Option Investor

Daily Newsletter, Tuesday, 8/12/2014

Table of Contents

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

Market Wrap

Make Up Your Mind

by Jim Brown

Click here to email Jim Brown

The market can't seem to make up its mind whether it is going higher or lower.

Market Statistics

The Dow dropped -52 points at its low for the day along with declines in all the major indexes. The volume was very lackluster with the low for the day coming at 2:30 as a choppy session appeared destined to plunge as we neared the bell. A rebound began late in the afternoon but it was not enough to lift the indexes into the green. Most closed with minor losses after the lack of a downdraft at the close prompted some to cover their shorts.

There was a lack of material headlines to move stocks and the headlines we did get created conflicting emotions. Putin made a big show of sending 280 freshly painted army trucks towards Ukraine with what he called humanitarian aid. Ukrainian officials said they would not allow the trucks entry into the country. Officials fear they could be a modern day Trojan horse with weapons hidden inside the humanitarian supplies.

The convoy was loaded without the assistance of the Red Cross and they said it did not conform to rules established to prevent illegal shipments. Russia later said it would turn the trucks over to the Red Cross at the border but because they were not prescreened it is unclear how this would work.

The key event here is what Russia will do if the Red Cross insists on inventorying the contents before the trucks are allowed to cross the border. If Russia suddenly revokes its offer and turns the trucks around it would be a safe bet that military equipment was hidden in the relief supplies.

In Iraq there was a mix of headlines where the U.S. bombing succeeded in creating an exit path for the thousands of religious minorities that had been under siege on Mount Sinjar. Elsewhere ISIS made further inroads and captured a new town only 20 miles from Iran.

Prime Minister al-Maliki refuses to step down for the new appointee Haider al-Abadi. The various factions are choosing sides and there is a real danger of a Shia on Shia battle breaking out in Baghdad. Shiite militia and army commanders loyal to al-Maliki signaled their support for his refusal to step down. Al-Abadi has the support of the powerful Shiite clergy, a major force in Iraq. With all the problems Iraq has today they don't need a Shia civil war.

The German ZEW indicator of confidence among professional investment analysts fell to a 20-month low on worries over the events in the Ukraine. The headline number fell from 27.1 to 8.6 compared to expectations for a decline to 17.0. German economists fear the impact of the sanctions against Russia will knock Germany back into a recession. Germany sends about 30% of its exports to Russia. This drop in the ZEW was a wet blanket for all of Europe and created additional worries for U.S. companies doing business in Europe. This was a factor in the weak U.S. markets today.

In the U.S. the Job Openings & Labor Turnover Survey (JOLTS) for June showed job openings rose to the highest level in 13 years. The number of unfilled positions rose by +94,000 to 4.67 million and the most since February 2001. That was up from a revised 4.58 million in May. The growth rate of openings rose +3.3% and the highest since June 2007. Roughly 2.53 million people quit their jobs in June and the most since June 2008. This voluntary termination trend suggests the job market is improving and workers are more confident about getting a new job. This was a positive report but it was a lagging report for the June period. We have already had two Nonfarm Payroll releases since this period.

The weekly chain store sales declined -1.4% and the biggest drop in several months. Since this is the back to school shopping season this is really troubling. We should have seen increases but analysts pulled an excuse out of their hat saying "sales tax holidays occur in July and weaken the first week of spending in August." Did you hear about any sales tax holidays?

The NFIB Small Business Optimism Index rose slightly from 95.0 6o 95.7 for July. The number of respondents planning on increasing employment rose to 13% and a post recovery high. Those expecting the economy to improve rose from -10% to -6% but still in contraction territory. The earnings trends component was flat at -18% and well into contraction territory but still better than the -27% six months ago. A net of 23%, up +1%, planned on making capital expenditures. All the other components were basically flat. The report was mildly positive but was ignored.

The calendar for Wednesday is also bland. The retail sales for July will be the most important. Expectations are for a minor +0.3% rise. Apparently all those tax holidays the analysts were blaming for the decline in chain store sales for the first week of August did not really attract a flood of shoppers in July.

The biggest earnings on tap for Wednesday will be Cisco Systems after the bell. Macys (M), NetApp (NTAP) and ReMax (RMAX) will also be watched.

JC Penny (JCP) and Walmart (WMT) round out a full week of retail earnings on Thursday.

The retail disaster for today came from Kate Spade (KATE). The company said sales rose +50% in Q2 but that was the highlight of the earnings news. The company still lost $14 million or -11 cents and they lowered their gross margin projections for the rest of 2014 as a result an increased promotional environment. Excluding special items they earned +5 cents. The lowered guidance for KATE caused a -25% decline in the stock.

Michael Kors (KORS) found its shares declining as well as a result of the Kate Spade guidance. The "increasingly promotional" comments suggested there was a purse war brewing between the companies. I think Kors will win. I am waiting for KORS to find a bottom to recommend a new long entry.

