our play.

- Suggested Positions -

Short SODA stock @ $19.42 exit $19.00 (+2.2%)

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

FEB $20 PUT (SODA150220P20) entry $2.05 exit $1.50 (-26.8%)

01/22/15 stopped out on gap open at $19.00
01/15/15 new stop @ 18.85
01/08/15 new stop @ 20.25
01/05/15 trade begins. SODA gaps down 30 cents to $19.42
Option Format: symbol-year-month-day-call-strike

chart: