Option Investor

Daily Newsletter, Tuesday, 8/19/2014

Table of Contents

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

Market Wrap

Wake Me in September

by Jim Brown

Click here to email Jim Brown

The market rallied again on low volume thanks to a lack of negative headlines and strong housing data.

Market Statistics

The market got off to a fast start at the open after the New Residential Construction report for July posted blowout numbers. Housing starts came in at 1.093 million in July compared to 0.945 million in June. For single family starts this was an 8.3% rise month to month and 10% rise year over year. For multifamily starts it was a spike of 33% month over month and 50% year over year. June housing starts were revised up from a very disappointing 893,000 to a decent 945,000 units. Clearly the majority of the building today is in multifamily units with activity in that sector very close to prerecession levels. Single family starts are only about half the rate they reached in 2000. We have a very long way to go before the single family rebound is complete. Overall housing starts are up +21.7% over July 2013.

Housing permits rose +8.1% overall with single family rising only +0.9% while multifamily rose +21.5%. Annualized completions rose +4% from 811,000 to 841,000.

The Consumer Price Index (CPI) rose +0.1% and back to neutral levels after rising +0.3%, +0.4% and +0.3% in the prior three months. The inflation bounce appears to have evaporated exactly like Janet Yellen promised. Sharp declines in energy continue to drag down the overall prices. The Core rate only rose +0.1% for the second month. On a year ago basis both headline inflation and the core rate remain close to +2% and within Fed guidelines.

The +0.1% rise in the headline rate was the slowest since February but it is surprising it was not higher. The 12 month run rate for food prices rose to +2.6% and the strongest pace in two years. Record grain crops this year are poised to push food prices lower across the board along with beef prices thanks to the surplus of corn for feeder cattle.

The only event of note on the calendar for Wednesday is the FOMC minutes for the July meeting. The rise of the hawks to prominence over the last couple of months suggests there were probably some heated conversations over policy during the July meeting. With the end of QE so close the next discussion topic is going to be the beginning of the rate hike cycle. Currently most estimates are in the first half of 2015 with the consensus calendar target moving ever closer to Q1.

The Fed's Jackson Hole conference begins on Thursday and Janet Yellen is going to be a featured speaker on Friday. With the equity markets starting to make new highs again there is always the possibility Yellen will try to pop the equity bubble like she did at the last post FOMC press conference when she said small cap and biotech valuations were stretched. She caught a lot of flak for that comment but the markets quickly shook it off.

The market appears to be Teflon coated with nearly every headline having only a minimal impact. Will it also shake off a concentrated attack by an increasingly bearish Yellen?

Apple Inc (AAPL) rallied another $1.37 today to close at $100.55 and a new historic closing high. The prior closing high was $100.30 on September 19th, 2012. The intraday high is $100.72 and it came within 4 cents of that level today.

The date of that last high is no coincidence. Apple shares typically rise to new highs ahead of their new product announcements and then decline sharply on a sell the news trade. The return to triple digit levels brought out the "double top" crowd claiming this was a sell signal for Apple shares. I am not in that crowd. I believe Apple shares will continue rising until the announcement, which is expected on September 9th according to Re/Code and others. That is a Tuesday and the date is still unofficial. The Mirror is projecting a release for sale on September 19th and MacRumors is also projecting the third Friday (19th), which is in line with prior launches. German carrier Deutsche Telekom has been telling retailers the iPhone 6 will be released on the 19th. Chinese web portal Tencent is also quoting the 19th as the release date after an announcement on the 9th.

If you own Apple shares I would be a seller on September 5th.

Do you really like McDonald's coffee or is it just a quick cup on the way to somewhere? If you are just dying for a cup of McDonald's coffee when you climb out of bed then get ready. McDonald's and Kraft Foods (KRFT) are going to start selling the McCafe brand of packaged coffee in grocery stores across the U.S. beginning in early 2015. It will come in 12-ounce bags and single-cup portions including K-cups. Pricing has not yet been disclosed. You will be able to satisfy your coffee cravings at will without waiting in line for a rude server to take your order. That assumes you don't force your significant other to make the coffee for you.

MCD shares are struggling to hold over support at $93 and today's coffee news failed to energize investors.