King Digital (KING), producer of the game Candy Crush, reported earnings of 59 cents that met estimates but revenue of $594 million was well under estimates for $608 million. The company warned that full year revenue would be in the range of $2.25-$2.35 billion, down from May guidance of $2.55-$2.65 billion. In an effort to head off the expected crash in its shares the company declared a $150 million special dividend. This is an "all in" bet that failed.

The company is facing a lockup expiration of 93% of its shares on Sept 22nd. They tried to head this off as well by saying the officers, directors and founders had agreed to postpone the lockup expiration on their shares representing 80% of the total until after the company reports Q4 earnings. Because of the large number of shares in lockup the $150 million special dividend only amounts to 46.9 cents per share. With only 7% of the authorized shares actually in the market the dividend looks more like a bribe to the insider shareholders to postpone their lockup expiration. Otherwise why would a company that earned $161.7 million in the quarter and warn on future earnings declare a $150 million dividend? Turn out the lights, this game maker is done.

LED maker Cree Inc (CREE) reported earnings of 42 cents that beat estimates by a penny but warned on future guidance. The company sees revenue of $440-$465 million and earnings of 40-45 cents. This was below average expectations of $465 million and 45 cents. Shares declined about $3 in afterhours.

JDS-Uniphase (JDSU) reported earnings of 14 cents on revenue of $448.6 million. This beat estimates for 13 cents and $438 million. They claimed a 15-year record high gross margin at 50%. JDSU lowered earnings guidance to between 8-12 cents on revenue of $405-$425 million. This was well below the 14 cents and $441 million consensus estimates. Shares declined slightly after the report.

Are you picking up on the trend here? Lowered guidance is going to be the killer for Q3. More than 37% of the S&P guided below estimates for the current quarter or full year. This suggests business activity is declining rather than accelerating. With the impact of the Russian sanctions on Europe we are going to see a lot more guidance warnings in the future.

Today Schlumberger (SLB) warned the sanctions would impact earnings by 3 cents a share in Q3 even though the actual sanctions were narrow and specifically targeted. The sanctions focused on deepwater over 500 feet, arctic offshore, and shale exploration and development. Since most of Russia's onshore fields are not shale the impact of the sanctions will be minimal for Russia.

National Oilwell Varco (NOV), a major supplier of oilfield equipment, warned they had $160 million in sales to Russia through June and "some or all" of such sales may be restricted by the sanctions for the rest of 2014.

We are just scratching the surface for sanctions impact and we can expect dozens if not hundreds of warnings in the future. We don't have to worry just about sales to Russia but sales to any other company or country that does business with Russia. That is a very big list.

Brent crude prices collapsed to $103 today and could drop below $100 after the IEA lowered demand growth assumptions for the rest of the year. The IEA cut growth forecasts for 2014 by -180,000 bpd because of slowing demand. I could write an entire essay on why demand is slowing but that is not relative to this commentary. Suffice to say slowing economies consume less oil.

The IEA did not say demand was contracting. They still expect demand to grow by 1.0 million barrels per day in 2014 to 92.7 mbpd. However, that is down from the prior 1.18 mbpd forecast but still an increase. For 2015 they are expecting demand to rise 1.3 mbpd to 94.0 mbpd.

Demand growth this summer has been so slow that the increased production from Libya is going unsold. Libya had seen production decline from 1.4 mbpd to 213,000 bpd because of the civil strife. A month ago the rebels agreed to release control of the ports for a portion of the revenues from selling the oil. Production resumed and is up to nearly 600,000 bpd but they are having trouble finding buyers.

Production in Iraq has not been materially impacted and the security premium in oil due to the Ukraine and Iraqi fighting is now evaporating. If Brent declines under $100 we can expect to see OPEC, especially Saudi Arabia step in to slow production and maintain the price over $95. Brent under $100 suggests WTI will be $95 or less. It is trading at $97 tonight.

This is punishing energy stocks but it is a blessing for the U.S. economy. Lower gasoline and diesel prices will take less money out of the pockets of consumers and allow them to spend it on consumer goods instead of pouring it in the gas tank. Americans consumed roughly 394 million gallons of gasoline per day last week. A 10 cent decline in gasoline is worth $39 million a day in additional consumer spending power.

Intercept Pharmaceuticals (ICPT) continues to live up to its reputation for volatility. Shares posted a 16% gain today of $39 on news their liver drug did not raise cholesterol. However, the high for the day was $349 and the low $274 and right where it closed. Yesterday's close was $237 so at one point the stock was up +112 intraday. This is insane.

