Option Investor

Daily Newsletter, Thursday, 11/6/2014

Table of Contents

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

Market Wrap

Drifting Higher

by Thomas Hughes

Click here to email Thomas Hughes
Economic data and central bank policy lift the market.


The indices drifted higher today, led by a surge in the Dow Transports.Futures indicated a flat to negative open from the start of early trading but slowly improved throughout the morning. Economic data and earnings both helping to lift prices. This week's round of labor data is positive and once again shows underlying strength in the economy. The only weak spot was the jump in planned layoffs which was not unexpected, just a little shocking when you first read the headlines. After the 8:30AM data release index futures rose to break even just before the opening bell. After the open trading was mixed, hovering around flat for the first half hour before quickly dipping down to test near term support. By 10:30AM the market was bouncing higher and setting new all-time highs.

Market Statistics

Dovish policy from the ECB added some support today as well. The monthly meeting of the ECB ended this morning with the announcement it would leave key rates unchanged. This was more or less as expected; Mario Draghi has been blowing wind about “further measures” for many, many quarters and has yet to really do anything. Today was no different, in the statement and press conference Draghi stated the central banks commitment to increasing the balance sheet and even made a few more hints at increasing stimulus measures. Mr. Draghi also addressed the possibility that there was division amongst ECB council members by saying “it's normal to disagree”. The European markets at first responded well to the news, driving index prices up by more than 1% before falling when the reality of “weak growth momentum” and “downside risk” to the EU economy set in.

Economic Calendar

The Economy

First released today was the Challenger Gray&Christmas report on planned layoffs. According to their data the rate of planned layoffs surged by 68% in October, lead by retail and computers. The total number of layoffs planned in October rose to 51,183, the second highest level this year. Last month's figure was a 14 year low, one reason the snap-back this month is not too surprising. Another reason is that October and November are historically months in which layoffs accelerate due to end of the year business restructuring. According to data within the report restructuring was listed as the reason behind 33,000(64%) of this month's layoffs. This month the gains were led by Hewlett Packard and Sears, both of which are in the midst of planned restructuring. On a year-to-date basis layoffs are down -4.3% for the year. An additional tidbit I found near the bottom of the report was a tally of planned hiring showing a month-to-month and year-over-year increase.

Initial claims for unemployment fell by -10,000, reversing three weeks of gains. Last week was revised up by 1,000. This week's number of initial claims is 278,000, extending the dip below 300,000 to 8 weeks. The four week moving average also fell, shedding -2250 and setting a new 14 year low. On an unadjusted basis claims fell by -1.9%, just ahead of the expected -1.7% projected by the seasonal factors and down -20% from last year. Initial claims are off of their lows but trending at long term low levels. These levels are consistent with the current rebound in the labor market and economic recovery.

Continuing claims also fell this week. The number of claims fell by -39,000 to 2.348 million. This is a new 14 year low not seen since December, 2000. The previous week was revised up but even with that the 4 week moving average was able to set a new low as well. Continuing claims are still trending lower and could be leading the way to another decline in the unemployment rate. The total number of claims for unemployment for all levels rose by 77,119. This is just off the recently set long term low.

It looks to me like the labor market is still chugging along. There is no sign of a booming market, but no signs of a weak market either. Just the same steady market that has been building for the last two years. All the data supports it. The ADP figure yesterday was just right, smack in between 200K and 250K. Challenger is up this month and down for the year. Jobless claims are trending lower at levels that have already contributed to a decline in unemployment. Based on these factors I am expecting to see tomorrow's NFP in the same range as ADP with a possible decline in unemployment.

Productivity increased in the 3rd quarter by +2.0%. This is below the +2.7% increase in the 2nd quarter but still a decent number. This was matched by a 4.4% increase in output and a 2.3% increase in hours worked. On a year-to-date basis productivity is up just shy of 1.0% with a 3% increase in output and 2.1% increase in hours worked. Compensation also increased, by 1.2%. This isn't a massive increase in hours, productivity or wage growth but it is growth and shows there is some upward pressure on wages.

The Oil Index

Volatility persisted in the oil pit. Ongoing perception issues with OPEC and pricing issues with Saudi Arabia were compounded today when OPEC released its annual report on oil, lowering its outlook on demand and prices. Along with the lower outlook OPEC also sees a danger of oversupply, more fuel for the ongoing price way. Additionally there is a growing possibility that Iran and the West will come to terms over it nuclear program and opening up even more supply to the market. Brent fell by about a percent when the OPEC report hit the wire but was able to regain its losses by the end of the day. WTI fell as well but was not able to reclaim yesterday's settlement prices.

