Option Investor

Daily Newsletter, Thursday, 11/13/2014

Table of Contents

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

Market Wrap

Market Touches New Highs

by Thomas Hughes

Click here to email Thomas Hughes
Steady labor data and positive earnings from Wal Mart helped the bulls reach new highs but weak oil prices pulled them back.


Steady labor data and positive earnings helped the bulls reach new highs. Jobless claims and a surprise report from Wal Mart added lift while plunging oil prices pulled lower.

Futures trading was positive all morning despite weaker than expected data from China. Industrial Production and Retail Sales for the country were both good, just not quite as good as forecast. Production rose by 7.7% and retail sales by 11.5%. Asian markets were largely mixed on the news but the Nikkei is surged higher on weak yen and expectations of further easing. European markets were largely unfazed by the Chinese data, trading higher for most of the day, until low oil prices hit the energy sector and caused them to fall back to break even.

Market Statistics

The major indices were indicated higher all morning but moderated to just above break even ahead of and following the 8:30AM data release. At the bell the market opened positive and quickly began to move higher, making new all time highs within the first 10 minutes of trading. Intra-day high was hit about 5 minutes before 11AM at which time the market fell back to break even and lower. Most of the afternoon session was spent testing support as oil prices fell through the floor but a late day rally helped the indices climb back to positive territory.

Economic Calendar

The Economy

Initial claims for unemployment rose by 12,000 this week to 290,000. This is slightly above estimates but still below the 300,000 level. The four week moving average of claims rose 6,000 to 285,000. This is the first up tick in the moving average for two months and still at historic lows. On an not adjusted basis claims rose by 15%, versus an expected 10%, to 306,899. While the down trend in claims appears to have stalled out they are still at long term lows and at levels in line with steady improvement in labor. Michigan and New York led with increases in claims of 1,921 and 1,006 respectively. California and Ohio led with decreases of -3850 and -2,325.

Continuing Claims also rose, by 36,000, to 2.392 million. This is also slightly above expectations and also still near historic low levels. The four week moving average rose marginally but is basically flat for the last four weeks. The downtrend in continuing claims also appears to have stalled but this is not surprising as a seasonal uptick in layoff's is predicted by ADP and jobless claims data. In any event continuing claims are at long term low levels and in line with current labor trends.

Total claims for unemployment fell this week, shedding -36,654, to 2.101 million. This is just off the long term low set two weeks ago and in line with the long term downtrend. This figure may stall in the coming weeks as well but is still at levels conducive to a decline in overall unemployment. Looking back, it is almost 12 months since the unemployment claims extensions expired and total claims shed 1 million overnight. Since then the total claims figures has drifted even lower and is now nearly 50% lower than last year at this time.

JOLTS job opening data was released at 10AM. The Bureau of Labor Statistics reports that the number of job openings fell by 0.2 million to 4.7 million this month. This puts us on pace for 3.3% growth in jobs openings. Hiring and Separations are both up, separations due to an increase in quits. A high rate of quits is seen as a strong sign of worker confidence and a healthy labor market as workers are more likely to seek voluntary separation when they are confident of finding a new/better job or are more confident of retirement prospects.

The positive trends in labor are spurring speculation of when the Fed will raise interest rates. Estimat pushed out to late 2015 and even early 2016 are now being pulled back in. Consensus seems to be back in line with a mid-2015 target with the risk being a possible earlier hike. This is driving a lot of speculation in both the dollar and gold.

The dollar index is trading just beneath four year highs and could move higher if expectations for the ECB and BOJ play out. Both banks are expected to continue with current easing policy if not increase it in the near future, while at the same time we are looking at tightening and rate hike expectations moving closer in rather than farther out.

The newest twists in the Japanese recovery effort, which may also impact the dollar index, is that Prime minister Shinzo Abe may seek a larger mandate through a new vote. The purpose of this would be to enact a second round of stimulus measures and postpone an expected tax rate hike intended to pay for spending measures.

