Option Investor

Daily Newsletter, Thursday, 8/14/2014

Table of Contents

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

Market Wrap

Putin Reassures Markets

by Thomas Hughes

Click here to email Thomas Hughes
The market made some gains today but remains in a holding pattern while we wait to see what happens in the Ukraine.


Global markets made some gains today but equities remain in a holding pattern. Light summer volume and continued uncertainty over the Ukraine situation and Russian convoy of aid are keeping stocks in check despite soothing words from Vladmir Putin. Early weakness in the European markets stemming from poor GDP figures reversed upon statements from Russia's leader that Russia did not want the violence to continue and would do whatever needed to help end the bloodshed. US markets also responded favorably to the news with futures indicating a positive opening. Negative GDP in Germany for the first time in 12 months was shrugged off in hopes that global growth would resume.

Market Statistics

Futures trading in the early part of the morning was mostly flat ahead of the statements released by Putin. Trading lifted in the wake of his statements and was boosted a little by today's economic data. The positive trade held into the open with the SPX gaining 2-3 points right out of the gates. The indices drifted higher for the first part of the day before hitting resistance around noon. Just before 1PM ET the President made a statement concerning the state of our involvement in Iraq and the progress being made in that region. His statements gave the market a slight boost and lifted them to a new intraday high. After lunch the markets drifted near the highs of the day until the final minutes of trading. Some late day news, just before the closing bell, that Iraqi Prime Minister Maliki had resigned pushed the market to another new high.

Economic Calendar

The Economy

Weekly jobless claims rose this week by 21,000 from a mild upward revision. Claims came in at 311,000, just above estimates, with a +1,000 revision to last week's figures. The four week moving average of claims also rose, by 2,000, but remains below 300K at 295,750. This is the fourth week the moving average has been below 300K. On a non adjusted basis first time claims rose by 20,960 or 8.5%, slightly ahead of the seasonal expectations and adjustment factor. On a state by state basis no state reported an increase in claims more than 1,000 while several states, led by California and Tennessee, posted decreases in claims greater than 1,000. Based on the table it appears as if the recent drop in claims has hit a bottom but remains near long term lows. Futures trading, positive ahead of the release, lifted marginally afterward.

Likewise, continuing claims for unemployment are also flat for the 4 week period. Claims for ongoing unemployment rose by 25,000 in this weeks data, also from an upward revision of 1,000, to hit 2.544 million. This is just off of the long term low set last month. The four week moving average of this figure also rose slightly. The long term trend in continuing claims also hit a pause but remains near the recent lows.

Even with the gains in initial and continuing claims the total number of Americans receiving unemployment fell by over 40,000 to 2.536 million. This is just of the long term lows for total unemployment and a sign that long term unemployment is still improving even though near term fluctuations in the job market persist.

Import/Export prices were basically flat for the month of July. Export prices rose 0.3% last month, reversing a -0.3% drop in June. Import prices dropped -0.2% this month but remain flat when oil is factored out. There were no revisions to last month. On a year to date basis both import and export prices are rising with 0.5% and 0.6% respective gains.

The Oil Index

The weak EU GDP combined with high supply levels to put a hurting on oil prices. WTI lost more than $2.00 on an intraday basis to fall below $96 for the first time in over 5 months, dating back to the beginnings of the Ukraine and Islamic State crisis. The Oil Index opened higher today, in line with the broader market, but was unable to hold onto the gains. The drop in oil prices is weighing on the index and the sector but for now longer term support appears to be holding. The index has been trading at support, just above 1630, for over two weeks while the market works out this recent dip. Momentum is still bearish is in decline with the longer term analysis still showing support along the current levels. Stochastic is a little more positive and showing an early/weak trend confirming signal. Should the index break down through support at 1,625 it would find the long term trend line about 75 points lower.

The Gold Index

Gold held steady again today, trading around the $1315 level for most of the day. Weak EU GDP and mild increases in US unemployment claims helped to underpin gold prices while we await the outcome of the Russia aid convoy stand off. Today's action was in a tight range just over $10 and found resistance at $1320 once again. $1320 has been an important resistance area many times over the past 6 months as traders try to match prices with underlying fundamentals and near term risks.

The Gold Index also tried to trade to the upside, and also found resistance. The index tried to break above my resistance line at $103.90, the upper range of the resistance zone I described on Monday, and created a bearish doji candle. Today's action appears to be a confirmation of a longer term resistance line and a possible short term double top within the longer term bear market. The indicators are divergent and in line with resistance at this level, pointing to lower prices. However, as always, gold prices will have a lot to do with movement in the index. Near term fear could spike and drive gold prices higher carrying the index with it.

