Option Investor

Daily Newsletter, Saturday, 8/30/2014

Table of Contents

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

Market Wrap

Dog Days of August?

by Jim Brown

Click here to email Jim Brown

August was far from a dog this year with a +70 point gain on the S&P or +3.6% making it the second best month of 2014 and the best August in 14 years.

Market Statistics

The charts were favorable for a big gain for the indexes in August. July ended on a large decline and the bottom was formed in the first week of August. The indexes rebounded from the lows and posted an unusual gain for August. The $64 billion question this weekend is what will September bring? Will it be a September to remember? More on this later.

Friday was really light on news of any kind. There were only two economic reports and neither was of much interest to the few people still in the market. The Personal Income for July rose only 0.2% compared to +0.4% in June and forecasts of +0.3%. This was the slowest increase in income so far this year. Rapidly rising tax payments limited the increase in disposable income to +0.1%. Consumer spending declined -0.1% and real spending fell -0.2%. The drop in auto sales was a major reason for the decline in spending. Real nondurable and service spending also fell. A drop in energy prices contributed to the decline in spending but that is a positive event. However, food prices rose +0.3%.

Prices excluding food and energy rose +1.5% for the third consecutive month. If you are confused welcome to the club. Prices are rising but spending is falling. In theory if prices are rising and consumers are buying the same things then spending would rise. However, spending is declining and that suggests consumers are cutting back on spending because of the rising prices.

Consumer Sentiment rose slightly in August from 81.8 to 82.5. That is a significant improvement from the 79.2 in the initial release. That is the largest revision since April 2013 in either direction. In order for the headline number to jump that much it suggests the second half of the month was running at a rate over 87.0 in order to boost the headline average. If that run rate continues we could see a blowout in September. Analysts believe the spike in sentiment came from cooling tensions in Ukraine and the truce in Gaza. Of course since the survey was completed the Ukraine situation has worsened.

The present conditions component rose from 97.4 to 99.8 and a seven year high. The expectations component declined from 71.8 to 71.3.

The economic calendar for next week is chock full of important events. The biggest reports are the ADP Employment and the Nonfarm Payrolls. Both are expected to show a gain of +208,000 jobs. This is where the rubber meets the road for Janet Yellen. She is jobs focused and a big miss or beat could change the Fed's outlook for stimulus.

The ECB meeting on Thursday is going to be huge because Mario Draghi has all but promised a QE program for the EU. However, he has been promising and not delivering for nearly two years now so it is a tossup on whether he will deliver or just keep trying to talk the markets up. U.S. treasuries are rising because investors are expecting a QE event in Europe. A negative surprise could be a shock to the bond market.

The Fed Beige Book on Wednesday should not be a surprise and analysts are expecting more bullish news from the various Fed regions. Should conditions worsen instead of improve it would be a real upset for equities.

The ISM Manufacturing on Tuesday is almost lost among the other high profile events. It is important but no material changes are expected.

Lastly NATO is holding a two-day summit that starts on Thursday. With Russia invading the Ukraine and sending fighters and bombers into sovereign air spaces all around its borders and even into U.S. airspace there will be some serious discussions at the summit but nothing will happen militarily. Even though NATO is supposed to provide a common defense against Russia nobody actually wants to be dragged into a fight. It is the coalition of the weak against the Russian bully.

There are no stock splits for next week. Next up on the calendar that is worth watching is Continental Resources on Sept 11th. UGI is on a pre-split run but the time is too short to play them. CPK has no volume and no trader interest.

CLR closed at a new high on Friday and appears to be making a run for it.

Since almost everyone was at the beach or mountains on Friday the stock news was very sparse. For shareholders of United Therapeutics (UTHR) it was Christmas in August regardless of where they were spending their holiday Friday. Shares of UTHR rallied +28% or $26 to $118 on news of a favorable court ruling over its blood pressure drug Remodulin. The court ruled that drug maker Sandooz can't make a generic version of Remodulin until October 2017. This is not that big of a drug in the marketplace with sales in 2013 of $491 million but it is a big drug for UTHR at 40% of its revenue. Basically they won three more years of roughly $500 million a year in revenue before the competition from generics crimps their sales.

Splunk (SPLK) enjoyed a +19% gain to $54 after it raised its full year sales forecast. Splunk helps companies analyze their Internet data. In the last quarter Splunk signed more than 500 new customers including Nordstrom (JWN), Dell (DELL) and Portugal's Banco BPI. The company ended the period with more than 7,900 customers. Full year revenue forecasts rose from $402-$410 million to $423-$428 million. Analysts were expecting $411 million. Second quarter revenue rose +52% to $101.5 million and beating estimates of $93.8 million.

Veeva Systems (VEEV) rose after subscription revenue soared +60% in Q2. Earnings of 9 cents beat estimates by 2 cents. Revenue rose +53% to $75.7 million and analysts were expecting $69 million. The company raised forecasts for the current quarter to rise +43% to $78.5 million but that was below estimates of $85 million. However, the company raised its profit forecast to 30-31 cents, up +32%, compared to its prior estimate of 27 cents. Analysts were expecting 31 cents.

On the surface it appeared to be an underwhelming guidance raise since they barely met estimates on earnings and were still below on revenue but apparently investors were satisfied since the stock spiked +20% on the news. It is possible that the thin volume simply caught the shorts off guard.

Stifel Nicholas initiated coverage on Stratasys (SSYS) with a buy rating. Stifel's Patrick Newton said Stratasys was his "favorite idea" in 3D printing. He expects annual growth of more than 30%. SSYS recently launched two of its desktop products in about a dozen Home Depot stores priced at $1,375 and $2,899.

Stratasys has been on an acquisition binge with deals to acquire Makerbot, Solid Concepts and Harvest Technologies. Newton said those deals represent a strategic shift that may suggest "additional aggressive acquisitions in the future." He put a $150 price target on SSYS and the stock closed at $120.

