Option Investor

Daily Newsletter, Saturday, 2/8/2014

Table of Contents

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

Market Wrap

Rally or Mirage?

by Jim Brown

Click here to email Jim Brown

When everyone was expecting a further decline a rally suddenly appeared. It is real or a mirage?

Market Statistics

After looking at more than 500 individual stock charts on Friday afternoon I would say this rally as a good chance of being real and not just a temporary rebound. Quite a few stocks had rebounded above initial resistance levels after a stop clearing dip early this week. The strength of the rebound in individual stocks suggests the shorts were squeezed out and investors were putting money back to work.

Last year in the midst of the best year in a decade we had three dips in the 4-5% range and three in the 2-3% range. Each was rumored to be the "big one" but all six were bought and the markets closed at the highs for the year. Traders and to some extent investors have a short term memory. If something has worked in the recent past they tend to believe it will work again. A rebound from a -5% dip is what the average investor expected. It was only the professional traders and market analysts that expected the January decline to surprise to the downside.

One reason why I think this rebound has legs is the response to the Nonfarm Payrolls on Friday. The report disappointed for the second month in a row with a gain of only +113,000 jobs compared to lowered estimates for +180,000. December's dreadful +74,000 gain was only revised up +1,000 to 75,000. Everyone was already prepared to blame the weather but economists including the BLS said no. While there was some small weather impact, the big decline was not weather related. Oops! The BLS said the survey week was a relatively warm and a storm free week so weather was not a significant factor.

The unemployment rate declined -0.1 to 6.6% and the labor force participation rate rose from 62.8 to 63.0%. The benchmark revision that happens in January added +509,000 jobs for all of 2013. This revision is done every year to update for the business birth/death rate, final updates from actual data that was submitted late and seasonal data revisions. Historically, the benchmark revision adds to the overall employment for the year. For 2013 BLS found an error that subtracted -119,000 jobs or the revision would have been higher.

Why was the market rebounding on bad news? First, it was not all bad. The separate Household Survey showed a gain of +616,000 jobs compared to a loss of -347,000 in December. This pushed up the labor force participation rate from 35 year low. November jobs were revised +33,000 higher to +274,000 and the strongest month since January 2012. That makes the three month average ending in November of +225,000 jobs per month. The last two months have averaged only +98,000 but nearly every traders believes it was weather related even when the BLS and others are saying it was not material.

As an example of the weather impact there was a decline of -22,000 construction jobs in December that may have been weather related or simply seasonal. In January, with horrible weather, the construction sector added +48,000 jobs. Manufacturing payrolls rose from +8,000 in December to +21,000 in January. Government employment fell -29,000 jobs, which were concentrated in the Postal Service and education. The postal service is thinning the ranks so that is not likely weather related.

Also, the manufacturing portion of the economy created 76,000 jobs and that was the highest number in seven years according to David Rosenberg of Gluskin Sheff. The service portion of the economy only produced 37,000 jobs and that was the lowest number since June 2012. Analysts claim the spike in manufacturing employment was positive because the service sector will follow manufacturing. Secondly, you can always find something to like and hate in every report. Highlighting one number from an ugly report does not make it a good report.

Lastly, the BLS publishes a number for people "not at work due to weather." That number for January 2014 was 226,000. However, in five of the last six years the number was actually higher. Only January 2012 was lower at 200,000 so that effectively kills the "weather" excuse for the low number of new jobs.

Lastly, the BLS published a disclaimer in the January report. The warning says "Establishment survey data has been revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, the household survey data for January 2014 reflects updated population estimates." They changed the base data, the total population estimates and the seasonal adjustments. They added 2,103,000 jobs to the actual January numbers as a "seasonal adjustment" to get to that final +113,000 number. The Nonfarm Payroll numbers are more fiction than fact as a result of all the manipulation they go through to get a "satisfactory" final number.

I can only guess that two months of significantly lower job creation may have given investors the impression that the Fed will taper it's taper and slow the removal of QE. Why else would investors be bullish when other economic reports have been bearish and job creation is slowing?

I suspect the market simply rebounded from an oversold condition on the theory bad news is good news once again. We had weaker than expected numbers from the Nonfarm Payrolls, ADP Employment, Factory Orders, Vehicle Sales, ISM Manufacturing, Construction Spending, Pending Home Sales, Durable Goods, New Home Sales, Existing Home Sales, etc. While retail traders may think this data will force the Fed to taper the taper there is little possibility of that now that they are well into the process.

However, some investors do believe this sudden downturn in economics could be lasting and the Fed could possibly halt the taper. Gold posted the biggest weekly gain in a month to close at $1,262.90 an ounce. Gold futures are showing a potential breakout over $1,270 if economic worries continue.

Earnings are going to fade next week with 60% of the S&P already reported. So far 67% have beaten on earnings with the earnings growth rate now approaching +7.5%.

If we expand our universe to the 1,100+ companies that have reported earnings so far the numbers improve dramatically. Of that number 65% have beaten EPS estimates and 64% have beaten on revenue. If this trend continues it will be the strongest earnings beat rate since Q4-2010 according to Bespoke and the strongest revenue beat rate since Q2-2011.

The Bespoke data is contrary to the narrower S&P data we have been seeing with only about 50% beating on revenue. However, about 59% of the S&P companies giving guidance have lowered their 2014 forecast. What does that say about Q1 earnings expectations?

The economic calendar for next week is minimal. The most important event is not economic but Janet Yellen's first testimony to Congress on the state of the economy. This is likely to be a pivotal point for the markets. How she presents herself and her plans will set the tone for the first year of her tenure. It could be a rocky day for the markets and there is always the potential for a market spike if her dovish side makes an appearance.

The current debt ceiling authorization expired on Friday. Treasury Secretary Jack Lew warned Speaker Boehner that the Treasury would exhaust its "extraordinary measures" and run out of money by February 27th. By that date the government's available cash would fall below $50 billion and could no longer guarantee payment of America's debts.

The debt ceiling debate is going to start heating up over the next two weeks and it could get ugly again. However, I believe the republicans will want to keep it from becoming a hindrance to the November elections and will give up quickly in their attempt to attach some concession to the debt ceiling extension. Over the last 50 years almost every time the debt ceiling has come up for a vote there have been conditions attached. The prior demands are almost equally split between the democrats and republicans so neither party has a record of clean debt limit extensions.

As Friday's go it was very quiet in the market. Not summer Friday quiet but the headlines were few and far between. There were the obligatory earnings updates and a constant rehash of the Nonfarm numbers and debate over tapering but the intensity was missing. Even the report of an attempted plane hijacking to Sochi was little noticed. Volume was almost identical to Thursday with 6.95 billion shares compared to 6.91 billion. These were the lowest volumes for the week with Monday's crash coming on 9.55 billion shares. Apparently traders were content with watching the rebound rather than chasing it.

The earnings leader for the day was AthenaHealth Inc. (ATHN). The company reported earnings of 57 cents compared to estimates for 44 cents and 16 cents in the year ago quarter. AthenaHealth is an electronic health records service provider. They said their network of doctors increased by 28% and bookings were up 30%. The strong earnings came after several quarters of earnings misses and apparently many traders were expecting another miss. Shares of ATHN rose $35 or +25% on the news.

Barron's said ATHN was in the strongest position to profit from the coming revamp of the World Health Organization's disease codes called ICD-10. Barron's estimated that of the 1.1 million healthcare providers in the U.S. as many as 25% will be transitioned to an outsourced billing service following the implementation of ICD-10 in October. Barron's believes that will add 10,400 new doctor's offices to the AthenaCollector service in 2014. Barron's said AthenaCollector was the better mousetrap for outsourced billing for hospitals and independent practices.

LinkedIn needs a better mousetrap to capture new users. Earnings for Q4 fell -67% to 3 cents while revenue rose +47% to $447.2 million. The company projected revenue in Q1 of just over $455 million compared to analyst estimates of $469.4 million. The new revenue forecast for 41% growth was down from prior estimates for 72% growth. Membership rose +37% to 277 million but analysts were expecting closer to 290 million. The slowing growth weighed on the stock for a $14 drop to $209.

