Option Investor

Daily Newsletter, Monday, 11/17/2014

Table of Contents

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

Market Wrap

Treading Water

by Thomas Hughes

Click here to email Thomas Hughes
The market tread water today, hanging just below the highs set last week as we await another FOMC minutes release .


The market tread water today, just below the long term highs set last week. Contrasting economic trends giving the market yet another reason to pause, ahead of the FOMC minutes released later this week. Our own data trends remain positive but the rest of the world is in question. It looks more than ever like there could be additional QE in Japan and maybe in Europe but as yet, no moves have been made.

First up this morning was weaker than expected GDP numbers from Japan. The decline, -1.6%, is far below the 2% increase expected by economists as well as the nations leadership. It also puts Japan in recession and Abeonomics in the spotlight as well as under the hammer. His plan is not working as hoped leading to speculation of possible additional moves in the coming weeks and months. The first likely a postponement of the second scheduled tax hike, the first tax hike(from the past spring) being the most likely reason for the GDP miss. The Nikkei lost over 3% on the news.

Chinese markets were less fazed by the news but traded mixed nonetheless. One positive development in China is the opening of the new trade connect between Shanghai and Hong Kong which will allow foreign investment in Chinese stocks. European markets were mixed as well, in early trading, but rose later in the day. New comments from Mario Draghi sparked buying in EU markets; He said that the ECB may indeed purchase government issued bonds. He didn't say when, or that there was a plan in the works, just that it was a possibility and so could be yet another smoke screen. The message was well received in the EU and even helped to send our indices higher for a little while as well.

Market Statistics

Futures trading was negative from the earliest but not sharply. The S&P 500 was indicated lower by about -0.25% when I first checked and fluctuated between that and break even throughout the early morning.

There was a little economic data released today, on a whole it was positive but not as good as predicted. It was enough to help lift trading but not enough to get a rally going. At the bell the indices opened lower, by only a few points, and then proceeded to trade just beneath break even until Mario Draghi's comments. At that time traders sent them higher and into positive territory. The surge did not last long, the market fell back, below break even, to retest support by lunch time. Afternoon trading was much the same. The indices held the day's range, closing near the top.

Economic Calendar

The Economy

Empire Manufacturing was released at 8AM. The gauge of New York region manufacturing came in at 10.2 versus the consensus of 12. This is weaker than expected but still expansionary and much better than last month's reading of 6. New Orders, Shipments and Employment were all positive but the employment component slipped to 8.5,the other two rose to 9.1 and 11.8 respectively. While the number of employed rose, the rate of rise slowed somewhat as did the number of hours work. This could be bad if the economy slows, but good if it continues to expand. The forward looking component of the survey were “generally higher and conveyed a strong degree of optimism about future business conditions”. Prices paid and received remained flat.

Industrial Production and Capacity Utilization were released at 9:15AM, both weaker than expected. Production fell by -0.1% versus an expected gain of +0.20% and a gain of +0.8% last month. The October reading is 104.9% of its long running average indicating production is trending higher at nearly 5% gain on a 12 month basis.

Output rose by 0.2%, the second month of equal gain. Capacity Utilization fell by -0.3% versus an expected unchanged reading. Although production levels declined this month they are trending higher with output rising and available capacity for new production. There is notable change in Moody's Survey Of Business Confidence. Mark Zandi reports that there is no sign that “business enthusiasm is waning” and that hiring intentions have risen to new highs in the past few weeks. The most noteworthy addition to this week's summary is that investment in equipment is on the rise.

The FHA announced that it was back in the black. The federal insurer of home loans reported it would no longer need emergency cash to remain afloat. The achievement was made on tighter credit standards and back ground checks as well as a crack downs on substandard lenders. Two moves that helped the improvement are higher credit score requirements and increased rates for premiums, two things that are also likely contributors to a sluggish housing market. The FHA went on to say they would not be relaxing standards now.

Along with the Fed minutes there are also two important reads on inflation this week. PPI tomorrow and CPI on Friday, both expected to remain flat or decline.

