Option Investor

Daily Newsletter, Monday, 10/6/2014

Table of Contents

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

Market Wrap

Timid Bulls Retreat

by Thomas Hughes

Click here to email Thomas Hughes
The market opened strong today but timid buyers soon retreated to support.


The market opened strong today, following last week's bounce from support and surprisingly strong non farm payrolls numbers. The bounce that began last Thursday carried through into Friday, over the weekend and into the start of this week. Asian and European market were both higher this morning when I got up although Asian markets were stronger. Asian markets opened, moved higher and closed higher. European markets opened higher but fell throughout the day as did our own.

Futures trading was positive from the earliest part of the day here as well. The SPX was indicated about 5 points higher before 8:30 and then strengthened into the open and the other majors followed suit. At the bell market action was firmly positive with advancers leading decliners by more than 4:1. The market surged higher for the first 15 minutes and then hit resistance. Resistance held and soon the indices were moving lower, testing break even levels and lower. By lunchtime the indices were in the red across the board.

Market Statistics

Aside from last week's positive data there just wasn't much to hold the market up today. There was very little news over the weekend; Geopolitical concerns did not erupt, there was no official economic data, there was very little earnings news and very little business news. Once the initial pop of buyers petered out the market just sank back to break even and lower. Once early support was broken the indices fell further and into the red at which time the Dow Jones Industrials were down as much as 80 points. Afternoon trading remained mixed but the indices were able to regain most of the losses before the close.

Today's action was light and without real direction. There were some bulls eager to get into the market following last week's data but I think most are waiting for the FOMC minutes and Alcoa on Wednesday.

Economic Calendar

The Economy

There was no economic data today. Last week's NFP was enough to keep people talking but surprisingly did not get a lot of mention in the news. We did of course get Moody's weekly Survey Of Business Confidence presented by Mark Zandi. This week's report is unchanged from previous weeks except in that it may be even more positive. Mr. Zandi begins by saying that business confidence is “rock solid”. This is of course a highly subjective term but nonetheless conveys his interpretation that business confidence is strong. According to his summary business sentiment is near record highs in the US, layoffs are notably low, hiring intentions are high and outlook into next year is positive. South American and Europe are less optimistic.

There is not a lot of economic data this week. Tuesday is consumer credit and JOLTS job openings. Consumer credit is expected to decline by 20%. Wednesday is the FOMC minutes, the biggest potential market mover of the week I think. Thursday is the weekly jobless claims and monthly whole sale inventories. Both are expected to rise mildly. Friday is the Treasury Budget and import/export prices.

The Oil Index

Oil traded in a volatile range today. Prices fell after opening near flat to last week's closing prices only to rise into the close. Rising supply levels are still in control although reported tensions between OPEC nations are creeping into the news. On one hand some OPEC nations want to curb supply to boost prices while others are seemingly opposed to such a move. The Saudis are central to this story. They cut output a month or so ago, on their own, and are now part of a group of Arab nations saying it will be months until that decision needs to be made. OPEC is scheduled to hold its final meeting of the year next month. WTI fell by nearly -1% in early trading but moderated to about -0.30% by mid day. Brent fell by more than -0.75%, narrowing the spread between the two, to trade around $91.75. After lunch and going into the close of the US session WTI climbed into positive territory gaining about 0.75% with a comparable gain in Brent Crude.

The Oil Index traded with as much conviction, first down, then up, then flat, creating the third doji candle in a row after testing support at 1,500. The indicators are weak and pointing to further testing of support in the near to short term. MACD momentum is convergent with the recent drop in prices, an indication of market strength, while stochastic remains oversold. The big oil companies report near the middle of the season and are scheduled at the end of October and into the first week of November.

The Gold Index

Gold bounced today after hitting long term lows below $1200 on Friday. The much better than expected Non Farm Payrolls number along with the ADP, Challenger and initial claims report pushed the price back down to levels where it was way back at the beginning of the year,around $1200, before Russia invaded the Crimea and began the flight to safety trade. Today's action added $15, taking gold back above $1200 and my target for possible long term support.