Expedia (EXPE) shares rallied after gross bookings rose +21% for the quarter driven by room night growth at its Hotels.com brand. An increase in flights booked online also drove revenue higher. Earnings were 92 cents compared to estimates of 85 cents. Revenue rose +18% to $1.15 billion. Shares rallied +14% on the news. As you can see in the chart it is either feast or famine for Expedia when earnings are reported. There is either a gap up or a gap down every time.

Cigna (CI) shares fell -9% after reporting earnings of $1.39 compared to estimates of $1.48. Revenue rose +7% to $7.62 billion but missed estimates of $8.06 billion. More bad news came from the guidance. Cigna is expecting to earn between $6.80-$7.20 for 2014 but analysts were expecting $7.29.

Verisign (VRSN) shares dropped -6% on worries the company's profit margins are shrinking. The company's earnings of 67 cents were up +8% and in line with estimates but forecasts for $1.0-$1.02 billion in revenue for 2014 was lower than analyst estimates at $1.03 billion. The company added 1.29 million net new domain names in Q4 compared to 1.55 million in Q3. Active .com and .net names increased +5% to 127.2 million. Verisign processed 8.2 million new domain name registrations for the quarter and down slightly from the 8.3 million in the prior quarter. The company bought back 4.1 million shares in the quarter and the board upgraded the outstanding approval from $472 million to $1.0 billion for buybacks in 2014.

Another company benefitting from a share buyback plan was Outerwall (OUTR) the parent of the Redbox DVD rental business. The company said it was going to purchase $350 million in shares through a modified Dutch auction tender offer. If fully subscribed that will bring the total dollar amount of shares purchased since February 2013 to $555 million. The company reported earnings of $1.68 on revenue of $593.7 million compared to estimates of $1.24 and $596.1 million. Earnings rose +81% and revenue +5%. Shares rose +12% on the news.

IBM shares rallied +2.50 on Friday after the company hired Goldman Sachs to help it find a partner for its chip business. IBM has been trying to sell the division for some time with no luck. By switching to a partnership IBM can continue to control the design and intellectual property and the new partner gets the benefit of a deep pocketed and knowledgeable benefactor.

IBM shares have rebounded from the $172 level for the third time in four months and this should be decent support. IBM is selling low margin divisions to concentrate on its high margin businesses. I think IBM shares will come roaring back later in 2014.

Apple (AAPL) shares rallied +$7 to $520 after the company said it had bought back $14 billion in stock over the past two weeks. CEO Tim Cook said in an interview with the WSJ that he was "surprised" by the -8% decline after they reported earnings that included disappointing iPhone sales. That brings the total buybacks to $40 billion over the last 12 months. Carl Icahn is pressuring Apple to buy back another $50 billion in addition to the $100 billion program they are currently working on completing. That $100 billion includes buybacks and dividends. Icahn wants the buybacks to be completed in 2014. Icahn raised his stake to $3.6 billion after adding $500 million in shares after the post earnings drop.

The markets seem to have avoided a 10% correction with the late week rebound but it is too soon to know for sure. Investors withdrew money from equity funds at the fastest rate on record with a $28.3 billion outflow so far in 2014. Investors put about half of that cash to work in bond funds, which saw inflows of $14.8 billion. We have been waiting for a year for the "great rotation" to begin where cash would come out of bonds and into equities as the Fed ended the QE program and interest rates moved higher. The massive outflow from equities and into bonds has gone the other way and it appears the rotation is from equity risk to bond safety as a result of the weak economics and weak market.

At the S&P low for the week at 1,737 that was a -6% dip from the 1,848 high close on January 15th. After Monday's monster -326 point decline in the Dow and -40 drop in the S&P the fear factor increased significantly with the VIX hitting 21.48 intraday. That was the high point for the week as the 21 level is seen as a buying opportunity in most cases. The VIX has reached that level four times since late 2012. Each time a rally began over the next several days. Eventually that plan is not going to work since the VIX can go up another 200-300% in times of real stress.

