Editor's Note:
The U.S. market delivered its best one-day gain in three weeks in spite of a terrorist attack in France.


Current Portfolio:


BULLISH Play Updates

Covenant Transportation Group - CVTI - close: 28.05 change: +1.37

Stop Loss: 25.45
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Entry on January 05 at $28.05
Listed on January 03, 2014
Time Frame: Exit prior to earnings in late January or early February
Average Daily Volume = 203 thousand
New Positions: see below

Comments:
01/07/15: The stock market's widespread bounce on Wednesday helped CVTI recover more than half of yesterday's painful decline. The stock outperformed the major indices with a +5.1% gain. We are back to breakeven near $28.00. Today's intraday high was $28.13. I'd look for a rally past $28.20 before initiating new positions.

Earlier Comments: January 3, 2015:
Last year the S&P 500 added +11.3%. The Dow Jones Transportation Average doubled that with a gain of +23%. Yet CVTI's performance is light years ahead of the major indices with a +230% gain in 2014.

According to the company, "Covenant Transportation Group, Inc. is the holding company for several transportation providers that offer premium transportation services for customers throughout the United States. The consolidated group includes operations from Covenant Transport and Covenant Transport Solutions of Chattanooga, Tennessee; Southern Refrigerated Transport of Texarkana, Arkansas; and Star Transportation of Nashville, Tennessee. In addition, Transport Enterprise Leasing, of Chattanooga, Tennessee is an integral affiliated company providing revenue equipment sales and leasing services to the trucking industry."

Why are shares of CVTI surging? The simple answer seems to be business is booming. The company has raised its guidance twice in the last four months. The most recent time was December 11th. Now you might think the stronger profit picture is due to falling gasoline prices. CVTI confessed they hedge some of their fuel costs so the drop in gas prices actually has little impact on its current outlook. They're raising guidance because demand is so strong. Anecdotally this is a pretty optimistic sign on the strength of the U.S. economy.

Technically shares of CVTI have been consistently rising with a bullish trend of higher lows and higher highs. Shares are just starting to bounce from support again. This is our chance to jump on board. Friday's high was $27.80. I'm suggesting a trigger to open bullish positions at $28.05. Earnings are expected in late January or early February. We will most likely exit prior to their announcement. I will note that the point & figure chart is bullish and forecasting at $34.50 target.

- Suggested Positions -

Long CVTI stock @ $28.05

01/05/15 triggered @ 28.05


Sprouts Farmers Market - SFM - close: 33.77 change: +0.70

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: + 4.5%
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:
01/07/15: SFM is another stock that outperformed the broader market as traders rushed back in to buy the dip. After a two-day drop SFM bounced with a +2.1% gain. I'm suggesting investors use today's rebound as a new entry point for bullish 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

12/29/14 triggered @ 33.05
Option Format: symbol-year-month-day-call-strike


Wayfair Inc. - W - close: 22.34 change: -0.26

Stop Loss: 21.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

Comments:
01/07/15: I am surprised by the relative weakness in shares of W today. This morning the stock spiked higher but failed under the $23.00 level. W spent most of the session consolidating sideways in the $22.10-22.50 zone.

We remain on the sidelines. Our suggested entry point is $23.05.

Earlier Comments: January 6, 2015:
The S&P 500 is down five days in a row. One stock bucking that trend is W. Shares of W are up five days in a row. The rally appears to be accelerating.

Who is Wayfair? According to the company, "Wayfair Inc. offers an extensive selection of home furnishings and décor across all styles and price points. The Wayfair family of brands includes:
Wayfair.com, an online destination for all things home
Joss & Main, an online flash sales site offering inspiring home design daily
AllModern, a go-to online source for modern design
DwellStudio, a design house for fashion-forward modern furnishings
Birch Lane, a collection of classic furnishings and timeless home décor
Wayfair is headquartered in Boston, Massachusetts, with additional locations in New York, Ogden, Utah, Hebron, Kentucky, Galway, Ireland, London, Berlin and Sydney."

Shares of W came to market with an IPO in October last year and priced at $29.00. They opened at $36.00 and spiked up to $39.43 on the first day of trading. Since that opening day the stock has been cut in half. W traded down to $16.74 in mid December. The stock bottomed a couple of days before the S&P 500 did in the market's December decline.

There was a recent story about the surge in Class A shares of W. Sometimes mutual fund and hedge fund managers have limits on how much stock they can own in their portfolio. Their systems will not allow them to own more than a certain percentage of any one company based on the number of shares outstanding. When W initially came to market it had a very low count of Class A shares and a high number of Class B shares. The Class B shares are convertible into Class A.

According to Wayfair's CFO they asked Class B shareholders to convert some of their investment into Class A. That would boost the amount of shares outstanding. This is a bullish development since it means more fund managers want to own W and now they can with the increase in Class A shares.

The company seems to be growing at a tremendous pace. Their first earnings report as a public company was November 10th. Revenues soared +41.7% to $336.2 million. Their direct retail business surged +57%. W said their gross profit was $79.0 million versus $58.6 million a year ago.

Additional Q3 highlights included the number of active customers for their direct retail business rose +61% to $2.9 million year over year. Their LTM Net revenue per active customer increase $342 or +8.6% year over year and +3.0% from the second quarter of 2014.

The stock is also a short squeeze candidate. In a recent interview one of the co-founders said that together the two co-founders own between 40% and 50% of the stock. Meanwhile short interest is more than 56% of the very small 11.1 million share float. If the current rally continues W could see a short squeeze.

Tonight I am suggesting a trigger to open bullish positions at $23.05.

