Option Investor

Daily Newsletter, Wednesday, 10/1/2014

Table of Contents

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

Market Wrap

The Growling Bears

by Keene Little

Click here to email Keene Little
The recent volatility warned of a big move coming and the likely move was to be down. Today's decline did some technical damage as support levels snapped like little twigs, but the bulls can't be discounted yet.

Wednesday's Market Stats

Following a period of very low volatility in price movements we started to get much greater price swings in the past week and that's usually a sign of instability. At market lows we usually find v-bottom reversals but at tops there's more of a battle and that battle shows up in more violent price swings. For this reason it's usually a good sign that a more serious decline is right around the corner. It doesn't tell you how long the decline will last but it's at least a short-term warning.

We now have a stronger decline and many are wondering if this is the start of the "big" one. It's too early to tell but the break of solid support levels certainly has raised the fear level (and put buying). The VIX is shooting back up and short-term we could have a setup for at least a bounce. Only by watching what kind of bounce we get (if we get one) will we then get a better idea for what might follow. As I'll get into with the charts, there are some interesting patterns that point both ways, which doesn't help us in the short term but the evidence from the price action in the coming days should give us some very good clues to tie in with what I'm seeing currently.

Today's economic reports started off with the ADP Employment change before the market opened, which was slightly better than expected for September and slightly better than the August number. Equity futures got a little bounce out of the report but it was short-lived as the sellers hit the tape as soon as the opening bell rang. With very little geopolitical or economic news to discuss I'm just going to jump into the chart review.

I'll start tonight's review with the RUT since it's at an interesting level with today's decline. Since first reaching 1080 in September 2013 that level has acted as support -- in November 2013 and then in February and May this year (near 1082.50). It's now back down for another test with this afternoon's low at 1083 and if I were bullish the stock market I could make the argument that we're seeing the completion of a 3-wave pullback from July, which is setting up the next rally. A strike against the bulls here is the fact that the test of 1980-1983 is not showing bullish divergence, as noted on the weekly chart below, which I would expect to see if a new rally leg was setting up. The bearish wave count says the July high has been followed by a 1st and 2nd wave and we're into the 3rd wave down. I show a bearish wave count (in bold red) down to the 200-week MA by December, perhaps near 930 by then, and then a strong bounce back up into the new year before the larger 3rd wave down sets up in the first quarter.

Russell-2000, RUT, Weekly chart

As for the bullish potential for just an a-b-c pullback from July, the leg down from September 3rd would be the c-wave (instead of the start of the 3rd wave). The start of the decline from September 3rd is ugly (corrective) but I could argue the move down from that high completed its 5th wave today (or will consolidate for a few days before making a 5th wave low). One thing supporting the a-b-c pullback idea, if the RUT is able to hold above 1077, is the fact that two equal legs down points to 1077.61, which is very close to the price-level support near 1080. This projection crosses the bottom of a parallel down-channel from July tomorrow, which can be seen on the daily chart below, and with the daily oscillators oversold it's not hard to see this as a bullish setup.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1164
- bearish below 1077

If the 3-wave pullback from July is a bullish pattern we're now close to starting a large rally into the end of the year. If it's a bearish pattern we'll get a relatively high bounce in the next couple of weeks to complete another smaller-degree 2nd wave correction (shown in red on the above chart) before starting a more serious decline. The other indexes do not match the bearish pattern but they do support the potential for at least a high bounce, if not the start of a major rally, so bears need to be cautious here.

There's an interesting fractal pattern that deserves the attention of bears as well (as a warning sign here). As can be seen on the S&P e-mini futures (ES) daily chart below, since the December 2013 high we've had 4 times where the high was exceeded with a minor new high with bearish divergence (lower highs on RSI). Each of those cases led to a break of the 50-dma and a test of the uptrend line from November 2012 - February 2014 (obviously the first instance, with the February low, created the uptrend line). The test of the uptrend line then led to the start of the next rally back above the 50-dma and to a new high. Will we get another rally out of this setup?

S&P 500 e-mini futures, ES, Daily chart

The fractal pattern noted above suggests we should buy support here for another rally into the end of the year. The bearish pattern is a 3-drives-to-a-high following the initial December-January high, which is a setup for a major reversal. The test is on here -- the bulls want support to hold and a strong rally to follow. If we get several days with white candles, like the previous 3 times, get ready for new highs. But if we get a bounce followed by new lows, get ready to rumble to the downside.

