Option Investor

Daily Newsletter, Saturday, 9/6/2014

Table of Contents

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

Market Wrap

Tough Week for Indexes

by Jim Brown

Click here to email Jim Brown

The markets struggled all week but S&P closed at a new high on Friday and the Dow missed it by less than 1 point.

Market Statistics

All of the major indexes with the exception of the Russell 2000 managed to add to their gains from the prior week but those gains were minimal. In the graphic above the majority of the major indexes gained only single digits for the week.

The stand out was the Dow Transports with a +193 point surge and a clear breakout to new highs. As the Dow transports go the Dow industrials normally follow. The stage could be set for a good week ahead.

The Dow started off in a hole on Friday with a dip to 17,009 after the August Nonfarm Payrolls came in significantly weaker than expected. The August report showed only 142,000 jobs created and the prior two months were revised down -28,000. The three month moving average has declined from +267,000 in June to +207,000 in August. That is a significant decline. An even bigger surprise was the minimal 16,000 jobs that were created in the separate Household Survey.

The unemployment rate declined from 6.2% to 6.1%. The labor force participation rate declined -.1% to 62.8% and a 36 year low. More than 64,000 people dropped out of the labor force in August pushing the number not in the labor force up to 92,269,000.

With the majority of headline forecasts in the 200,000 to 250,000 range the 142,000 number was a big surprise. Almost immediately a flurry of analysts were hitting the wires with negative comments. Diane Swonk, one of the most respected and often quoted economists said something to the effect of "If August created only 142,000 jobs, pigs will be flying." She also called the number a "fluke" in the internals.

Numerous analysts echoed those sentiments but it does not change the number. Everyone expects it to be revised higher next month. That may be true but there were some serious declines in the data. Manufacturing added zero jobs in August compared to +28,000 in July. Construction added only +20,000 compared to +31,000 in July. The retail sector actually lost -8,000 compared to a +21,000 gain in July. Transportation and utilities only managed to add +1,000 jobs compared to a gain of +19,000 in July. The only major gain came from professional and business services, which gained +47,000 compared to +36,000 in July.

Some analysts blamed the drop on the seasonal adjustments. Normally automakers layoff a lot of workers in the summer when they are changing over to new models. In August they hire them back and strange as it may seem those rehires are counted as new jobs. This year the automakers did not shutdown because demand for cars was so strong. When the seasonal adjustment that accounts for the normal rehire process was added it subtracted jobs and produced the unexpectedly low number.

Obviously that is speculation but it could be somewhat correct. However, that would only impact the manufacturing sector and there were no job declines in that line item. There were no manufacturing jobs created according to the report. Hypothetically if there were 20K created and the seasonal adjustment removed 20K to make the total zero it still would not have any a material impact on the overall number.

I was surprised the headline number was that low but I did expect it under 200K. In retrospect quite a few analysts claimed August was the least trustworthy number of the year. Others warned that August was typically a low point for job creation. My question is this. If so many analysts thought August would be a low point and it was so untrustworthy then why were the majority of the forecasts from 220K to 250K? Why were the forecasts so high when everyone "knew" the August numbers were normally low?

Mark Zandi, chief economist at Moody's Analytics, said "August tends to be weak consistently, and it gets revised up consistently." However, his estimate was for 200,000 so his comments and the forecast don't match just like every other complainer.

Zandi was right about the prior three years. In August 2013 the first number was 169,000 and it was revised up to 202,000. In August 2012 the first number was 96,000 and revised up to 165,000. 2011 started out at zero and was revised up to 85,000. However, that is where the pattern ends. In 2010 it was revised down by -4,000. In 2009 it was revised down by -57,000 and 2008 it dropped -48,000 in the revision.

If this was just a U.S. problem then why did Canada post job losses for the month of August? Retail and wholesale employment fell by -26,500. Transportation and warehousing declined -14,700 and manufacturing lost -11,000. Construction rose by 24,400 and government employment rose by 14,000 to reduce the losses for the month but there was a total decline of -11,000 jobs.

Separately the National Retail Federation said industry employment declined -17,700 in August. Could this be a symptom of a bigger trend?

How strong can employment be when 53 million of the 146 million people with jobs are working part time?

Janet Yellen is probably celebrating this weekend. The decline in the jobs numbers take all the heat off the Fed to raise rates. She has constantly advised patience and warned there was still considerable slack in the labor market despite the decline in the unemployment rate to 6.1%. The doves were probably celebrating and the hawks are frustrated. Even if the jobs report was a onetime abnormal event it will be several more months before the Fed can be sure. That means the hawks have to wait for confirmation. If September comes in less than 200K it will kick the Fed's rate hike plans a couple of quarters farther into the future. Less than 12 hours after the jobs report was released the forecasts for the first hike were slipping into Q2 rather than Q1.