Now that gold prices are more or less back in line with the fundamental picture the current levels are potential levels for support. Of course, there is also the possibility that prices will break through but I think that the data, the Fed, the taper and higher interest rates could be priced in. Gold bounced from $1200 twice in the last 18 months and could do it again. The mover this week in my view will be Fed the minutes on Wednesday.

5 Year Spot Gold:Kitco

The Gold Index also bounced today, moving close to 2% higher and back above $80. Today's action created a Harami candle pattern with last Friday's long black candle; this pattern is one that can sometimes mean reversal. The index has been moving down at a rapid pace over the past month and is now trading at new long term lows. It is extended from the short term moving average and in position for a snap back. The index is divergent from MACD, a divergence that has persisted the entire move and one that I have noted time and again. At the same time stochastic is extremely oversold, flat-lining across the bottom of the range for three weeks, leaving the index ripe for buying. By no means am I saying this is a bottom just pointing out a highly speculative possibility. The indicators are weak and could remain weak, especially if gold prices remain low and hopes of future gold prices remain low. If a bounce were to ensue it would find resistance just above the current level at the Jan '14 low and then at $85, and in the range from $85 to $90 in the near to short term. My caveat is of course that the gold index is tied very tightly to gold prices, if gold prices fall again the index will surely fall as well.

In The News, Story Stocks and Earnings

The big story of the day was the split of Hewlett Packard into two smaller companies. Relatively small that is, the two new companies will both still have a market cap over $30 billion. The move however, is another one not seen coming and a surprise to the market. CEO Meg Whitman has said time and again they were committed to the 5 year plan and not looking to split. Today she said the split was only possible because of the improvements and current strength of the business. The split is scheduled to be complete by the end of next year. The market seems to think it is a good idea because the stock moved up by 5% on more than 5 times average daily volume. It is trading just below long term support with earnings scheduled 11/25.

There were reports this morning that FaceBook had created its own payments app. The app is supposedly for the mobile version and would, I guess, be similar to Apple's Pay. Upon investigation the source is very dubious and a possible set up. Some hacker, using a jailbrake iPhone, somehow came up on some pictures while accessing some other information on Facebook and then blogged it. The story was then picked up by MarketWatch and others. In any event the stock was unmoved by the news and traded near flat to last weeks close.

Hilton International announced today the sale of the landmark Waldorf-Astoria hotel. The deal includes them operating the property for next century but moves ownership to a Chinese Insurance company. The hotel was valued at nearly $2 billion dollars. Shares of Hilton fell in today's session, dropping -0.45% from the short term moving average. The stock has been trending sideways all year and looks like it is set to test support near the mid point of the range at $24.

The Indices

The indices moved higher at the open but could not hold the gains. Despite the NFP the market is still playing the waiting game, apparently. Today's action created a variety of different sized candles among the indices but all basically traded between long term support and near term resistance following last weeks long term trend/support bounce. Losses ranged from -0.10% down to -1.15% with the Dow Transports leading the losses. The transports fell from resistance at 8,500, the July all-time high, breaking the short term moving average but remaining above the long term trend line. The indicators remain weak but are beginning to rollover. The MACD peak is in decline and stochastic is giving the early trend following signal. It looks like the index is finding support and beginning to move in line with the trend.

The NASDAQ Composite was runner up, losing -0.47%. The tech heavy index fell from resistance, also consistent with the July highs, breaking the short term 30 day moving average. While below near term resistance, the index is still above long term support with about 60 points between today's close and that support. The indicators are bearish and convergent with a test of support but also indicative of the underlying trend, MACD has peaked and stochastic has fired the early trend following signal. Caution is still due as we await more concrete signs of direction but it still looks like the long term trend is intact.

The S&P 500 fell a more modest -0.16% in today's action. The broad market shed only 3 points after trading in a range of nearly 20 points. The index is trapped between near term support and resistance, above the long term trend line, in a range coincident with the congestion band of July. The indicators are bearish but like the others, in line with a trend following bounce. MACD is peaking and stochastic is giving the early signal. There are reasons for caution but with earnings eve upon us I see no reason to doubt the bounce at this time.