Home Depot (HD) reported earnings that rose +14% thanks to a strong rebound in its spring selling season. Earnings were $1.52 compared to estimates of $1.44. Revenue rose +6% to $23.81 billion and beating estimates of $23.57 billion. Same store sales rose +5.8% overall and +6.4% in the U.S. alone. Online sales surged an unbelievable 38% for the quarter. Purchases over $800 rose a whopping +20%. The store raised full year guidance from $4.42 to $4.52. That is the second bump this year with the initial forecast at $4.38. Full year revenue is expected to rise +4.8%.

The HD news powered the Dow component's shares to a +5.55% gain of $4.64 and was responsible for about +35 points of the Dow's +80 point gain.

PetSmart (PETM) said today it was planning on exploring a potential sale of the company. This came after activist pressure from several shareholders led by Jana Partners. PetSmart has a market cap of $7 billion and it is unclear who would be a potential acquirer. Jana Partners has reported a 9.8% stake in PETM. Jana called for a sale after what they said was "years of financial underperformance." PetSmart was founded in 1986 and has 53,000 employees with 1,340 stores.

After the bell PETM reported earnings of 98 cents that beat estimates by 4 cents. Revenue of $1.73 billion was in line with estimates. Same store sales fell -0.5%. Guidance for current quarter was 93-97 cents with analysts at 94 cents. Full year net sales are only expected to grow +2%.

SolarCity (SCTY) was downgraded by Robert W Baird to neutral from outperform because of its rising stock price and increasing competition from competitors. Apparently Ben Kallo, the analyst at Baird, failed to read the recent earnings report. Business is booming. They have more business than they can handle and the installed user base is exploding. They are buying a panel manufacturer and constructing a new plant in New Jersey just to keep up with panel demand. They expect to install 65 megawatts in Q3 and CEO Elon Musk said they would be installing gigawatts in 2015. Investors and analysts should bet against Elon Musk at their own risk.

Allergan Inc (AGN) disclosed it had approached Salix Pharmaceuticals (SLXP) on a possible merger to avert a hostile takeover by Valeant Pharma (VRX) and William Ackman's Pershing square Capital Management. Salix is currently in the process of merging with a unit of Swiss-listed Cosmo Pharma. Salix makes drugs to combat gastrointestinal disorders. Salix is merging with the Swiss unit of Cosmo in a tax inversion play. Shares of Salix spiked +15% on the news.

The Ebola epidemic is causing some really crazy headlines. In Liberia armed forces have been given "shoot on sight" orders for anyone seen trying to cross the border from Sierra Leone. The border was closed to prevent the spread of Ebola. The border has 35 "known illegal entry points" according to immigration authorities. The announcement came after residents of a slum near the capital broke into an isolation center and freed 30 Ebola patients. Some Liberians don't believe in the existence of Ebola and think the whole thing is a plot by the government to secure foreign aid. They took the 30 patients and hid them in homes where families will care for them. Obviously this kind of mentality is going to accelerate the spread of Ebola, which has now reached about 2,500 admitted patients and roughly 1,300 deaths. People with Ebola are starting to appear in other countries and the World health Organization said it could take six months or more to quell the outbreak and only IF they could halt travel from affected areas.

In Iraq the ISIS militants have posted some more videos on Monday showing pictures of beheaded Americans and promising to "drown all of you in blood" if the U.S. airstrikes continue. In the videos ISIS said it will attack Americans "in any place" if the raids continue.

Late Tuesday American journalist James Wright Foley was beheaded in a horrific video as a warning to President Obama. The journalist had been missing since Thanksgiving 2012 while working in Syria. He spoke into the camera before his death and gave an obviously coerced speech blaming America. ISIS militants said missing American journalist Steven Joel Soltoff will be killed next if the bombings don't stop. LINK

In Ferguson Missouri last night there were people carrying homemade ISIS banners and Muslim flags. There are numerous twitter feeds urging ISIS followers to travel to Ferguson and form bands to take the battle to America. They promise justice and equality under Shariah law that "you will never get under democracy." Some of the tweets are unbelievable and suggest the rest of the decade could see a lot more unrest even worse than Ferguson.

Headlines in the market are also out of touch with reality. One today started out "Dow flirts with 19,000..." Apparently the hyperbole is getting so out of hand they only missed that flirt number by 2,000 points. The Dow closed at 16,919 today and hardly close to 19,000.