On the daily SPX chart below you can see the same fractal pattern at the July and September highs as noted on the ES chart. Not shown on the chart are the Fib projections for the 2nd leg of the pullbacks from the initial highs (wave-c of an expanded flat correction off the initial high). Following the July highs the c-wave was 262% of the a-wave. The same projection for the leg down from September 19th points to 1934 so a decline below that level would be further proof that this time it's different but until then we have to consider the bullish potential here. Obviously what's bearish today is the break of the uptrend line from November 2012 - February 2014, near 1953. But a 1-day break could easily be a head-fake break.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2000
- bearish below 1950

The 60-min chart below shows some idea for what might follow, all of which assume today's low (or a minor new low Thursday morning) will hold for at least a few days. The very bearish wave count (nested 1st and 2nd waves, shown with the light red dashed line) calls for a relatively sharp bounce back up to perhaps price-level resistance near 1966, completing by Thursday afternoon, and then a very sharp and strong selloff to follow (to unwind a series of 3rd waves). The next bearish count (bold red) says we'll get a choppy sideways correction that could stay below the broken uptrend line from November 2012 and then another leg down to complete a 5-wave move down from September 24th (to complete wave-3). The bullish pattern (green wave count) would look best with a bounce and then another new low before setting up the end-of-year rally but that one's a challenge because of the corrective wave count. Each suggests a bounce from here and then lower before potentially setting up something more bullish but it will be the bounce pattern (assuming we'll get the bounce) that will provide more clues about what should follow.

S&P 500, SPX, 60-min chart

The DOW fought to hold price-level support and its 50-dma, at about 16930-16950, since first testing it on September 25th. That support level snapped quickly this morning and there was no real effort to bounce back above it. A minor bounce off this morning's low gave us a back-test of the 50-dma but that was followed by a bearish kiss goodbye or another 150-point drop. Not a good day for the bulls but the bears are feeling pretty good. Other than the break of its uptrend line from October 2011 - November 2012 (log scale whereas using the arithmetic scale the uptrend line from November 2012 - February 2014 is near the same level), the other bearish thing I see on the daily chart below is MACD has now dropped below zero. For a few days I was wondering if support would hold and MACD turn back up from the zero line, which would have given us a buy signal. Hasn't happened.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 15,860
- bearish below 15,530

Resistance to a bounce for the DOW is now the broken uptrend line (lines, depending on scale used) and price-level S/R at 16930-16950. Watch for a back-test/bearish kiss goodbye if tested. I show how a 5-wave move down might play out this month for a drop down to price-level support near 16330. This is obviously speculation at this time but I wanted to show downside potential for those sitting in bullish October options positions. The bearish wave count is in a position where bounces from here to there could be only small ones.

Not shown on the daily chart is the longer-term trend line along the highs from 2000-2007, which is near 16835. Both support lines were broken into the August lows, by a wide margin, and yet the index came roaring back and went on to new highs anyway. Whether that will happen again is anyone's guess but usually a 2nd break of support is the real deal (the 2nd mouse gets the cheese).

Patient and prepared mouse:

NDX broke price-level support near 4050 and its uptrend line from April-August on September 25th but held above its 50-dma near 4015 for four days before breaking it today. On the bounce back up it back-tested the price-level S/R, its broken uptrend line and its broken 20-dma (yesterday) and then left a bearish kiss goodbye with today's selloff. It stays bearish below 4010 and it won't turn bullish until it gets back above Tuesday's high at 4070.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4070
- bearish below 4010

Keep an eye on the semiconductor index here. We know it has a large influence on the tech indexes but it's also an important barometer for how traders are feeling about the market in general since it's a very good indicator for the health of the economy. Many weeks ago I had pointed out a price target for the SOX at 656.57, which was based on an A-B-C bounce pattern off its November 2008 low where the two rally legs (wave-A and wave-C) would be equal. The July high was near 652 (not quite there) and the September high was near 659, which rang the bell. The bounce correction off the 2008 low can be considered complete at any time but better proof would first come with a break below 620 -- it would get back below the 38% retracement of the 2000-2002 decline, near 624 (you did realize that's all the bounce amounted to, right?), and its uptrend line from November 2012, which would help identify the conclusion to the c-wave. So watch carefully what it does since it's still inside its up-channel and therefore still potentially bullish.

Semiconductor index, SOX, weekly chart

A few weeks ago I thought bond yields were ready for a rally to correct the decline from January into the August low. We got a strong bounce into the September 17th high but bonds rallied again and yields have dropped back down toward their August lows. The setup looks good for another leg up to complete a larger a-b-c bounce correction, as shown on the TYX weekly chart below, before heading lower into next year. If TYX instead drops from here and makes it down to the bottom of its down-channel from January, currently near 2.92%, it would create a setup for a much higher rally in yields but as long as a test of the low, or even a minor new low, is with bullish divergence I'll be looking for a relatively quick bounce into early November before we'll get a stronger decline in bond yields (flight to safety as the market does the real work without the Fed's "help").