Stifel also initiated 3D Systems (DDD) with a buy rating and a target of $65. Separately 3D completed the acquisition of Simbionix, "a global leader in 3D virtual reality surgical simulation and training" for $120 million in cash. The acquisition is expected to be immediately accretive to cash generation and earnings. Simbionix products include 16 simulation platforms with 60+ interventional procedures across 8 specialties and is used in hospitals, colleges and educational facilities in more than 60 countries.

JP Morgan (JPM) was apparently hacked by a team that originated in Russia. There are some that believe this was in retaliation for the Russian sanctions. The initial hack began in June using a major security flaw according to people close to the investigation. Once inside the JPM system they used sophisticated programs to steal "gigabytes" of data almost at will. A routine scan by JPM technicians detected the intrusion and once they found the traces they were able to follow those tracks to the main source of the leak. JPM said confidential customer data was stolen and everyone should be watching their accounts for unauthorized transactions.

The hackers were traced back to Russia but that is not the only source of problems. Chinese, Asian, Middle East, African and South American threats are encountered on an ongoing basis. Iranian hackers are constantly trying to break into U.S. companies to steal engineering designs and financial data. It is much easier to steal the plans for an anti-ship missile than develop one from scratch. U.S. security officials claim there are more than 650,000 attacks an hour from overseas sources. Only a very, very few are successful but it only takes one to do serious damage. Now that the JPM attack has been discovered the hackers are free to release all the confidential data and credit card numbers on the Internet. While the hack was in progress they probably did not release the data because they did not want to alert customers that problems existed. As long as they were continuing to collect the data the hack remained a secret. Now those gigabytes of data will be going up for sale.

Hackers used a software flaw known as a zero-day vulnerability to get past one of the banks websites and then plowed through layers of elaborate security to get to the confidential data. Security experts said this was a feat that was far beyond the capability of normal criminal hackers and suggests a state sponsored hack. JPM could have been targeted because they refused some wire transfers to sanctioned Russian firms and from the Russian embassy. JPM received a lot of bad press in Russia at the time with the foreign ministry calling the blocks "illegal and absurd." The bank was widely criticized by Russian commentators. Russia has used hackers before to attack other countries. In conflicts with Estonia and Georgia, Russia used hackers to crash their communications systems, utility companies and government websites. In 2012 and 2013 Iran tried to hack U.S. banks in retaliation for the nuclear sanctions.

Apple (AAPL) shares closed at a new high at $102.50 after formerly posting September 9th would be the date for the iPhone 6 announcement. When fund managers come back from vacation they are likely to buy more shares of Apple because they will want to have it in their portfolio at the end of the quarter.

Analysts believe Apple may officially announce the iWatch or whatever they are going to call it but it may not be available for six months or more. They need to announce it so they can engage the developer community before it is actually available. Since this is a brand new product there is no software or applications for it yet.

Some people believe this could be the biggest Apple announcement ever. They could announce two new iPhone 6 models, a larger 12.9 inch iPad and the iWatch all at the same time with staggered delivery dates. There have been so many leaks about the products they might as well just get the announcement over with and let the consumer demand begin to grow.

IDC Corp slashed its 2014 global growth rate for tablets to 6.5% from 12.1% because they now expect no growth in North Americana and Western Europe. Shipments outside North America and Europe are expected to rise +12% after soaring +88% in 2013. They now believe the number of tablets to be shipped in 2014 will be 233.1 million. Tablet growth is expected to come from developing markets where the devices with screens less than 8 inches are in demand. Prices are set to decline -10% by year end. The tablet fad is fading thanks to the phones with larger screens and the majority of people that want a tablet already have one. It will take something new in the space like the 12.9 inch model from Apple to produce new demand.

Tesla Motors (TSLA) jumped to a new high after reaching an agreement to create a vehicle-charging network in China in conjunction with China Unicom. The agreement will create 400 charging points in 120 cities at China Unicom outlets. Tesla owners will be able to charge their cars for free at these outlets. Tesla will also build 20 rapid-charging stations that work as much as 16 times faster than normal stations. China is considering spending as much as $16 billion to expand charging facilities and drive demand for clean cars. China's smog is the worst in the world. Tesla already has agreements with Soho China and China Yantai Holdings to setup charging points at their properties around the nation.

China is also considering a fuel tax to slow down the smog problem. By putting a high tax on fuel there will be less driving and less smog. This will encourage drivers to switch to electric cars. China is also considering additional tax incentives for electric car purchasers. Tesla is making a big move into China just as China is making a big push for electric cars.

Tesla's revenue is expected to grow at more than 50% a year over the next five years as they add new models and expand overseas. While the average price target is $40 below Friday's close there are some projections for shares to rise to $325 in 2015.

What is the deal with the drones? Google (GOOG) demonstrated its new drone delivery project in Australia by delivering dog treats to a rancher. Really? Google said it was testing a 5-foot wide single wing prototype drone in Queensland Australia. Commercial drones are illegal in the U.S. and that is why everyone is testing them in other countries. Amazon will be testing its drone systems in Mumbai and Bangalore in late October. Domino's Pizza tested delivering by drone last year.

I believe these are all publicity stunts. I seriously doubt anyone will be utilizing drones to deliver products in my lifetime and I think I have about 15-20 years left. Amazon ships about one million packages a day. Obviously they can't use drones for more than a couple miles away from the distribution center so how many drones can they actually use? In a major city having a drone drop a package on the sidewalk outside a building or apartment is a sure recipe for getting it stolen.

Google and Amazon claim they are going to use them for same day delivery. What item is small enough for drone delivery that is so important that you need it 2 hours after you order it? What item are you willing to go out onto your front sidewalk and wait for after you order it? I could see ordering a few Subway sandwiches for the office lunch but Subway does not have the time or the money to implement that kind of delivery to make a $2 profit on a pair of sandwiches.