The Oil Index traded to the upside. The index gained about 0.80% in a move that began below yesterday's close and a potential support. While it looks like oil could move lower the Oil Index appears to be undecided. I could make an argument for a potential move higher, or a retest of long term support down around 1,350 but I think it is going to come down to where oil prices go and for now that is the million dollar question. Current resistance is 1,490 with support around 1,430 and 1,400.

The Gold Index

Gold prices held steady around $1145 today but may only be pausing for breath. The rapid increase in dollar strength over the past two weeks has pushed gold down to 4 year lows and is not showing sign of letting up. The ECB is still a year or more behind the FOMC in its recovery and policy cycle and the BOJ is actively printing yen as we speak. At the same time the US economy is gaining momentum while EU and Asian economies continue to flounder, all adding up to a strong dollar and weak gold.

The Gold Index gained over 5% today, creating a long white candle and a possible bullish engulfing pattern. The index opened higher than yesterday's close and then powered higher all day, completely making up all of yesterday's loss and more. Of course, this is probably a very short term indication of direction as the index is in a long term downtrend, below long term support and showing weak indicators. Possible bullish signs exist in the indicators as well as in the price action but without a move above $66.50 I see them as portents of possible bearish entry. The MACD is peaking, stochastic is forming a very weak bullish crossover and both indicators are divergent from the two month down trend. These could lead to a snap back or relief rally but there is a significant resistance level at $66.50 that must be overcome and I think it will take a significant improvement in gold prices for that to happen. Without that I will be looking for bearish activity in this sector.

In The News, Story Stocks and Earnings

Earnings are still flowing but we are getting near the end of the season. RandGold resources, a senior miner with operation throughout Africa, reported earnings today. The miner reported EPS of $0.63, 11% better than the previous quarter but less than the $0.76 expected. The gains were made on an 8% increase in production for the quarter, attributable to operations at a new mine called Kibali in western Africa. There was no mention of Ebola affecting operations but the company did say it was taking steps to protect the miners and communities where they are operating. On a year to date basis production is up more than 37% and is expected to increase as operations in Kibali come fully on line. Shares of the stock rose more than 10% in today's session, it is not a part of the Gold Index.

CBS reported earnings above estimate. EPS of $3.03 was aided by positive charges related to the spin off of CBS Outdoors earlier this year. The company also reported favorable earnings surprises from syndicated programming offered on cable and streaming channels. Shares of the stock moved higher in the premarket session and gapped 2% higher at the open. Then sellers stepped in and drove prices back down to retest support near $50. This one has been trading more or less sideways to down over the past 12 months and could be forming a bottom. Today's action appears to be confirming support set last month. If not, a drop below here could lead to a more pronounced downtrend in this stock.

Disney reported after the bell and matched estimates for earnings on slightly heavy revenue. The results are an improvement over the previous quarter and a company record. Unfortunately they are a little shy of expectations and sent shares lower in after hours trading. Disney also announced the title of the latest Star Wars movie, “The Force Awakens”, as well as a handful of Marvel titles.

The Indices

The bulls came out of the gate a little timidly today but quickly regrouped to rally higher. There was some resistance early on but most indices were able to set a new all time high. The Dow Jones Transportation average led the way with a gain of nearly 1.25%. The transportation sector was bolstered by a new report from the postal service that shows volume this holiday season will be at a record. This is only one of many indications that volumes, and revenues, for shippers and transporters will be robust over this season. Today's action extends the breakout from a short term consolidation I highlighted earlier this week. The indicators are bullish and setting up for a follow up trend following signal. MACD has retreated from an extreme peak and has started to rollover to a second peak while stochastic is making a bullish crossover high in the upper signal zone. My upside targets are now around 9,250 and 9,750 in the near to short term.

The Dow Jones Industrial Average was also fairly strong today. The blue chip index gained 0.40% and set a new all time high. Today's move is an extension of a near straight line advance in the index that has so far taken it over 9.5% in less than a month. The sharpness of the advance may be a sign of investors and traders chasing prices, it also could (will) lead to a pullback of some variety, at some time in the future. At this time the index is moving higher and with some strength. MACD shows momentum is strong and slowing slowly, stochastic is high in the range and pointing higher in both the near and short term.