Trigger @ $23.05

- Suggested Positions -

Buy W stock @ (trigger)

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

Buy the Feb $22.50 CALL (W150220C22.50)

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




BEARISH Play Updates

Altria Group - MO - close: 49.88 change: +0.90

Stop Loss: 50.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 05, 2014
Time Frame: Exit PRIOR to Q4 earnings (see below)
Average Daily Volume = 6.6 million
New Positions: Yes, see below

Comments:
01/07/15: MO is not cooperating. Today's rally and close above its 10-dma and 50-dma is short-term bullish. If shares close above round-number resistance at $50.00 we'll likely remove MO as a bearish candidate. Right now our suggested entry point is at $48.25.

Earlier Comments: January 5, 2015:
MO is part of the consumer goods sector. They are the biggest cigarette maker in America with 50.9% of the U.S. market. Fortunately for U.S. consumers the use of cigarette smoking is on the decline. MO's revenues last year declined year over year. That didn't stop shares of MO from outperforming the major market indices with a +28% rally in 2014.

The stock sports a 4.2% dividend yield but I doubt that will save it from the looming correction ahead. A big dividend did not help shares of rival cigarette maker PM last year. MO has produced a bearish double top with the twin peaks in December. Now it's starting to breakdown under support in the $49 area.

Tonight we are suggesting a trigger to open bearish positions at $48.25. The nearest support is probably the $45.00 area. We will plan on exiting before MO reports Q4 earnings but there is no confirmed date yet. Right now the company is estimated to report in very late January or early February.

Trigger @ $48.25

- Suggested Positions -

Short MO stock @ (trigger)

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

Buy the FEB $50 PUT (MO150220P50)

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


SodaStream Intl. - SODA - close: 19.14 change: -0.12

Stop Loss: 21.15
Target(s): To Be Determined
Current Option Gain/Loss: + 1.4%
Entry on January 05 at $19.42
Listed on January 03, 2014
Time Frame: Exit PRIOR to earnings in late February
Average Daily Volume = 946 thousand
New Positions: see below

Comments:
01/07/15: The early morning bounce attempt in SODA failed near $19.50 and shares underperformed the broader market with a -0.6% decline. The company is facing increased competition. This afternoon there was another story about how Dr. Pepper has partnered with Keurig (GMCR) to allow consumers to make Dr. Pepper brand drinks with GMCR's new soda machine. The exact flavors from Dr. Pepper (DPS) has not been announced yet.

Earlier Comments: January 3, 2015:
The excitement over shares of SODA has definitely fizzled out over the last couple of years. The stock peaked just below $80 a share back in 2011. Then in early 2013 the stock was soaring and looked like it might reach $80 again. The rally lost its buzz and SODA peaked near $78 in mid 2013. Since then shares have reversed and stuck in a bear market decline.

Who is SODA? According to the company's marketing material "SodaStream is the world's leading manufacturer and distributor of home beverage carbonation systems which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. Soda makers offer a highly differentiated and innovative solution to consumers of bottled and canned carbonated soft drinks and sparkling water. Our products are environmentally friendly, cost effective, promote health and wellness, and are customizable and fun to use. In addition, our products offer convenience by eliminating the need to carry bottles home from the supermarket, to store bottles at home or to regularly dispose of empty bottles. Our products are available at more than 65,000 retail stores in 45 countries around the world, including 17,000 retail stores in the United States."

2014 was tough for SODA investors as the stock collapsed from about $50 to $20. The company guided lower when they reported earnings in July 2014. Then SODA shares gapped down sharply on October 7th when they issued another earnings warning. That big spike on October 24th was a story from Bloomberg that SODA was testing some Pepsi products. The rally was probably short covering as investors worried a partnership with Pepsi could turn things around. The rally quickly faded. Pepsi has already partnered with in-home beverage company Bevyz in Europe so any deal with SODA might be limited.

SODA's most recent earnings report was October 29th. Their EPS came in at $0.45, which beat estimates of $0.35. Yet revenues fell -12.9% in the third quarter to $125.9 million, which was significant below Wall Street's estimate. Gross margins are also sinking and fell 380 basis points to 50.5% in the third quarter. Management lowered their guidance again and announced they would stop providing annual guidance in 2015. That's never a good sign.

Like rats jumping off a sinking ship there have been stories that hedge fund managers are bailing out of their SODA positions. Plenty of investors are already bearish on SODA and short interest at about 17% of the small 20.8 million share float.

Friday's drop was significant because it's a bearish breakdown under major psychological support at $20.00. Tonight we are suggesting bearish positions immediately with a stop loss at $21.05. More conservative traders may want to wait for a new relative low under $19.33 before initiating positions.

NOTE: SODA has been rumored to be a takeover target for a long time. That hasn't stopped the stock from crashing over the last 18 months. You may want to limit your position or use the options to limit your risk just in case some M&A news happens to appear out of nowhere and send SODA higher.

- Suggested Positions -

Short SODA stock @ $19.42

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

Long FEB $20 PUT (SODA150220P20) entry $2.05

01/05/15 trade begins. SODA gaps down 30 cents to $19.42
Option Format: symbol-year-month-day-call-strike


Zulily, Inc. - ZU - close: 21.24 change: -0.71

Stop Loss: 24.10
Target(s): To Be Determined
Current Option Gain/Loss: +18.0%
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:
01/07/15: The relative weakness in ZU continues. Shares failed to participate in the market's widespread rebound on Wednesday. Instead ZU's early morning bounce faded and shares dropped another -3.2%.

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) -

Long Jan $25 PUT (ZU150117P25) entry $1.15

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