Option Investor

Daily Newsletter, Monday, 2/2/2015

Table of Contents

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

Market Wrap

GroundHog Day

by Thomas Hughes

Click here to email Thomas Hughes
Despite a raging winter storm, economic data, earnings and a surge in oil price Punxsatawny Phil saw his shadow and predicts another 6 weeks of winter.


Ol Punxsatawney Phil reports that we can expect another 6 weeks of winter... but I'm not sure he saw his real shadow. The sky was overcast and grey, the crowd was filled with cameras ...you be the judge. In any event the market did not react violently to the news as other more relevant issues were clamoring for attention.

To start things off weak manufacturing data in China hit Asian markets and sent them lower. Chinese PMI came in at 49.7 for the final after an initial reading of 49.8. This is the second month the indicator has been below 50 and is raising fear of slow down in China. This news had Asian market down by at least a half percent but did not have much impact on the European session. EU indices were largely higher on earnings, ECB stimulus and higher oil prices.

Market Statistics

There were a few headlines in the early hours that affected trading. First up, the President has issued his 2015 budget, about $4 trillion, and is set to fight the GOP over it. His stance, it is time to “end mindless austerity”. Other news includes auto sales estimates from data resource IHS. The company says it expects auto sales to continue to grow in 2015, but at a slightly slower pace than 2014. The number of new cars sold is expected to rise by 2.4% to 88.6 million units worldwide, led by the US and China. Earnings released before the bell were largely positive, including a beat from Exxon that is sure to help raise average quarterly earnings growth for the entire S&P 500. Finally, economic data was mixed but in line with trends.

US futures were up from the earliest. The SPX was indicated up by 4 or 5 points in early electronic trading with some volatility. The indices opened positive and held near break even for the first half hour of trading but weak ISM data sent them down to hit a 6 week low. Support kicked in once these lows were hit and by 11AM the major indices were all back in the green. The rest of the day saw the indices move higher, and then lower and then higher again with strength developing into the close. The late day rally took the indices to new daily highs nearly 1% above last weeks close.

Economic Calendar

The Economy

There was a bit of economic data released today, 4 bits from December/Q4 2014 and one from January/Q1 2015. First up was Personal Income and Spending, released at 8:30AM. Income increased by 0.3% or $41.3 billion in December. This was led by gains in income for proprietors and wages/salaries in the public sector. November data was revised lower from a gain of 0.4% to a gain of 0.3%. Personal Consumption Expenditures declined by -0.3% and November was revised lower, by a tenth to up 0.5%. While not a great sign for the consumer, is not unexpected in light of other weak December data. Construction Spending and ISM were both released at 10AM, both a little weaker than expected. Construction Spending in December rose, but only by 0.4% versus the consensus estimate of 0.8%. Helping to even out the miss is an upward revision of 0.1% to the November data. Even with the miss on a year over year basis spending is up 2.2% from December 2013.

Finally, ISM for January, expected at 54.5, was reported at 53.5. This is slightly below expectations and the previous month but still expansionary. New orders, production, employment and prices were all down while inventories rose. Despite being down, responses indicate that demand is still high. 14 of 18 sectors experienced growth in January and most reported strong demand or increasing business opportunities.

Moody's Survey Of Business Confidence continues to show positive expectations for this year. The diffusion index, which ended 2014 at an all time high, surged to a new all time in this week's report. The index is now reading 41.6 and is accompanied by the most optimistic summary I have read in the past 6 months. According to Mark Zandi, Moody's Economist and survey administrator, “Businesses remain upbeat. Confidence surged late last year and remains near record highs in early 2015. Sentiment is sky-high in the U.S. and stronger in Asia. Businesses are also feeling a bit better in Europe, likely reflecting the European Central Bank's recent moves and a weaker euro. South American confidence continues to lag. Hiring intentions in the U.S. are robust, with a record well more than half of respondents saying they are hiring. Layoffs are extraordinarily low. It is encouraging that pricing is holding firm despite the decline in oil prices, surging value of the dollar, and disinflationary forces overseas. Credit availability has also improved notably in recent weeks.” The major changes are that sentiment is now “sky high” in the US and that Asia and the EU are getting better. Other items of interest include “robust” hiring intentions, “extraordinarily low” lay-offs and that credit availability remains “improved”. All things that point to strengthening economic trends, in my opinion at least.