The next FOMC meeting is not until the 16th but you can bet it will be the topic of conversation for the next 7 trading days. The Fed economists have access to a lot more data than we do and they will be telling Yellen and the members of the round table exactly why the jobs numbers were so low.

The economic calendar for next week is fairly devoid of important reports. The Retail Sales for August is probably the biggest report since it covers the back to school shopping season. FYI - there are only 107 shopping days until Christmas.

Apple (AAPL) shares did not wait for the announcement next Tuesday to give back their gains. The combination of the iCloud hacking scandal and new product announcements from Samsung and Motorola caused a -$5 drop from Tuesday's $103.74 high. Typically the stock craters after they announce new products. However, Samsung and Motorola stole their thunder this time around. Samsung announced new models of its popular Note along with a virtual reality device that uses the Note for video. The Galaxy Edge Note has a second screen on the side of the device that can be used for navigation by active users. They also announced the Gear S, a wristwatch that will allow users to make calls without being tethered to a smartphone. Apple's rumored iWatch is thought to require a phone to make or receive calls.

Motorola (MSI) announced a new Moto X phone that can be customized in dozens of cases and colors including wood, leather, plastic and metal. They also announced a smartwatch called the Moto 360 for $249. The Motorola watch went on sale on Google's online store, Best Buy and Motorola's website at 12:PM on Friday. It was sold out in all three locations by 1:PM. Just a week earlier LG revealed its new G Watch R smartwatch.


The rush by all these companies to announce all the new products ahead of Apple has definitely put a crimp in Apple's stock gains. Next week instead of being the leader in the space Apple will be faced with differentiating itself from the cheaper competition. Apple will have to make a compelling case on why consumers should pay $800 for the iPhone 6 instead of several hundred dollars less for the competitor's phones.

Apple's security is not what it used to be. The iPhone 6 is already being sold in China. China Mobile has been accepting orders for several days now and they had presold 33,000 by Tuesday evening. By accepting orders online they had to disclose the two new models with a 4.7 inch and a 5.5 inch screen.

The big question now is which way will Apple trade next week. Since it already declined -$5 will it still decline after the announcement or will this be seen as a dip to buy? That probably depends a lot on whether the iWatch requires a phone to perform its functions. Tim Cook claims Apple's new product offerings are the biggest and most diverse ever so it will be interesting to see if this is reality or merchandising hoopla.

Michael Kors (KORS) fell -4.5% after the company said it was holding a secondary offering to liquidate the holdings of its biggest shareholder. Sportswear Holdings Ltd, a founding shareholder, owns a 5.7% stake worth $890 million. The company will hold a secondary offering for that 5.7% and the company will not receive any of the proceeds of the offering. Sportswear Holdings two representatives will also resign from the board. Sportswear has been selling shares of Kors since 2011 and will maintain a relationship with Kors through its ownership in Michael Kors Far East Holdings Ltd. Shares of Kors declined to support at $76.

Alibaba finally filed its IPO papers after the close on Friday. The company is selling 123 million shares at $60-$66 each and they are expected to price on the 18th and begin trading on Friday the 19th. However, officers and early investors are going to sell another 197 million shares making the total offering 320 million. At the high end of the expected pricing it would value the initial offering at just over $21 billion making it the largest ever. The symbol will be BABA and it will trade on the NYSE. The post IPO valuation of the company is expected to be in the $165 billion range. That is larger than 95% of the companies on the S&P-500. Alibaba has more than 279 million active buyers on its websites. Net income tripled to $1.99 billion for Q2.

Alibaba said it would also allow employees and others "close to the company" to buy shares at the IPO price before the stock begins trading. The roadshow will begin on Monday and end on Sept 18th. The founder Jack Ma is expected to participate. Barclays will be the designated market maker for the IPO. Other banks will be co-equal leads on the deal behind Barclays. Those include CS, C, DB, JPM, MS and GS. Goldman Sachs will also be the "stabilization agent" and be responsible for propping up the stock in the market to make sure it does not trade below the offering price. Goldman will also be responsible for deciding whether or not to execute the "greenshoe" option for the underwriters to buy more stock to support demand beyond the original offering. Up to 46 million additional shares could be sold.

The challenge for the market will be the drain on other equities. When an IPO takes $21 billion out of the existing market that money has to come from somewhere and normally it is out of existing equities. We should expect to see selling in Amazon, Ebay, Baidu, Priceline, as well as equities in general. Everyone expects BABA to do well and analysts are already saying the shares could hit $100 in record time. That will entice a lot of traders to dump stocks they currently own and try to buy shares of BABA either in an IPO distribution or on the open market on the 19th. This will drag on the Nasdaq more than anywhere else since BABA is considered a tech stock.

