Option Investor

Daily Newsletter, Tuesday, 11/4/2014

Table of Contents

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

Market Wrap

Oil Rout

by Jim Brown

Click here to email Jim Brown

Crude prices imploded again this week to crash below two-week support at $80 and dip to $75.84. This crushed the energy sector and weighed on the markets.

Market Statistics

(Be sure to check the bottom of this commentary for a special offer.)

The price of crude began falling on Monday after Saudi Arabia lowered prices for crude exported to the USA. Since Saudi Arabia produced 9.65 mbpd in October and they only exported 609,000 bpd to the U.S. there is a signal in this move. This is Saudi telling the world they are willing to sell oil at a lower price in order to maintain their market share.

It is also a warning to U.S. producers that Saudi can force them out of the business if they really wanted to slow U.S. production increases. Since the U.S. still imports 7.2 mbpd on average we are far from energy sufficient. You have to wonder about Saudi Arabia's thought process here. If we continue at the present rate of drilling our production is expected to rise from the current 8.97 mbpd to close to 10 mbpd by 2017 but that is the peak according to the EIA.

Production is rising today because we are drilling about 9,500 new wells per quarter. Unfortunately those shale wells decline in production by about 65% in the first year alone. The pace of well growth has to stay over that 9,500 per quarter level in order to stay ahead of the decline rate for production to increase. Once the prime areas in the various shale fields are drilled the pace of new wells is going to slow significantly. The wells outside the prime areas cost the same $8-$12 million per well but they produce a lot less. That means less wells will be drilled and there will be smaller rates of initial production. There are more than 1.1 million active producing wells in the U.S. and EVERY one of them declines in production capacity every year. If we don't keep drilling 9,500 wells a quarter the declines in the existing wells will overpower new production.

The EIA predicts shale production will peak in late 2016, early 2017 and then began a terminal decline. Saudi Arabia knows this so why are they causing market ripples today? One analyst said they could easily offset the decline in prices by pumping more oil. If they boost production from 9.6 mbpd to 10.0 mbpd their budget numbers are met and everyone continues life with slightly cheaper oil prices.

There are multiple reasons why Saudi Arabia could be taking this aggressive action. One is Iran. There is a rumor circulating that the six western nations are close to a deal on Iran's nuclear future that will be favorable to Iran. Saudi does not want Iran to have nuclear capabilities and they have expressed displeasure about the process. By crushing the oil sector they are sending a message to the U.S. and at the same time pressuring Iran with lower oil prices. The Iranian negotiations have a November 24th deadline. If Iran does get a new deal they could immediately ramp up production and that will also hurt oil prices. They are currently exporting 1.25 mbpd under the current sanctions but they could ramp up to 3.0 mbpd if the sanctions were lifted.

Secondly Russia is the second largest exporter of crude and some theorize President Obama has asked Saudi Arabia to force oil prices lower to punish Russia for the Ukraine invasion. Unfortunately U.S. relations with Saudi Arabia are at multi-decade lows and it is unlikely Saudi Arabia would take this kind of revenue hit just to please the USA.

This leaves a lot of analysts scratching their heads on why Saudi Arabia has undertaken this price crusade. The consensus opinion is that Saudi Arabia wants to slow production in the USA. If they can slow the U.S. drilling rate they slow the increase in production and may actually force a decline in production within 6-9 months.

Oil in the U.S. costs a lot to produce. Some of the shale areas have production costs up to $80 per barrel but that is not the real number. The oil from these shale areas is heavily discounted because of the lack of pipelines and cost of rail transport to get it to market. For instance Bakken crude hit $69 today and Permian crude dipped to $73 and those prices will decline further in the days ahead. Both areas would like to sell their oil for WTI prices but they can't. That means a lot of those wells are already losing money on every barrel. If prices remain low the pace of new wells will decline significantly.

While the energy sector is getting crushed the drop in gasoline prices will benefit retailers this holiday season. The national average declined to $2.97 per gallon and is expected to continue falling to something in the $2.85 range. With U.S. consumers buying 2.6 billion gallons of gasoline a week a 10 cent drop in gas prices saves consumers and businesses $260 million a week in fuel expenses. The national average was $3.64 per gallon back on June 23rd. That -67 cent decline is saving consumers a whopping $1.74 billion a week compared to June prices. The drop in stock prices is painful but the benefit to the economy is huge because every penny of that savings is going right into the pockets of retailers. Very little of that is going into a savings account.

In economic news the Intuit Small Business Employment Index rose +0.07% and the strongest gain in four months. Companies with less than 20 workers added about 15,000 net positions in October. Average worker compensation rose +0.08% to $2,774 or about $33,300 a year. The report was ignored since the ADP Employment report is due out on Wednesday morning.