There is more market moving data due out later this week. Tomorrow look out for auto sales and factory orders, Wednesday is ADP employment and ISM services index, Thursday is Challenger job cuts and jobless claims followed up on Friday with the ever important NFP and US unemployment figures.

The Oil Index

I know this will be shocking to hear but oil prices were volatile again today. WTI moved in a choppy range as high as 2.5% above last weeks closing price and closed at the high of the day. A number of factors including high short interest, a steel workers strike threatening fuel production and declining rig counts contributed to the move. While at this time supply is high and rising there are signs that down the road it will begin fall back in line with demand. This is helping to support oil prices but as of yet does not signal a reversal and is not supported by data. Until then this move is likely a relief rally and could set us up for another leg lower.

In the meantime, firming oil prices and better than expected (not great but better than expected) earnings from Chevron and Exxon are helping to lift the oil sector. The Oil Index moved up by over 1.75% in today's session and is now approaching potential resistance near 1,350. Today's action held support above the short term 30 day moving average and is accompanied by bullish indicators. Although momentum is weak it is bullish and ticking higher while stochastic is on the rise and presenting an interesting set up. Both %K and %D are pointing higher, but %K is still below the other and both are below the upper signal line. This could lead to a double bullish crossover as %K crosses %D and both cross the upper signal, or could result in a confirmation of resistance if neither move higher. This scenario looks like it may play out as the index approaches the 1,350 resistance line and either breaks through or is repelled. A break above would have targets near 1,400 and 1,500 hundred. Support, upon a pull back, may be found along the long term trend line near 1,250.

The Gold Index

Gold prices held steady near $1280 after dipping to test support near $1265. Today's action created a near perfect “V” as prices declined to their bottom, bounced and then climbed higher. Prices are struggling with near term concerns such as fear of slowing economic growth, long term economic outlook and the latest FOMC statement. In terms of the FOMC it seems at this time as if the market is accepting a rate hike this year, but is having a hard time deciding just when it's going to come. The sentiment may change later this week as the fresher data begins to come out but I think so long as labor trends remain healthy rate outlook will remain stable and gold prices will hold steady. In the near to short term there could be further testing of support with $1250 the most likely candidate at this time.

The gold miners ETF GDX rose in today's session, climbing more than 1.3% in a move extending a bounce from the short term moving average. This bounce and move higher is also confirming support for the break-out the ETF made at the beginning of the month. Current support is near $20.50-$21.00 with potential resistance at the January high, $23.22. A break above resistance would have a target between $25 and $27.50 in the near to short term. The indicators are bullish but in decline, consistent with a test of support and there is chance support could be tested again. This index may trend sideways over the next week, or two even, as we wait for the macro-data and for earnings. Many of the senior and junior miners are scheduled to report in two weeks time.

In The News, Story Stocks and Earnings

As of last Friday 227 S&P 500 companies had reported earnings. According to FactSet 80% are beating the mean estimate for earnings growth and 58% are beating the mean estimate for revenue. The current estimated mean growth rate for the index is now 2.1%, up from 0.25% just last week. The energy sector led the index in downward revisions, driving the mean estimate from the high over 6% to the low we saw last week. The mean is now rising sharply on better than expected earnings from the oil sector, among others, and will no doubt rise again after today's report from Exxon. The take away; energy is lagging in terms of growth but the amount of lag isn't as bad as previously estimated.

Exxon reported earnings before the bell and provided a bit of lift. The world's largest integrated energry company reported EPS of $1.56 versus the expected $1.33 predicted by the street. Revenues were a shy of estimates but full year revenues were only $0.1 billion short of the previous year. 2015 outlook is in line with estimates but significantly lower than the last several. The stock surged as much as 2.5% in the premarket but did not hold the gain. The stock opened about a half a percent higher and then moved up from there. By the end of the day shares of Exxon had gained about 1.75% and could be bouncing from long term support.