YHOO invested $1 billion in Alibaba nine years ago. They sold some shares in 2012 for $5 billion but today that remaining investment still equates to a 22.6% stake in Alibaba or 524 million shares. Yahoo will sell 121.1 million shares in the IPO. That has been reduced twice in the lead up to the IPO. That will generate about $8 billion for Yahoo and leave them with about a $26 billion stake in BABA at $64 a share. With analysts already predicting a share price in the $100 range this is a real windfall for Yahoo. The company has pledged to distribute half of the after tax proceeds to shareholders and use the rest of the cash for corporate purposes. Buying Yahoo shares would be one way to benefit from any post IPO rally in BABA shares. Some analysts are projecting a $45 share price for Yahoo immediately after the IPO. Other analysts are projecting an immediate sell the news event.

Japan's SoftBank owns 34% of Alibaba and does not plan to sell any shares in the IPO. They believe BABA will rise quickly because of its dominance in the Asian markets. Softbank has investments in more than 1,300 companies in addition to the $65 billion stake in Alibaba. They had $19 billion in cash at the end of June. SoftBank has not rallied in advance of the IPO like Yahoo. This would be another way to play the BABA IPO but SoftBank is carrying the weight of those 1,300 other investments. U.S. investors don't really know how to value SoftBank but the market cap is the key. With a market cap today of $87 billion a rapid rise in BABA shares will quickly send that investment alone to near $80 billion and that means the other 1,300 companies they own are free.

Lastly the Krane Shares Chinese Internet ETF (KWEB) can add the shares on the 11th day of trading. Obviously there could be a giant rally in BABA shares before KWEB can add them to the ETF. I would be very cautious about buying the ETF before the shares are added and after the addition only if the BABA shares are still rising.

Tesla Motors (TSLA) announced that the battery gigafactory would be built in Nevada, just outside of Reno. Nevada promised to wave permit rules and/or accelerate approvals and they are going to give Tesla $1.25 billion in tax breaks and subsidies to get Tesla to build in Nevada. Elon Musk said the money was not the deciding factor. The most important factor was the time to completion of the factory. The factory has to be completed and producing batteries when the Tesla Model 3, mass market vehicle, begins production. With about 6,500 jobs expected to be created that works out to about $200,000 per job in benefits. In return Tesla will build the world's most advanced battery factory and create more than $100 billion in economic impact for Nevada over the next 20 years. Under the agreement Tesla promised to invest at least $3.5 billion in the Nevada project.

This compares to the $8.7 billion Washington State committed to Boeing in 2013 to win a Boeing 777 assembly plant. That is the largest subsidy ever for a corporate deal.

Tesla shares were lower on Friday after Elon Musk said investors often "get carried away" with the stock price. Also, "I think our stock price is kind of high right now." And, "if you care about the long term, I think he stock is a good price. If you look at the short term, it is less clear." Musk should keep his focus on developing products and refrain from talking about the stock price. The last time he said the stock was high it sold off for a month. Shares are up +90% from the $150 close at year end and investors are enjoying the ride. The -3% decline on Friday was minimal but I am sure investors would rather Musk keep his mouth shut on the price.

In each of the last three years Tesla has had a secondary offering to raise money for building plants, charging stations and equipment. With the stock at an all time high and Musk admitting it, there is a really good chance there will be another secondary very soon. They need to raise $3.5-$5.0 billion for the gigafactory alone. Plus they are expanding in Europe and Asia. All those efforts cost money. With the share price so high they would only need to sell 22 million shares to raise $6 billion. There are 124.6 million shares outstanding today.

Family Dollar Stores (FDO) declined a sweetened $9.1 billion ($80.00) offer from Dollar General (DG). FDO said it would be hard to get regulatory approval and there was a good chance the offer would fail to close. The board reaffirmed acceptance of the prior $8.5 billion ($74.50) offer by Dollar Tree (DLTR). Dollar General has threatened to take its $80 offer directly to the shareholders if rejected again. A DG/FDO combination would have more than 20,000 stores. More than 6,000 of those FDO stores would be within 3 miles of a DG location. The FTC has already said that having stores from competing chains so close together it reduces prices for shoppers.

With DG taking over FDO it would immediately raise prices for customers because there would be limited competition. The FTC is already questioning the Dollar Tree bid because of the proximity of some stores to each other. FDO said this would only increase because of the greater density of DG stores. Dollar Tree has said they would divest as many stores as necessary to satisfy the FTC but they have very limited store overlaps. Furthermore the product assortment and pricing of DLTR stores is significantly different than FDO stores.

Here is a really interesting link with some location charts of FDO, DLTR, DG store locations. Trust me, it is interesting. Store Density Maps

FDO and DG shares declined on the news but DLTR rose on their improved chance of concluding a deal.