The ISM - NY headline number rose slightly from 654.8 to 657.2 and the slowest pace in six months. The quantity of purchase component fell from 60.5 to 53.1. The current conditions component fell from 63.7 to 54.8. This was not a good report even though it showed that business activity in New York City was still improving.

The International Trade deficit declined from -$40.1 billion to -$43.0 billion in September. Exports fell -1.5% to $195.6 billion, a decline of $3 billion from August. Imports were flat at $238.6 billion.

Factory Orders fell -0.6% in September after -10.1% decline in August. Analysts had expected a +0.5% increase. Durable goods orders fell -1.1% while capital goods orders fell -4.1%. Core capital goods fell -1.6%. If it were not for a spike of +7.4% in defense orders it would have been a very ugly report.

The big report for Wednesday is the ADP Employment with expectations for +220,000 new jobs. After listening to all the big retailers and shippers talking about how many temp workers they are hiring I would not be surprised with an upside surprise in both the ADP report and the Nonfarm Payrolls on Friday. It seems like nearly every news item has the retailers hiring more this year than last. The nonfarm numbers contain seasonal adjustments based on the long term averages but a surge in seasonal hiring over those adjustments could give us a big gain. However, these reports are for October and the majority of hiring is not done until November so any real surprise could still be a month away. The Nonfarm payroll forecast is for a gain of +233,000 jobs, down from +248,000 in September.

The ISM Nonmanufacturing report is expected to decline slightly but after the upside surprise in the manufacturing report on Monday we could see strength in services as well.

A challenge on Thursday is the ECB rate decision. There are some rumblings about Mario Draghi's management style and whether he is trying to do too much with the new QE process. If the ECB/Draghi says something the market does not like on Thursday we could see some market volatility.

The big stock news for the day was Alibaba earnings. BABA reported revenues that rose +53.7% and far better than Amazon's 20% growth rate. However, margins declined from 54.4% to 50.5% and still a number any retailer would kill to have. Revenue rose to $2.74 billion to beat estimates slightly. Gross merchandise volume rose +48.7% to $90.5 billion. Active users rose +53% to 307 million. Mobile revenue was 10 times higher than the year ago period and accounted for 22% of revenues. Adjusted earnings of 45 cents were in line with estimates.

The gross merchandize volume number is one you won't see on Amazon. Alibaba does not own the merchandise it sells. Amazon inventories merchandise and then sells it so the revenue number includes the sales price. Alibaba puts buyers and sellers together and takes a commission so they don't have the costs associated with the inventory model. The company said it was in acquisition mode to expand its customer base and to expect margins to shrink while they added to the business model. This brought back fears of an Amazon like model of perpetual shrinking margins and the stock opened down after the earnings. After investors had time to think about the strong growth the buyers appeared and shares rose to gain +$4.27 for the day.

Softbank (SFTBY), which owns 34% of Alibaba, fell -6% today despite the rise in BABA shares. The Softbank ownership in BABA is worth roughly $90 billion at today's closing price and SFTBY only has an $83 billion market cap and they own more than 1,500 companies. Unfortunately one of those companies is Sprint (S) and that is what dragged them lower today. Softbank had to lower annual profit estimates by -$879 million to $7.9 billion because of problems at Sprint. That was its first profit decline in 9 years. They acquired Sprint for $22 billion in 2013.

Sprint shares declined -16.4% to $5.17 after reporting an earnings miss on Monday and saying it was cutting 2,000 jobs. The carrier lost subscribers for the 11th straight quarter. Sprint warned it was slashing profit estimates by $1 billion to $5.9 billion for 2014. Mobile phone customers declined by -272,000 in during the quarter and worse than the -203,000 analysts expected. Sprint is going to slash $1.5 billion in annual costs. The company posted a loss of -$765 million.

Priceline (PCLN) was the biggest disappointment of the day with a -$100 drop after reporting earnings that fell short of estimates. The company reported adjusted earnings of $22.16 compared to estimates for $21.08. Revenue of $2.84 billion also beat. However, they guided to earnings of $9.40 to $10.10 for Q4 and analysts were expecting $10.91. Bookings in Q3 slowed from 34% growth to 28% growth. U.S. bookings collapsed from 20.6% to 9.9% growth. Shares were crushed.

After the bell today Activision (ATVI) reported adjusted earnings of 23 cents compared to estimates of 12 cents. Revenue rose +78%. They raised estimates for Q4 from $1.29 to $1.35 on $4.8 billion in revenue. They gained 7.4 million subscribers to World of Warcraft during the quarter. The latest installment of "Call of Duty" was released on Monday.

