Option Investor

Daily Newsletter, Tuesday, 2/3/2015

Table of Contents

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

Market Wrap

Thank Oil for the Rally

by Jim Brown

Click here to email Jim Brown

Crude oil prices rallied +24% over the last four days from $43.58 to a high of $54.24 intraday today. This caused better than 10% gains in many of the oversold energy stocks and helped power the Dow to a +305 gain. You have to love short squeezes!

Market Statistics

There is no bell to signify bottoms and tops. We never know when severely oversold or overbought will begin to reverse and everyone who was riding the trend find themselves on the wrong side of the trade. When the trend is lengthy as it was in the oil price decline the mindset is established and everyone begins forecasting lower lows. Just last week hedge funds cut their long positions in crude futures to multi-month lows and increased their bearish positions back to recent highs. Talk about a bad move, they increased bearish positions at the exact bottom of the market and the short covering has been brutal.

WTI has rallied $10.56 or +24% since Thursday's lows at $43.58 to today's high at $54.24. Brent rallied from $48.29 to $59 at today's high. While these moves should not last without some serious profit taking I seriously doubt we will see the lows again. The sector damage was severe and like every move in oil it always over shoots. In declines we always fall well below what the fundamentals support and on rallies to new highs the same is always true.

The bulls are being encouraged by the historical trends. Oil prices have fallen more than 50% only five times in the last 30 years and each time there was a 50% rebound over the next six months. If that trend continues we should see prices in the $75 range by late summer.

I wrote in the weekend commentary that the downdraft at the end of January was to be expected since traders were dumping losing positions to close out a losing month. Also, I expected a positive bias for the first two days of the week as month end retirement contributions were put to work. I did not expect a +629 point Dow move from Monday's low at 17,037. The Dow only lost -507 points last week and it has already erased that loss in only two days. The spike at the close today is typical of a capitulation event for the shorts. The opening gap today was huge and the market traded flat at the 17,500 level for 4 hours. When there was no selling by 1:PM the remaining shorts who were hoping for an afternoon fade finally begin pulling the exit trigger.

The S&P futures were down more than -5 late Monday night and the crude futures were responsible for reversing that decline. Crude rose almost $2 overnight and that reversed the S&P futures to positive.

The opening spike on the Dow was blunted by the Factory Orders report for December that came out at 10:AM. New orders fell -3.4% and the fifth consecutive monthly decline. This followed a -1.7% decline in November and -0.7% in October. The rate of decline is obviously accelerating as the dollar continued to hit new highs. Core capital orders have fallen -10.6% over the last three months. Defense orders declined -7.9% and inventories fell -0.3% for the first decline in six months.

Nondurables goods orders declined -3.4% and durable goods declined -3.3%. Backorders declined from +0.2% to -0.8% and the first time in contraction since March 2013. This was not a bullish report. Actually it was pretty bearish. In the chart below you can clearly see that orders are at two-year lows. This is not a growth economy.

Moody's Factory Orders Chart

On the positive side auto sales for January came in at an annualized rate of 16.7 million and well over estimates for 16.2 million. Sales of light trucks and SUVs rose from 8.8 million to 9.1 million while sales of cars declined from 8.1 million to 7.5 million. Clearly the low gasoline prices are having a big impact on what cars people are buying. That proportion of trucks to cars is the highest in ten years even though car sales were also the best in ten years.

January is normally a slow month for car sales because weather slows shopping and people are doing their taxes in hopes of getting a big refund they can use for a down payment in March or April. Jeep said this was the best January ever and they have been around a very long time.

Auto loans are readily available because banks are eager to write loans where they can actually charge a decent interest rate. Longer maturities mean a lower payment for buyers and that means they buy higher prices cars. The average transaction price in January was +5% over January 2014.

The first payroll report is tomorrow with the ADP report. After the jobless claims declined sharply last week to 265,000 analysts upgraded their forecasts for the ADP employment from +218,000 to +225,000. This is down from the actual number of +241,000 for December.

The consensus estimate for the Nonfarm Payroll report on Friday rose from +230,000 to +235,000. However, there are some estimates slightly under 200,000 so there is some concern in the analyst community. There are worries that the layoffs in the energy sector may have started filtering through the system but you could not prove that with the low jobless claims the prior week.

Earnings after the bell were a mixed bag. Chipotle Mexican Grill (CMG) reported earnings of $3.84 that rose +52% compared to estimates of $3.79. While that was a beat it was not nearly as strong as prior reports. Revenue rose +27% to $1.07 billion fell short of estimates for $1.08 billion. Same store sales rose +16.1% compared to estimates for 16.3%. While the overall earnings were still good they lacked the spark that powered the stock to $726 and a PE of 55. Shared declined -6% or -44 after the report to close at $679.