I just don't get it but maybe I am too old to see the opportunity. I see multiple employees to manage and fly the drones plus continuing expenses for buying, maintaining and fueling the drone fleet. Liability insurance is going to be a huge expense. Unless you are delivering life saving medicine for big bucks I don't see how the drone fleet will be profitable. To me it will only be a major series of headaches for everyone concerned. I believe it is just a cheap publicity stunt in the Google-Amazon shopping war. Meanwhile Skynet is watching and waiting.

Alibaba is delaying its IPO again in order to answer a new round of questions posed by the SEC. Alibaba was poised to launch its IPO marketing this week but that has now been delayed. The delay was due to questions about the separation of Alipay from the IPO. That is the Alibaba equivalent of PayPal. The new launch date is the following week with tentative pricing on September 18th and trading to start on Friday the 19th.

The IPO is now expected to raise $20 billion and be the largest in U.S. history. Previously the $19.65 billion IPO by Visa in 2008 was the largest. The latest projection for the post IPO value is $154 billion. That is -22% below the prior consensus estimates. Just a month ago a Bloomberg poll found average estimates had a post listing valuation of $198 billion. There are 632 million Chinese Internet users and that number could exceed 850 million by the end of 2015.


The S&P closed at 2003.37 after trading at 1999 for most of the day. Friday just happened to be the 1999th day since the market bottom in March of 2009. For a while on Friday afternoon it appeared it would close at 1999 on the 1999th day but a burst of buying at the close ended that possibility.

That was a new record close for the S&P and I suspect it came on short covering ahead of the weekend and new positions ahead of what could be a good week for the markets. That assumes a lack of negative headlines from Europe, Israel and Iraq. This was month end and the next three trading days will see inflows of retirement contributions. That should lift the market. The volume on Friday of 4.3 billion shares was slightly higher than the 4.18 billion on Thursday. The volume over the last four days has been the lowest since 2008, excluding the end of December. No volume means no conviction but it was a holiday so that does not really hold true.

I think we saw some decent conviction last week since the markets did not go down after the two week rally. There were enough buyers in the market that every intraday dip was bought. There was no V bottom rebounds but buyers appeared one after the other to slowly push the markets back to positive territory.

A recent survey found that 81% of actively managed funds are lagging behind their benchmarks. With only four months left in 2014 those fund managers are going to have to be proactive to try and boost results or they will see outflows in early 2015 when investors reevaluate their positions. We are moving into the "invest or die" period of the year. Lack of performance means a lack of yearend bonuses and most managers receive the most of their compensation from their bonuses. To make it even more stressful the majority of funds have a fiscal year end at the end of October. That is to allow two months for the accountants to produce the tax documents for the individual investors by December 31st.

Fund managers returning from the holidays will be shuffling their portfolios in an effort to spike their results. This may mean selling some winners and putting that money to work in stocks they believe have the potential for a short term gain.

The VIX is only 3 points from its lows after falling -29% in August. There is no fear in the market and all the recent geopolitical headlines only caused momentary pauses in the rally. There were roughly 3 puts purchased for every call option last week. However, only about 506,000 options on the S&P-500 traded on August 27th and the lowest level since May. That is about 70% lower than traded in the first week of August.

Fear has disappeared and complacency has returned. While it is good that fear has been erased we are not going to be surging to new highs on complacency. The bulls need to come back from the holiday and stampede into the market.

The S&P historically loses -1.1% in September since 1991. That is not the problem. The big problem is that September normally produced a 4.5% swing during the month compared to an average of 3.4% in all months. September is normally volatile.

August is also a volatile month and we did not see that this year. Investors are hoping September starts out like it did in 2013. The S&P hit a low of 1633 on the day after Labor Day and then rallied to 1729 over the next two weeks. That is a +96 point gain. However, a sell off began on the 20th that ended at 1646 three weeks later to erase nearly all the gains. This year investors are hoping to repeat only the first two weeks of gains and skip the -4.8% correction that followed.

The S&P has no real resistance until it reaches 2025 but it is also lacking any strong support until the 100-day average at 1930. There is light support that was built by brief pauses on the way up at 1995, 1985, 1965 and 1950 but none are significant. We may not need any significant support if the dip buyers continue to appear. That theory will probably be tested at some point next week so be prepared.

The Dow is vertically challenged. After a strong rebound from the August 7th lows it only managed a +97 point gain for the entire week. Most of that was gained on the first two days and the rest of the week was a battle to hold those gains.

We were due for some consolidation and I think everyone would vote for that kind of week after an 820 point rebound. Consolidation in place is far more agreeable than a couple hundred point decline for profit taking. This is why I think the market showed conviction. It was a low volume week with plenty of ugly headlines and the Dow still added +97 points. It could have been a LOT worse.

The Dow has support at 17,035 and 16,990 before dropping to 16,600 for conviction support. There are several bands of converging resistance at the 17,100 level and the resistance highs at 17,138. Technically this would be a good place for a bout of profit taking and then a new assault on the July highs. The market likes to climb a wall of worry and the converging resistance is a decent challenge. Once over that level we should be good for several hundred more points. Resistance would be in the 17,325 range and again at 17,500.

The Nasdaq Composite closed at a new 14 year high on Friday thanks to a burst of buying at the close. The Nasdaq has resistance at 4,600 and initial support at 4,550 and 4,515. There were some big gainers on news headlines on Friday that helped to push the composite higher. The +22 point gain on Friday was half the gains for the week. Like the Dow the tech index consolidated sideways all week. I am sure nobody is complaining.

The Russell 2000 punched through resistance at 1165 on Tuesday to 1175 and then traded sideways the rest of the week to end at 1174. Thursday's dip back to 1165 proved that it had turned from resistance into support and investors were not afraid to buy the dip. If the Russell can move over that 1175 level on Tuesday we could see a spring to the old highs at 1208. Small caps are where the action is for fund managers. If they want fast gains over the next two months they need to bet on the small caps. The big cap stocks are stores of money and tend to move slower. Managers can get more short term bang for their buck in the small caps IF the market is going higher.

