Option Investor

Daily Newsletter, Tuesday, 10/7/2014

Table of Contents

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

Market Wrap

European Growth Does Matter

by Jim Brown

Click here to email Jim Brown

Mario Draghi needs to quit talking and start walking towards additional ECB stimulus or all of Europe will be back in a recession soon.

Market Statistics

German industrial output fell -4.04% for August and the worst reading since January 2009 and the financial crisis. Analyst estimates were for a drop of -1.5%. Germany is considered the strongest economy in Europe but their GDP for Q2 declined -0.64%. The odds are very good the Q3 decline will be even worse with the country falling back into recession.

Last week German manufacturing PMI dropped into contraction territory a 49.9 and a 15 month low. New orders fell at the fastest pace since 2012. Some of this is related to the Russian sanctions but the entire EU is seeing economic activity shrink briskly. It is almost inconceivable that Europe can avoid a recession.

With the dollar at 4 year highs and the European economy in trouble it is going to be a serious drag on Q4 earnings and probably some Q3 earnings were depressed due to the double whammy. Europeans don't have the money to spend on our products and those that do want to buy are faced with higher costs due to our dollar strength. This is a recipe for U.S. earnings weakness in the months ahead.

The IMF cut global growth forecasts from 4.0% to 3.8% for 2015 and +3.3% for 2014. The IMF said U.S. growth was supporting the global forecast. The IMF expects U.S. growth will be +2.2% in 2014 compared to prior estimates at +1.7%. The fund expects the Fed to raise rates in the middle of 2015 and they believe the current accommodative monetary policy remains appropriate.

The IMF expects Europe to grow by +1.3% in 2015, down from prior estimates of +1.5% but higher than the +0.8% expected for 2014. However, "We see the major risk in the stalling of the euro zone" and "the risk of recession is there." European authorities should increase infrastructure spending to boost growth. If inflation does not improve in the EU the central bank should purchase sovereign bonds to stave off deflation, according to the IMF.

Estimates for Japan were cut from +1.1% growth to +0.8%. Brazil was cut from +1.3% to +0.3% with 2015 growth cut from +2.0% to +1.4%. China's expectations were cut to +7.4% this year and +7.1% for 2015.

The IMF also warned about the risk of rising geopolitical tensions and a financial market correction as stocks reach "frothy" levels. The IMF has apparently taken a cue from Janet Yellen when she warned about over valuations in small caps several weeks ago. The IMF said it is concerned some investors may be "under pricing risk" and not "fully internalizing the uncertainties surrounding the macroeconomic outlook and their implications for the pace of withdrawal of monetary stimulus in some major advanced economies. (USA)

The fund warned that Ukraine would be in recession in 2015, Russia would be stagnant or worse, and the Middle East would see severe economic impacts from the military strife in Iraq, Syria and Libya. They left out the economic impact from Ebola in West Africa.

Last week IMF Director Christine Lagarde warned that officials have to act to prevent a prolonged period of sluggish growth, a trend she called the "New Mediocre."

European markets moved lower on the weak economic news and that carried over into the U.S. markets. Friday's short squeeze was erased and markets closed on their lows.

The negative open was also influenced by comments from Kansas Fed President Ester George Monday night. She said "the time has come" for Fed officials to start talking seriously about boosting short term interest rates. "Starting this process sooner rather than later is important. If we wait for employment and inflation to reach our stated goals they we risk having to move faster and steeper in interest rates in a way that is destabilizing to the economy in the long term." George is a noted hawk and has lobbied for higher interest rates in recent speeches but every time it tends to roil the markets.

The economics were light today. The weekly chain store sales rose only +0.1% after a -0.2% decline last week. This number is usually ignored.

The Job Openings Labor Turnover Survey (JOLTS) for August showed a slight increase in the openings rate from 3.3% to 3.4%. The number of available jobs rose to 4.8 million and the highest level since the survey began in 2001. Despite the rise in openings the number of hires fell from 4.9 million in July to 4.6 million. The JOLTS report was ignored as a lagging indicator since September payroll reports have already been released.