FireEye (FEYE) reported an adjusted loss of 51 cents for the quarter compared to estimates for a loss of 56 cents. They raised estimates for a Q4 loss in the range of 46-50 cents and analysts were expecting 56 cents. They revised the full year outlook to a loss of $2.05-$2.15 and analysts were expecting -$2.13. Q3 revenue more than doubled from $42.7 million to $114.2 million compared to estimates for $116 million. So they doubled revenue but still missed analyst estimates. Shares declined -$7 in afterhours to $27.

Potbelly (PBPB) reported earnings of 9 cents compared to estimates of 7 cents. Revenue rose +8.6% to $84.7 million and beating estimates slightly. They reaffirmed guidance for the full year at 18-21 cents compared to estimates for 19 cents. They plan on opening 40-48 new stores and see flat to low single digit same store sales. The lackluster forecast kept shares flat after the close.

TripAdvisor (TRIP) reported adjusted earnings of 48 cents that was well short of estimates of 60 cents. Revenue of $354 million did beat estimates of $347.7 million. Shares crashed -12% on the news.

Zulily (ZU) reported earnings of 2 cents compared to expectations for a loss of 4 cents. Revenues rose +71.5% to $285.8 million. Active customers rose +72% to 4.5 million. Orders increased +62% to 5.9 million. Nearly 50% of orders were placed from a mobile device, up from 45% in Q3-2013. Guidance was in line with estimates. Shares declined -$6 in afterhours.

Earnings out on Wednesday include Qualcomm, Tesla, Whole Foods Market, NuSkin, SolarCity and Symantec. The rest of the week is rather light since this is the last material week in the Q3 earnings cycle. Berkshire on Friday will be the highpoint.


The markets are performing a lot better than I thought they would when I wrote the weekend commentary. I was almost sure the Nasdaq would retreat from the Friday close and suffer several days of consolidation after a major run to a new high. The Nasdaq did decline but not nearly as much as I expected. However, the week is not over.

I chalked up the market strength on Monday to month end retirement funds being put to work. Today the tech sector had every opportunity to collapse with the big losses in PCLN, NFLX, WYNN, etc. A -15 point loss is not a collapse. Even with some of the big losses after the close the Nasdaq futures are only down -2 points. I would say that was pretty good relative strength.

We now have three bearish candles at the 4,625 level but the Nasdaq is still clinging to its highs. The intraday low was -30 points under the close so a decent rebound did occur. The Nasdaq dipped to 4,594 and well below Monday's high of 4,654. Is that enough for a consolidation event? It could be but we won't really know until the end of the week.

Round number support at 4,600 is the level to watch followed by 4,525. Resistance is Friday's high of 4,641.

The Dow is doing amazingly well. The index closed at 17,380 and only -10 points below Friday's closing high. The dip on Monday to 17,366 was minimal and today's intraday dip to 17,278 was quickly bought once it became apparent it was not going any lower. The biggest problem for the Dow was the drop in oil prices. That caused declined in Chevron, Exxon and Caterpillar. IBM continues to bleed points and led the losers list. JP Morgan came under fire from another regulatory issue on currency trading and the bank took another monster charge.

The relative strength in the Dow after the big two week gain is impressive. If it can hold it another couple days the buyers should gain confidence and come off the sidelines.

Initial support is 17,335 followed by today's low at 17,278. Any decline under those levels would probably test 17,000.

The S&P showed a little more weakness than the Dow simply because there are a lot more energy stocks in the S&P. That was the major drag and kept the index was recovering the 2,020 level from Monday. The drop in crude is overdone and we could expect to see at least a dead cat bounce in some energy names on Wednesday.

Like the other indexes nothing has really changed since Friday. We are poised on the cliff face and can either step off and sink or catch a bid and fly from here.

Support is 2003 and resistance the Friday close at 2,018.

Wednesday could be interesting depending on the election outcome and the worry over the ECB news due out on Thursday. Add in the ADP Employment numbers and we still have the potential for profit taking or for a breakout to the upside. The negative earnings on Tuesday have failed to depress the markets with the damage inflicted on single stocks rather than the market.

I would keep some cash in reserve in case we do see some profit taking. I believe the market will eventually move higher so I am in buy the dip mode until proven wrong.

Important Limited Time Offer

Long time readers of Option Investor know we launch our End of Year subscription special on Thanksgiving weekend. It will be 17 years this Thanksgiving. If you already know you want to renew your subscription at the cheapest price of the year then click the link below. I am offering an Early Bird Special with $50 off for anyone that subscribes this week. Once the special actually begins on Black Friday the price will revert to the normal price.


Enter passively, exit aggressively!

