Option Investor

Daily Newsletter, Saturday, 12/27/2014

Table of Contents

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

Market Wrap

Markets Floating Slowly Higher

by Jim Brown

Click here to email Jim Brown

What if they opened the market and nobody came? Only a few investors showed up to trade on Friday but they did lift the major averages to new highs. Christmas week lived up to its historically bullish trend as investors put their holiday bonuses to work.

Market Statistics

It was a lackluster day in the markets but the Dow, S&P, Russell 2000 and S&P midcap 400 all closed at new highs. The Nasdaq Composite eased through resistance at 4,800 to close at a new 14 year high. The Nasdaq 100 failed to duplicate that feat with a close about 25 points below the November high close. The Dow Transports missed a new high by -2 points. It was a pretty good day despite the low volume and zero stock news.

There were no economic reports of note on Friday. Next week is just about as bleak. There is nothing of real interest on the calendar until Friday, which is the first trading day of 2015. The construction spending report is expected to show another decline and that will drag on the Q4 GDP.

The ISM Manufacturing for December is also expected to decline despite two quarters of GDP over 4%. The ISM peaked in August at 59.0 and some forecasts are for a decline to as low as 53.7, down from the November 58.7 reading. Fortunately this potential trouble spot for the market does not come until Friday so there is nothing material to rock the market boat for the rest of 2014.

Sony's movie "The Interview" opened at 331 theaters on Thursday in a very limited release with only a few show times. Many theaters reported the shows were sold out. The opening only produced $1 million in retail sales averaging $3,142 per theater.

At the same time it became available on YouTube, Google Play and Microsoft Xbox Live. Over the first 36 hours it was downloaded 7.5 million times on YouTube with a $5.98 price for a 48 hour rental. However, the paid link was easily shared with friends so we have no idea how many actual paid viewers there were.

TorrentFreak.com said within 20 hours of the movie becoming available there were more than 750,000 illegal copies downloaded on pirate sites. That rose to 1.5 million by Friday afternoon.

There would have been even more downloads from places like YouTube but the digital rights (DRM) were locked to USA/Canada only and anyone overseas was prevented from watching it legally.

This release is a prime example of why we will never have the simultaneous release online and in theaters of any major motion picture. The pirate community is too active and the movie producers would lose millions.

Sony shares were flat on Friday.

There were no package delivery problems this holiday season at least nothing caused by UPS or FedEx. The companies asked retailers in advance for volume estimates so the shippers could manage vehicles and manpower. After a last minute surge in packages that were over the prior estimates, FDX/UPS put limits on retailers to avoid problems like they had in 2013. The retailers were told to limit 11th hour promotions or the shippers would refuse their packages.

Through Monday UPS/FDX had delivered 97% of their packages on time according to a WSJ survey. UPS expects to handle 4 million packages by January 9th that consumers are returning. The UPS National Returns Day is January 6th and they expect to handle 800,000 returns on that day alone. The company said a recent survey showed that 62% of consumers have returned an item in 2014. That is up from 51% in 2013.

Data analytics firm StellaService ordered 4 items from 40 of the country's top retailers shipping the 4 orders to different U.S. regions. They placed the orders using each retailer guidelines for delivery by Christmas. Of the 160 orders placed, 11 packages did not arrive on time. According to StellaService Best Buy, Costco, Crate & Barrel, JC Penny, Kohl's, Macy's and Wayfair each had one item that did not arrive on time. Toys R Us and Staples each missed deadlines on two packages. One of the Staples orders was cancelled by Staples but they never notified the purchaser. StellaService said none of the late packages were the fault of UPS/FDX but the fault of the retailers.

StellaService said Apple, Dell, Nordstrom and Zappos allowed online orders until Dec 23rd and all the packages were delivered on time. Pretty amazing given the short fuse and crowded delivery system.

