Option Investor

Daily Newsletter, Thursday, 1/29/2015

Table of Contents

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

Market Wrap

The Day After

by Thomas Hughes

Click here to email Thomas Hughes
The indices "patiently" bounced back from yesterday's FOMC inspired swoon.


The market bounced back from yesterday's FOMC inspired swoon as earnings, corporate news and economic outlook helped to lift stocks. On the earnings front a number of big names including Boeing helped to lift stocks before the bell. This has also lifted the number of companies beating the mean estimate to near 80% and growing. In corporate news, a surprise changing of the guard at McDonald's has investors cheering. Don Thompson, who has been CEO for only a few years, is stepping down, the news sending shares of the stock soaring. In terms of outlook a several factors contributed included earnings, the FOMC and economic data.

Market Statistics

Global markets did not fare as well as we today. Asian indices fell the most, losing more than 1% on average in a move echoing yesterday's drop. The bearish vibe held over into the European session where markets were mostly lower in early trading. Those market also opened lower, but were able to recover most if not all of the losses before the close.

Our markets were mixed in the early pre-market session. Futures were up, but compared to fair value indicated an opening near to flat. The Dow was the notable exception as it was positively affected by trading in both McDonald's and Boeing. Index futures lifted mildly at 8:30AM, just after a surprise drop in jobless claims was announced, and managed to hold into the open. After the bell the indices held positive territory for a few minutes, and then quickly fell until the selling began to let up just after 11AM. From that point forward the market perked up, the bulls came out and pushed the indices back to break even and into the green. Once they had their heads back above water the bulls were able to drive the indices up by nearly 1% on average.

Economic Calendar

The Economy

Only two economic releases today, jobless claims and pending home sales. Jobless claims was much better than expected and is the first sign that seasonal employment shifts are working their way out of the system. Initial claims was reported as dropping 43,000 to 265,000. This is much better than the expectation for them to remain flat. Claims are now at their lowest levels, on an adjusted revised and updated basis, in nearly 15 years. Last week's figure was revised up by 1,000, the 4 week moving average declined by over 6,000 and is back below 300K. I am now going to suggest that jobs creation in January may be strong-ish when released next week and that unemployment may have fallen again. On a state by state basis no state or territory reported an increase in claims more than 1,000. Several states, includin PA, NY and GA, reported drops in claims greater than 10,000.

Continuing claims and total claims both fell as well, adding some weight to the idea seasonally expected lay-off's and job losses are not a lingering problem. Continuing claims fell by 71,000 to 2.385 million from an upward revision of 13,000. This is not a new low but is back below the 2.4 million level and in line with the ongoing improvement in labor we have been monitoring.

Total claims fell by 87,774 to 2.961 million. This is still elevated but off of the high set last week. If initial and continuing claims remain low I expect to see this one continue to fall and return to recent lows. On a comparable basis, the total number of Americans is 17% lower than last year at this time.

Pending home sales was released at 10AM. Pending sales is a measure of contract signings and is a gauge of traffic as well as future sales. The index declined by 3.7%, to 100.7, versus an expected increase near a half percent. While bad on the headline, details within the report are a little better. The December number, while in decline, is still above the comparable period in the previous year and is the fourth month to be above last years rate. On a year over year basis pending sales are up more than 6% in 2014. The December drop was attributed to a rise in prices/low inventory and could lead to an increase in home building.

On tap tomorrow is the first estimate for 4th quarter GDP as well as Michigan Sentiment, Chicago PMI and the Employment Cost Index. GDP is expected to be in the range of 3.2%, this is down from 3.5% last week on weak durable goods orders reported earlier this week. While durables may be a drag on GDP, I am not betting on a weak number as other data in the quarter was positive. Chicago PMI and Michigan Sentiment are both expected to show a mild decline but remain firmly expansionary.