The Dow is still -219 points below its closing high but the sprint over the last eight days has been dramatic. The low on the 7th was 16,333. The Dow has gained nearly 600 points in only 8 days. If this sprint continues to the 17,138 historic high it will be very overbought by the time it gets there and could have trouble pushing through that level.

The key levels for the rest of the week are 16,600 for support and 17,138 for resistance.

The S&P is also moving closer to its recent closing high of 1987.98, call it 1988. The S&P has already done the hard work and a retest of the highs appears to be a foregone conclusion. The big cap techs are leading the charge but the industrials are starting to join the party. The 1988 level is the key for the rest of the week with the psychological 2000 level the next hurdle. The S&P is up +78 points from the 1904 low on August 7th. Support is now 1945.

The Nasdaq broke out to a new 14-year high and shows no indications of slowing. In the winners and sinners list below the winners far outpaced the sinners and Apple is not even in the list. Semiconductors and biotechs are leading the Nasdaq charge.

Support is now 4440 and well below today's close. The prior high at 4485 could now be support but we won't be sure until it is tested.

The NDX encountered light resistance at the close at 4040 after breaking over round number resistance at 4000 on Monday.

The Russell 2000 is the laggard in this parade. The Russell is still below decent resistance at 1165 and well below the highs at 1210. Unless the small caps pick up the pace they could send the wrong signal to the market.

The S&P futures dropped slightly when the ISIS beheading video was released but I don't think that headline will produce any lasting damage to the market. We are all sorry it happened but this is a war. It may not be on our shores, yet, but it is a war and ISIS is far more dangerous than al-Qaeda. The signs in Ferguson are just a hint of what is to come.

The market is very good about ignoring these kinds of events. Lately they have been ignoring a lot more serious events like the Russian invasion of Ukraine, Israel and Gaza and the resumption of bombing in Iraq.

We should be due for some light consolidation ahead of the Fed conference in Jackson Hole but if Yellen gives another dovish speech we could be off to the races again. If she puts on her bear coat and tries to talk down equities it could be an entirely different outcome.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Outpacing The Competition

by James Brown

Click here to email James Brown


RF Micro Devices Inc. - RFMD - close: 12.02 change: +0.24

Stop Loss: 11.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 14.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
We are more than halfway through 2014 and it's shaping up to be another bullish year for stocks. The S&P 500 index is up +6.6% year to date. The NASDAQ composite is up +7.9%. That's because the NASDAQ is getting a boost from strong groups like biotechs and semiconductors. The SOX semiconductor index is up +17.2% in 2014. Yet one stock in this industry has been sprinting past the competition. That is RFMD with a +128% year to date gain.

According to the company website, "RF Micro Devices, Inc. is a global leader in the design and manufacture of high-performance semiconductor components. RFMD's products enable worldwide mobility, provide enhanced connectivity and support advanced functionality in the cellular handset, wireless infrastructure, wireless local area network (WLAN), CATV/broadband and aerospace and defense markets. RFMD is recognized for its diverse portfolio of semiconductor technologies and RF systems expertise and is a preferred supplier to the world's leading mobile device, customer premises and communications equipment providers."

What you may not know is that RFMD is a big supplier of components to Apple Inc. They provide components and chips for AAPL's iPhones. AAPL is expected to announce their iPhone 6 in September and could sell tens of millions of phones before year end. That could be a boon for companies like RFMD.

This year has also been bullish for mergers and acquisitions with Wall Street applauding a number of deals. One winning deal so far has been RFMD's merger with TriQuint Semiconductor (TQNT). RFMD announced this deal in February this year and the stock soared on this news. Since then both RFMD and TQNT stock have been outperformers. The company expects synergies of $150 million in just the first two years.

Meanwhile RFMD is developing a bullish trend of beating earnings estimates, rising margins, and raising guidance. Back in April they beat estimates and raised guidance. They did it again at their last report on July 24th. Wall Street expected a profit of $0.17 a share on revenues of $304.8 million. RFMD delivered $0.24 cents a share on revenues of $316.3 million. Margins surged to 42%. Management raised their EPS and revenue guidance for the current quarter.

Technically the stock is marching higher and just recently broke out from a two-week consolidation. Today's display of relative strength (+2.0%) left RFMD at multi-year highs. The shorts are getting killed. The most recent data listed short interest at 16% of the 266.7 million share float. If this rally continues the stock could get a boost from short covering.