SanDisk (SNDK) was upgraded from equal-weight to overweight by Morgan Stanley and the price target raised from $110 to $115. The reason for the upgrade was "increased conviction in a more sustainable earnings stream" as SNDK significantly out earns its peers. Analysts see a stronger pricing environment in NAND memory is likely to last longer than originally anticipated. The various new products including multiple versions of smart watches and phones could significantly increase demand. MS believes Apple could create higher demand from the sales of the iPhone 6 alone. Shares rallied +2.7% on the upgrade.

Gilead Sciences (GILD) fell from Thursday's high of $110 to a low of $97.54 on Friday before rebounding. The drop came after news broke that Gilead was in talks to make a cheaper generic form of the blockbuster drug Sovaldi to distribute to poorer countries. With the 12 week course of treatment to cure Hepatitis C costing around $84,000 any talk of a cheaper version is sure to cause investor jitters.

However, this is nothing new. They have done this with other drugs and it increases sales rather than decreases them. Gilead has done this same thing with HIV treatments and this was already expected for Sovaldi. There was also an article suggesting the new plan for a 2 pill a day program for 8 weeks instead of 12 weeks could affect pricing. Again, this is not the case. The shorter treatment would use less pills but also help more patients.

The case for selling Gilead is worthless. This company sells today at a relatively cheap PE of 11 and it has more business than it can handle. The demand for Sovaldi alone is more than they can produce. They have a huge pipeline of more than 30 drugs and I am surprised nobody has tried to acquire them yet. I would continue to be a buyer of GILD on any dip.


For the second week in a row the S&P spiked up at Friday's close to end at a new high. The other eight trading days were lackluster. The S&P hit 2005 on August 26th and it took seven days to gain another 2 points. In theory the two weeks of consolidation built a base for the next move higher.

I expected fund managers to come back from vacation and begin restructuring their portfolios in hopes of adding some gains before the fiscal year end on Oct-31st. The volatility over the last four days definitely could have been managers liquidating some positions ahead of the payroll report with plans to put that money back to work next week. The S&P rose steadily from the 10:45 low Friday morning. The dip buyers are alive and well and there are no economic reports next week to create negative headlines.

Even with the volatility over the last several weeks the S&P has posted consecutive gains for the last five weeks.

Strong support has appeared at 1992 and resistance is the closing high at 2007 and again at 2025.

On the Dow we have seen several support tests at just over 17,000 over the last two weeks. The converging resistance from 17,075-17,150 has also been rock solid. The index closed at 17,137.36 and less than one point from the 17,138.20 closing high in July. Like the S&P the Dow has struggled over the last two weeks as it underwent some consolidation from the August rebound. Wednesday and Thursday both saw strong upward moves at the open followed by selloffs into the close. That is typically a classic distribution pattern that is seen at market tops. On Friday that trend reversed to selling at the open in a continuation of Thursday's plunge and then strong buying into the close. The profit taking may be over and next week could see a breakout.

The resistance is strong BUT the bears have not been able to push the index lower after two weeks of trying. If we do break out I think fund managers are going to be chasing prices with all their available cash. They only have 60 days to add some performance to their fund numbers. Two weeks ago a Bloomberg survey showed that 81% of actively managed funds were lagging their benchmarks. They need to correct that before their fiscal year ends on Oct-31st.

The Nasdaq Composite spiked to resistance at 4,600 on both Wednesday and Thursday at the open. Both days saw solid selling into the close. Friday's open saw support at 4,550 tested for the third time in two weeks and the rebound was strong.

Like the other indexes I believe the Nasdaq is poised to breakout over that 4,600 level. The Nasdaq had three major losers on Friday and still gained +21 points. The buying was broad based and I think it will continue.

Support is 4,550 and resistance 4,600.

The Russell 2000 was the fly in our soup. The Russell sold off hard on Thr/Fri before managing a +3 point gain at the close. In theory the small caps are where fund managers are going to get the most bang for their buck but the buying was lackluster. This has to change if the broader markets are going to continue higher.

On the positive side support at 1160 held with the low at 1160.02. You can't get better support buying that that. Now we need the Russell to push back over Thursday's high at 1180 and lead the markets higher.

The Dow Transports offset the negativity of the Russell with a strong breakout over the prior highs at 8500. The strong surge suggests investors believe the economy is solid and the jobs numbers were bogus. If anything they probably believe the weak jobs numbers will keep the Fed on hold for another quarter and that will be positive for the market.

The Russell 3000 ($RUA) is the 3000 largest stocks in the market. This is a view of the real market not just a small subset as we get with the Dow and S&P. The R3K stalled just under 1200 BUT it did close at a new record high at 1197.45. This is a bullish signal for the market for the broadest index to make a new high at the end of a consolidation week even if it was just by a couple points.

