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Daily Newsletter, Saturday, 6/20/2015

Table of Contents

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

Market Wrap

Russia, China, Greece

by Jim Brown

Click here to email Jim Brown

The headline standoff between Greece and the IMF, EU and ECB continues as the countdown clock continues to wind down. Another series of emergency meetings are scheduled for Monday and the outlook has not changed despite the severity of the looming disaster. Equities sold off ahead of the weekend event risk.

Market Statistics

Speaking at an economic forum in St Petersburg Greek Prime Minister Alexis Tsipras warned that Greece had other "friends" it could turn to for help if the talks with the Troika failed next week. He was implying that Russia and China would kick in some cash in exchange for some future favors. He has held several meetings with Putin and while nobody has said so publicly the price for a Russian bailout is probably an agreement to base a Russian fleet in Greek harbors. That would be a major security issue for the eurozone and something they do not want to happen. The Chinese could offer Greece a bailout in exchange for a similar foothold in Southern Europe. This is also a nonstarter for the EU.

When Tsipras spoke he said the problem of Greece was not a Greek problem but a European one. Putin repeated that claim saying Tsipras was right. "If you owe someone a lot, then it is already not your problem but the problem of the one you owe. That is an absolutely correct approach."

However, the EU cannot keep pouring money into Greece because it is a bottomless pit. The money they are fighting about today is about 7 billion euros of undistributed cash from prior agreements. Greece has a 1.5 billion euro payment due to the IMF on June 30th and 7.5 billion due to the EU and ECB in July and August. If a deal is struck the funds will only rest in the Greek accounts for a few days before going right back to the IMF and EU/ECB. Loaning Greece money to pay interest payments on the existing loans is like getting a cash advance on your credit card to make the monthly payment.

Greece is bankrupt and everyone knows it. Tsipras said it is the fault of the Troika. They should have never loaned us the money because they knew we could not pay it back. His solution is for the Troika to forgive the debt of about 340 billion euros or at least reduce the principal amount significantly.

Greece cannot pay its own government expenses much less pay interest on the bailout debt. This entire process over the last five years has been a slow motion train wreck. What happens next week will only be one more step in the Greek exit process.

I do not expect the Greek headlines to go away. I believe we will see another interim deal where the EU kicks the can down the road to give everyone some breathing room. They will continue to extend the terms on the debt and pretend Greek will eventually pay it off. At this point, hope should not be a strategy for the EU. Unfortunately, they have too much wrapped up in this eurozone experiment and they cannot afford to abandon it. Spain, Italy and Portugal are waiting patiently and watching to see what happen to Greece. If the EU reduces the principal on the existing bailout loans those other countries will immediately demand a principal reduction on their bailouts as well.

While Greece has reached the 11th hour in the negotiations, it is a bogus deadline. Regardless of what happens the problem will remain. Greece will still be bankrupt. The equity market will just have to get over it and move forward. Traders are already fatigued over the multiyear process. They are somewhat complacent that a deal will get done or extended because it has always happened in the past. Over the last five years the Greek debt has been restructured to where the IMF, EU and ECB own 90% of it. The equivalent of a Greek bankruptcy should be relatively contained and not impact the rest of Europe. Draghi will dump several hundred billion euros of QE into the market and the Greek impact will only be a blip on the chart.

I am done with Greece. I am sure our readers are done also. I wish there was really going to be a resolution next week and the problem disappear. Unfortunately, that is not going to happen and we just have to ignore the headlines in the months ahead. I believe that once the disaster headline appears the market will get over it quickly. I just wish the EU would rip the Band-Aid off and end the uncertainty.

There were no material economic reports in the U.S. on Friday. Next week is a full calendar with Greece the headliner on Monday. The EU Finance Ministers are holding an emergency meeting at 9:AM ET on Monday. About four hours later the EU leaders will meet and decide how they want to proceed. After these meetings the ECB will make a decision on how much longer they are going to continue supporting the Greek banks. Reuters said another 2.2 to 2.7 billion euros were withdrawn on Thursday and Friday. That is in addition to 2 billion that were withdrawn in the first three days of the week. The ECB gave them another 3 billion on Friday in order to keep them open through the weekend. The ECB has advanced the banks 83.7 billion euros under the emergency liquidity assistance (ELA) program to prevent the banks from failing. Without the daily support of the ECB the Greek banks could not open for business and the disaster would begin.

Donald Tusk, the head of the EU Council put out a video on Friday. He said on the video, "This game of chicken needs to end. The blame game also needs to end. This is not a game and there is no time left for games." He warned that there would be catastrophic consequences if there were no resolution. Tusk Warns on Default

There is a flurry of economic reports with home sale, Richmond Fed Manufacturing and the GDP revision the most important for me.


UnderArmour announced a 2:1 split but the new shares will be class C shares with no voting rights. Google did this a year ago and was sued for it but they won the suit. UnderArmour will announce the split dates after the board meeting on August 26th.

Netflix is the most heavily anticipated split but still no word on the date or ratio.


The European markets closed mostly positive so it did not appear they were too concerned about the impending crisis over Greece. The German DAX has been weak because investors are afraid Merkel will do something to end the Greek problem and it will cost Germany some more money.


The Chinese markets are in correction mode with a -13% decline for the week on the Shanghai Composite. It was way overdue after a +160% rally over the last 12 months. It is too soon to know if the bubble is bursting of if this is just a needed pause. Chinese citizens have been opening new brokerage accounts at the rate of 3 million a week and a clear example of irrational exuberance. This comes at a time when the Chinese economy is declining to the lowest level in 19 years. This was the worst week for the Shanghai market since 2008.



