Option Investor

Daily Newsletter, Monday, 1/5/2015

Table of Contents

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

Market Wrap

World Slides On Oil

by Thomas Hughes

Click here to email Thomas Hughes
Supply and demand issues drive oil price to a 5 ½ year low and the equity markets fell with it.


There is no other way to say it but that oil prices crashed today. Price slid to a new 5 year low, nearly 5% below the previous close, and brought the world down with it. Asian markets did not feel the full force of the drop and were able to hold near break even in most cases but European indices were not so lucky. Early losses there were multiplied later in the trading day as oil prices hit new low after new low.

Futures trading here at home was negative from the earliest, indicating an open just below last week's close. The trade declined a little as the morning wore on and was not helped by positive auto sales data released by the industry. All showed an increase in December sales, most beat expectations and some did it smartly.

Market Statistics

Trading began as expected once the opening bell sounded, a little to the downside. Once open the market quickly moved lower, the first hour of trading saw them march steadily lower by an average of 1% but the carnage did not stop there. Around 10AM the selling began to diminish although the indices continued to drift lower into the lunch hour. By 12:15 the market was down an average 1.5%, led by a 2% drop in the Dow Transports.

Selling pressure persisted all day, lows were hit just after lunch, around 1:30PM, and were then tested throughout the afternoon. The NASDAQ Composite suffered the least losses of the morning and maintained that strength into the close but that is not saying much. There was a little late day value-buying just before the closing bell that helped to lift the indices. They closed off of their lowest levels but only just.

Economic Calendar

The Economy

There was not much economic data released today although there is quite a bit due out this week and next week. Auto Sales was the only official data of the day and released in a trickle as one company after another gave up the data. GM and Ford gave us a hint of what to expect before the bell with their individual reports. GM sales rose by 19.3% in December, roughly 50% above expectations. Ford sales rose only 1.2%, less than half of the expectations but a December record dating back to 2005. Fiat-Chrysler also posted double digit gains, besting GM with a 20% increase. This is good news for GM in particular and the industry in general as it continues the uptrend in car sales we have seen since the end of the financial crisis.

Moody's Survey of Business Confidence fell this week. The index fell by 2.4 points from an all time high set last week. Mr. Zandi takes note of this in his summary and mentions low participation due to the holiday as a factor in the reading. He goes on to say that US businesses remain upbeat and in line with an expanding economy. Hiring, sales and business spending remain strong along with expectations for next year. The bit about "...credit availability improving notably..." is still there and a positive sign for prospects in the first part of 2015.

Later this week economic action heats up. On the labor front look for ADP on Wednesday with Challenger and jobless claims Thursday followed by NFP and unemployment data on Friday. Also on tap this week are ISM, Factory Orders, Consumer Credit, Wholesale Inventories and the FOMC Minutes. The minutes are scheduled for Wednesday and are the lead-in to a month of big central bank action. This week is the FOMC minutes from the last meeting, next week they release the Beige Book outlook on the economy, the following week are policy meetings from both the ECB and BOJ, and then the next week is the January meeting of the FOMC.

The Oil Index

Oil hit new lows today. High supply/production capability and lackluster demand have sent WTI and Brent to 5 ½ year lows, much lower than I thought they could or would go. Today's oil trade started with a small drop from the previous close, and then a steady move that took it lower and lower throughout the day. WTI fell near to 5% while Brent fell closer to 6%. Until there is some sign that production levels are falling and/or that supply is coming back in line with demand or that demand is rising the bear market could continue.

The Oil Index fell today, dropping over 4.5% in today's action to move back below resistance at 1335. Today's price action confirms the down trend in the index and is supported by a bearish crossover in the stochastic. Momentum has yet to confirm but is rapidly in decline. Current target is now about 75 below the current level, near 1,212 and the previous low. This level is the full retracement of the current down trend in the oil sector and is a likely target for bottoming or continuation signals.

The Gold Miners

Gold prices got a lift today, although dollar strength kept those gains to levels sub $1200 until late in the afternoon. Stock selling led to some flight into gold which had already been trading higher on physical buying. There is some evidence that physical buying is on the rise in countries like China and India, among others, which is adding support to prices on top of interest rate speculation. While it looks more and more like the bottom for gold is in, there is still a lot of data due out this week which could impact outlook as well as multiple central bank meetings on the horizon. Look for gold to meet resistance near $1215-$1220 should the move above $1200 hold.