Amazon had the best record. Prime Now customers in major cities could order as late as December 24th and receive same day delivery. There was a $7.99 fee for one-hour delivery but free two-hour delivery. Several researchers tested the retailer and all reviews were satisfactory. In Manhattan the entire process on one video game order from cell phone to delivery took 30 minutes. During the process the cell phone received GPS updates of the package process. There is also a recommended tip that can be added to the order. The total cost of the $40 item including $7.99 fee, $5 tip and tax was $57. Amazon said customers bought 10 times more same-day delivery items than in 2013. While you may never need anything delivered in one-hour it is nice to know that capability exists.

The last Prime Now order delivered on Christmas Eve was 3 packages of Bai5 antioxidant infused beverage. The order was placed at 10:24 PM and delivered at 11:06 PM.

More than 60% of Amazon customers used a mobile device for their holiday shopping with the trend accelerating as Christmas neared.

Amazon said it added 10 million new Prime members at $99 during the holiday season. Prime members get free 2-day delivery of most items and they are estimated to spend more than twice what a regular customer spends during the year. I am a prime example of a Prime customer and I guarantee I spend more than twice what a regular customer spends. Probably more than several regular customers spend.

Amazon said the GoPro cameras were the best selling cameras on Amazon this holiday season. The Frozen Princess Elsa doll was the top-selling toy, with Anna and Elsa digital watches leading in that category. The Frozen Karaoke set was the third biggest seller in music behind "That is Christmas to Me" by Pentatonix and "1989" by Taylor Swift.

Amazon said the Fire TV was the best-selling streaming media box while the Fire TV USB Stick was the fastest-selling Amazon device ever. The top selling movies were "Guardians of the Galaxy" and "Maleficent." The best video game was "Call of Duty, Advanced Warfare." On Cyber Monday they sold 18 toys per second.

Amazon does not really breakout sales numbers but they did give some clues. They said they sold enough Elsa dolls to reach the top of Cinderella's castle 855 times. With the top of the castle at Disneyworld at 189 feet and the doll 12.8 inches tall that would suggest they sold 151,495 Elsa dolls.

They said if all the "Heroes of Olympus" books purchased were stacked in a pile they would be more than twice as tall as Washington state's Mount Olympus plus Mount Olympus in Greece. Mount Olympus in Washington is 7,979 feet tall. The Grecian Mount Olympus is 9,573 feet. With the books 4.4 centimeters thick that suggests 243,174 books were sold or roughly $2.1 million.

Amazon said it sold enough wiper blades for every driver in Mobile Alabama, the rainiest city in the USA. That equates to 292,653 wiper blades or $5.9 million at $10 a blade.

I am always amazed by the scale of Amazon sales. Those are just a couple of the more than 230 million items Amazon sells. There are more than 5 million items of clothing, 7 million in jewelry, 20 million in sports and outdoors and 600,000 grocery items.

Keurig Green Mountain (GMCR) announced it was recalling 7.2 million single serve brewing machines. The "Mini Plus" coffee makers can overheat and injure users by spraying hot liquids on them. The company said the machines could malfunction especially if used to brew more than two cups in quick succession. Keurig said it had received about 90 reports of injuries from the scalding hot liquid escaping from the brewers. An analyst at Stifel Nicolaus said the impact to earnings was likely to be minimal but it could negatively impact brand perception.

My daughter is on her third Keurig in three weeks. She bought them at Costco and returned them to Costco for replacements. She said they had a stack of returned units behind the service desk and the lady said they all had a pump problem. These were not the Mini Plus units mentioned above. Apparently they will have another recall soon on the larger units if this return rate continues. Time to short GMCR?

Tesla (TSLA) is offering to upgrade the battery package on the sporty two-seater Roadster it no longer produces. The upgrade will give owners as much as a 400-mile range and a 50% improvement over the initial battery package. Tesla said improved battery technology can provide 31% more energy than the original Roadster cells. They are also offering an improved aerodynamics kit, new tires and improvements to wheels and brakes to increase the mileage. The company is calling the improved vehicle the Roadster 3.0. The company is going to drive a Roadster from San Francisco to Los Angeles early in 2015 to demonstrate the new capability. Tesla sold about 2,500 of the $109,000 Roadsters, which were built on a Lotus chassis. Elon Musk said the Model S will also receive a battery pack upgrade but not in the near future. Stifel Equity Research said Tesla shares will top $400. Shares closed at $228 on Friday.