Sysco reported before the bell too. The company said fiscal second-quarter earnings came to $157.9 million, or 27 cents a share, down from $210.8 million, or 36 cents a share, in the year-earlier period. The food distributor said revenue was $12.09 billion, up from $11.24 billion in the comparable quarter last year. Earnings are below estimates which had been expecting an increase. The stock was able to open with a small gain but quickly fell under heavy selling pressure. By the end of the day Sysco had fallen more than 2.25%.

RyanAir, the UK based discount air carrier, reported earnings in line with expectations. The company said that low oil prices were positively impacting their bottom line but that execs plan to pass on most, if not all, of the savings to customers. This move led them to caution on profit growth over the coming two years and sent the stock down by more than 4% in the pre market session. The stock opened near $63.50 and moved down from there to test potential support near $62.50.

The Indices

Today was volatile to say the least. Market action was calm and paced, but it went down a percent, then back to break even, then up a percent, then back to break even and then back up and up to the closing high. The move was led by the Dow Jones Transportation Average which closed with a gain of 1.42%. The transportation index moved higher after testing support near 8,575 and could be setting up to move higher. The index is now moving up from the bottom of a three month consolidation range within a greater up-trend with potential economic catalysts on the horizon. The indicators are in line with support at this level and could be rolling into a trend following signal but have yet to confirm.

The broad market S&P 500 index is today's runner up. The index gained 1.22% in today's session and is moving up from another test of support. Support is near 1,990 and consistent with previous all-time highs, 3 previous tests of support and the long term trend line so looks strong in my view. The indicators are in line with that support; if you will notice the last three bearish MACD peaks are progressively smaller, a sign that short term selling could be running out of steam in the face of a stronger, longer term up-trend. If support fails next target for support are 1,950 and 1,900. Near term targets if this bounce takes hold are near 2,065 and 2,100.

The Dow Jones Industrial Average is third in today's line up. The blue chip index itself led by Exxon, Chevron, JPMorgan, Goldman Sachs, UTX and 3M moved up by 1.14%. Today's move is yet another indication and confirmation that support exists at or below 17,150. This support may break down if the market can not move on from here but at this time is holding. The indicators are in line with the long term up-trend and are beginning to roll over into a possible trend following signal. MACD is bearish but weak and weakening, stochastic is convergent with support, flattened and set up for the bullish crossover. Data, or earnings or a combination could provide the catalyst for such a move. If not, a break below this level could take the index to 16,500 and the long term trend line.

The NASDAQ Composite brings up the rear in today's action. The tech heavy index gained 0.89% in a move that tested the long term trend line and created a long lower shadow. The index, like the others, is confirming support ahead of this weeks economic events but has not yet confirmed a trend following signal. The indicators are consistent with support and leading to a potential trend following entry signal but need to confirm. Bearish MACD is just as weak as it can be while the index is drifting along support; stochastic is pointing higher with both lines but yet to form the crossover. Current resistance is the short term 30 day moving average with upside targets near 4,800 and the current long term high. A break below the long term trend line could carry the index to the next potential support, which is only about 50 points lower. A break below that may lead to heavier selling.

It looks like the indices are gearing up for a move. It looks to me like it will be a move higher, in line with trends, but that is yet to be seen. Recent events have had the bulls in retreat but that may be changing. The markets have weathered a storm of overseas central bank activity, the FOMC, weak December data and lack luster earnings that have tested and retested support but today's move could be preceding another trend following bounce. The good news is that all of the negative data that drove the market lower is rear looking... as in it already happened, we know it wasn't that great and now it's time to move on. It is the time to focus on what is happening now, this quarter and to think about what is going to happen next quarter. The ADP, Challenger, NFP and Unemployment numbers are that kind of data and could be the shot of positive economic news the bulls need to spark a rally.

Until then, remember the trend!