The Oil Index

Oil prices crubmled today, dropping more than 3.5%. WTI and Brent are both trading at four year lows, WTI near $74 and Brent around $78. A number of factors are at play here including the possibility of price wars, market share wars and/or a conspiracy to break the shale oil/gas industry. Another possibility I have thought of is a conspiracy to break OPEC apart because the members sure don't seem to be on the same page. Whatever the case I expect to see more volatility in oil prices in the near future.

The Oil Index fell by 2% as well. The index is now trading at near term support around 1420 with rapidly declining indicators. It looks like the index could continue lower and retest longer term support around 1,350. Oil prices are having a big impact on producer profits and putting big pressure on the sector but at the same time are aiding refining margins which could help with longer term support. Support looks like it could be strong but with future oil price so uncertain, and the OPEC meeting coming up, I'm feeling very cautious about this sector.

The Gold Index

Gold prices held steady around $1160 today. Interest rate speculation, positive US economic data, anticipation for upcoming FOMC minutes and possible action in Japan canceled each other out in today's session. The strong dollar is a primary reason gold has sunk to current long term lows and could send gold even lower while positive economic trends are helping to support gold. Economic trends are pointing to higher interest rates and rising inflation, reasons to get long gold. We know these two events will happen, the question is when, what we don't know for sure is if there will be more QE.

It looks like gold is winding up for something with $1150 as near term support. The minutes from the last FOMC meeting are due out next Tuesday and could be a catalyst.

The Gold Index also appears to be winding up for something. It has been trading in a narrowing band over the past two weeks and is below long term resistance. Low gold prices are driving the trend in this sector and that isn't going to change soon. Even if gold prices were to bottom from current levels it will take a massive increase in gold prices to help earnings and outlook for the miners. The long term trend in the index is down and it appears to be setting up for another leg lower. Resistance is the 100% retracement of the 2008-2012 bull market in gold with near term support around $60. Downside target, on a break of support, is near $50.

In The News, Story Stocks and Earnings

Wal Mart pleased the street today with a top and bottom line beat on earnings. On top of this the company reported the first increase in comp store sales for 7 quarters and was cautiously optimistic about the upcoming holiday season. Comps and sales were driven by strong back to school sales. Net sales increased by 2.8% to $118.1 billion. Company execs narrowed guidance to within the previously reported range and announced the closure of under performing stores in Japan. Shares of the stock surged more than 4% to a new all time high.

Hasbro and Dreamworks made the news when an independent source announced a possible deal for the toy maker to buy the animation studio. The deal would be worth about $30 a share but was met with a lot of skepticism. First, there was no consensus on whether it was a good more or not, or even what the goal was. Second, the validity of the news and the likelihood it would come to fruit are dubious. Hasbro sank on the news but Dreamworks jumped more than 15% to just below long term resistance. The stock gapped open but then sold off throughout the day on high volume.

JC Penny reported a much smaller loss than expected, cutting it by more than 60% from the same quarter last year. The problem is that revenue was also smaller than expected. Analyst had expected a loss of -$0.81 per share, actual was -$0.61. Shares of the stock sank more than 8% to trade along long term support near $7.00.

The Indices

The bulls tried to rally today but couldn't quite hold onto to the gains. Neither did the bears gain the upper hand. At the end of the day most of the indices closed in the green, at new highs, but closer to break even than not. The Dow Jones Transportation was the notable exception, falling by -0.20%.

This is the fourth day of trading above 9,000 and the third day in which 9,000 appears to have been tested. So far the testing is weak but could continue tomorrow. The trend is up and the indicators are bullish but momentum is still declining. This could lead to a stronger test of 9,000 or even lower with the target for support around 8,750.

The Dow Jones Industrial Average was today's biggest gainer, climbing a little more than 0.25% to set new intra-day and all time closing highs. The blue chip index created a small bodied white candle with a long upper wick suggestive of resistance to higher prices. So far the candle signal is very weak but could be indicating a near term top, pause or consolidation. The trend is up but like with the transports is losing momentum. The indicators are bullish but also suggest a near term top could be in place. This isn't a time to reverse position but is one to tighten stops. Support targets are 17,500 and 17,250 on a pullback.