The Gold Miners ETF also traded to the upside. The ETF moved 2.6% higher in today's session and continues to exhibit bullish signs. The indicators are both moving higher in the near term and confirm support longer term between $17-$17.50. Current targets are to the upside, just above $20 and the top of two month range. The sector appears to be bottoming as well, but is by no means confirmed without at least a move above $20 . Economic data, central bank action and interest rate outlook could continue to cause volatility in the near term.

In The News, Story Stocks and Earnings

Earnings season is upon us once again. Alcoa is scheduled to report next Monday kicking off another round of reporting. According to FactSet expectations for Q4 earnings remain low, led by negative revisions in the energy sector. The current expected average growth rate for the S&P 500 remains at 2.6%, down from 8.4% at the beginning of the quarter. Telecoms are expected to lead, and energy is expected to lag which was evidenced by some negative ratings issued today. So far, 87 or 17.4% of S&P 500 companies have issued negative guidance.

Alcoa lost over 5% today in a move that took the stock down to an area of potential support. Today's move created a long black candle that halted near the $15 support line and just above additional support along the short term moving average. Support is along the $15 line, and below that along the rising trend line anchored to the last two lows. This stock could continue to test support into next Monday and beyond, depending on how the market likes the earning report.

The banks will be in focus next week as well. The big banks begin to report next Wednesday with JP Morgan and Wells Fargo with Bank Of America, CitiGroup and American Express the next day. Not to mention the dozens of regional and other financials that will be reporting as well. As a group the financials have been improving over the past several quarters are expected to produce average earnings growth of 5% this quarter. Despite expectation for growth above the estimated average the financial sector was one of today's hardest hit. Supply and demand issues drive oil price to a 5 ½ year low and the equity markets fell with it.

The Banking Index fell nearly 3%, creating a long black candle and breaking below potential support at $72.50 with next target near $71.00. The index has been ranging over the last 12 months and is now pulling back after testing the top of that range. The indicators are in line with range bound trading and potential support between $70 and $71, with some bias to the upside. I say this because the index moved up to the high end of the range after the October correction and made a new 12 month high a few days ago. Earnings will be the tell and could surprise us, the average earnings for the S&P tend to run higher than the preseason estimate and is now so low as to be an easy beat. Plus, positive economic tail winds could boost earnings in this sector.

Micron Technologies is expected to report tomorrow. The chip maker has been on a roll since bouncing back from losing its CEO a few years back. One area it is making big headway with is its NAND chips for smart phones and other mobile devices. The company has reported growth in the past, in NAND and other areas, and could do so again if expectations are met. The stock has been trending up over the past 12 months and is trading just below a 12 year high now. Today shares lost 2.8% in a move that broke below the short term moving average and is approaching a potential support line near $32.50.

The Semi-Conductor Index has also been trending up this year, and also traded to the down side today. The index lost 1.92% today, not the biggest decline but not the least either. The index broke through the short term 30 day moving average with bearish indicators. Although trending up, price action over the past 30-40 trading days could just as easily be a double top as some other more bullish indication. Current support target is just below the current level near 660.

The Indices

The bulls slipped in some oil today and didn't get back up. Today's +5% drop in oil seemed to be the only thing in focus, that and its impact on earnings outlook. The declines was led by the Dow Jones Transportation Average which lost 2.66%. Today's action created the longest black since last January when it also tested support. The index is now below the short term moving average and moving lower, with the bottom of the two month range near 8,750, as a first target. The indicators are mildly bearish at this time and in line with a range bound market. Support at 8,850 has been tested once before and proved strong so could do so again.

The Dow Jones Industrial Average was runner up in terms of loss today. The blue chips fell 1.86%, dropping below the short term 30 day moving average and coming to rest a hair above 17,500. Today's action extends the retreat from the recent all-time high set just two weeks ago, before the end of the year. The indicators are bearish in the near term and pointing lower, but weakly, with next target for potential support about 400 points lower. Looking back over the past 12 months the indicators are still consistent with the long term bull market and support along these levels. It looks like time to wait for support to step back in, which could be this week as data is released.

The S&P 500 is next in line with a loss of 1.83%. The broad market lost over 37 points today and created the longest black candle since early October of last year. Today's action came to rest firmly on the 2020 support line that dates back to the all time high set in September. This line was just barely brushed against, before buyers stepped in to bid prices up but only by a few points. The indicators are bearish in the near term, pointing to a further test of support, but still consistent with rising support in the long term. If 2020 doesn't hold the long term trend line is just below around the 2,000 level, a level which has produced 7 bounces and 500 points of movement over the last 18 months.

