Option Investor

Daily Newsletter, Saturday, 8/16/2014

Table of Contents

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

Market Wrap

Headline Deja vu

by Jim Brown

Click here to email Jim Brown

If it is Friday it must mean major Russian headlines. Last Friday it was the "We are ending our military exercises and withdrawing our troops from the border." Watch what Putin does, not what he says.

Market Statistics

Last Friday saw a major short squeeze as the world took the Russian comments seriously that the military exercise was over and troops and equipment would be moving away from the border with Ukraine. Early this week Putin said Russia was sending 275 trucks filled with humanitarian supplies to the battle worn areas of the Ukraine. Those Russian army trucks were quickly painted an innocent white to appear nonthreatening and the convoy headed for a slow motion trek to the border. With frequent stops at military bases out of the prying eyes of reporters the convoy was supposed to arrive on Friday. Surprise, surprise. Thursday night a convoy of 30 armored personnel carriers (APC), also freshly painted white to appear as part of the aid shipment, crossed the border into the Ukraine where they were immediately fired upon by the Ukrainian military. The Ukrainian president "Petro Poroshenko said the military destroyed a "significant number" of the APCs. Russian spokesmen said "Proshenko's comments were fantasies and should not be the subject of serious discussion." The statements amount to "provocation" and are part of an "information war." "The government in Kiev is trying to drag Russian into a war."

Russia immediately denied the claim and warned the Ukraine about attacking the convoy with the humanitarian aid. Apparently the highly publicized white truck aid convoy was a misdirection play in hopes of sneaking in the armored column disguised with the white paint as part of the humanitarian convoy.

Here is where it gets crazy. The Russian military convoy did not begin crossing the border until the reporters imbedded with the aid convoy were within range and could easily see the border crossing. Two western reporters immediately tweeted out that they saw the Russian military convoy crossing into the Ukraine. In other words it appeared that Putin wanted to see how the international community would react if he actually invaded Ukraine. This may have been a "test invasion." There were several other crossing points held by the separatists that would have been out of view of the international reporters. Instead they used the one where the reporters were watching. This was no accident.

Of course Russia denied having or sending any military equipment into the Ukraine so the international bluff for the common person is still working. Anyone with any access to the facts understands that Russia has been sending in equipment for months and they have been firing rockets across the border for weeks. The invasion is proceeding step by deniable step.

NATO Secretary General Anders Fogh Rasmussen told reporters that Russia made an "incursion" into Ukraine and that NATO sees a continuous flow of Russian weapons into Ukraine. Late Friday multiple stories on Bloomberg reported another large column of armored vehicles 40km from the border and headed for Ukraine. Meanwhile the 275 white trucks are parked in a field a short distance from the border. Russian Defense Minister Sergei Shoigu told Chuck Hagel "there were no Russian military personnel involved in the humanitarian convoy, nor was the convoy to be used as a pretext to further intervene in Ukraine." We still don't know if there are weapons hidden in those trucks.

The volley of conflicting headlines early in the day managed to knock the markets back into negative territory at 10:45 with the Dow coming off a +60 point gain to decline to a -137 point loss before noon. The Dow never made it back to positive territory but the Nasdaq managed to gain +12 points and the S&P closed only fractionally lower.

I think once the market realized it was a "test" invasion the dip buyers appeared. Those that bailed on the initial headlines probably were protecting profits from the week's gains.

There were plenty of economic reports but none of them really moved the market. The NY Empire Manufacturing Survey was a serious disappointment but it was ignored. The headline number declined from 25.6 in July to 14.7 in August. July was the highest reading in four years so a normalization decline was to be expected but this was huge. While the majority of the components declined the six-month general business conditions index soared from 28.5 to 46.8. That is the highest level since January 2012. There was no indication why businesses were so optimistic in the face of declining conditions. The new orders component declined from 18.8 to 14.1 and the backorders component fell even further into contraction from -6.8 to -8.0. Employment fell from 17.1 to 13.6 and inventories fell from -3.4 to -14.8. Manufacturing in New York is thought to be expanding but there are some companies closing up shop and moving to less expensive locations.