Consumer credit rose only $13.5 billion in August, down from a +$21.6 gain in July. The August number was the slowest rise since November. Consumers appear to be hesitant to take on additional debt in an economy where wages are shrinking and food and healthcare prices are rising. This is another contrarian indicator for rising spending for the holiday season. If consumers are hesitant to add to credit card debt the holiday sales forecasts could be too high.

The calendar for Wednesday is headlined by the FOMC minutes from the last meeting. With multiple Fed heads speaking out on their views about raising rates or keeping them low the recent meeting was probably contentious. With QE ending in three weeks that will require a statement change and the minutes could have some revelations on both topics. Today's market decline could have been influenced not only by the warnings from Europe but also fear over the minutes.

Geopolitical concerns include not only Iraq, Syria, ISIS, Libya, Russia and the Ukraine but North and South Korea, Pakistan and India. India and Pakistan traded mortar and small arms fire across the border between Kashmir and Pakistan for the second day. Both are nuclear countries.

Five Indian civilians were killed and 34 injured in heavy fire from across the border in Pakistan. India returned heavy retaliatory fire and the battle has been raging for two days. Pakistan targeted 40 BSF border outposts and adjoining villages throughout the night. More than 15 Pakistani civilians were killed in return fire from India. The India Times reported that BSF forces fired 1,000-1,200 shells into Pakistan overnight. Cross border firing occurs routinely but not to this degree of severity.

Warships from North & South Korea traded warning shots after a North Korean ship violated the western sea boundary. There were no casualties and the North Korean ship returned to North Korean waters. The situation in North Korea is very unstable today. The current figurehead leader Kim Jong-Un has not been seen in public since Sept 3rd. There are rumors of a coup and the capital city Pyongyang is thought to be in lockdown. That could be to either prevent coup plotters from leaving the city or it could be an attempt by the successors to impose order after successfully seizing control.

Other rumors include Kim having surgery on his ankles as a result of being overweight and having diabetes. Kim missed the meeting of the Supreme People's Assembly last month and this is the first time since he took power in 2011. Whatever the situation the world will only find out long after it is over.

The North has declared 2015 as the year of unification and Seoul said on Tuesday the North has geared up for all out war by conducting tactical training sessions and boosting its attack capabilities. The North has doubled the number of training exercises compared to prior years. They boosted the number of portable rocket launchers to 5,100 with ranges of 60-200 km.

Back in the USA the National Retail Federation said holiday sales in Nov/Dec are expected to rise +4.1% and the biggest increase since 2011. Shop.org expects online sales to rise 8-11% to $105 billion, compared to an 8.6% rise in 2013. PwC said 50% of spending will occur in physical stores and 43% will be online. More than 58% of spending will be on gift cards, which is the hottest category next to clothing.

Not all outlooks are rosy. In a recent survey PwC said 84% of consumers are expecting to the same or less than in 2013. The average household spending is expected to decline from $735 to $684 according to the PwC survey. The lower spending is driven by families that make less than $50,000 annually and now represent 67% of American shoppers. That is up from 65% in 2013 and 63% in 2012. With food prices and medical costs constantly rising it is cutting into the available funds for holiday spending. Those earning under $50,000 expect to spend only $377, down from $435 in 2013. Shoppers said they will be increasingly price conscious and that will make this shopping season even more promotional than ever.

Crude oil declined again on the possibility of a recession in Europe. We have seen a long list of geopolitical concerns surrounding multiple oil producing countries and prices have not risen. With Saudi Arabia declaring a price war last Friday (Link to Price War article) we have risk of WTI declining to $85. This war is not only on other nations in OPEC but also against the USA. Since the cost to produce oil from shale and from oil sands is high they can halt development in the U.S. if they push prices low enough.