The NASDAQ Composite gained a tenth of a percent today, rising 5.01 points. The tech heavy index made a new all time and intraday high but barely, and created a small doji that could have some mildly bearish implications. The index is moving higher after breaking above a small congestion band but is losing momentum. The combination of declining momentum and doji aren't a bearish signal but provide reason to think the index could move down to test support along 4,600.

The S&P 500 made the smallest gains today but gains it did make. The broad market rose just over 1 point, or 0.05%, to a new all-time closing and intra-day high. Market action was fairly balanced today, after first moving higher and then lower, creating a doji similar to the one on the NASDAQ chart. The length of the upper and lower wicks are nearly even, adding to the appearance of market balance. The indicators are bullish but like with the other three indices also showing declining momentum and suggestive of a near term top or consolidation. Support is about 20 points below today's close around 2020. The longer the index trades at or near current high levels while MACD declines the greater the chance that bullish momentum will return.

The trends are up and the indices are moving higher but there is evidence on the charts a consolidation, test of support or pull back could be in the works. Momentum is waning but that is not surprising given the amount the indices have moved in the last month. I don't see a major correction on the way but this could be a good time to lock in some profits and get ready to buy on the next dip.

Earnings season has past, now it's down to economics and outlook. Tomorrow there is some economic data that could provide catalyst including Retail Sales, Business Inventories, Michigan Sentiment and KC Fed Index of Labor Market Conditions. Next week there is a little more for the market to chew on including the FOMC minutes, housing data and leading indicators.

Until then, remember the trend!

Thomas Hughes

New Plays

Video Game Giant

by James Brown

Click here to email James Brown


Electronic Arts - EA - close: 41.45 change: +0.24

Stop Loss: 39.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.7 million
New Positions: Yes, see below

Company Description

Why We Like It:
EA is considered part of the technology sector. More broadly they are part of the entertainment industry. Previously EA was the biggest video game company on the planet but when Activision merged with Blizzard they stole the top spot. It remains a fight. EA has annual revenues of $4.1 billion while AVTI has annual revenues around $4.35 billion.

According to a company press release, "Electronic Arts (EA) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS, FIFA, Battlefield, Dragon Age, and Plants vs. Zombies."

Video games are big business. Microsoft (MSFT) has sold more than 83 million Xbox 360s. Rival Sony (SNE) has sold more than 80 million PlayStation 3s. Meanwhile, another company, Steam, is the biggest online retailer for downloadable PC games and has over 75 million users. Back in 2012 the global video game market was $78 billion. That grew to $93 billion in 2013. Research firm Gartner estimates that global video game sales (all formats) could hit $111 billion by 2015. In comparison the global movie box office is only about $38 billion in 2014.

EA continues to fight for market share and dominance in the gaming industry and they've seen success in 2014. The company has beaten Wall Street's earnings estimates on both the top and bottom line three quarters in a row. Their most recent quarterly report was October 28th. Analysts were expecting a profit of $0.53 a share on revenues of $1.16 billion. EA blew those numbers away with a profit of $0.73 and revenues up +17% to $1.22 billion. Gross margins surged thanks to rising digital sales. Mobile sales were also up strongly and in-game purchases soared.

EA offered bullish guidance for both their December quarter (EA's Q3) and their fiscal year 2015. The company raised their Q3 guidance to $0.90, which was above analysts' estimates. They also raised their 2015 guidance to $2.05, which is above Wall Street's estimate.

The stock reacted by soaring to new highs in late October. Since then shares of EA have been consolidating sideways in the $40-41 zone. It looks like that consolidation could be over with EA breaking out to new highs today. The Point & Figure chart is bullish and forecasting a long-term target of $60.00.

