Option Investor

Daily Newsletter, Thursday, 12/18/2014

Table of Contents

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

Market Wrap

Fed Rallies Patient Bulls

by Thomas Hughes

Click here to email Thomas Hughes
Market rally biggest one day gain in more than two years.


Futures were soaring this morning, indicating an opening more than a percent higher than yesterday's close. The reason? FOMC use of the word patient. The Fed's stance on interest rates, the 2015 outlook and responses from Janet Yellen soothed the bulls, confirmed expectations and spurred global markets to rally.

Although Asian markets were mixed the bias was positive. European indices responded much better, climbing roughly 3% on average. Economic data also helped add to the rally. Jobless claims, Philly Fed Survey and Leading Indicators are all in line with trends, pointing to a continuation of economic recovery into next year.

Market Statistics

Futures were climbing all morning and into the open. After the opening bell stocks rose quickly, gaining more than 1.25% in the first 5 minutes. Trading remained strong throughout the morning but pulled back from the early highs for an hour or so. By lunchtime the indices were back retesting the early high, and then moving higher. The market kept on climbing throughout the afternoon and into the closing bell. The rally was strong, all 10 of the S&P sectors were in the green with gains greater than 1%. While the FOMC is the big catalyst, another factor impacting today's trading was Quadruple Witching options expiration which occurs tomorrow, a factor that will likely keep the market active going into the weekend.

Economic Calendar

The Economy

Lots of data was released today. Starting with the labor data, initial claims fell by 6,000 from an upward revision of 1,000 to 289,000. Claims are still elevated above the low, but also still below the heavily watched 300,000 line. The four week moving average also fell, by 750, to 298,750. The down trend in claims is stalled, but hanging near long term lows and in line with current labor trends. Looking forward, claims are on the decline following a seasonal peak and expected to move lower.

On an not adjusted basis, claims fell by 15.9%, slightly ahead of seasonal expectations. Surprisingly, there were massive numbers of new claims reported by PA, TX, GA and CA. Each of these states reported more than 6,000 new claims led by Pennsylvania's +12K. Declines in jobs were broad ranging from construction to waste remediation, transportation, warehousing, hospitality and administrative services.

Continuing claims fell by 147,000. This is a sharp drop in claims and comes on the heels of last week's spike. Last weeks number was revised higher, by 6,000, to 2.514 million. Continuing claims are still above the long term lows but still low and at levels consistent with the current recovery in labor.

The surprise this week is in the total claims number, and it is not a good one. This week the total number of claims was reported jumping more than 422,000 to 2.576. This is the highest level since June and could simply be reflecting the recent spike in initial and continuing claims. Seasonal factors are at play here, including staff downsizing to meet budget requirements seasonal expectations, and can be expected to impact claims for the next few weeks.

Philly Fed and Leading Indicators were both released at 10AM. Philly Fed declined from last month's peak, as expected, but remains positive. The decline to 24.5 is slightly more than expected but not a bad number as it is positive and near the highest levels for this indicator dating back to 2011. All gauges contributing to the diffusion index were positive, if down from last month. New orders showed the sharpest decline, -20 points, coming in at at 15.7. Employment also showed a decline but remains positive. The future index declined by 6 points but also remains positive and indicating optimism for next year. The number one reason for the decline in optimism is due to an expected increase in labor costs, primarily driven by health benefits which are expected to rise by more than 6%.

Leading indicators rose this month, the third month month of gains, and more than expected. The index climbed 0.6% versus expectations for a gain of 0.5%. The coincident and lagging index also increased this month, 0.4% and 0.3% respectively. A Conference Board economist was quoted in the report saying the index shows “continued moderate growth” in the US and that there are signs that wage growth is picking up. Eight of the ten indicators that comprise index contributed to the rise, aided by low oil and consumer spending.

The Oil Index

Oil prices were volatile again today, no surprise there. WTI and Brent both traded in wide ranges today, starting with a gain of more than 1% in the early market. These gains were reversed later by some remarks from Putin concerning his belief that oil could trade with a $40 handle. Additional remarks from Saudi oil minister to the effect they needed help to curb supply helped to send WTI down by down by 1.5% and Brent by more than 2.25%. This is now the fourth day WTI has traded around the $55 level and it looks like oil is consolidating here. Whether it is for a continuation or reversal is yet to be determined. The bias is still to the downside with no signs of support.