Thomas Hughes

New Plays

Coiling For A Breakout

by James Brown

Click here to email James Brown


Interactive Brokers Group - IBKR - close: 30.92 change: +0.29

Stop Loss: 29.80
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 02, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 568 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
One stock that has been showing some resilience the last few days has been IBKR. The company describes itself as "Interactive Brokers Group, Inc., together with its subsidiaries, is an automated global electronic broker that specializes in catering to financial professionals by offering state-of-the-art trading technology, superior execution capabilities, worldwide electronic access, and sophisticated risk management tools at exceptionally low costs. The brokerage trading platform utilizes the same innovative technology as the Company’s market making business, which executes and processes trades in securities, futures and foreign exchange instruments on more than 100 electronic exchanges and trading venues around the world."

Last month was pretty crazy for many of the brokers, especially if they had any significant forex trading operations. When the Swiss National Bank removed their currency beg it sent shockwaves through the banking, brokerage, and currency world. You can see the big spike down in IBKR on January 16th. Fortunately, IBKR said that while they did have some clients who lost money (their accounts were now negative thanks to the wild currency swings) the total amount of potential losses for IBKR was only $120 million. That is less than 2.5% of their net worth.

The stock quickly recovered. A few days later on January 20th IBKR reported its Q4 earnings results. IBKR's 12 cents per share profit was six cents better than the $0.06 estimates. Investors seemed to ignore that fact that revenues were down -16.7% to $208.1 million and below estimates. That 12-cent profit was a +71% improvement from a year ago. IBKR's average daily trading volume was up +22% from Q4 2013.

It looks like the trading momentum has continued into 2015. IBKR just announced today that their Daily Average Revenue Trades (DARTs) were up +16% from a year ago and +15% from the prior month. Client accounts rose +17% from a year ago to 285 thousand.

Looking at IBKR's performance the last few days is encouraging. The market has been volatile while IBKR has been consolidating sideways in the $30-31 zone. A breakout higher could signal the next leg up. The point & figure chart is bullish and forecasting at long-term target of $48.00.

Friday's intraday high was $31.08. Tonight we are suggesting a trigger to open bullish positions at $31.15. Investors may want to start with small positions. There is a chance that the old 2008 highs in the $32.00-32.50 zone could be overhead resistance.

Trigger @ 31.15 *start with small positions to limit risk*

- Suggested Positions -

Buy IBKR stock @ (trigger)

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

Buy the MAR $30 CALL (IBKR150320C30) current ask $1.70

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Volatility Reigns On Wall Street

by James Brown

Click here to email James Brown

Editor's Note:
The volatility index (VIX) may not show it but volatility has surged in 2015. Stocks have been churning up and down sharply the last few weeks. Today saw a new relative low in the S&P 500 before sharply reversing higher.

All of this volatility hit a few stop losses. BURL, SFM, CSIQ and ZU all hit our stops.

Current Portfolio:

BULLISH Play Updates

Tekmira Pharmaceuticals - TKMR - close: 24.82 change: -0.79

Stop Loss: 23.90
Target(s): To Be Determined
Current Option Gain/Loss: -4.9%
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

02/02/15: The action in TKMR today was not very encouraging. Biotechs stocks as a group were underperformers and most closed in negative territory. TKMR was no exception. The broader market may have bounced this afternoon but TKMR was still fading lower. Shares underperformed with a -3.0% decline.

I am not suggesting new positions at this time.

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

01/31/15 new stop @ 23.90
01/27/15 triggered @ 26.10
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Abercrombie & Fitch Co - ANF - close: 25.33 change: -0.19

Stop Loss: 27.05
Target(s): To Be Determined
Current Option Gain/Loss: -1.7%
Entry on February 02 at $24.90
Listed on January 31, 2015
Time Frame: exit PRIOR to earnings in late February
Average Daily Volume = 2.6 million
New Positions: see below

02/02/15: Our new bearish play on ANF is now open. The plan was to launch bearish positions at $24.90. The stock quickly obliged with a gap down at the open to $24.90. Shares apparently gapped down thanks to an analyst downgrade this morning where ANF was cut from a "hold" to a "sell" rating.