The biggest challenge to the markets next week could come from the biotech sector. The Biotech Index posted a whopping 6.1% gain for the week of +180 points. The M&A in the sector along with favorable drug news is powering the stocks higher. They were the main reason for the Nasdaq's gains last week.

The index is at a crucial point. The $BTK has broken out to new highs but the various Biotech ETFs are at double top levels. If fund managers decide it is time to take profits and move to something else the biotechs could have a rocky week.

I am bullish for next week assuming we don't have any destructive headlines either geopolitical or economic. On a payroll week you never know because the anticipation or maybe I should say worry is so high. The ECB meeting is also a challenge because there is so much commentary around that expects Mario Draghi to finally announce a QE program. Inflation in Europe has fallen to 0.4% and unemployment is 11.5%. The ECB needs to take action.

Yields on the U.S. ten-year treasury are plunging with our debt seen as the safe port in the storm. If the ECB does institute QE the European debt yields are going significantly lower and the U.S. yield at 2.34% at Friday's close will seen like a windfall. If Draghi fails again to take action there could be a dramatic change in the treasury market and it could impact equities.

Now is the time to refinance your mortgage if you did not do it in 2013.

Random Thoughts

David Trice warned of an impending correction of 30-60% for the S&P-500. Unfortunately he made the same prediction in 2010 and again in 2012. Eventually he will get it right. Trice is the founder of the Prudent Bear fund so that should give you some idea of his mindset. The fund has underperformed the market by 400,000 basis points since 1996.

Another technician, Abigail Doolittle of Peak Theories Research, warned of a 50-60% market crash ahead as the Fed begins raising interest rates. While the end of QE is going to cause some market volatility I seriously doubt it will be a 50% crash.

Russia invaded the Ukraine. Pretty much everyone believes that except those that listen to Putin. He is still denying it. The 1000 special operations forces that crossed the border into Ukraine were humanitarian "volunteers" according to Putin. The 100 tanks, 500 armored personnel carriers, 200 artillery pieces that crossed with them must have been relief supplies.

Putin had a lot to say on Friday.

"No matter what U.S. does, it turns out like Libya and Iraq."

"UN can't be a foreign policy tool for the U.S."

"Fights at UN sometimes fiercer than during cold war."

"European leaders are not showing independent thinking."

"The liberal economic model leads to a buildup of crises."

"Russia is a country that doesn't fear anything."

"Leaders win support by being confident they are right."

"Russia is far away from being sucked into a global conflict."

"Russia is a nuclear power and is strengthening its capabilities."

"Russia strengthens its arsenal to feel safe, not to threaten."

"I don't think anyone seeks a large scale conflict with Russia."

Clearly he was warning the U.S. and Europe not to mess with Russia over the Ukraine invasion. We have returned to the cold war with a military buildup on Russia's side and a constant escalation of tensions.

He also said the satellite pictures of Russian tanks and artillery moving into the Ukraine were not real. He said they are from a video game. I guess if plausible deniability is your forte then any excuse works.

Russia is rapidly approaching a brick wall. More than 24% of the foreign debt of Russian banks and corporations, or $157 billion, comes due in 2014. Sanctions have erased the possibility to refinance that debt. Rosneft, the national oil company has $15.9 billion maturing in 2014 and $16.2 billion in 2015. Rosneft has asked the government to pay its $45 billion in debt coming due over the next 24 months out of its "rainy day fund." The finance ministry reportedly had $173 billion in that fund when the sanctions began. Many other companies have the same problem as Rosneft. Russian banks and corporations owed $652 billion in foreign debt and $650 billion in domestic debt when the sanctions were levied. Half of Russia's capital comes from foreign sources and those have now been shut off with the exception of China and a few other countries that ignore the sanctions. Add in the impact of the flight of capital out of the country and Russia is going to have some serious problems in 2015.

The ECB claims $221 billion in capital left Russia last quarter. Russia must raise $360 billion in new capital over the next 24 months just to maintain 2013 levels. In past years one half of investment finance totals have been raised overseas and is no longer an option for Russian companies. The impact of the financing shortfalls are expected to cause a 6% to 10% decline in GDP. It would not be unreasonable to see a long string of defaults from Russian companies or even Russian debt if Putin follows through on his conquest of Eastern Ukraine.

If the U.S. and Europe really wanted to put pressure on Russia they could kick them out of the SWIFT system and the Russian banking system would collapse. The SWIFT system communicates money transfers between countries. No communication, no transfers.

NATO is holding a summit this week and I expect a lot of consternation among the participants. Ukraine wants to be in NATO but I doubt NATO wants Ukraine to join. The entry requirements would be more than the Ukraine could handle.

Other NATO countries bordering Russia are escalating their military readiness and they will be seeking reassurances from the rest of the attendees that NATO will come to their aid if Russia moves in their direction.

Poland refused over flight permission for the Russian Defense Minister and his plane had to turn around and return to Bratislava where he had been attending a 70th anniversary of the Slovakian national uprising. In retaliation Russia denied over flight permission for the Romanian Prime Minister's plane.

Russia has now closed 12 of the highest profile McDonalds restaurants for "health reasons" in what is clearly a retaliation for the sanctions. Russia is highly publicizing the "health reasons" claim in an effort to cause customers to avoid the other 440 stores in Russia. Initially they blamed nutrition violations on the menus but that did not cause the desired impact so they changed it to health reasons.

In France 1 in 6 people have a favorable view of ISIS. A survey showed that 27% of 18-24 year olds had a positive attitude to ISIS. 22% of 25-34 year olds and 20% of 35-44 year olds were favorable to ISIS. The reason for this is that a growing number of Europeans are from predominantly Muslim countries. More than 1,000 and as many as 2,500 Europeans have traveled to Syria and Iraq to fight with ISIS. The U.S. claims more than 500 citizens have left to potentially fight for ISIS. Some believe it could be a lot more but they took round about routes to get there to disguise their destinations.

