Option Investor

Daily Newsletter, Monday, 11/10/2014

Table of Contents

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

Market Wrap

Bulls March Higher

by Thomas Hughes

Click here to email Thomas Hughes
A quiet day for news, earnings and data opened the door to new highs.


Today was pretty quiet in terms of news, data and earnings. The early morning hours were dominated by positive export data from China but even that was not too exiting. Chinese exports rose by 11.6%, less than the previous month but more than expected. Asian stocks were mixed on the news but it set the stage for a rally in Europe. European indices traded slightly above last week's closing prices for most of the day but rallied into their close aided by new all time highs on our indices.

There were some earnings reports this morning but nothing really exiting. Most of the S&P 500 has reported by this stage of the game with only about 30 left to go. Also missing today was US economic data. It's the second week of the November and the lightest data week of the monthly cycle. The NFP and unemployment data from last week helped to support the market today but were largely ignored by the media. There are a few reports later this week but nothing that I consider to have market reversing potential. Another noticeable item missing today was bad news. There just aren't any attention grabbing bad news stories for the market to worry about.

Market Statistics

Our own indices were indicated higher from the earliest part of the trading day but only marginally so. Futures trading held positive throughout the morning and into the open. At the bell the indices opened flat to last week's closing prices and hovered there for the first hour of trading. Around 10:35 the markets began to lift and then broke out to new all time highs. The intraday highs were reached around 12:30 and held through to the end of the day. There was a little churn in afternoon trading but only a few points, leaving the indices at or near the intraday high at the close of trading.

Economic Calendar

The Economy

There was no economic data released today. This week is also fairly light on releases, Thursday and Friday being the focus. Thursday is weekly jobless claims as well as monthly JOLTS job opening figures. Friday is Michigan Sentiment, National Retail Sales figures, Business Inventories and import/export prices.

There was not much mention of the NFP or unemployment numbers today but I am going to bring them up. The NFP was right in line with my estimates and consistent with the long term trends in labor we have been experiencing. Job creation remains steady while turnover is low, hiring intentions are high and the pace of layoffs is in a long term decline. These all add up to lower unemployment, evidenced by the -0.10% drop to 5.8% also reported Friday. While the quality of jobs may not be what some would like there are jobs and people are going to work.

Moody's Survey of Business Confidence, compiled and presented by Mark Zandi remains upbeat. This week's report is even a little more upbeat than it has been over the past few months. Aside from further notation of weak confidence in South American and Europe the report shows that “Businesses remain very upbeat in the U.S. Hiring intentions in the U.S. are especially strong, rising to a new record high in recent weeks. Hiring is robust and layoffs are very low. Confidence in the U.S. is consistent with an economy expanding well above its potential. Sentiment is slumping in South America and Europe, consistent with economies that are growing below their potential.”

The Oil Index

Oil prices experienced another wild day as yet another new twist in the ongoing oil price war unfolds. Prices for WTI first climbed by a full percent during the morning hours on disruption news until price news from Iraw sent them plunging later in the day.

Today Iraq joined with Saudi Arabia in offering a discount on prices to US based customers. Iraq also emulated the Saudis by raising prices for Europe and Asia in an attempt to offset losses. The announcement helped to send prices for WTI and Brent lower by nearly a full percent despite supply issues coming out of Libya.

The recently reopened Sharara oil field is reportedly taken over by rebel gunmen while the Hariga oil port is subject to a strike. While both news bits are important to oil prices I still think the upcoming OPEC meeting is more important in terms of long term direction. According to current speculation a production cut is not expected from OPEC despite many calls for such from some members. Until then oil prices could remain trapped in a range between the long term low and $80 with day to day direction driven by headlines.

Something I was reminded of today is that we are entering the cold winter period for the northern hemisphere. Oil and natural gas use will go up simply because of heating and it could be a cold one this year, the polar vortex is coming back. Cold snaps like the one forecast for this week will have some bearing on supply/demand level and energy prices, particularly if the season is colder/longer than estimated.