The Producer Price Index (PPI) for July rose +0.1% compared to +0.4% in June. The core rate, excluding food and energy, rose +0.2% compared to +0.1% in June. There was nothing in this report to move the market. Energy prices declined for the fifth time in six months and should continue falling. Food prices rose +0.4% after declining the prior two months. There was nothing in this report to worry the Fed. The consumer version will be released next week and that has more relevance to the Fed.

Industrial Production for July rose +0.4% compared to +0.2% in June. Manufacturing rose +1.0% and the most since February. Motor vehicles and parts jumped +10.1% to power the gain. Motor vehicle assemblies rose to 13.2 million and the most since 2002. That was a spike of 1.5 million over the June levels. Business equipment rose +1.3%.

Consumer Sentiment for August fell from 81.18 to 79.2 and the lowest level since November. Economic expectations for 2015 fell from 71.8 to 66.2 and the lowest level since October when the partial government shutdown was in the headlines. The present conditions component rose from 97.4 to 99.6. Consumers must be drinking the same kool-aid as the purchasing managers in the New York report above. To have the two main components diverge so significantly is probably worry over the coming election cycle. However, the backlash over Obamacare is growing as more and more people realize how little coverage they got, how much they have to pay up front before getting coverage and how much that coverage is costing them. The "disapproval" rating is rising about 1% per week and it is coming from both democrat and republican consumers. This is not going to go away anytime soon.

Also weighing on consumers is the geopolitical headlines from Ukraine, Israel, Liberia and Nigeria. People are worried we are going to get drawn into some overseas conflict and they are worried the Ebola epidemic will spread to America.

E-Commerce Sales for Q2 rose from $71.2 billion to $75 billion for a gain of +4.9%. As companies ramp up their websites to compete with Amazon the online totals are going to continue to rise. Sales are up +15.7% from Q2-2013. Internet retailers now account for 6.4% of all retail sales. There is plenty of room to grow. Amazon could double its sales and only increase that number to 8.1%. There is roughly $1.171 trillion in U.S. retail sales per year.

U.S. International Capital Flows were negative at -$18.7 billion in June. Foreigners were net sellers of Treasuries and Notes with a record -$40.8 billion in outflows that were only offset by foreign central banks that bought $20 billion in treasuries. Net foreign purchases of U.S. equities was only $2.6 billion compared to $11 billion in the prior month. The total net outflows of long and short term investments was -$153.6 billion and a record. China sold $2.5 billion in Treasuries to lower their balance to $1.27 trillion. Japanese holdings declined -$600 million to $1.22 trillion.

Despite all that selling in treasuries the yield on the ten-year declined to 2.3% intraday on the Ukraine news before rebounding to close at 2.345% and a new 13 month low. It amazes me that investors keep buying treasuries at this level when they know the Fed is on track to start raising rates in Q1. Once the final QE announcement appears in October we should see investors get the message and selling should begin. However, with the worst range of geopolitical headlines in years there is no better place to park your money for the next couple of months. Just don't expect to get much in yield return.

Next week is the housing week with three major housing reports. The sector is in a swoon despite the low interest rates because the number of cheap homes as a result of foreclosures has declined and the wholesale buying of hundreds of homes by hedge funds has also slowed. The bargains have disappeared and it is very difficult to get a loan. I don't expect any big surge in sales despite July being a good month in normal cycles.

The FOMC minutes will be the stumbling block for the week. The hawks and doves are trading jabs in their speeches and there was probably a heated discussion over policy and the coming end of QE when they met in July. Analysts will be waiting with baited breath for the minutes and the rest of us will simply be watch the impact on the market from the various sound bites.