The U.S. equity market may have sold off on Friday but investors were buying treasuries in a flight to quality ahead of what could be a rocky week. Yields have fallen from 2.49% on the 10th to 2.267% at Friday's close. If Europe self-destructs next week because of Greece, some investors wanted to be in the safety of treasuries. With the FOMC statement and Janet Yellen avoiding any direct mention of timing for the first rate hike some investors felt the coast was clear for at least three more months.


San Francisco Fed President John Williams was not following the party line on Friday. In a speech he said the Fed should raise interest rates twice this year. "My own forecast would be having us raise rates two times this year, but that would depend on the data." His expectations for economic growth are better than Yellen's. Williams wants the Fed to raise rates earlier so it can afford to tighten gradually. He is worried that rising oil prices and the dollar could cause inflation to rise faster than expected and force the Fed to tighten faster and that would disrupt the markets.

In the Fed's dot-plot seven officials projected fewer than two rate hikes in 2015. Five projected two increases and another five projected three increases. Clearly some on the Fed are way out in left field based on the economic data. You have to wonder if they are "projecting" those extra rate hikes to shock the markets and create volatility on purpose. There are no names attached to the plots so the survey is anonymous.

Basically each Fed official places a dot where they think the interest rates will be at the end of each year. By assuming each rate hike will be 25 basis points you can calculate how many rate hikes would be needed to reach the average.


There was little news in the equity market and that probably accounted for some of the profit taking. There was nothing to keep investors enthused after the new highs on Thursday. Ambarella (AMBA) was a big mover after short seller Citron Research called the share price "ridiculous" and slapped a $60 price target on the stock. Citron is known for high profile short calls and quite a few fail to decline as Citron expects. I guess loading up on shorts and then making a high profile and highly questionable claim is one way to invest.

Ambarella makes chips for high definition audio and video cameras. One of their major customers is GoPro. Citron said their chips are becoming a commodity item and they are "coming up short in the innovation department." Most analysts disputed the Citron call as just another headline grab.

They IPOed in October 2012 at $6 and shares are up +1880% to $128 on Thursday. I had been hoping for a correction to get an entry point since mid May when they began exploding higher and broke above uptrend resistance. Maybe this is going to be my chance. They will have to drop about $20 more to make it interesting enough to go long.


Twitter shares rose +3.5% in a bad tape. MKM partners put out a note saying the social networking company could grow to a valuation of $100 billion if it executes on its strategy to grow and monetize its user base. Twitter's market cap was $23 billion on Friday. Analysts also liked the new changes Twitter announced in Project Lightning that include ways to monetize users that don't have accounts and increase the stickiness to the Twitter website through curated events. Twitter editors would pull together related threads and content surrounding high profile events like a music awards show, price fight or sporting event. Twitter also bid on streaming NFL games.

Twitter is also testing product pages that would make it easier to shop. The new feature would organize tweets on dedicated pages which feature images and video of the product along with the description, price and an option to buy or visit the website for more information. I think it is way too early to count Twitter out. Whether they rebound and thrive on their own or are acquired by somebody like Google, Microsoft or Apple, they will be around for a long time and once they figure out the right combination of features the users will come.


Hershey (HSY) shares declined -3.5% after they warned on full year earnings. The company said sales growth would be 2.5% to 3.5% compared to prior forecasts for 4.5-5.5%. Earnings per share forecasts were cut from $4.30-$4.38 to $4.10-$4.18. The company said weak sales in China were to blame. Q1 sales in China were only half the same period in 2014 and missed forecasts for April and May. Hershey said slowing economic growth in China had forced consumers to cut back on spending even during the festive holiday seasons.

The company is also struggling in the U.S. because health conscious consumers are buying less candy. Hershey said it was also reassessing the value of Shanghai Golden Monkey Food, which it had agreed to buy for $584 million in 2014. Hershey is scheduled to acquire the remaining 20% stake in September. I suspect a problem for Golden Monkey in getting that final 20% without a haircut.


Micron (MU) was cut to a sell by Morgan Stanley on Monday and shares fell to a 52-week low at $23.70. On Friday Topeka Capital Markets upgraded the company from hold to buy and raised the price target from $30 to $34. Shares closed at $24.47. The analyst said he was encouraged by the cost improvements in the DRAM chips, steady improvement in TLC 3D NAND that could drive an inflection point and a commitment to returning capital while maintaining a competitive capex level. Improvement in technology is reducing costs and improving margins.


KB Homes (KBH) reported earnings of 10 cents compared to estimates for 8 cents. Revenue of $623 million rose +10.3% and beat estimates for $619 million. Net orders rose +33% to 3,015 homes. They delivered 1,787 in Q1 with an average selling price of $338,500. Net orders rose +38%. Shares rallied +9% on the news.


Conagra (CAG) shares rallied +11% after activist investor Jana Partners disclosed a 7% stake and intentions to nominate three board members. Jana accused the company of underperforming and shareholder wealth destruction. Conagra markets dozens of brands of prepared foods from Peter Pan, Reddi Whip, Hunts ketchup, Slim Jim jerky, Snack Pack pudding, Rotel, Healthy Choice, Swiss Miss, Wesson Oil, La Choy, Orville Redenbacher, Tennessee Pride, Egg Beaters, Wolf Brand Chili, Manwhich, Pam, Van Camps, Rosarita Beans, Ranch Style Beans, Fleischmann's, Blue Bonnet, Parkay, etc. Conagra said it would be willing to engage with Jana after their earnings on June 30th.


Oppenheimer raised the price target on Netflix (NFLX) from $610 to $800 and maintained the outperform rating. Analysts said this was based on the aggressive plans to enter multiple overseas markets in 2015. Netflix plans on entering Spain, Cuba, Japan, Italy and Portugal in 2015. They already launched in Australia and New Zealand in March. The majority of the costs were incurred in building out the original platform in the U.S. and additional costs to expand into other countries are minimal. Still no word on the pending stock split.