The Oil Index

Oil trading was …. volatile, again. The price of WTI fell more than 2% after yesterday's stockpile report showed that supplies are not diminishing. Then, mid day, prices found bottom and were marched back to break even and higher. WTI closed with a small gain today, .25%, with Brent achieving a gain of more than 1%. This is a possible sign of bottoming in oil prices but I don't think so, not yet. Prices have been in steady decline on high capacity, high storage and low demand growth with no sign of a change to any of these.

The Oil Index traded down on the news but was able to recover the loss. The index moved lower after an initial opening just above yesterday's close. Today's action tested support along the back side of the broken down-trend line near it's intersection along the rising up-trend line. This could become a significant juncture for the index and give indication of where it may trade over the next few months. Support is currently near 1,250. A bounce from here could take the index back to 1,350 or 1,400, a break could lead to further selling and a continuation of the short term down trend.

The Gold Index

Gold prices had their worst day in over a year. The FOMC statements, while supporting economic trends, were also a little dovish in terms of interest rate hikes and spooked gold bulls. The use of the word “patient” has the market speculating on the possibility of the hike coming in September, rather than in June was widely expected. In any event, gold prices fell by 2.5% in today's session as traders re-think their positions. This new twist pushes the first rate hike out a little bit it does not take it away so I am looking at today's decline as more of a lead-in to new bullish positions rather than a sign the bear market is coming back. Tomorrow's GDP could be change that but that is for tomorrows Wrap.

The gold miners ETF GDX fell in today's session as well. The ETF 2.25% right at the open and then traded around that point all day. Today's range was tight and created a small bodied candle just above support targets near $20.50. The indicators are in decline, consistent with a market in retreat, but also consistent with a retest of the recent highs over the short term. It looks like the sector is pulling back on the drop in gold prices and is heading for a test of support. Support is near $20.50, the top of the Nov/Dec bottoming pattern and the short term 30 day moving average with an initial upside target near $23 should support hold. A drop below this level could take the ETF down to $17.50.

In The News, Story Stocks and Earnings

Earnings are flooding the market. This week and today being one of the busiest of the season. Ford reported before the bell and provided mixed results for investors to ponder. Revenues were a little light but EPS was in line and 2015 guidance is positive.The auto maker reported that sales were down from the previous quarter but remain strong. Shares of the stock gained nearly 2.75% today after testing support at $14.50.

After hours action was full today. Several top names reported, including Google, Amazon and Visa. Google reported a big miss on the top and bottom lines. EPS came in at $6.88, versus $7.11 expected by analysts. The EPS miss was due in part to spending over the quarter and sent the stock tanking in the after hours market. Shares of Google fell more than 2% on the news.

Amazon reported that revenue was light but earnings were much better than expected. The compnay reported EPS of $0.45, versus the expected $0.17, and proves that Amazon can make some money, a little. Shares of the stock surged more than 6.5% in the after hours session despite weak first quarter guidance.

Visa was another company to shine in the after hours session. The credit card and payment processor reported a top and bottom line beat and 4-for-1 stock split that sent shares surging 4%. The results are an 11% improvement over the comparable period and a sign of strength in the consumer.

The Indices

The market moved higher today, after an early head fake that made it appear as if a more pronounced sell-off may ensue. Heavy selling did not ensue and the bulls were able to regain the upper hand, at least for today. The Dow Jones Industrial Average was today's leader. The blue chip index gained 1.31% in a move that tested long term support in the early hours and approached potential resistance in the later ones. The index created a white bodied candle that moved up from support near 17,150 and is now approaching the potential resistance of the short term moving average. The index bounced from the bottom of a three month range with indicators consistent with support at that level. In the near term it looks like the index could continue to test support, especially if the GDP is not to the markets liking, but that the long term trend is still intact.

The NASDAQ Composite is runner up in today's action. The tech heavy index gained 0.98%, driven largely by Apple which gained 3.25%. This index also tested support, consistent with the September all time high and the long term up trend line. Today's action created a long white bodied candle with a short lower wick and appears to be bouncing from the trend line. Today's action also brought the index up to just below the short term moving average which may provide resistance. A break above it will lead to a target near the current long term high, about 120 points above today's closing price.The indicators are weak in the near term and suggest that further testing of support may come but over the short to long term are consistent with support. This yet another bounce along the trend line and set up for a potential trend following market swing.