ANF pierced the $24.00 level before bouncing back. The sharp rebound makes me a little less enthusiastic about launching new bearish positions at current levels. Traders may want to wait and see the bounce fail near $26.00 before initiating new positions.

Earlier Comments: January 31, 2015:
The bear market in shares of ANF continue. ANF used to be one of the hottest brands for the much coveted teenage market. Unfortunately for ANF shareholders the company failed to keep up with the changing tastes of its audience.

For anyone who doesn't know who ANF is here is a bit from the a company press release, "Abercrombie & Fitch Co. is a leading global specialty retailer of high-quality, casual apparel for Men, Women and kids with an active, youthful lifestyle under its Abercrombie & Fitch, abercrombie, Hollister Co. and Gilly Hicks brands. At the end of the third quarter, the Company operated 834 stores in the United States and 166 stores across Canada, Europe, Asia, Australia and the Middle East. The Company also operates e-commerce websites at www.abercrombie.com, www.abercrombiekids.com, www.hollisterco.com and www.gillyhicks.com."

The company has been struggling with weak same-store sales for months, if not years, across all of its brands. Back in November 2014 they company issued an earnings warning (you can see the gap down on the daily chart). They reported earnings on December 3rd that was one cent above analysts' newly lowered estimates. Quarterly revenues were down -11.8%. Management then guided lower yet again.

ANF lowered their 2015 guidance from the $2.15-2.35 range to $1.50-1.65 a share. They continue to expect same-store sales to be negative an in the mid to high single digit percentages.

On December 9th the stock popped from multi-year lows after it was announced that ANF's CEO Michael Jeffries, a man whom many considered to be a terrible CEO, had abruptly retired. The rally from this headline didn't last very long.

It's interesting that consumer sentiment is currently at 11-year highs but we're not seeing that translate into consumer spending. Many have been expecting (hoping) that all the money consumers are saving at the gasoline pump, thanks to oil at six-year lows, would be spent on other items. Thus far we are not seeing any big trends that consumers are spending their savings and it's definitely not going toward teen apparel retailers.

There is a lot of short interest in this stock thanks to the bearish outlook for the company. This time the bears might be right. The most recent data listed short interest at 35% of the 68.1 million share float. That does raise the risk of a short squeeze should ANF suddenly bounce.

Another risk for the bears in ANF is M&A headlines. Now that the old CEO is gone there has been some speculation that ANF is a takeover target. The company also might be a target for a leveraged buy out offer to take ANF private. While this is a risk we can't time it. Any such news, if it ever happens, could be months or years away.

Right now ANF continues to underperform the market and is currently down -10% in 2015. The point & figure chart is forecasting a $17.00 target. Looking at the long-term chart the nearest support might be the $22.50 area or the $17 area.

Tonight I am suggesting a trigger to open bearish positions at $24.90.

- Suggested Positions -

Short ANF stock @ $24.90

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

Long MAR $25 PUT (ANF150320P25) entry $2.20

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

Discovery Communications - DISCA - close: 29.28 change: +0.30

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: +4.2%
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

02/02/15: DISCA dipped toward last months low and bounced. Further gains from here will start to look like a potential bullish double bottom. I am not suggesting new positions.

Investors may want to note that Disney (DIS) reports earnings tomorrow night. While DIS and DISCA is not a very good apples-to-apples comparison DIS' results might influence trading in DISCA on Wednesday.

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: 39.09 change: +0.89

Stop Loss: 41.60
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
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

02/02/15: GEF's oversold bounce managed to outperform the broader market with a +2.3% gain today. The 10-dma near $40 should be short-term resistance. I am not suggesting new positions at this time.