The Oil Index

Oil prices saw some volatility again today. Prices for WTI and Brent tanked when Japanese GDP was released but reports of increased tension between OPEC members helped to lift them later in the day. WTI fell from $76 to $75 and climbed back to $75.50 by the close of today's session, Brent traded in a range between $78 and $79.50. This is just off of the long term low but no sign of reversal even though there is growing talk of the possibility. On a fundamental basis weak global demand growth and rising supply are pressuring prices lower, but with each new low the pressure on OPEC to cut its production grows and with it speculation of a snap back rally in oil. There is no sign of a rally yet, the OPEC meeting is November 27th.

Looking at the Oil Index it appears that some traders are betting on a rally in oil, or at least in oil producing stocks. The index traded down today, but was halted by support at 1,430, the fourth time the index has tested support since the October low. This level is consistent with the 26.3% retracement of the July-October correction and beginning to look strong. The indicators are still in decline but so long as support holds will begin to roll over this week. If not the index will likely fall back to 1,400 and 1,350. Oil prices will have a lot to do with direction in the sector and they will likely remain volatile at least until the OPEC meeting so be careful.

The Gold Index

Gold traded flat to today, just beneath $1190 and a two week high. This is following the Friday short covering rally, the second day of strong buying originating from the $1150 region. It looks like gold could be bottoming but if so, I still don't think it is moving much higher in the near term. The Friday rally and today's action both fell short of resistance set by the October low in gold, just above $1190, and is not yet an entry signal.

My outlook for gold is mixed because I see the chance for a stronger dollar and for rising interest rates/inflation. A stronger dollar due to potential policy changes at the ECB and BOJ, both of which might come in the next month or two. The possibility of these moves will be amplified by any hawkish comments in the FOMC minutes. I also see an upcoming move by the FOMC to raise interest rates, this move is just farther out on the calendar.

My thinking that gold may be bottoming is because interest rates and inflation is coming, that is a guarantee, but 8 months away or so. My thinking that gold will not move much higher now is because the chance of a stronger dollar is much nearer than the chance of higher interest rates and inflation.

The Gold Index traded to the upside today after breaking above resistance on Friday. The move above $66.60 is tied directly to the short covering rally in gold and as of yet has not convinced me of a reversal in trend. The index is above support but this could be a whipsaw, I say this because gold prices themselves have not broken above what I consider to be comparable resistance at $1190. It looks like there is be additional resistance for the index around $68.75-$69.00 that the it will meet this week, coincidentally the same week as the FOMC minutes. The indicators are up but there is a lot of work for this index to do before I reverse my bearish stance. At the same time I don't think it is the right time to start any new bearish positions either.

In The News, Story Stocks and Earnings

Haliburton and Baker Hughes shocked the market today by announcing an agreement for the former to buy the later. This is contrary to reports released as late as Friday afternoon/Saturday morning but in the end not too surprising. Once they started the talks there were only two outcomes; they were either going to announce they didn't work it out or they did. The buy out is valued at $36.4 billion in cash and stock and set to close in the second half of next year. Shares of Haliburton fell by -5% but Baker Hughes International jumped 10%.

The news of the Haliburton/Baker Hughes deal spawned a lot of talk of possible mergers among other oil field services providers. The Oil Services Holder ETF (OIH) did not get a lot of activity though. The ETF traded in a tight range, like the broader market, but did not move into the green. The ETF has been trading in a narrowing range over the past month and could be winding up for a move. The indicators are pointing to lower prices but long term support is just below today's range, between $40 and $42.50, so if goes lower it may not go very far.

Tyson Foods reported earnings this morning along with positive forward guidance. The food packaging company reported $0.86 per share versus the expected $0.74 predicted by analyst. This is on revenue in line with estimates and in the face of higher input costs. Regardless of the estimates, earnings and revenue were company records and helped to send the stock higher. Shares of Tyson climbed during the pre market session and gapped up at the open by more than 3%. The move didn't stop there, taking Tyson up over 5% by the close of trading. Prices are now approaching long term resistance around $43.50.