30-year Yield, TYX, Weekly chart

Last week I showed the weekly chart of TRAN to point out the setup for a top of significance. It has wedged itself up into the top of a rising wedge for price action since 2010 and had achieved a price projection at 8591 for an a-b-c move up from October 2011 (the c-wave is 262% of the a-wave). Today it got slammed to the downside right out of the gate this morning (I haven't taken the time to find the guilty stock that caused the selloff in the sector) and it broke its uptrend line from June 2013 - February 2014, near 8334. It had been holding up at its 50-dma, near 8390, but that was one of the support levels that were snapped like little twigs this morning. The move down from Tuesday looks like completed 5-wave move and we should therefore get a bounce on Thursday but watch for a back-test of support-turned-resistance. It takes a rally back above 8400 to tell the bears to back off.

Transportation Index, TRAN, Daily chart

The screaming eagle, otherwise known as the U.S. dollar, is showing no signs yet of letting up on its rally. While each white candle on the weekly chart below is not that large, this has been a very long streak of steady weekly gains since July, the longest since March 1967 according to Bloomberg It is poking above the trend line along the highs from July 2012 - July 2013, near 85.91, and if it holds above it we'll likely see a rally up to the downtrend line from March 2009 - June 2010, currently near 86.90. This puppy is due for a rest.

U.S. Dollar contract, DX, Weekly chart

The screaming dollar has had the opposite effect on commodities, including the metals, although gold hasn't reacted as negatively as one might expect. A lot of the strength in the dollar has to do with relative value. All countries are in a race for the bottom as each takes care of its own needs and each is attempting to devalue their currency to make their own goods more competitively priced in the global market. But the U.S. is currently one of the best of the weak with a fairly stable economy and very little social strife. The U.S. is safe.

Gold's price is negatively affected by the rising dollar but it's more or less an emotional metal (other than hard needs for jewelry and electronics) and those who fear inflation (with the debasement of fiat currencies) buy gold. The trouble for gold is that more and more investors are starting to talk seriously about deflation, which is bad for things like gold (and most other asset classes). Silver, because of it industrial value as well as currency value, has really taken it on the chin but gold still has a chance for a relatively large bounce before heading lower.

As I've been showing for gold, and there's been very little change in the past week, two equal legs down from March is at 1194.40, which coincides with the bottom of a potential sideways triangle off June 2013 low. If it drops below 1194 there will be immediate downside risk for gold bulls. But I continue to see the potential for a rally up to about 1325 this year before heading lower next year.

Gold continuous contract, GC, Weekly chart

Silver has already broken down from its equivalent sideways triangle (a descending triangle with a flatter bottom) and has downside potential to 12.18 (height of triangle, projected from the bottom of the triangle) and certainly to price-level support near 14.65. But it could be due for a bounce now that it has tagged, and held, its uptrend line from 2003-2008 with Tuesday's low at 16.85. The bottom of the triangle, near 18.60, should now be resistance if back-tested.

Silver continuous contract, SI, Weekly chart

Oil has been chopping sideways for the past few weeks, which has it looking like it could drop at least a little further before attempting a bounce. Two equal legs down from August points to 86.73, close to an uptrend line form October 2011 - June 2012, which could be the bottom of a bullish sideways triangle off the May 2011 high. But I think oil's picture is bearish and until proven otherwise I'm thinking bounces are to be sold.

Oil continuous contract, CL, Weekly chart

Thursday's economic report include Factory Orders after the opening bell and the report is expected to show a sharp reversal off July's +10.5% into a -9.3%. If it's not worse than that it might be enough to spark a relief rally.

Economic reports and Summary

One more chart to highlight the reason I think bears need to be careful since we have another reason for the dipsters to ply their trade here. Since June 2012 each time the VIX has hit its 200-week MA it has pulled right back down, with a rally in the stock market of course. You can see on the VIX weekly chart below it has happened 7 times since June 2012, this being the 7th time. Whether this will result in the same kind of pullback, with a new market high to follow, or if instead it will be different this time, we'll only know the answer in hindsight. But just as the fractal pattern that I showed on the ES and SPX charts point to the potential for a new rally, so too does the VIX chart. Bears need to watch carefully and don't get complacent thinking "this is finally it!"