Home prices just hit a 70 month high. Unfortunately home price appreciation is slowing in more than 65% of U.S. markets. Future annual appreciation is likely to be in the 5% range and what is considered normal. Incomes are not rising and credit is still tough to get. The low interest rates are no longer creating a surge of buying. The boom is over.

The intelligence community has noticed a significant increase in chatter among Islamic terrorist organizations overseas both on the Internet and on phone lines ahead of the 9/11 anniversary. Terrorists like to use key anniversary dates to remind us they are still there. Experts warned that they cannot pinpoint where or win an attack could take place but the increase is similar to that seen prior to 9/11. With ISIS kicked out of Al-Qaeda it would not be unreasonable for ISIS to attempt a large attack on the U.S. as a bragging chip that shows they are superior to Al-Qaeda and can successfully attack the USA.

On Thursday Judicial Watch warned that agents of Homeland Security, Justice and Defense Dept agencies had been placed on high alert concerning an imminent terrorist threat coming through the southern border. (LINK HERE)

Reportedly the Feds warned that ISIS was operating in Juarez and were planning an attack with car bombs and improvised explosive devices. Intelligence officials picked up radio chatter indicating the terrorist group is planning to "carry out an attack at the border" and it is "coming very soon." The commanding general at Ft Bliss in El Paso confirmed he had been briefed on the warning.

There was another headline on the news in the middle of the week about ISIS instructing U.S. operatives through the Internet on suggested targets of opportunity such as shopping malls, sporting events and high traffic business districts. The warning ran for a couple hours on TV then was completely erased from mention on any station. I suspected at the time that Homeland Security had it pulled from the airwaves in order to avoid a panic.

An ISIS laptop captured in Turkey had files describing how to build bubonic plague bombs as well as other biological weapons. There were 35,347 files on building car bombs, disguises, instructions on how to fight, how to hide in plain sight, speeches by Osama Bin Laden, etc. It was a veritable instruction manual on how to be a terrorist. After browsing the files the military experts warned it was obvious ISIS was going to target countries other than Iraq.

The tanker United Kalavryta carrying $100 million in Kurdish oil disappeared in the Gulf of Mexico last week. It had been anchored offshore as the result of an Iraqi claim the oil belonged to Iraq. A court order to seize the oil had been issued. However, after a month of court battles another court threw out the seizure order on Monday saying the court lacked jurisdiction because the tanker was anchored 60 miles offshore.

The day after the order was cancelled the tanker disappeared. The Coast Guard said the tanker probably turned off its transponder and went black and headed back out to sea. Without lights or a transponder even a million barrel tanker is hard to find in the ocean. Multiple tankers carrying Kurdish oil have turned off their transponders so they can disappear into the global waterways and unload their oil away from prying eyes. This is done to prevent Iraq from knowing who bought the oil and suing to be compensated.

Bullish sentiment in the weekly AAII Sentiment Survey rose +5.8% to 51.92% and the highest level since December 26th. Bullish sentiment has risen more than 20 points since the 30.89% reading on August 7th. Sentiment this high has only been seen 5 times since January 2011. For a contrarian that is a bearish signal.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Sometimes the best investments are the ones you don’t make."

Donald Trump


New Plays

Oil Service & Biotechs

by James Brown

Click here to email James Brown


Oil Services ETF - OIH - close: 55.16 change: +0.37

Stop Loss: 53.60
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
The Market Vectors Oil Services ETF (exchange traded fund) tries to mimic the Market Vectors US Listed Oil Services 25 index. The top ten holdings for this ETF are SLB, HAL, NOV, CAM, BHI, SDRL, WFT, ESV.L, RIG, and HP. SLB and HAL are by far the biggest two components.

A multi-week decline in the price of crude oil has not stymied the industry's interest in drilling. The number of oil rigs in the U.S. hit an all-time record of 1,588 rigs about two weeks ago. That's the highest number since Baker Hughes started counting back in 1987.

Meanwhile crude oil prices appear to peak in late June this year but after a two-month decline oil is starting to rebound. As geopolitical tensions continue to rise in the Middle East (with ISIS growing in Iraq and Syria) and tensions with Russia and Ukraine, it could put a floor under energy prices, especially as we get closer to winter. Oil tends to show strength in the fall.

Technically the OIH produced a correction from its July highs but has started to bounce after a 38.2% Fibonacci retracement (shown on the weekly chart below). Tonight we're suggesting a trigger to open bullish positions at $55.75, which is just above the simple 50-dma.

The $58.00 level is short-term resistance but our long-term target is higher. Currently the point & figure chart is forecasting at $61 target.

Trigger @ $55.75

- Suggested Positions -

Buy the OIH ETF @ (trigger)

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

Buy the 2015 Jan $60 call (OIH150117C60) current ask $0.55

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

Annotated Chart:

Weekly Chart:

Tekmira Pharmaceuticals - TKMR - close: 21.40 change: +0.64

Stop Loss: 19.70
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 7.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
Biotech stocks have been some of the market's best performers this year. The BTK biotech index is up +34.3% year to date. The IBB biotech index is up +21.8%. Big name players like GILD and their $84,000 Sovaldi cure for hepatitis C has captured the imagination for investors. Meanwhile another story is making big waves in the biotech industry and that is the world's worst outbreak of Ebola.

Ebola is an extremely deadly virus. The virus is one of several Viral Hemorrhagic Fevers. According to the CDC, this virus was discovered back in 1976 "in what is now the Democratic Republic of the Congo, near the Ebola River." There are a handful of subspecies of the virus, which can have a 50% to 90% fatality rate. There is no known effective cure. Another challenge is the time frame. A person can be infected for eight to 21 days without showing any symptoms. Once they start showing symptoms they become contagious. Unfortunately, the early symptoms are pretty common like headaches, sore throat, a fever, muscle soreness.