Analysts are expecting a strong holiday shopping season this year. The big drop in oil and thus gasoline prices is giving consumers a little extra spending money. The National Retail Federation is forecasting sales growth of +4.1% versus the normal 10-year average of +2.9%. That's a very broad retail outlook. It could be even stronger for video games this year.

Tonight we are suggesting a trigger to open bullish positions at $41.75.

Trigger @ $41.75

- Suggested Positions -

Buy EA stock @ $41.75

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

Buy the 2015 Jan $45 call (EA150117c45) current ask $0.68

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

Annotated Chart:

In Play Updates and Reviews

Bullish Bias Continues

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market continued to drift higher on Thursday thanks to decent earnings from Wal-Mart (WMT) and another drop in crude oil.

NILE hit our entry trigger. TWTR was stopped out.

Current Portfolio:

BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 47.74 change: -1.65

Stop Loss: 46.75
Target(s): To Be Determined
Current Option Gain/Loss: + 2.7%
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

11/13/14: Warning! The action in AMBA today is bearish. Not only did shares underperform the market with a -3.3% decline but today's move also created a bearish engulfing candlestick reversal pattern. These patterns need to see confirmation but it's still a warning signal. AMBA should find support at its 10-dma near $47.00. I am not suggesting new positions at this time.

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

11/13/14 Warning! Today's move is a potential bearish reversal
11/12/14 new stop @ 46.75
11/07/14 triggered @ $46.50
Option Format: symbol-year-month-day-call-strike

Burlington Stores, Inc. - BURL - close: 42.26 change: -0.47

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: + 2.9%
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

11/13/14: BURL experienced some profit taking this morning but traders bought the dip midday. Investors may want to wait for a breakout past short-term resistance at $43.00 before considering new bullish positions.

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: 41.01 change: +0.19

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: + 1.9%
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

11/13/14: COLM posted another gain and the stock is now up seven days in a row. Yet shares spent most of today's session drifting sideways along the $41.00 mark.

I am not suggesting new positions at current levels.

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

11/12/14 new stop @ 39.25
11/06/14 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike

Cynosure, Inc. - CYNO - close: 27.20 change: -0.20

Stop Loss: 24.75
Target(s): To Be Determined
Current Option Gain/Loss: +3.6%
Entry on November 12 at $26.25
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 201 thousand
New Positions: see below

11/13/14: After big gains three days in a row, shares of CYNO took today off to rest. The stock consolidating sideways near $27.00. I am not suggesting new positions at this time.

Earlier Comments: November 11, 2014:
CYNO is in the healthcare sector. The company is part of the medical equipment industry. According to a company press release, "Cynosure designs, manufactures and markets medical devices for aesthetic procedures and precision surgical applications worldwide that enable plastic surgeons, dermatologists and other medical practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular and benign pigmented lesions, remove multi-colored tattoos, revitalize the skin, liquefy and remove unwanted fat through laser lipolysis, reduce cellulite, clear nails infected by toe fungus and ablate sweat glands."

Their flagship product is the PicoSure laser workstation, designed to remove tattoos. This laser technology produces ultra-short bursts of energy to the skin in trillionths of a second. The company recently gained FDA approval to use their PicoSure system to treat acne scars and wrinkles.

CYNO's earnings results have been mixed. Their Q1 report back in May missed estimates by four cents even though revenues were up +52% from a year ago. The stock sold off on this report. They followed that with a Q2 report in July that beat estimates as revenues soared +45% from a year ago. Growth slowed a bit in their latest report in October.

Analysts were expecting 25 cents a share on revenues of $70 million. CYNO met expectations on the bottom line while the top line grew +18% to $71.5 million.

CYNO's Chairman and CEO Michael Davin commented on the quarter saying, "Cynosure delivered record third-quarter revenue of $71.5 million, up 18 percent year-over-year as revenue in each of our direct sales channels improved from the same period in 2013. North American laser revenue increased 17 percent, revenue from our Asia Pacific subsidiaries rose 46 percent, while our European direct sales channel was up 7 percent. Product and technology innovation, expanded indications and new international marketing clearances continue to drive favorable results for the Company."