We have reached that point in the earnings cycle where there is barely enough companies reporting to keep the talking heads active for an entire day. They will have to find some new topics soon. Hewlett Packard (HPQ) is the big dog on the block next week with Home Depot (HD) and Lowe's (LOW) the next in line. Sears Holding (SHLD) will be interesting on Thursday if only to see what they have decided to spin off to raise money this time. Target (TGT) on Wednesday could also be interesting because of the ongoing charges for their credit card breach.

Gilead Sciences (GILD) was in the news on Friday after it won a patent arbitration on its blockbuster Hep C drug Sovaldi. Roche Holdings AG had a 2004 collaboration agreement with Pharmassist Inc. Gilead bought Pharmassist in 2012. Roche claimed it had exclusive rights to Sovaldi under that partnership. The arbitration panel ruled that Roche failed to establish ANY of its claims and was not entitled to any damages or other relief. That is a heck of a smack down for a drug that sells for $84,000 for 12 weeks of treatment. Sovaldi had sales of $3.5 billion in the second quarter alone and they have only scratched the surface of the infected population. Shares of Gilead rallied strongly for the third day. Without that patent litigation hanging over their head and projected sales of $12 billion a year on that drug alone I think there are many gains ahead. The chart is nearly vertical but a major roadblock has been removed. If you see a dip in the near future I would jump on it.

Monster Beverage (MNST) had a monster gain on Friday after Coke (KO) announced it was taking a 16.7% stake in the company and they were swapping brands. Coke will give Monster $2.15 billion in cash and transfer all its energy drink brands like NOS, Full Throttle and Burn to Monster. In exchange Monster will give Coke its non-energy brands like Hansen's Natural Sodas and Hubert's Lemonade to Coke. Monster will also give Coke two seats on its board.

This is a win-win for Monster. They are no longer competing with Coke in the energy drink market and Coke will use their international distribution channel to market Monster beverages. This was a major boost for Monster and catapults them years ahead of what they could have done on their own.

News of the deal leaked out and option volume rocketed higher starting last Monday. Option volume was more than 10 times normal and all on the call side. Somebody is going to get some unwelcome news from the SEC. The sheer volume of the calls bought all week will probably mean only the initial purchasers will be confronted. The rest can easily claim they were just following the volume.

It was a decent week in the markets so any volatility just before the weekend only accentuated the profit taking. The major indexes all posted gains with the Nasdaq Composite leading the pack with a +2.1% gain and the Nasdaq 100 a +2.56% gain. The NDX is now up +11% for the year and the Transports +11.7% and Semiconductors +16.7%. The Russell 2000 remains down -1.9% for the year.

The S&P flirted with resistance all week. The initial resistance at 1945 held on Wednesday but was broken on Thursday with a sprint to 1955. The open on Friday saw another spike to 1965 before declining on the Ukrainian news to close at 1955.

In theory the S&P is in rebound mode and headed back to new highs. However, there is significant resistance at 1955 and again at 1985. We may get there but I doubt it will be in a straight line. If there was going to be a failure at resistance the 1960-1965 level would be it. This is uptrend resistance from December.

I have two thoughts here. El-Arian warned that geopolitical news was "cumulative" and eventually there would be one headline too many that would crash the market. That is one view. My view is that the market rallied on really bad news from multiple countries. The more likely a Putin invasion of Ukraine the more traders will price that into the market and when it arrives it may be much ado about nothing. How many times do journalists have to warn about an impending invasion before investors glaze over and no longer care?

Watch the market, not the headlines.

The Dow has honored support and resistance like somebody was pulling the strings behind the scenes. The decline to 16,368 was almost to the point and the rebound and stall at 16,728 was also picture perfect. For a narrow index with only 30 stocks it is rarely this precise. The slow volume was one reason for the textbook moves. Without an abundance of volume the buyers and sellers tend to all have similar ideas about what to buy and sell and when. This "orderly" market reduces volatility and sets investors up for a surprise when it ends.

Despite the headlines Visa was the only Dow component to post a loss higher than $1 with most of the moves less than 50 cents. Other than the sharp index declines the day was really pretty boring.