The Dow Jones Industrial Average lost the least today. The blue chips fell only a tenth. Despite the small loss the index traded in a large range, like the others. Today's action had the index up by 90 and down by 80 at different times of the day. In the end buyers and sellers balanced out to create a doji just below resistance consistent with the July high, no surprise there. The indicators are likewise bearish in the near term and consistent with support in the long term suggesting that the bounce is good but resistance is persistant. In the near term the index faces resistance at 16,900 and 17,000 but provided earnings aren't surprisingly negative this should fall.

Here we are once again on the brink of earnings season. The indices look set to move higher and I don't see any reason why they shouldn't. Geopolitical fear is still present but diminished and earnings growth is still expected. Present fears I see include several things. Ebola is a growing fear but still far from creating panic and global weakness is still present in Europe, Asia and the emerging market.

We are still strong. There are risks, and our partners aren't as strong as they could be but the US economy is firmly growing without them. Economic trends are up and based on last week's labor data maybe gaining strength into the end of the year. With that in mind third quarter earnings could easily beat expectations that have fallen from over 6.5% average earnings growth among S&P companies to down near 4.5%. Wednesday we'll get earnings from Alcoa and maybe a sign of how things are going to be this time around. As always, earnings are important but future out look is more important. Don't forget, Wednesday is also the release of FOMC minutes. FOMC minutes are released at 2PM, Alcoa reports after the bell.

Until then, remember the trend!

Thomas Hughes

New Plays

Lost Its Flavor

by James Brown

Click here to email James Brown


SodaStream Intl. Ltd. - SODA - close: 27.57 change: -1.33

Stop Loss: 30.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 897 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
SODA is in the consumer goods sector. The company makes in-home beverage machines and the consumable flavor packets and carbonation systems that allow consumers to make their own drinks. The stock IPO'd back in November 2010. They came to market with 5.4 million shares at $20.00 each. SODA's first trade was $24.75 on November 3, 2010. Several months later SODA was testing the $80.00 level. It's been a rocky road for SODA but today the stock is down -41.7% in 2014 and down -64.4% from its 2013 highs near $76.

Why is SODA in decline? The company is facing growing competition. For a long time SODA was a rumored takeover target. Wall Street speculated that companies like Coca-Cola (KO) or PepsiCo (PEP) or Dr. Pepper Snapple Group (DPS) might buy SODA. There was even a rumor that Starbucks (SBUX) might have been interested. None of these rumors panned out.

Now SODA is facing competition from KO who has teamed up with Keurig Green Mountain (GMCR) to make their own in-home soda machine. PEP has teamed up with Bevyz, a European company, who has their own machine, and the two will soon rollout packets with PepsiCo flavors.

The market is worried that against these heavyweights SODA will lose market share. It seems that sales are already disappointing Wall Street. Shares of SODA collapsed in January this year on a big earnings miss. Their most recent earnings report was July 30th and while SODA beat the EPS estimates, management lowed their 2014 guidance.

The path of least resistance is down. We are suggesting a trigger to open bearish positions at $27.35 but I am cautioning investors to consider this a higher-risk, more aggressive trade. There is a still a risk that SODA will be bought. Almost a month ago there was a story overseas that SODA was in talks with a British hedge fund to buy the company near $40 a share. Most recently there have been stories that foreign beer makers like SABMiller and Diageo might be interested in buying the company.

If SODA gets cheap enough someone might try and buy it. Yet that doesn't mean SODA won't sink toward $20.00 a share first. Part of the risk is the rumor mill. If there are any convincing rumors of an impending deal we could see SODA spike higher. The most recent data listed short interest at 31.7% of the small 20.8 million share float. That increases our risk. You may want to buy a put option to limit your risk to the price of the option.

Trigger @ $27.35 *small positions, higher-risk trade*

- Suggested Positions -

Short SODA stock @ (trigger)

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

Buy the NOV $27.50 PUT (SODA141122P27.5) current ask $2.35

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

Bears Ready To Growl

by James Brown

Click here to email James Brown

Editor's Note:
The early morning gains faded. Major indices closed back in the red. Looks like bears are ready to growl again.

IBKR hit our entry trigger. MU has been removed.