The S&P 500 is next up in today's lineup with a gain of 0.95%. The broad market created a white bodied candle moving up from the long term trend line with a long lower shadow. The lower shadow helps to highlight support along the trend line which is supported by the indicators and support lines drawn to the August/September highs. The index appears to be bouncing from the trend line, as it has done in the past, but is faced with technical resistance at the short term moving average and a potential fundamental resistance in the form of tomorrow's GDP announcement. Support is in the range between 1990 and 2010, a zone consistent with the highs of July, August and September and three previous tests of support in December and January. A fall below this level could lead to a more significant correction a possible market reversal.

The Dow Jones Transportation Average brings up the rear today. The transports gained only 0.6%, less then half of its blue chip counterpart. Today's action created a white bodied candle with a lower shadow and indication of ongoing support at or near 8,750. The index has been trending sideways over the past three months and now is trading near the bottom of that range. The indicators are consistent with support along this level but also suggest that it could continue to be tested if no catalyst spurs the market higher.

I thought the FOMC meeting would be a bigger, or different, catalyst for the market but there is still the GDP release to watch for. The market is continuing to test support along the long term trend/suppot and may continue to do so until a firmer view of the future emerges. For now, the economic trends are still up despite a slowing of activity in December. The positive is that the early January data is pointing to a pick up of activity with the start of the year and December was still a growth month, just a slightly slower one. The thing to remember is that all of the forward looking surveys of business and the consumer, that I have seen anyway, are at high levels and pointing to a continuation of growth this year. The GDP figures could go a long way toward helping the market realize that, or not. If not there is always next week to look to and the next round of monthly ADP, NFP and Unemployment data.

There will also be a lot of activity centered around earnings. Earnings reports are still mixed, if leaning toward the positive side, and there were quite a few big names making big moves in the after hours market. There will also be about 45 reports tomorrow including MasterCard and Chevron.

Until then, remember the trend!

Thomas Hughes

New Plays

Multi-Year Lows

by James Brown

Click here to email James Brown


Range Resources Corp. - RRC - close: 45.49 change: -1.49

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 28, 2015
Time Frame: Exit PRIOR to earnings on February 24th
Average Daily Volume = 2.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
RRC is in the basic materials sector. They explore and develop oil and natural gas assets. According to the company, "Range Resources Corp. is a leading independent oil and natural gas producer with operations focused in Appalachia and the Midcontinent region of the United States. The Company pursues an organic growth strategy targeting high return, low-cost projects within its large inventory of low risk, development drilling opportunities. The Company is headquartered in Fort Worth, Texas." The company recently stated their proved reserves at the end of 2014 rose +26% for the year to a record high of 10.3 T cfe (trillion cubic feet equivalent).

Unfortunately for RRC and its investors natural gas prices have been declining for a long time. Natural gas futures are currently trading at two-year lows, below $3.00 MMBtu (million British thermal units). The industry was already facing oversupply concerns. Now forecasts suggest demand will be less than expected.

The price of natural gas is influenced by the weather. In spite of the blizzard that hit the east coast this past week the U.S. could actually see a mild winter, which would drive down natural gas consumption and thus prices would fall. Of course we are talking about the weather. Forecasts could change. I remember last fall they were forecasting 2015 to be an exceptionally cold winter following 2014's uncommonly cold winter. Yet now they're talking about a mild winter for 2015 (what's left of winter).

Another issue is the overall trend for commodity prices. The surging dollar makes commodities cheaper and this is exacerbated the sell-off in oil and gas. The oil and gas industry is also dealing with a price war with Saudi Arabia who is willing to undercut its competitors to drive them out of the oil business. While RRC is mostly natural gas the issue is affecting everyone.