Revel, the bankrupt Atlantic City casino will close by September 10th after failing to find a qualified buyer. The casino is only 2 years old and cost $2.6 billion. It filed for bankruptcy March 2013 and was taken over by creditors. It filed a second time in June. This will be the fourth major casino to close this year in Atlantic City. The Atlantic Club closed in January. Caesar's Showboat will close on August 31st and Trump Plaza will close Sept 16th. Because gambling is now legal in 34 states instead of just a couple there has been a strong decline in the number of people traveling to a remote casino location. Caesar's CEO said "the drive-in business in Atlantic City has all but disappeared." Gambling was approved in Atlantic City in 1976 and revenue increased every year until 2007 when the recession began. Since then it has collapsed.

Volume was very low today at 4.87 billion shares. This is the lowest since July 11th and it is expected to slow even further as we head for Labor Day and the end of summer. Anyone still planning on a vacation is rapidly running out of days. This slowing volume suggests the market could continue to be choppy for the next couple of weeks. Historically this is the strongest week of the month and the week after expiration starts a slide that last the rest of the month. History is a guide not a guarantee so we can't count on that trend repeating but we should watch for it.

The S&P gave back another -3 points to close at 1933 but that was still off the low of 1928. The stall at resistance at 1945 on Monday is still in progress with intraday support at 1930 barely able to contain the decline. It is hard to make too much out of the market action today since there wasn't any. The markets opened weak and remained weak but the decline was minimal thanks to the low volume. Nobody is participating. Everyone is either watching for a buying opportunity or watching the waves on a beach.

The Dow chart shows another perfect pattern of a bounce from support and failure at resistance. The Dow didn't quite get to 16,600 with a high at 16,589 but it is close enough for this commentary. The Dow actually turned positive for about a minute late in the day but lost traction almost immediately.

We can't apply too much logic to this lackluster performance because of the lack of volume. It takes volume to defeat support and resistance levels and without it we could remain trapped in the current range.

No Dow components gained or lost more than 81 cents. It was a pretty boring day.

The Nasdaq lost -12 points and the most of the major indexes. However, it was able to remain over prior resistance, now support, at 4371 and mount a decent rebound at the close. Only six Nasdaq components gained more than $3 for the day. Only eight lost more than $3.

The Nasdaq can decline to 4344 without causing any material damage. However, a decline under 4344 could easily see a -100 point drop.

The Russell 2000 lost -9 points but remains above the congestion range from last week. The minimal decline kept it in a rebound posture from the prior Monday's lows with support at 1120 the level to watch. Unlike last week when the Russell was up and the big cap indexes were down, the Russell joined the decline today. This suggests last week's rebound was more month end contributions being put to work than fund managers aggressively buying small caps.

I don't think we can project market direction from the action we have seen this week. The path of least resistance appears to be down but sometimes appearances can be deceiving. I would continue to suggest taking only small positions with minimum risk until we get to Labor Day.

Beware the potential border crisis with Ukraine if the Russian army trucks, freshly painted white to look innocent, suddenly turn into a disaster if Russian weapons are discovered. They may not be 280 Trojan horses but they may not be exactly what they seem.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Do You Notice A Trend Here?

by James Brown

Click here to email James Brown


Financial Engines, Inc. - FNGN - close: 35.11 change: -1.04

Stop Loss: 36.60
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 663 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
FNGN is in the financial sector. They provide investment advice, retirement planning services and more. According to the company's press release they describe themselves as "America's largest independent investment advisor, is dedicated to making high-quality retirement help available to everyone — regardless of how much money they have. We’re proudly independent, which means we don’t sell products or earn commissions based on our investment recommendations. The companies that choose to work with us offer our services to their workers as a valuable employee benefit."

Shares of FNGN went public back in 2010 at $12.00. They opened at $15.00 on their first day of trading. Since then the stock has definitely had its ups and downs. Shares took off in July 2012 and soared to a high of $70 in December last year thanks to a very bullish stock market performance in 2013.

Unfortunately 2014 has been a very disappointing year as FNGN continues to frustrate investors. When FNGN reported earnings on February 20, 2014 they missed estimates by a penny, missed the revenue number, and guided lower for 2014. When FNGN reported earnings in May they missed by 2 cents, missed the revenue number, and guided lower for 2014. Their most recent earnings report was July 31st and FNGN managed to beat Wall Street's bottom line estimate by 2 cents. Revenues were in-line with (lowered) expectations. Yet FNGN management lowered their guidance for 2014. Is anyone picking up on a trend here?

The disappointing earnings results have fueled a six-month decline. Shares are now in a bear market. FNGN is currently testing support near the $35.00 level. The recent low was $34.88. Tonight we're suggesting a trigger to open bearish positions at $34.70.

I am tempted to label this a more aggressive, higher-risk trade because of the short interest. The most recent data listed short interest at 16.7% of the 50.8 million share float. That does raise the risk of a short squeeze. If you have noticed investors have been using the rallies to exit.