Volatility index, VIX, Weekly chart

There are several technical pieces in place to strongly suggest an important top is in place, and there's significant downside risk (hear that bulls?) as market crashes come out of oversold and we've had the requisite warnings from things like the Hindenburg Omen (last week). But the fat lady hasn't sung her song yet and therefore both sides need to exercise caution here. In the past week especially, each day the next higher-probability move has changed and the market could flip the bears on their heads again now that many longs have been stopped out of their positions. Important support levels were broken today but 1-day breaks don't count. It's better for the bears if we see 2-day and 3-day breaks to confirm it's real, which would be especially helped with back-tests followed by bearish kiss goodbyes.

There was heavy put buying today as investors started to fear what kind of pullback we'll get. The market is on the edge here and could easily fall off, leading to a much stronger decline than most market participants are expecting. But the price pattern still supports the idea that we've had just another pullback that will lead to the start of yet another rally, one that will take us to new highs in November-December. Keep trades short-term, take profits (losses) early and quickly while we wait for the larger direction to identify itself. The bull-bear battle is heating up. Trade safe.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Plays

Will Mr. Draghi Impact Stocks Tomorrow?

by James Brown

Click here to email James Brown

Editor's Note:

We are not adding any new trades to the Premier Investors newsletter tonight.

Stocks look like they're at a pivotal intersection. The small cap Russell 2000 index is testing significant support in the 1,080 area. Meanwhile the S&P 500 is testing what should be major support at the bottom of its two-year bullish channel. A breakdown would look very bearish indeed. At the same time the small caps are short-term oversold and due for a bounce.

Tomorrow we have the European Central Bank decision on interest rates. ECB President Mario Draghi will hold a press conference afterwards and many are expecting him to announce more stimulus or some sort of QE-like program since whatever they're doing isn't working on Europe, which continues to sink. His press conference could be the catalyst to send stocks one way or the other.

Bearish candidates were a dime a dozen tonight but most of them looked over-extended. So instead of chasing stocks lower I tried to find some bullish candidates. I've listed some symbols that looked interesting below.

My favorite is probably RGEN . The most recent data listed short interest at 14% of the small float and RGEN's bullish breakout today might spark a short squeeze.

(bullish ideas)

In Play Updates and Reviews

Stocks Down Across The Board

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market suffered a wave of negative headlines and equities sank. Everything from disappointing economic data in the U.S. to economic data in Europe to the Ebola headlines out of Dallas all helped push stocks lower.

BRCM and LUV hit our stop loss. FLDM hit our entry trigger.

Please note we have updated a handful of stop losses tonight.

Current Portfolio:

BULLISH Play Updates

Interactive Brokers Group - IBKR - close: 25.02 change: +0.07

Stop Loss: 23.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 533 thousand
New Positions: Yes, see below

10/01/14: IBKR managed to shrug off the market's decline today. Shares just continued to meander sideways. Meanwhile the company reported its monthly statistics and its DARTs continued to rise with a +21% improvement from a year ago and +17% from a month ago. Customer accounts were +18% from a year ago and up 1% from last month.

I don't see any changes from the weekend newsletter's new play description.

Earlier Comments: September 27, 2014:
IBKR was founded 37 years ago and has grown its business to where it executes almost one million trades a day. Barron's has rated IBKR the third best online broker three years in a row.

According to a company press release, "Interactive Brokers Group, Inc., together with its subsidiaries, is an automated global electronic broker that specializes in catering to financial professionals by offering state-of-the-art trading technology, superior execution capabilities, worldwide electronic access, and sophisticated risk management tools at exceptionally low costs. The brokerage trading platform utilizes the same innovative technology as the Company's market making business, which specializes in routing orders and executing and processes trades in securities, futures, foreign exchange instruments, bonds and funds on more than 100 electronic exchanges and trading venues around the world."

"As a market maker, we provide liquidity at these marketplaces and, as a broker, we provide professional traders and investors with electronic access to stocks, options, futures, forex, bonds and mutual funds from a single IB Universal AccountSM. Employing proprietary software on a global communications network, Interactive Brokers Group continuously integrates its software with a growing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention."

This year has not seen any significant increase in trading volumes at the exchanges. If anything volume has been mediocre at best. Yet IBKR has consistently reported stronger year over year DARTs the last several months. DARTs stand for daily average revenue trades. IBKR is also reporting improvement in customer accounts created. I will point out that IBKR is seeing tougher year over year comparisons for its monthly DARTs as the rate of improvement seems to be slowing yet this trend hasn't stopped the stock price.