The company said higher food costs had slowed earnings gains. Chipotle raised prices +6% late in Q3 to cope with rising food expenses for dairy, beef and avocados. Apparently they did not raise the prices enough because margins only rose +1% and slower than the +2% rise in Q3.

Lastly the company reaffirmed prior forecasts that 2015 growth would slow to mid to low single digits. Coming down from 16.8% that is a tough statistic to swallow. The company opened 60 stores in Q4 and plans to open more than 200 in 2015. The company also authorized another share buyback of $100 million in addition to the $98 million remaining under the prior authorization.

Gilead Sciences (GILD) reported earnings of $2.43 compared to estimates for $2.22. Revenue of $7.31 billion also beat estimates for $6.72 billion. Sales of Hep-C drugs rose to $3.8 billion. Gilead declared its first ever quarterly dividend at 43 cents and announced a $15 billion stock buyback program in addition to $3 billion still outstanding from a previous authorization.

Shares of GILD declined -$5 in afterhours when the company said it was offering steeper than expected discounts to health insurers and other group payers for the Hep-C drugs. Gilead said the "gross to net" adjustment for Hep-C drug sales will average 46% in 2015, up sharply from 22% at the end of 2014. Analysts had expected a 25-30% discount. Gilead and AbbVie are in a price war on expensive Hep-C drugs that cost from $84,000 to $96,000 for a 12 week treatment.

Sales of Sovaldi, the initial Gilead drug totaled $1.73 billion for the quarter. Sales of Harvoni, which does not require companion drugs, totaled $2.11 billion. Analysts were expecting $2.05 billion and $1.58 billion respectively. The company said 141,000 Americans had been started on the drugs and they expect 250,000 to be treated in 2015. There are an estimated 3.2 million people in the U.S. with Hep-C, which can lead to liver transplants and death. For all of 2015 Gilead expects sales of $26.5 billion compared to estimates for $28.6 billion. Analysts agreed that the Gilead guidance is conservative since projecting large numbers can make it more difficult to avoid bigger discounts to new buyers.

I continue to believe Gilead is one of the best companies in the space but I did close Gilead positions ahead of earnings to avoid the problem of expectations being too high. I would love to see a decent pullback so I can buy the dip again.

Disney (DIS) shares rose +$4 in afterhours after reporting earnings up +23% to $1.27 compared to estimates for $1.07. Revenue of $13.39 billion also beat estimates of $12.87 billion. The consumer products segment saw revenue increase +22% to $1.379 billion and earnings rise +46% as holiday shoppers bought products related to the film "Frozen." Attendance at theme parks was still rising despite the measles outbreak at Disneyland that has resulted in 93 cases. Disney is a solid company and earnings growth should continue.

Wynn Resorts (WYNN) dropped -$6 after reporting earnings of $1.20 compared to estimates for $1.43. Revenue of $1.14 billion missed estimates of $1.24 billion. The drop was caused by a -32% decrease in net revenue in Macau and a -6% decline in revenue in Las Vegas. Casino revenue in Vegas declined -15.5%. Problems at the $4.1 billion Wynn Palace Casino in Macau has pushed the opening from the Chinese New Year holiday in 2016 to later in the year. Cost overruns at the Casino in Boston have pushed costs from $1.6 billion to $1.75 billion. All this came at a time when casino revenue everywhere is declining. It was not a good quarter for Wynn.

Companies giving positive earnings guidance today included:


Companies giving in line earnings guidance included:


Companies giving negative earnings guidance included:


Earnings highlights on deck for tomorrow include Dow component Merck, Green Mountain Coffee, Humana, YUM Brands, and ADP.

Canadian Solar (CSIQ) spiked +25% today after the company announced it was buying project developer Recurrent Energy LLC from Sharp Corp for $265 million. Recurrent has a large pipeline of projects under development in North America with 3.3 gigawatts under development and 1.1 gigawatts under signed contracts. This was a very good deal for CSIQ, which had 1.4 gigawatts of projects in its own pipeline. I recommended CSIQ for a covered call last night in Option Writer before this news broke. I had researched the company and thought it was in breakout mode on its own and this acquisition only accelerated the process.

Salix Pharmaceuticals (SLXP) spiked +5% after Bloomberg said the company was in talks to be acquired by Valeant Pharmaceuticals (VRX). The article also said Shire Plc (SHPG) may also be interested. Salix collapsed back in November when a sudden inventory problem led to an unexpected management change and the company said it would be forced to restate financials. Shares declined to $86 on the news but have since rebounded to $140 on takeover rumors.

Shares of Office Depot (ODP) rallied +22% and shares of Staples (SPLS) spiked +11% on news the companies were in merger talks. According to the WSJ the two stores are in advanced talks but no deal has been finalized. In January activist investor Starboard Value, which owns 6% of Staples and 10% of Office Depot launched an effort to get the two companies to merge. Both are struggling and the combination would have significant synergies. It would also have some tough challenges to get regulators to approve a deal. Combined the two chains have more than 4,000 stores and $35 billion in sales.