You could try and limit your risk with put options but the option spreads are pretty wide so we're not listing them here.

We are not setting an exit target tonight but I will point out that the Point & Figure chart is bearish and forecasting a $24.00 target.

Trigger @ $34.70

- Suggested Positions -

Short FNGN stock @ $34.70

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

Small Caps Lead Market Lower

by James Brown

Click here to email James Brown

Editor's Note:
Yesterday the small cap Russell 2000 was outperforming. Today it was leading the market lower.

Overall the market seemed to be searching for a catalyst as most equities seemed to drift lower throughout the session on Tuesday.

NGVC hit our entry trigger.

Current Portfolio:

BULLISH Play Updates

Green Plains Inc. - GPRE - close: 40.85 change: -1.40

Stop Loss: 38.40
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
Entry on August 11 at $40.77
Listed on August 09, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.4 million
New Positions: see below

08/12/14: Warning! Yesterday's gains were almost erased today. GPRE plunged -3.3% on no news. The stock was up +4.3% yesterday. Suddenly Monday's breakout is starting to feel like a bull-trap pattern. GPRE should have support near $40.00 and then again at its simple 20-dma near $39.00.

I would wait for a bounce before considering new positions.

Earlier Comments: August 09, 2014:
GPRE has been a monster stock for investors over the last couple of years. Summer of 2012 the stock was trading for less than $5.00 a share. Today GPRE is trading at levels not seen since early 2006. The company is considered part of the basic materials sector. They're listed in the specialty chemicals industry. What they do is make ethanol and a lot of it.

According to the company website, "Green Plains is a vertically-integrated ethanol producer based in Omaha, Nebraska. We currently have an ethanol production capacity of approximately 1.0 billion gallons per year with our 12 plants." Another big part of their business is "Distillers grains are an important co-product of Green Plains’ ethanol production. At capacity our plants will produce approximately 2.9 million tons of distillers grains annually that will be used as a high-protein, high-energy animal fodder and feed supplement. Corn oil is also a co-product of ethanol production that is being extracted at all 12 of our plants."

Earlier this year GPRE made headlines when they purchased their own cattle-feed yard. Distiller's grain is a byproduct of the ethanol production process. Previously GPRE would try and sell it to ranchers as cattle feed. Sometimes that proved difficult to sell all of its distiller's grain. GPRE has decided a great way to handle the problem is buy their own cattle yard. They'll be able to raise their own cattle with the byproduct of their main business of ethanol production.

Of course ethanol is their main product and it could be a great year for GPRE. The company's input costs for their main ingredients of corn and natural gas have been falling in 2014. That's going to boost their ethanol margins. Piper Jaffray actually upgraded GBX in July on this dynamic and raised their price target on GPRE to $45.00.

It looks like the ethanol market is pretty healthy. The U.S. saw ethanol exports soar +56% in the first six months of 2014. Most of that went to Canada. Demand for ethanol could go up if some senators have their way. A handful of senators are pushing to boost the EPA's requirement on ethanol in our fuel. If they are successful it would raise the ethanol requirements by +40%.

The stock has displayed significant relative strength. The S&P 500 index is up +4.5% year to date. GPRE is up +108%. More and more mutual funds have been adding GPRE to their portfolio. Yet not everyone agrees with the bullish outlook on GPRE. Short interest is climbing as well. The most recent data listed short interest at 25% of the small 28.6 million share float. If this rally continues it could spark more short covering.

The last few days have seen GPRE consolidating sideways in the $39.50-40.60 zone. Tonight we are suggesting a trigger to open bullish positions at $40.75. We will try and limit our risk with a stop loss at $38.40.

We are not setting an exit target tonight but I will note that the point & figure chart is bullish and suggesting at $69.00 target.

- Suggested Positions -

Long GPRE stock @ $40.77

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

Long Dec $45 call (GPRE141220C45) entry $2.95*

08/11/14 trade opens on gap higher at $40.77, trigger was $40.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Hewlett-Packard Co. - HPQ - close: 35.12 change: -0.08

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: -0.7%
Listed on July 19, 2014
Entry on July 23 at $35.35
Time Frame: We will plan to exit prior to earnings on Aug. 20th
Average Daily Volume = 8.9 million
New Positions: see below

08/12/14: Traders bought the dip in HPQ twice today. Shares bounced in the $34.85-34.90 zone. This is encouraging for tomorrow but I would hesitate to launch new positions given our time frame.

Please note our new stop loss tonight at $33.90.

Earnings are coming up on August 20th.

Earlier Comments: July 22, 2014:
Hewlett-Packard was famously started by two Stanford University students back in 1939 in a rented garage. The business that started inside a one-car garage has grown into a massive $65 billion company. Today the company makes printers, personal computers, software, IT services and infrastructure.