Jim Brown

Send Jim an email


New Plays


by James Brown

Click here to email James Brown


Coach, Inc. - COH - close: 33.00 change: -0.94

Stop Loss: 34.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.6 million
New Positions: Yes, see below

Company Description

Why We Like It:
The Coach brand could be dying and may never regain its previous cachet in the luxury goods market. The company describes itself as, "Coach, established in New York City in 1941, is a leading design house of modern luxury accessories and lifestyle collections with a rich heritage of pairing exceptional leathers and materials with innovative design. Coach is sold worldwide through Coach stores, select department stores and specialty stores, and through Coach’s website at www.coach.com."

Unfortunately for COH their sales have been falling for quite some time. They're currently in the midst of a turnaround plan but they're not seeing results fast enough and investors are losing their patience. The company's most recent earnings report was October 28th. COH beat Wall Street's estimates on both the top and bottom line but the devil is in the details.

Analysts were expecting COH's Q1 (calendar Q3) results to be $0.45 per share on revenues of $1.01 billion. The company delivered $0.53 cents and revenues hit $1.04 billion. Sadly, at 53 cents per share, COH's earnings are still down -31% from a year ago. At $1.04 billion, revenues dropped -9.7%. Margins also contracted from a year ago.

A key metric to watch for any retailer is same-store sales. The company gets about 65% of their total sales in the North American market. Sales were down -19%. Same-store sales were off -24%. That was actually better than analysts' estimates of -25.5%. A year ago COH's same-store North American sales were -6.8%. Last quarter they were -17%. You can see the trend is getting worse.

Disastrous sales in the N. America were offset by +4% sales growth internationally. Yet again it's the details that paint the real picture. Japan saw sales drop -12%, which was the eighth quarter of declines in a row. COH saw sales in China rise +10% but that's down from +20% the prior quarter.

Coach's CEO Victor Luis blamed their terrible results on rising competition and "intensified promotional activity". He's right. It's a tough market for the luxury handbag and accessory business. COH's main rival, Michael Kors (KORS) just reported their earnings results today. KORS also beat Wall Street's top and bottom line estimates. Yet KORS warned of slowing growth and same-store sales. That's terrible news as we approach the key holiday shopping season. KORS blamed slower spending in North America and less mall traffic.

Both companies face challenges. COH may not be able to recover. They were once a highly coveted, luxury brand. Yet today they get 70% of their revenues from their discount stores. That could prove to be an impossible job to reverse this trend now that customers expect to buy COH products at a discount. The high-end customer may have moved on.

Trigger @ $32.80

- Suggested Positions -

Short COH stock @ (trigger)

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

Buy the 2015 Jan $30 PUT (COH150117P30) current ask $0.75

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Pare Their Tuesday Losses

by James Brown

Click here to email James Brown

Editor's Note:
The stock market was seeing some profit taking this morning but dip buyers pared the market's losses.

LE hit our stop loss. TWTR hit our bearish entry point.

Current Portfolio:

BULLISH Play Updates

Natus Medical Inc. - BABY - close: 33.99 change: +0.13

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: -2.8%
Entry on October 31 at $34.97
Listed on October 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 282 thousand
New Positions: see below

11/04/14: BABY spent Tuesday consolidating sideways near the $34.00 level.

I would wait for a new rally past $34.30 before initiating new positions.

Earlier Comments: October 30, 2014:
BABY is in the healthcare sector. The company makes medical equipment to treat newborns. The company's online profile describes NATUS as "a leading manufacturer of medical devices and software and a service provider for the Newborn Care, Neurology, Sleep, Hearing and Balance markets. Natus products are used in hospitals, clinics and laboratories worldwide. Our mission is to improve outcomes and patient care in target markets through innovative screening, diagnostic and treatment solutions."

If you like companies with consistent growth then BABY might work for you. The company has beaten Wall Street's top and bottom line estimates for the last five quarters in a row!

BABY's most recent earnings report was October 22nd. Wall Street was looking for a profit of $0.31 a share on revenues of $87.7 million. BABY delivered $0.33 with revenues rising more than 5% to $89.9 million.

Management then raised their guidance. They expect EPS in-line with analysts' estimates but they offered slightly bullish guidance on Q4 revenues, which should come in above consensus estimates.

Jim Hawkins is BABY's President and CEO. Mr. Hawkins commented on his company's third quarter results saying:

"I am very pleased with our third quarter results as we achieved record revenues and earnings. Both revenue and earnings exceeded the top end of guidance. I am most satisfied with our 63% gross profit margin as well as recording over 5% organic revenue growth. Consistent organic revenue growth and improving margins have been major goals for Natus in 2014 and our results demonstrate significant progress to the achievement of these goals.

I remain excited about our Peloton Hearing Screening Service business as we added 17 hospitals during the quarter and we ended the quarter with 39 hospitals under contact. Including contracts already signed during October, we have exceeded our 2014 goal of 40 hospitals under contract by the end of the year."