Brent declined to $92 and a level that has been support for the last four days. It is as though oil traders don't believe Saudi Arabia is serious and they are testing them. The good news is that U.S. gasoline prices will be under $3 soon and that will free up from extra cash for consumers to spend during the holidays.

The decline in energy prices is a plus for the consumer but it will push headline inflation even lower.

If the Fed is going to end QE in three weeks and raise rates in early 2015 then why are treasury yields collapsing? The yield on the ten-year declined to 2.35% and a five week low. We appear to be moving into a risk off posture with money flowing out of stocks and back into treasuries even though the six month view is for rising rates.

I think we are seeing the impact of the end of QE. Every QE program to date has caused a significant decline in the market when it ended and there is no reason for this one to be different. Yellen has already said QE will end in October and this is October. The market is simply anticipating the October 29th announcement. The end has been so widely telegraphed and the rally since the beginning of QE3 in January 2013 so pronounced that it is only reasonable to expect a similar decline.

The contrarian view is that prosperity is "breaking out" as Art Cashin has been saying. At this point it may be "sneaking out" but the economy in the U.S. is still in growth mode. That means any real dip will be bought and some of those yearend forecasts over 2,000 still have a chance to come true.

Shaded entries are revisions with the original target following their name.

Earnings warnings are flying fast. Agco (AGCO) shares fell -11% after the company warned of weaker than expected demand. The company cut its forecast for the full year to $4.10-$4.30 per share, down from $5.00. During Q3 the farm equipment company said demand declined to weaker than anticipated levels and they were compensating by making aggressive cuts in production schedules and expenses. Shares of Deere (DE) declined -3% on the AGCO warning.

The Container Store (TCS) fell to a historic low after reporting $193.2 million in revenue that missed estimates by about $6 million. Adjusted earnings rose +38.7% to 11 cents and in line with expectations. Same store sales declined -0.4% and well below estimates. The company tried to soften the blow by bragging about their TCS Closets initiative. The closet makeover line is launching across the country and the average sales price is $1,200 compared to the average ticket sale in the rest of the store at $60. Apparently nobody was excited with shares falling -25%.

SodaStream (SODA) warned that Q3 revenue would be about $125 million compared to analyst estimates for $154.1 million. The CEO said "we are very disappointed in our recent performance." He cited lower than expected demand as the reason. Analysts believe the soda machine is a limited audience product. With U.S. consumers drinking less soda every year those that wanted an in home dispenser have probably already bought one. Shares fell -22% on the news.

The demise of SodaStream and the settlement of a suit over the Vitaminwater brand helped push Coca-Cola (KO) to a 16 year high at $43.93. This is its second highest close ever with the highest close at $43.97 back on July 14th, 1998.

Glass maker GT Advanced Technologies (GTAT) announced bankruptcy unexpectedly on Monday and shares declined -90%. On Tuesday shares rebounded over 100% at one point but ended with a 51% gain. If you decline -90% on one day and rebound +100% on the next the first thought is that it recovered all its losses. Sorry, while the numbers are similar the results are not. GTAT declined from $10 to $1 on Monday. A +100% rebound from $1 only gets it back to $2. It would take a +900% rebound to get it back to the $10 level. The rebound came on a rumor that Apple was a large creditor having advanced GTAT cash to build the sapphire glass screens in quantity. Traders were hoping Apple would just acquire the company out of bankruptcy. If that happened the odds are good shareholders would be wiped out. Realization of that fact caused the share price to fade from the $2 high to close at $1.22.

Earnings guidance on Tuesday was very lopsided. Silicon Motion (SIMO) was the only company to give positive guidance. Shares rallied +5% on the news.

Four companies issued inline guidance. Integrated Silicon Solutions (ISSI), Landec (LNDC), Mistras (MG) and International Speedway (ISCA).

Five companies issued negative guidance. Yum Brands (YUM) warned that 2014 earnings would be in the range of $3.15-$3.27 compared to prior guidance of "at least $3.56." Analyst estimates were for $3.38. YUM shares fell -2.3% on the news.