The Oil Index fell today, dropping from the 1885 resistance line. The index has now tested resistance at this level three times without breaking through. The indicators are bullish but in retreat and showing divergences which confirm resistance along this level. The divergence could lead to a retest of long term support as foreshadowed by the previous bearsish peak in MACD, the peak which is convergent with the October correction. Resistance is at 1,485 with potential support at 1430, 1400 and 1350.

The Gold Index

Gold prices fell -1.5% today after the impressive snap back rally last Friday. Economic trends and the labor data helped the market to see that inflation was a little closer than it might have thought, leading to what may have been a knee-jerk rally gold.

The steady NFP, lower unemployment rate and slight uptick in wages helps confirm that the economy and consumer is recovering and on the path to inflation but as of yet there is very little real evidence of it. Any inflationary worries there are were overshadowed by dollar strength which ultimately led to the decline in gold prices. Today's drop halted just above $1150 which may prove important over the next few days or week.

The Gold Index fell today, losing over -6%. The index is in a long term down trend and is trading below the 100% Fibonacci Retracement of the 2008-2011 uptrend. Today's move is a confirmation of resistance at previous long term support as represented by the 100% FR line, located at $66.59. The indicators are weak, in line with the down trend and setting up for another trend following signal. Using Fibonacci to project a downside target I come up with $50.80 with current support right around $60. Gold prices are driving poor earnings expectations in this sector and need to rise significantly to change that. Until then the down trend in the gold sector is likely to continue. <

In The News, Story Stocks and Earnings

Earnings season is still rolling on. According to FactSet as of Friday 446 of the 500 S&P 500 companies have reported. Out of those 77% of them have reported earnings above the estimated mean and 60% of them have reported revenue above the estimated mean. Both of these figures rose from last weeks data and have been on the rise since the reporting season began. The average earnings growth of those who have reported is 7.6%, also higher than last week and above the sub-5% growth expected at the end of the previous quarter. The Telecom sector is leading, as expected, and the Consumer Discretionary is lagging, as expected. Surprises from the Financial and Materials sectors are leading in terms of positive surprises and a big cause for the increase in mean earnings and revenue growth.

Dean Foods reported this morning. Dean Foods is the leading producer of dairy and dairy products in the US and reported a loss much smaller than expected. The company has been plagued by what it calls the “most difficult operating conditions it has ever experienced” but seems to be faring OK. Quarterly results are due to improvements to operations which may help spring board it to profit in the coming quarter. Executives were able to raise guidance from a slight loss to a range of $0.05-$0.15. Shares of the stock rallied on the news and gained more than 13% and climbed above the mid-point of the 12 month trading range. The indicators are bullish, strong and suggestive of higher prices. Support is now around $16 with next potential resistance near $17.

McDonald's reported October sales figures today. The global fast food chain reported slowing sales, but not as slow as some had feared. Corporate-wide sales fell by only -0.5%, versus an estimated -2.5%. This was aided by the US and Europe which both posted much smaller than expected gains of -1% and -0.7% respectively. China was the only region to experience significant decline, matching estimates at -4.2%. Shares jumped during the premarket session, gapped a little at the open and then fell back to close just above break even to last week. McDonald's is basically flat for the year, up for the past three weeks and trading above long term support.

The transportation and shipping sector was the leading sector today. Among them the rail carriers were particularly strong and among them CSX. The stock climbed more than 3% today driven on strong underlying fundamentals. The company reported earnings a few weeks ago and informed us that earnings are up, traffic is up and they expect next quarter and next year to be up. Current company estimates have earnings growth in the double digits for 2014 and 2015. Today's move takes the stock above resistance and set a new all time high. The indicators are turning bullish after a brief pull back last week and in line with a trending market.