Freeport McMoran (FCX) announced a new discovery in southern Louisiana. The Highlander discovery produced 43.5 million cubic feet of gas per day. Freeport owns 72%, Energy XXI 18% and Tex Moncreif 10%. This is a well that Freeport inherited when it took over McMoran Exploration in June 2013. The 29,400 foot well had 150 feet of net pay and will be put on production in early 2015. Freeport owns 60,000 additional acres in the area and it now very optimistic that other exploration wells will be successful.

Crude prices weakened on Wed/Fri and the pattern suggests there could be a new low ahead. The rebound from the temporary bottom in the $55 range is weakening and we could see a test of the $50 level next week. This is probably due to some funds flushing their remaining oil positions before the end of December so they don't have to show them on their end of year statements. There is also a tax-sale component I am sure. Friday's weakness was also the result of comments by Saudi Arabia that they will "never cut production again." I do expect to see a rebound in January when funds begin to take new positions for 2015.

Oil is just one of the commodities in the CRB Index but none of the rest are supporting the index. There are no commodity buyers in sight and there is no inflation on the horizon. If anything there is a definite hint of deflation in the air. While a temporary drop in commodity prices is beneficial to corporate earnings a prolonged decline is detrimental. The commodity rout is definitely a warning sign for the future.

The Baltic Dry Index is not suggesting the commodity decline is done. The rate for shipping dry goods is near a two-year low and still falling. This means there is no demand for dry goods cargo carriers.


The markets moved to new highs with the Nasdaq the Russell 2000 tied as the strongest performers on Friday with .7% gains. This is typical end of year buying where tech stocks and small caps are lifted by retail investors putting end of year bonuses to work.

We can't get really excited about Friday's gains since the total volume was only 2.69 billion shares. That is easily the lightest volume day of the year. Considering the markets were making new highs that is troubling. You want to see new highs on stronger volume but we have to make allowances for the holiday schedule.

We should not look at a market gift too skeptically but we should be concerned if there is no follow through next week. The last week of the year is typically choppy with an upward bias. Remember, December 31st 2013 was the high for the year. I would really like to see that repeated in 2014.

Three of the last five January's were very strong with the market moving high in a hurry. The other two suffered serious declines. January 2010 peaked at 1,150 on January 19th before crashing back to 1,066 by February 5th. January 2014 peaked at 1,850 on the 15th and dropped back to 1,750 on February 5th.

Our market is fairly to moderately overvalued. Recently the indexes have been having trouble making new highs BUT there have been two decent selloffs in the last three months. Whether that will limit the amount of damage we could see in January is anyone's guess.

I am suggesting that we remain long into January but then take a defensive posture by option expiration on the 16th. That is typically a turning point in pivotal months and not just in January.

The percentage of S&P stocks over their 50 day average is 84% and we typically peak in the 84-88% range. That suggests caution is the watch word for the next several weeks.

The Bullish Percent chart for the S&P has plateaued at the 76% level and well below the previous highs in the 85% range. This is also an indication there may not be a lot of gas left in the rally tank.

The S&P closed at 2,088 and the obvious target here is 2,100. An aggressive trader could look to buy a few puts with a touch of 2,098 just in case that 2,100 level turns into a sell the news event. Support for the last three days has been 2,080.

The Dow struggled on Friday to hold its gains and I expect a retest of prior resistance next week. If that resistance has turned into support then we could be off to the races. If not then we could be limping into the end of the year. Initial support is 18,025 followed by 17,800. We are making new highs and there is no obvious overhead resistance.

The long tops on the candles for the last three days shows selling pressure at the close that left the Dow well off its highs. That suggests no confidence in the rally. However, these were very weak volume holiday trading days so it is tough to really draw any conclusions.

The Nasdaq just barely squeezed past resistance at 4,800 but it did it with a really decent +33 point gain. The Nasdaq is benefitting from the end of year window dressing and buying by retail investors. Techs and small caps are normally strong this time of year.

Funds were buying for window dressing and using the large caps to store money through the end of December. Amazon, Apple, Google, Tesla and all the major names were in the point gainer list.