Shares of IBKR have been consolidating sideways for months. The consolidation started last December when IBKR's 2013 stalled. Since then IBKR has been slowly churning sideways but that changed earlier this month with a bullish breakout to new multi-year highs. The point & figure chart has turned very bullish with a long-term target near $48.50.

The market's recent weakness has pulled IBKR low enough to retest prior resistance as new support. Friday's bounce could be an entry point. We are suggesting a trigger to open bullish positions at $25.60.

Trigger @ $25.60

- Suggested Positions -

Buy IBKR stock @ (trigger)

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

Buy the 2015 Jan $26 call (IBKR150117c26)

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

Super Micro Computer, Inc. - SMCI - close: 28.58 change: -0.84

Stop Loss: 26.90
Target(s): To Be Determined
Current Option Gain/Loss: -2.0%
Entry on September 29 at $29.15
Listed on September 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 389 thousand
New Positions: see below

10/01/14: Technology stocks were some of the market's worst performers today. SMCI was no exception. After hitting new all-time highs yesterday SMCI was a target for profit taking. Shares dipped toward $28.00 before paring its losses to close -2.8%.

I am not suggesting new positions at the moment.

Earlier Comments: September 24, 2014:
A lot of investors are looking for growth and this company has got it!

With a market cap near $1 billion SMCI is still consider a small cap. According to a company press release they describe themselves as "Super Micro Computer, Inc. or Supermicro, a global leader in high-performance, high-efficiency server technology and innovation is a premier provider of end-to-end green computing solutions for HPC, Data Center, Cloud Computing, Enterprise IT, Hadoop/Big Data and Embedded Systems worldwide. Supermicro's advanced server Building Block Solutions offers a vast array of modular, interoperable components for building energy-efficient, application-optimized, computing solutions."

SMCI's last three earnings reports in a row have been better than expected. As a matter of fact the last three quarterly reports have seen SMCI beat analysts' estimates on both the top and bottom line. All three times SMCI has raised guidance.

SMCI's most recent earnings report was August 5th. Wall Street was looking for $0.39 a share on revenues of $396 million. SMCI delivered $0.40 a share. Revenues came in at $428.1 million. That's a +14.5% increase in sales from the prior quarter and a +32.8% increase from the same quarter a year ago. The company's GAAP net income was up +23.5% quarter over quarter and up +114.3% from a year ago. Gross margins improved both quarter over quarter and from a year ago.

SMCI's Chairman and CEO Charles Liang commented on their Q4 results (Aug 5th) saying "In the fourth quarter, we achieved $428.1 million revenue or 32.8% growth over last year which marked the third straight quarter of record revenues and keeps us on a path to reach our goal of achieving $2 billion annual run rate in the coming fiscal year 2015... with this strong revenue growth combined with operating expense leverage, we achieved record profits. We are looking forward to the new fiscal year and we have been preparing to be a strong market leader in the upcoming technology refresh cycle related to the Intel Grantley (Haswell new processor) launch."

Technically SMCI broke out from a three-month consolidation in mid September. The three-day pullback was mild and traders just bought the dip at its rising 10-dma. If this bounce continues we want to hop on board. I'm suggesting a trigger to open bullish positions at $29.15.

- Suggested Positions -

Long SMCI stock @ $29.15

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

Long 2015 Jan $30 call (SMCI150117c30) entry $2.40*

09/29/14 triggered @ 29.15
*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

CBS Corp. - CBS - close: 52.81 change: -0.69

Stop Loss: 55.05
Target(s): To Be Determined
Current Option Gain/Loss: + 3.5%
Entry on September 22 at $54.75
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.1 million
New Positions: see below

10/01/14: The sell-off continues with CBS losing another -1.28%. We will move the stop loss down to $55.05.

Earlier Comments: September 20, 2014:
Television is a cutthroat business. Companies fight with affiliates, content providers, distribution rights, and more. They need to because traditional TV has been dying for years as more and more consumers forgo television for their computer, tablet, or even smartphone to get their media. Companies like Netflix also steal viewership. Granted the major networks have invested a lot to build up their own "second screen" viewership but it's unclear if the investment is paying off.