Urban Outfitters reported after the bell today. The teen retailer reported earnings and revenue below estimates along with a miss on comp store sales. Shares of the stock traded flat during the open session but then fell 5% after the bell.

The Indices

The indices finished the day flat after a narrow day of trading. Flat describes them all, but some were up, some were down. The Down Jones Transportation Index was the leading loser, drifting down about a half percent. Today's action brought the index down near 9,000 but did not cross it, making this the 6th day of trading above 9,000.

The index looks like it could be cresting a peak, the question is, what kind of peak. Is it the kind that leads to a higher peak, or to a dip, and if it leads to a dip before a higher peak, how deep of a dip. The index is currently in a strong uptrend and based on my previous targets still has about 750 points to go. The indicators are in decline but so long as price action remain at the current levels is a good sign of consolidation mid-rally. This could continue until the next catalyst, which could be the FOMC minutes later this week.

The NASDAQ Composite also fell today, but not quite as far as the transports. The techs lost -0.37% and created the third of three spinning tops. This is a sign of market indecision or pause and not surprising ahead of this week's data. The index is trending up with strong indicators although they are also in decline, as with the transportation index. This could be an indication of impending bearishness but just as possible be setting the index up for another rally.

The S&P 500 drifted today,like the rest of the indices, but managed to close in the green. The broad market also managed to make a new all time closing high if not a new all time intra-day high. This index has been trading in a near horizontal line, and very tight range, over the past 6 trading days in what is looking to me like a flag pattern.

The current pattern is a narrow congestion/consolidation band, at all-time highs, during an uptrend, with economic tail-winds and ahead of expected economic data and FOMC minutes. The indicators are in decline but no reversal is yet indicated or confirmed so I am looking at this like a setup for trend following entry, at least until the FOMC minutes get released.

The Dow Jones Industrial Average matched the SPX for gains today, adding 0.07% but falling short of a new closing high. Today's action is the third day of trading at the current levels and looking a little extended. That being said, with current trends in place, outlook for next year improving and the FOMC minutes just two days away it also looks like this index could be consolidating in mid-rally as well.

The market seems to be holding its breath, waiting for the signal, a signal or permission, whatever it needs. The point is it looks like it is waiting. If there is one signal I can read well it's that one

It's no coincidence that the market corrected last month, and then bounced back only to pause here, just before the minutes are released. This same pattern has happened before, last month if I am not mistaken. The funny thing is, we already know what the Fed did at the meeting so I don't know why the minutes matter but they do. Maybe the market needs to synch up the meeting, the minutes and the current data...especially the inflation data.

My view; the trends are up, the economy is recovering and the outlook is good with low expectations of inflation. With this in mind I see rally and blue skies ahead, until some fear creeps up, which could be geopolitical or fundamental. Any dips, when they come, are still buying opportunities in my opinion but I am not so sure a dip is on the way right now.

Until then, remember the trend!

Thomas Hughes

New Plays

Consistently Lowering Earnings Guidance

by James Brown

Click here to email James Brown


Nu Skin Enterprises - NUS - close: 38.28 change: -1.12

Stop Loss: 41.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 17, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.78 million
New Positions: Yes, see below

Company Description

Why We Like It:
NUS is in the consumer goods sector. They make and sell personal care products. What makes NUS an interesting story is that they're part of the multi-level marketing industry.

Multi-level companies have come under fire in recent years. Herbalife (HLF) gets a lot of headlines with some big investors calling HLF a pyramid scheme. NUS was under investigation in China but seemed to get off the hook with only a minor fine a few months ago. Whatever your opinion of multi-level companies the business outlook for NUS is challenging.

NUS has guided lower (a.k.a. earnings warning) four quarters in a row. Their most recent quarterly report was November 5th. They beat Wall Street earnings estimates of $0.93 a share with a profit of $1.12 but that is still down -37% from a year ago period.