Other companies warning were Christopher Banks (CBK), Haverty furniture (HVT) and AGCO and SODA, which I covered earlier.


It was not a fund day to be holding equities. The indexes gapped lower at the open, leveled out slightly midday and then plunged into the close. The Dow closed at a two month low at 16,719. Ditto on the Nasdaq at 4,385 and S&P at 1,935. The Russell closed at 1,076 and a 12 month low. All closed at their lows for the day.

The selling in the big cap indexes is accelerating with the Dow and Nasdaq losing -1.6% and the S&P -1.5%. That was very close to the -1.7% decline on the Russell 2000. I know you have read it here many times that the small caps lead in both directions and they are definitely leading us lower. The drop to a 52-week low is a technical breakdown that should lead to further selling. The close under the prior lows of 1,082 is a break of support and another technical sell signal. I hope we are not targeting a 20% correction but that level would be 965.

The S&P closed at 1,935 and well under all the stair step levels we have discussed over the last several weeks. The decline stopped right above the uptrend support from June 2013. The intraday low last Thursday was 1,926 and we are still about 10 points over that level. We are still well above the 1,904 level we saw in August. While the selloff is painful it is still just a hiccup until the long term uptrend support and that August low is violated. We have tested that long term support several times in the last two years and it has always held. However, QE was not ending in those prior tests. Make no mistake this is a critical juncture for the market.

Support is now 1,926 and 1,900.

The Dow is in breakdown mode. The prior support at 16,800 has been severely broken and the 200-day average at 16,585 is the next logical support followed by 16,368. There were nine Dow components that lost more than $2. Coke's historic high was the only positive stock in the index.

Support at 16,725 was pierced at the close by only 6 points so that level is still in play.

Fortunately the Nasdaq still has several levels of near term support but the chart is still bearish. The 4,344 and 4,371 levels have been tested several times and that range has halted several declines. We now have long term uptrend support at 4,385 that is similar to the long term chart on the S&P. If this level holds we could see a decent rebound because it is so clearly visible to any trader with a charting system. Conversely, should this uptrend support fail it could weaken sentiment significantly and target a decline to 4,000.

The Russell 3,000 (R3K), the largest 3,000 stocks in the market, is approaching an interesting convergence of support with the August lows and the 200-day average. The last time it traded below the 200-day average was November 2012. The decline last Thursday came within 3 points of the 200-day at 1,138 and we closed at 1,146 today. This would be a logical place for a rally after a retest. However, sentiment will have to change in a hurry.

The Transports ($TRAN) are still well above support at 8,000 despite two days of declines. The -209 drop today was significant on a sentiment perspective because oil prices are at the lowest level since April 2013. Transports should be bullish on the significant drop in crude prices. Q4 is normally bullish for transports because of the airline traffic and package shipments. For them to sell off that hard today suggests market sentiment is failing. Traders should watch this chart for confirmation of any further Dow declines. If the transports are weak as well then the Dow's future is bleak.

In the weekend commentary I showed a short term chart for each of the major indexes illustrating the failure of Friday's short squeeze right at downtrend resistance. Obviously that was a key inflection point. The weakness on Monday and the sharp decline today have pushed the indexes back into oversold conditions. We never know what causes these waterfall declines. It could have been a couple hedge funds exiting their long positions due to the weakness in Europe or a serious case of margin call selling or both. The point is that the markets are oversold again and a short squeeze could breakout at any moment. If one were to develop traders will be watching where it fails. If it remains below that downtrend resistance then it is just a blip and there is likely more selling to come.