Since 1945 there have been 27 corrections of 10% or more with 12 bear markets with losses of 20% or more. The average correction loses -13.3% and takes an average of 71 days. Since the bottom of the market in March 2009 we have had three corrections. In 2010 there was a 69 day drop of -16%. In the summer of 2011 there was a 154 day correction of -19%. In 2012 there was a -9.9% correction of 59 days. (Data courtesy of Josh Brown) The -6.5% drop in 2014 was still just a pothole in the market highway unless the market rolls over again soon.

Also helping the U.S. markets recover was a rebound in the Nikkei and the emerging markets in general. The Nikkei rebounded +462 from a three month low. The Nikkei plunge to 14,000 put the index in a seriously oversold condition and it was due for at least a dead cat bounce. Since every decline does not magically stop at a large round number the test will be whether the rebound continues next week or goes back to retest that 14,000 level.

The S&P tested the 1,740 level on Monday and Wednesday with the low for the week on Wednesday at 1,737. The rebound recovered 60 points of the decline to put the index right back at 1,797 and just under the key 1,800 resistance level. Not only is that the resistance high from the prior week but also the longer term uptrend resistance from May.

A +60 point rebound is more than enough to relieve the oversold conditions and clear out the majority of the shorts. Thursday's short squeeze stopped right at the prior support of 1,775 and some shorts probably reloaded at the close ahead of the payroll report. They were punished again on Friday when the bad news bulls bought the dip after the report.

If the S&P moves over 1,800 with any velocity then the sell off is over. If it struggles to gain a handful of points the bears will jump right back in and the fight will begin anew.

The worry for pattern traders is that we struggle at the 1,800 level for a week and build a right shoulder on the daily chart before going back to retest the 1,740 level again. That would be a very bearish setup.

The Dow tested the 15,350 level twice last week before sprinting for +437 points into Friday's close. The index is now entering a resistance range from 15,800 to 15,940. I doubt it will be a straight run with a breakout on Monday ahead of Yellen's testimony but anything is possible.

Numerous Dow stocks were severely oversold with very bearish charts and the shorts were clearly shaken lose. It remains to be seen if they reload those positions or go find a different trade.

If the Dow does continue higher the bigger challenge will be the 16,000 level where it could find right shoulder resistance similar to the S&P. A continued run to 16,000 would be +640 points from the lows and it would be extended and in need of a rest.

Only one Dow component was negative on Friday and that was Coca Cola by -8 cents.

The Nasdaq Composite had the best recovery of the big three indexes according to the charts. The +68 point rebound on Friday pushed it over resistance at 4,100 and positioned it nicely for an attempt to recapture 4,200. The sell off punched through the 4,000 level intraday but could not hold it but that was probably enough to flush out the weak holders. The +168 point rebound (+61%) was impressive. At its lows the Nasdaq was down -275 or -6.5% from the 4,243 closing high on January 22nd. I believe the Nasdaq has an easier task to regain the prior highs than the Dow and S&P. Support on any weakness would be 4,050.

Unfortunately the Russell 2000 is well below the relative levels of the other indexes. The decline pierced support at 1,100 and the rebound was lackluster relative to the points lost. The Russell declined -99 points to a low of 1,082 and rebounded only +34 points or basically one-third of its loss where the Nasdaq regained +61% of its losses.

The Russell did not return to 1,140, which would be the same relative resistance level seen on the Dow and Nasdaq. This means any future gains will require a +24 point move just to get to the level the other indexes are at today.

The Russell 2000 LOST -1.27% for the week.

I believe the key for next week will be the S&P moving over 1,800. If it happens on volume then the correction is probably over. If it is a lackluster move of just a few points I would be cautious about piling on a bunch of long positions. There is plenty of time to trade as long as you have capital. The Yellen testimony is going to be a pivotal event. Waiting until after her interrogation could be worthwhile.