Revenues were down -29.7% to $638.8 million. The company reported that sales slowed in all geographical regions. They had lower revenues, lower margins, and struggled with currency fluctuations.

NUS management then guided lower for the fourth quarter. They expect a profit in the $0.72-0.77 range versus analysts' estimates in the $1.01 range. NUS lowered their Q4 revenue guidance into the $590-610 million versus consensus estimates of $659 million.

There was also a story that came out a few hours before NUS' Q3 results that NUS has confirmed an undisclosed SEC probe into the company. That's never good news.

There are also rumors that NUS is suffering serious cash flow issues and has years worth of inventory.

All of this bad news sparked a big drop in NUS' stock. The oversold bounce has failed. Now shares are breaking down under key support near $40.00. The next level of support could be in the $32-30 zone. The point & figure chart is bearish with a $25.00 target.

Tonight we are suggesting a trigger to open bearish positions at $37.90 with a stop loss at $41.55. NUS can be a volatile stock so I am suggesting we limit our position size to reduce risk. You may want to use put options to limit risk to the cost of your option.

Trigger @ $37.90 *small positions to limit risk*

- Suggested Positions -

Short NUS stock @ $37.90

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

Buy the 2015 Jan $35 PUT (NUS150117p35) current ask $2.45

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

ECB Talk Counters Japan Weakness

by James Brown

Click here to email James Brown

Editor's Note:
Soothing words from ECB President Mario Draghi helped counter bearish economic data out of Japan today.

The U.S. markets closed relatively flat.

EA hit our entry trigger. SONC hit our stop loss.

Current Portfolio:

BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 48.78 change: +0.94

Stop Loss: 46.75
Target(s): To Be Determined
Current Option Gain/Loss: + 4.9%
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

11/17/14: AMBA is bouncing from its 10-dma and shares outperformed the market with a +1.96% gain. 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: 42.22 change: -0.08

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

11/17/14: BURL was little changed on Monday. The stock remains inside the $41-43 trading range. I would wait for a breakout past $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: 41.45 change: +0.31

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: + 3.0%
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

11/17/14: COLM extended its gains with a +0.75% rise. The stock is now up nine days in a row. Shares could see a pullback any day now.

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

Barracuda Networks - CUDA - close: 35.30 change: -0.04

Stop Loss: 32.95
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 = 247 thousand
New Positions: Yes, see below

11/17/14: CUDA hovered near Friday's high all day long. Shares still look poised to breakout. There is no change from the weekend newsletter's new play description below.

Earlier Comments: November 15, 2014:
CUDA is part of the technology sector. This is a small cap company in the cloud computing space. According to the website, "Barracuda provides cloud-connected security and storage solutions that simplify IT. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployments. Barracuda's customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data security."

CUDA has only been a public company for little more than a year. Lately they have been on a roll with their earnings reports. CUDA has beaten Wall Street's estimates on both the top and bottom line four quarters in a row. The last two reports also included bullish guidance.

CUDA's most recent report was October 9th when they reported their Q2 results. Analysts were expecting a profit of $0.04 a share on revenues of $66.7 million. CUDA delivered a big beat with a profit of $0.8 on revenue growth of +18.9% to $68.7 million.

Management said their active subscribers grew +18% and their renewal rate was 96.5%. Their Next Generation Firewall solutions saw sales up +50% in the quarter. CUDA said sales were up across all geographically regions. Plus their gross margins were strong with an improvement to 81.7%. That's above the prior quarter's 80.4% and the year ago period 79.8%.

CUDA's guidance was bullish. Their Q3 estimates are for revenues in the $69-70 million range versus Wall Street's $69 million estimate. They expect a profit in the $0.04-0.05 zone compared to estimates of only $0.03. They raised their 2015 revenue guidance above their prior estimates but this was slightly below Wall Street's estimate. They also raised their 2015 earnings growth into the $0.22-0.24 range compared to analysts' consensus estimates of only $0.17.