Who is CBS? According to the company website, "CBS Corporation (NYSE: CBS.A and CBS) is a mass media company that creates and distributes industry-leading content across a variety of platforms to audiences around the world. The Company has businesses with origins that date back to the dawn of the broadcasting age as well as new ventures that operate on the leading edge of media. CBS owns the most-watched television network in the U.S. and one of the world's largest libraries of entertainment content, making its brand – "the Eye" – one of the most recognized in business. The Company's operations span virtually every field of media and entertainment, including cable, publishing, radio, local TV, film, outdoor advertising, and interactive and socially responsible media. CBS's businesses include CBS Television Network, The CW (a joint venture between CBS Corporation and Warner Bros. Entertainment), Showtime Networks, CBS Sports Network, TVGN (a joint venture between CBS Corporation and Lionsgate), Smithsonian Networks, Simon & Schuster, CBS Television Stations, CBS Radio, CBS Television Studios, CBS Global Distribution Group (CBS Studios International and CBS Television Distribution), CBS Interactive, CBS Consumer Products, CBS Home Entertainment, CBS Films and CBS EcoMedia."

Shares of CBS peaked near $68.00 back in early March 2014, marking what looks like the end of a strong two-year rally from its 2011 lows. The challenge seems to be revenues. The last couple of earnings reports have seen CBS beat Wall Street's EPS estimates. How they are doing that could be cost cutting or financial engineering. CBS has announced significant stock buybacks and accelerated repurchases in 2014. Yet revenues keep falling.

Back in May, when CBS reported its Q1 earnings, revenues for the quarter were down -4.6% from a year ago. When CBS reported its Q2 results in early August this year, revenues were down -5.4%. Management tried to soften the blow with news they were doubling their stock buyback from $3 billion to $6 billion. Yet the stock continues to fall. Investors are probably worried about the falling revenue numbers.

Technically shares of CBS are testing major support at its trend line of higher lows (see the weekly chart) and support near $55.00. It also appears that CBS has created a bearish head-and-shoulders pattern, albeit one with two right shoulders (which is not uncommon). Thus a breakdown under $55.00 would be very negative for the stock price.

The May 2014 intraday low was $55.01. Tonight I am suggesting a trigger to launch bearish positions at $54.75.

- Suggested Positions -

Short CBS stock @ $54.75

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

Long 2015 Jan $55 put (CBS150117P55) entry $3.40*

10/01/14 new stop @ 55.05
09/30/14 new stop @ 55.65
09/22/14 new stop @ $56.35
09/22/14 triggered @ 54.75
*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

Fluidigm Corp. - FLDM - close: 23.85 change: -0.65

Stop Loss: 26.05
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
Entry on October 01 at $24.35
Listed on September 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 290 thousand
New Positions: see below

10/01/14: Our new bearish trade on FLDM has been triggered. Shares continued to sink following yesterday's bearish breakdown and hit our entry point at $24.35. The stock underperformed the broader market with a -2.65% loss.

Earlier Comments: September 30, 2014:
FLDM is in the healthcare sector. The company makes microfluidic systems. It's part of the medical laboratories and research industry. The company was founded in 1999.

The website describes the company as "Fluidigm develops, manufactures, and markets life science analytical and preparatory systems for growth markets such as single-cell biology and production genomics. We sell to leading academic institutions, clinical laboratories, and pharmaceutical, biotechnology, and agricultural biotechnology companies worldwide. Our systems are based on proprietary microfluidics and multi-parameter mass cytometry technology, and are designed to significantly simplify experimental workflow, increase throughput, and reduce costs, while providing excellent data quality. Fluidigm products are provided for Research Use Only. Not for use in diagnostic procedures."

The stock looks like a momentum name that has lost its mojo. 2013 was an incredible year for the stock with a rally from the $15 area to almost $40. FLDM continued to push higher in the first quarter of 2014 and almost hit $50. Then someone yanked the rug out from beneath the stock in late March.

If you recall March was rough for high-growth and high-beta names in general. Once FLDM broke down in March the path of least resistance has been down with investors selling every major rally at resistance.

The company had a pretty good earnings report in May. Yet an earnings beat and raised guidance back in May failed to inspire any new buying. Instead shares sold off sharply. Their most recent earnings report in July showed a +57% surge in revenues but that failed to meet Wall Street's estimates. The company is still losing money on a net income basis.

Now FLDM is breaking down under significant support near $25.00. The next major support level is $20.00. The Point & Figure chart is very bearish and forecasting a long-term target near $10.00.

Traders could launch positions now. We are suggesting a trigger to open bearish positions at $24.35. You may want to consider using options. The most recent data listed short interest at 9.5% of the small 26.2 million share float.