Random Thoughts

David Woo, head of global rates and currencies at BofA, released a report last week saying there is a direct correlation between temperature and Q1 economic growth over the last decade. He said January was the coldest since 1988 and February is on track to be colder than normal. He found that a 1 degree Celsius drop (-1.8 F) in the average temperature in the first quarter is associated with a -1.5 percentage point drop in GDP growth since 2004. He said retail sales are much more sensitive to cold weather in Q1 when consumers don't have to shop compared to Q4 when consumers are forced to shop for the holidays. Bottom line, Q1 GDP may be significantly below estimates.

The Q4 GDP of 3.2% was mostly due to a buildup in unsold inventory and that will detract from GDP in future quarters.

Don't ignore the January Barometer. Here is an article by Jeffrey Hirsch on why we should be worried about the negative January. Prepare for Weakness

Months without electricity? It may be closer than you think. In what may have been a trial run a group of trained shooters shutdown a San Jose electrical substation in 2013 by firing 120 rounds in a 7 minute attack on 17 transformers from 40 yards outside the chain link fence. The location was scouted in advance and fiber optic cables were cut to eliminate communication from the station. This scenario has been a concern for planners for years. Targeted attacks on key substations could knock out the electrical grid to specific states or regions with very little risk to the terrorists. The transformers are expensive, made overseas and take months to replace in any quantity. Electrical Terrorists

Where is the gold? I reported on this back in 2012 but it is getting worse. In 2012 Germany told the Fed it wanted a third party audit of the 300 metric tons of gold stored at the New York Federal Reserve Bank. The Fed refused to allow an audit. Not to be denied they then told the Fed they wanted full custody and would repatriate the gold to Germany. The Fed said ok but not now. We will return it over the next seven years. Obviously this raises significant questions. Is the gold there or not? If it is there why would it take 7 years to return it? That suggests the gold is not there. In the year since the Germans requested the return of their gold only 5 tons has been released. If it is there why only 5 tons in a year? The conspiracy theorist in me is going crazy with this one. Even more of a problem is the rapid accumulation of gold by China. That is the second part of this article. Who Has the Gold

Comstock Partners laid out their reasons for claiming we are in a cyclical downturn in the markets. Are they right? Cyclical Downtrend Underway

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Even being right 3 or 4 times out of 10 should yield a person a fortune, if he has the sense to cut his losses quickly on the ventures where he has been wrong."

Bernard Baruch (Financier, speculator, statesman, presidential adviser, 1870-1965)


New Plays

Homebuilders & Healthcare

by James Brown

Click here to email James Brown


DR Horton Inc. - DHI - close: 23.89 change: +0.32

Stop Loss: 22.85
Target(s): 27.50
Current Gain/Loss: unopened

Entry on February -- at $--.--
Listed on February 08, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 8.1 million
New Positions: Yes, see below

Company Description

Why We Like It:
DHI is part of the industrial goods sector. The company is a homebuilder in 27 states and 78 markets. DHI reported earnings in late January and beat Wall Street's estimates on both the top and bottom line. DHI's closed homes were up +19% for the same quarter a year ago and its backlog of homes to build rose +5%.

There are plenty of contrary opinions on the housing market. The data has been mixed. The latest existing home sales data from December saw sales rise just +1% to an annual pace of 4.87 million homes. That was a hair under expectations and a was also a year-over-year decline from December 2012. The most recent new home sales numbers were a shocking -7% decline to 414,000, down from 445K in November. Most market pundits just blamed the extremely cold weather, which has been a popular excuse for a lot of market data lately. The new home sales figures have failed to stop the rally in the homebuilder stocks. The group has been showing decent relative strength.

Currently DHI is hovering just below resistance near $24.00. A breakout could spark some short covering. The most recent data listed short interest at 18% of the 264 million-share float. I am suggesting a trigger to open bullish positions at $24.15. If triggered our multi-week target is $27.50.
FYI: The Point & Figure chart for DHI is bullish with a $28.00 target.

