Option Investor

Daily Newsletter, Wednesday, 12/10/2014

Table of Contents

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

Market Wrap

Follow the Bouncing Ball

by Keene Little

Click here to email Keene Little
Monday's strong decline was followed by Tuesday's strong reversal and retracement of Monday's losses, which was then followed by today's reversal that more than retraced yesterday's gains. Welcome to the land of volatility, especially with today's 90% down day.

Wednesday's Market Stats

If you don't like the direction of the market just stick around for the next day's reversal. And the reversals have been violent. Following the slow methodical climb in November we're now seeing some tough battles for control between the bulls and the bears and the resulting price swings have both sides wondering which side is up or down. And that battle could continue for at least the rest of the week. But today was clearly bearish and as you can see in the table above, the down volume swamped up volume 10:1. That's a lot of selling pressure for the bulls to overcome.

If you haven't heard yet, the Hindenburg has descended upon us. The Omen that is. Yesterday was the 5th sighting of the Hindenburg Omen (HO) this month and as I'm sure you've heard, no market crash has ever occurred without the HO first being sighted. The problem with this signal is the number of false positives. We get many of these signals and no market crash and in fact people tend to look at it as the boy who cried wolf. Only after the crash do people wish they had paid attention. Considering what I believe to be a very vulnerable market that's been pushed too high too fast without any fundamental underpinnings, its probably wise to pay attention this time, especially since we've had multiple HO's in a short period of time.

Basically the HO occurs with the following conditions:

1. NYSE new 52-week highs and new 52-week lows are both greater than or equal to 2.8% (about 84 stocks) of the sum of the number of NYSE issues that advance or decline that day (about 3000)
2. New 52-week highs cannot be more than twice the number of 52-week lows (although it can be the other way around)
3. NYSE is above where it was trading 50 trading days ago
4. The McClellan Oscillator is negative on the same day

The important point to remember about this signal is that it occurs because fewer stocks are participating in the rally. The indexes might be looking strong, even making new highs, but more and more stocks are not helping the rally. In recent weeks I've shown plenty of charts to highlight the deteriorating market breadth, a big reason why I kept saying the upside potential is not worth the downside risk. I still feel that way, even if the market makes new highs into the end of this month. It just makes the new highs that much weaker and that much vulnerable to a disconnect to the downside. It's another example, imo, of knowing when to trade and when not to. It's been a good time for bulls to take their chips off the table and go to cash. It's also been a good time for the bears to wait for a top to get put in place. We might have that signal but depending on your trading timeframe, it's a good time to stay cautious until we see how the decline from last week develops.

Once we get an HO it's good for 30 days and multiple signals in a short period of time is more negative than one lone signal. The signal is negated when the McClellan Oscillator climbs back above zero. So at the moment we have an active signal and multiple signals. It's another sign of deterioration in market breadth, which is what alerts us to the potential for the market to top out. It's just something to keep in mind and not a predictor of a market crash. It alerts us to the possibility and it's a reason to at least be cautious about bullish positions. Assuming the market will come back during times like this could be a dangerous game to play. The last cluster of HO's was in September, just as the nearly 10% decline was getting started.

Another topping signal came from the New York Fed President, William Dudley. I say this somewhat tongue-in-cheek but the Fed is not known for its accuracy in economic predictions. In fact with a 100% failure rate I'd say you'd have a good track record always taking the other side of their bet. Recently Dudley predicted we'll see a 2.5%-3.0% growth rate in 2015 instead of the 2% we've been experiencing, saying "The U.S. economic outlook looks brighter, with growth likely to be somewhat above the trend of the past five years." If you didn't hear it, that was Dudley ringing the bell at the top.

With this week's volatility there's no telling where the market will be by the end of the week but so far the weekly candle, as can be seen on the SPX weekly chart below, is a strong reversal of the rally from the top of its parallel up-channel for the rally from October 2011. This is using the arithmetic price scale and if I use the log price scale the trend line along the highs from April 2010 - May 2011 (bold green line) is where price was only able to poke above in the past two weeks. The leg up from October finally looks complete and now the question is whether we'll get a just a pullback to the 2000 area before pressing higher (green dashed line) or if instead we've started at least a much larger pullback. The more bearish possibility is that last week saw THE high for the bull market.

S&P 500, SPX, Weekly chart

After holding its 20-dma for the past two days, especially with the strong spike back up yesterday, today's decline had SPX solidly breaking its 20-dma at 2057. The next MA support is the 50-dma near 1998, which could coincide with millennial support at 2000 by the time it's tested. But first there's potential support near 2019 where it would test the September high.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2080
- bearish below 2019

One other trend line that SPX struggled with, shown in blue on the 60-min char below, is the uptrend line from November 2012 - February 2014. Last Friday's high was a perfect tap of the trend line before dropping away. In fact it was a small 3-drives-to-a-high pattern with the tests on December 3rf, 4th and 5th, with bearish divergence. Hindsight trading is so easy and it's real easy to see this setup now. At the time I liked the setup by the end of the week for a short play but I'll admit to feeling completely beaten by this market when it came to thinking about another short play. That's what this market does to traders.

S&P 500, SPX, 60-min chart

So now we've got a new downtrend in progress for SPX with today's lower high and lower low. What we don't know yet is whether the move down from last Friday will only be a 3-wave pullback before heading higher or if instead we've got the start of something more bearish. Two equal legs down points to 2015 and if that breaks we've got a projection at 1987 where the 2nd leg of the decline would be 162% of the 1st leg down. At the moment SPX found support near 2024, the November 3rd high. The bottom of a down-channel for this decline is currently near 2020 and another price-level support is at 2001 (the November 4th low). The first sign of bullishness would be a break of the downtrend line from last week, currently near 2051.

One of the reasons why it's important to note the potential for just an a-b-c pullback from last Friday is the VIX. It shot higher today, up +24%, and it's the first time above 18.50 since gapping down on October 21st. Whenever we see this kind of spike in the VIX it's usually led to a v-bottom reversal in stocks. An early-morning low in stocks, especially if SPX holds 2015 or higher, could be followed by another short-covering rally. But something about the VIX is a little different this time. As I noted yesterday, Tuesday's drop back down to support-turned-resistance, near 14.75, was a setup for a reversal back up for the VIX and back down for the stock market. This played out to perfection today. But stay aware of the potential for the VIX to be moving too much, too fast.

Volatility index, VIX, 60-min chart

Another warning to bears comes from the TRIN reading. For a reminder, TRIN, originally known as the Arm's index (for its developer, Richard Arms), measures the strength between advancing and declining issues and volume. The formula is advancing-declining issues over advancing-declining volume. This results in a ratio and the higher the number the more selling pressure it indicates. It's kind of like the VIX -- when the TRIN is high it's time to buy.

Today's TRIN closed at 3.1, the highest level since the highs in November/December 2011. That's some strong selling pressure. For some perspective, even the strong selling in October didn't produce a reading over 2.0. High readings like this are typically seen at major lows in a washout event, not at the beginning of a decline. The bearish view is that it's the kickoff to a much stronger decline to come. The bullish view is that the market is washed out short term and is ready for another bounce. Between the VIX and the TRIN it's certainly something both sides need to stay aware of.

For an a-b-c pullback with two equal legs down from last week for the DOW, we're looking at 17447 for a downside target. That coincides closely with the uptrend line from October 2011 - November 2012, as shown on its daily chart below. That makes this level an important one for the bulls to defend. The bulls would be back in business with a rally above its broken 20-dma near 17767, less than 130 points back up, which should be easy in this whippy market (wink).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,000
- bearish below 17,447

Tuesday's sharp rally for NDX was essentially a back-test of its broken uptrend line from November 4th. It was a nice recovery back above its 20-dma, near 4268, following the hard break below it in the morning but it had the appearance of short covering instead of real buying (too much, too fast). Today's drop back down leaves a sell signal with a bearish kiss goodbye following the back-test. Price-level support near 4200 should be tested next if there's any more selling Thursday morning. The market is oversold again on a short-term basis and we have the spikes in the VIX and TRIN, all of which says the bears need to be careful and certainly can't afford to get complacent. The bulls are probably getting some of their complacency shaken out of them too but we know how quickly this market can recover so the bears can't claim control yet, even if we're currently on a sell signal.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4300
- bearish below 4216

Because of the impulsive decline from last Friday into Tuesday morning's low I felt the high bounce into Tuesday's close was a head fake that sucked in too many bulls and spit out the bears (again). But I will admit to being worried about that opinion based on how high a bounce we saw in the RUT -- to within 4 points of its November 25th all-time high. The bearish wave count required an immediate turn back down and strong selloff today and that's what we got, which keeps the bears in the driver's seat for now. As you can see on the daily chart below, it's been one whippy ride since November. As long as the RUT stays below its November 25th high it stays bearish.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1192
- bearish below 1150

The reason I say the RUT stays bearish below 1192 is because of a pattern that I've been watching since its November 25th high. With the choppy price action I had the sense it was an ending pattern and an expanding triangle into the November 25th high is a bearish topping pattern, often followed by a contracting triangle that forms a diamond top, which is what I have drawn on the 60-min chart below. Only in hindsight will we know if this is the correct interpretation but it's a pattern that often has traders feeling bullish about the index because it looks like a high-level consolidation that should break higher. It's the breakdown instead that catches too many traders suddenly bailing out of their positions bought on the dips. It takes a break below Tuesday's low near 1153 to confirm the bearish pattern otherwise it's possible we'll still get some violent up and down moves inside the diamond before it breaks down.

Russell-2000, RUT, 60-min chart

The RUT is typically used as a sentiment indicator, indicating whether traders are willing to go with a risk-on or a risk-off strategy. Another, and perhaps better, indicator of risk-on/risk-off comes from HYG, the High Yield bond fund (junk bonds). The higher the yield the higher the risk and in this yield-chasing environment (thanks to the Fed pushing investors into chasing yield performance) investors have been looking to the junk bonds for the higher yields. But while stock indexes continued to rally in 2014 HYG was unable to climb above its May 2013 high and topped out in June 2014. It has been in a down-channel since then and is now testing its June 2013 low. If the DOW was doing the same thing it would now be down to about 14500, 3000 points below us. I have no doubt the DOW will get back down there and it could do it relatively quickly next year. If stock indexes continue to push higher into the end of this year I think it will be just that much more vulnerable to a disconnect to the downside in the new year.

High Yield Corp Bond fund, HYG, Weekly chart

The Trannies are getting hit with the rest of the market, which is a little surprising in that weaker oil prices should be helping them. But concern about reduced shipments, including reduced oil shipments, is creating some selling pressure. Following the double test of the trend line along the highs from March-May 2013 - July 2014, in November, accompanied by bearish divergence at the new high, it's not surprising to see the pullback. But so far the pullback is inconclusive about what it means. It's only a 3-wave pullback and two equal legs down for it is at 8841. Yesterday's low was 8843 and today's was 8852, leaving the potential for just an a-b-c pullback correction to the decline that will be followed by another rally into the end of the month/year. The projection to 9430, shown on the daily chart, still beckons. However, it's not a bullish bet I'd be willing to make here.

Transportation Index, TRAN, Daily chart

Following the U.S. Dollar's high on Monday it has seen a fairly strong reversal back down and it's looking like we might have seen the high for the dollar for the next several months. The high was a brief throw-over above the top of a parallel up-channel from its April 2011 low, as can be seen on the weekly chart below, and the drop back inside the channel creates a sell signal. It also looks like a completed 5-wave move for the leg up from last May. That calls for at least a correction of the May-December rally before pressing higher again.

U.S. Dollar contract, DX, Weekly chart

Gold got a boost yesterday but pulled back slightly today. Short term it looks like it push at least a little higher but it's about to run into the top of its down-channel that it's been in since 2012, currently near 1240. Slightly higher is the downtrend line from October 2012 - July 2014, currently near 1253. If gold bulls get feisty and push gold higher than that then there's the 200-dma and 50-week MA near 1270. I also have some Fib correlation (retracement and wave relationships in the bounce off the October low) near 1267. That provides some levels to watch for resistance if gold keeps rallying since I don't think gold has found its bottom yet. The bounce pattern off the October low looks corrective and the larger pattern for the move down does not look complete yet. I think we'll see lower prices into 2015 before we'll get a long-term bullish setup for gold (probably below $1000).

Gold continuous contract, GC, Weekly chart

All you preppers out there who are anxious to get some gold and silver coins stashed away for TEOTWASWKI, it's never a bad time to sock away a little bit of the shiny metal but if I'm right about what 2015 will be like for the metals, you'll have time to buy more at cheaper prices. Just keep adding to your stash on the way down but don't overdo it. As I've been saying for weeks, I think we'll see silver bounce back up to the 18.60 area, possibly a little higher, before heading lower. It could struggle here (17-ish) as it battles its broken uptrend line from 2003-2008, which it held at the end of September but broke in October, it could continue lower from here. But I think it's going to work off some more of its oversold condition before heading lower again. If it's able to break its downtrend line from November 2012 (light purple on the weekly chart below), currently near its 50-week MA at 19.22, it would look a little more bullish and especially so if it breaks its downtrend line from April 2011, near 21 by the end of the month.

Silver continuous contract, SI, Weekly chart

Every day I hear "washout!" when it comes to oil. It seems everyone wants to catch falling knives when it comes to oil and it just keeps dropping. Oil players are getting annihilated as it keeps probing lower and lower for that elusive bottom. That could keep it dropping but I think it's now close to what should be a tradeable bottom, especially if the U.S. dollar is also getting ready for a larger pullback.

Once oil broke support near 64 (62% retracement of 2009-2011 rally and a long-term 1998-2008 uptrend line) I went looking for additional potential support/target levels and I had to use a monthly chart to find them. The first one is the 200-month MA at 60.28, which is only 15 cents below today's low. The next one is near 58, which is price-level support from 2005-2006 and 2009. Below that is near 54, which is a 261.8% projection for the 2nd leg of the move down from August 2013 (a typical projection for an extended move, especially in commodities), and then 50.50, the 78.6% retracement of the 2009-2011 rally.

Oil continuous contract, CL, Monthly chart

If oil's decline from August 2013 is going to turn into a 5-wave move, the bounce following the leg down from June will be a choppy consolidation over the next several months for the 4th wave and then another leg down to complete the 5th wave later next year, which is what I’ve got depicted on the chart. A choppy 4th wave bounce back up to the broken uptrend line from 1998-2008 could see oil up near 70 by mid-year 2015 before dropping lower.

Thursday morning will be a little busier than this morning for economic reports but other than retail sales there's not much there to move the market. The market is desperate for better economic news though and as long as the improved sales numbers come through we shouldn't see much of a reaction.

Economic reports and Summary

Price action is clearly getting more volatile and that's usually a sign of a market turn in progress, which in this case could mean the market is putting in a top. This goes against the idea that the market has bullish seasonals providing winds at our backs. But as I've mentioned previously, with so many believing in a further rally, whether it's an end-of-year rally or a 2015 rally, the foregone conclusion is that the market is going to continue to rally. This is a setup for a major disappointment. It's way too early to predict what the market will do tomorrow, let alone this month and next year, so we'll take it one day at a time. But all big moves start out small and identifying the pattern of the decline will be important in helping define what the larger pattern might look like.

At the moment the short-term pattern is a 3-wave pullback from last week and as such could be just a correction to the rally and will be followed by more rally to new highs into the end of the month. If the current decline develops into a 5-wave move down we'll have something a little more bearish (and potentially a lot more bearish) on our hands. We'll take it one day and one move at a time while the bigger picture develops and helps give us an idea of how the rest of the month and next year might play out.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

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New Plays

Is The 2,000 Level Next?

by James Brown

Click here to email James Brown

Editor's Note:

No new trades tonight for the Premier Investor newsletter.

The path of least resistance has been higher for weeks. The market has been overbought and remained overbought shrugging off all headlines. Suddenly traders are taking profits. Today the excuse was crude oil and how lower oil prices were a reflecting of falling demand due to slowing economic growth.

The strange thing is that the "market" has known about slowing economic growth around the world for months. The U.S. is one of the few areas actually showing growth.

The current pullback in the U.S. market might be just a blip. This is the most bullish time of year for stocks. We can imagine stocks releasing a little steam from a market that got a little too hot. Once it cools a bit the rally resumes. The average hedge fund manager has drastically underperformed the market this year (again). These managers will be desperate for some last minute gains but nothing is guaranteed.

I expect the market to bounce but the S&P 500 might have to test round-number support at the 2,000 level first before we move higher.

In Play Updates and Reviews

All About Oil

by James Brown

Click here to email James Brown

Editor's Note:
The nonstop plunge in crude oil prices was the big story of the day for Wall Street. Suddenly the focus was about oil weakness as a sign of slowing economic growth around the world instead of the big bonus low oil prices mean for the consumer.

EA hit our stop loss. VEEV has been removed.

Current Portfolio:

BULLISH Play Updates

Columbia Sportswear Co. - COLM - close: 44.42 change: -0.07

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.4%
Entry on Novo:tember 06 at $40.25
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 138 thousand
New Positions: see below

12/10/14: COLM weathered the market's storm pretty well today. Intraday gains faded but COLM essentially closed unchanged. More conservative investors may want to raise their stop closer to yesterday's low (43.70).

I am not suggesting new positions.

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

11/29/14 new stop @ 42.85
11/25/14 new stop @ 42.25
11/24/14 new stop @ 41.85
11/19/14 new stop @ 41.45, readers may want to take some money off the table right here.
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: 36.26 change: +0.21

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: + 1.7%
Entry on November 18 at $35.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 247 thousand
New Positions: see below

12/10/14: Shares of CUDA spiked up to almost nine-month highs this morning. The rally faded thanks to the widespread market weakness but CUDA still outperformed with a +0.5% gain at the closing bell.

Yesterday I suggested a close above $36.35 might qualify as our next entry point. CUDA almost met that requirement today. I would be cautious about launching new positions with the broader market sinking.

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.

- Suggested Positions -

Long CUDA stock @ $35.65

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

Long 2015 Jan $35 call (CUDA150117c35) entry $3.15

12/06/14 new stop @ 33.85
11/22/14 new stop @ 33.65
11/18/14 triggered @ $35.65
Option Format: symbol-year-month-day-call-strike

Cynosure, Inc. - CYNO - close: 28.63 change: -1.33

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: + 9.0%
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

12/10/14: Ouch! After big gains yesterday shares of CYNO retreated from the $30.00 level with a -4.4% drop. Shares look like they are headed back toward short-term support at $28.00.

More conservative traders may want to raise their stop loss. 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

11/19/14 new stop @ 25.90
11/18/14 caution: potential bearish reversal today
11/15/14 new stop @ $25.35
11/12/14 triggered @ 26.25

Isis Pharmaceuticals - ISIS - close: 60.85 change: +2.86

Stop Loss: 54.85
Target(s): To Be Determined
Current Option Gain/Loss: +14.3%
Entry on November 25 at $53.25
Listed on November 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: see below

12/10/14: Shares of ISIS received a new higher price target from another Wall Street firm today. This helped lift shares to a +4.9% gain.

I want to caution investors. ISIS is up sharply in the last three days. The stock is nearing potential resistance at its all-time high set in February 2014 around the $60.00-62.65 area. More conservative traders may want to start taking some money off the table.

I am not suggesting new positions.

Earlier Comments: November 24, 2014:
ISIS is part of the healthcare sector. They operate in the biotech space. Biotech stocks have been crushing the market this year. The BTK biotech index is up +43.4% year to date. ISIS is only up +2.2% but it has come a long way from its May 2014 lows near $22.25. The last seven months have produced a +135% rally.

According to a company press release, "Isis is exploiting its leadership position in antisense technology to discover and develop novel drugs for its product pipeline and for its partners. Isis' broad pipeline consists of 34 drugs to treat a wide variety of diseases with an emphasis on cardiovascular, metabolic, severe and rare diseases, including neurological disorders, and cancer.

Isis' partner, Genzyme, is commercializing Isis' lead product, KYNAMRO, in the United States and other countries for the treatment of patients with homozygous FH. Isis has numerous drugs in Phase 3 development in severe and rare and cardiovascular diseases. These include a novel triglyceride lowering drug, ISIS-APOCIIIRx, for patients with familial chylomicronemia syndrome; ISIS-TTRRx, which Isis is developing with GSK to treat patients with the polyneuropathy form of TTR amyloidosis; and, ISIS-SMNRx, which Isis is developing with Biogen Idec to treat infants and children with spinal muscular atrophy, a severe and rare neuromuscular disease. Isis' patents provide strong and extensive protection for its drugs and technology."

Part of the challenge with biotech stocks is their volatility. Biotechs can be extremely sensitive to any headline. The right or wrong headline about an FDA approval or clinical trial results can send a biotech stock soaring or crashing in a heartbeat.

Another challenge is earnings. Many of the smaller biotech names suffer from very lumpy earnings based on milestone payments by partners. For example, last quarter ISIS saw their quarterly revenues soar almost +90% yet they still missed Wall Street revenue estimate.

Most bulls on this stock will point to the company's pipeline. ISIS has a very broad pipeline so it's not just a one-trick pony. You can view their current pipeline here on this webpage: ISIS pipeline.

The stock has been stair-stepping higher with investors buying the dips as prior resistance acts as new support. Last week the stock garnered a new price target upgrade to $62.00. ISIS will also present at a couple of analyst conferences in early December that might offer more catalysts to keep the rally going. The big bounce from its 2014 lows has produced a huge buy signal on the Point & Figure chart that is projecting a long-term target of $73.00.

More aggressive investors may want to open bullish positions now. I am suggesting we wait for a rally past the November high ($53.12) and use a trigger to open positions at $53.25.

- Suggested Positions -

Long ISIS stock @ $53.25

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

Long 2015 Jan $55 call (ISIS150117C55) entry $3.15

12/09/14 new stop @ 54.85
12/08/14 ISIS soars +8% on clinical trial data and bullish analyst price upgrades
11/25/14 triggered @ 53.25
Option Format: symbol-year-month-day-call-strike

MDC Partners Inc. - MDCA - close: 22.23 change: -1.14

Stop Loss: 20.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 09, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 227 thousand
New Positions: Yes, see below

12/10/14: Whew! MDCA did not have a good day. The stock underperformed with a -4.8% loss that erased about three and a half days worth of gains. I cautioned readers last night that this was a more aggressive trade. The volatility might be a challenge.

If this weakness continues tomorrow we might drop MDCA.

Currently we are on the sidelines with a suggested entry point at $23.55.

Earlier Comments: December 9, 2014:
MDC Partners (MDCA) is a marketing firm. The company describes itself as "one of the world's largest Business Transformation Organizations that utilizes technology, marketing communications, data analytics, insights and strategic consulting solutions to drive meaningful returns on Marketing and Communications Investments for multinational clients in the United States, Canada, Europe, Asia and Latin America."

After an incredible performance in 2013 where MDCA's stock rallied from $8 to $26 (+225%) this year has been a disappointment. That might be due to the company's earnings, which have been pretty hit or miss. On a longer-term perspective 2014 merely looks like a massive consolidation (see the weekly chart below).

The company's most recent earnings report was October 29th. They missed bottom estimates while beating the revenue number. The stock initially sold off but investors bought the dip and MDCA has been outperforming the market recently.

Miles Nadal is the Chairman and CEO. He commented on their Q3 performance saying, "This was yet another strong quarter for our business, and it is shaping up to be another exceptionally strong year as we are on pace to deliver on all of our financial objectives. But what's most exciting is that we have established a solid foundation for what we believe will be an even better year in 2015... It's our continuing and unwavering belief that our organization is healthy, strong and strategically better positioned than all of our competition." Nadal also said, "2014 shaping up to be our best year to-date." Commenting on the Q3 results, "revenue increased 13% over the last year to nearly $327 million, with organic revenue a record 8.2%. Second, our adjusted EBITDA increased 8% to $42.5 million with margins of 13%... Nearly 8% of our revenue is now outside of North America, up from 6% a year ago. We continue to see robust organic growth in foreign markets up 30% per year."

It's worth noting that MDCA is a small cap stock and doesn't get a lot of analyst coverage. Yet investors seem to be bullish on it. The stock is up five weeks I a row and shares are up almost +30% from their October lows.

Technically shares are in breakout mode. They broke through the 200-dma, resistance near $22.50, and its long-term trend line of lower highs, all in the last few weeks.

Tonight we are suggesting a trigger to launch bullish positions at $23.55. However, I would consider this a slightly more aggressive trade. Investors may want to limit their position size to reduce risk.

Trigger @ $23.55 (consider smaller positions)

- Suggested Positions -

Buy MDCA stock @ $23.55

Micron Technology - MU - close: 34.86 change: -0.80

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: - 0.7%
Entry on November 24 at $35.10
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 24.8 million
New Positions: see below

12/10/14: Semiconductor stocks followed the market lower on Wednesday and MU was no exception. Shares underperformed with a -2.2% decline. I am not suggesting new positions at the moment.

More conservative investors may want to start raising their stop loss.

Earlier Comments: November 22, 2014:
MU is in the technology sector. The company is part of the semiconductor industry. They make memory chips. According to a company press release, "Micron Technology, Inc., is a global leader in advanced semiconductor systems. Micron's broad portfolio of high-performance memory technologies—including DRAM, NAND and NOR Flash—is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron's memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications."

The semiconductor space has been a strong performer this year with the SOX semiconductor index up +23.9% in 2014. That outperforms the NASDAQ's +12.8% and the S&P 500's +11.6% gain. MU is beating all of them with a +57.7% rally in 2014.

The company has been beating Wall Street's earnings and revenue estimates all year long. Their most recent report was MU's Q4 results that came out in September. Analysts expected a profit of $0.81 on revenues of $4.15 billion. MU delivered $0.82 as revenues soared +48.7% to $4.23 billion.

Management then raised their Q1 revenue guidance into the $4.45-4.70 billion range, which was above analysts' estimates. They also announced at $1 billion stock buy back program. Following its results and the buy back news the stock has seen several price target upgrades. Many brokers have price targets in the low to mid $40s. One firm has a $60 target.

Technically shares have been stuck under resistance in the $34.85 area since July. A rally past $35.00 would create a new buy signal on MU's point & figure chart. Tonight I am suggesting a trigger to open bullish positions at $35.10.

- Suggested Positions -

Long MU stock @ $35.10

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

Long 2015 Jan $35 call (MU150117C35) entry $2.01

11/24/14 triggered @ $35.10
Option Format: symbol-year-month-day-call-strike

Sealed Air Corp. - SEE - close: 41.37 change: -0.20

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.8%
Entry on December 09 at $41.05
Listed on December 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: see below

12/10/14: SEE held up pretty well. Shares only lost -0.48% versus the -1.6% drop in the S&P 500. Today's loss does snap a six-day winning streak. If you're looking for an entry point I would wait for a dip in the $40.00-41.00 area.

Earlier Comments: December 8, 2014:
SEE is part of the consumer goods sector. They're in the packaging and containers industry. The company describes itself as "Sealed Air is a global leader in food safety and security, facility hygiene and product protection. With widely recognized and inventive brands such as Bubble Wrap brand cushioning, Cryovac brand food packaging solutions and Diversey brand cleaning and hygiene solutions, Sealed Air offers efficient and sustainable solutions that create business value for customers, enhance the quality of life for consumers and provide a cleaner and healthier environment for future generations. On a pro forma basis, Sealed Air generated revenue of $8.1 billion in 2011 and has approximately 26,300 employees who serve customers in 175 countries."

The U.S. economy is improving and that should mean a strong tailwind for SEE. The company has seen earnings growth improve. The last two quarters in a row SEE has beaten Wall Street's estimates on both the top and bottom. If that wasn't good enough they also raised their guidance two quarters in a row.

SEE's most recent earnings report was October 29th. Analysts were expecting a profit of $0.45 a share on revenues of $1.94 billion. SEE said earnings were up +24% from a year ago to $0.52 a share. Revenues rose +3.3% to $1.98 billion.

Jerome A. Peribere, President and Chief Executive Officer of SEE commented on their quarterly performance. He said, "Our financial and operational performance in the third quarter exceeded our expectations across all key metrics. Net sales increased 3.6% on a constant dollar basis, Adjusted EBITDA margin surpassed 15%, and Adjusted EPS increased 24%. Adjusted gross profit margin increased 120 basis points as a result of our continued disciplines and value-added selling approach across all regions and divisions. Despite macro-economic uncertainties, currency headwinds and volume declines in the North American protein market, we are increasing our 2014 outlook for Adjusted EBITDA and Adjusted EPS and expect to generate approximately $540 million in free cash flow."

SEE's new 2014 guidance is $1.70-1.75 a share versus Wall Street's $1.65-1.70 estimate. The stock has been strong following this report. Instead of correcting lower in mid November SEE merely consolidated sideways. Now it's rested and ready to run. Shares are up five days in a row and ignored the market-wide weakness today.

Today's intraday high was $40.87. I am suggesting a trigger at $41.05 to open bullish positions. We're not setting a target tonight but I will note the point & figure chart is forecasting a long-term target of $61.00.

- Suggested Positions -

Long SEE stock @ $41.05

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

Long Jan $40 CALL (SEE150117C40) entry $1.90

12/09/14 triggered @ 41.05
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Voxeljet AG - VJET - close: 7.88 change: -0.57

Stop Loss: 9.65
Target(s): To Be Determined
Current Gain/Loss: +20.4%
Entry on December 04 at $ 9.90
Listed on December 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 372 thousand
New Positions: see below

12/10/14: VJET continues to be a great performer for us. The stock dropped another -6.74% and closed below the $8.00 mark for the first time ever.

Traders may want to lower their stop again. I am not suggesting new positions at the moment.

Earlier Comments: December 2, 2014:
VJET is in the technology sector. The company is part of the 3D printer industry. A company press release describes VJET as "a leading provider of high-speed, large-format 3D printers and on-demand parts services to industrial and commercial customers. The Company's 3D printers employ a powder binding, additive manufacturing technology to produce parts using various material sets, which consist of particulate materials and proprietary chemical binding agents. The Company provides its 3D printers and on-demand parts services to industrial and commercial customers serving the automotive, aerospace, film and entertainment, art and architecture, engineering and consumer product end markets."

Unfortunately this industry has been struggling. Q3 earnings results were disappointing almost across the board with 3D printing companies either posting earnings misses, lowering guidance, or both. VJET happens to fall in the both category.

VJET reported its Q3 results on November 13th. Analysts were expecting a loss of €0.03 for the quarter. The actual results were significantly worse with VJET reporting a loss of €0.41. That compares to a profit of €0.11 in Q3 2013. Management lowered their guidance following the Q3 earnings report.

The industry is facing a new competition in printer giant Hewlett-Packard (HPQ). Everyone knew that HPQ would eventually jump into the 3D printer market and HPQ has finally announced they will next year. HPQ recently gave a presentation saying their 3D printer technology will use "multi-jet fusion" which will generate speeds 10 times faster than current 3D printers.

Shares of VJET have been underperforming the market with a bearish trend of lower highs and lower lows. The point & figure chart is bearish and forecasting at $6.00 target.

Today VJET is setting at all-time lows and poised to break what should be round-number, psychological support at the $10.00 mark. Tonight we are suggesting a trigger to open bearish positions at $9.90.

Please note I do consider this a more aggressive, higher-risk trade. There is already a lot of short interest in this name. The most recent data listed short interest at 22% of the very small 12.4 million share float. That poses the risk of a short squeeze should VJET ever bounce. You may want to use put options to limit your risk to the cost of the option.

*higher-risk, more aggressive trade* - Suggested Positions -

Short VJET stock @ $9.90

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

Long 2015 Jan $10 PUT (VJET150117P10) entry $1.05

12/08/14 new stop @ 9.65
12/04/14 triggered @ $9.90
Option Format: symbol-year-month-day-call-strike

Zulily, Inc. - ZU - close: 26.43 change: -0.04

Stop Loss: 27.30
Target(s): To Be Determined
Current Option Gain/Loss: - 2.0%
Entry on December 08 at $25.90
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: see below

12/10/14: Careful! I am ringing the warning bell on our ZU trade. Almost the entire market sank on Wednesday but ZU dropped less than four cents. This relative strength could spell trouble for bears.

More conservative investors may want to just abandon ship right now. I am not suggesting new positions.

Earlier Comments: December 6, 2014:
ZU is in the services sector. They're considered part of the discount variety store industry. Yet the company doesn't have any retail locations. Instead they operate online. ZU focuses on the "flash sales" model with 72 hour sales (and occasionally 24 hour sales).

The website describes the company as follows, "zulily (http://www.zulily.com) is a retailer obsessed with bringing moms special finds every day—all at incredible prices. We feature an always-fresh curated collection for the whole family, including clothing, home decor, toys, gifts and more. Unique products from up-and-coming brands are featured alongside favorites from top brands, giving customers something new to discover each morning. zulily was launched in 2010 and is headquartered in Seattle with offices in Reno, Columbus and London."

If you do any research on ZU you'll hear a lot about the business model. It makes sense. The company doesn't suffering from all the hassles and expenses of normal retail locations. The constantly rotating nature of their flash sales model generates a sense of urgency for the buyer. It seems like a great idea. The last couple of earnings reports have been better than Wall Street expected. Yet the stock is getting crushed.

ZU's most recent report was their Q3 results on November 4th. Wall Street was expecting ZU to lose between 3 to 4 cents per share on revenues of $285.4 million. ZU reported a profit of $0.02, which is up from $0.00 a year ago. Revenues soared +71.5% to $285.8 million.

Management said it was a good quarter for ZU. Darrell Cavens, CEO of zulily, said, "This was a strong quarter where we hit several key milestones— the business reached a billion dollars in revenue on a trailing 12 month basis and the majority of our North American orders now come from mobile." They also saw their active customers surge +72% from a year ago to 4.5 million. Their average purchase was up +4%. In spite of all the good news the stock plunged -20% the next day.

The reason appears to be guidance and valuations. ZU issued Q4 guidance, the critical holiday shopping season, that was below analysts' estimates. Another major issue is valuation. At current prices ZU is still valued at $2 billion for a company with a net income of only $11.5 million. Their current P/E is about 202. They do seem to be growing rapidly but evidently not enough to justify current valuations.

Eventually shares will get cheap enough that the selling stops. Where that bottom is no one knows yet. The point & figure chart is bearish and forecasting at $14.00 target. There are a lot of investors betting on new lows. The latest data listed short interest at 31% of the 41.7 million share float.

We think ZU heads lower but I consider this a more aggressive, higher-risk trade. The big short interest could make ZU volatile. Tonight we're suggesting small bearish positions if ZU can trade at $25.90. You may want to use the put options to limit your risk.

NOTE: ZU's IPO priced at $22.00. It's possible that $22 could be potential support.

*small positions to limit risk* - Suggested Positions -

Short ZU stock @ $25.90

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

Long Jan $25 PUT (ZU150117P25) entry $1.15

12/10/14 Caution! The recent action in shares of ZU could spell trouble.
12/08/14 triggered @ 25.90
Option Format: symbol-year-month-day-call-strike


Electronic Arts - EA - close: 44.76 change: -0.82

Stop Loss: 44.85
Target(s): To Be Determined
Current Option Gain/Loss: + 7.4%
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

12/10/14: Wednesday's widespread market declines helped push EA to a -1.79% drop and a breakdown under its simple 10-dma. Our stop loss was hit at $44.85.

- Suggested Positions -

Long EA stock @ $41.75 exit $44.85 (+7.4%)

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

2015 Jan $45 call (EA150117c45) entry $0.71 exit $1.72 (+142.3%)

12/10/14 stopped out
12/04/14 new stop @ 44.85
11/29/14 new stop @ 42.85
11/22/14 new stop @ 40.85
11/20/14 Caution. EA could be volatile tomorrow in reaction to GME's earnings report
11/17/14 triggered @ 41.75
Option Format: symbol-year-month-day-call-strike


Veeva Systems - VEEV - close: 28.88 change: -1.85

Stop Loss: 29.70
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 991 thousand
New Positions: see below

12/10/14: VEEV is not cooperating. Shares underperformed the market in a big way with a -6.0% decline on Wednesday. Our trade has not opened yet so we are removing VEEV as a candidate.

Trade did not open.

12/10/14 removed from the newsletter, suggested entry was $32.05