Technically shares have been showing relative strength and held up very well during the market's correction between mid-September through mid-October. The stock's recent performance has pushed shares to new all-time highs. Today's intraday high was $34.24. I am suggesting a trigger to open bullish positions at $34.35.

- Suggested Positions -

Long BABY stock @ $34.97

10/31/14 trade opened on gap higher at $34.97, suggested trigger was $34.35

Burlington Stores, Inc. - BURL - close: 42.10 change: -0.30

Stop Loss: 39.85
Target(s): To Be Determined
Current Option Gain/Loss: + 2.6%
Entry on October 30 at $41.05
Listed on October 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 663 thousand
New Positions: see below

11/04/14: BURL spent Tuesday's session digesting recent gains. Shares ended down -0.7%.

I am not suggesting new positions at current levels.

Earlier Comments: October 27, 2014:
Christmas is less than 60 days away. This year retail spending is expected to surge. The National Retail Federation is forecasting sales during the holiday shopping season to rise +4.1%. Analyst firm Deloitte LLP is expecting a +4.5% improvement. Last year we only saw +2.8% growth and the 10-year average is +2.9%.

If we take into account the positive impact low gasoline prices will have then the estimates above might be too low. Fuel prices are down nearly 20% from their early 2014 highs. That is a huge boost for consumer spending. Oil looks like it will continue to sink so the trend should continue.

The off-price retailers have been outperforming their regular price peers. BURL is part of the off-price group. According to their company website, "Burlington is a national off price retailer offering style for less for the entire family and the home with up to 65 percent off department store prices every day. Departments include ladies' dresses, suits and sportswear, juniors, accessories, menswear, family footwear, children's clothing, furniture and accessories for baby at Baby Depot, home décor and gifts, along with the largest selection of coats in the nation for the entire family. Burlington has 520 stores in 44 States and Puerto Rico."

Credit Suisse recently noted that BURL has delivered three years in a row of strong same-store sales growth. They did it again when the company reported earnings in early September. BURL said their same-store sales grew +4.7% in their second quarter, compared to estimates for +2-3% growth. Management also noted that their gross margins improved by 50 basis points to 38.2%.

Wall Street was expecting a loss of 8 cents per share on revenues of $1.03 billion. BURL delivered a loss of only one cent and revenues were up +8.2% to $1.05 billion. It was a big improvement from a loss of 19 cents a year ago. More importantly management raised their 2015 guidance for both their earnings and revenue estimates.

The bears will argue that BURL is expensive. It's hard to argue with them since BURL currently sports a P/E near 58. However, investors continue to buy the stock and now shares are poised for another bullish breakout. New highs could spark some short covering. The most recent data listed short interest at 13% of the very small 29.3 million share float.

Tonight we are suggesting a trigger to open bullish positions at $41.05.

- Suggested Positions -

Long BURL stock @ $41.05

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

Long DEC $40 call (BURL141220c40) entry $3.10

11/01/14 new stop @ 39.85
10/30/14 triggered @ 41.05
Option Format: symbol-year-month-day-call-strike

Lowe's Companies - LOW - close: 57.26 change: -0.19

Stop Loss: 55.35
Target(s): To Be Determined
Current Option Gain/Loss: +4.0%
Entry on October 23 at $55.05
Listed on October 21, 2014
Time Frame: Exit PRIOR to earnings on November 19th
Average Daily Volume = 5.5 million
New Positions: see below

11/04/14: LOW spent Tuesday's session in a relatively narrow range. There is no change from my prior comments. The stock is short-term overbought and due for a dip. I am not suggesting new positions at this time.

Earlier Comments: October 21, 2014:
LOW is in the services sector. They run the second biggest chain of home improvement stores in the country. Their 1,837 stores offer more than 200 million square feet of retail space through the U.S., Canada, and Mexico.

The company's most recent earnings report was back in August. LOW beat Wall Street's top and bottom line estimates. Revenues were up +18.2% from a year ago. Gross margins saw some improvement. Same-store sales were up +4.4%, which was impressive. Management provided a small reduction in their full year revenue guidance but this failed to have much impact on the stock. Shares of LOW gapped down on its earnings news and investors bought the dip at support near $50.00.

Since this August earnings report we've seen homebuilder confidence hit nine-year highs while shares of LOW were hitting all-time highs in the $54-55 zone. Investors keep track of the housing market because LOW's business seems to rise and fall with real estate.

The stock market's recent volatility drug LOW back to support near $50.00 and once again traders bought the dip. There was a recent analyst note that was cautious on LOW and its rival Home Depot. The analyst noted that a slow down in sales for building materials would suggest the slowdown should hit retailers too. We may have to wait for LOW's earnings report to see if the analyst is right. In the mean time shares of LOW just ended at an all-time closing high.