Current Portfolio:

BULLISH Play Updates

Interactive Brokers Group - IBKR - close: 25.15 change: -0.37

Stop Loss: 24.70
Target(s): To Be Determined
Current Option Gain/Loss: - 1.8%
Entry on October 06 at $25.62
Listed on September 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 533 thousand
New Positions: see below

10/06/14: It was not a good day for shares of IBKR. The stock erased nearly all of Friday's gains. Today's pullback has also created a bearish engulfing candlestick pattern. Unfortunately the early morning move higher was enough to hit our suggested entry point at $25.60. I suggested in the weekend newsletter that we would probably be triggered today.

The reversal today is troubling. More conservative traders may actually want to consider an early exit.

Tonight we are moving or stop loss up to $24.70.

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.

- Suggested Positions -

Long IBKR stock @ $25.62

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

Long 2015 Jan $26 call (IBKR150117c26) entry $1.15*

10/06/14 new stop @ $24.70
10/06/14 triggered @ $25.60
IBKR actually gapped up early this morning (not the open) at $25.62
*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

Synchronoss Technologies - SNCR - close: 45.23 change: -0.88

Stop Loss: 42.89
Target(s): To Be Determined
Current Option Gain/Loss: - 1.9%
Entry on October 02 at $46.10
Listed on October 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 479 thousand
New Positions: see below

10/06/14: SNCR is not off to a very good start. The early morning gains reversed and shares underperformed the market with a -1.9% decline. Today's session also created a bearish engulfing candlestick type of pattern.

I am not suggesting new positions at this time.

Earlier Comments: October 1, 2014:
The smartphone is becoming more and more ubiquitous. There were one billion smartphones sold in just 2013. Today's consumer is putting more and more of their selves and their data on their smartphone. What happens to all that data when a user loses their phone? Wireless companies have started storing user data in the cloud to solve that problem. SNCR is one such cloud solution provider to big wireless carriers.

The company website says "Synchronoss founded in December 2000, is a world leader in cloud solutions and software-based activation serving communication service providers across the globe. Our proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world."

SNCR is also offering their cloud services straight to consumers. This has grown to millions of subscribers.

The company has been consistently beating Wall Street's earnings estimates. The last three quarters in a row have seen SNCR beat both the top and bottom line estimate. Revenues have been averaging +27% growth over the last three quarters. Its revenue growth for its cloud services has been growing about +75% (year over year) the last three quarters in a row.

This huge growth has helped lift shares of SNCR to multi-year highs. Shares have been relatively resilient during the market's current pullback. Traders bought the dip today and SNCR displayed relative strength with a +2.0% gain on Thursday. The stock looks poised to breakout and if that occurs shares could see some short covering. The point & figure chart is bullish with a $53 target.

Tonight we're suggesting a trigger to open bullish positions at $46.10.

- Suggested Positions -

Long SNCR stock @ $46.10

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

Long DEC $50 call (SNCR141220c50) entry $2.30*

10/02/14 triggered @ $46.10
*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: 52.77 change: -0.31

Stop Loss: 54.25
Target(s): To Be Determined
Current Option Gain/Loss: + 3.6%
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

10/06/14: CBS did not see any follow through on Friday's bounce. The falling 10-dma should continue to pressure the stock lower.

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*

10/02/14 new stop @ 54.25
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: 22.96 change: -0.69

Stop Loss: 26.05
Target(s): To Be Determined
Current Option Gain/Loss: +5.7%
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

10/06/14: FLDM displayed relative weakness with a -2.9% decline. If you're looking for a new entry point consider a drop under $22.75 as an alternative entry.

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: 44.72 change: -0.10

Stop Loss: 46.05
Target(s): To Be Determined
Current Option Gain/Loss: + 1.5%
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

10/06/14: JCI continues to struggle with short-term resistance at the $45.00 level. I'm not suggesting new positions at the moment.

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: 25.49 change: +0.10

Stop Loss: 28.05
Target(s): To Be Determined
Current Option Gain/Loss: +1.0%
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

10/06/14: KN spent the first half of Monday plunging from $25.50 to $24.15. The second half of today's session was a complete reversal of the drop. Is this a new bottom? We'll have to wait and see if KN sees any follow through. Readers may want to lower their stop loss. I am not suggesting new positions.