Today's high was $12.10. We are suggesting a trigger to open bullish positions at $12.15.

NOTE: We will tentatively set a time frame of 8 to 12 weeks but we might choose to exit at Apple's iPhone 6 announcement in September.

Trigger @ $12.15

- Suggested Positions -

Buy RFMD stock @ (trigger)

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

Buy the NOV $12 call (RFMD141122C12) current ask $1.10

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

Annotated Chart:

Monthly Chart:

In Play Updates and Reviews

U.S. Stocks Deliver Widespread Gains

by James Brown

Click here to email James Brown

Editor's Note:
The stock market continues to march higher in the absence of any negative Russian headlines.

WWAV has been triggered. AAN hit our new stop. We want to exit our YNDX trade tomorrow morning.

Current Portfolio:

BULLISH Play Updates

Green Plains Inc. - GPRE - close: 43.76 change: +0.58

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: +7.3%
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

08/19/14: The rally in GPRE continues and shares outperformed the market with a +1.3% gain on Tuesday. I am not suggesting new positions at this time.

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

Microsoft Corp. - MSFT - close: 45.33 change: +0.50

Stop Loss: 41.75
Target(s): To Be Determined
Current Option Gain/Loss: +2.8%
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

08/19/14: A lot of the headlines for MSFT today revolved around Steve Ballmer. After previously resigning as CEO the man has now stepped down from MSFT's board of directors. It's hard to say if this had any impact on the stock price but shares continued to rally. MSFT is now up six days in a row and nearing resistance at its July highs. I would expect a pullback soon but MSFT may have to tag those highs first before retreating.

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: 55.38 change: +1.08

Stop Loss: 49.95
Target(s): To Be Determined
Current Option Gain/Loss: +5.2%
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

08/19/14: SWKS shot higher in the first 30 minutes of trading and then spent the rest of the day consolidating sideways. This is a new multi-year high for the stock. I am tempted to raise our stop loss toward $52.00.

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

WhiteWave Foods Co. - WWAV - close: 34.62 change: +0.65

Stop Loss: 31.40
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
Entry on August 19 at $34.91
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: see below

08/19/14: WWAV continues to rally as we expected. Unfortunately shares gapped open higher today. Our plan was to launch bullish positions at $34.15. Instead of breaking through resistance near $34.00 WWAV vaulted past it. Our trade opened at $34.91 this morning.

Odds are decent that WWAV will fill the gap and I would use a dip near $34.00 as a new entry point.

Earlier Comments: August 16, 2014:
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.

- Suggested Positions -

Long WWAV stock @ $34.91

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

Long OCT $35 call (WWAV141018C35) entry $1.70*

08/19/14 trade opens on gap higher at $34.91, suggested entry point was $34.15.
*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

BEARISH Play Updates

Cepheid - CPHD - close: 37.87 change: -0.02

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

08/19/14: The fact that CPHD did not participate in the market rally today is good news. Shares continue to hover just below technical resistance at the simple 10-dma.

I am not suggesting new positions at this time.

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: 33.10 change: +0.09

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: +1.0%
Entry on August 04 at $33.45
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.9 million
New Positions: see below

08/19/14: DB gapped open higher but pared its gains by the closing bell. I would wait for a new failed rally near resistance at $34.00 or the 30-dma before considering new positions.

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: 19.97 change: -0.06

Stop Loss: 20.65
Target(s): To Be Determined
Current Option Gain/Loss: - 2.1%
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

08/19/14: FITB spiked above resistance near $20 and its 20-dma before reversing. The intraday reversal and FITB's -0.27% decline today are both good news if you're bearish on this stock.

More conservative investors may want to ratchet down their stop loss.

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: 35.81 change: +0.19

Stop Loss: 36.60
Target(s): To Be Determined
Current Option Gain/Loss: -3.2%
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

08/19/14: FNGN continues to bounce but the rebound failed again at resistance near $36.00.

I am not suggesting new bearish positions at this time.

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: 18.55 change: -0.15

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: +4.6%
Entry on August 12 at $19.45
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 209 thousand
New Positions: see below

08/19/14: I am somewhat surprised by NGVC's performance today. Shares are a little bit oversold and looked poised to bounce. Instead of bouncing the stock failed to see any follow through on yesterday's intraday reversal higher. NGVC underperformed the market with a -0.8% decline on Tuesday.