The Nasdaq did use prior uptrend resistance as support for the last four days so I am feeling a little more confident about the gains continuing in the tech stocks. Support is 4,765.

The Russell 2000 finally broke over that strong resistance at 1,208 to breakout to a new high. This is a milestone and we need to see some follow through on Monday to prove this was not a one day wonder. As I said earlier this is a bullish period for small caps so I do expect the gains to continue. This has been a long time coming with a -20% correction in the middle.

I am looking for a choppy market next week as the remaining tax sellers try to capitalize on the bullish end of year trend. However, window dressing should win out with funds adding to their winners for end of year statements. I would remain long into January but then maintain a cautious stance into January option expiration.



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Random Thoughts

Contrary to my January caution above Bank of America analyst Savita Subramanian pointed out that January is the second strongest month of the year with a 64% average of gains since 1929. December averages 75% gains. After a strong year in which the S&P had double digit gains January averaged additional gains of +1.8% with positive returns 68% of the time.

As I pointed out earlier the S&P posted strong double digit gains in 2013 but January 2014 produced a sharp decline. Seasonal trends exist but there are exceptions to every trend.

Putin's Russia is floundering with an expected -5% drop in GDP in 2015. The government is launching a $100 billion bailout of state run companies. They have $600 billion in foreign debt with $100 billion coming due in 2015. Standard & Poor's said there was at least a 50% chance it would cut Russia's debt to junk status. With the ruble worth about half what it was a year ago those corporations can't make their debt payments so the government is going to bail them out in some way. They can't sell new debt because of the current market conditions. Russian export revenue is likely to decline from $174 billion in 2013 to $95 billion in 2014 if oil prices remain low.

Moody's said not only will Russia's economy decline -5.5% or more in 2015 but an additional -3% in 2016. "These developments will likely lead to a severe deterioration in the operating environment for Russian corporations, namely higher inflation, unemployment and debt-servicing costs as well as lower domestic demand, resulting in a deeper and more protracted decline in domestic economic activity than previously anticipated."

Russia has already blown through $96 billion in foreign exchange and gold reserves trying to prop up the ruble and they have $399 billion left.

On Friday Russia adopted an updated version of its military doctrine authorizing the use of strategic (nuclear) weapons against the U.S. or NATO, which it named as the two biggest threats to Russia's future. This is just one more jab by Putin at the West in order to remind them of their nuclear capability and warn them not to interfere in the Ukraine or anywhere else Putin decides to annex.

Putin capped prices on Vodka in an effort to retain his popularity. The price of vodka had been rising sharply because of the decline in the ruble. Vodka is heavily consumed in Russia where 25% of Russian males die before they reach their mid-fifties with the love of vodka partly to blame. By keeping the price of vodka low Putin is aiming to keep the population on his side and too drunk to care about the economy.

Of course not everything Putin does is going to win the hearts and minds of the population. He cancelled the Christmas holiday vacations for government workers as the government tries to figure out how to stop the slide in the ruble and the economic decline. He said the "government and its various structures cannot afford such extensive holidays, at least not this year." Christmas is celebrated on January 7th in Russia, the traditional date in the Eastern Orthodox Church.

Chinese banks are bleeding cash. Banks have seen an outflow of deposits for the quarter for the first time since 1999. Customers are moving their cash to trust funds or into the stock market. In the first week of December Chinese investors opened almost 600,000 stock-trading accounts. That was a 62% increase from the week before. Banks are offering everything from iPhones to fresh vegetables to induce customers to deposit money. If you deposit enough money (903,000 yuan) and are willing to leave it there for 5-years you can even get a Mercedes-Benz A180. Banks lost $153 billion in deposits for the quarter ended September 30th.

China announced on Friday that industrial profits declined -4.2% in November following a -2.1% decline in October. This suggests the Chinese government is likely to add more stimulus in the months ahead.