Resistance 16,728 and support 16,368.

The index that could cause trouble next week is the Nasdaq. The index closed about 18 points off its opening high (4482) and only about 20 points below is 14 year high at 4485. If the Nasdaq breaks out to a new high next week we could have a stampede on our hands. The tech stocks should be vulnerable after the earnings misses and lowered guidance but investors keep piling into the tech sector.

Even more important the Nasdaq 100 ($NDX) closed only -3 points below its recent high. This is very bullish and a breakout here could trigger significant short covering.

The Russell 2000 remained the weak link with a very lackluster rebound and a +.9% rebound for the week. That is less than half the Nasdaq gain. In theory the small caps are telling us not to trust the bog cap gains. Typically fund managers invest in big caps when they scared of the market and small caps when they are confident of the market.

Normally I would recommend watching the small caps for market direction. This week I am recommending you watch the Nasdaq. A breakout will drive the market higher and maybe pull the small caps along for the rise.

I have mixed emotions about next week. The geopolitical headlines are being mostly ignored. Earnings showed 10.1% growth and the highest since 2011. The tech stocks are about to break out to new highs or potentially fail at those new high levels. I recommend watching the Nasdaq for a break out. If that occurs I would add to long positions in the expectation of the Russell 2000 accelerating to catch up. If the Nasdaq fails at resistance it may be only temporary. With two weeks left in summer the volume is going to be very light and the bulls appear to have the ball.

Random Thoughts

Chinese power consumption in Shanghai and Jiangsu fell by more than 10% in July compared to double digit growth in July 2013. Other provinces including Zhejiang, Anhui, Hubei, Hunan and Guizhou reported consumption declines of up to -22%. This suggests China's real GDP before the government adjusts it to what they want to show the world is going to be much, much less than the 7.5% target for 2014. You can't have a booming economy without power consumption.

China's National Energy Administration said power consumption rose +3.0% in July, down from June's +5.9% rise. This highly manipulated number was still the slowest growth in 16 months. You know it is really bad when even the fictitious numbers have been lowered to 16 month lows.

If investors are expecting a rebound in the Chinese economy to float the global economic boat they are sadly out of luck.

Add in multiple countries in the EU already in recession or even worse in a depression that will be made worse by the Russian sanctions and the global economic outlook for the next two years is pretty dim. The U.S. may be the cleanest shirt in the dirty close hamper but it can't resurrect the global economy by itself.

U.S. industrial production has been rising at crawl speed for the last several years but compared to Europe we are in a manufacturing boom.

Europe posted economic growth of zero in Q2 but declining. Unemployment is 12% or roughly 19,130,000 people out of work. The Eurozone has been in a depression since the financial crisis and has not yet risen to its pre crisis economic levels. Many analysts believe Europe is turning into Japan with its lost decade. The ECB is on the verge of massive QE after a couple years of promising to do "whatever it takes" and never following through. Time has expired and analysts believe this time is different. Mario Draghi is going to be forced to follow through with his promise. When coupled with an imminent stimulus flood from China the overseas economies are going to be floating on an ocean of stimulus.

The Russian sanctions are only going to compound the economic problems for Europe and force the ECB to apply even more stimulus. It is a downward spiral that may not reverse for several years.

Japan's economy sank -6.8% in Q2 and the worst contraction since 2011 as consumer spending slowed dramatically after the government raised the consumption tax to 8% in April. Spending declined -18.7% on an annualized rate. The government has the option to raise it to 10% by 2015 if needed to raise money. Housing investment declined -35.5% and the largest drop in five years. Japanese debt topped one-quadrillion yen. That is 1,008,628,100,000,000 yen or 230% of GDP. However, in U.S. dollars that is only $10.5 trillion and about half what the U.S. debt will be in three years.