In The News, Story Stocks and Earnings

Wal Mart, amongst a handful of other retailers, reported earnings today. The big box discounter reported earnings in line with estimates but cut its full year out look on rising health care costs and investments in ecommerce. EPS of $1.21 per share matched estimates but full year guidance was lowered to just below the previous estimated range. Sales on a US and international basis were both relatively flat, especially when compared to a 24% rise in ecommerce sales, the second quarter in a row of above 20% increases in that segment of business. Shares of the stock opened lower, then traded even lower, before finding support and moving higher later in the day. On a longer term basis Wal Mart is trading near the bottom of what is now a 15 month range with indicators confirming support.

Other retailers reporting today include Kohl's, Nordstrom and JC Penny. Nordstrom and JC Penny both reported after the bell. Kohl's reported EPS well above estimates on revenue in line with expectations. The report had shares of KSS up as much as 5% in the pre market session on hopes there would be a turnaround in this month's official retail sales figures. The stock gapped up at the open, near a long term resistance line and the top of the 12 month range. Volume was high today, more than twice average daily volume for the second day in a row, and indicates interest in the name. The indicators are bullish and the report definitely inspired some buying but this stock looks contained below resistance at this time.

The XRT Retail Spyder received the benefit of the doubt today, rising more than 1% in today's action ahead of earnings from JCP and Nordstrom. The market had big expectations for JC Penny at least and that, along with the rise in Kohl's, helped to lift nearly the entire sector. The XRT gained about a half percent today, rising from the long term moving average above the short term moving average with weakly bullish indicators. The ETF has been in a range for at least 12 months and remains trapped within that range now. Prices are currently consolidating near the bottom of that range and look as though they could drift to the upper boundary in the near to short term. Near term support is just below the current level around $85 with longer term support just below that around $82.50.

JC Penny traded up by 3% in today's session on expectations the retailer would show improvements. The company is still in recovery following a management shake up that nearly destroyed it. Today's move brought the stock up to near the top of the 6 month range and higher in the after hours session. The results were quite robust, compared to previous quarters, and sent the stock surging 10% in the after hours market. Revenue of $2.8 billion was better than expected, leading to less than expected loss of -$0.75 versus the expected -$0.93. The store reported same store sales growth of 6%, also better than expected. This stock has apparently gotten back on track and now holds the potential to make another gain in the current quarter. Nordstrom, who also reported after the bell, beat their expectations on the top and bottom lines. Comp store sales increased and are above estimates and full year guidance has been affirmed.

The Indices

The Dow Jones Transportation Average led the market today with a 0.67% gain. The trannies gained just shy of 55 points, rising from the short term 30 day moving average and breaking back above the 8,250 resistance level. The indicators are mixed at this time but in line with a bounce from the long term moving average as well as a snap back from near term bearish extremes. Stochastic has already given the early trend following signal and MACD is on the threshold of a zero line cross with today's candle. There is still resistance ahead but the trend line bounce is in full swing and gaining momentum. The next significant area of resistance is the current all time high around 8,500.

The tech heavy NASDAQ composite lagged the trannies in percent gain but is leading in terms of indicators. This index rose 0.43%, or 18.88 points. The signal here is a little stronger as MACD momentum has turned bullish in support of the early stochastic signal given earlier in the week. This index is also bouncing higher, from long term support, and looks set to tackle resistance at the current long term highs just shy of 4,500. The index has tested this level twice before, on a near term basis, and could spark some selling once reached.

The broader S&P 500 index also gained 0.43% today. This index gained just over 8 points today, climbing from the 30 day EMA. The indicators are in support of a trend line bounce but still in the earlier stages similar to the Transportation Average. Stochastic is showing the early trend following signal while MACD is still bearish but quickly approaching a zero line crossover. There will likely be some volatility when the index reaches resistance, just above the current level, which is coincident with the expiration of options tomorrow, another reason to suspect there may be some volatility. A drop from this level would find support near term support just below the current level with longer term support along the 1910 level and the long term trend line.

The blue chip Dow Jones Industrial Average was today's laggard with a gain of 0.37%. The index climbed over 61 points in an extension of its bounce from strong support but fell short of the 30 day moving average. The indicators are near identical to both the transports and the broader S&P 500 and indicate longer term support in line with prevailing trends. The bounce from the long term 150 day EMA is still in the early stages and requires further confirmation to get really bullish but appears to be in line with previous bounces from the long term moving average. Near term support is around 16,500 with resistance just above at 16,750.

The markets made a nice move up today and seem to be confirming the longer term trends. On a case by case basis the indices are bouncing from long term support of various degree with early signs of trend following signal. Going forward they are all still constrained by near term resistances in the form of technical levels and also geopolitics. Reassurances from Vladmir Putin helped the market today but can only go far. The Putin comments helped to lift market spirits but at the same time we still need to wait and see what he is really up to, and if aid will really reach those in need. We, I, have been burned in the past when Putin's bipolar antics caused the market to shift first one way and then the other. I am glad for him to be nice but only time will tell when it comes to him.