The markets rarely move in a straight line in either direction. With the recent history pattern of 4% declines and then a rebound we have to think that traders are looking for another repeat. Despite all the apparent fury of the recent declines and the significant increase in volatility the Dow is only down -3.2% from its closing high of 17,279. That is hardly a material decline. Of course the Russell is off -10.9% and now in correction territory. Everyone is holding their breath that the Russell halts its decline there and frees the large caps to resume their upward trajectory.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Multi-Year Lows

by James Brown

Click here to email James Brown

Editor's Note:

Additional Trading Ideas:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:

(bearish ideas)


Geospace Technologies - GEOS - close: 29.52 change: -1.17

Stop Loss: 34.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 07, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 273 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
The U.S. is currently experiencing an energy boom with the highest levels of oil and natural gas production in decades. All that production requires a ton of exploration. Using sound waves and seismic technology to find and define trapped oil in the earth's crust has been a growing trend. You might think business would be booming for a company like GEOS but the company seems to be struggling.

Their website defines the company as "Geospace Technologies designs and manufactures scientific instrumentation and equipment used by the global petroleum industry to acquire more seismic data in new and better ways. Geoscientists look for oil and gas with sound. They use our instruments and equipment to collect seismic data that in turn creates images of potential or existing oil-and gas-bearing formations in the earth's subsurface. Seismic is the one of the most reliable and commonly used technologies in the petroleum industry's global quest to find, develop and efficiently produce hydrocarbon resources." GEOS also has a niche business for graphics with their "commercial graphics business segment manufactures and sells thermal imaging solutions and distributes dry thermal film products primarily to an array of graphic display industry sectors (screen print, point-of-sale, signage and textiles)."

GEOS' earnings report in May this year delivered a big earnings miss. You can see the gap down in the chart as traders reacted to it. Their most recent earnings report in August was also a disappointment with GEOS missing Wall Street's top and bottom line estimates. Its quarterly revenues were down -48% from a year ago and their net income was down -78% from a year ago.

Investors have been selling every rally. Bears have caught on too. The most recent data listed short interest at 23% of the very small 12.7 million share float. The point & figure chart is suggesting a long-term $14.00 target.

This is a simple momentum trade where the path of least resistance is down. Tonight we're suggesting a trigger to open bearish positions at $29.35. The high amount of short interest does raise the risk of a short squeeze so you may want to consider the put options.

Trigger @ $29.35

- Suggested Positions -

Short GEOS stock @ (trigger)

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

Buy the NOV $30 put (GEOS141122P30) current ask $2.55

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Sink To 8-Week Lows

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 sinks to an eight-week low while the small cap Russell 2000 sets a new 2014 closing low.

Prepare to exit IBKR and SNCR.

Current Portfolio:

BULLISH Play Updates

Interactive Brokers Group - IBKR - close: 24.75 change: -0.40

Stop Loss: 24.70
Target(s): To Be Determined
Current Option Gain/Loss: - 3.4%
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

10/07/14: It's not looking good for IBKR. Today's -1.5% decline confirms yesterday's bearish reversal pattern. The stock hit an intraday low of $24.71 and our new stop loss is $24.70. Odds are good we'll see IBKR hit our stop tomorrow so I'm suggesting an immediate exit at the opening bell.

- Suggested Positions -

Long IBKR stock @ $25.62

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

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

10/07/14 prepare to exit tomorrow morning
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: 44.06 change: -1.17

Stop Loss: 42.89
Target(s): To Be Determined
Current Option Gain/Loss: - 4.4%
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

10/07/14: SNCR also appears to be reversing. The stock displayed relative weakness today with a -2.5% decline. This move lower should also confirm yesterday's reversal candlestick. We are suggesting an immediate exit tomorrow morning.

- Suggested Positions -

Long SNCR stock @ $46.10

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

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

10/07/14 prepare to exit tomorrow morning
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: 52.16 change: -0.61

Stop Loss: 54.25
Target(s): To Be Determined
Current Option Gain/Loss: + 4.7%
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

10/07/14: The bounce in CBS is rolling over under its 10-dma, which is good news for the bears.

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: 22.48 change: -0.48

Stop Loss: 25.25
Target(s): To Be Determined
Current Option Gain/Loss: +7.7%
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

10/07/14: FLDM continues to underperform the broader market and lost another -2.0% today. We are moving our stop loss down to $25.25.