There have been some bullish calls on the energy sector and a few analysts have suggested that the big natural gas names, including RRC, could be bargains at current levels. Goldman Sachs believes RRC will eventually emerge from this energy sector crash as a winner due to their large size. That does not mean that RRC's stock won't collapse toward its 2009 or 2010 lows before finding a bottom.

Technically RRC is in a bear market, having been cut in half from its 2014 highs. The point & figure chart is bearish and forecasting at $29.00 target. The stock's recent attempt at a bounce struggled for days with resistance (a.k.a. broken support) near $50.00. Now RRC looks ready for the next leg lower.

I am labeling this a slightly more aggressive trade. Tonight's trade that RRC will continue to sink is a bet that shares will break the trend line you see on the weekly chart below. We'll start with a trigger to launch positions at $44.75.

Trigger @ $44.75

- Suggested Positions -

Short RRC stock @ (trigger)

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

Buy the MAR $45 PUT (RRC150320P45) current ask $3.50

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

Intraday Chart:

Weekly Chart:

In Play Updates and Reviews

Thursday Bounce Ends 2-Day Decline

by James Brown

Click here to email James Brown

Editor's Note:
A minor rebound in the price of oil helped set the stage for a bounce in stocks. The U.S. market's major indices all delivered widespread gains on Thursday.

CSIQ hit our entry trigger today.

Current Portfolio:

BULLISH Play Updates

Burlington Stores, Inc. - BURL - close: 50.69 change: -0.21

Stop Loss: 48.25
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
Entry on January 23 at $51.10
Listed on January 22, 2015
Time Frame: Exit PRIOR to earnings in mid March
Average Daily Volume = 830 thousand
New Positions: see below

01/29/15: Today's performance in BURL is definitely a warning signal for the bulls. Yesterday the stock produced a potential reversal signal. Today's decline technically confirms it. However, the larger trend is still higher but BURL definitely underperformed the broader market today.

More conservative traders may want to move their stop loss closer to $50.00. I am not suggesting new positions at this time.

Earlier Comments: January 22, 2015
One of the best performing stocks last year was BURL. The stock gained +47% in 2014 versus the S&P 500's +11% gain.

According to the company website, "Burlington is a national off-price apparel, home and baby products retailer, operating in the United States and Puerto Rico. We offer great value to our customers by featuring high-quality, primarily branded apparel, home and baby products at "Every Day Low Prices", to deliver savings of up to 60-70% off department and specialty store regular prices. We operate more than 500 stores under the Burlington Coat Factory, Cohoes Fashions, Super Baby Depot, MJM Designer Shoes and Burlington Shoes nameplates."

The company has been on a roll and is poised to see earnings grow +100% in its current fiscal year. Management has been consistently raising estimates. Back in September they reported earnings that beat estimates on both the top and bottom line and raised their full year guidance. They beat again with their earnings report in December and raised guidance. Then on January 9th they raised guidance again. We are starting to see Wall Street analysts raise their price targets for BURL into the $58-60 zone.

Investors have been consistently buying the dips. Now shares are in the process of breaking out past round-number, psychological resistance at the $50.00 level. Tuesday's high was $50.90. Tonight I am suggesting a trigger to open bullish positions at $51.10.

- Suggested Positions -

Long BURL stock @ $51.10

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

Long MAR $55 CALL (BURL150320C55) entry $1.87

01/23/15 triggered @ 51.10
Option Format: symbol-year-month-day-call-strike

Sprouts Farmers Market - SFM - close: 36.45 change: +0.13

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.3%
Entry on December 29 at $33.05
Listed on December 23, 2014
Time Frame: exit PRIOR to earnings on February 25th
Average Daily Volume = 1.0 million
New Positions: see below

01/29/15: SFM found support at $36.00 midday. Fortunately SFM did not confirm yesterday's bearish reversal pattern. Unfortunately the stock failed to keep pace with the market's widespread rally today. SFM still has short-term resistance at $37.00.

I am not suggesting new positions at this time.