Mohamed El-Arian, Allianz chief economic advisor and formerly with Pimco, said on Friday that stocks are still reflecting sentiment on easy monetary policies. "It is impressive. And it is a bet on the fed, and it is a bet on central banks in the rest of the world." He said this week's data has been "shockingly poor, both out of the U.S. and out of Europe." This suggests that central banks will be dovish for longer. "That means that investors will still believe the central banks are the markets best friend." He said valuation matters and the stock and bond markets are trying to tell us something. They are telling us different things about the destination. He said "I am getting more and more nervous about this bet on bad-news-is-good-news. There is a limit on how high valuations go." He said rising equities climbing on the back of monetary policy is a "suckers bet."

He warned the geopolitical troubles were beginning to appear "cumulative." Also, "Central banks cannot fight geopolitical headwinds for a long time." Eventually there will be one headline too many and the market will react negatively.

On August 14th, 1935 President Franklin Roosevelt signed the Social security Act, which guaranteed income for the unemployed and retired. At the time the poverty rate for senior citizens was over 50%. In 1937 53,236 people received a total of $1.28 million. In 2013 more than 53 million received more than $730 billion. The average life expectancy in 1035 was 62. Today it is 78.7.

On August 14th, 1945 President Harry Truman announced the surrender of Japan and ending World War II. Despite the bombing of Hiroshima and Nagasaki some Japanese wanted to keep on fighting. Emperor Hirohito intervened in a radio address called the "Jewel Voice Broadcast" where he announced Japan would surrender.

August 15th, 1971 Richard Nixon took the U.S. off the gold standard and ended the convertibility of dollars into gold. He also froze ages, prices and rents for 90 days because of rapidly rising inflation. This was later called the "Nixon Shock" because it was such of a blow to the nation.

Remarks from Defense Secretary Hagel last week. The world is exploding all over. And so is the United States going to continue to have the resources, the capabilities, the leadership, the bandwidth to continue with the rebalance toward the Asia Pacific? And the answer is yes. Hagel went on say that, despite the rebalancing towards the Pacific, the US will not be "retreating" from any threats elsewhere in the world. Now, that said, as I've said, with that rebalance, which will continue, and we are committed to do that, we're not retreating from any other part of the world. Great powers can't pick and choose which challenges and threats they're going to deal with. There is no power on Earth like the United States of America.

No country is great enough, powerful enough to deal with all these threats and challenges alone in the world today. They're too big, too complex. The world is too complicated. Whether they're cyber threats, which are relatively new, but are just as real and deadly and lethal as anything we've ever dealt with, obviously, what's going on in North Korea, China's behavior in the South China Sea, East China Sea, you mentioned Russia's actions in Ukraine, North Africa, the Middle East today, every part of that world is troubled under great stress. Sounds like Hagel and Obama are reading out of different play books.

The first nine days of August are typically volatile with the market rallying into expiration Friday. Over the last 9 years if the first nine days were positive the rest of August was positive 7 of those 9 years. However the bulk of the month's gains came in those first nine days. The last two weeks of August are typically rocky according to the Stock Trader's almanac.

The current bull market is now the second longest in the last 85 years. The current bull market is 283 weeks old and the average length is 165 weeks. What is going to keep it moving higher?

Beware Ebola. The World health Organization (WHO) claims the outbreak of Ebola has been "vastly underestimated" and will require "extraordinary measures, on a massive scale" if it is to be contained. The Medecins Sans Frontieres (MSF) said the disease was spreading "faster than we can respond to" and accused WHO of being too slow to react. "Staff at the outbreak sites see evidence that the number of reported deaths vastly underestimate the magnitude of the outbreak." MSF said, "It is like wartime. The wakeup call was too late." It may take "six months to get the upper hand on this outbreak."

Plan International's head of disaster preparedness said "Time is running out and millions of lives are at stake." One of the major problems is the poor people it is affecting. They don't have medical care. When they get sick they stay home and family members take care of them. This assures that the family members also get sick and by the time there is a request for help dozens of friends and relatives may have been infected. Since a lot of sick people stay home there is no way of telling exactly how many people have been exposed or already have the illness. "By the time we find out about a sick family it is too late."