Japan approved a 3.5 trillion yen ($29 billion) fiscal stimulus program to boost the economy. In April a sale tax hike caused Japanese consumption to decline. The stimulus includes shopping vouchers, subsidized heating fuel and low interest loans for small businesses. About 1.7 trillion yen will be spent on public works and to improve disaster preparedness with 600 billion yen slated to revitalize regional economies. Japan's GDP declined -1.9% in Q3 after a -6.7% contraction in Q2 when the sales tax took effect. Another sales tax hike has been delayed indefinitely.

Saudi Arabia dispelled any rumors of cooperation with the U.S. to punish Russia, Iran and Syria by lowering oil prices. Putin had blamed a conspiracy between the U.S. and Saudi Arabia for the drop in oil prices. Saudi's oil minister said there was no truth to the conspiracy theory. He also said OPEC was not going to cut production, not now and not ever. "Saudi Arabia is not going to cut. This position we will hold forever, not just 2015." I think that means we should expect lower oil prices ahead.

The Saudi oil minister said this just as the Saudi authorities pledged to cut wages in the face of a $39 billion budget shortfall in 2015. "The kingdom will resort to borrowing and use of reserves to plug the country's deficit." Spending in 2014 is estimated to have been 1.1 trillion riyals, +20% over budget. The budget for 2015 is expected to be 860 billion riyals with revenue at 715 billion riyals. With youth unemployment more than 30% the government is going to have a problem cutting back on jobs and wages, which consume 50% of the Saudi budget. The Saudi government employs hundreds of thousands of people in "make work" jobs just so they can get a paycheck and support themselves. If the government cuts back on these empty positions there will be social unrest.

Jeffery Hirsch of the Stock Trader's Almanac pointed out that seasonal trends are pretty bullish for 2015. It is a pre-presidential election year and the best year in the 4-year cycle. Since 1939 the third year is up an average of 16.0% for the Dow and 16.3% for the S&P. Since 1971 the Nasdaq has averaged a 30.9% gain in year three. It is also the fifth year of the decade and there has only been one losing year in the last 13 decades. Years ending in "5" average 28.3% gain for the Dow since 1885 with the S&P averaging 25.3% since 1935 and the Nasdaq averaging 25.6% since 1975. The best three quarters in the four year cycle are Q4 of year two and Q1-Q2 of year three which we are heading into next Friday.

A North Korean spokesman said President Obama "always goes reckless in words and deeds like a monkey in a tropical forest." They are blaming Obama for the release of "The Interview" on Christmas Day. They said the movie was illegal, dishonest and reactionary. Don't they know the more they complain about it the more people will want to watch it? NK is now blaming the U.S. for their Internet outage last week and the repeat of that outage on Saturday. Of course Putin immediately came to North Korea's defense and congratulated them for standing up to the USA.

According to Lipper, 85% of all active managed stock mutual funds were trailing their market benchmarks at the end of November. In a typical year more than twice as many managers are outperforming and 66% trailing. This was the worst year for active managers in three decades.

Gasoline prices have fallen for a record 92 consecutive days according to AAA. The nationwide average fell to $2.32 on Friday and the lowest level in five-years. Stations in Colorado, Oklahoma, Kansas and Missouri have prices under $2.00 in some locations.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Individualism, private property, the law of accumulation of wealth and the law of competition…are the highest result of human experience, the soil in which, so far, has produced the best fruit."

Andrew Carnegie


New Plays

Potential Short Squeeze Candidate

by James Brown

Click here to email James Brown


Freescale Semiconductor - FSL - close: 25.85 change: +0.37

Stop Loss: 24.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
Headquartered in Austin, Texas, FSL has operations in more than 20 countries. According to the company, "Freescale Semiconductor (FSL) is a global leader in embedded processing solutions, providing industry-leading products that are advancing the automotive, consumer, industrial and networking markets. From microprocessors and microcontrollers to sensors, analog integrated circuits and connectivity – our technologies are the foundation for the innovations that make our world greener, safer, healthier and more connected. Some of our key applications and end-markets include automotive safety, hybrid and all-electric vehicles, next generation wireless infrastructure, smart energy management, portable medical devices, consumer appliances and smart mobile devices."