The NASDAQ composiste brings up the rear today with a loss of only 1.57%. The tech heavy index fell nearly 75 points today, dropping beneath the short term moving average but not quite enough to meet support targets. The index is about 50 points above potentials support along the 4,600 line. If this line does not hold the long term trend line is just below that and is the next best target. The indicators are mildly bearish and inline with a test of support within a greater uptrend.

The indices fell today but from what? Low oil prices? Low oil is hurting the oil sector, and that pain is being felt by the general market, but once the sting is over what will be left? Low energy prices for everybody else; an environment that I see as helpful to the overall economic recovery. The long term economic trends are up and the expectations for next year are good so I don't see a market reversal right now. Present conditions may be a little weak but that is to be expected at the end of the holiday season.

There is a lot of data due out this week, and next week, compounded by FOMC minutes and the Beige Book. Each piece could be the catalyst to send the market moving but so long as the overall picture remains unchanged, the picture of slow steady growth with underlying momentum, the movement should be in line with long term trends. Tomorrow there will be a few earnings reports, a little bit of data and most likely some big headlines around oil price but the more important catalysts I think will be the FOMC minutes and then the NFP/Unemployment. I remain bullish and am patiently awaiting to buy on this dip.

Until then, remember the trend!

Thomas Hughes

New Plays

Bearish Double Top

by James Brown

Click here to email James Brown


Altria Group - MO - close: 48.69 change: -0.28

Stop Loss: 50.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 05, 2014
Time Frame: Exit PRIOR to Q4 earnings (see below)
Average Daily Volume = 6.6 million
New Positions: Yes, see below

Company Description

Why We Like It:
MO is part of the consumer goods sector. They are the biggest cigarette maker in America with 50.9% of the U.S. market. Fortunately for U.S. consumers the use of cigarette smoking is on the decline. MO's revenues last year declined year over year. That didn't stop shares of MO from outperforming the major market indices with a +28% rally in 2014.

The stock sports a 4.2% dividend yield but I doubt that will save it from the looming correction ahead. A big dividend did not help shares of rival cigarette maker PM last year. MO has produced a bearish double top with the twin peaks in December. Now it's starting to breakdown under support in the $49 area.

Tonight we are suggesting a trigger to open bearish positions at $48.25. The nearest support is probably the $45.00 area. We will plan on exiting before MO reports Q4 earnings but there is no confirmed date yet. Right now the company is estimated to report in very late January or early February.

Trigger @ $48.25

- Suggested Positions -

Short MO stock @ (trigger)

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

Buy the FEB $50 PUT (MO150220P50) current ask $2.04

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

Daily Chart:

In Play Updates and Reviews

Crude Oil Leads Market Lower

by James Brown

Click here to email James Brown

Editor's Note:
Crude oil continues to be a big story on Wall Street. The price of oil fell below $50 a barrel for the first time in more than five years today. This helped lead a sell-off in energy stocks and the rest of the market followed lower.

We removed FSL from the newsletter. The trade did not open.

Current Portfolio:

BULLISH Play Updates

Covenant Transportation Group - CVTI - close: 28.74 change: +0.94

Stop Loss: 25.45
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
Entry on January 05 at $28.05
Listed on January 03, 2014
Time Frame: Exit prior to earnings in late January or early February
Average Daily Volume = 203 thousand
New Positions: see below

01/05/15: Our new bullish play on CVTI is off to a good start. Shares outperformed the broader market today with a +3.3% rally. The stock tagged a new record high before paring its gain. Our suggested entry point to buy CVTI was hit at $28.05.

Earlier Comments: January 3, 2015:
Last year the S&P 500 added +11.3%. The Dow Jones Transportation Average doubled that with a gain of +23%. Yet CVTI's performance is light years ahead of the major indices with a +230% gain in 2014.

According to the company, "Covenant Transportation Group, Inc. is the holding company for several transportation providers that offer premium transportation services for customers throughout the United States. The consolidated group includes operations from Covenant Transport and Covenant Transport Solutions of Chattanooga, Tennessee; Southern Refrigerated Transport of Texarkana, Arkansas; and Star Transportation of Nashville, Tennessee. In addition, Transport Enterprise Leasing, of Chattanooga, Tennessee is an integral affiliated company providing revenue equipment sales and leasing services to the trucking industry."