If you believe the U.S. economy will continue to improve and the labor market will continue to see job growth then home improvement retailers like LOW and HD should see steady improvement as well.

We are not setting an exit target tonight but I will point out that the point & figure chart is bullish and forecasting a long-term $75.00 target for LOW.

Use a trigger at $55.05 to open bullish positions. We will most likely exit ahead of LOW's earnings report on November 19th.

- Suggested Positions -

Long LOW stock @ $55.05

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

Long NOV $55 call (LOW141122c55) entry $1.45*

11/01/14 new stop @ 55.35
10/23/14 triggered @ 55.05
Option Format: symbol-year-month-day-call-strike

The Pantry, Inc. - PTRY - close: 25.92 change: +0.33

Stop Loss: 24.85
Target(s): To Be Determined
Current Option Gain/Loss: +5.8%
Entry on October 17 at $24.50
Listed on October 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 190 thousand
New Positions: see below

11/04/14: PTRY shot higher at the open. Shares failed to hit new highs but they did outperform the major indices with a +1.28% gain.

I am not suggesting new positions at this time.

Earlier Comments: October 16, 2014:
This is a simple relative strength trade. PTRY has been almost bullet proof against the market's recent weakness. Instead of following the major indices lower PTRY has soared to new four-year highs.

The company website says, "Headquartered in Cary, North Carolina, The Pantry, Inc. is a leading independently operated convenience store chain in the southeastern United States and one of the largest independently operated convenience store chains in the country. As of September 25, 2014, the Company operated 1,518 stores in thirteen states under select banners, including Kangaroo Express, its primary operating banner. The Pantry's stores offer a broad selection of merchandise, as well as fuel and other ancillary services designed to appeal to the convenience needs of its customers."

PTRY is a small cap stock that has been dead money for years. That seemed to change with their last earnings report. When PTRY delivered earnings on July 30th they beat estimates on both the top and bottom line. The stock soared and broke out past key resistance. Several analysts have raised their earnings estimates on PTRY since that report.

Shares are currently hovering just under short-term resistance at $24.40. We are suggesting a trigger to launch small bullish positions at $24.50. I am suggesting small positions to limit our risk. Looking at a long-term weekly chart of PTRY you could argue that the $25.00 level might be resistance. We will try and limit our risk with a stop loss at $22.90, just under today's low.

*small positions to limit risk* Suggested Positions -

Long PTRY stock @ $24.50

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

Long DEC $25 call (PTRY141220c25) entry $1.60*

11/01/14 new stop @ 24.85
10/30/14 new stop @ 23.80
10/23/14 new stop @ 23.30
10/17/14 triggered @ $24.50
Option Format: symbol-year-month-day-call-strike

Sonic Corp. - SONC - close: 25.55 change: +0.38

Stop Loss: 24.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
Entry on October 29 at $25.15
Listed on October 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 738 thousand
New Positions: see below

11/04/14: Better than expected earnings results from restaurant companies like RRGB and BLMN this morning helped fuel gains across most of the restaurant industry. SONC displayed relative strength with a +1.5% gain.

Earlier Comments: October 25, 2014:
"Service at the speed of sound." That was SONIC's original slogan after the company was rebranded from a chain of Top Hat root beer stands decades ago. Today the company has over 3,500 locations in 44 states. That makes SONIC the largest chain of drive-in restaurants in the United States.

Shares of SONC saw big gains in 2013. The rally continues in 2014 but it has been a much more volatile year for the share price. Yet in spite of all the ups and downs SONC is still respecting the long-term bullish trend of higher lows. Now with strong earnings numbers the stock it hitting multi-year highs.

SONC recently reported its Q4 results on October 21st. Same-store sales in the quarter were up +4.6% and margins improved 150 basis points. Net profits came in at 34 cents a share, which is a 62% improvement from the same period a year ago. Revenues were up +3.1%, which beat Wall Street's estimates.

Management guided in-line and SONC expects profit growth of 18-20% in 2015. Multiple analyst firms raised their price target on SONC stock follow these results. The stock's rally has produced a buy signal on the point & figure chart that is forecasting a long-term target near $35.00.

Friday's high was $25.07. Tonight we are suggesting a trigger to open bullish positions at $25.15. We will start with a stop loss at $23.75. I will point out that the 2007 highs in the $25.30-26.20 area is potential resistance so this might be considered a more aggressive entry point.