Looking past the near term Putin effect the economy is still chugging along. Economic trends are still positive and while jobless claims rose this week, are still down near long term lows and at levels that support the steady improvements in labor we have seen over the past 12 months. The markets are moving higher and the long term trends seem to be intact. Near term fears are present but are diminishing in favor the long term trends. The risk at this time is that the Putin situation will look entirely different in the morning, and that economic data will deteriorate.

Tomorrow there will likely be volatility induced by options expiration and it may be enhanced by a lack of volume. On top of expiration Friday there is also a fair amount of economic data on tap starting with PPI and running through TIC flows, Empire Manufacturing, Michigan Sentiment, Capacity Utilization and Industrial Production. Earnings, including the after hours reports from JC Penny and Nordstroms, will also be moving the market.

Until then, remember the trend!

Thomas Hughes

New Plays

Germany Turns Negative

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. stock market continued to rally on Thursday but a good question to ask is why? The economic data out of Europe has been terrible. In an interconnected world like ours if Europe sinks it will weigh on the global economy.

The 18-member Eurozone reported their Q2 GDP was flat. That's below expectations for +0.1% gain. Dragging the EU lower has been a significant slowdown in Germany.

Germany is the EU's biggest and strongest economy - at least it used to be the strongest. Germany's Q1 GDP growth was +0.7%. Their Q2 GDP estimate this morning came in at -0.2%. That's the first time Germany has seen negative growth in over a year.

France is the EU's second biggest economy and their Q2 growth was flat (+0%). After this morning's report French Finance Minister Michel Sapin lowered their 2014 GDP estimate from +1.0% growth to +0.5%.

Meanwhile Italy's Q2 GDP growth was negative and the country is in its third recession in just the last few years.

You could argue that this weakness in Europe will force the European Central Bank to launch their own QE program. You could also argue that this weakness overseas makes the U.S. market the safest place for stock investors (sort of the best house in an ugly neighborhood).

Another warning sign is the flow of money into safe havens like German and U.S. bonds. The yield on the German 10-year bond fell below 1%. Today saw the yield on the U.S. 10-year bond close at 2.4%, the lowest (closing) low in 12 months. Bond yields fall as bonds rally. What does that say about investor sentiment if they would rather buy a bond with a 2.4% yield than put money in the stock market?

Meanwhile the S&P 500's bounce has produced a strong weekly gain but it just closed at 1955. Potential resistance at the simple 50-dma is directly overhead at 1956. The small cap Russell 2000 is also just beneath resistance at its 100-dma and 200-dma.

Considering the negative economic headlines and that U.S. indices closed just below resistance we are not adding new candidates tonight.

In Play Updates and Reviews

Europe's GDP Sinks, Stocks Rally

by James Brown

Click here to email James Brown

Editor's Note:
Disappointing economic data from Germany and the broader EU failed to stop the stock market rebound.

Current Portfolio:

BULLISH Play Updates

Green Plains Inc. - GPRE - close: 42.61 change: +0.23

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: +4.5%
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

08/14/14: GPRE soared this morning. The stock was up more than 3% following news that company announced at $100 million stock buyback program. The Board of Directors also doubled its dividend to 8 cents a share payable on September 18th to shareholders on record as of August 28th.

Unfortunately GPRE gave back most of its gains to close up +0.5%.

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*

08/14/14 GPRE announces $100 million buy back and doubles dividend to 8c.
08/13/14 new stop @ 39.25
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: 35.59 change: +0.29

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

08/14/14: HPQ finally decided to participate in the market's bounce. Traders bought the dip near $35.00 this morning and shares rallied past resistance near $35.50.

Keep in mind that HPQ is scheduled to report earnings 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

Microsoft Corp. - MSFT - close: 44.27 change: +0.19

Stop Loss: 41.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
Entry on August 14 at $44.08
Listed on August 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 36 million
New Positions: see below

08/14/14: Our plan was to launch bullish positions at the open this morning. MSFT opened at $44.08 and rallied to a +0.4% gain.

I do not see any changes from yesterday's new play description.

NOTE: Yesterday had a typo on the price of the 2015 January $50 call.

Earlier Comments: August 13, 2014:
Microsoft Corp. is a technology behemoth. The company was founded in 1975. They have grown into a massive company with 128,000 employees around the world. Their software is used by billions of people every day. They also offer technology services, tablets, X-box gaming platform, networking and server software, and their Nokia division. MSFT has jumped head first into the cloud computing industry. Altogether MSFT generated almost $87 billion in sales the past 12 months with a net income of $22 billion.