More than 80 healthcare workers have already died but we don't hear about them. We only hear about the two Americans that were flown back to the USA. Healthcare workers are fleeing the stricken areas. In Liberia the population of 4 million had about 200 clinical care doctors before the outbreak. Now there are only about 50 after the others fled or died. Non Ebola care has disappeared. Women are dying from unassisted labor and delivery. Auto accident patients are dying for lack of trama care doctors. Ken Isaacs VP of Samaritan's Purse told Congress "this Ebola outbreak is uncontained and out of control in West Africa." Officials warn that once the disease makes it to a high traffic country like Lagos (22 million) or Johannesburg it will quickly spread internationally.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life"

Franklin Roosevelt


New Plays

Changing Consumer Tastes

by James Brown

Click here to email James Brown


WhiteWave Foods Co. - WWAV - close: 33.51 change: +0.79

Stop Loss: 31.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: Yes, see below

Company Description

Why We Like It:
Consumer tastes and buying habits are changing and more people are opting for more natural and organic foods.

WWAV is in the consumer goods sector. You might not recognize the name but they're behind brands like Silk, Horizon Organic, Land-O-Lakes, International Delight, Alpro, and Earthbound Farm Organic.

WWAV considers themselves "a leading consumer packaged food and beverage company that manufactures, markets, distributes, and sells branded plant-based foods and beverages, coffee creamers and beverages, premium dairy products and organic produce throughout North America and Europe. The Company is focused on providing consumers with innovative, great-tasting food and beverage choices that meet their increasing desires for nutritious, flavorful, convenient, and responsibly-produced products. The Company's widely-recognized, leading brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES* coffee creamers and beverages, Horizon Organic premium dairy products and Earthbound Farm' certified organic salads, fruits and vegetables. Its popular European brands of plant-based foods and beverages include Alpro and Provamel" (The Land-O-Lakes brand is licensed from the owners).

If you're looking for a company that is growing then keep an eye on WWAV. They have beaten Wall Street's estimates on both the top and bottom line at least four quarters in a row. The last three quarters management has been raising their guidance. In Q4 2013 WWAV's revenues were up +11.5%. The first quarter of 2014 saw revenues soared +36.5%.

Their latest report was August 7th. Analysts were looking for a profit of $0.22 on revenues of $815.6 million. WWAV delivered a profit of $0.23 with revenues climbing +39.5% to $837.9 million.

The natural and organic retailers might be facing tougher margins and stronger competition (WFM, SFM, TFM, NGVC) but that doesn't seem to be the case for a producer and distributor like WWAV.

You can see the big surge in the stock price on August 7th as traders reacted to the bullish earnings news and guidance. After consolidating gains the last few days shares of WWAV have started to push higher again. They have been outperforming the major market indices and WWAV closed at a new all-time highs on Friday.

We believe the rally continues but I am labeling this a more aggressive, higher-risk trade due to WWAV's recent volatility. The last several weeks have seen some significant swings.

Friday's intraday high was $34.06. We're suggesting a trigger to open bullish positions at $34.15.

Trigger @ $34.15

- Suggested Positions -

Buy WWAV stock @ (trigger)

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

Buy the OCT $35 call (WWAV141018C35) current ask $1.30

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

HPQ Not Cooperating

by James Brown

Click here to email James Brown

Editor's Note:

Plan to exit our HPQ on Monday morning.
FNGN hit our bearish entry point on Friday.

Current Portfolio:

BULLISH Play Updates

Green Plains Inc. - GPRE - close: 42.23 change: -0.38

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: +3.6%
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

08/16/14: GPRE delivered a quiet session on Friday with shares hovering near the $42.00 level. Investors looking for an entry point may want to watch for a dip toward the $40.50-40.00 zone, which should be short-term support.