- Suggested Positions -

Long SONC stock @ $25.15

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

Long DEC $25 call (SONC141220C25) entry $0.95

11/01/14 new stop @ 24.45
10/29/14 triggered @ 25.15
Option Format: symbol-year-month-day-call-strike

Zumiez Inc. - ZUMZ - close: $33.31 change: -0.02

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: - 2.5%
Entry on October 29 at $34.15
Listed on October 28, 2014
Time Frame: Exit prior to earnings in early December
Average Daily Volume = 296 thousand
New Positions: see below

11/04/14: ZUMZ dipped to $32.68 intraday. Shares managed to recover and the stock closed virtually unchanged on the session. If the current trend of higher lows remains intact then ZUMZ should rally from current levels.

Earlier Comments: October 28, 2014:
ZUMZ is in the services sector. The company is considered a specialty retailer. The website describes the company as "a leading multi-channel specialty retailer of action sports related apparel, footwear, equipment and accessories, focusing on skateboarding, snowboarding, surfing, motocross and BMX for young men and women. As of October 4, 2014 we operated 594 stores, included 545 in the United States, 34 in Canada, and 15 in Europe. We operate under the name Zumiez and Blue Tomato. Additionally, we operate ecommerce web sites at www.zumiez.com and www.blue-tomato.com."

Apparel retailers as a group have been pretty hit or miss this year. Yet the sports-related names have been doing okay. ZUMZ's focus on sports-related clothing and equipment might insulate it from the normally finicky teen crowd.

ZUMZ's latest earnings report was back in September. You can see the gap down on the daily chart. ZUMZ beat EPS estimates by 4 cents as earnings grew +35%. Yet revenues only rose +11.9% and missed analysts' estimates. More importantly management issued somewhat soft EPS guidance. The good news for investors is that the post-earnings sell-off did not see any follow through. Instead ZUMZ continues to build on its multi-month trend of higher lows.

I suspect investors might be willing to over look guidance that was a couple of cents below Wall Street's estimates in favor of a company that continues to grow same-store sales. ZUMZ has a pretty good track record with the retailer reporting same-store sales growth that beat analysts' estimates several months in a row. Their latest sales data was very impressive. On October 8th ZUMZ said their net sales in September rose +12.5% while their comparable store sales soared +6.6% compared to estimates for only +2.7% growth.

The current rally has lifted ZUMZ stock to new 2014 highs and the point & figure chart is bullish and forecasting a long-term target of $46.00. Tonight we are suggesting a trigger to open bullish positions at $34.15. We will plan on exiting prior to ZUMZ's next earnings report in early December.

- Suggested Positions -

Long ZUMZ stock @ $34.15

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

Long DEC $35 call (ZUMZ141220C35) entry $1.60

11/01/14 new stop @ 32.45
10/29/14 triggered @ 34.15
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Pandora Media, Inc. - P - close: 18.85 change: -0.58

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: + 1.0%
Entry on October 30 at $19.04
Listed on October 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 7.1 million
New Positions: see below

11/04/14: The oversold bounce in P has failed and shares underperformed the market with a -2.9% decline on Tuesday.

If you're looking for a new entry point then a breakdown under short-term support near $18.50 could work.

Earlier Comments: October 29, 2014:
Pandora is in the services sector. The company provides streaming music over the Internet and through your mobile device. They have over 200 million registered users and over 76 million active users.

It has been a really rough year for shares of Pandora. The stock is down over 50% from its all-time high of $40.44 set in March this year. Traders have been selling the rallies for months. If you only looked at the profit numbers you might be surprised by Pandora's performance.

Pandora's most recent earnings report was October 23rd. They beat analysts' estimates with a profit of 9 cents per share. That's a +50% improvement from a year ago. Revenues were up +41.5% from a year ago to $239.6 million, which also surpassed analysts' estimates. Pandora said listener hours soared +25% to almost 5 billion hours in the third quarter versus a year ago. The company's guidance was actually somewhat bullish with Pandora guiding slightly above consensus estimates on both the top and bottom line.

Given this impressive growth from 2013 you might think the stock would be soaring. Unfortunately for Pandora shareholders the company is seeing growth actually slow down and that's due to significant competition.

The 4.99 billion listener hours last quarter may have been up from a year ago but it's down -1% from the second quarter. The company's active users came in at 76.5 million users in the third quarter. That's up +5.2% from a year ago but it's virtually flat versus the 76.4 million from the prior quarter.

The slowdown is likely a result of too much competition. There are a ton of streaming music services like Rdio, Deezer, Grooveshark, Xbox Music, Sony Music Unlimited, and Songza. Yet the major competitors for Pandora are probably Spotify, Amazon.com's Prime Music, Apple's iTunes radio, which will soon merge with Beats Music, and finally Google has their Google Play Music All Access service. If all the competition wasn't enough Pandora also has to contend with music labels constantly fighting to raise the royalties that Pandora has to pay.