I am not suggesting new positions at this time.

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

Sprouts Farmers Market, Inc. - SFM - close: 29.80 change: +0.25

Stop Loss: 30.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: Yes, see below

08/19/14: SFM produced a bounce this morning but it failed at round-number resistance near $30.00. We are waiting for a new relative low. Our suggested entry point is $28.95.

Earlier Comments: August 18, 2014:
There is a growing pile of evidence that Americans are starting to eat healthier. It's about time. 66% of Americans are overweight and 33% of us are clinically obese. This new trend of healthier eating helps explain falling sales at restaurants like McDonalds and strong sales for rivals like Chipotle (which many consider to be a healthier choice). Today's trade isn't about restaurants. It's about the natural and organic trend in grocery stores.

Most people think of Whole Foods Market (WFM) when they consider natural and organic grocery chains. WFM is a dominant player with 388 stores. Sprouts (SFM) is catching up. The first Sprouts store started in Arizona back in 2002. Today they have more than 180 stores. Unfortunately for SFM they are facing the same issues WFM is.

Natural and organic foods used to offer higher margins in a notoriously low-margin business - grocery. It wasn't long before everyone has started promoting their natural and organic options. Traditional food chains as well as major nationwide players like Wal-Mart and Target. All of this competition is pressuring margins and sales growth.

Keep in mind, SFM is still growing. Their latest earnings report was August 7th and SFM beat estimates with a profit of 20 cents a share. That's a +43% jump in earnings from a year ago. Revenues were up +19.5% to 743.8 million, also above estimates. SFM management raised their 2014 guidance although this didn't have much impact since they only raised guidance to match Wall Street's consensus.

This issue doesn't seem to be growth. Investors are bearish on rising competition. It doesn't help that SFM isn't cheap with a current P/E of almost 52. It also didn't help that several major shareholders just sold 15 million shares at $30 a few days ago. This big sale doesn't breed confidence for investors.

Technically SFM appears to be in a major down trend of lower highs and lower lows. The P&F chart is bearish and forecasting at $23.00 target. SFM barely moved today in spite of a relatively widespread market rally.

Currently SFM is hovering just above support near $29.10. If this stock breaks down it could test its 2014 lows and potentially hit new ones. Tonight we're suggesting a trigger for bearish positions at $28.95.

Trigger @ $28.95

- Suggested Positions -

short SFM stock @ $28.95

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

Buy the DEC $27.50 PUT (SFM141220P27.5)

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

Six Flags Entertainment - SIX - close: 37.92 change: +0.38

Stop Loss: 38.15
Target(s): To Be Determined
Current Option Gain/Loss: -2.8%
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

08/19/14: The oversold bounce in shares of SIX continued on Tuesday. Yet the rally stalled near resistance at $38.00. The intraday high was $38.11. Our stop loss remains at $38.15. I am not suggesting new positions at this time.

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

08/18/14 new stop @ 38.15
08/06/14 triggered @ 36.90

Yandex N.V. - YNDX - close: 30.72 change: +1.68

Stop Loss: 31.10
Target(s): To Be Determined
Current Option Gain/Loss: -6.4%
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

08/19/14: Ouch! What happened to YNDX today? I don't see any news to explain the relative strength in Tuesday's +5.7% rally. The Russian stock market was only up +0.8% today.

Today's sharp rally has broken through several moving averages and above what should have been round-number resistance at $30.00. We are suggesting an immediate exit tomorrow morning.

- Suggested Positions -

Short YNDX stock @ $28.88

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

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

08/19/14 prepare to exit tomorrow morning
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


Aaron's Inc. - AAN - close: 25.96 change: +0.17

Stop Loss: 26.10
Target(s): To Be Determined
Current Option Gain/Loss: +5.9%
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

08/19/14: The stock market's widespread rally this morning helped fuel another bounce in AAN. Shares spiked past resistance near $26.00 and hit our stop loss at $26.10 before retreating back below the $26.00 level.

- Suggested Positions -

Short AAN @ $27.75 closed $26.10 (+5.9%)

08/19/14 stopped out at $26.10
08/18/14 new stop @ 26.10
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