Martha Stewart Living Omnimedia (MSO) shares rallied +12% on Friday after a +26% spike on Thursday. Sequential brands (SQBG), owners of Linens N Things and the Franklin Mint, appears to be near a deal to acquire MSO. All I can say is thank you. Martha Stewart has posted losses in three of the last five quarters and revenue growth has declined every quarter for the last 14 quarters. It is about time somebody put MSO out of its misery. No price was given and no deal has been completed but talks are nearing completion.


There are 17 IPOs scheduled for next week that will raise a total of about $2.5 billion. That alone will take some of the air out of the market as discretionary funds are used to purchase those shares. There are three energy stocks, three cloud stocks and four healthcare stocks plus credit reporter TransUnion and a variety of others.

Companies scheduled to price this week:

Alarm.com
Xactly Corp
CNX Coal Resources LP
Glaukos
AppFolio Property Manager
Pieris Pharmaceuticals
TransUnion
Green Plains Partners LP
Catabasis Pharmaceuticals
Wayne Farms
Milacron
Seres Therapeutics
Gener8 Maritime
Principal Solar
Lantheus Holdings
Ritter Pharmaceuticals
Yulong Eco-Materials

Read these next paragraphs carefully there will be a test at the end.

Baxalta (BXLT) will replace QEP Resources (QEP) in the S&P-500 after the close of trading on June 30th. Priceline (PCLN) will replace Baxter International (BAX) in the S&P-100. Baxter is spinning off Baxalta later this month.

QEP will replace Itron Inc (ITRI) in the S&P Midcap 400 and Itron will replace Arch Coal (ACI) in the S&P Small Cap 600.

Skechers (SKX) will replace Rock-Tenn (RKT) in the Midcap 400. MiMedx (MDXG) will replace Skechers in the Small cap 600. MeadWestVaco (MWV) is merging with Rock-Ten and the merged company will change its name to WestRock and remain in the S&P-500.

HealthEquity (HQY) will replace Zep (ZEP) in the Small cap 600. PE firm New Mountain Capital is acquiring Zep in a transaction to be completed on June 25th.

Test question: Who is on first? (Abbott & Costello skit)

Crude prices were flat for the week with only a 29-cent decline. The volatility in crude prices has evaporated and the narrow range is shrinking ahead of the July 4th weekend. This is typically the peak for prices in both gasoline and oil. The U.S. average for gasoline rose to $2.80 per gallon but that is still well below the same period in 2014.

There is also a new challenge for the oil market. The International Energy Agency (IEA) tracks oil production and demand all around the world. In their monthly numbers there is an "adjustment" for barrels they can't find or don't know where they went. In Q1 that adjustment was 1.2 million barrels per day or Mbpd. In Q4 it was 1.6 Mbpd. Those are the highest numbers since reporting began in 1998. The IEA claims there is 2.0 mbpd of excess production today. In theory if there was that much excess then global inventories should be rising by 2.0 mbpd. Unfortunately, they are only rising by 800,000 bpd so the IEA has to reconcile this discrepancy.

If they revise the Q1 numbers as they have in the past then demand estimates could rise by as much as 1.2 mbpd and that would be a monster plus for the oil market. Oil prices could explode higher if it was learned that excess production had declined to only 800,000 bpd and demand was significantly higher. While we wait for the IEA to balance their numbers the oil market is in limbo with prices hovering right at $60.

Because of the potential impact to prices I expect the IEA to cover over their accounting irregularities and modify the results on a monthly basis as we move through the year. "Discovering" an error that large would hurt their credibility but they can fix it by adjusting the numbers by a smaller amount every month.


The active rig count declined by -2 rigs last week to 857. Active oil rigs declined by -4 to 631 and a ten-year low. Gas rigs gained +2 to 223. Offshore rigs declined -2 to 27 and are now -32 rigs lower than the same period in 2014.


Markets

The S&P lost -11 points to close at 2109 on Friday. That ended the streak of positive gains at three days. The S&P has not been up four consecutive days since January. That should give you some clue as to how volatile yet range bound we have been over the last three months.

The S&P rebounded to resistance at 2120 in the Thursday short squeeze and immediately began to weaken. The selling on Friday was persistent and volume was high at 8 billion shares. Volume should have been high because of the quadruple witching options expiration and a minor rebalance of the S&P-500 at the close.

If we only look at the chart and not try to pin any historical trends to the week's trading then the outlook remains slightly bullish for the big caps. However, the week after June expiration is historically negative with declines in 22 of the last 25 years. I chalk that up to funds restructuring and window dressing their portfolios ahead of the midyear statements. That is just my opinion.

In late May I discussed the possibility for June to end higher in contradiction to various historical patterns. If we ended the month here that prediction would have come true. However, there are seven trading days left in June and anything is possible. That is especially true given the disaster playing out in Greece.

The internals on the S&P improved slightly with Thursday's short squeeze but not enough to proclaim the worst is over. The percentage of S&P stocks under their 200-day average fell to 61.8% at Friday's close. The 50-day percentage improved a little more from the 34.3% reading early in the week to 52.4% on Friday. However, that is a short-term average and changes should be more dramatic.

The volume was 3:1 in favor of advancers on Thursday and not as strong as you would have expected given the big gains in the indexes. Volume on Friday was just over 2:1 in favor of decliners. It was hardly a landslide but a lot of that volume was rebalance shares and that skews the ratios.



Possibly a more revealing chart is the Bullish Percent ratio for the S&P. Only 62.2% of the S&P stocks have a buy signal on a point and figure chart. That is the second lowest reading for the year and the third lowest over the last two years. This chart is not bullish.