- Suggested Positions -

Short FLDM stock @ $24.35

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

Long NOV $25 PUT (FLDM141122P25) entry $2.75*

10/01/14 triggered @ $24.35
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Johnson Controls Inc. - JCI - close: 44.07 change: +0.07

Stop Loss: 46.05
Target(s): To Be Determined
Current Option Gain/Loss: + 2.9%
Entry on September 23 at $45.40
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: see below

10/01/14: JCI managed to buck the market's down trend today. Shares eked out a small gain (essentially unchanged on the session). I am not suggesting new positions at this time. More conservative traders may want to use a stop closer to $45.00.

Earlier Comments: September 22, 2014:
The auto part makers were a bright spot in the market for quite a while. Yet JCI has been underperforming its peers for weeks. Now the whole group has reversed sharply lower.

Investors might be growing cautious as earnings growth slows down. Investor's Business Daily noted that the forecast for some of these auto parts makers is getting softer.

Technically the group appears to be rolling over and JCI could be leading the way lower with a bearish breakdown under a long-term trend of higher lows. It doesn't help that JCI now has a "death cross" with the 50-dma falling under its 200-dma, which itself is starting to roll over.

Today's low was $45.66. We are suggesting a trigger for bearish positions at $45.40.

- Suggested Positions -

Short JCI stock @$45.40

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

Long 2015 Jan $45 PUT (JCI150117P45) entry $2.25

09/30/14 new stop @ 46.05
09/23/14 triggered @ $45.40
Option Format: symbol-year-month-day-call-strike

Knowles Corp. - KN - close: 25.44 change: -1.06

Stop Loss: 28.05
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
Entry on September 30 at $25.75
Listed on September 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

10/01/14: Good news! KN renewed its sell-off with a -4.0% plunge on Wednesday. This is a new all-time low for the stock. Investors may want to consider lowering their stop loss.

Earlier Comments: September 29, 2014:
Knowles Corp. has been around since 1946 but until recently was part of Dover Corp. (DOV). Knowles (KN) was spun off early this year.

What exactly does KN do? According to a company press release "Knowles Corporation is a market leader and global supplier of advanced micro-acoustic solutions and specialty components serving the mobile communications, consumer electronics, medical technology, military, aerospace and industrial markets. Knowles has a leading position in micro-electro-mechanical systems microphones, speakers and receivers which are used in smartphones, tablets and mobile handsets. Knowles is also a leading manufacturer of transducers used in hearing aids and other medical devices and has a strong position in oscillators (timing devices) and capacitor components which enable various types of communication."

KN has sales of more than $1 billion a year. Yet revenues have been falling. It seems to be getting worse. Back in April they reported a -1% drop in revenues. Their last quarterly report showed a -5.3% decline in revenues.

Technically the stock has been stuck in a $28.00-34.00 trading range for months. That changed in the last few days. KN has broken down below the bottom of the range. Its recent attempt at an oversold bounce already appears to be failing.

Tonight we're suggesting a trigger to open bearish positions at $25.75, which would be a new low. We are not setting an exit target tonight but I will note the point & figure chart is bearish and forecasting an $18 target.

Bear in mind that KN does have slightly elevated short interest at more than 10% of the 85 million share float. You may want to consider put options instead of shorting the stock.

- Suggested Positions -

Short KN stock @ $25.75

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

Long NOV $25 PUT (KN141122P25) entry $1.20*

09/30/14 triggered @ 25.75
*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

Mobile Mini, Inc. - MINI - close: 35.19 change: +0.22

Stop Loss: 37.30
Target(s): To Be Determined
Current Option Gain/Loss: + 9.3%
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

10/01/14: MINI was another exception to the market's widespread decline today. Shares managed to hover near round-number support at the $35.00 level. 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

09/30/14 new stop @ 37.30
09/25/14 MINI's failure to drop today might be a warning sign.
09/22/14 new stop @ 37.85
09/06/14 new stop @ 40.10
08/28/14 triggered @ 38.80

Transocean Ltd. - RIG - close: 31.05 change: -0.92

Stop Loss: 33.10
Target(s): To Be Determined
Current Option Gain/Loss: +18.7%
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

10/01/14: RIG plunged another -2.8% and is on track for its fifth weekly decline in a row. I am repeating my recent concerns that RIG is oversold and will eventually bounce. That bounce might show up near $30.00, which is conceivably round-number support. Investors may want to start taking some money off the table. The option is up +1,362%.

We are adjusting the stop loss down to $33.10.

I am not suggesting new positions at this time.