Obama reiterated his position on net neutrality today. In his statement he called on the FCC to enact the toughest laws possible to protect net neutrality. He also put forward the idea that the internet should be regulated as a public utility. The internet and cable providers did not respond well to the news. Shares of Time Warner Cable and other lost over 5%. Time Warner issued a statement opposing the Presidents view. They say that changing the classification will lead to years of litigation and stunt the growth of the industry.

The Indices

The rally continued today. The bulls came out the gate, gathered themselves together and took a step forward. It was not a big step but an important one. The market is at all time highs and making new all time highs. As I mentioned before the transportation section was very strong today and led the market higher.

The Dow Jones Transportation Average gained more than 1.25% creating another long white candle. Today's move extends the break-out from the quick consolidation pattern I highlighted last week. This pattern and break out is supported by a trend following signal on MACD and stochastic. Bullish MACD momentum is back on the rise after a decline and stochastic is showing a bullish crossover high in the upper signal range. This break out has a target as high as 700 points above the current levels.

The NASDAQ Composite was the next best gainer today but only climbed by 0.41%. The tech heavy index was able to set a new 14 year intra-day and closing high. Today's action set a new high but the index is still basically trading sideways in a consolidation band akin to the one observed in the transportation average. The indicators are still in decline but beginning to rollover, in line with a trend following signal that could lead to a more pronounced break out. If so, this one would have an upside target around 5,300, about 700 points above today's close. Current support is at the 4,600 level and the September highs.

The S&P 500 gained 0.31% today, also setting a new all time high, both intraday and closing. The broad market gained just over 6 points and extended the bounce from 2,000 begun last week. The index is moving higher with bullish indicators but as of yet momentum is still in decline. Stochastic is showing a bullish crossover but is so high in the signal zone it is flat lining against the top of the range. This is a sign of overbought conditions but not necessarily a bearish sign or signal. The market could, theoretically, remain overbought indefinitely, or until the rally runs it course.

The Dow Jones Industrial Average was today's laggard but still made a gain of 0.23%. The blue chip index was also able to set a new all time high. Price action created a small bodied white candle indicative of slow and steady buying, a good sign I think for a Monday morning mid rally. The indicators are bullish and leading to higher prices but momentum is in decline. The current MACD peak is a +5 year extreme and as such an indication of strength in the market. The decline in MACD is suggestive of slowing and/or pause bot not overly bearish. Stochastic is still quite high in the range and supportive of trend continuation at this time. This index may consolidate or pull back a bit but such a move will more likely be an opportunity for bullish entry rather than a sign of impending reversal.

The indices are marching higher and led by the transports as they have been all year. Today's action is yet another example of many. The broad market moved slightly higher, along with the blue chips and the techs but it was the transports that led they way. The broad market and blue chips may be looking a little sluggish, the techs may still be in a consolidation band but if history repeats itself, and that is what technical analysis is all about, the transports are leading them all higher.

Current economic trends are up and expectations from the market are positive. So long as this continues the rally is on. Without bad news, and with earnings season on the way out the only thing standing in the bulls way is economic data and the holiday season.

Until then, remember the trend!

Thomas Hughes

New Plays

Consistently Beating Top & Bottom Line Estimates

by James Brown

Click here to email James Brown


Synchronoss Technologies - SNCR - close: 53.67 change: +1.55

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 10, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 504 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
SNCR is in the technology sector. The company provides cloud-based computer solutions and software. Thirty of the biggest wireless carriers use SNCR to back up their customer data. That accounts for more than three billion mobile users. Over 300 of the Fortune 500 companies use SNCR.

The company describes itself as "the mobile innovation leader that provides cloud solutions and software-based activation for connected devices across the globe. The company's proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world."

The company is a high-beta, high-growth name and the stock can be volatile but SNCR has been delivering growth. They have beaten Wall Street's estimates on both the top and bottom line four quarters in a row. Their most recent earnings report was October 28th.

Analysts were looking for SNCR to report a profit of $0.43 a share with revenues of $118.8 million. The company beat expectations with earnings up 35% from a year ago to $0.46 a share. Revenues were up +39.6% to $125.2 million.