There is the potential for a head and shoulders formation using the rally to 2120 back in April as the left shoulder. If that pattern completes with the neckline at 2080 we could easily be looking at a drop to 2040. I am not claiming that as a pattern today but the possibility exists.

Support is now 2100, 2090 and 2075. Resistance is 2120 and 2130.


The Dow punched through resistance at 18,100 on Thursday but then fell back to close at 18,113 and just above that prior resistance. It gapped down on Friday and never looked back to close at the low of the day at 18,011. That 18,100 level has been resistance since December and although it has been pierced numerous times the Dow always fell back below almost immediately. The two major breakouts lasted about a week before giving back their gains.

Support at 17,800 eroded to 17,750 but it also has been firm except for some intraday incursions. That gives us a range of about 17,750 to 18,150 for the Dow to wander without having to pick a direction.

I went through the charts for all 30 Dow stocks again and conditions have improved. There were five with an uptrend, six neutral and 19 with a negative trend. Many with a prior negative trend had 2-3 day spikes but were not enough to make a higher high and break them out of their downward trajectory. The neutral stocks did have bounces that put their prior trends in jeopardy but not enough to class them as positive. With 19 in a negative trend and only 5 positive, the Dow is going to have a tough time punching through overhead resistance without a breakthrough resolution in Greece.



The Nasdaq is giving us mixed signals. The Nasdaq Composite broke out to a new high, thanks to the biotechs, but the Nasdaq 100 is still lagging. The big caps are struggling with things like earnings and the strong dollar while the broader composite has a lot of smaller stocks that are not exposed to those overseas concerns.

The Composite index declined only slightly on Friday with a -16 point drop but remained over prior resistance at 5100. The composite index is still in breakout mode.

The NDX is still fighting resistance at 4540 and it declined a steeper -18 points on Friday. Until big caps come back into vogue, the NDX is going to be challenged.




The Russell 2000 small caps were the picture of strength on Friday. After surging to a new high close at 1284.68 on Thursday, they declined only -0.0154 points on Friday. That is as close to breakeven as you can get. They held their gains despite a negative day on the big cap indexes.

This has to be window dressing by the funds for small caps to be favored ahead of the summer doldrums when they do not normally perform well. We stand a good chance of seeing some window undressing in early July.


The Dow Transports are trying to recover but are really struggling. Three times now they have rebounded off the 8260 level but after the first bout of short covering they turn negative again. Friday's high was another lower high and the index closed on the low for the day. Despite their attempt to pull themselves back into relevance the Transports still lost -5 points for the week and the only major index to lose ground.

If the Transports dip back to that 8260 level again I would not expect it to hold. The fourth time is rarely the charm.


With the market historically weak after June options expiration, I would not be too positive about our chances for a continued rally. With the potential for Greece to self-destruct early in the week that is another negative influence.

However, if by chance the EU decided to kick the can farther down the road and throw Greece a lifeline on Monday the markets could explode higher on short covering. This continues to be the most hated bull market in history and investor participation is very light. That means there are a lot of investors on the sidelines waiting for the eventual correction. The S&P averages a 15% correction every 430 days and we are well over 900 with not a dip in sight.

On the plus side Bank of America said $10.3 billion in cash flowed out of the bond market last week and $10.8 billion flowed into equities. There is a chance the "great rotation" is near. Bank America Risk has Been Reset If that is the case there is plenty of firepower still lurking in the bond market. Since the 2009 lows more than $600 billion has flowed into the equity market. Over the same period more than $1.3 trillion flowed into bond funds. Once interest rates really do begin to rise a lot of that cash is going to rotate into equities and the rally will be huge. That could be triggered by Fed action in September, which is the worst month for the equity market with many market lows set in September and October. What a perfect time for cash to come roaring out of the bond market.

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Random Thoughts

Apple (AAPL) is suffering from the Dow Curse. Historically companies tend to rally in the three months before they are included in the Dow but then underperform in the months that follow. I wrote about this when the announcement about Apple's inclusion was made. Since 1999 sixteen stocks have joined the Dow not counting Apple. On average those 16 stocks gained only +1% in the six months that followed compared to an average 11% gain in the six months prior to inclusion. The theory is that the outperformance in the stocks brings them to the attention of the Dow committee. Once they are included the news fades and so does their stock price.

Apple is three months into its Dow experience and shares have declined -0.5% compared to a 13% gain in the prior three months before their addition. Birinyi Associates carried the analysis one-step further. According to Birinyi the 16 companies added after 1999 declined on average -7% over the next year after rising an average of +25% in the year before their addition. Dow Curse Alive and Well

I guess the play here would be to short every Dow addition with a 12 month time horizon.


Greece has already spent all its available funds for salaries, pensions, expenses and prior bailout payments. They have already pillaged the funds held by banks and many suppliers have not been paid in months. Tax revenue is rapidly declining because of the expected government default. Everyone is holding what cash they have rather than pay their taxes and see the money evaporate just when they need it the most. Greece has ordered all public authorities to hand over all spare cash to the central bank. That means government services have no money. Every euro that comes into the service goes straight to the government. Every month sees tax debts to Greece rise by 1 billion euros because nobody is paying. Tax Debt Rises 1 Billion Euros a Month

Even if a deal was reached next week the country is still bankrupt. Giving them the 7 billion euros of previously authorized bailout funds only pays for the interest payments due on the bailout through July. There would be no money to operate Greece and pay salaries, etc. This will eventually end badly regardless of what happens this week. The most likely resolution is another extension of some kind to kick the can farther down the road. Everyone knows Greece cannot pay. The EU either kicks Greece to the curb or makes a conscious decision to support them for years to come.