Technically the stock has been soaring from its double bottom in the $24.00 area. The point & figure chart is bullish and forecasting a long-term target of $56.00. Right now CUDA is testing resistance in the $35.00 area. A breakout here could spark some short covering. The most recent data listed short interest at 9.7% of the very, very small 9.9 million share float.

We are suggesting a trigger to open bullish positions at $35.65.

Trigger @ $35.65

- Suggested Positions -

Buy CUDA stock @ (trigger)

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

Buy the 2015 Jan $35 call (CUDA150117c35)

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

Cynosure, Inc. - CYNO - close: 27.85 change: +0.47

Stop Loss: 25.35
Target(s): To Be Determined
Current Option Gain/Loss: +6.1%
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

11/17/14: After a brief rest it looks like CYNO is racing higher again. Shares added +1.7% to close at new multi-month highs. 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

11/15/14 new stop @ $25.35
11/12/14 triggered @ 26.25

Electronic Arts - EA - close: 41.40 change: -0.07

Stop Loss: 39.75
Target(s): To Be Determined
Current Option Gain/Loss: - 0.8%
Entry on November 17 at $41.75
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.7 million
New Positions: see below

11/17/14: Shares of EA saw a spike higher right at the opening bell. Shares went from $41.40 to $41.95 and immediately back down again. Unfortunately that was enough to hit our entry trigger at $41.75. Our play is open but I am not suggesting new positions here. Wait for a new rally past $41.75 or consider waiting for a move past $42.00 instead.

Earlier Comments: November 13, 2014:
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.

- Suggested Positions -

Long EA stock @ $41.75

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

Long 2015 Jan $45 call (EA150117c45) entry $0.71

11/17/14 triggered @ 41.75
Option Format: symbol-year-month-day-call-strike

International Paper Co. - IP - close: 54.84 change: +0.41

Stop Loss: 52.35
Target(s): To Be Determined
Current Option Gain/Loss: +2.9%
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

11/17/14: IP continues to show relative strength and outperformed the U.S. market with a +0.75% gain on Monday. The stock is nearing what could be potential round-number resistance at the $55.00 mark. 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

Blue Nile Inc. - NILE - close: 35.57 change: -1.30

Stop Loss: 34.95
Target(s): To Be Determined
Current Option Gain/Loss: - 4.5%
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

11/17/14: Monday was not a good day for NILE bulls. The stock was weak all day long and broke down under what should have been short-term support at the $36.00 mark. I don't see any specific news to account for today's -3.5% decline. If there is any follow through tomorrow we could see NILE hit our stop at $34.95.

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

Zumiez Inc. - ZUMZ - close: $33.98 change: -1.51

Stop Loss: 33.35
Target(s): To Be Determined
Current Option Gain/Loss: - 0.5%
Entry on October 29 at $34.15
Listed on October 28, 2014
Time Frame: Exit prior to earnings in early December
Average Daily Volume = 296 thousand
New Positions: see below

11/17/14: It was a rough day for ZUMZ investors. Shares gave up -4.25% with a steep drop toward the bottom of its bullish channel. More conservative traders may want to raise the stop loss 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

None. We do not have any active bearish trades.


Sonic Corp. - SONC - close: 25.09 change: -0.33

Stop Loss: 24.85
Target(s): To Be Determined
Current Option Gain/Loss: -1.2%
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

11/17/14: SONC's performance on Friday looked like a potential bearish reversal so we raised our stop loss to $24.85. Shares may have just confirmed that bearish reversal with a -1.1% decline today. SONC also hit our new stop loss closing the play.

- Suggested Positions -

Closed SONC stock @ $25.15 exit $24.85 (-1.2%)

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

DEC $25 call (SONC141220C25) entry $0.95 exit $0.60 (-36.8%)

11/17/14 stopped out
11/15/14 new stop @ 24.85
11/01/14 new stop @ 24.45
10/29/14 triggered @ 25.15
Option Format: symbol-year-month-day-call-strike