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

01/24/15 new stop @ 34.85
01/15/15 new stop @ 33.45
12/29/14 triggered @ 33.05
Option Format: symbol-year-month-day-call-strike

Tekmira Pharmaceuticals - TKMR - close: 26.26 change: +0.66

Stop Loss: 22.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.6%
Entry on January 27 at $26.10
Listed on January 26, 2015
Time Frame: 4 to 6 weeks
Average Daily Volume = 2.7 million
New Positions: see below

01/29/15: TKMR rebounded off round-number support near $25.00 this morning. The stock managed to outperform the broader market with a +2.5% gain. Of course as a volatile biotech stock we should expect TKMR to move more than the rest of the market (both directions). Readers might want to wait for TKMR to rally past $26.50 before initiating new positions.

Earlier Comments: January 26, 2015:
Biotech stocks were strong performers last year. They have continued to rally in 2015. One biotech that is outpacing its peers this year is TKMR.

The company made a lot of headlines last year with its experimental treatments for Ebola. According to the company, "Tekmira Pharmaceuticals Corporation is a biopharmaceutical company focused on advancing novel RNAi therapeutics and providing its leading lipid nanoparticle (LNP) delivery technology to pharmaceutical and biotechnology partners. Tekmira has been working in the field of nucleic acid delivery for over a decade, and has broad intellectual property covering its delivery technology."

The Ebola panic has faded but TKMR is still working on a treatment. The company's TKM-Ebola treatment is in phase-one clinical trials thanks to a $140 million deal with the U.S. Defense Department.

Ebola is not driving the rally in TKMR this year. TKMR's recent strength is thanks to M&A news. On Sunday, January 11th the company announced they were merging with OnCore Biopharma. According to the press release, TKMR "and OnCore Biopharma, Inc., a biopharmaceutical company dedicated to discovering, developing and commercializing an all-oral cure for patients suffering from chronic hepatitis B virus (HBV) infection, announced today that they have agreed to merge to create a new leading global HBV company focused on developing a curative regimen for hepatitis B patients by combining multiple therapeutic approaches."

Why is this significant? Hepatitis B affects a lot of people. TKMR's press release discussed the disease saying, "Hepatitis B is a serious infection of the liver caused by the hepatitis B virus (HBV) and is considered a major global health problem. Hepatitis B infection can cause chronic liver disease, which increases a patient's risk of death from liver cirrhosis and liver cancer. Estimates from the Centers for Disease Control and Prevention (CDC) indicate that up to 350 million people globally may be chronically infected with hepatitis B and, according to the World Health Organization (WHO), more than 780,000 people die every year due to hepatitis B. Most currently available therapies aim to suppress this viral infection but do not lead to a cure in the overwhelming majority of patients."

The stock market applauded the merger news and shares of TKMR soared +57% on Monday, January 12th. I'm sure a lot of that was short covering. The most recent data listed short interest at almost 10% of the 21.1 million share float. I suspect that data is out of date today.

It is interest how TKMR has not seen that much profit taking after such a big move. Traders have been buying the dips the last several days. Now TKMR is hitting new three-month highs. Shares look poised to rally toward resistance near $30.00.

Tonight we are suggesting a trigger to launch bullish positions at $26.10. I want to caution readers that biotech stocks are always a higher-risk, more aggressive trade. The right or wrong headline can send a biotech stock crashing or soaring overnight and TKMR is a perfect example with the move on January 12th. I am suggesting small positions to limit risk. You may want to consider call options as another way to limit your risk.

*small positions* - Suggested Positions -

Long TKMR stock @ $26.10

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

Long MAR $27.50 CALL (TKMR150320C27.50) entry $1.60

01/27/15 triggered @ 26.10
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Canadian Solar Inc. - CSIQ - close: 19.81 change: +0.04

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: -1.9%
Entry on January 29 at $19.45
Listed on January 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.5 million
New Positions: see below

01/29/15: This morning, before the opening bell, CSIQ provided an update on its late-stage solar project pipeline. Their pipeline is essentially unchanged since November 2014 and currently stands at 1.4 GWp. This news may have been the reason CSIQ gapped higher this morning. The rally didn't last. The stock plunged toward $19.00 and hit $18.98 before bouncing. Our trigger to launch bearish positions was hit at $19.45. I am suggesting traders wait for a new decline under $19.45 before initiating new positions.