It has been a good year for old school technology companies. Microsoft (MSFT) is up +19.8% this year. Intel (INTC) is up +31.2%. HPQ is currently up +23.3%. All three of them are outperforming the major U.S. indices. What's also noteworthy is that all three appear to be benefitting from MSFT's decision to discontinue technical support for its Windows XP operating system.

In April this year Microsoft announced they would stop providing support for XP after 13 years. Instead of upgrading their software the data suggests that many consumers and business have chosen to upgrade their entire computer. Why is that significant? As of April over 25% of computers connected to the Internet were still using XP.

This upgrade cycle was definitely a boon for Intel (INTC). INTC recently reported significantly better than expected earnings and a lot of that was due to stronger PC sales, especially from business clients. This same story will probably be bullish for HPQ as well.

Shares of HPQ have been slowly marching higher and currently sit at two and a half year highs. The stock looks poised to breakout past its mid-June peak. Today's high was $35.29. We are suggesting a trigger to open bullish positions at $35.35.

The Point & Figure chart is forecasting a long-term target of $47.00. We probably won't hold on to HPQ that long since the company is scheduled to report earnings on August 20th.

- Suggested Positions -

Long HPQ stock @ $35.35

- or -

Long Sep $35 call (HPQ140920C35) entry $1.49*

08/12/14 new stop $33.90
07/23/14 triggered @ 35.35
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Skyworks Solutions - SWKS - close: 52.41 change: +0.29

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: -0.5%
Entry on August 07 at $52.65
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.3 million
New Positions: see below

08/12/14: The action in SWKS today looks encouraging. The stock outperformed the major indices with a +0.55% gain. Shares are poised to breakout past resistance near $52.75.

I would wait for a rise past $52.75 before considering new bullish positions.

Earlier Comments: August 2, 2014:
The semiconductor stocks have led the market higher most of the year but the SOX semiconductor index has reversed sharply in the last couple of weeks. This correction in the SOX has shaved its year to date gains to +13.9%. Shares of SWKS have not seen the same pullback and this semiconductor stock is up +82% this year and looks poised to keep the rally going.

Who is SWKS? According to the company website, " Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

SWKS is probably best known for being a component supplier for Apple's iPhones. SWKS is also supplying components to Amazon.com for that company's new Fire Phone.

SWKS soared in mid July following a better than expected earnings report. Wall Street was looking for a profit of 80 cents after SWKS guided higher to 80 cents in June. They still managed to surprise with a bottom line profit of 83 cents a share. Revenues soared almost 35% to $587 million, which was better than the $570 million estimate, up from $535 before SWKS's June guidance. SWKS management also raised their guidance going forward.

Following SWKS's much better than expected report there was a wave of bullish analyst comments. Several firms raised their SWKS price targets into the $60-65 zone. SWKS's bullish guidance is probably due to Apple's new iPhone 6, which is expected to be unveiled in September. Odds are good that SWKS will rally into Apple's product launch in September.

Shares of SWKS were showing relative strength on Friday with a bounce from support near $50.00 and a bullish engulfing candlestick pattern. We are suggesting a trigger to launch bullish positions at $52.65.

- Suggested Positions -

Long SWKS stock @ $52.65

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

Long Nov $55 call (SWKS141122C55) entry $2.86

08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Aaron's Inc. - AAN - close: 25.80 change: +0.30

Stop Loss: 27.10
Target(s): To Be Determined
Current Option Gain/Loss: +7.0%
Entry on July 30 at $27.75
Listed on July 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 809 thousand
New Positions: see below

08/12/14: The oversold bounce in AAN continued for a third day in a row. The stock is nearing what should be short-term resistance at its simple 10-dma (near 26.00).

I am not suggesting new positions at this time. More conservative traders may want to take some money off the table now.

Earlier Comments: July 29, 2014:
Shares of AAN are down -3.7% for the year. Honestly, I'm surprised it's not down a lot more. The company is in the lease-to-own space for residential furniture, consumer electronics, home appliances and more. They have over 2,000 locations in the U.S. and Canada.

Back in February this year AAN reported earnings and guided lower. On April 15th AAN issued a new earnings warning and blamed it on the harsh winter weather. AAN reported earnings just a couple of weeks later and lowered guidance again. AAN issued yet another earnings warning on July 15th. Then when the company reported earnings on July 25th they lowered guidance yet again. With this many warnings I'm surprised investors have not left this stock like rats fleeing a sinking ship.

So why in the world were shares of AAN surging in May and June? Management has been battling with its second largest shareholder for months. In May they moved to declassify the board of directors. This means shareholders can remove all of the board members all at once if they choose to, on an annual basis. Naturally board members who want to keep their job tend to produce more shareholder friendly policies in a situation like this. I suspect this was the driving force behind the May-June rally.