The Oil Index climbed in today's trading, gapping up at the open but then falling from resistance. Resistance is the previous low, set in October. The index has managed to rally over the past few days, perhaps on short covering, but is still in line with the 3 ½ month downtrend. Momentum is shifting and may turn bullish but that will depend on oil prices. Resistance at 1,336 could be tested further with additional resistance possible along the down trend line. Support is possible around the current low near 1,120.

The Gold Index

Gold held steady around $1195, just above technical support and below the $1,200 round number. Technical support, based on the October low, is $1188. Longer term support exists 40 points lower around $1150 and the long term low. While the long term bottom in gold may be in, where gold prices go today and tomorrow is questionable. The new message from the Fed seems to be that the economy s strong and interest rates are coming, not right away, at least 2 meetings, but be ready for them to come June/July. Gold appears to be in equilibrium right now, poised between dollar value and interest rate expectations and could go either way. This position could change by tomorrow though as we are expecting some news from the BOJ and possibly the ECB.

The Gold Index seems to be confirming that gold is at or near its bottom. The index gained over 4% today extending a bounce from support and regaining the 100% retracement of the 2008-2011 bull market in gold. This level has been in play for several weeks and is now looking pretty good as a bottom. The index has made two lows along the 100% retracement level, in tandem with shifting fundamentals and rising economic trends. The second low is higher than the first and accompanied by indicators that, while currently bearish, are still consistent with support around $60. A strong signal has yet to come but it is looking more and more like one is on the way. In the near term momentum is beginning to shift and could carry the index higher, but that will depend on central bank results tomorrow. Resistance is just above the current level along the 30 day moving average and then above that near $72.50.

In The News, Story Stocks and Earnings

Rite Aid reported earnings and revenue ahead of expectations this morning. The once ailing drug store chain has been able to enact a successful turnaround and more than double earnings. Focus on customer needs helped to increase same store sales which were a driver of the results. Company executives were able to raise guidance for the year to a range above the previous estimate. The news was met with approval in the pre-market session, causing the stock to gap up at the open. Shares of Rite Aid gained more than 12%, break several potential support levels and closing the gap formed in September.

ConAgra, a leading food products manufacturer and distributor, reported earnings in line with expectations. The company reported adjusted earnings of $0.61 after factoring a non-cash impairment charge. Company guidance for 2015 was reaffirmed but did not assure investors as improvements are not expected until 2016. The stock dropped sharply in the pre market session and gapped lower at the open. The stock began trading at the $35.50 support level, tested it, and then moved higher. The move did not recover all the loss and left the stock down by more than 1.5%.

Oracle was one of today's big winners, after reporting strong earnings after the bell yesterday. The company reported EPS well above average estimate driven largely by increases in all three of its cloud businesses. Oracle reported a 45% gain in cloud based revenue and is expecting it to continue to grow into the future. Shares of the stock surged 4% in after hours trading yesterday, held those gains this morning and into the open. The stock gapped higher at the opening bell and then kept on climbing for a gain of 10%. Oracle is now trading at new 14 year high and closing in on the all time high set during the Dot Com Bubble. Open source competitor RedHat reported after the bell today, positively surprisingly and sending that stock higher in after hours trading.

The Indices

The Fed gave the market just what it wanted. The combination of policy, outlook, verbiage and comments left no doubt that the economy is still improving, the Fed is optimistic but still data dependent, is set to raise interest rates but not for at least two meetings and that an increase in rates may come at any meeting, not just one with a press conference. The change in the use of “considerable time” to “patient” was very reassuring, letting us know that there was little chance of an increase before expected.

The Dow Jones Transportation Average was today's laggard. The transports gained a mere 1.58% compared to an average 2.3% gain posted by the rest. The move is the second of two days of strong gains following a test of support, centered on the FOMC meeting. This move confirms long term support between 8,500 and 8,750 but a retest of support may come. The indicators are mildly bullish and consistent with support. Momentum is still to the downside but it has peaked and is shifting. Stochastic is better, showing a weak bullish crossover and the early trend following signal. Targets for a rally start at 9,000, just above the current level, and go on to 9,250, 9,500 and 9,750 in the near to short term. Follow through tomorrow and into next week will be important for the bulls.