There are plenty of bears in this name. The most recent data listed short interest at 13.2% of the 197.2 million share float. Given the stock's recent performance, the slowing growth, and rising competition, the bears should have the upper hand. The stock's performance has produced a bearish signal on the point & figure chart, which is forecasting a long-term target of $11.00.

Tonight we are suggesting bearish positions at the opening bell tomorrow morning. More conservative traders could wait for a new relative low under $18.90 instead. The next support level might be the $15.00 area.

- Suggested Positions -

Short P stock @ $19.04

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

Long 2015 Jan $19 PUT (P150117p19) entry $1.71

10/30/14 trade begins. P opens @ $19.04
Option Format: symbol-year-month-day-call-strike

Twitter, Inc. - TWTR - close: $40.90 change: +0.69

Stop Loss: 43.05
Target(s): To Be Determined
Current Option Gain/Loss: - 2.9%
Entry on November 04 at $39.75
Listed on November 03, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 27.9 million
New Positions: see below

11/04/14: It was a frustrating day if you were bearish on TWTR. Shares spiked lower at the open and traded just low enough to hit our suggested entry point at $39.75 and then immediately bounce. Within minutes TWTR was back above the $40.00 level and shares eventually closed up +1.7%. Technical traders will note that today's move looks like a bullish engulfing candlestick reversal pattern.

I am not suggesting new positions with TWTR above $40.00. Wait for a new relative low under $39.75.

Earlier Comments: November 3, 2014:
TWTR is considered part of the technology sector. The company runs a micro-blogging, communication platform. Users can express themselves but they're limited to 140 characters. The platform is part of the social media industry, which constantly gets a lot of attention from Wall Street.

TWTR came public with its IPO about one year ago. The stock priced at $26.00 and shares ended their first day of trading (November 7, 2013) at $44.90. It has been a roller coaster ride for the stock price. TWTR almost hit $75.00 in December last year and then fell to $30 by May 2014. The company has seen incredible growth but even with the growth its valuations fuel a lot of critics. Their P/E ratio is negative. The stock is trading around 20 times its annual revenues and over 100 times next year's earnings.

The stock's most recent earnings report was October 28th and Wall Street was not happy with the results. Analysts were expecting a profit of $0.01 per share on revenues of $351.59 million. TWTR delivered $0.01 cent, matching estimates, and revenues soared +114.9% to $361 million in the quarter.

TWTR's advertising revenue grew +109% to $320 million from the same quarter a year ago. International revenues were up +176%. With all of this growth and the revenue beat, why did TWTR's stock crash on this report?

The reason is user growth. The company's user growth appears to be slowing down. TWTR's Monthly Active Users (MAUs) hit 284 million in the third quarter. That's an improvement of 13 million from the same quarter a year ago. Wall Street was expecting 285 million MAUs and the whisper number was around 290 million or higher.

The 284 million MAU number is a +4.8% growth rate from the same quarter a year ago. Yet a year ago MAUs were growing +6.4%. The prior quarter Q2 2014 MAUs were growing +5.9%. You can see the concern here. TWTR's valuations are based on extremely strong growth, which is it seeing in its ad revenues, but if users aren't growing then ad revenues will likely stall as well.

Management issued Q4 revenue guidance in the $440-450 million range versus consensus estimates around $448 million. This is another reason traders could have hit the sell button. At least five firms downgraded TWTR following these results.

The stock plunged from the high $40s to low $40s on this earnings report. There has been almost no oversold bounce and now shares are hitting new three-month lows near support at $40.00.

Tonight we are suggesting a trigger to open bearish positions at $39.75. I do want to caution readers that there was a rumor of an activist investors getting involved with TWTR but nothing has been confirmed yet. Should that that story prove to be true it could spark some short covering.

- Suggested Positions -

Short TWTR stock @ $39.75

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

Long DEC $40 PUT (TWTR141220P40) entry $2.69

11/04/14 triggered @ $39.75
Option Format: symbol-year-month-day-call-strike


Land's End, Inc. - LE - close: 45.09 change: -1.38

Stop Loss: 45.95
Target(s): To Be Determined
Current Option Gain/Loss: - 5.3%
Entry on November 03 at $48.50
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 468 thousand
New Positions: see below

11/04/14: The bullish breakout past resistance in shares of LE proved to be a trap. Yesterday's intraday reversal lower continued on Tuesday. Shares of LE underperformed the market with a painful -2.9% drop. Our stop was hit at $45.95. I can't find any specific news to account for the relative weakness.

- Suggested Positions -

Closed LE stock @ $48.50 exit $45.95 (-5.3%)

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

DEC $50 call (LE141220c50) entry $4.55 exit $2.85 (-37.3%)

11/04/14 stopped @ 45.95
11/03/14 triggered @ $48.50
Option Format: symbol-year-month-day-call-strike