Trigger @ 24.15

Suggested Position: buy DHI stock @ (trigger)

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

Buy the MAR $24 call (DHI1422C24) current ask $1.16

Annotated chart:

Weekly chart:

Galectin Therapeutics - GALT - close: 13.91 change: +1.62

Stop Loss: 12.25
Target(s): 17.75
Current Gain/Loss: unopened

Entry on February -- at $--.--
Listed on February 08, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 994 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
GALT is in the healthcare sector. The company develops drug therapies for cancer and fibrotic disease. Shares of GALT saw huge moves on January 9th and 10th this year following even bigger moves (and news) from a rival biotech firm ICPT, which issued positive news on one of its drug treatments (similar to GALT's).

Shares of GALT have spent the last four weeks consolidating sideways but they look poised to breakout from their current trading range. Trading biotechs can always be a high-risk proposition. The wrong headline can send shares plunging obviously the right headline can send them soaring.

We want to use small positions to limit our risk. Use a trigger at $14.35 to launch positions. Our short-term target is $17.75. More aggressive investors may want to aim higher.
FYI: The Point & Figure chart for GALT is bullish with a long-term $37.00 target.

(NOTE: Investors may want to consider using options to limit their risk.)

Trigger @ 14.35

Suggested Position: buy GALT stock @ (trigger)

Annotated chart:

In Play Updates and Reviews

Oversold Bounce Continues

by James Brown

Click here to email James Brown

Editor's Note:
The stock market's oversold bounce continued on Friday with widespread gains.

ADBE hit our entry trigger. BBY hit our stop loss.

Current Portfolio:

BULLISH Play Updates

Adobe Systems - ADBE - close: 62.88 change: +1.54

Stop Loss: 59.75
Target(s): 68.00
Current Gain/Loss: +1.0%

Entry on February 07 at $62.25
Listed on February 06, 2014
Time Frame: exit PRIOR to earnings on March 18th
Average Daily Volume = 3.6 million
New Positions: see below

02/08/14: Our new bullish play on ADBE is off to a good start. Shares broke out past resistance near $62.00 and outperformed the major indices with a +2.5% gain on Friday. Our suggested entry point was triggered at $62.25.

FYI: A move over $62.00 should create a new triple-top breakout buy signal on ADBE's point & figure chart.

current Position: Long ADBE stock @ $62.25

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

Long MAR $62.50 call (ADBE1422C62.5) entry $2.40

02/07/14 triggered @ 62.25


Hewlett-Packard Co. - HPQ - close: 29.07 change: +0.58

Stop Loss: 27.80
Target(s): TBD
Current Gain/Loss: + 1.9%

Entry on January 27 at $28.53
Listed on January 18, 2014
Time Frame: exit PRIOR to earnings on Feb. 20th
Average Daily Volume = 13.2 million
New Positions: see below

02/08/14: The rebound in shares of HPQ continued thanks to the market's widespread bounce. Shares managed to outperform with a +2.0% gain. I am not suggesting new positions. HPQ is due to report earnings on Feb. 20th and we are planning to exit ahead of the report.

current Position: long HPQ stock @ $28.53

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

Long Mar $30 call (HPQ1422C30) entry $0.96

02/04/14 new stop loss @ 27.80
02/01/14 new stop loss @ 27.70
01/27/14 trade opens at $28.53
01/25/14 adjust entry strategy and open positions on Monday morning (Jan 27th)
01/25/14 new stop loss @ 26.95
01/23/14 new stop @ 28.95
Nimble traders may want to look for support near $28.70 as an alternative entry point.


JPMorgan Chase & Co - JPM - close: 56.62 change: +0.14

Stop Loss: 53.90
Target(s): 59.75
Current Gain/Loss: + 0.7%

Entry on January 30 at $56.25
Listed on January 25, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 18 million
New Positions: see below

02/08/14: The bounce in JPM slowed on Friday but shares are still up four days in a row. The low last week was $54.20. I am adjusting our stop loss up to $53.90. The next challenge for the bulls is potential technical resistance at JPM's 50-dma near $57.00.

current Position: Long JPM stock @ $56.25

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

Long MAR $55 call (JPM1422C55) entry $2.53

02/08/14 new stop loss @ 53.90
02/03/14 adjust stop loss from $53.90 to $52.90
01/30/14 triggered @ 56.25. Use stop loss at $53.90
01/28/14 add a secondary entry trigger at $56.25
adjust the exit target to $59.75