Investors worried about MSFT and how the death of the PC would slowly chip away at its core products - mainly the Windows operating system and Micosoft Office. However, this past summer there has been evidence that the PC market isn't dead. Intel reported stronger than expected chip sales for PCs, especially to enterprise customers. Meanwhile MSFT stopped supporting the Windows XP operating system. MSFT released the XP system back in 2001. Their decision to stop providing updates means the XP system could become less secure to viruses, malware, and hacking. One analyst estimated that 25% of the PCs currently connected to the Internet were still running XP. That's millions and millions of computers that will need to either upgrade their software or likely be scrapped and upgraded to a new computer with a newer version of MSFT's software. The upgrade cycle could last a while.

Investors have been pretty optimistic since Satya Nadella was crowned CEO of MSFT back in February this year. He has been focusing the company on the cloud and it seems to be working. MSFT's commercial cloud revenues soared +147% with sales on track to exceed $4 billion a year. Even Bing, MSFT's search engine rival to Google, is improving. Bing's ad revenues rose +40% last quarter and snatched almost 20% of the search engine market. MSFT expects their Bing division to turn profitable in 2016.

MSFT's most recent earnings report on July 22nd was mixed. They missed the bottom line estimate by 5 cents. Yet revenues came in ahead of expectations. Wall Street was looking for quarterly revenues of $22.99 billion. MSFT reported $23.38 billion. Several analyst firms upgraded their outlook on MSFT following the earnings report. Many of the new price targets are in the $50 area.

Technically shares of MSFT have a bullish trend of higher lows. The stock saw some post-earnings depression in the second half of July but now that's over and investors are buying the dip.

Tonight I am suggesting investors open bullish positions tomorrow morning. We'll try and limit our risk with a stop loss at $41.75.

- Suggested Positions -

Long MSFT stock @ 44.08

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

Long 2015 Jan $50 call (MSFT150117c50) entry $0.45

08/14/14 trade begins. MSFT opens at $44.08
Option Format: symbol-year-month-day-call-strike

Skyworks Solutions - SWKS - close: 53.50 change: -0.51

Stop Loss: 49.95
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
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

08/14/14: Today's action in SWKS is worrisome. The stock underperformed the market with a -0.9% decline. A reversal here would look like a potential bearish double top near its July highs.

I am not suggesting new 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

08/13/14 new stop @ 49.95
08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Aaron's Inc. - AAN - close: 25.92 change: +0.11

Stop Loss: 27.10
Target(s): To Be Determined
Current Option Gain/Loss: +6.6%
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

08/14/14: The oversold bounce in AAN continues. The stock is now up five days in a row. The $26.00-26.25 zone should be overhead resistance.

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: 37.87 change: -0.36

Stop Loss: 40.25
Target(s): To Be Determined
Current Option Gain/Loss: +3.4%
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

08/14/14: CPHD underperformed the market again with a -0.94% decline. Shares look headed for their late July low near $37.00.

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

08/13/14 new stop @ 40.25
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: 33.16 change: +0.37

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: +0.9%
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

08/14/14: The major European stock markets managed to eke out a gain in spite of dreadful economic data. The EU's Q2 GDP growth was flat. Germany's Q2 GDP growth was negative (-0.2%).

Shares of DB spiked lower at the open but managed to claw its way back to unchanged.

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: 19.81 change: +0.16

Stop Loss: 20.65
Target(s): To Be Determined
Current Option Gain/Loss: - 1.3%
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

08/14/14: FITB was showing relative strength today with a +0.8% gain. That's not a good sign for the bears. FITB should still have resistance at $20.00 but I am growing concerned about the lack of downward momentum.

Investors may want to consider a lower stop loss. I am not suggesting new positions at this time.

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

Financial Engines, Inc. - FNGN - close: 35.44 change: -0.27

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

08/14/14: FNGN underperformed the market today but we want to see a new relative low. Our suggested entry point to launch bearish positions is $34.70.

Earlier Comments: August 12, 2014:
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

Natural Grocers by Vitamin Cottage - NGVC - close: 18.87 change: -0.24

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: +3.0%
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

08/14/14: Today's drop in NGVC is good news. The stock continues to underperform the broader market with a -1.25% decline today. NGVC has now broken down below its early June lows.

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: 36.86 change: +0.20

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

08/14/14: Shares of SIX bounced toward short-term resistance near $37.00 and its 10-dma and stalled. I am not suggesting new positions at this time.

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: 29.03 change: +0.00

Stop Loss: 31.10
Target(s): To Be Determined
Current Option Gain/Loss: -0.5%
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

08/14/14: The Russian market was up today as were the major European exchanges. The region was focused on comments from Russian President Putin who seemed to offer softer tone toward the Ukraine-Russian conflict. This buoyed stocks today but shares of YNDX did not participate and closed unchanged.

More conservative investors might want to lower their stop closer to $30.00.

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