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*

10/07/14 new stop @ $25.25
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: 43.72 change: -1.00

Stop Loss: 45.55
Target(s): To Be Determined
Current Option Gain/Loss: + 3.7%
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

10/07/14: JCI's bounce has clearly failed and shares plunged to new multi-month lows with today's -2.2% decline. We are adjusting our stop loss to $45.55.

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

10/07/14 new stop @ 45.55
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: 24.46 change: -1.03

Stop Loss: 26.75
Target(s): To Be Determined
Current Option Gain/Loss: +5.0%
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

10/07/14: KN did not see any follow through on yesterday's intraday bounce. Instead shares underperformed with a -4.0% plunge to a new record closing low.

We will lower the stop loss to $26.75.

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*

10/07/14 new stop @ 26.75
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: 35.68 change: -0.26

Stop Loss: 37.30
Target(s): To Be Determined
Current Option Gain/Loss: + 8.0%
Entry on August 28 at $38.80
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 265 thousand
New Positions: see below

10/07/14: MINI's recent bounce appears to be failing. Shares lost -0.7% today. I would still consider new positions at current levels.

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

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

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

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

- Suggested Positions -

Short MINI stock @ $38.80

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: 23.17 change: -0.61

Stop Loss: 25.55
Target(s): To Be Determined
Current Option Gain/Loss: +5.0%
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

10/07/14: RAVN appears to be accelerating lower with a -2.5% loss today. It's worth noting that the 2012 low was $23.01. It is possible that RAVN bounces at $23.00 tomorrow but it seems unlikely if the broader market continues to sink.

We are moving the stop loss to $25.55.

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

10/07/14 new stop @ 25.55
10/06/14 trade begins. RAVN opens at $24.39

Transocean Ltd. - RIG - close: 30.93 change: -0.01

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

10/07/14: Something sparked a bounce in shares of RIG this morning. RIG briefly traded above short-term technical resistance at its 10-dma. The market's widespread weakness helped drag RIG back down toward unchanged on the session.

The intraday high was $32.21. More conservative traders could adjust their stop toward this level. 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

SodaStream Intl. Ltd. - SODA - close: 21.52 change: -6.05

Stop Loss: 23.25
Target(s): To Be Determined
Current Option Gain/Loss: +3.5%
Entry on October 07 at $22.30
Listed on October 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 897 thousand
New Positions: see below

10/07/14: We were expecting SODA to hit new lows but not like this. Shares collapsed with a gap down at $22.30 and closed with a -21.9% loss on the day. The weakness in SODA was thanks to the company lowering its earnings guidance this morning. Wall Street was expecting SODA to see Q3 revenues around $154 million and a profit around $17 million. SODA's new guidance puts their quarterly revenues about $125 million and income near $8.5 million.

I really wish they had waited a couple of days so we could have entered our bearish positions first. Last night our plan was to open bearish positions at $27.35. Unfortunately the gap down at $22.30 is our new entry point. We will move the stop loss down to $23.25. I would hesitate to launch new positions.

Earlier Comments: October 6, 2014:
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.

*small positions, higher-risk trade*

- Suggested Positions -

Short SODA stock @ $22.30

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

Long NOV $27.50 PUT (SODA141122P27.5) entry $5.30

10/07/14 new stop @ 23.25
10/07/14 Trigger was $27.35, trade opens on gap down at $22.30
10/07/14 SODA issues an earnings warning before the opening bell
Option Format: symbol-year-month-day-call-strike

The ExOne Company - XONE - close: 17.43 change: -0.59

Stop Loss: 20.25
Target(s): To Be Determined
Current Option Gain/Loss: +21.7%
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

10/07/14: XONE has been trying to hold the $18.00 level the last few days. That's where the stock originally priced at for its IPO back in 2013. It looks like $18 has failed with XONE showing relative weakness in today's -3.27% decline.

Tonight we'll move the stop loss to $20.25.

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*

10/07/14 new stop @ 20.25
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