Stratasys Ltd (SSYS) shares fell -28% after the company warned 2015 expectations were significantly below Wall Street estimates. The issued guidance for 2014 as well with revenue expected to be $748-$750 million and below their prior guidance of $750-$770 million. Analysts expected $758 million. Net income is now expected to be $102-$105 million, down from previous guidance of $117-$122 million. For 2015 the company is now projecting earnings of $2.07-$2.44 compared to analyst estimate for $2.91. JP Morgan, Piper Jaffray and Brean Capital all cut their ratings.

Lear Corp (LEA) rallied on news activist hedge fund Marcato is urging them to split into two companies. Marcato believes the combined value of the two companies would be $145 per share compared to today's close at $108. The fund wants Lear to split its seating division from the electrical parts division to let each one prosper on its own. Shares rallied 5% on the news.


Does a +624 point Dow gain in two days make the market overbought? Not when it is coming back from a -507 loss the week before and a -3% loss for the month. The rebound put the S&P within 2% of a new high. Who would have thought last Friday when we closed at six week lows that the S&P would be 2% from a new high today? This is why we trade what we see not what we want to see.

Emotionally I want to wait for a pullback before going long here but that would probably be the wrong idea. We saw the S&P rebound from support at the 150-day average for the third time over the last two months. That is a key support level and each time it has provided a strong rebound. The 1,980-1,985 support level from last summer was also in play. Had the S&P declined below that 1,980 level it would have been a major failure and suggest a repeat of the October decline.

Now the critical level to watch is the 2,064 resistance from January. If the S&P can break through that in the days ahead then new highs may be just ahead. We all know that when traders all line up on one side of the market that seemingly impenetrable obstacles can be overcome with ease. When the markets become directional the technicals don't matter. Moving +624 points in two days was mostly a short squeeze but a fire has been lit under the markets.

Support is now 2,030 and resistance 2,064.

The Dow chart is not so clear cut. The downtrend resistance at 17,725 is the next challenge. If that resistance manages to hold the Dow advance another lower high will be formed. Today's short squeeze market may have some fuel left but it may depend on oil prices. If the rebound in crude fades then Chevron, Exxon and Caterpillar will fall back to the losers list and be a drag on the other components.

Resistance 17,725, support 17,500.

The Nasdaq was the laggard all morning. With the Dow up +135 the Nasdaq was still negative at 12:30. The opening spike was quickly sold but the midday dip was eventually bought. The close was a six-day high. The composite and the Nasdaq 100 traded in lock step with many of the big cap stocks absent from the winners/sinners list.

Both indexes are nearing the top of their congestion range and solid resistance.

The Russell 2000 had a good day with nearly a 2% gain. It moved within 3 points of 1,200 and could -2% from a new closing high over 1,219. The Russell small caps held up well during the January market and could be preparing to take their leadership place in the coming days. If the Russell breaks over 1,200 it should drag the Nasdaq indexes with it.

If you look really hard with a glass half full outlook you could make a case for new highs in the near future. However, the market has moved too far, too fast and without a new catalyst to force a continued squeeze we could be in for some backing and filling. The ADP Payroll report on Wednesday should not be a market mover unless it misses estimates by a mile in either direction. The S&P futures are flat late Tuesday so there is no rush to take profits on the week's gains. WTI prices are down $1 to $52 but that is still a significant gain from last week. With the high today $54.24 some of the sell stops have already been cleared. If oil were to continue positive even by a little bit the equity markets should remain positive as well.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email


New Plays

Potential Short Squeeze Candidate

by James Brown

Click here to email James Brown


Cree, Inc. - CREE - close: 36.26 change: +1.08

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of CREE might be seeing a turnaround. The company is part of the technology sector. According to a press release, "Cree is leading the LED lighting revolution and making energy-wasting traditional lighting technologies obsolete through the use of energy-efficient, mercury-free LED lighting. Cree is a market-leading innovator of lighting-class LEDs, lighting products and semiconductor products for power and radio frequency (RF) applications."

Last year was pretty rough on CREE investors. The trouble started back in 2013. Earnings have been sour. Management had developed a habit of missing earnings estimates and then guiding lower. However, after guiding lower the last two quarters in a row CREE finally offered the market some bullish guidance.

Their most recent earnings report was January 20th. Earnings came in at $0.33 a share. That's significant below the year ago period of $0.46 but their 33-cent profit beat Wall Street estimates by 11 cents. Revenues were essentially flat at $413 million.

CREE offered guidance (currently in their Q3) of $0.21-0.25 a share. That compares to analysts' estimates of $0.21. They're forecasting revenues in the $395-414 million range versus estimates of $405 million.