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: 35.94 change: -0.41

Stop Loss: 37.30
Target(s): To Be Determined
Current Option Gain/Loss: + 7.4%
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

10/06/14: Thankfully MINI did not see a lot of follow through on Friday's breakthrough resistance near $36.00. Shares made it up to $36.66 this morning and then reversed. Today's move could be used as a new bearish entry point.

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

Raven Industries - RAVN - close: 23.78 change: -0.48

Stop Loss: 26.25
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
Entry on October 06 at $24.39
Listed on October 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 121 thousand
New Positions: see below

10/06/14: Our new play on RAVN is off to a great start. Shares opened at $24.39 and ended the session with a -1.97% decline. I would still consider new positions at current levels.

Earlier Comments: October 4, 2014:
RAVN is in the industrial goods sector. It's a small cap that does not get a lot of coverage on Wall Street. The company was founded in Sioux Falls, South Dakota back in 1956. Today they have three main business segments.

Their applied technology segment creates agricultural equipment to boost farm production. Their engineered film business creates high performance plastic films and sheeting. Their Aerostar business uses high-altitude balloons to make "of tethered aerostats, aerospace platforms, Vista radar systems and surveillance solutions, providing complete situational awareness for a multitude of needs." One of the company's more novel products is a line of military decoys that are essentially balloons shaped to look like tanks, jet fighters, and missiles.

Unfortunately business is struggling and the stock has plunged -41% year to date. Falling commodity prices has undermined demand for agricultural equipment. This could be a weak part of the business for the next few quarters. The Aerostar segment is also seeing revenue declines and it's not expected to improve any time soon.

RAVN is actually developing a trend of earnings misses. The company has missed Wall Street's EPS estimates three quarters in a row. They've missed the revenue estimate two of the last three quarters. RAVN management expects the current quarter to see double-digit declines in net income.

The current sell-off has created a sell signal on the point & figure chart that suggests an $18.00 target.

Tonight we are suggesting an immediate entry on Monday morning to open bearish positions. We'll try and limit risk with a stop loss at $26.25. More conservative investors may want to consider a stop closer to $25.00 instead. (NOTE: RAVN does have options but the bid/ask spreads are too wide to trade them.)

- Suggested Positions -

Short RAVN stock @ $24.39

10/06/14 trade begins. RAVN opens at $24.39

Transocean Ltd. - RIG - close: 30.94 change: +0.79

Stop Loss: 32.75
Target(s): To Be Determined
Current Option Gain/Loss: +19.0%
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

10/06/14: Today's +2.6% bounce recovered about half of Friday's loss in RIG. I don't see any changes from my recent comments. The path of least resistance is down but RIG will see a correction higher eventually. I am not suggesting new positions.

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*

10/02/14 new stop @ 32.75
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: 18.02 change: +0.11

Stop Loss: 21.75
Target(s): To Be Determined
Current Option Gain/Loss: +19.0%
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

10/06/14: XONE spent nearly all day hovering near the $18.00 mark. Shares managed to close on a blip higher accounting for a gain on the day. Tonight we're moving the stop loss down to $21.75.

You know XONE will bounce eventually and when it does it could be a very big bounce considering all the short interest in this stock.

I am not suggesting new positions at this time.

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*

10/06/14 new stop @ 21.75
10/04/14 new stop @ 22.55
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


Micron Technology - MU - close: 32.57 change: -1.37

Stop Loss: 32.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 25.6 million
New Positions: see below

10/06/14: Shares of MU underperformed today with a -4.0% drop on news that Samsung, one of its biggest rivals, is spending $14.7 billion to make a new semiconductor plant. This new facility won't start producing memory chips until 2017 but it already fuels fears of a memory chip glut down the road.

MU did start to bounce once it filled the gap from late September. It seems unlikely that MU will hit our suggested entry point at $35.15 any time soon so we are removing this stock as an active candidate.

Trade did not open.

10/06/14 removed from the newsletter, suggested entry was $35.15