Discussing his company's outlook Davin said, "We are on schedule to launch our next flagship platform in 2015 for non-invasive fat removal, and we believe this large addressable market represents a significant growth opportunity for the Company."

Technically shares have broken out from a six-month consolidation in the $19-24 range. The rally following its October earnings report lifted CYNO above key resistance at $24.00 and its 200-dma. Shares have already retested this level as support and now the stock is breaking out to multi-month highs. The point & figure chart is bullish with a $31.50 target.

Tonight I am suggesting small bullish positions if CYNO can trade at $26.25. We want to keep our position size small to limit our risk.

*small positions* - Suggested Positions -

Long CYNO stock @ $26.25

11/12/14 triggered @ 26.25

International Paper Co. - IP - close: 54.72 change: +1.07

Stop Loss: 52.35
Target(s): To Be Determined
Current Option Gain/Loss: +2.7%
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

11/13/14: IP was showing relative strength again with today's +1.99% gain. These are new multi-year highs. I'm not suggesting new positions at this time.

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

11/12/14 new stop @ 52.35
11/10/14 triggered @ 53.30
Option Format: symbol-year-month-day-call-strike

Lowe's Companies - LOW - close: 58.61 change: +0.39

Stop Loss: 57.95
Target(s): To Be Determined
Current Option Gain/Loss: +6.5%
Entry on October 23 at $55.05
Listed on October 21, 2014
Time Frame: Exit Friday, November 14th, at the close
Average Daily Volume = 5.5 million
New Positions: see below

11/13/14: LOW has posted a string of new all-time highs and did it again today. The stock added another +0.66% and is up +17% from its October lows with barely any pullback.

The company is scheduled to report earnings on Wednesday, November 19th, before the opening bell. LOW's main rival, Home Depot (HD), is scheduled to report earnings on Tuesday, November 18th, before the opening bell. We do not want to hold a bullish position in LOW over either announcement.

Our plan is to exit this trade tomorrow at the closing bell. More aggressive traders could hold on for one more day and exit on Monday instead.

Since we are closing this trade tomorrow at the closing bell, we will move the stop loss to $57.95.

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

11/13/14 new stop @ 57.95, prepare to exit tomorrow at the close
11/12/14 new stop @ 57.40
11/11/14 new stop @ 56.95
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

Blue Nile Inc. - NILE - close: 36.81 change: -0.04

Stop Loss: 34.95
Target(s): To Be Determined
Current Option Gain/Loss: - 1.2%
Entry on November 13 at $37.25
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 153 thousand
New Positions: see below

11/13/14: Our new trade on NILE is open but it's not the most propitious start. Shares spiked at the open and hit our suggested entry point at $37.25. Unfortunately the rally reversed. NILE faded back to close virtually unchanged on the session.

I would wait for a new rally past $37.20 before considering bullish positions.

Earlier Comments: November 12, 2014:
NILE is in the services sector. "Blue Nile, Inc. is the original online jeweler. The company offers a smarter way to buy engagement rings, wedding rings, and fine jewelry by providing in-depth educational materials and unique online tools that place consumers in control of the jewelry shopping process. Blue Nile has some of the highest quality standards in the industry and offers thousands of independently certified diamonds and fine jewelry at prices significantly below traditional retail. Blue Nile can be found online at www.bluenile.com." (source: company press release)

The company has struggled to meet expectations. They had missed Wall Street's revenue estimates three quarters in a row. Their Q2 report was August 5th. Not only did NILE miss estimates but they guided lower. The stock dipped to $23.10 on its August report and that appears to be the low for the year. All the bad news may be priced in.

More importantly, after missing estimates for multiple quarters, NILE actually met estimates when they announced their Q3 results on October 30th. The company's Q3 results were a profit of $0.14 a share and revenues of $105.76 million, which is a +7% improvement over a year ago. International sales were a bright spot for the company with an increase of +25%.