Then the latest round of earnings warnings in July have completely erased all of their gains. Today shares of AAN are sitting near support at the $28.00 mark. The $27.85 level appears to be the level to watch. Tonight we're suggesting a trigger to launch bearish positions at $27.75.

I would consider this more aggressive trade. AAN is down significantly this month and could see another oversold bounce. Just because the path of least resistance is now down doesn't mean AAN can't ricochet higher once in a while.

NOTE: AAN does have options, which might be a way to limit your risk instead of shorting the stock. Unfortunately the option spreads look a bit too wide to actually trade them.

- Suggested Positions -

Short AAN @ $27.75

08/07/14 new stop @ 27.10
investors may want to take some money off the table now.
08/05/14 new stop @ 28.05
07/31/14 new stop @ 28.55
07/30/14 triggered @ 27.75

Cepheid - CPHD - close: 38.01 change: -1.12

Stop Loss: 40.51
Target(s): To Be Determined
Current Option Gain/Loss: +3.0%
Entry on July 28 at $39.20
Listed on July 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 680 thousand
New Positions: see below

08/12/14: CPHD appears to have resumed its down trend. The stock underperformed the market today with a -2.8% decline. Shares look like they could test their July low of $37.64 soon.

Earlier Comments: July 26, 2014:
CPHD is in the technology sector. If you look deeper the company operates in the scientific and technical instruments industry. According to the company's website, "Cepheid is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests. By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer."

CPHD, like most of the U.S. stock market, had a great 2013. Unfortunately the rally peaked in February-March 2014. This stock set its all-time highs in the $55-56 zone. Market watchers already know that momentum and high-growth names were crushed during the March-April market pullback. CPHD was no exception. The stock corrected from $55 to $40. It looked like CPHD was on the path to recovery but then the stock collapsed again in the last two weeks.

The problem is CPHD's earnings. The company reported earnings on July 17th. Their adjusted results for the second quarter of 2014 was a loss of 10 cents a share. That was better than Wall Street's estimate for a loss of 13 cents a share. CPHD delivered pretty solid revenue growth. Sales in the second quarter surged +21.4% to $116.5 million. That came in better than analysts were expecting. Yet CPHD's net results were down -40% from a year ago.

Listening to the company's management paints an optimistic outlook. CPHD's CEO John Bishop said they sold a record-setting 1,084 of their GeneXpert systems last quarter. That's more than all of 2012. Gross margins improved as well with margins rising from 45% to 49%. So why did the stock fall?

Investors sold the stock on disappointing guidance. CPHD expects 2014 revenues in the 4452-461 million zone. That's relatively close to Wall Street's $459 million estimate. Yet CPHD is forecasting EPS of 10 cents to 13 cents. That is significantly lower than analysts' estimates of 20 cents. You can see the reaction in CPHD stock with the big drop on July 18th.

The post-earnings sell-off continues and now CPHD is breaking down under significant support at the $40.00 level. The next stop could be the $36-35 area or lower. Currently the point & figure chart is bearish and forecasting at $29.00 target.

I would consider this a more aggressive trade. The latest data listed short interest at 16.8% of the 68.9 million share float.

Friday's low was $39.26. We're suggesting a trigger to open bearish positions at $39.00.

- Suggested Positions -

Short CPHD stock @ $39.20

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

Long SEP $40 PUT (CPHD140920P40) entry $2.35

07/31/14 new stop @ 40.51
07/28/14 triggered @ 39.20
Option Format: symbol-year-month-day-call-strike

Deutsche Bank - DB - close: 32.79 change: -0.09

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: +2.0%
Entry on August 04 at $33.45
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.9 million
New Positions: see below

08/12/14: Germany's ZEW poll came in much lower than expected and that sparked a sell-off in the German stock market. The DAX index fell -1.9%. Surprisingly DB did not follow suit. Shares of DB only slipped -0.2%.

I am not suggesting new bearish positions in DB at this time. Keep an eye on the simple 30-dma near $35.00 as the level to watch.

Earlier Comments: August 2, 2014:
Banking scandals continue to plague the financials. Most of us are familiar with the mortgage loan scandal that has haunted the major U.S. banks for the last few years and finally seems to be fading away. Then some of the biggest international banks were hit with the Libor rate fixing scandal. Now some of the big banks are suffering with a dark pool trading scandal. Dark pools are essentially institutional trading that is concealed from the public markets.

If that wasn't bad enough Europe's economy is slowing down. The region was already struggling before the Ukraine-Russian conflict arose. Now with a growing list of sanctions against Russia the impact is starting to accelerate the economic slowdown in Europe. Plus the specter of financial stress in the European financial system has risen again with the recent collapse of Portugal's Banco Espirito Santo, which recently filed for creditor protection.

Add all of these factors together and you can see why shares of DB, one of Germany's biggest banks, might be struggling. The stock Broke down back in March this year and it's been sinking every since. The month of July saw shares consolidate sideways but DB has started to break out of this trading range. The Point & Figure chart is pretty ugly and suggesting a long-term $14 target.