The Dow Jones Industrial Average gained 2.23% in today's action. Today's move was the biggest one seen in the blue chips for at least two years, creating a strong white candle. The index is moving up from support, has broken the short term moving average and is accompanied by indicators in line with a swing in the market. Current target is the all time near 18,000 with the possibility of 18,500 providing resistance can be broken.

The NASDAQ Composite gained 2.24%, gapping up at the open and then extending the gain. This is the second day of upward movement following the test of long term support which occurred over the last two days. The index is approaching current highs with momentum shifting to the upside. The indicators are weak but in line with the early phases of a longer term bounce. MACD is retreating from a bearish peak while stochastic is forming a weak crossover. Near term target is 4,800 near the current long term high with longer term targets significantly higher provided resistance can be broken. Support is at the short term moving average near 4,671, just below that along the 4,600 support line and again below that along the long term up trend line.

The S&P 500 led today's rally, gaining 2.4%. The broad market was supported by all ten sectors and created a strong white candle. The index is bouncing from support, along the long term trend line, and approaching the all time highs near 2,070. The index had a little trouble getting past 2,050 today but eventually wore the bears down and broke through. The indicators are the same as on the other charts, consistent with a swing in the market and in line the early phases of a trend following bounce. Bearish MACD is retreating from a peak and quickly approaching the zero line while stochastic is forming a weak bullish crossover and an early trend following signal. Near term targets are only 10 points above the current level at the all time high, with 2,100 a real possibility should resistance fall. There are multiple support lines in the 1990 to 2050 region, including the long term trend line and the should the index retreat.

The market is moving along, bouncing in line with the long term trends concurrent with an FOMC meeting and supported by underlying economic trends. It looks like the bull market is still intact and the bulls are back in action. The only thing that concerns me today is Quadruple Witching options expiration tomorrow, an event that could add volatility in either direction, but not enough to keep me out of the market.

Until then, remember the trend!

Thomas Hughes

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New Plays

Not Participating

by James Brown

Click here to email James Brown


58.com Inc. - WUBA - close: 39.72 change: -0.42

Stop Loss: 41.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below

Company Description

Why We Like It:
WUBA is part of the technology sector. They are one of several Chinese Internet stocks that see a lot of action in the market with big moves both directions. If you can catch one of WUBA's big moves it can be profitable.

The company has been compared to a Chinese version of Craiglist. They operate an online market for merchants and consumers in China. Growth has been significant. Their most recent earnings report was November 12th. WUBA reported their Q3 results with a profit of $0.09 per share when Wall Street was actually expecting a loss of 0.04 per share. Revenues in the third quarter soared +73% to $72 million. Gross margins improved +0.8% to 95.3%. WUBA management then raised their Q4 guidance.

It was a bullish earnings report and the stock soared. You can see the big move in mid November. Yet something happened a couple of weeks ago. Nearly all of the Chinese Internet stocks were crushed on December 8th. WUBA has struggled to recover. The recent bounce stalled at the 200-dma. Today's rebound attempt failed at the 50-dma. Shares have not participated with the big two-day rally in the U.S. market.

I consider this a technical trade. The company's sales growth and earnings results look bullish. Yet the stock is clearly not acting bullish. Plus, the bears do have some ammunition to build a case. If you tried to build a bearish story you could easily argue the stock is expensive with a P/E of 107. In their latest earnings report nearly all of WUBA's major expenses, including research and development, sales and marketing, and their operating expenses, all more than doubled from a year ago. While growth has been huge their growth is slowing. This year revenues are up +77% but they're expected to slow down to +54% in 2015.

WUBA has found recent support in the $38.90-39.00 area. Tonight I'm suggesting small bearish positions if WUBA can trade at $38.85. We want to limit our position size because the stock can be so volatile. You may want to use the options instead to help limit your risk. I would aim for the September and October lows in the $34.65-34.75 zone.