FSL has beaten Wall Street's earnings estimates every quarter this year. Back in October they beat estimates by seven cents. FSL's CEO Gregg Lowe said, "Each of our five product groups has grown at double digit rates so far in 2014, and we are well positioned to continue gaining market share." Unfortunately management also lowered their Q4 revenue guidance into the $1.075 billion to $1.13 billion range. That was below Wall Street's estimate of $1.18 billion. The good news is that investors don't seem to care. Shares of FSL have been soaring from their October lows.

A couple of weeks ago Bernstein Research upgraded FSL and raised their price target from $11 to $31 a share. Forbes also ran a bullish article on FSL. According to the Forbes author FSL is extremely well positioned to take advantage of the growing use of semiconductors in automobiles. FSL is the number two player in automotive chips with 22 percent of the market. Right now every car built in the world averages about 29 semiconductor chips and six of them are from FSL. That means FSL averages about $13.75 in sales per car, globally. The Forbes article also noted that automotive semiconductor sales are expected to grow +10.8 percent over the next three years. That's 50 percent more than communication chips, which is the next fastest growing segment.

The relative strength in FSL is impressive. The stock is up significantly from its October lows. Yet after the mid-December consolidation FSL does not look quite so overbought. The point & figure chart is bullish and forecasting a long-term target near $44.00.

Today FSL is hovering just below the $26.00 level. This was resistance back in April 2014. A breakout past $26.00 could spark some serious short covering. The most recent data listed short interest at almost 20% of the 107 million share float.

Tonight we are suggesting a trigger to open bullish positions at $26.15. We will plan on exiting prior to the Q4 earnings report due out around the very end of January or early February.

Trigger @ $26.15

- Suggested Positions -

Buy FSL stock @ (trigger)

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

Buy the MAR $25 CALL (FSL150320C25) current ask $2.90

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

3D Printing Stocks Bounce

by James Brown

Click here to email James Brown

Editor's Note:
Most of the 3D printing stocks saw big rallies on Friday after consistently underperforming the market in recent weeks. Something sparked some short covering and VJET hit our stop loss locking in a decent move.

We have decided to remove WUBA since the stock was not cooperating.

Current Portfolio:

BULLISH Play Updates

Barracuda Networks - CUDA - close: 37.80 change: -0.16

Stop Loss: 36.35
Target(s): To Be Determined
Current Option Gain/Loss: + 6.0%
Entry on November 18 at $35.65
Listed on November 12, 2014
Time Frame: Exit PRIOR to earnings on January 8th
Average Daily Volume = 247 thousand
New Positions: see below

12/27/14: Shares of CUDA spent Friday's session consolidating sideways near $38.00. We only have a few days left. CUDA is scheduled to report earnings on January 8th. We will plan on exiting before they announce. I am not suggesting new positions at this time.

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

12/22/14 new stop @ 36.35
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


Sealed Air Corp. - SEE - close: 43.47 change: +0.07

Stop Loss: 41.65
Target(s): To Be Determined
Current Option Gain/Loss: +5.9%
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

12/27/14: SEE eked out another gain on Friday. This stock is now up ten out of the last eleven weeks. These are also all-time highs for the stock. The $42.00 area should be short-term support. We will raise our stop loss to $41.65. I am not suggesting new positions at this time.

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

12/27/14 new stop @ 41.65
12/22/14 new stop @ 40.85
12/11/14 new stop @ 39.95
12/09/14 triggered @ 41.05
Option Format: symbol-year-month-day-call-strike


Sprouts Farmers Market - SFM - close: 32.73 change: +0.03

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

12/27/14: SFM was little changed on Friday. Shares are still consolidating just beneath resistance in the $33.00 area. I don't see any changes from last Tuesday night's new play description. Our suggested entry point is $33.05.

Earlier Comments: December 23, 2014:
SFM is in the services sector. They operate in the grocery store industry. According to the company, "Sprouts Farmers Market, Inc. is a healthy grocery store offering fresh, natural and organic foods at great prices. The Company offers a complete shopping experience that includes fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, baked goods, dairy products, frozen foods, natural body care and household items catering to consumers' growing interest in health and wellness. Headquartered in Phoenix, Arizona, the Company employs more than 17,000 team members and operates more than 190 stores in ten states."

Back in the fourth quarter of 2013 the health food and natural grocery stores saw their stocks peak and begin a multi-month decline. The market was worried about growing competition. The organic and "natural" trend had allowed companies like SFM and WFM to enjoy wider margins than traditional grocery stores. Now everyone seems to be trying to cash in on the organic trend.

Shares of SFM were almost cut in half with their drop from its 2013 peak to the 2013 low this past spring. Since then it appears that SFM has found a bottom. That might be thanks to steady earnings growth. SFM has beaten Wall Street's bottom line earnings estimates the last four quarters in a row. Back in May they guided higher but since then their guidance has only been in-line with consensus estimates.

The recent strength in the stock is encouraging. Shares are now challenging resistance in the $32-33 area. Should SFM breakout it could see some short covering. The most recent data listed short interest at 12.9% of the 124 million share float.

Tonight we are listing a trigger to launch bullish positions at $33.05.

Trigger @ $33.05

- Suggested Positions -

Buy SFM stock @ (trigger)

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

Buy the MAR $35 CALL (SFM150320C35)

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


Market Vectors Semiconductor ETF - SMH - close: 55.34 change: -0.05

Stop Loss: 52.85
Target(s): To Be Determined
Current Option Gain/Loss: - 0.7%
Entry on December 23 at $55.75
Listed on December 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.9 million
New Positions: see below

12/27/14: The SMH spiked higher at the open on Friday but gains faded. Shares closed virtually unchanged on the session. Lack of any real follow through on the mid December rally could be a warning signal. Traders may want to wait and watch for a new bounce from the simple 10-dma, currently near $54.75, before initiating new bullish positions.

Earlier Comments: December 22, 2014:
The SMH is the Market Vectors Semiconductor Exchange Traded Fund (ETF) that tries to mimic the performance of the Market Vectors Semiconductor 25 index.

The top ten holdings in the ETF are Intel (INTC), Taiwan Semiconductor (TSM), Texas Instruments (TXN), Micron Technology (MU), ASML Holding (ASML), Applied Materials (AMAT), Broadcom Corp. (BRCM), NXP Semiconductor (NXPI), ARM Holdings (ARMH), and Analog Devices, Inc. (ADI).

The semiconductor industry has been outperforming the market most of the year. The NASDAQ composite is up +14% in 2014. The NASDAQ 100 index is up +19%. Yet the SMH is soaring with a +29.8% gain this year. Now after a week and a half correction the up trend looks ready to resume.

Traders bought the dip today near short-term technical support at the 10-dma. The SMH outperformed again with a +1.65% gain on Monday versus the NASDAQ's +0.33% gain. Tonight we are suggesting a trigger to open bullish positions at $55.75.

- Suggested Positions -

Long SMH stock (ETF) @ $55.75

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

Long MAR $57 CALL (SMH150320C57) entry $1.60

12/23/14 triggered @ 55.75
Option Format: symbol-year-month-day-call-strike


Sierra Wireless Inc. - SWIR - close: 47.89 change: +0.60

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: +11.8%
Entry on December 22 at $42.85
Listed on December 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 861 thousand
New Positions: see below

12/27/14: Traders were still chasing SWIR higher on Friday. Shares outperformed the broader market again with a +1.26% gain. The stock is short-term overbought here and due for some profit taking. More conservative investors may want to take some money off the table now, especially if you have the call options, which have almost doubled in value. Tonight we'll move our stop loss up to $43.90.

I am not suggesting new positions at this time.

Earlier Comments: December 20, 2014:
The Internet of Things (IoT) is going to be huge. Depending on who is making the forecast the size of just how huge it can become is staggering. Last year (2013) there were an estimated 300 million embedded connected devices in the IoT. IDC is estimating that could reach 15 billion connected devices by 2015. Cisco Systems (CSCO) is forecasting 25 billion devices connected to the Internet of Things by 2015 and 50 billion by 2020. Intel is forecasting up to 200 billion connected devices by 2020.