Friday's intraday low was $33.69. I am suggesting a trigger to open bearish positions at $33.45.

- Suggested Positions -

Short DB stock @ $33.45

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

Long Oct $33 PUT (DB141018P33) entry $1.45*

08/07/14 new stop @ 35.55
08/04/14 triggered @ 33.45
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Fifth Third Bancorp - FITB - close: 19.59 change: -0.01

Stop Loss: 20.65
Target(s): To Be Determined
Current Option Gain/Loss: - 0.3%
Entry on August 06 at $19.55
Listed on August 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 10.2 million
New Positions: see below

08/12/14: FITB delivered a quiet session on Tuesday. Shares bounced from short-term support near $19.45 and closed virtually unchanged.

Earlier Comments: August 5, 2014:
Fifth Third Bancorp started as the Bank of the Ohio Valley in Cincinnati back in 1858. According to the company's press release FITB is now "a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $133 billion in assets and operates 15 affiliates with 1,309 full-service Banking Centers, including 102 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,619 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third also has a 22.8% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest

The stock market's recent dip has reduced the S&P 500 index's 2014 gains to +4.9%. Yet the financial sector has been underperforming. The XLF financial ETF is only up +2.4%. Many of the banking stocks are weighing on the group. The regional banks have performed even worse with the KRE regional bank ETF down -6.9%. If you look at weekly chart of the KRE you'll notice a big bearish head-and-shoulders pattern that has formed over the last several months. This doesn't bode well for the group.

Banks have been struggling with little to no growth. Most are willing to lend but only to customers with the best credit ratings. Even if they do lend money the interest rates today are so low it's tough to make a profit. Housing prices continue to rise but the number of mortgages is shrinking.

FITB reported earnings on July 17th. Last quarter their mortgage banking revenues collapsed -67% from a year ago. FITB's profits plunged fro $591 million Q2 2013 to $439 million Q2 2014. The company did manage to beat Wall Street's estimates by 4 cents a share. Unfortunately FITB management lowered their revenue guidance.

Technically shares of FITB are bearish. They have broken the long-term bullish trend of higher lows (see the weekly chart). They have also recently broken below key support near $20.00.

Tonight we're suggesting bearish positions at current levels (no trigger). We'll try and limit our risk with a stop loss at $20.65.

- Suggested Positions -

Short FITB stock @ $19.55

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

Long Nov $20 PUT (FITB141122P20) entry $1.20*

08/06/14 trade begins. FITB gaps down at $19.55
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Natural Grocers by Vitamin Cottage - NGVC - close: 19.14 change: -0.54

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
Entry on August 12 at $19.45
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 209 thousand
New Positions: see below

08/12/14: Our brand new trade on NGVC is off to a good start. Shares underperformed the market with a -2.74% decline. Our suggested entry point to open bearish positions was hit at $19.45.

This is a new closing low for the year. NGVC is now testing its intraday lows from early June near $19.00.

Earlier Comments: August 11, 2014:
The last six to nine months have not been good for the natural food and organic-related retail chains. Whole Foods (WFM), The Fresh Market (TFM), Sprouts Farmers Market (SFM), and Natural Grocers have all underperformed the market by a wide margin.

According to NGVC's press release the company was "founded in Colorado by Margaret & Philip Isely in 1955, Natural Grocers was built on the premise that consumers should have access to affordable, high-quality foods and dietary supplements, along with nutrition knowledge to help them support their own health. The family-run store has since grown into a successful national chain with locations across Colorado, Texas, Utah, Wyoming, Oklahoma, Missouri, New Mexico, Montana, Kansas, Idaho, Nebraska, Arizona and Oregon, and employs over 2000 people. Although the company went public in July 2012, Isely family members continue to manage the company day to day, building on the foundation of their parents' business."

The good news is that the natural food and organic food craze is reaching a wider audience and more and more consumers are making healthier choices. The bad news is that this previously higher-margin business, in a notoriously low-margin industry, has drawn tons of competition. That has been the biggest challenge. Big players like Wal-mart and Target in addition to major regional grocery chains are all starting to offer more natural and organic wares. Meanwhile those already in the space are competing with each other as well. Margins are shrinking as competition heats up.

Shares of NGVC plunged back in May after the company lowered its same-store sales forecast for 2014. The stock dropped again on August 1st following its earnings report. Earnings were in-line with estimates but guidance was soft.

The path of least resistance is down and NGVG looks headed for its all-time lows in the $17.00 area.

The biggest risk with this bearish positions on NGVC is the crowd. There are a lot of investors already bearish on this stock. The most recent data listed short interest at 33.3% of the very, very small 5.1 million share float. That significantly raises the risk of a short squeeze.