Alexis Tsipras said on Thursday, "Without a deal that undoes some of the punishing austerity, we will assume the responsibility to say 'the great no' to a continuation of the catastrophic policies." That means without reducing the principal on the 340 billion euros of debt and ending the austerity demands currently levied on Greece, he will just default and let the chips fall where they may. Understanding Greek Demands


JP Morgan warned that "the collateral has run out" and the ECB will use the nuclear option if no deal on Monday. If no deal is reached the ECB will likely cut off aid to Greek banks under the ELA program. That would mean bank closures in Greece and bring the economy to a screeching halt. Nuclear Option


The FOMC post meeting statement is always scrutinized word by word for any minor changes that could suggest the Fed's next move. They normally only change a few sentences and a word here and there. The only way you can really understand what changed is to compare each sentence with the same sentence in the prior report. I know that sounds really boring but people do it. Fortunately, some of this analysis is posted online for the rest of us. Here is the word for word comparison with notes supplied by David Merkel. Worth a read. Redacted FOMC Statement

"The Fed itself doesn’t know where the economy will be next month, quarter or year. It never has. It never will. Economists don’t know either." Josh Brown.


Goldman said after the Fed statement and press conference the Fed will not raise rates until December or later. This was a change in their earlier forecast for a September rate hike. Prior to Wednesday 72% of economists projected a rate hike in September. Goldman said Yellen's characterization of the economy as "lukewarm" caused a reset in the outlook for a September move. Goldman - No Hike until December


It is probably not a surprise that the AAII Sentiment Survey changed dramatically last week. The very high neutral readings at 47.4% declined sharply to 40.3%. However, not all of those investors rushed into the bullish camp. Of the 7.1% that changed their neutral view, only 5.4% turned bullish to push the bullish sentiment to 25.4%. Another 1.7% turned bearish to lift the bearish total to 34.3%. The long-term bullish average is 38.8%, bearish 30.3% and neutral 30.9%. We are still above normal on neutral and bearish and well below normal on bullish.

The record string of 10 straight weeks of neutral sentiment over 45% was broken this week. The prior record was six weeks in 1998.



Quite a few traders are betting on a monster market drop. The Put/Call ratio on the Volatility Index ($VIX) at 0.28 is the lowest since the summer of 2008. That means there are more call bets on a rising VIX than put bets on a falling VIX. The VIX goes up when markets go down.

This could be insurance bets against a long portfolio or simply bets that we are headed for a significant decline. There is a mixed opinion on what this means for market direction. On a contrarian basis it would appear everyone is leaning bearish and we could be setting up for a decent rally. OR, a lot of traders are right about market direction and the market is about to decline. Good analysis here with pros and cons


Frank Zorilla had a good article on Thursday about fund managers being prepared for a correction. Various surveys making the rounds in the analyst community show that active managers have the least amount of equity exposure since the October dip.

He points out that large speculators held about 12,000 more short positions in the S&P futures than long ones as of June 9th. That is the highest number of bearish bets since October. Funds Prepared for Correction

Number of fund managers that have bought protection for the next three months.


National Association of Active Investment Managers Exposure Index (NAAIM) shows equity exposure at 60% despite the market being at record highs.



 

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Jim Brown

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Index Wrap

Tech Leads Stocks Higher But Not Convincing All

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

I have to be bullish with the breakout of the Composite and the Russell 2000 to new highs. Yet to come is whether tech strength can pull up the broad market.

I'm safest in the current still-nervous investor climate, and some waning summertime interest, to steer you to my individual commentaries below.

The S&P 500 Volatility Index (VIX):

No change in my view to buy the VIX index in the 12 area and exit in the 15.5-16 area. The trading range market of the past 3-4 months has not generated VIX readings above 16, at least not for long.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) remains bullish. This is seen visually with recent lows rebounding from the exact low (support) end of SPX's broad uptrend channel. A next suggestion of upside momentum came by the Index piercing its down trendline.

Resistance aspects are selling pressures likely in the 2120 area, on up to the 2130-2136 zone. Above this zone of prior highs, further resistance at 2147 to 2150 is suggested at the high end of SPX's broad uptrend channel. On the support outlook, look for pivotal near-support at 2100, extending to 2090. Trendline support comes in just under 2080.

SPX appeared to have bottomed around the time of the Relative Strength Index (RSI) having reached a 'fully' oversold reading. From such 'extremes' at the low end, its common to see an eventual move back up to the UPPER end of the price channel.

A decisive upside penetration above the 2130-2135 area is what will signal the overall market as out of the doldrums or having priced in any overseas bearish negative. Given such new highs I don't measure major further upside potential; e.g., 2147-2150.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is bullish as the Index continues to track higher within its broad uptrend channel. Recent lows at the low end of its bullish channel 'confirmed' so to speak the broad uptrend that OEX is in. The OEX in fact spiked higher after the Index found support in the area of its up trendline which also forms the low end of OEX's uptrend channel highlighted below.

Next up for the bulls is whether OEX holds near support at 935 and can climb above resistance at 935-938 or not; if YES, upside potential is to the top end of OEX's uptrend channel intersecting at 947 into next week at 950. If NO, we could see another sideways trend between 935-938 down to the 915 area and back up.

925 is near support, extending to 920 and finally back to OEX's up trendline in the 915 area.

THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:

The Dow 30 (INDU) is bullish in its longer-term trend but faces tests of support in the 18000 area and of resistance at 18100-18200. Assume 18000 gives way: next support is seen at 17900 then at 17800-17780, at INDU's up trendline. Conversely, a sustained advance above 18200 suggests potential to 18370-18400.