Clearly I have a bullish bias for next week, which is strange for me since September is normally negative. However, that historical trend is negated when August is positive. I think all the historical trends have been negated by the Fed, QE and the TINA trade. (There is no alternative) With bonds approaching the financial suicide level you have to be in equities or cash. David Tepper proclaimed the end of the bond bubble on Friday.

I also believe that once we get to the end of October and the Fed announces the end of QE there will be a reset in the market. Until then the trend is still up. Fortunately for fund managers they can ride the trend until their fiscal year end and then take profits. The FOMC meeting announcement is on October 29th so the two dates coincide almost perfectly.

With bearish sentiment at 27 year lows and the very long term charts suggesting a topping pattern we should be cautious as we approach the end of October.

Monthly Russell 2000

SPY Monthly Chart

Random Thoughts

German two-year Bund yields went negative again with investors having to pay the government to hold their money.

Spain issued its first 50-year bond, selling one billion euros with a 4% coupon. That is cheaper interest than they paid on their 10-year debt in 2012. Three years ago Spain's 10-year debt was at 7%.

French 10-year bonds are yielding 1.3%.

The ECB cut rates last week and pledged to buy and buy and buy various forms of debt. In response the interest rates for European debt in all forms has fallen to record lows. The market is talking about the ECB buying up to 500 billion euros of asset backed securities but that much debt does not exist. One major ABS manager said it takes him three months to by one billion euros of ABS debt. The ECB is also predicting the TLTRO program could reach one-trillion euros. The ECB brought out its bazooka as Mario Draghi promised but now they have nothing to shoot at. What good does it do to announce a 500 billion QE light program when they will be doing good to buy a billion a quarter? This is more talk by Draghi and in the end very little action.

Historically over the last 100 years the equity markets have averaged a 10% correction once a year and has fallen at least 20% once every four years. Trying to time those bouts of volatility will drive grown men to tears. It has been three years since we had a 10% correction and there have only been two since the recession bottom in March 2009. The bull market just crossed the 2000 day mark. Only three bull markets since 1928 have lasted longer. We are definitely overdue for some serious volatility.

Chart from AWealthofCommonSense.com

The Investors Intelligence report for last week showed that bearish advisors fell to only 13.3% and the lowest level since 1987. Since extremes in this report are normally seen as contrarian indicators this should be an extreme warning of a market top. However, as we know from watching the Volatility Index the swings can remain at extremes for an extended period. There is no magic number that if touched will produce an immediate market reversal. This is simply a warning that everyone has moved to the same side of the boat and conditions can change dramatically if somebody moves to quickly.

Chart from Ryan Detrick

Argentina is becoming Venezuela. Argentina defaulted on its debt again and has decided to follow Venezuela down the rabbit hole of socialization. They raised the minimum wage by +31% to $523 a month despite soaring inflation approaching 60%. They are currently working on legislation to let the government regulate private-sector prices, profit margins and production levels. The bill will allow the government to "establish at any stage of the economic process, profit margins, reference prices, minimum and maximum prices, or all or any of these measures." Already sugar, toilet paper and other commodity items are scarce. Fixing prices and profits will mean their complete disappearance.

Global inflation hit the lowest level since November 2009. If you take the CPI year over year change for 33 reputable reporting countries and average them the number for August was 1.72%. Six countries in Europe have zero inflation or are currently in a depression. They are Portugal, Sweden and Switzerland at zero with Greece, Italy and Spain in a depression.

In 1994 CompuServe advertised their online service where you could connect via a dial up modem and get information on news, sports, weather, shopping and reference materials. In addition to these online options you could get up to 60 emails a month for only $8.95 a month. I get 60 emails an hour today. You might be surprised to know that CompuServe still exists. The 1990s Live

There are conflicting news reports that 11 Libyan airliners were stolen from the Tripoli airport when the rebel group Libyan Dawn seized the airport. There is a considerable amount of confusion regarding these planes and quite a few reports claim that "maybe" the planes were just moved to other locations for safety reasons. However, in recent days pictures of some of the planes and their new rebel owners have shown up on the Internet. There are considerable fears that some of these planes could be used to carry out 9/11 style attacks on the 9/11 anniversary.

However, none of them will be coming to America. The distance is too great, fuel too expensive and without a valid flight plan into U.S. airspace they would be shot down before they reached land. However, there is considerable talk about the planes being used to attack places like Saudi Arabia or Israel or any number of western targets in the Middle East. Despite all the governments looking for these planes only two have been positively located. Those were moved to a "safer" airport.

The U.S. has said it cannot confirm the disappearance of the planes and it is looking at satellite photos in an attempt to locate them. A second State Dept official sought to downplay the reports saying only "We can't confirm that." I am sure the State Dept does not want the public worrying about the unannounced arrival of a terrorist piloted jet.