Right now four countries in Africa are facing a serious crisis. Guinea, Liberia, Nigeria, and Sierra Leone have all reported deaths from the current outbreak that has killed over 1,750 confirmed cases and suspected cases of more than 3,000. The U.N. just warned that the outbreak is accelerating beyond control and cases could surge to more than 20,000. TKMR has been getting a lot of trader attention because the company is working on a potential Ebola treatment.

According to the company website, "Tekmira Pharmaceuticals Corporation is a leading RNA interference (RNAi) therapeutics company. With more than 14 years of industry experience, Tekmira is a global leader in the RNAi field. We are developing novel drugs in areas where there is a significant unmet medical need and commercial opportunity. We also license our leading lipid nanoparticle (LNP) delivery technology to partners around the world."

Right now investors are looking at TKMR for its potential Ebola drug (TKM-Ebola). In March this year the U.S. FDA gave TKM-Ebola fast track status to develop and test this new treatment. TKMR has cautioned that this is still in development and they want to work with W.H.O. and the F.D.A. and the emergency labs currently working to develop some kind of treatment for the African Ebola Outbreak. It could be weeks or months before we know more.

As traders we should consider this an aggressive, higher-risk trade due to TKMR's volatility and the nature of headline risk.

The stock bounced near round-number support in the $20.00 area on Friday. Aggressive investors may want to jump in right now at current levels. We're suggesting a trigger to open small bullish positions at $22.30, just above last week's high.

Trigger @ $22.30 *small positions*

(this is an aggressive trade)

- Suggested Positions -

Buy TKMR stock @ $22.30

Annotated Chart:

60-minute Chart:

In Play Updates and Reviews

Still Buying Dips

by James Brown

Click here to email James Brown

Editor's Note:
Traders were still in the mood to buy dips last week as the S&P 500 rebounded near its simple 10-dma.

Current Portfolio:

BULLISH Play Updates

Delta Air Lines - DAL - close: 39.58 change: -0.31

Stop Loss: 38.65
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
Entry on August 21 at $40.75
Listed on August 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 11 million
New Positions: see below

08/30/14: After weeks of declines the price of oil bounced last week. That could be pressuring the airline stocks. DAL has been underperforming the last few days. The $38.00 level looks like support but we are going to take a more defensive posture and raise our stop loss to $38.65.

I am not suggesting new positions at the moment.

Earlier Comments: August 20, 2014:
Delta is the world's second biggest passenger airliner on the planet. They serve almost 165 million customers a year. Believe it or not but they started back in 1924 as an aerial crop dusting company called Huff Daland Dusters. Now they have almost 80,000 employees and a fleet of more than 700 planes that fly to 334 destinations in 64 countries on six continents.

A lot of investors look at the airline stocks as value plays. That's easy to see given their cheap multiples. DAL has a P/E of 3.1. Yet the company is seeing growth as well. Last year the airlines were big winners with the market's 2013 rally. This year could be another strong one thanks to falling oil prices. There has been a lot of geopolitical headlines but none of them seem to be pushing oil prices higher. Instead crude oil prices are falling. That's a huge deal for the airline companies because fuel is their largest expense. DAL has the lowest fuel costs in the business because they own their own refinery. The company expects that their fuel hedging and refinery operations should cut their fuel costs by $350 million this year.

More than 60% of DAL's business is in the U.S. The country's slow economic improvement has helped fuel gains for DAL. The airline has beaten Wall Street's bottom line estimates four quarters in a row. Back in June they raised guidance. Their most recent earnings report was July 23rd where they delivered a profit of $1.04 a share, one cent above estimates. DAL management that said their pre-tax profit was $1.4 billion, which is a +70% improvement from a year ago. They ended the second quarter with debt at less than $8 billion, which is a 20-year low. DAL's margins have been improving. Management expects margin improvement to continue and should see a jump from 13.5% to 15-17% in the third quarter.

Technically DAL saw a correction from $42 to $35 (-16%) from its June highs. Investors bought the dip again near $35.00 in early August. Now DAL has built what appears to be a bullish double bottom. The current bounce from its August lows is breaking through resistance.

If this trend continues we want to hop on board. Tonight we're suggesting a trigger at $40.75. The 2014 high near $42.50 could be short-term resistance but longer-term DAL looks poised to breakout.

- Suggested Positions -

Long DAL stock @ $40.75

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

Long 2015 Jan $45 call (DAL150117C45) entry $1.70*

08/30/14 new stop @ 38.65
08/21/14 triggered @ 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


Green Plains Inc. - GPRE - close: 44.69 change: -0.02

Stop Loss: 42.25
Target(s): To Be Determined
Current Option Gain/Loss: +9.6%
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

08/30/14: GPRE has delivered a nearly non-stop rally from its May 2014 lows. That rally stalled a little bit last week. Shares still managed a gain but the $45.00 level is proving to be resistance.

Tonight we'll raise the stop loss to $42.25. I'm 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*

08/30/14 new stop @ 42.25
08/27/14 new stop @ 41.85
08/23/14 new stop @ 40.95
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: 45.43 change: +0.55

Stop Loss: 42.90
Target(s): To Be Determined
Current Option Gain/Loss: +3.1%
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

08/30/14: One of the big stories for MSFT on Friday was about its MSN messenger. Back in the day this online chat software had 330 million users. As social media and texting via smart phone took over the number of users has dwindled and MSFT has been funneling chat members to use Skype. In October this year MSFT will retire their MSN messenger service. I doubt this story had any impact on MSFT's display of relative strength on Friday. The stock surged +1.2% and shares look poised to breakout past resistance near $45.50.

If you're looking for a new bullish entry point then a close above $45.50 could work.