Management then offered relatively bullish guidance of $0.42-0.47 a share for the fourth quarter versus consensus estimates of $0.43. NILE expects revenues of $159-174 million versus Wall Street's estimate of $162 million. This optimistic guidance sparked a short squeeze and the stock soared from about $30 to almost $35.

NILE has been able to hold on to these gains. The last two weeks has been a sideways consolidation phase for the stock. The shorts have to be terrified. NILE said they have bought back 1.2 million shares of their own stock this year. They didn't have a lot of stock outstanding to begin with. The most recent data listed short interest at 26% of the 11.75 million share float. Since NILE does not trade a lot of volume (only 153K on average) that is a significant amount of short interest.

Currently the National Retail Federation is expecting holiday shopping to rise +4.1% this year. That is above last year's +3.1% improvement and above the +2.9% 10-year average. Forester Research is estimating that online shopping will see a +13% improvement over last year. This should be a decent environment for NILE this year.

If NILE breaks out to new relative highs it could see another short squeeze. Tonight we are suggesting a trigger to open small bullish positions at $37.25. We do want to keep our position size small because NILE can be volatile.

*small positions* - Suggested Positions -

Long NILE stock @ $37.25

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

Long Dec $35 call (NILE141220c35) entry $2.85

11/13/14 triggered @ 37.25
Option Format: symbol-year-month-day-call-strike

The Pantry, Inc. - PTRY - close: 26.11 change: -0.23

Stop Loss: 25.70
Target(s): To Be Determined
Current Option Gain/Loss: + 6.6%
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

11/13/14: I am worried about PTRY. Shares traded below short-term support at $26.00 today. Our stop loss is currently at $25.70. Today's low was $25.89. More conservative traders may want to either take profits now or raise their stop.

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*

11/11/14 new stop @ 25.70
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: 25.42 change: +0.28

Stop Loss: 24.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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

11/13/14: Our patience with SONC might pay off. The stock displayed relative strength today with a +1.1% gain. I am hesitant to launch new positions.

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: $35.42 change: -0.47

Stop Loss: 33.35
Target(s): To Be Determined
Current Option Gain/Loss: + 3.7%
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

11/13/14: The rally in ZUMZ reversed near the top of its short-term (5-week) bullish channel. If the trend is any guide this stock could retreat toward $34 again.

I am not suggesting new positions.

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

11/12/14 new stop @ 33.35
11/01/14 new stop @ 32.45
10/29/14 triggered @ 34.15
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Pandora Media, Inc. - P - close: 18.45 change: -0.34

Stop Loss: 20.05
Target(s): To Be Determined
Current Option Gain/Loss: + 3.1%
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

11/13/14: Pandora briefly traded above short-term resistance near $19.00 but the rally failed at $19.30. P reversed course and underperformed the major indices with a -1.8% decline.

I am not suggesting new positions at this time.

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: $40.04 change: -2.50

Stop Loss: 43.05
Target(s): To Be Determined
Current Option Gain/Loss: - 9.6%
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

11/13/14: Sometimes the market is cruel.

Yesterday TWTR rallied $2.95 on its investor day presentation. Today the stock dropped $2.50. Unfortunately this was after shares gapped open higher this morning at $43.55, which was above our stop loss of $43.05. Our trade was closed immediately. Even more frustrating is that TWTR's bounce failed at $43.95 so shares are down -8.8% from its intraday high this morning.

TWTR's bounce peaked five minutes after the opening bell. It marched lower the rest of the session. Tomorrow could see more weakness. After the closing bell Standard & Poor's (S&P) downgraded TWTR's credit rating to junk status with a rating of BB-.

- Suggested Positions -

Short TWTR stock @ $39.75 exit $43.55 (-9.6%)

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

DEC $40 PUT (TWTR141220P40) entry $2.69 exit $1.01 (-62.4%)

11/13/14 stopped out on gap higher at $43.55
11/12/14 TWTR soars following its analyst day presentation.
11/04/14 triggered @ $39.75
Option Format: symbol-year-month-day-call-strike