While Libyan planes may not be our biggest problem next week there is considerable angst about the potential for a large terrorist attack on U.S. soil by Al-Qaeda, ISIS or some other faction trying to make a name for itself. There has been a confirmed increase in chatter from northern Mexico about an attack on U.S. soil from terrorists the cartels helped across the border. This is been common knowledge for the last two weeks. Again, it has been kept low key because of the lack of specificity and the inability to locate any of the potential perpetrators. Let's hope this was just a psychological warfare exercise.

The ceasefire in the Ukraine ended late Saturday when government forces came under artillery fire near the strategic port of Mariupol in eastern Ukraine. Mariupol had been a major rebel target and a key port for Ukrainian steel exports. Observers claim the artillery came from Russian positions.

The EU announced new sanctions against Russia on Friday. Russia's foreign ministry responded angrily on Saturday pledging unspecified "reactions" if they were implemented.

ISIS posted a video of fighters in captured Russian fighter jets in Syria with signs saying we are coming to Russia in these planes to get Putin. A Russian official fired back "They can sit in 2,000 planes but they will never get close to Russia."

What an interesting time we are living in.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

The four most expensive words in the English language, "This time it's different."

Sir John Templeton


New Plays

Bad News Is Priced In

by James Brown

Click here to email James Brown


Best Buy Co. - BBY - close: 32.39 change: +0.23

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.3 million
New Positions: Yes, see below

Company Description

Why We Like It:
It's tough to be bearish when investors are buying bad news. The U.S. economy is slowly improving there have been nagging concerns over the U.S. consumer. If that wasn't bad enough Amazon.com has become the dominant player in consumer electronics. So why are investors buying shares of BBY?

First here's a brief description from the company website: "Best Buy Co., Inc. is the world's largest consumer electronics retailer, offering advice, service and convenience – all at competitive prices – to the consumers who visit its websites and stores more than 1.5 billion times each year. In the United States, more than 70 percent of Americans are within 15 minutes of a Best Buy store and BestBuy.com is among the largest ecommerce retailers in the United States. Additionally, the company operates businesses in Canada, China and Mexico. Altogether, Best Buy employs more than 140,000 people and earns annual revenues of more than $40 billion."

The last few years have seen BBY suffer from the online showroom phenomenon. Where customers come in, look at merchandise in BBY's showroom, and then go home and buy it online (usually at Amazon.com). The company has been desperately fighting this issue for a couple of years and they have made progress. However, sales continue to suffer.

BBY reported earnings on August 26th. Wall Street expected a profit of $0.31 on revenues of $8.98 billion. BBY beat the bottom line estimate with $0.44 but revenues only hit $8.9 billion. More importantly management guided lower. They expect same-store sales declines in both the third and fourth quarter. So why are investors buying the stock? It could be a case of all the bad news is already price in. Some consider BBY to be a value play at current levels.

If investors are willing to buy the bad news then it could be tough to be bearish. The shorts could be in trouble. The most recent data listed short interest at 9.5% of the 288.6 million share float. A breakout higher could spark some short covering. The point & figure chart is already bullish and suggesting at $49.00 target.

Traders bought the post-earnings sell-off in August and they bought the dip again this past week. Now BBY is on the verge of hitting new multi-month highs. We're suggesting at trigger to open bullish positions at $32.60.

Trigger @ 32.60

- Suggested Positions -

Buy BBY stock @ (trigger)

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

Buy the 2015 $35 call (BBY150117c35) current ask $1.44

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

Annotated Chart:

Weekly Chart:

Southwest Airlines - LUV - close: 32.83 change: +0.21

Stop Loss: 31.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.9 million
New Positions: Yes, see below

Company Description

Why We Like It:
Airline stocks have been big winners this year. A big drop in the price of crude oil has been a blessing since fuel is the biggest expense for airliners. Year to date the S&P 500 index is up +8.5%. The XAL airline index is up +26.2%. Yet shares of LUV are up an astounding +74.25%.

According to the company's press release, "Dallas-based Southwest Airlines continues to differentiate itself from other carriers with exemplary Customer Service delivered by more than 45,000 Employees to more than 100 million Customers annually. Based on the most recent data available from the U.S. Department of Transportation, Southwest is the nation's largest carrier in terms of originating domestic passengers boarded. The airline also operates the largest fleet of Boeing aircraft in the world to serve 93 destinations in 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and five near-international countries via wholly owned subsidiary, AirTran Airways. Southwest is one of the most honored airlines in the world, known for its triple bottom line approach that takes into account the carrier's performance and productivity, the importance of its People and the communities it serves, and its commitment to efficiency and the planet."

Earnings are coming in better than expected. When LUV reported on July 24th Wall Street was looking for a profit of $0.61 a share on revenues of $4.95 billion. LUV reported a profit of $0.70 with revenues up almost 8% to $5.01 billion. Demand for domestic air travel has been strong. Shares of LUV have been showing significant relative strength.