SNCR's Founder and CEO, Stephen Waldis, commented on the quarter saying, "Synchronoss' strong third quarter financial results exceeded our expectations from a revenue and profitability perspective and were highlighted by 115% year-over-year Cloud Services revenue growth."

SNCR has an above average amount of short interest at more than 9% of the very small 34.4 million share float. The better than expected earnings results sparked a sharp rally to new all-time highs. Shares have now spent two weeks digesting these gains and they have started moving higher again as traders buy the dips.

Today saw SNCR showing relative strength (+2.9%) and close at a record high. We want to jump on board and we're listing a trigger to open bullish positions at $54.15. I want to reiterate that SNCR can be a little volatile. Investors may want to use small positions.

Trigger @ $54.15

- Suggested Positions -

Buy SNCR stock @ (trigger)

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

Buy the DEC $55 call (SNCR141220c55) current ask $1.85

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

Annotated Chart:

Intraday Chart:

In Play Updates and Reviews

Path of Least Resistance

by James Brown

Click here to email James Brown

Editor's Note:
The market's path of least resistance appears to be up. U.S. stocks drifted higher on Monday.

IP hit our entry trigger.

Current Portfolio:

BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 49.21 change: +2.07

Stop Loss: 43.75
Target(s): To Be Determined
Current Option Gain/Loss: + 5.8%
Entry on November 07 at $46.50
Listed on November 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.6 million
New Positions: see below

11/10/14: The rally in AMBA is accelerating. Shares displayed relative strength with a +4.39% gain and a breakout to new highs. More conservative traders may want to raise their stop loss.

Earlier Comments: November 6, 2014:
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.

- Suggested Positions -

Long AMBA stock @ $46.50

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

Long DEC $50 call (AMBA141220C50) entry $2.15

11/07/14 triggered @ $46.50
Option Format: symbol-year-month-day-call-strike

Burlington Stores, Inc. - BURL - close: 41.68 change: -0.64

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: + 1.5%
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

11/10/14: Warning! I cautioned readers in the prior newsletter that BURL could be reversing. Friday's session created a bearish engulfing candlestick reversal pattern. Monday saw BURL showing relative weakness with a -1.5% drop. Furthermore today's decline should confirm the reversal. More conservative traders may want to abandon ship now. We are raising our stop loss to $40.65. It is worth noting that the 50-dma is still support but that's down near $39.35.

No new positions at this time.

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

11/10/14 new stop @ 40.65
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: 40.59 change: +0.18

Stop Loss: 38.25
Target(s): To Be Determined
Current Option Gain/Loss: + 0.8%
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

11/10/14: Monday ended up a relatively quiet day for COLM. Shares eked out a small gain. If the broader market sees any pullback I would look for COLM to dip toward $40.00 or the 200-dma near $39.75.

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

International Paper Co. - IP - close: 53.66 change: +0.79

Stop Loss: 50.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.7%
Entry on November 10 at $53.30
Listed on November 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.8 million
New Positions: see below

11/10/14: Our brand new play on IP is off to a good start. Shares outperformed the major indices with a +1.49% gain and a breakout to new highs. Our suggested entry point was hit at $53.30.

Earlier Comments: November 8, 2014:
IP is part of the consumer goods sector. According to a company press release "International Paper (IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging and uncoated papers. Headquartered in Memphis, Tenn., the company employs approximately 65,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2013 were $29 billion (which included our now divested xpedx business)."

The company has been facing a lot of headwinds this year but they still managed to beat Wall Street's earnings estimates three quarters in a row. Their most recent earnings report was November 4th. Analysts were expecting a profit of $0.89 per share on revenues of $6.0 billion. IP reported a profit of $0.95 with revenues beating estimates at $6.05 billion.

The company saw significant improvements in its operating profits in all three categories: industrial packaging, printing papers, and consumer packaging. Management expects a surge in packaging orders in the fourth quarter.