The Dow found substantial support/buying interest at the low end of its uptrend channel at recent lows. Given this, INDU's uptrend may be 'confirmed' technically but remaining is whether the Average can maintain recent upside momentum; OR, is likely to see more of the sideways/lateral trend of the past few months.

It looks like a tough chore in the coming week for the Dow to climb above 18200. When/if 18200 gives way fairly major resistance comes in at prior highs in the 18350 area on up to 18370, highlighted at the top end of INDU's broad uptrend channel seen below.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) is bullish and has been bullish for the period shown as is visually seen in the uptrend channel within which COMP is trending higher. The most recent move to new highs after a gap move above the 21-day average suggested a new up leg in the Composite has begun.

Near resistance is seen at 5150; more of an 'ultimate' objective and next resistance comes in around 5200, at the upper end of COMP's uptrend channel. I anticipate further upside for COMP from current levels, but it wouldn't negate a bullish view to see a pullback to the 5100 area. 'Better' so to speak chart strength is suggested when prior resistance 'becomes' next support.

Support below 5100 is highlighted at 5050; fairly major support is suggested at COMP's up trendline intersecting in the 5000 area and the low end of the uptrend channel seen below.

Trader sentiment remained more or less neutral into the end of the week, which is a surprise since the Index broke out above prior key resistance handily. Emm, traders should learn technical analysis! As a bull on tech in here I'll feel strongest in long positions when a good-sized rally, a breakout move, doesn't shift bullish trader 'sentiment' above mid-range in my CPRATIO indicator. When everyone gets wildly bullish get wildly cautious!

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nasdaq 100 (NDX) is bullish and currently trading midway within its broad uptrend channel stopping again at twice prior resistance in the 4550 area. Given that the broad Composite (COMP) Index has achieved recent new highs, the question seems when not IF the big cap Nas 100 pierces the line of resistance at 4550-4560 and begins a new up leg such as could carry the Index to 4600 or higher like near 4650 and my highest upside objectively currently.

Dips to 4490-4500 should offer initial support with stronger deeper support suggested at 4450. The low 4400 area offers fairly major support. Just as a sustained 'breakout' above 4550 is bullish, a 'breakdown' below 4400 is intermediate-term bearish.

A low VXN and 'neutral' RSI mid-range reading are indicator support for the idea of 'room' on the upside for NDX.

The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) is bullish given its rebound from its up trendline and subsequent move above its 21-day moving average. (Note: an internal up trendline is one that connects the MOST number of prior lows and often 'cuts through' some prior lows.) QQQ, like NDX and unlike the broad Composite Index, has not yet achieved a new high which in QQQ is above 111.

The pattern here could be seen as a possible triple top. We don't see all that many triple tops in the indexes, unlike the more common 'double top'. Often a third approach to a prior resistance is going to end up in an upside breakout in the major indexes; in individual stocks, less so.

112 looks to be a next resistance. Fairly major resistance comes in around 114. Near support is highlighted at 109, extending to the up trendline currently intersecting in the 108.3 area.

Thursday's strong rally occurred on a sizable jump in daily trading volume which is unusual in the Q's where volume spikes come more often on sizable downside reversals. The volume spike along with prices suggests traders may assume new highs will be made. A sustained new up 'leg' would be suggested on a breakout above 111 if this area then 'became' support on subsequent pullbacks; prior resistance, once penetrated, often 'becomes' new technical support. Stay tuned.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart continues bullish, especially so now that RUT has pushed to a new high above prior resistance at 1275-1278. RUT is also continuing to follow the Nasdaq Composite in its mirror move to a decisive new high in the current advance.

RUT will likely encounter significant technical resistance at 1290-1292, at the top (resistance) end of the Index's uptrend price channel. Next resistance looks to come in at 1300. Near support is highlighted at 1270, although initial support may come in around 1280. Trendline support is seen in the 1260 area.

Another technical aspect seen below is that the 13-day Relative Strength Index/RSI is at an initial overbought extreme. RUT has a tendency for downside corrections, or upside trend reversals, at 'extremes' at either end of the RSI scale.

For those who have profited from RUT's steady advance dating back to early-May, it looks advisable to take money off the table. This isn't to say that it's also time to play the downside. Maybe for if seen, especially back to the up trendline around 1260; or, on a greater give back of prior gains such as to the 1240 area, which would represent a 62% Fibonacci retracement.


GOOD TRADING SUCCESS!




New Option Plays

Cloud-Based Commerce

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Demandware, Inc. - DWRE - close: 71.32 change: +1.24

Stop Loss: 67.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 417 thousand
Entry on June -- at $---.--
Listed on June 20, 2015
Time Frame: 6 to 8 weeks, exit prior to earnings in August
New Positions: Yes, see below

Company Description

Trade Description:
2015 is shaping up to be a lot better than 2014 for DWRE investors. The stock delivered a rocky performance last year and spent much of it churning sideways in a huge consolidation pattern (see the weekly chart below). The stock's momentum has turned bullish this year thanks in part to consistently strong revenue growth. The NASDAQ is up +8.0% year to date. DWRE is currently up +23.9%.

DWRE is in the technology sector. According to the company, "Demandware, the category defining leader of enterprise cloud commerce solutions, empowers the world's leading retailers to continuously innovate in our complex, consumer-driven world. Demandware's open cloud platform provides unique benefits including seamless innovation, the LINK ecosystem of integrated best-of-breed partners, and community insight to optimize customer experiences. These advantages enable Demandware customers to lead their markets and grow faster."

With the exception of its Q4 report on February 19th DWRE has beaten Wall Street's earnings estimates on both the top and bottom line the last four quarters in a row. Revenue growth has been +55.6%, +55.9%, +43.4%, and +54.3% for the last four quarters. The only miss was DWRE's bottom line number for the fourth quarter where it missed by a penny.