We are suggesting bearish positions with a trigger to short NGVC at $19.45 but I am labeling this an aggressive, high-risk trade. NGVG does have options but most of the option spreads are too wide. We will try and limit our risk with a stop loss at $21.05.

*Aggressive Trade* Use small positions. - Suggested Positions -

short NGVC @ $19.45

08/12/14 triggered @ 19.45

Six Flags Entertainment - SIX - close: 36.93 change: +0.05

Stop Loss: 39.15
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
Entry on August 06 at $36.90
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 909 thousand
New Positions: see below

08/12/14: Shares of SIX have stalled near $37.00. The stock has been trading sideways for the last two and a half days. Watch for short-term overhead resistance at its simple 10-dma near $37.50.

Investors may want to start adjusting their stop loss lower.

Earlier Comments: August 4, 2014:
Everyone loves to have fun. The trend of stay-cations that started during the financial crisis of 2008-2009 has probably driven a lot of traffic toward domestic amusement parks. Shares of SIX have definitely performed well these last few years with a rally from its 2010 lows near $8.00 to 2014 highs near $43.00. Unfortunately the momentum may be slowing down.

According to the company website, "Six Flags Entertainment Corporation is the world's largest regional theme park company with $1.1 billion in revenue and 18 parks across North America. The company operates 16 parks in the United States, one in Mexico City and one in Montreal, Canada. For more than 50 years, Six Flags has entertained millions of families with world-class coasters, themed rides, thrilling water parks and unique attractions including up-close animal encounters, Fright Fest® and Holiday in the Park®."

The last earnings report was July 21st. SIX managed to beat bottom line estimates but revenues were a miss. Wall Street expected Q2 revenues of $396 million. SIX only reported $376.5 million. On the plus side SIX said that their amusement park guests were spending more once they got into the park. SIX also reported +9% growth in their season pass business. Unfortunately, attendance was down -8% in the second quarter. Oddly enough SIX blamed the harsh winter on slower Q2 attendance and some analysts were questioning that excuse. Goldman Sachs recently removed SIX from their buy list following the revenue miss. SIX is growing but it is not growing fast enough to justify its current valuations. The stock is trading with a P/E ratio near 32 compared to the S&P 500's P/E closer to 16.

Technically shares of SIX appear to have formed a bearish double top with the peaks in March and June. Now SIX is on the verge of breaking a long-term trend line of support (see weekly chart below).

The post-earnings reaction low was $37.12 on July 21st. We are suggesting a trigger to open bearish positions at $36.90.

FYI: SIX does have options but the spreads are so wide they are untradeable.

- Suggested Positions -

Short SIX stock @ $36.90

08/06/14 triggered @ 36.90

Yandex N.V. - YNDX - close: 28.85 change: -0.55

Stop Loss: 31.10
Target(s): To Be Determined
Current Option Gain/Loss: +0.1%
Entry on August 07 at $28.88
Listed on August 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

08/12/14: YNDX did see some volatility this morning with a spike up to $29.50 and then a plunge to $28.32 but the trading evened out by midday and YNDX drifted sideways.

The overall pattern remains bearish.

Earlier Comments: August 6, 2014:
Officially registered in Amsterdam, YNDX is actually headquartered in Moscow. They are one of the largest internet companies in Europe. They're also the dominant search engine in Russia with almost 62% of all search traffic.

The company's latest earnings report on July 29th looks bullish. Earnings were 30 cents a share versus the estimate of 29 cents. Revenues soared +32% to 12.2 billion Russian rubles ($361.5 million). That was above estimates for revenues in the $340-358 million range. Their Q2 search queries were up +21% from a year ago. Plus, YNDX reported their number of advertisers was up +25% from a year ago and up +6% from the prior quarter.

In spite of all the bullish numbers investors used the post-earnings rally to sell. The stock action is bearish. The trend of lower highs has now turned into a new pattern of lower lows. Today's drop of -2.3% not only underperformed the market but it broke recent support in the $29.50 area.

The current geopolitical risks between Ukraine and Russia could be pressuring YNDX. The U.S. and Europe have launched multiple sanctions against Russia and Russian companies as a penalty for Russia's support of Ukraine separatists. Yesterday stocks sank sharply on news that Russia was building up troops on the Ukraine border again. It would appear that Russian President Putin will not back down. There is speculation that instead of an actual "invasion" that Russia will send troops across the border as a "humanitarian effort" to protect people. If that does happen the global equity markets are not going to react well and Russian stocks could be hurt the worst.

Tonight we're suggesting bearish positions now at current levels. We will start with a stop loss at $31.10, above the 20-dma and 100-dma.

- Suggested Positions -

Short YNDX stock @ $28.88

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

Long NOV $28 PUT (YNDX141122P28) entry $2.40*

08/07/14 trade begins. YNDX opens at $28.88
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike