Option Investor

Daily Newsletter, Thursday, 2/5/2015

Table of Contents

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

Market Wrap

Another Day, Another Rally

by Thomas Hughes

Click here to email Thomas Hughes
The ECB/Greek standoff was brushed off in favor of economic data and earnings reports.


The market bounced back from yesterday's ECB inspired sell-off. The ECB/Greek stand off is still an issue, and will likely be in the market eye into the near future, but was shrugged off today in favor of economic data and earnings reports. There was a flood of earnings today, both before the open and after the close of trading, but it was the names on the after-the-close list that garnered the attention. Early action, before the opening bell, was largely influenced by the economic data. There was both rear looking December data and some fresher January data, both more or less as expected with some signs of strength in the labor market.

Market Statistics

Futures were positive from the earliest reports I saw. The markets were indicated to open higher, but only just, until after the bulk of the economic reports were released at 8:30AM. The December and Q4 data was largely weak, and a little weaker than expected; The January data a little mixed but in line with trends. In total, the data reveals that labor trends are still strong, jobs are still being added, wages are rising and more hours are being worked. The only real negative I found is that declining oil prices are having an affect on labor in the oil producing regions, and that this affect could spill over into other sectors with close contact with the aforementioned areas.

The market opened positive, and moved higher right from the start. The indices gained roughly 0.75% by 11AM and traded sideways from there until after lunch. The early high was tested several times during the afternoon until finally falling to bullish pressure just before 3:30. At that time the market experienced a little pop that carried it higher and into the close.

Economic Calendar

The Economy

Challenger, Gray&Christmas released their tally of lay-offs for January. The number spiked by 63% from last month, driven primarily by the sharp decline in oil. At least 40% of the spike in lay-offs is attributed to oil prices by the report. This is alarming but not too unexpected as the fall-out and effect on labor from plunging oil has been speculated on for some time. In the report Challenger says that there may be continued job losses related to oil and that there is now some systemic risk present. Other jobs in industries supporting the oil industry and the communities built on the oil boom may be at risk.

The report balanced this view by saying that there are also positive effects to low oil that may overshadow the losses due to oil and result in a net positive for the country. John Challenger, CEO of Challenger Gray&Christmas, had this to say … “Despite the recent surge in job cuts, the net result of falling oil prices could ultimately prove to be positive for the economy, as a whole. Not only will many industries see cost savings, but consumers will have more money for discretionary spending on things like dining out, travel, and entertainment”

Challenger,Gray & Christmas

Initial claims for unemployment remain at long term lows. The number of claims for the first week of benefits rose by 11,000, less than expected, to 278,000. Last week's number was revised higher, but only by 2,000, leaving it standing as a low mark dating back more than 10 years. The four week moving average fell, shedding 6,500 come in at 292,750. On a not adjusted basis claims rose by 8.5%, more than double the 4% expected by the seasonal factors. The part of the report that is confusing is that no state reported a gain in claims, only declines, so I'm not sure how it is the headline number rose. Regardless, claims are very low and despite the spike early in the month appear to be pointing to net job growth despite the surge in lay-offs.

Continuing claims gained as well, 6,000 from an upward revision of 9,000 for net increase of 15,000 from last weeks reported number. Continuing claims are near long term lows and holding steady around 2.4 million. While slightly elevated from last years low these claims are still trending at levels indicative of a healthy labor market and overall decline in unemployment. To that end, the total claims number fell this week by over 131,000 to 2.839 million. The total number of jobless claims is also elevated but appears to be coming down from its peak at the end of last year.

All in all the jobless claims data suggests to me that while there was a spike in lay-offs the labor market is still strong and that jobs creation is steady in the least. The ADP figure yesterday helps to prove that point, It was mildly below estimates but still above 200,000 and according to Mark Zandi the gains in jobs reported by ADP was “broad” and that any number “above 200,000 is good”. I'm going to go out on a limb here and say that I believe the NFP could remain steady to strong in the 250,000 range. Oh, and there could be added volatility due to the revisions to previous months, and to the entire 2014, scheduled for this release.

Other data released today included rear looking Trade Balance for December and Productivity/Labor Cost for the 4th quarter. The December trade balance is a deficit of -$46.6 billion, up from the -$39.8 billion reported in November. This is due to a decline in exports and an increase in imports from the previous month. Analysts had been expecting a deficit of -$43 billion.

Headline unit labor costs and productivity were not great. Productivity fell by -1.8% in the fourth quarter and labor costs rose by 2.7%, both more than expected. Productivity was estimated at -0.5%, labor costs +1% but both more or less in line with the rest of Decembers data. The parts that I think make this report better than it appears is that total output for the quarter increased by 3.2% and that much of the increas in labor cost were due to hourly compensation, +.9%, and hours worked, +5.1%. Also, the manufacturing sector saw notable improvement as well. Output in the sector increased by 1.3% with a rise in hourly earnings of 1.5% and only a 0.2% increase in unit costs.

The Oil Index

The oil pits were bubbling hot again today. The price of WTI surged yet again, by more than 5% intraday, to trade above $50. Prices are caught in a whirlwind of trading activity that may cause volatility into the foreseeable future. Not only do supplies continue rise, there are signs production is/will be coming down in 2015 and some geo-political risk in the air including a new scramble by western leaders to try and calm the ongoing fighting in the Ukraine. As far as outlook goes there has been little talk of demand increase, and no sign of falling inventory, but there has been a little, a very little, improvement in some of the European and Asian data that could lead eventually to rising demand.

The Oil Index is benefiting from the rise in oil prices. The index traded up today, gaining 0.6% in today's session, but may be at a peak. Today's action is above the 38.6% Fibonacci Retracement but below resistance at the top of the two month range. Of the two, the resistance line would be more significant in my view. The Fibonacci is important, but as a place in which a signal may occur, but not as a signal itself. Adding to the idea the index could be at a near term top is the indicators, which are bullish but peaking, consistent with range bound trading. Oil prices, and oil price outlook, will be a fundamental driver of this trade. Should prices continue to rise, or even to remain at or near $50 this index could continue to rise. Resistance is currently at 1,400 with possible support at 1,350, and below that near 1,250.

The Gold Index

Gold prices continue to languish around $1265 and appear to be stabilizing just above $1250. Gold traders may be waiting for some sign of when to expect inflation will hit, or when the FOMC will actually raise interest rates, but the general consensus is that rates are going to rise, if not this year then next. News impacting that outlook may affect prices but any downside is likely to be short term in nature and possible entries for long term positions. I have read several articles this week talking about fund managers and others buying gold so expect to see dips result in buying opportunities.

The gold miners ETF GDX traded up today, gaining close to 1.25%. The ETF is moving higher, bouncing up from the short term moving average and support. The sector has been rallying as the underlying commodity rallied and stabilized and this may continue. There is resistance at the current level but earnings, and earnings outlook, may help it to break through. Resistance is between $22.50 and $23 ad earnings for the bulk of the companies in the ETF come out over the next two weeks. The indicators are bearish in the near term but convergent with a retest of the current high in the short term.

In The News, Story Stocks and Earnings

There was a literal flood of earnings reports today, primarily after the bell. There were quite a few surprises, most of them positive. Starting with GoPro, the company reported $0.99 per share, smashing expectations for $0.65. Revenue was also way above estimates and come on sales of 2.4 million cameras. The stock has been trading near a 5 month low after hitting it high last fall and shot higher following the report.

Twitter also smashed its expectations. The social media service that I have yet get on board with reported revenue and earnings above the consensus estimate. Revenue was $479 with EPS of $0.12. EPS is double expectations but forward guidance and active users are light so the stock sank in after hours trading, and then soared. At first check it was down by over 5%, a little later on it was up 5%.

Linkedin is yet another social media provider, and yet another earnings beat. The company reported revenue of $643 million, versus the expected $617 million, and EPS of $0.61 versus an expected $0.53. Guidance was mixed, the first quarter is light but the full year meets expectations. This stock also saw active buying in the after hours session.

Pandora internet radio reported earnings in line with expectations. EPS of $0.18 was just a penny shy of the consensus but it was the bigger miss on revenue that hurt the stock, and weak guidance. Shares of Pandora tanked, shedding more than 20% after the news came out.

The Indices

The indices were able to power higher today with an average gain over 1%. The Greek debt talks merely provided an additional entry point for bullish traders. Today's action, in many cases, has brought the indices up to their respective resistance levels and put them on the brink of reaching new highs. Today's action was led by the Dow Jones Industrial Average. The blue chips gained close to 1.2% in today's session and have now erased all of this years losses. The index is still below the resistance of the current all time but looks likely to test that level in the least. The indicators are bullish and confirming each other, along with the bullish movement, with only a break to new highs needed to get really bullish. Resistance is at or near 18,000 with support between 17,000 and 17,500.

The NASDAQ Composite is runner up today with a gain of 1.03%, a mere 0.01% higher than the S&P 500. The tech heavy index is moving up from the short term moving average and is just shy of potential resistance. Resistance is the current long term highs near 4,800. The indicators are bullish and on the rise so I expect a test of the highes in the least. This move has the hall marks of a trend following bounce but has yet to break to new highs so caution is still due. Support on a pull back is along the short term moving average near 4,700 and the long the term up-trend line near 4,600.

The S&P 500 finished third today with a gain just over 1%. The broad market created a white bodied candle that closed at the high of the day, right at the top of the 30 day trading range. The indicators are bullish and in confirmation of the move but a break above resistance is still required. Once above 2,063 there is additional resistance at the current all time high near 2,090. If the index pulls back from resistance strong support exists along the long term trend line in the range of 1,990- 2,020.

The Dow Jones Transportation Average brings up the rear today. The transports gained only 0.9% in today's session. Today's action created a white bodied candle, moving up from the short term moving average with bullish indicators. The index is moving higher, with rising indicators, but has yet to show strength and has yet to meet resistance. Resistance is the current all time high and top of the three month trading range near 9,250. The index is currently trading in the middle of this range with near term support along the moving average and long term support at the bottom of the range.

The indices rallied once again. And once again are approaching resistance at the top of current trading ranges and near long term/all time highs. It looks like they could break through, but the chance remains that they will not. Tomorrow's data is likely to be a catalyst for the market, whether it moves it up or down we'll see in the morning. I am still a bull, the long term trends are up, expectation for the rest of the year is good and I don't see any reason to think that the NFP or unemployment data will change that. It is possible we get a negative surprise, but as always one month does not make a trend, and any sell off sparked by such a dip is usually viewed as a buying opportunity. NFP is expected in a range around 235,000, unemployment is expected to hold steady at 5.6%, average earnings are expected to rise by 0.2% and the average workweek is expected to remain flat.

Until then, remember the trend!

Thomas Hughes

New Plays

Outperforming Its Peers

by James Brown

Click here to email James Brown


Total System Services - TSS - close: 36.60 change: +0.46

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 883 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Financial stocks as a group have struggled this year. The sector is down about -4% in 2015. Yet shares of TSS is up +6.4% and trading near all-time highs.

According to a company press release, "At TSYS® (TSS), we believe payments should revolve around people, not the other way around. We call this belief "People-Centered Payments®." By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend®, A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions. TSYS' headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEA and Asia-Pacific."

The last few earnings reports from TSS have come in better than expected. Their most recent earnings report was January 27th. TSS' CEO said, "We finished 2014 on a high note. Organic revenue grew 5.8%, year over year, with total revenues growing 18.5% and revenues before reimbursable items up 20.2%."

Wall Street was looking for a Q4 profit of $0.53 a share on revenues of $620.4 million. TSS delivered a profit of $0.58 with revenues climbing almost 9% to $635 million. The company's guidance was only in-line with Wall Street estimates but that didn't stop shares from soaring on the news. TSS management also announced a new 20 million share stock buyback program. That's significant since the company only has 183 million shares outstanding.

The stock's up trend has created a buy signal on the point & figure chart pointing to at $40.00 target. The last few days have seen traders buying the dip. TSS looks like it's coiling for a breakout past the $37.00 level.

Given the stock's recent volatility I am labeling this a more aggressive, higher-risk trade. Tonight we are suggesting a trigger at $37.05 to buy the stock.

Trigger @ $37.05

- Suggested Positions -

Buy shares of TSS @ 37.05

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Market Rebound Continues

by James Brown

Click here to email James Brown

Editor's Note:
The stock market's rebound this week continued on Thursday. Crude oil bounced after yesterday's big loss. Investors shrugged off concerns over Greece and its fight with the Troika.

CREE hit our entry trigger.

Current Portfolio:

BULLISH Play Updates

Cree, Inc. - CREE - close: 36.61 change: +0.90

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
Entry on February 05 at $36.55
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

02/05/15: Our new play on CREE is open. Traders bought the dip near $35.00 this morning. By the closing bell shares were hitting new highs for the week. The stock hit our suggested entry point for bullish positions at $36.55. CREE ended the day with a +2.5% gain.

Earlier Comments: February 3, 2015:
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.

- Suggested Positions -

Long CREE stock @ $36.55

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

Long MAR $35 CALL (CREE150320C35) entry $2.80

02/05/15 triggered @ 36.55
Option Format: symbol-year-month-day-call-strike

Interactive Brokers Group - IBKR - close: 32.14 change: +0.49

Stop Loss: 29.80
Target(s): To Be Determined
Current Option Gain/Loss: +3.2%
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

02/05/15: IBKR continues to show relative strength. Today shares added another +1.5% to close at multi-year highs. I am not suggesting new positions at current levels. The stock is challenging its all-time highs from 2008 in the $32.00-32.50 area.

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

Informatica Corp. - INFA - close: 42.50 change: +0.53

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 04, 2015
Time Frame: 6 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: Yes, see below

02/05/15: The rally in INFA continued with a +1.25% gain on Thursday. Unfortunately the intraday high was only $42.58. Our suggested entry point to launch bullish positions will likely be hit tomorrow at $42.65.

Earlier Comments: February 4, 2015:
INFA is in the technology sector. The company was getting a lot of attention last week as speculation soared they could be up for sale. The company describes itself as "Informatica Corporation (INFA) is the world's number one independent provider of data integration software. Organizations around the world rely on Informatica to realize their information potential and drive top business imperatives. Informatica Vibe, the industry's first and only embeddable virtual data machine (VDM), powers the unique 'Map Once. Deploy Anywhere.' capabilities of the Informatica Platform. Worldwide, over 5,500 enterprises depend on Informatica to fully leverage their information assets from devices to mobile to social to big data residing on-premise, in the Cloud and across social networks."

The stock had a relatively rough 2014 but appeared to bottom after investors sold the stock following its July earnings report. Things turned interesting last week. On January 26th the stock soared on news an activist investors was getting involved.

Bloomberg news said that hedge fund Elliott Associates was boosting its stake in INFA. This was later confirmed in a 13D filing. Elliott now owns an 8.8% stake in INFA. Elliott's manager, Paul Singer, said he might suggest to INFA management that they sell the company to unlock shareholder value. Shares of INFA soared on this news because Elliott Associates has had previous success pushing other companies to sell themselves.

There are critics. Some analysts believe this story to sell INFA is a fantasy. Wall Street is not a place to let the truth get in the way of a good story. Shares of INFA soared on speculation it could be up for sale (eventually). The very next day INFA reported its Q4 earnings. Results were better than expected.

INFA delivered a profit of $0.56 a share with revenues rising +10% to $303.7 million. That beat analysts' estimates on both the top and bottom line. INFA said their Q4 software revenues hit a record $150.2 million, up +12% from a year ago. They also signed a record-setting 41 deals worth more than $1 million and 145 deals worth more than $300,000. Their subscription revenues rose +53% year over year.

INFA management also announced a $500 million stock buyback program. The Board of Directors approved an additional $337 million to boost their current program. They will spend $300 million in an accelerated share repurchase program.

The combination of the activist investors news and the better than expected earnings results produced a strong one-two punch to the bears. INFA soared. There hasn't been that much profit taking. It looks like traders have started to buy the dip.

Tonight we are suggesting a trigger to open bullish positions at $42.65. We suspect that INFA will be able to breakout past its early 2014 highs in the $43.50 area.

Trigger @ $42.65

- Suggested Positions -

Buy INFA stock @ (trigger)

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

Buy the MAR $42.50 CALL (INFA150320C42.50)

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

BEARISH Play Updates

Abercrombie & Fitch Co - ANF - close: 25.82 change: +0.32

Stop Loss: 26.55
Target(s): To Be Determined
Current Option Gain/Loss: -3.7%
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

02/05/15: It's been a bullish week for the broader market. That's been tough on our bearish play. Thus far ANF has continued to fail at resistance in the $26.00 area.

Tonight we are adjusting our stop loss down to $26.55. Readers may want to wait for a new drop under $25.00 before considering new bearish 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

02/05/15 new stop at $26.55
Option Format: symbol-year-month-day-call-strike

Discovery Communications - DISCA - close: 29.19 change: -0.91

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: +4.5%
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

02/05/15: Thursday was a good day for DISCA bears. The market delivered widespread gains but DISCA ignored the bullish environment and reversed lower instead. Shares underperformed with a -3.0% decline.

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: 39.80 change: +0.95

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
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

02/05/15: Shares of GEF were not cooperative. The market's broad-based gains helped fuel a bounce in GEF. Shares outperformed the market with a +2.4% rally that stalled just below round-number resistance at the $40.00 mark.

I am not suggesting new positions. Tonight we are moving the stop loss down to $40.35.

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

02/05/15 new stop at $40.35
01/26/15 trade began this morning. GEF opened at $39.94