Why are shares of CVTI surging? The simple answer seems to be business is booming. The company has raised its guidance twice in the last four months. The most recent time was December 11th. Now you might think the stronger profit picture is due to falling gasoline prices. CVTI confessed they hedge some of their fuel costs so the drop in gas prices actually has little impact on its current outlook. They're raising guidance because demand is so strong. Anecdotally this is a pretty optimistic sign on the strength of the U.S. economy.

Technically shares of CVTI have been consistently rising with a bullish trend of higher lows and higher highs. Shares are just starting to bounce from support again. This is our chance to jump on board. Friday's high was $27.80. I'm suggesting a trigger to open bullish positions at $28.05. Earnings are expected in late January or early February. We will most likely exit prior to their announcement. I will note that the point & figure chart is bullish and forecasting at $34.50 target.

- Suggested Positions -

Long CVTI stock @ $28.05

01/05/15 triggered @ 28.05

GNC Holdings - GNC - close: 45.73 change: -0.69

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: -3.0%
Entry on December 31 at $47.15
Listed on December 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

01/05/15: The two-day drop in GNC looks a little ominous but shares should find support in the $45.00-45.50 zone. The low today was $45.47. Our stop loss is at $44.90. I'm not suggesting new positions at this time.

Earlier Comments: December 30, 2014:
GNC is part of the services sector. According to the company, "GNC Holdings, Inc., headquartered in Pittsburgh, PA, is a leading global specialty retailer of health and wellness products - including vitamins, minerals, and herbal supplement products, sports nutrition products and diet products."

Currently GNC has over 8,800 locations with more than 6,500 of them inside the United States. Overall they have sales in over 50 countries. That is part of the upside. GNC has a lot of opportunity to grow overseas.

It seems like all the bad news is priced in for GNC. The stock is down -20% in 2014. That's after we factor in the $16 bounce from its July-August lows near $30.84 (that's a +52% bounce from its 2014 low). The company has been struggling with too much inventory and slower sales. In February and July this year they missed Wall Street's earnings estimates and GNC management lowered their 2014 guidance. After analysts finally lowered the bar enough GNC beat estimates by a penny when they last reported earnings in October. Analysts at Goldman Sachs believe that GNC's new CEO Mike Archbold will be successful in turning the company around and growing GNC's gross margins.

Someone is buying the bullish case for GNC as shares have developed a bullish trend of higher lows and higher highs. Technically the 50-dma crossed up through its 200-dma a few weeks ago, which is a bullish longer-term signal. GNC has managed to chew through a ton of overhead resistance and the point & figure chart is bullish with a $62 target.

GNC could benefit from a seasonal bias. 2015 begins this week. Millions of people will be making their New Year's resolutions. How many people are vowing to lose weight and be more active this year? That could give GNC a boost in the first quarter.

GNC has been consolidating just below short-term resistance at $47.00 the last few days. Tonight we're suggesting a trigger to launch bullish positions at $47.15. Plan on exiting prior to GNC's next earnings report in mid February.

NOTE: I am suggesting small positions to limit risk.

*small positions* - Suggested Positions -

Long GNC stock @ $47.15

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

Long FEB $50 CALL (GNC150220C50) entry $1.30

12/31/14 triggered @ 47.15
Option Format: symbol-year-month-day-call-strike

Sealed Air Corp. - SEE - close: 42.09 change: -0.61

Stop Loss: 41.65
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
Entry on December 09 at $41.05
Listed on December 08, 2014
Time Frame: Exit PRIOR to earnings on Feb. 10th
Average Daily Volume = 2.1 million
New Positions: see below

01/05/15: The stock market's widespread decline helped push SEE to its fourth decline in the last five sessions. Shares almost hit our stop loss with a dip to $41.68 intraday. I am not suggesting new positions. If the market sees any follow through lower tomorrow we will most likely be stopped out.

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: 33.21 change: -0.81

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: + 0.5%
Entry on December 29 at $33.05
Listed on December 23, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

01/05/15: SFM had been showing relative strength the last few days and ignoring the market's decline. Shares definitely participated in the market sell-off today. SFM briefly traded below short-term technical support at its rising 10-dma before paring its losses. More conservative investors might want to raise their stop closer to today's low ($32.71).

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.