Penn Virginia Corp. - PVA - close: 12.62 change: +0.49

Stop Loss: 11.45
Target(s): 17.00
Current Gain/Loss: + 0.6%

Entry on February 03 at $12.55
Listed on January 28, 2014
Time Frame: exit PRIOR to earnings on Feb.19th
Average Daily Volume = 3.2 million
New Positions: see below

02/08/14: PVA's performance on Friday was encouraging. After not participating in the market's rally on Thursday the stock outperformed with a +4.0% gain on Friday. This is a new two-year closing high for the stock. I am adjusting our stop loss up to $11.75, just below the 20-dma.

If you were looking for a new entry point then Friday's move could work. Just keep in mind our plan to exit ahead of earnings.

Earlier Comments:
Our target is $17.00 but that is very, very optimistic goal. Odds are more likely we won't capture that big of a move because PVA is due to report earnings on February 19th and we do not want to hold over the announcement.

Investors may want to consider PVA as a longer-term trade. The Point & Figure chart for PVA is bullish with a long-term $25.00 target.

current Position: Long PVA stock @ $12.55

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

Long Mar $12.50 call (PVA1422C12.5) entry $1.10

02/06/14 new stop loss @ 11.45
02/03/14 triggered at $12.55


BEARISH Play Updates

Lowe's Companies - LOW - close: 46.07 change: -0.51

Stop Loss: 46.85
Target(s): 40.15
Current Gain/Loss: -2.8%

Entry on February 05 at $44.82
Listed on February 04, 2014
Time Frame: Exit PRIOR to earnings on February 26th
Average Daily Volume = 6.9 million
New Positions: see below

02/08/14: LOW was poised to hit our stop loss on Friday but its rally was short circuited by a downgrade from Goldman Sachs. LOW gapped down at $46.11 and slipped to a -2.4% loss before paring its losses. I am still concerned that the broader market's bounce could be trouble for our bearish play. More conservative traders may want to exit early now. I am not suggesting new positions.

Earlier Comments:
Our target is $40.15 but we will plan to exit prior to their earnings report on February 26th.

FYI: The Point & Figure chart for LOW is bearish with a $40.00 target.

current Position: short LOW stock @ $44.82

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

Long MAR $45 PUT (LOW1422o45) entry $1.80

02/07/14 downgraded by Goldman Sachs
02/05/14 trade opens at $44.82


The Fresh Market, Inc. - TFM - close: 33.71 change: -0.49

Stop Loss: 35.10
Target(s): 30.25
Current Gain/Loss: + 2.6%

Entry on February 03 at $34.60
Listed on February 01, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.1 million
New Positions: see below

02/08/14: Shares of TFM continue to sink for us. The stock ignored the market's rally on Friday. Instead TFM produced a failed rally at its 10-dma and then dropped to a new two-year low. I am adjusting our stop loss down to $35.10.

Earlier Comments:
I am listing this as a more aggressive, higher-risk trade due to the amount of short interest. The latest data listed short interest at about 25% of the 40 million share float. The bears have a pretty good story for the stock to trend lower but that much short interest does pose a danger of short-term spikes higher.

Our target is $30.25. More aggressive traders could aim lower since the Point & Figure chart for TFM is bullish with an $18 target.

current Position: short TFM stock @ $34.60

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

Long MAR $35 PUT (TFM1422o35) entry $2.90

02/08/14 new stop loss @ 35.10
02/06/14 new stop loss @ 35.55
02/03/14 triggered @ 34.60


GameStop Corp. - GME - close: 35.50 change: +0.15

Stop Loss: 36.10
Target(s): 31.00
Current Gain/Loss: + 0.3%

Entry on January 29 at $35.60
Listed on January 28, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 6.2 million
New Positions: see below

02/08/14: GME managed a +0.4% gain on Friday but shares remain below short-term resistance at the $36.00 level. We are going to adjust our stop loss down to $36.10. I am not suggesting new positions.