NOTE: I'm listing the April options only because the February or March options are not available yet. We should see new options available soon.

Trigger @ $38.85 *small positions to limit risk*

- Suggested Positions -

Short WUBA @ (trigger)

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

Buy the APR $35 PUT (WUBA150417P35) current ask $3.00

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Market Races Higher

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market continued to rebound on Thursday and the major averages soared to their best two-day gain since November 2008.

This big bounce has been rough on our bearish trades. CBT and TMST were both stopped out.

Current Portfolio:

BULLISH Play Updates

Barracuda Networks - CUDA - close: 37.28 change: +0.48

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: + 4.6%
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

12/18/14: CUDA continued to march higher on Thursday. I do find it interesting that shares underperformed the market with a +1.3% gain versus the +2.2% rally in the NASDAQ.

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

12/11/14 new stop @ 34.85
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: 29.33 change: +0.01

Stop Loss: 27.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.7%
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

12/18/14: Caution! Shares of CYNO did not participate in the market's widespread rally today. That could be a warning signal. We will raise the stop loss to $27.75 tonight.

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

12/18/14 new stop @ 27.75
12/13/14 new stop @ 26.75
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

INSYS Therapeutics - INSY - close: 46.69 change: +3.56

Stop Loss: 41.15
Target(s): To Be Determined
Current Option Gain/Loss: + 6.1%
Entry on December 18 at $44.00
Listed on December 17, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 479 thousand
New Positions: see below

12/18/14: Our new bullish play on INSY is off to a strong start. Shares soared +8.25% and broke out to new multi-month highs. Our plan was to open bullish positions at $43.60 but shares leapt higher this morning and gapped open at $44.00. INSY actually filled the gap with a dip back to $43.05 before reversing higher so nimble traders got a chance to buy the dip.

I would not chase it at current levels. We will raise the stop loss to $41.15.

Earlier Comments: December 17, 2014:
INSY is in the healthcare sector. They are part of the biotech industry. The company website describes Insys Therapeutics as "a specialty pharmaceutical company that develops and commercializes innovative drugs and novel drug delivery systems of therapeutic molecules that improve the quality of life of patients. Using our proprietary sublingual spray technology and our capability to develop pharmaceutical cannabinoids, Insys addresses the clinical shortcomings of existing commercial products. Insys currently markets two products, Subsys, which is sublingual Fentanyl spray for breakthrough cancer pain, and a generic version of Dronabinol (THC) capsules. Our lead product candidate is Dronabinol Oral Solution, a proprietary orally administered liquid formulation of dronabinol. Insys is also developing a pipeline of sublingual sprays, as well as pharmaceutical cannabidiol."

Biotech stocks can be tough to trade. Normally they are volatile with lots of headline risk. The right headline about a successful test or clinical trial or FDA approval can send shares soaring. The wrong headline could see a biotech stock crash or even gap down several points. Due to the nature of biotech work and how many companies get paid with milestone payments as they develop treatments their earnings are very lumpy.

INSY has managed to consistently beat Wall Street's bottom line estimates this year. The last four quarters in a row they have beaten the EPS estimates and three out of the four quarters they have beaten the revenue estimate as well. Their most recent quarterly results came out on November 11th.

INSY delivered a profit of $0.63 a share versus estimates of only $0.35. Revenues soared +99.7% to $58.3 million, above estimates. Since their report the stock has garnered some bullish analyst comments and multiple firms have price targets in the $51-57 zone.

INSY management is very optimistic and expects to complete four Phase III clinical trials in 2015. If successful it will significantly broaden their product line.

It is important to note that not all the news is good for INSY. A few weeks ago the Wall Street Journal (WSJ) ran a story about some shady marketing practices for INSY's Subsys painkiller. This is an under-the-tongue spray version of the painkiller fentanyl. Subsys has a very high risk of dependency and is currently only approved for cancer patients. Yet strangely enough only 1% of prescriptions were written by oncologists. Several doctors with the biggest number of Subsys prescriptions have also been under review or disciplined. The WSJ noted that the Office of the Inspector General of the U.S. Department of Health and Human Services and the U.S. Attorneys in the Central District of California and Massachusetts are all looking into the matter. This is significant because Subsys accounts for the vast majority of INSY's revenues. Thus far the stock does not seem to be worried about this story.

Shares have been building on the bullish trend of higher lows. The stock looks poised to breakout past resistance in the $43-44 area. The point & figure chart is already bullish and forecasting at $68 target.

If INSY can breakout it could see a short squeeze. The most recent data listed short interest at 65% of the very small 10.34 million share float.

Tonight we are suggesting a trigger to open bullish positions at $43.60. More conservative traders may want to wait for a breakout past the recent high at $44.00 instead.

I do consider this a higher-risk, more aggressive trade. Use small positions to limit your risk.

*small positions* - Suggested Positions -

Long INSY stock @ $44.00

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

Long FEB $45 CALL (INSY150220C45) entry $4.10

12/18/14 new stop @ 41.15
12/18/14 triggered on gap open at $44.00, suggested entry was $43.60
Option Format: symbol-year-month-day-call-strike

Sealed Air Corp. - SEE - close: 42.28 change: +0.34

Stop Loss: 39.95
Target(s): To Be Determined
Current Option Gain/Loss: +3.0%
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

12/18/14: SEE didn't keep pace with the broader market on Thursday but shares did close at an all-time high. It might be time to start raising our stop loss.

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

12/11/14 new stop @ 39.95
12/09/14 triggered @ 41.05
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Guess' Inc. - GES - close: 20.32 change: +0.24

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: - 3.1%
Entry on December 17 at $19.70
Listed on December 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

12/18/14: GES has closed above short-term technical support at its 10-dma for the first time in weeks. The market's widespread rally today fueled a bounce in GES but shares continued to underperform. Shares only gained +1.1% versus the +2.4% rally in the S&P 500.

I am not suggesting new bearish positions at this time. More conservative investors might want to lower their stop loss closer to the $20.70 area.

Earlier Comments: December 16, 2014:
Retail can be a tough business. Fashion is even worse. Customer tastes and shopping habits have been changing. It looks like GES has not done a very good job navigating the fashion-retail landscape.

The company is part of the services sector. The Guess? Brand covers apparel and accessories for men, women, and children. The company runs 494 retail stores in North America and 346 stores in Europe, Asia, and Latin America.

GES' performance for 2014 can be summed up with two words: guiding lower. When GES reported earnings in March, May, August, and in December the company has lowered guidance every single time. Their most recent report in December (its Q3 results) managed to beat Wall Street's earning estimate and yet diluted earnings per share were down 43% from a year ago. Revenues were also down -3.9%. Margins are contracting as well.

Management lowered their Q4 2014 and 2015 guidance on for earnings, revenues, and margins. Wall Street is starting to turn more cautious with lowered price targets or telling clients to avoid the stock altogether. As usual Wall Street is late to the game with shares of GES trading at five-year lows.

The last few days have seen GES consistently fail at its 10-dma. Today's close below significant round-number support at $20.00 looks like an entry point for bearish positions. We are suggesting a trigger to open bearish trades at $19.70.

- Suggested Positions -

Short GES stock @ $19.70

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

Long MAR $20 PUT (GES150320P20) entry $1.70

12/17/14 triggered @ $19.70
Option Format: symbol-year-month-day-call-strike

NCR Corp. - NCR - close: 28.09 change: +1.12

Stop Loss: 28.20
Target(s): To Be Determined
Current Option Gain/Loss: -4.2%
Entry on December 16 at $26.95
Listed on December 15, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.25 million
New Positions: see below

12/18/14: Today's broad-based market rally sparked some short covering in NCR. Shares gapped open higher at $27.46 and then raced to a +4.1% gain on the session. The $27.50-28.00 area should have been stronger resistance. Tonight we'll lower our stop loss to $28.20. The simple 50-dma is at $28.15.

I am not suggesting new positions at this time.

Earlier Comments: December 15, 2014:
NCR is part of the technology sector. Company marketing material describes NCR as "the global leader in consumer transaction technologies, turning everyday interactions with businesses into exceptional experiences. With its software, hardware, and portfolio of services, NCR enables more than 485 million transactions daily across retail, financial, travel, hospitality, telecom and technology, and small business. NCR solutions run the everyday transactions that make your life easier. NCR is headquartered in Duluth, Georgia with approximately 29,000 employees and does business in 180 countries."

It has not been a good year for shares of NCR. The stock is down -19% in 2014. NCR's stock was already in a bearish trend of lower highs and lower lows before the company issued an earnings warning on October 20th. You can see the big gap down and plunge toward $23 on that session. Since the stock has seen a technical rebound that was boosted by the market's widespread surge off the October lows. Unfortunately for NCR the rally reversed at resistance near $30.00 while the broader market broke out to new highs.

Management lowered their Q3 and 2014 guidance on the 20th and essentially warned that Q4 would be disappointing as well. Chairman and CEO Bill Nuti commented on their results saying, "Our Retail Solutions business was challenged by customers spending more cautiously than anticipated and further delaying solution rollouts. These trends, along with difficult global macroeconomic conditions and foreign currency headwinds, had significant impacts on our performance in the third quarter, and we expect they will continue to impact our Retail Solutions business in the fourth quarter."

Traders have been selling every bounce with new resistance at the descending 10-dma. The point & figure chart is very bearish with a $20.00 target. The stock closed at new six-week lows today. Tonight I'm suggesting a trigger to open bearish positions at $26.95.

- Suggested Positions -

Short NCR stock @ $26.95

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

Long Jan $27 PUT (NCR150117P27) entry $1.35

12/18/14 new stop @ 28.20
12/16/14 triggered @ 26.95
Option Format: symbol-year-month-day-call-strike

Voxeljet AG - VJET - close: 7.57 change: +0.20

Stop Loss: 8.15
Target(s): To Be Determined
Current Gain/Loss: +23.5%
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

12/18/14: VJET followed the market higher and ended Thursday's session with a +2.7% gain. Fortunately the larger trend remains lower. However, we will try and protect ourselves by lowering the stop loss to $8.15. That's 10 cents above the simple 10-dma (currently $8.05).

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

12/18/14 new stop @ 8.15
12/11/14 new stop @ 8.65
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: 24.52 change: +0.78

Stop Loss: 26.05
Target(s): To Be Determined
Current Option Gain/Loss: + 5.3%
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

12/18/14: Ouch! The two-day bounce in the market has produced a pretty hefty rebound in ZU. The stock should encounter round-number resistance at $25.00 and technical resistance at the 10-dma (near $25.17). Tonight we will lower the stop loss to $26.05. More conservative traders may want to move their stop closer to $25.50 or even $25.25 instead.

I am not suggesting new positions at current levels.

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

12/18/14 new stop @ 26.05
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


Cabot Corp. - CBT - close: $42.51 change: +0.89

Stop Loss: 42.05
Target(s): To Be Determined
Current Option Gain/Loss: -7.0%
Entry on December 12 at $39.75
Listed on December 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 414 thousand
New Positions: see below

12/18/14: A lot of stocks gapped open higher this morning. CBT gapped open at $42.54. Our stop loss was at $42.05. The bigger picture for CBT still looks bearish but shares have obviously not cooperated with us.

- Suggested Positions -

Short CBT @ $39.75 exit $42.54 (-7.0%)

12/18/14 stopped out on gap open at $42.54
12/12/14 triggered @ $39.75


TimkenSteel Corp. - TMST - close: 33.16 change: +1.10

Stop Loss: 33.35
Target(s): To Be Determined
Current Option Gain/Loss: - 7.1%
Entry on December 15 at $31.15
Listed on December 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 449 thousand
New Positions: see below

12/18/14: The stock market's best two-day rally in six years has been rough on bearish trades. Shares of TMST have reversed higher and the stock hit our stop loss at $33.35.

- Suggested Positions -

Short TMST stock @ $31.15 exit $33.35 (-7.1%)

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

FEB $30 PUT (TMST150220P30) entry $2.55 exit $1.10 (-56.9%)

12/18/14 stopped out @ 33.35
12/15/14 triggered at $31.15
Option Format: symbol-year-month-day-call-strike