Traders bought the dip on Friday at short-term technical resistance on the simple 10-dma. That left LUV to end the week near all-time highs. Tonight we are suggesting a trigger to buy calls at $33.25.

Trigger @ $33.25

- Suggested Positions -

Buy LUV stock @ (trigger)

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

Buy the 2015 Jan $35 call (LUV150117c35) current ask $1.20

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

Annotated Chart:

In Play Updates and Reviews

Stocks Snap Three-Day Decline

by James Brown

Click here to email James Brown

Editor's Note:
The stock market ended a three-day decline with the S&P 500 index gaining +0.5% on Friday.

TKMR has been removed. We want to exit our NGVC trade on Monday morning.

Multiple stop losses have been updated tonight.

Current Portfolio:

BULLISH Play Updates

Green Plains Inc. - GPRE - close: 44.74 change: -0.34

Stop Loss: 43.25
Target(s): To Be Determined
Current Option Gain/Loss: + 9.7%
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

09/06/14: GPRE hit a little bit of profit taking on Friday and dipped below short-term technical support at its 10-dma. Fortunately shares bounced near the $44.00 level. Currently our stop loss is at $43.25. More conservative traders might want to move their stop closer to $44.00 instead. 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*

09/04/14 new stop @ 43.25
09/03/14 new stop @ 42.75
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


Morgan Stanley - MS - close: 34.63 change: -0.07

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: - 0.3%
Entry on September 03 at $34.75
Listed on September 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.8 million
New Positions: see below

09/06/14: Shares of MS were downgraded on Friday and the stock spiked down toward $34.00. Fortunately traders bought the dip and MS rebounded to almost unchanged. I would buy this intraday bounce but you might want to make sure both MS and the S&P 500 index are positive on Monday morning before initiating positions.

Earlier Comments: September 2, 2014:
MS is in the financial sector. They're one of the biggest players in the financial services industry. The stock has been outperforming its peers by a significant margin. Citigroup (C) is still down -0.8% for 2014. Goldman Sachs (GS) is only up +1.0%. JP Morgan (JPM) is up +1.6% and BAC is up +3.3% in 2014. The XLF financial ETF is up +6.8% year to date. Yet MS is up +9.4%.

The company has managed to build its revenues on stronger wealth management business. The company has beaten Wall Street's earnings estimates four quarters in a row.

Their most recent earnings report was July 17th. Analysts were expecting a profit of 55 cents a share on revenues of $8.18 billion. MS delivered $0.60 a share with revenues coming in at $8.61 billion. The company's profit has more than doubled from a year ago.

The stock has spent months consolidating sideways under resistance near $33.50. This past month has seen a bullish breakout higher. Now broken resistance near $33.50 should be new support. MS is currently testing short-term resistance near $34.50.

Tonight we're suggesting a trigger to open bullish positions at $34.75.

- Suggested Positions -

Long MS stock @ $34.75

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

Long 2015 Jan $35 call (MS150117C25) entry $1.70*

09/03/14 triggered @ 34.75
*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: 45.91 change: +0.65

Stop Loss: 42.90
Target(s): To Be Determined
Current Option Gain/Loss: +4.2%
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

09/06/14: MSFT delivered a bullish week. The bounce near its 20-dma that started on Wednesday continued. The stock has broken out past resistance near $45.50 and closed at new 14-year highs. This move could be used as a new bullish entry point.

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: 56.28 change: +1.34

Stop Loss: 53.65
Target(s): To Be Determined
Current Option Gain/Loss: +6.9%
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

09/06/14: SWKS displayed some relative strength on Friday with a +2.4% gain. Friday's rise snapped a three-day losing streak.

Investors have a decision to make. SWKS is a parts supplier to Apple (AAPL) for their iPhones. AAPL will likely unveil its new iPhone 6 on Tuesday, September 9th. Many believe AAPL could rally up into the announcement and then sell-off after the event. SWKS could follow AAPL both up into the event and lower after the event.

If you believe AAPL (and thus SWKS) will see a post-announcement decline (a.k.a. sell-the-news reaction) then you'll want to consider an exit on Tuesday or possibly Wednesday just in case there is a one-day spike higher following AAPL's event on Tuesday.

Tonight we will move the stop loss to $53.65. 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

09/06/14 new stop @ 53.65
We may want to exit this week following AAPL's Sept. 9th announcement
09/04/14 new stop @ 52.65
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: 46.30 change: +0.76

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
Entry on September 02 at $46.75
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 902 thousand
New Positions: see below

09/06/14: I'm starting to worry about our UBNT trade. The stock has been consolidating sideways below its June-July highs for about two and a half weeks. Investors may want to wait for a close above $47.50 before considering new bullish positions.

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.