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*

10/01/14 new stop @ 33.10
09/30/14 new stop @ 33.75
09/27/14 investors may want to take some profits now
09/25/14 new stop @ 34.50
09/22/14 new stop @ 34.75
09/20/14 new stop @ 37.55
09/17/14 new stop @ 38.05
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

The ExOne Company - XONE - close: 18.96 change: -1.93

Stop Loss: 23.05
Target(s): To Be Determined
Current Option Gain/Loss: +14.8%
Entry on September 29 at $22.25
Listed on September 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 523 thousand
New Positions: see below

10/01/14: The weakness in XONE seems to be accelerating with a -9.2% plunge on Wednesday. This stock's IPO price was $18.00 a share so I'm not surprised to see XONE bounce near $18 midday. Share are due for an oversold bounce.

We will adjust the stop loss to $23.05.

Earlier Comments: September 27, 2014:
Stock prices are supposed to be driven by corporate earnings. It's tough to be bullish when a company continues to miss analyst expectations.

XONE is considered part of the industrial goods sector. They make 3D printers and associated materials. According to a company press release, "ExOne is a global provider of 3D printing machines and printed products, materials and other services to industrial customers. ExOne's business primarily consists of manufacturing and selling 3D printing machines and printing products to specification for its customers using its in-house 3D printing machines"..."ExOne also supplies the associated materials, including consumables and replacement parts, and other services, including training and technical support, necessary for purchasers of its machines to print products."

Unfortunately for the bulls XONE has developed a pattern of missing earnings estimates. They missed estimates back in March, in May, and again in August this year. The most recent report was August 13th. Wall Street expected a loss of 18 cents a share. XONE delivered a loss of 32 cents. Revenues rose +21% to $11.2 million but that failed to meet expectations. XONE's gross profit plunged from $4.2 million a year ago to $2.5 million thanks to crashing gross margins.

Shares of XONE are now at record lows. The company held its IPO back February 2013. The IPO price was $18.00 a share and the first day of trading saw XONE gap open at $23.66 and close up at $26.52. Today XONE is below its opening trade and might be headed for $18.00.

I do consider this an aggressive, higher-risk trade because there is already a lot of short interest. The most recent data listed short interest at 52.8% of the very small 8.7 million share float. That significantly raises the risk of a short squeeze. Therefore traders may want to limit their positions or just choose the put options to limit risk.

Tonight we are suggesting bearish positions on Monday morning (no trigger).

*Higher Risk Trade: consider smaller positions* Suggested Positions -

Short XONE stock @ $22.25

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

Long NOV $20 PUT (XONE141122P20) entry $1.40*

10/01/14 new stop @ 23.05
09/30/14 new stop @ 25.05
09/29/14 trade begins. XONE gaps down at $22.25
*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


Broadcom Corp. - BRCM - close: 39.34 change: -1.08

Stop Loss: 39.45
Target(s): To Be Determined
Current Option Gain/Loss: - 5.2%
Entry on September 19 at $41.60
Listed on September 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.1 million
New Positions: see below

10/01/14: The stock market's widespread sell-off on Wednesday pulled BRCM below support near $40.00 and shares hit our stop at $39.45.

- Suggested Positions -

Closed BRCM stock @ $41.60 exit $39.45 (-5.2%)

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

2015 Jan $43 call (BRCM150117C43) entry $1.55* exit $0.85** (-45.1%)

10/01/14 stopped out
09/19/14 triggered @ $41.60
*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


Southwest Airlines - LUV - close: 32.55 change: -1.22

Stop Loss: 32.95
Target(s): To Be Determined
Current Option Gain/Loss: -0.9%
Entry on September 09 at $33.25
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.9 million
New Positions: see below

10/01/14: The transportation stocks were hammered lower today with the Dow Jones Transportation Average underperforming with a -2.5% loss. The airliners fared even worse with a -3.0% decline. LUV plunged -3.6%. Most market pundits were blaming the Ebola Virus headlines for the sell-off in airline stocks.

Traders were just using the Ebola news as an excuse to sell. The odds of contracting Ebola on a commercial jet are extremely low since it involves bodily fluids. It's not an airborne virus. The amount of traffic coming to and from the effected areas of Africa and the U.S. is extremely low.

The sell-off in LUV still hit our stop loss. Shares gapped open lower at $32.97 and quickly hit our stop at $32.95.

- Suggested Positions -

Closed LUV stock @ $33.25 exit $32.95 (-0.9%)

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

2015 Jan $35 call (LUV150117c35) entry $1.25 exit $1.16* (-7.2%)

10/01/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
09/20/14 new stop @ 32.95
09/18/14 new stop @ 32.75
09/16/14 new stop @ 31.95
09/11/14 speculation that oil might have reversed higher today
09/09/14 triggered $ 33.25
Option Format: symbol-year-month-day-call-strike