The SPX also managed to make a move of near 0.40%. The broad market had a little more trouble breaking to a new high than the Dow indices but made it there eventually. Today's move extends the bounce/test of support from the 2,000 level and looks like it is going to keep moving higher. Momentum and stochastic are both strong, stochastic forming a bullish crossover high in the upper signal zone. I'm using the 2,000 as the basis for my near/short term projection with a target of 2,150. This is assuming the bounce from the October low until the test of support at 2,000 this week is only the first half of the move. If so, the second leg will likely not be as strong and could run until the end of the year.

The NASDAQ Composite also traded to the upside today. The tech heavy index was not able to set an new intraday high but it did make a new closing high. The index has been trading sideways since reaching this level last Friday and is creating a series of spinning tops. These spinning tops are forming a nice little congestion band that may lead to new highs, if the rest of the market is any indication. This congestion band is comparable to the near term consolidation I highlighted on the Dow Transports chart and the possible mid-point of a larger move. 4,600 and 4,500 is support with a near to short term target near 5,100.

The market is moving higher. Slowly, steadily, on the back of earnings and economic data higher. The trends are up, the labor market is improving and the expectations for the holiday season are strong. Some companies will not perform as well as others but as a whole business is doing well and expected to do well. Basically it's a stock pickers market just like always.

The NFP numbers are released tomorrow and could provide catalyst for the market. Unless it is so bad there is absolutely no hope for the economy any downside move will likely be small compared to the October correction.

Until then, remember the trend!

Thomas Hughes

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New Plays

Potential Short Squeeze Candidate

by James Brown

Click here to email James Brown


Ambarella, Inc. - AMBA - close: 46.01 change: +1.30

Stop Loss: 43.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.6 million
New Positions: Yes, see below

Company Description

Why We Like It:
AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June this year and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. I mention GPRO because AMBA happens to make the HD camera sensors in many of GPRO's products. As GPRO rallies it could be giving AMBA a boost and GPRO expects record sales this holiday season. I find it interesting that GPRO has been chopping sideways the last few weeks while AMBA has hit new highs.

Another note on GPRO, the company reported earnings on October 30th and beat estimates on both the top and bottom line. GPRO management then raised their earnings guidance significantly above Wall Street's estimates. That should spell good news for AMBA's business with GPRO.

GPRO isn't the only one with strong earnings. AMBA's rally has been helped by consistent earnings growth. The company has beat Wall Street's estimates on both the top and bottom line for the last four quarters in a row. Their most recent earnings report in September saw AMBA's management raise their revenue guidance.

Shorts are getting killed. As the rally continues AMBA could see more short covering. The most recent data listed short interest at 26.7% of the small 28.0 million share float.

Currently AMBA is bouncing from the $44.00 level after a two-day pullback. If this rebound continues we want to hop on board. The company will likely report earnings in early December so our time frame is the next four to six weeks.

Trigger @ $46.50

- Suggested Positions -

Buy AMBA stock @ (trigger)

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

Buy the DEC $50 call (AMBA141220C50) current ask $2.15

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

Annotated Chart:

intraday Chart:

In Play Updates and Reviews

The ECB Hints At QE

by James Brown

Click here to email James Brown

Editor's Note:
The European Central Bank continues to hint at doing more QE and that was enough for stocks to rise another session.

COLM hit our entry trigger.

Current Portfolio:

BULLISH Play Updates

Natus Medical Inc. - BABY - close: 33.89 change: -0.07

Stop Loss: 33.45
Target(s): To Be Determined
Current Option Gain/Loss: -3.1%
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

11/06/14: BABY has essentially gone nowhere the last four days while the major indices have continued to rally. This is not a good sign for the bulls. More conservative traders may want to exit early now.

Tonight I am raising our stop loss to $33.45. No new positions at this time.

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

11/06/14 new stop @ 33.45
10/31/14 trade opened on gap higher at $34.97, suggested trigger was $34.35

Burlington Stores, Inc. - BURL - close: 42.88 change: +0.55

Stop Loss: 39.85
Target(s): To Be Determined
Current Option Gain/Loss: + 4.5%
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

11/06/14: BURL displayed relative strength today with a +1.29% gain. This is a new all-time high. I would be tempted to buy a breakout past $43.00.

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

Columbia Sportswear Co. - COLM - close: 40.14 change: +0.13

Stop Loss: 38.25
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
Entry on November 06 at $40.25
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 138 thousand
New Positions: see below

11/06/14: Shares of COLM tagged a new three-month high and that was enough to hit our suggested entry point at $40.25. I would consider new positions now at current levels or you could wait for a new relative high above $40.31.