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: 35.07 change: -0.52

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
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

08/16/14: We are running out of time and patience with this HPQ trade. The company is scheduled to report earnings on August 20th and we do not want to hold over the announcement. Unfortunately shares of HPQ are not moving very fast. The long-term trend is up but short-term HPQ has been drifting sideways.

The stock displayed relative weakness on Friday with a -1.4% decline and a bearish engulfing candlestick reversal pattern. Tonight we are suggesting an immediate exit on Monday morning.

- Suggested Positions -

Long HPQ stock @ $35.35

- or -

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

08/16/14 prepare to exit on Monday morning
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: 44.79 change: +0.52

Stop Loss: 41.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
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

08/16/14: Unlike shares of HPQ we are seeing MSFT, another tech titan, showing significant relative strength. The stock outperformed the market on Friday with a +1.1% gain. The stock is up four days in a row.

If you're looking for a new entry point consider waiting to buy a dip.

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 Microsoft 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: 54.39 change: +0.89

Stop Loss: 49.95
Target(s): To Be Determined
Current Option Gain/Loss: +3.3%
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

08/16/14: Shares of SWKS tagged multi-year highs on Friday morning. The stock pared its gains by the close but still outperformed the major indices with a +1.6% gain. The stock has not yet broken out past its July highs with any conviction. I would not open new positions at current levels.

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: 25.00 change: -0.92

Stop Loss: 27.10
Target(s): To Be Determined
Current Option Gain/Loss: +9.9%
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

08/16/14: Shares of AAN just collapsed on Friday. The stock reversed at $26.00 and plunged toward the $25.00 level to close down -3.5% on the session. More conservative investors may want to lower their stop loss closer to $26.00.

I am not suggesting new positions at this time.

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: 37.65 change: -0.22

Stop Loss: 40.25
Target(s): To Be Determined
Current Option Gain/Loss: +4.0%
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

08/16/14: CPHD continues to underperform the market. The stock just marked its sixth weekly loss in a row.

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: 32.93 change: -0.22

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
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

08/16/14: The German DAX was hit hard on Friday with a -1.4% decline. This likely weighed on shares of DB, which closed down -0.6%. It is worth noting that DB continues to hold support in the $32.55 area.

if you're looking for a new entry point you may want to see a new relative low before launching positions (either that or a failed rally at its 30-dma).

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: 19.73 change: -0.08

Stop Loss: 20.65
Target(s): To Be Determined
Current Option Gain/Loss: - 0.9%
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

08/16/14: FITB has spent the last two weeks churning sideways inside the $19.45-20.00 zone. More conservative investors may want to lower their stop loss.

The big picture trend for FITB is still bearish but 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: 34.54 change: -0.90

Stop Loss: 36.60
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
Entry on August 15 at $34.70
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 663 thousand
New Positions: see below

08/16/14: The weakness in shares of FNGN continued on Friday. The stock broke down to new lows and underperformed the market with a -2.5% decline. Our suggested entry point for bearish positions was hit at $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.

- Suggested Positions -

Short FNGN stock @ $34.70

08/15/14 triggered @ 34.70


Natural Grocers by Vitamin Cottage - NGVC - close: 18.52 change: -0.35

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: +4.8%
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

08/16/14: It was another bearish week for NGVC. The stock has broken down to new 2014 lows and shares are off seven days in a row. NGVC is arguably short-term oversold here. Do not be surprised to see a bounce. The $20.00 level should be overhead resistance.

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: 36.85 change: -0.01

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

08/16/14: The sell-off in SIX over the last few weeks has broken major support at its long-term trend of higher lows. Yet this past week the stock did not see any follow through lower. Instead SIX has been consolidating sideways just under the $37.00 level.

I am not suggesting new positions at this time but nimble traders can be on the look out for a failed rally near $38.00 as a potential entry point.

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: 28.41 change: -0.62

Stop Loss: 31.10
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
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

08/16/14: YNDX was showing relative weakness on Friday with a -2.1% decline. Shares look poised to breakdown under $28.00 soon.

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