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

08/23/14 new stop @ 42.90
08/14/14 trade begins. MSFT opens at $44.08
Option Format: symbol-year-month-day-call-strike


Skyworks Solutions - SWKS - close: 56.66 change: +1.12

Stop Loss: 52.45
Target(s): To Be Determined
Current Option Gain/Loss: +7.6%
Entry on August 07 at $52.65
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.3 million
New Positions: see below

08/30/14: SWKS is keeping the rally alive with another weekly gain, another 2014 high, and another multi-year high. We are starting to see a parade of headlines for Apple's upcoming product launch in September. All the hype tends to boost shares of AAPL ahead of their new produce unveiling and this should boost SWKS as well.

Tonight we'll raise the stop loss to $52.45.

I am not suggesting new positions at this time.

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

08/30/14 new stop @ 52.45
08/13/14 new stop @ 49.95
08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike


Ubiquiti Networks - UBNT - close: 45.36 change: -0.12

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 902 thousand
New Positions: Yes, see below

08/30/14: Last week turned out to be a quiet one for shares of UBNT. The stock is testing short-term support near $45.00 and its simple 10-dma. We are still on the sidelines waiting for a new relative high. Our suggested entry point is $46.75.

Earlier Comments: August 26, 2014: UBNT is in the technology sector. The company operates in the wireless technology and networking industry. According to the company press release, "Ubiquiti Networks is closing the digital divide by building network communication platforms for everyone and everywhere. With over 20 million devices deployed in over 180 countries, Ubiquiti is transforming under-networked businesses and communities. Our leading edge platforms, airMAX, airFiber, UniFi, UniFi Video, UniFi VoIP, mFi and EdgeMAX combine innovative technology, disruptive price performance and the support of a global user community to eliminate barriers to connectivity."

The company has been consistently beating earnings estimates. They just wrapped up their fiscal year 2014 with the earnings report on August 7th, 2014. The company managed to beat estimates all four quarters. Their 2014 Q4 numbers showed sales up +54% from a year ago while EPS were up +70%.

It has been a rocky year for the stock price in spite of the company's earnings track record. If you recall the stock market suffered a pullback in March this year. The high-growth stocks and momentum names were hit pretty hard. UBNT was one of those that was punished and shares collapsed from $55 to $30 over the next several weeks. Since then UBNT has been slowly recovering.

Right now the stock is on the verge of breaking through resistance. A new breakout could spark some short covering. The most recent data listed short interest at 32% of the small 26.6 million share float.

We are suggesting a trigger to open bullish positions at $46.75.

Trigger @ $46.75

- Suggested Positions -

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

Buy the OCT $48 call (UBNT141018C48)

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


WhiteWave Foods Co. - WWAV - close: 35.02 change: -0.04

Stop Loss: 31.40
Target(s): To Be Determined
Current Option Gain/Loss: +0.3%
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

08/30/14: WWAV briefly traded to a new all-time high on Friday before reversing its gains. Shares had been bouncing from short-term technical support at their 10-dma. The stock did manage a gain for the week. WWAV is up four weeks in a row.

With WWAV right at resistance near $35.30 I am not suggesting new positions.

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

Mobile Mini, Inc. - MINI - close: 39.17 change: -0.31

Stop Loss: 41.40
Target(s): To Be Determined
Current Option Gain/Loss: - 1.0%
Entry on August 28 at $38.80
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 265 thousand
New Positions: see below

08/30/14: MINI did not see any follow through on Thursday's bounce. Instead the stock underperformed with a -0.7% decline on Friday. I would still consider new bearish positions at current levels.

Earlier Comments: August 27, 2014:
The mobile storage space might be facing some headwinds. MINI provides commercial storage, construction storage, residential storage, and mobile offices. According to the company's website, "Mobile Mini, Inc. is the world's leading provider of portable storage solutions through its total lease fleet of over 213,000 portable storage and office units with 135 locations in the United States, United Kingdom and Canada. Mobile Mini, Inc. went public in 1994 and trades on NASDAQ under the symbol MINI. Mobile Mini offers customers a wide range of portable storage and office products in varying lengths and widths with an assortment of differentiated features such as: proprietary security systems, multiple door options and 100 different configuration options."

Sales are growing but MINI is developing a trend of missing earnings or delivering lackluster results. MINI missed Wall Street's EPS estimates back in February and April. The latest earnings report was July 30th. Revenues were almost +10% from a year ago but earnings were down. MINI reported a 23-cent profit, which was in-line with estimates but down from 25 cents a year ago. Investors crushed the stock following the late July earnings report. MINI was already weak through most of July and then got hammered from $43 to under $38 on its earnings news.

The stock's long-term up trend might be in jeopardy. The company is not growing fast enough to justify its P/E above 40. The stock's oversold bounce from the post-earnings sell-off has stalled at technical resistance at the exponential 200-dma. Now it appears that MINI is beginning to roll over.

Today's low was $38.93. I'm suggesting a trigger at $38.80 to open bearish positions.

- Suggested Positions -

Short MINI stock @ $38.80

08/28/14 triggered @ 38.80


Natural Grocers by Vitamin Cottage - NGVC - close: 18.45 chg: +0.38

Stop Loss: 20.10
Target(s): To Be Determined
Current Option Gain/Loss: +5.1%
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

08/30/14: NGVC slipped to new 18-month lows on Thursday. It was also testing support near the $18.00 mark. Shares managed a rebound on Friday and added +2.1%. I am not suggesting new bearish positions at this time.

More conservative investors might want to lower their stop loss again.

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

08/21/14 new stop @ 20.10
08/12/14 triggered @ 19.45


Papa John's Intl. Inc. - PZZA - close: 39.60 change: +0.18

Stop Loss: 41.25
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
Entry on August 25 at $39.56
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 368 thousand
New Positions: see below

08/30/14: PZZA has spent the last six trading days drifting sideways in the $38.50-40.00 zone. Is this a bottom or is this just a temporary consolidation before it begins the next leg lower? The fact that shares have been underperforming the major indices is good news for the bears. Yet I would still hesitate to launch new positions until PZZA starts to show new momentum lower.