Earlier Comments: January 28, 2015
Solar stocks have been hammered over the last few months. CSIQ has been underperforming its peers. Currently year to date in 2015 CSIQ is already down -2.89%.

According to a company press release, "Founded in 2001 in Ontario, Canada, Canadian Solar is one of the world's largest and foremost solar power companies. As a leading manufacturer of solar photovoltaic modules and provider of solar energy solutions, Canadian Solar has an industry leading and geographically diversified pipeline of utility-scale solar power projects as well as a track record of successful solar deployment boasting over 8 GW of premium quality modules installed in over 70 countries during the past decade. Canadian Solar is committed to providing high-quality solar products and solar energy solutions to customers around the world."

Oil's plunge has been labeled the main reason for solar stock declines. On Wall Street there is some weird relationship between lower oil prices and falling solar stocks. Crude oil is mainly used for transportation, after it has been refined. While solar energy is used to generate electricity. There does not seem to be a direct relationship but solar stocks continue to sink as oil prices fall. Inside the U.S. oil is used for maybe 1% of electricity consumption. We would be better off comparing solar to coal. Coal still accounts for about 30% of U.S. energy production and coal prices have been falling the last three years.

Technically CSIQ looks pretty ugly. Shares are in a bearish trend of lower highs and lower lows. They just recently broke through what should have been support at their 2014 lows. Now CSIQ is flirting with a breakdown under round-number support at the $20.00 level. The last few days appear to have formed a bear-flag consolidation pattern (counter-trend rally). The point & figure chart is very bearish and forecasting an $11 target.

Tonight I am suggesting a trigger to open bearish positions at $19.45. We'll try and limit our risk with a stop loss at $21.05. More conservative traders could use a stop closer to today's high instead (20.68). You might want to keep your position size small. CSIQ has been volatile in the past. The most recent data listed short interest at 13% of the small 37.9 million share float. You may want to use put options to limit your risk.

- Suggested Positions -

Short CSIQ stock @ $19.45

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

Long MAR $20 PUT (CSIQ150320P20) $2.40

01/29/15 triggered @ 19.45
Option Format: symbol-year-month-day-call-strike

Discovery Communications - DISCA - close: 29.74 change: -0.04

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.7%
Entry on January 14 at $30.57
Listed on January 13, 2015
Time Frame: Exit PRIOR to earnings on Feb. 19th
Average Daily Volume = 3.8 million
New Positions: see below

01/29/15: DISCA underperformed the market today with a -0.1% decline versus the +0.9% gain in the NASDAQ. I would consider new positions here although more conservative traders may want to see a new relative low before initiating new bearish positions.

Earlier Comments: January 13, 2015:
We have heard for a long time that content is king. Discovery has some great content. So why is the stock suffering so poorly? The stock market posted double-digit gains last year and yet shares of DISCA was one of the market's worst performers with a -23.8% decline.

According to company marketing materials, "Discovery Communications (Nasdaq: DISCA, DISCB, DISCK) is the world's #1 pay-TV programmer reaching nearly 3 billion cumulative subscribers in more than 220 countries and territories. Discovery is dedicated to satisfying curiosity, engaging and entertaining viewers with high-quality content on worldwide television networks, led by Discovery Channel, TLC, Animal Planet, Investigation Discovery and Science, as well as U.S. joint venture network OWN: Oprah Winfrey Network. Discovery also controls Eurosport International, a premier sports entertainment group, including six pay-TV network brands across Europe and Asia. Discovery also is a leading provider of educational products and services to schools, including an award-winning series of K-12 digital textbooks, through Discovery Education, and a digital leader with a diversified online portfolio, including Discovery Digital Networks."