DWRE's most recent results were May 7th. The company said their Q2 profit was $0.16 per share. That is a big improvement from a ($0.05) loss a year ago and it was 27 cents better than the ($0.11) loss analysts were expecting. Revenues were $50.27 million compared to estimates for $49.5 million. DWRE said their live customers were up +30% from a year ago to 279. The number of live sites surged 42% to 1,241.

Tim Adams, DWRE's CFO, commented on their quarterly results, "During the first quarter, we continued to invest in growth and innovation. We expanded our operations deeper into Europe and Asia. Our R&D team also made considerable progress on their key initiatives – extending our platform deeper into the store, delivering our intelligence solutions and enriching our core commerce capabilities. As we move through 2015, we remain focused on scaling our organization to support the fast pace of our growth."

Back in April Goldman Sachs added DWRE to their conviction buy list. Yet shares didn't start moving until June. A couple of weeks ago shares broke out from a three-month consolidation pattern. The current rally could be getting a boost from short covering. The most recent data listed short interest at 12% of the relatively small 33.48 million share float. Currently the point & figure chart is bullish and forecasting an $85 target. Tonight we're suggesting a trigger to buy calls at $72.35.

Trigger @ 72.35

- Suggested Positions -

Buy the OCT $75 CALL (DWRE151016C75) current ask $5.00
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks See Mild Profit Taking On Friday

by James Brown

Click here to email James Brown

Editor's Note:

After Thursday's big gains in the stock market it wasn't surprising to see some profit taking on Friday ahead of the weekend. That's especially true with so many headlines regarding Greece and the waning prospects for a deal to save the beleaguered country.

KSS and Z hit our stop losses.

UHS and SM hit our entry triggers.


Current Portfolio:


CALL Play Updates

Aetna Inc. - AET - close: 124.07 change: -0.43

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: +46.3%
Average Daily Volume = 2.0 million
Entry on June 15 at $118.75
Listed on June 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/20/15: AET has been quietly consolidating sideways in the $124-125 region for the last few days. This consolidation has narrowed significantly and we should see AET breakout one way or the other pretty soon.

I suspect that breakout will be higher on Monday. That's because Anthem (ANTM) just raised their buyout price for Cigna (CI) to $184.00 per share. This news hit on Saturday. Not to be left out of the M&A parade Aetna (AET) has made an offer to buy Humana (HUM). This is according to the Wall Street Journal. I don't see any details on price yet.

All o this M&A news could spark another rally among the major health insurance stocks.

Readers may want to raise their stop loss again. No new positions at this time.

Trade Description: June 10, 2015:
Healthcare was big business before Obamacare. Now it's even bigger. AET is the third largest health insurer in the U.S. They added over 950,000 clients thanks to the Affordable Care Act. Naturally it doesn't hurt the healthcare business when the ACA forces you to buy health insurance or pay a tax penalty. Big insurers like AET are also benefitting from an expanding Medicaid program.

If you are not familiar with AET the company describes itself this way: "Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 46 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services, workers' compensation administrative services and health information technology products and services. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates."

Earnings have been steadily improving for AET. They have a habit of beating estimates. Management has raised their guidance the last three quarters in a row. AET's most recent report was April 28th. The company reported its 2015 Q1 earnings were up +17% from a year ago. Analysts were expecting a profit of $1.94 per share on revenues of $15.5 billion. AET delivered $2.39 per share. Revenues were up +8% to $15.09 billion. The number of medical enrollment members rose +4% to 23.7 million.

AET's management raised their 2015 guidance for the second time in a row. They now expect fiscal 2015 earnings in the $7.20-7.40 range compared to analysts' estimates at $7.17. The stock has been steadily rising thanks to its bullish outlook.

The big insurance stocks surged in late May on M&A rumors. Then on May 29th Humana (HUM) announced they were putting the company up for sale. HUM surged +20% on that one session. AET, Cigna (CI), and Anthem (ANTM) have all been rumored as potential suitors for HUM. Lately Wall Street has been rewarding the acquirer's stock with a rally on any merger news. AET could rally if they turn out to be the buyer.

Shares of AET just recently saw a $5.00 correction from $120 to $115 and bounced. This rebound looks like a potential entry point. Today's intraday high was $118.53. We are suggesting a trigger to buy calls at $118.75.

- Suggested Positions -

Long OCT $125 CALL (AET151016C125) entry $4.34

06/20/15 WSJ reporting that AET has made a bid for HUM 06/16/15 new stop @ 119.85
06/15/15 triggered @ $118.75 thanks to M&A speculation
Option Format: symbol-year-month-day-call-strike

chart:


Tableau Software, Inc. - DATA - close: 122.81 change: +0.27

Stop Loss: 116.75
Target(s): To Be Determined
Current Option Gain/Loss: +54.5%
Average Daily Volume = 1.0 million
Entry on May 28 at $115.25
Listed on May 27, 2015
Time Frame: Exit prior to July option expiration
New Positions: see below

Comments:
06/20/15: DATA's rally continued on Friday with shares tagging another record high on an intraday basis. The stock just closed its third up week in a row. DATA might be considered short-term overbought here. No new positions at this time. More conservative traders may want to take some money off the table.

Trade Description: May 27, 2015:
The market for analyzing big business data is growing fast. DATA is leading the charge. According to the company, "Tableau Software (NYSE: DATA) helps people see and understand data. Tableau helps anyone quickly analyze, visualize and share information. More than 26,000 customer accounts get rapid results with Tableau in the office and on-the-go. And tens of thousands of people use Tableau Public to share data in their blogs and websites."

The last few earnings reports have been very impressive. DATA released their Q3 results on November 5, 2014. Results were 12 cents above estimates with revenues up +71% to $104.5 million, also above estimates.