The backbone of the IoT is M2M communication. That's machine-to-machine communication. SWIR is the market leader with 34% of the market for cellular M2M embedded module market. According to the company marketing material, " Sierra Wireless is the global leader in machine-to-machine (M2M) devices and cloud services, delivering intelligent wireless solutions that simplify the connected world. We offer the industry's most comprehensive portfolio of 2G, 3G and 4G embedded modules and gateways, seamlessly integrated with our secure M2M cloud services. Customers worldwide, including OEMs, enterprises, and mobile network operators, trust our innovative solutions to get their connected products and services to market faster. Sierra Wireless has more than 900 employees globally and has R&D centers in North America, Europe and Asia." They make products for a wide array of industries including: automotive, transportation, industrial and infrastructure, security, field service, healthcare, consumer, energy, sales and payments, and networking.

Earnings have been improving. Back in July they reported their Q2 results that beat Wall Street's estimates on both the top and bottom line and management guided higher. SWIR announced their Q3 results on November 5th. Even after guiding higher the prior quarter they still beat estimates. Analysts were expecting a profit of $0.13 per share on revenues of $138.7 million. SWIR delivered $0.24 with revenues up +27.6% from a year ago to $143.3 million. That's a record quarter for revenue and up +6% from the prior quarter. Organic revenue growth was up +18.8%. Looking at the details of the quarter SWIR said their non-GAAP earnings were up +249% from a year ago.

SWIR raised their guidance again for the fourth quarter of 2014. They now expect EPS in the $0.25-0.28 range with revenues in the $145-148 million area. That's about +23% growth from a year ago. Analysts were only forecasting $0.17 per share on revenues of $142 million.

With this big surge in earnings and revenue growth it's not a surprise to see the stock outperforming. SWIR is up +74.5% in 2014 versus the NASDAQ's +14% gain. The point & figure chart for SWIR is forecasting a target near $53.

With a market cap around $1 billion I wouldn't be surprised if someone acquires SWIR, but that's pure speculation on my part. They have about $200 million in cash and no debt.

This past week saw shares of SWIR rally past resistance near $42.00 and close at multi-year highs. Tonight we are suggesting a trigger to open bullish positions at $42.85.

- Suggested Positions -

Long SWIR stock @ $42.85

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

Long MAR $45 CALL (SWIR150320C45) entry $3.60

12/27/14 new stop @ 43.90
12/22/14 new stop @ 41.35
12/22/14 triggered on gap higher at $42.85, trigger was $42.85
Option Format: symbol-year-month-day-call-strike


BEARISH Play Updates

Zulily, Inc. - ZU - close: 23.28 change: -0.53

Stop Loss: 25.15
Target(s): To Be Determined
Current Option Gain/Loss: +10.1%
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

12/27/14: The relative weakness in ZU returned on Friday. There was no follow through on Thursday's bounce. Instead ZU reversed near its 10-dma (not shown below) and shares underperformed with a -2.2% decline.

Tonight we are adjusting our stop loss down to $25.15. More conservative traders may want to move their stop even lower.

I am not suggesting new positions at this time.

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

12/27/14 new stop @ 25.15
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



Voxeljet AG - VJET - close: 9.21 change: +1.92

Stop Loss: 8.15
Target(s): To Be Determined
Current Gain/Loss: +17.7%
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

12/27/14: Wow! Many of the 3D printing stocks exploded higher on Friday. Shares of VJET soared +26%. This looks like a lot of short covering that was probably exacerbated by the lack of volume due to the Christmas holiday.

Our stop loss was hit at $8.15.

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

Short VJET stock @ $9.90 exit $8.15 (+17.7%)

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

2015 Jan $10 PUT (VJET150117P10) entry $1.05 exit $1.65 (+57.1%)

12/26/14 stopped out
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


58.com Inc. - WUBA - close: 42.78 change: +1.24

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: see below

12/27/14: WUBA continued to bounce on Friday. We are giving up on this stock as a bearish candidate. Our trade has not opened yet so we're removing WUBA from the newsletter.

Trade did not open.

12/27/14 removed from the newsletter, suggested entry was $38.85