Earlier Comments: August 23, 2014:
Papa John's was founded back in 1985 and headquarter in Louisville, Kentucky. They have grown into the planet's third largest pizza delivery company. There are over 4,400 Papa John locations in all 50 U.S. states and 35 countries. The good news for PZZA has been their international growth. They're growing in the U.S. as well but international growth has been outperforming.

Last year was a banner year for the stock price. Shares virtually doubled from their 2013 low to their December 31st close. The rally kept going in 2014. However, momentum reversed in March when many of the momentum names were crushed. PZZA suffered a multi-week hammering with a drop from $55 to $40. Since then stock has struggled.

One of the biggest challenges for restaurant stocks has been food inflation. Food prices have been climbing sharply the past several months. In the U.S. food inflation is running about +20%. A lot of that is due to surging prices in meat, eggs, and dairy. Guess who uses a lot of cheese? PZZA does.

PZZA's earning trend has been shaky. They missed earnings last November. February's report was only in-line with estimates. May's announcement missed estimates. Their most recent earnings report was August 5th. Wall Street expected a profit of $0.42 a share on revenues of $384.8 million.

PZZA delivered a profit of $0.40 with revenues up +9.1% to $380.9 million. That's a miss on both counts. The company said same-store sales in North America were up +6% and overseas up +8.6%. That looks healthy. Yet their 40-cent profit lines up with a 39-cent profit a year ago. Sales are up but profits are flat? The biggest culprit is probably rising ingredient costs. Management did raise their 2014 guidance but even after they raised guidance it was still below Wall Street's consensus.

The company is still expecting relatively decent sales growth but it doesn't seem to be fast enough to satisfy Wall Street. The recent breakdown under support near $40.00 is bearish. The point & figure chart is bearish and forecasting a $32 price target.

Tonight we are suggesting bearish positions immediately. We're not setting an exit target yet. I will point out potential support on the weekly chart (see below). The path of least resistance for PZZA definitely looks lower.

FYI: PZZA does have options but the spreads are too wide to trade them.

- Suggested Positions -

Short PZZA stock @ $39.56

08/25/14 trade begins. PZZA gaps higher at $39.56


Transocean Ltd. - RIG - close: 38.65 change: +0.24

Stop Loss: 40.01
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.4 million
New Positions: Yes, see below

08/30/14: RIG has also been trading sideways the last few days. At the moment we are on the sidelines with a suggested entry point at $37.25. However, we want to keep an eye on what should be overhead resistance in the $39.50-40.00 region. A failed rally there could be a new entry point for bearish trades.

Earlier Comments: August 25, 2014:
The oil drillers could be facing a significant downturn due to lower demand and rising supply. That's a tough combination for any business.

RIG is one of the biggest. According to the company website, "We are a leading international provider of offshore contract drilling services for energy companies, owning and operating among the world's most versatile fleets with a particular focus on deepwater and harsh-environment drilling. Our fleet of 79 mobile offshore drilling units includes the world's largest fleet of high-specification rigs consisting of ultra-deepwater, deepwater and premium jackup rigs. In addition, we have seven ultra-deepwater drillships and five high-specification jackups under construction."

The company's latest earnings report on August 6th looked pretty good. Wall Street was expecting a profit of $1.12 a share. RIG delivered $1.61 - blow out number. Revenues also beat estimates at $2.33 billion versus the $2.29 estimate but revenues were down from a year ago. Investors ignored the better than expected results. That's because the industry is facing a number of headwinds.

Day rates are dropping and more rigs are sitting idle. Analysts are lowering estimates due to rising down time. RIG's latest fleet update showed that out-of-service time for 2014 had risen by 28 days. Their 2015 projected out-of-service time had surged 236 days. That is significant when you consider that these rigs get paid hundreds of thousands of dollars per day they operate. Of course those numbers are coming down.

Angie Sedita, an analyst with UBS, said, "We believe dayrate pressure will persist given limited rig tenders (demand) and fierce competition, with dayrates already down 25%-40% from peak levels."

Raymond James analyst Praveen Narra provided more details on their bearish outlook. According to Narra:

After a decade of good times, the deepwater drilling rig market is facing a multiyear down-cycle. Historically, most offshore drilling cycles have been short-lived as there have usually been sudden demand shocks that tend to self correct relatively quickly. This time, it is more of a new rig supply problem compounded by a moderation in offshore spending from the suddenly “return driven” multinational major oil companies. That means this down-cycle should be more drawn out than usual. Specifically, we think the downturn will take about three years to play out with average floater day-rates falling about 25% with over 60 floating rigs needing to be stacked (either warm stacked or cold stacked). More importantly for investors, we think consensus 2016 floater estimates (on average) are still about 25% too high. Put another way, earnings multiples are not as attractive as some now think, in our view. Obviously, the lower-end, older floating assets will be hit the hardest. While everyone loses in this environment...

If you're curious a "stacked" rig is not in service. They can be warm stacked, which means they are idle but still have a crew and ready for deployment. A cold stacked rig has essentially been mothballed.

The bearish outlook for RIG is evident in the stock's decline. Shares just broke down under support near $38.00. The Point & Figure chart is bearish and forecasting at $30.00 target but this target could fall further. It is worth noting that there are a lot of traders already bearish on RIG. The most recent data listed short interest at 18% of the 327 million share float. That can spark short squeezes like the one back in April and again in June.

Tonight we are suggesting a trigger to launch bearish positions at $37.25.

Trigger @ $37.25

- Suggested Positions -

Short RIG @ (trigger)

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

Buy the OCT $35 PUT (RIG141018P35)

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