Earlier Comments: November 5, 2014:
COLM has been consistently beating earnings expectations all year long. The company is part of the consumer goods sector.

According to a company press release, "Columbia Sportswear Company is a leader in the global outdoor and active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company has assembled a portfolio of global brands whose products are sold in approximately 100 countries. In addition to the Columbia brand, Columbia Sportswear Company also owns the Mountain Hardwear, Sorel, prAna, Montrail and OutDry brands."

The trend of earnings in 2014 has been strong with COLM beating Wall Street's earnings estimates four quarters in a row and raising guidance three out of four quarters. Their most recent earnings report was October 30th. Analysts were looking for a profit of $0.87 per share on revenues of $632.29 million. COLM delivered earnings growth of +20% to $0.93 a share. Revenues soared +29% to $675.3 million.

Management then raised their full year 2014 earnings and revenue guidance above analysts' estimates. COLM expects 2014 sales to hit $2.06 billion, which is +22% improvement above 2013. They also expect gross margins to rise 130 basis points from a year ago. COLM is guiding 2014 net income to rise +35% to $1.80 per share.

COLM's president and chief executive office, Tim Boyle, said they expect 2015 net sales to grow at a double-digit rate above their new 2014 estimate of $2.06 billion. They plan to hit mid-teen operating margins.

COLM appears to have strong sales momentum as we head into the crucial holiday shopping season. Retail analysts are expecting industry wide sales to be above average this year. Low gasoline prices provide a great tailwind for all the consumer goods companies.

Technically shares of COLM found support near $34-35 dating back to their prior highs (see the long-term chart below). The rebound has accelerated thanks to the company's earnings report and bullish guidance. Now COLMN is breaking out past resistance at $40.00 and its simple 200-dma. We are suggesting a trigger to open bullish positions at $40.25.

- Suggested Positions -

Long COLM stock @ $40.25

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

Long 2015 Jan $40 call (COLM150117C40) entry $1.75

11/06/14 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike

Lowe's Companies - LOW - close: 57.57 change: +0.63

Stop Loss: 55.85
Target(s): To Be Determined
Current Option Gain/Loss: +4.6%
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

11/06/14: Good news! LOW did not see any follow through on yesterday's potential bearish reversal pattern. I am still 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*

11/05/14 new stop @ 55.85
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: 27.37 change: +1.45

Stop Loss: 24.85
Target(s): To Be Determined
Current Option Gain/Loss: +11.7%
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

11/06/14: PTRY soared to a +5.5% gain and a new multi-year high on Thursday. I do not see any company-specific news behind the rally. Shares just marched higher all day long.

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: 25.13 change: -0.06

Stop Loss: 24.45
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
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

11/06/14: SONC did not participate in the market's rally today. This could be a warning signal for bulls. I am not suggesting new positions at this time.

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: $35.06 change: +1.43

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: + 2.7%
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

11/06/14: Shares of ZUMZ soared +4.25% and closed at a new two-year high thanks to better than expected same-store sales. The company reported net sales rose +11.7% in October versus a year ago. Same-store sales were up +3.1% compared to a +1.2% gain a year ago and above analysts' estimates of +2.6% same-store sales.

I would not chase today's big move.

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

Coach, Inc. - COH - close: 33.46 change: +0.44

Stop Loss: 34.65
Target(s): To Be Determined
Current Option Gain/Loss: - 2.0%
Entry on November 05 at $32.80
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.6 million
New Positions: see below

11/06/14: COH managed another bounce today, gaining +1.3%. Shares are near prior support, which should be new resistance. If this bounce rolls over we can use it as a new entry point. More conservative traders may want to wait for a new relative low (under $32.70) before initiating new positions.

Earlier Comments: November 4, 2014:
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.

- Suggested Positions -

Short COH stock @ $32.80

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

Long 2015 Jan $30 PUT (COH150117P30) entry $0.75

11/05/14 triggered @ $32.80
Option Format: symbol-year-month-day-call-strike

Pandora Media, Inc. - P - close: 17.78 change: -0.40

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: + 6.6%
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

11/06/14: The selling in Pandora continues and shares lost another -2.2%. These are new 2014 lows.

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: $40.84 change: +0.47

Stop Loss: 43.05
Target(s): To Be Determined
Current Option Gain/Loss: - 2.7%
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

11/06/14: Another round of rumors that an activist investor might be taking a stake in TWTR helped the stock bounce. Shares are churning sideways in the $40-42 zone.

Traders may want to wait for a new relative low under $39.75 before initiating bearish positions.

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