Wall Street loves the company's focus on delivering value to shareholders. IP is almost done with their $1.5 billion stock buyback program they announced in September 2013. They also raised their dividend 14% from $1.40 to $1.60. This is IP's third consecutive fourth quarter double-digit dividend increase. The stock now sports a 3.0% yield.

IP's CEO said they were looking seriously at converting part of their business into a master-limited partnership (MLP). This would be another shareholder friendly step as MLPs do not pay federal tax if the return most of their cash to shareholders.

The stock's current rally has produced a buy signal on the point & figure chart with a long-term target at $70.00. This last week has seen shares of IP break out to new multi-year highs. It is also on the verge of breaking out from a major channeling pattern on its weekly chart (see below).

Tonight we are suggesting a trigger to open bullish positions at $53.30.

- Suggested Positions -

Long IP stock @ $53.30

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

Long 2015 Jan $55 call (IP150117c55) entry $1.21

11/10/14 triggered @ 53.30
Option Format: symbol-year-month-day-call-strike

Lowe's Companies - LOW - close: 57.83 change: +0.14

Stop Loss: 55.85
Target(s): To Be Determined
Current Option Gain/Loss: +5.0%
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

11/10/14: Shares of LOW continued to drift higher on Monday but the stock has encountered resistance at $58.00 two days in a row.

We only have four days left on this trade. The company has earnings coming up on November 19th and its rival Home Depot (HD) will report on the 18th. We will plan on exiting this trade on Friday, November 14th to avoid holding over the earnings report, unless we get stopped out first.

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

11/05/14 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: 27.03 change: -0.18

Stop Loss: 24.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.3%
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

11/10/14: PTRY is seeing a little profit taking but traders bought the dip midday. The stock pared its losses to -0.6% by the closing bell.

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*

11/08/14 traders may want to take some money off the table here.
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: 25.19 change: +0.21

Stop Loss: 24.45
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
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

11/10/14: SONC was showing some relative strength on Monday with a +0.8% gain. I would hesitate to launch new positions but a rally back above $25.50 would be encouraging.

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: $33.91 change: -1.19

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: - 0.7%
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

11/10/14: Volatility goes both ways. After big gains last week ZUMZ hit new two-year highs. Unfortunately today the stock was retreating with a -3.3% drop back toward short-term support at the 10-dma.

I am not suggesting new positions at 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

Coach, Inc. - COH - close: 33.90 change: +0.24

Stop Loss: 34.65
Target(s): To Be Determined
Current Option Gain/Loss: - 3.4%
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

11/10/14: COH is really not cooperating with shares up three days in a row. Today's close above its 10-dma is a potential warning signal. Fortunately COH's closet rival Michael Kors (KORS) is breaking down to new relative lows and could drag COH along with it.

Since COH is not working for us I am not suggesting new positions at this time.

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: 18.50 change: -0.01

Stop Loss: 20.05
Target(s): To Be Determined
Current Option Gain/Loss: + 2.8%
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

11/10/14: The bounce in Pandora failed again at 10-dma resistance. It did not help that CNBC was talking about a new competitor to iTunes, called GhostTunes. It's also a competitor to Pandora since users can stream their music on any device.

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

11/08/14 new stop @ 20.05
10/30/14 trade begins. P opens @ $19.04
Option Format: symbol-year-month-day-call-strike

Twitter, Inc. - TWTR - close: $39.59 change: -0.72

Stop Loss: 43.05
Target(s): To Be Determined
Current Option Gain/Loss: + 0.4%
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

11/10/14: There is still a lot of negativity about TWTR. The company has seen a tremendous amount of management changes, which does not bode well. IBD noted that there are almost as many ex-Twitter users as there are active users. That has to say something about TWTR's inability to keep users.

The stock underperformed the market today with a -1.7% decline. The early morning gain failed and shares slipped the rest of the session and closed at a new three-month low, below $40.00 support.

Don't forget that TWTR has its analyst day on Wednesday and the stock will likely be volatile following the event.

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