It looks like the revenue picture has soured for DISCA. Back in February 2014 the company reported earnings and raised their revenue guidance. One quarter later, when they reported in July, they lowered the top end of their guidance. Then in November, when they reported earnings, DISCA missed Wall Street's revenue estimate and management lowered their revenue guidance.

In a recent interview Discovery's CEO said they are having trouble monetizing all of their content. The advertising environment has gone soft and they haven't figured out why there is a lull in ad spending.

Research is forecasting that online video watching will more than double by 2020. A USB analyst believes online will eventually pose a significant threat to more traditional TV watching trends and companies. Another analyst, this time with Sanford Bernstein, believes the huge declines in TV viewership will continue. Analyst Todd Juenger said, "We believe ad-supported TV is in the early stages of a structural decline." That's long-term bearish for TV. DISCA needs to do a better job of monetizing their content online.

Technically DISCA looks very bearish. The oversold bounce from November stalled in the $36 area several time. The point & figure chart is bearish and forecasting at $23.00 price target. Today DISCA is breaking down to new 52-week lows.

We are suggesting a trigger to open bearish positions at $30.90. Plan on exiting ahead of DISCA's earnings report in mid February.

- Suggested Positions -

Short DISCA stock @ $30.57

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

Long FEB $30 PUT (DISCA150220P30) entry $1.20

01/15/15 new stop @ 30.85
01/14/15 triggered on gap down at $30.57, trigger was $30.90
Option Format: symbol-year-month-day-call-strike

Greif, Inc. - GEF - close: 39.37 change: -0.56

Stop Loss: 41.60
Target(s): To Be Determined
Current Option Gain/Loss: +1.4%
Entry on January 26 at $39.94
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
Average Daily Volume = 177 thousand
New Positions: see below

01/29/15: GEF tagged new multi-year lows today. The stock managed to pare its loss by the closing bell but still underperformed with a -1.4% decline.

Earlier Comments: January 24, 2015:
Shares of GEF are crumbling like wet cardboard. The company operates in the consumer goods sector. They make packaging and container products. According to a company press release, "Greif is a world leader in industrial packaging products and services. The company produces steel, plastic, fibre, flexible, corrugated and reconditioned containers, intermediate bulk containers, containerboard and packaging accessories, and provides blending, filling, packaging and industrial packaging reconditioning services for a wide range of industries. Greif also manages timber properties in North America. The company is strategically positioned in more than 50 countries to serve global as well as regional customers."

Unfortunately for investors GEF did not have a good 2014 on the earnings front. They missed analysts estimates the last four earnings reports in a row. In August 2014 GEF's management guided earnings lower. In December they lowered guidance again.

GEF's most recent earnings report was January 14th and Q4 earnings plunged -90% to $8.7 million. Revenues dropped -4% to $1.05 billion, below Wall Street estimates. For all of 2014 GEF said profits declined -38% and revenue slipped -3%. Once again management guided earnings lower. They now expected 2015 earnings in the $2.25-2.35 range compared to Wall Street estimates of $2.78 a share.

The company's earnings report provided an outlook where management issued this statement:

The company anticipates the overall global economy to reflect a modest recovery in fiscal 2015, with positive aspects of the improving economy in the United States being offset by the negative trends in other regions, particularly in Europe and Latin America. We anticipate that foreign currency matters will continue to present challenges for the company, as the strengthening of the United States dollar against other currencies will continue to impact the company’s revenues and net income.

Following GEF's Q4 results several analyst downgraded their rating on the stock. The point & figure chart is bearish and currently forecasting at $31.00 target.

Technically Friday's display of relative weakness (-2.7%) broke down through significant support near $40.00. We are suggesting bearish positions immediately on Monday morning. More conservative traders may want to wait for a little confirmation (perhaps a decline below $39.25). The nearest support looks like the $35 and $30 regions.

NOTE: GEF does have options but the spreads are too wide to trade.