Earlier Comments:
We should probably consider this a more aggressive, higher-risk trade because there is so much short interest. The most recent data listed short interest at 25% of the 113 million share float. That could make GME volatile and we run the risk of the stock seeing short-term spikes. However, long-term GME could be in trouble as the video industry moves more and more to an online, download purchase system instead of consumers going to their local game story to buy games.

More conservative traders may want to wait for a drop below $35.00 before initiating positions. Our target is $31.00. More aggressive traders could aim lower. The Point & Figure chart for GME is bearish with a $20.00 target.

current Position: short GME stock @ $35.60

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

Long MAR $35 PUT (GME1422o35) entry $1.65

02/08/14 new stop loss @ 36.10
02/03/14 new stop loss @ 36.60
02/01/14 new stop loss @ 37.10
01/29/14 trigger @ 35.60


Voxeljet AG - VJET - close: 32.40 change: +1.05

Stop Loss: 34.35
Target(s): 25.25
Current Gain/Loss: - 4.5%

Entry on February 06 at $31.00
Listed on February 05, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 805 thousand
New Positions: see below

02/08/14: VJET shot higher at the open on Friday but gains faded and the stock spent the rest of the session drifting sideways. The $34.00 level remains short-term overhead resistance. We're leaving our stop at $34.35 for now. More conservative traders might want to adjust their stop lower.

Earlier Comments:
Investors should note that this is an aggressive, higher-risk trade. There are already a lot of bears in this stock. The most recent data listed short interest in VJET at 2.39 million shares of the very, very small 4.27 million float. That's more than 55% of the float. Any good news could spark a very sharp pop in VJET. Therefore investors will want to strongly consider limiting their risk by trading with put options.

FYI: The Point & Figure chart for VJET is bearish with a $13.00 target.

*Small Positions to Limit Risk!*

current Position: short VJET stock @ $31.00

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

Long MAR $30 PUT (VJET1422o30) entry $3.45*

02/06/14 trade opened with gap down at $31.00
*option entry price is an estimate since the option did not trade at the time our play was opened.


Vitamin Shoppe, Inc. - VSI - close: 45.44 change: +0.99

Stop Loss: 46.05
Target(s): 41.00
Current Gain/Loss: + 0.9%

Entry on January 24 at $45.85
Listed on January 23, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 535 thousand
New Positions: see below

02/08/14: Ouch! VSI has followed the stock market higher and the two-day bounce has erased nearly all of our potential gains so far. Look for potential resistance near $46.00. I am not suggesting new positions at this time.
(Note: more aggressive traders may want to move their stop just above $46.20 since the $46.20 level could also be overhead resistance.)

Earlier Comments:
I do consider this a slightly more aggressive trade. The most recent data listed short interest at almost 15% of the 27.5 million share float. Therefore I'm suggesting small positions to limit our risk.

*small positions*

current Position: short VSI stock @ $45.85

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

Long Feb $45 PUT (VSI1422N45) entry $1.62

02/03/14 new stop loss @ 46.05
01/29/14 new stop loss @ 46.55
01/24/14 triggered @ $45.85



Best Buy Co. - BBY - close: 24.55 change: +0.84

Stop Loss: 24.55
Target(s): 20.25
Current Gain/Loss: - 1.1%

Entry on January 30 at $24.29
Listed on January 29, 2014
Time Frame: Exit PRIOR to earnings on Feb. 27th
Average Daily Volume = 17.6 million
New Positions: see below

02/08/14: The stock market's oversold bounce this past week was exaggerated thanks to short covering. Short covering probably helped BBY post a +3.5% gain on Friday. Shares pushed past short-term resistance near $24.00 and its 10-dma. Our stop loss was hit at $24.55.

Earlier Comments:
The plan is to use small positions to limit our risk.

*Small Positions*

closed Position: short BBY stock @ $24.29 exit $24.55 (-1.1%)

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

MAR $20 PUT (BBY1422o20) entry $0.45 exit $0.38 (-15.5%)

02/07/14 stopped out at $24.55
02/05/14 new stop loss @ 24.55
01/30/14 new stop loss @ 24.75
01/30/14 trade opens with BBY gapping open higher at $24.29