- Suggested Positions -

Long UBNT stock @ $46.75

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

Long OCT $48 call (UBNT141018C48) entry $2.10*

09/02/14 triggered @ 46.75
*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


WhiteWave Foods Co. - WWAV - close: 35.07 change: +0.16

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
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

09/06/14: WWAV failed to make much progress last week. The stock churned sideways on either side of $35.00. Bullish analyst comments on Thursday morning failed to have any impact. We are turning more defensive and moving the stop loss up to $33.90. 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*

09/06/14 new stop @ 33.90
09/02/14 new stop @ 32.90
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

On Assignment Inc. - ASGN - close: 29.68 change: +0.20

Stop Loss: 30.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 509 thousand
New Positions: Yes, see below

09/06/14: ASGN saw an early morning bounce but spent the rest of the day drifting sideways. I do not see any changes from the Thursday night new play description below:

Earlier Comments: September 4, 2014:
The U.S. labor market is slowly improving. Naturally you might think that would be good news for temporary labor and staff placement services. ASGN is one such company. According to their press release, "On Assignment, Inc. is a leading global provider of in-demand, skilled professionals in the growing technology, healthcare, and life sciences sectors, where quality people are the key to success. The Company goes beyond matching résumés with job descriptions to match people they know into positions they understand for temporary, contract-to-hire, and direct hire assignments. Clients recognize On Assignment for its quality candidates, quick response, and successful assignments. Professionals think of On Assignment as career-building partners with the depth and breadth of experience to help them reach their goals."

The company has beaten Wall Street's earnings estimates three quarters in a row. Their latest report was July 30th. Analysts were expecting a profit of $0.36 a share on revenues of $470.9 million. ASGN reported a profit if $0.56, significantly above expectations, yet revenues were only $468.6 million.

ASGN said their gross margins were up from a year ago and the prior quarter. They offered bullish EPS guidance for the next quarter but their revenue guidance was below Wall Street's estimates. Investors chose to focus on the revenue miss and the lower revenue guidance. Shares of ASGN collapsed more than 20% the next day. The stock has produced an oversold bounce but that bounce is fading.

Currently ASGN appears to have short-term support in the $29.00-29.20 zone. We're suggesting a trigger to open bearish positions at $28.90.

Trigger @ $28.90

- Suggested Positions -

Short ASGN stock @ (trigger)

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

Buy the Oct $30 PUT (ASGN141018P30)

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


Mobile Mini, Inc. - MINI - close: 39.12 change: +0.92

Stop Loss: 40.10
Target(s): To Be Determined
Current Option Gain/Loss: - 0.8%
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

09/06/14: Ouch! After a four-day decline shares of MINI produced a big bounce on Friday with a +2.4% gain. The rally did stall at short-term resistance near its 10-dma so it could just a one-day move. However, we are going to try and reduce our risk by moving the stop loss down to $40.10.

I am not suggesting new positions at this time.

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

09/06/14 new stop @ 40.10
08/28/14 triggered @ 38.80


Natural Grocers by Vitamin Cottage - NGVC - close: 18.93 chg: +0.32

Stop Loss: 20.10
Target(s): To Be Determined
Current Option Gain/Loss: +2.7%
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

09/06/14: We are growing concerned that the sell-off in NGVC might be over. Shares have essentially consolidated sideways for about three weeks now. Tonight we're suggesting an immediate exit on Monday morning.

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

09/06/14 prepare to exit on Monday morning
08/21/14 new stop @ 20.10
08/12/14 triggered @ 19.45


Transocean Ltd. - RIG - close: 37.60 change: -0.16

Stop Loss: 39.05
Target(s): To Be Determined
Current Option Gain/Loss: + 1.6%
Entry on September 03 at $38.20
Listed on August 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.4 million
New Positions: see below

09/06/14: RIG did receive some good news this week. They were only found negligent, not gross negligent for their portion of the Macondo well disaster back in 2010. That hasn't stopped the stock from underperforming. Shares are testing their late August lows.

Tonight we're moving the stop loss down to $39.05 just in case RIG bounces and forms a short-term bullish double bottom.

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.

- Suggested Positions -

Short RIG @ $38.20

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

Long OCT $35 PUT (RIG141018P35) entry $0.27*

09/06/14 new stop @ 39.05
09/03/14 trade begins. RIG gaps higher at $38.20
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/02/14 remove the trigger ($37.25) and short RIG now at current levels.
Option Format: symbol-year-month-day-call-strike



Tekmira Pharmaceuticals - TKMR - close: 18.56 change: -0.31

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: see below

09/06/14: The Ebola outbreak in Africa remains a global threat and currently out of control. Unfortunately there hasn't been any new press on a potential treatment and shares of TKMR have been underperforming the broader market.

Our trade did not open. Tonight we are removing this stock as an active candidate.

Trade did not open.

09/06/14 removed from the newsletter, suggested entry was $22.30