- Suggested Positions -

Long SFM stock @ $33.05

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

Long MAR $35 CALL (SFM150320C35) entry $1.10

12/29/14 triggered @ 33.05
Option Format: symbol-year-month-day-call-strike

Sierra Wireless Inc. - SWIR - close: 46.98 change: -0.97

Stop Loss: 45.45
Target(s): To Be Determined
Current Option Gain/Loss: + 9.6%
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

01/05/15: SWIR dipped to short-term technical support at its 10-dma again. We raised our stop to $45.45 in the weekend newsletter. More conservative traders may want to move their stop closer to Friday's low at $45.81 instead. 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

01/03/15 new stop @ 45.45
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

SodaStream Intl. - SODA - close: 19.30 change: -0.42

Stop Loss: 21.15
Target(s): To Be Determined
Current Option Gain/Loss: + 0.6%
Entry on January 05 at $19.42
Listed on January 03, 2014
Time Frame: Exit PRIOR to earnings in late February
Average Daily Volume = 946 thousand
New Positions: see below

01/05/15: Our plan was to launch bearish positions at the opening bell. Shares gapped down about 30 cents and then fell to a -2.1% decline on the day. I would still consider new positions here or nimble traders could try launching positions on a bounce in the $19.65-20.00 zone.

Earlier Comments: January 3, 2015:
The excitement over shares of SODA has definitely fizzled out over the last couple of years. The stock peaked just below $80 a share back in 2011. Then in early 2013 the stock was soaring and looked like it might reach $80 again. The rally lost its buzz and SODA peaked near $78 in mid 2013. Since then shares have reversed and stuck in a bear market decline.

Who is SODA? According to the company's marketing material "SodaStream is the world's leading manufacturer and distributor of home beverage carbonation systems which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. Soda makers offer a highly differentiated and innovative solution to consumers of bottled and canned carbonated soft drinks and sparkling water. Our products are environmentally friendly, cost effective, promote health and wellness, and are customizable and fun to use. In addition, our products offer convenience by eliminating the need to carry bottles home from the supermarket, to store bottles at home or to regularly dispose of empty bottles. Our products are available at more than 65,000 retail stores in 45 countries around the world, including 17,000 retail stores in the United States."

2014 was tough for SODA investors as the stock collapsed from about $50 to $20. The company guided lower when they reported earnings in July 2014. Then SODA shares gapped down sharply on October 7th when they issued another earnings warning. That big spike on October 24th was a story from Bloomberg that SODA was testing some Pepsi products. The rally was probably short covering as investors worried a partnership with Pepsi could turn things around. The rally quickly faded. Pepsi has already partnered with in-home beverage company Bevyz in Europe so any deal with SODA might be limited.

SODA's most recent earnings report was October 29th. Their EPS came in at $0.45, which beat estimates of $0.35. Yet revenues fell -12.9% in the third quarter to $125.9 million, which was significant below Wall Street's estimate. Gross margins are also sinking and fell 380 basis points to 50.5% in the third quarter. Management lowered their guidance again and announced they would stop providing annual guidance in 2015. That's never a good sign.

Like rats jumping off a sinking ship there have been stories that hedge fund managers are bailing out of their SODA positions. Plenty of investors are already bearish on SODA and short interest at about 17% of the small 20.8 million share float.

Friday's drop was significant because it's a bearish breakdown under major psychological support at $20.00. Tonight we are suggesting bearish positions immediately with a stop loss at $21.05. More conservative traders may want to wait for a new relative low under $19.33 before initiating positions.

NOTE: SODA has been rumored to be a takeover target for a long time. That hasn't stopped the stock from crashing over the last 18 months. You may want to limit your position or use the options to limit your risk just in case some M&A news happens to appear out of nowhere and send SODA higher.

- Suggested Positions -

Short SODA stock @ $19.42

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

Long FEB $20 PUT (SODA150220P20) entry $2.05

01/05/15 trade begins. SODA gaps down 30 cents to $19.42
Option Format: symbol-year-month-day-call-strike

Zulily, Inc. - ZU - close: 21.49 change: -2.12

Stop Loss: 24.10
Target(s): To Be Determined
Current Option Gain/Loss: +17.0%
Entry on December 08 at $25.90
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: see below

01/05/15: Monday delivered another good day for ZU bears. The stock plunged to a -8.9% decline and new all-time lows.

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

01/03/15 new stop @ 24.10
12/29/14 new stop @ 24.45
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


Freescale Semiconductor - FSL - close: 24.63 change: -0.87

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: see below

01/05/15: We have run out of patience waiting for FSL to breakout past resistance at $26.00. The stock underperformed its peers in the semiconductor industry and the broader market with a -3.4% decline today. Our trade has not opened yet and tonight we are removing FSL as a candidate.

Trade did not open.

01/05/15 removed from the newsletter, suggested entry was $26.15