The last few months have been very volatile for CREE but the rally has created a buy signal on the point & figure chart that is forecasting a long-term $56 target. More importantly CREE appears to be breaking out past its long-term trend line of resistance (see weekly chart below). If this rally continues CREE could see a short squeeze. The most recent data listed short interest at 23% of the 109 million share float.

Tonight I am suggesting a trigger to open bullish positions at $36.55. We'll start this trade with a stop loss at $33.90.

Trigger @ $36.55

- Suggested Positions -

Buy CREE stock @ (trigger)

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

Buy the MAR $35 CALL (CREE150320C35) current ask $2.66

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Greece & Oil Help Fuel Gains

by James Brown

Click here to email James Brown

Editor's Note:
The rebound in oil helped soothe fears that the sell-off in crude might be over while news out of Europe suggested Greece might negotiate. These two stories helped fuel a widespread market rally.

TKMR and RRC both hit our stop loss today.

We want to exit our VA trade tomorrow.

Current Portfolio:

BULLISH Play Updates

Interactive Brokers Group - IBKR - close: 31.04 change: +0.12

Stop Loss: 29.80
Target(s): To Be Determined
Current Option Gain/Loss: -0.4%
Entry on February 03 at $31.15
Listed on February 02, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 568 thousand
New Positions: see below

02/03/15: IBKR broke out to new multi-year highs today. Shares hit our suggested entry point at $31.15. I am a little disappointed with the stock's performance. IBKR only gained +0.38% versus the NASDAQ's +1.0% today. Looking at the intraday chart, investors may want to wait for a new rally past $31.15 or $31.20 before initiating new positions.

Earlier Comments: February 2, 2015
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.

*start with small positions to limit risk*

- Suggested Positions -

Long IBKR stock @ $31.15

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

Long MAR $30 CALL (IBKR150320C30) entry $1.85

02/03/15 triggered @ 31.15
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Abercrombie & Fitch Co - ANF - close: 25.78 change: +0.45

Stop Loss: 27.05
Target(s): To Be Determined
Current Option Gain/Loss: -3.5%
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

02/03/15: The market's widespread rally today helped ANF gain another +1.7%. Shares remain under what should be short-term resistance near $26.00. 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: 29.57 change: +0.29

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.3%
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

02/03/15: DISCA bounced toward the top of its recent $28.75-30.30 trading range. Fortunately gains faded pretty quickly and DISCA settled with a +0.99% gain.

I am not suggesting new positions at current levels.

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: 39.49 change: +0.40

Stop Loss: 41.60
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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

02/03/15: The bounce in GEF stalled right where it should have near its 10-dma and the $40.00 mark. More conservative traders may want to tighten their stop loss.

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: 35.23 change: -0.03

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

02/03/15: Airline stocks were one of the few groups that did not rally today. That's because rising oil prices are a bad omen for their fuel costs. Shares of VA closed virtually unchanged.

The last several days have been super volatile for VA. We are concerned that VA will be even more volatile following its earnings report. Earnings could be coming up soon.

Tonight we are suggesting an early exit tomorrow morning, at the opening bell.

- Suggested Positions -

Short VA stock @ $36.45

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

Long FEB $35 PUT (VA150320P35) entry $1.40

02/03/15 prepare to exit tomorrow morning
01/31/15 new stop @ 36.65
01/28/15 triggered @ 36.45
Option Format: symbol-year-month-day-call-strike


Tekmira Pharmaceuticals - TKMR - close: 24.23 change: -0.59

Stop Loss: 23.90
Target(s): To Be Determined
Current Option Gain/Loss: -8.4%
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

02/03/15: Biotech stocks did not have a good day. The group stuck out like a sore thumb while the rest of the market rallied. TKMR followed the rest of the biotechs lower and dipped to $23.12 before paring its losses. Our stop was hit at $23.90.

*small positions* - Suggested Positions -

Long TKMR stock @ $26.10 exit $23.90 (-8.4%)

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

MAR $27.50 CALL (TKMR150320C27.50) entry $1.60 exit $0.90 (-43.8%)

02/03/15 stopped out
01/31/15 new stop @ 23.90
01/27/15 triggered @ 26.10
Option Format: symbol-year-month-day-call-strike



Range Resources Corp. - RRC - close: 51.39 change: +3.58

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: -8.9%
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

02/03/15: Our aggressive trade on RRC did not pay off. The last three days have seen a significant rally in crude oil. This is fueling huge gains across the energy space. RRC is reversing higher off of multi-year lows. The stock soared +7.48% just today. Our stop loss was hit at $48.75.

- Suggested Positions -

Short RRC stock @ $44.75 exit $48.75 (-8.9%)

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

MAR $45 PUT (RRC150320P45) entry $3.80 exit $1.80 (-52.6%)

02/03/15 stopped out
01/30/15 triggered @ 44.75
Option Format: symbol-year-month-day-call-strike