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

Range Resources Corp. - RRC - close: 47.81 change: +1.54

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: -6.8%
Entry on January 30 at $44.75
Listed on January 29, 2015
Time Frame: Exit PRIOR to earnings on February 24th
Average Daily Volume = 2.8 million
New Positions: see below

02/02/15: Crude oil continues to bounce and that's fueling rebounds in most of the energy names. RRC is certainly enjoying a big bounce with another +3.3% gain today. I suggested that the $48.00 level could be short-term resistance. Let's see if RRC can close above it tomorrow. Our stop loss is at $48.75.

Earlier Comments: January 29, 2015
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.

- Suggested Positions -

Short RRC stock @ $44.75

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

Long MAR $45 PUT (RRC150320P45) entry $3.80

01/30/15 triggered @ 44.75
Option Format: symbol-year-month-day-call-strike

Virgin America Inc. - VA - close: 35.26 change: +1.72

Stop Loss: 36.65
Target(s): To Be Determined
Current Option Gain/Loss: +3.3%
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

02/02/15: No stranger to volatility shares of VA saw a pretty wild day. The stock dropped to $32.14 this morning (a -4.1% drop). Then shares reversed higher in a big way with a +9.7% surge from its intraday low to close at $35.26.

If you're not seasick yet this week could be worse. VA might report earnings this week. Unfortunately I still can't find a confirmed earnings date. Be prepare to exit if need be.

I am not suggesting new positions at this time.

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

01/31/15 new stop @ 36.65
01/28/15 triggered @ 36.45
Option Format: symbol-year-month-day-call-strike


Burlington Stores, Inc. - BURL - close: 49.80 change: -0.09

Stop Loss: 48.65
Target(s): To Be Determined
Current Option Gain/Loss: -4.8%
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

02/02/15: The profit taking in BURL continued with shares down for their fourth day in a row. BURL hit our new stop loss at $48.65 this morning.

- Suggested Positions -

Long BURL stock @ $51.10 exit $48.65 (-4.8%)

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

MAR $55 CALL (BURL150320C55) entry $1.87 exit $0.80 (-57.2%)

02/02/15 stopped out @ 48.65
01/31/15 new stop @ 48.65
01/23/15 triggered @ 51.10
Option Format: symbol-year-month-day-call-strike


Sprouts Farmers Market - SFM - close: 36.24 change: -0.17

Stop Loss: 35.75
Target(s): To Be Determined
Current Option Gain/Loss: +8.2%
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

02/02/15: The stock market's drop this morning pushed SFM below support at $36 and its 10-dma. Our stop was hit at $35.75.

- Suggested Positions -

Long SFM stock @ $33.05 exit $35.75 (+8.2%)

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

MAR $35 CALL (SFM150320C35) entry $1.10 exit $1.90 (+72.7%)

02/02/15 stopped out
01/31/15 new stop @ 35.75
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



Canadian Solar Inc. - CSIQ - close: 21.32 change: +0.93

Stop Loss: 21.05
Target(s): To Be Determined
Current Option Gain/Loss: -8.2%
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

02/02/15: Solar stocks soared today. News that China plans to boost its solar build to 15 GW this year (+43% from 2014) helped send solar names higher. CSIQ gapped open at $20.84 and then rallied to a +4.5% gain. Our stop was hit at $21.05.

- Suggested Positions -

Short CSIQ stock @ $19.45 exit $21.05 (-8.2%)

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

MAR $20 PUT (CSIQ150320P20) $2.40 exit $1.60 (-33.3%)

02/02/15 stopped out @ 21.05
01/29/15 triggered @ 19.45
Option Format: symbol-year-month-day-call-strike


Zulily, Inc. - ZU - close: 18.44 change: -0.06

Stop Loss: 18.65
Target(s): To Be Determined
Current Option Gain/Loss: +28.0%
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

02/02/15: ZU has been one of our best trades of the year so far. Shares tagged our new stop loss at $18.65 today. As I suspected the bounce failed below its simple 10-dma so the down trend is still in place.

Our play is closed. If you're still short don't forget that ZU reports earnings on Feb. 11th.

*small positions to limit risk* - Suggested Positions -

Short ZU stock @ $25.90 exit $18.65 (+28.0%)

- (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%)

02/02/15 stopped out
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