- Suggested Positions -

Short GEF stock @ $39.94

01/26/15 trade began this morning. GEF opened at $39.94

Virgin America Inc. - VA - close: 36.31 change: +1.32

Stop Loss: 38.85
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
Entry on January 28 at $36.45
Listed on January 27, 2015
Time Frame: 2 to 4 weeks
Average Daily Volume = 2.5 million
New Positions: see below

01/29/15: After a big loss yesterday shares of VA managed a decent oversold bounce on Thursday with a +3.7% gain. Broken support in the $37-38 area should be new resistance. Traders may want to wait for a new lower high before initiating new positions.

Earlier Comments: January 27, 2015:
The IPO honeymoon period for shares of VA might be ending soon. The company's stock hit the market on November 13th with about 13.3 million shares priced at $23.00 each. VA opened at $27.00 and rallied to $30.00 on its first day of trading. Six weeks later VA was testing the $40.00 level.

According to the company's marketing material, "Virgin America is a California-based airline that is on a mission to make flying good again, with brand new planes, attractive fares, top-notch service, and a host of fun, innovative amenities that are reinventing domestic air travel. The Virgin America experience is unlike any other in the skies, featuring mood-lit cabins with fleetwide WiFi, custom-designed leather seats, power outlets, and a video touch-screen at every seatback offering guests on-demand menus and countless entertainment options." VA currently has a fleet of more than 50 Airbus single-aisle planes.

Airline stocks have been big winners the last year and a half. The rally in airline stocks off the group's 2014 October low has been exacerbated by plunging oil prices. Jet fuel is a huge expense for this industry so falling oil is a significant tailwind toward company profits.

Many airlines to try reduce their risk of jet fuel price volatility with fuel hedges. The use of hedges can be a two-edged sword and that appears to be cutting into VA's profits. The company confessed last week that its fuel hedges are killing its margins. Today the spot price for jet fuel is around $1.60 a gallon. VA is locked into prices in the $2.48-2.75 for 66 percent of its fuel needs for the current quarter.

VA also announced they raised their employee pay, which will likely hurt margins as well.

Shares are down sharply on this news although VA managed a bounce today. The point & figure chart has already turned bearish and is forecasting at $32 target.

The intraday low today was $36.76. We are suggesting a trigger to open bearish positions at $36.45. However, more conservative traders may want to wait for VA to break the trend line of higher lows (see chart) before initiating positions.

Please note that this could be a short-term trade. VA has not confirmed its earnings date yet but I suspect they will announce in February. We'll try to avoid holding over their earnings announcement. When that information becomes available we'll adjust our time frame.

- Suggested Positions -

Short VA stock @ $36.45

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

Long FEB $35 PUT (VA150320P35) entry $1.40

01/28/15 triggered @ 36.45
Option Format: symbol-year-month-day-call-strike

Zulily, Inc. - ZU - close: 18.21 change: -0.39

Stop Loss: 18.65
Target(s): To Be Determined
Current Option Gain/Loss: +29.7%
Entry on December 08 at $25.90
Listed on December 06, 2014
Time Frame: Exit PRIOR to earnings on February 11th
Average Daily Volume = 1.3 million
New Positions: see below

01/29/15: The relative weakness in ZU continues with shares underperforming the market again thanks to today's -2.0% decline.

We are taking a more defensive approach today and moving our stop loss down to $18.65. This is an attempt to protect our potential gains. Although if the recent trend holds true we could see ZU bounce up, hit our stop loss, only to roll over again below resistance at its 10-dma near $20.00. More aggressive traders will want to consider leaving their stop loss above the 10-dma and let this trade run (just remember to exit prior to earnings on Feb. 11th).

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) -

(option trade was closed on Jan. 16th, 2015)
Jan $25 PUT (ZU150117P25) entry $1.15 exit $4.40 (+282.6%)

01/29/15 new stop @ 18.65
01/28/15 new stop @ 20.15
01/16/15 planned exit for the January $25 puts
01/15/15 new stop @ 21.65
Prepare to exit the January put option tomorrow morning
01/08/15 new stop @ 23.55
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