Their Q4 results came out in early February. Analysts were expecting a profit of $0.11 a share on revenues of $122.58 million. DATA delivered $0.42 a share with revenues up +75% to $142.9 million. In the fourth quarter they added 2,600 new customers. They closed 304 transactions worth more than $100,000, a +70% improvement from a year ago.

Christian Chabot, Chief Executive Officer of Tableau. "In 2014, we experienced the strongest demand we've seen in our history, as the move to agile analytics grows faster than ever."

DATA reported their 2015 Q1 results on May 7th. Analysts were looking for a loss of $0.03 per share on revenues of $115.29 million. The company blew away these numbers with a profit of $0.08 per share (11 cents above estimates). The pattern of big revenue growth continued with Q1 revenues up +74.4% to $130.1 million. They added 2,600 new customers putting their total above 29,000. The number of deals above $100,000 hit 249 in the first quarter.

Management provided bullish guidance with estimates for Q2 revenues in the $135-140 million range. That's above Wall Street's estimate of $130.9 million. They also upped their fiscal year 2015 earnings picture and see $600-615 million, which is better than analysts' estimates of $587 million.

Shares of DATA surged on its results and optimistic guidance. Since then traders have been buying the dips pretty quickly. Today's display of relative strength (+1.99%) is also a new all-time closing high for DATA. It's also worth noting that DATA has been talked about as a potential takeover target.

The $115.00 level looks like short-term resistance. We will use a trigger at $115.25 as our entry point to buy calls.

- Suggested Positions -

Long JUL $120 CALL (DATA150717C120) entry $3.82

06/18/15 new stop @ 116.75
06/10/15 new stop @ 111.75
05/28/15 triggered @ $115.25
Option Format: symbol-year-month-day-call-strike

chart:


The Walt Disney Co. - DIS - close: 112.62 change: -0.60

Stop Loss: 108.75
Target(s): To Be Determined
Current Option Gain/Loss: -6.1%
Average Daily Volume = 5.7 million
Entry on June 18 at $112.25
Listed on June 17, 2015
Time Frame: Exit PRIOR to earnings in August
New Positions: see below

Comments:
06/20/15: It was a key week for DIS bulls with the stock's breakout past resistance near $112.00. After four up days in a row the stock saw a little profit taking on Friday. I would still consider new positions now or nimble traders could wait and hope to buy calls on a dip near $112.00, which should be new support.

Trade Description: June 17, 2015:
Disney is an American icon. The company is over 90 years old. They have grown into a massive content generating giant. Today DIS runs five business segments. Their media networks include broadcast, cable, radio, publishing, and digital businesses headlined by their Disney/ABC television group and ESPN Inc. DIS' parks and resort business includes Disneyland, Disneyworld, plus theme parks in Tokyo, Paris, Hong Kong, Shanghai, and a cruise line.

The company's products division licenses the company's horde of names, characters, and intellectual property to a wide range of products. They've also jumped into the online world with their Disney Interactive division. Last but not least is the Walt Disney Studios segment. Disney started making movies 90 years ago. Today their studio business includes Disney animation, Pixar Animation, Disneynature, Disney Studios Motion Pictures, Disney music group, Touchstone Pictures, and Marvel Studios.

Their movie business has been a money maker over the years with huge hits like the Pirates of the Caribbean franchise, Tangled, Wreck-it Ralph. In 2013 they released the animated film "Frozen", which has turned into the largest grossing animated movie of all time. Pixar has a stable of successful movies that have grossed almost $9 billion. DIS is also mining gold in Marvel Entertainment's library of over 8,000 characters of comic book history. Marvel had two big hits in 2014 Captain America: Winter Soldier and Guardians of the Galaxy. Their 2015 Avengers: Age of Ultron was also a big winner at the box office grossing more than $1.3 billion worldwide. Of course not every Disney movie crushes it. Their recent Tomorrowland was a big disappointment and they could lose more than $100 million on the film.

Back in 2012 Disney purchased Lucasfilm and all the Star Wars properties from George Lucas for $4 billion. The company is busy filming the next three episodes of the Star Wars franchise. The next Star Wars film it titled "The Force Awakens." It will be episode seven in the franchise. The movie doesn't hit theaters until December 2015 but analysts are already predicting that "The Force Awakens" will generate $1.2 billion at the global box office.

DIS management loves movie franchises because they can fuel years of sequels, park rides, and merchandise. The approach seems to be working. Revenues and net income have hit all-time highs for five consecutive quarters. Their 2015 Q1 results saw earnings per share up +23% to $1.27. Their Q2 results saw earnings grow +14% to $1.23 per share. Their domestic theme parks showed a strong surge in both attendance and in customer spending. Analysts are forecasting DIS earnings to grow +17% this year.

The stock surged to new all-time highs back in early May after its Q2 earnings report. Shares have since spent the last six weeks digesting gains in a sideways consolidation that has ignored much of the broader market's volatility. More recently DIS has started to rebound and is now at the top of its trading range. A breakout here could signal the next leg higher.

The point & figure chart is bullish and forecasting at long-term target of $154.00. I personally suspect that DIS could rally toward $120-125 before its next earnings report in August. Credit Suisse recently upped their price target to $130. Tonight we are suggesting a trigger at $112.25 to buy calls.

- Suggested Positions -

Long AUG $115 CALL (DIS150821C115) entry $2.30

06/18/15 triggered @ $112.25
Option Format: symbol-year-month-day-call-strike

chart:


ManpowerGroup Inc. - MAN - close: 90.30 change: -0.02

Stop Loss: 85.70
Target(s): To Be Determined
Current Option Gain/Loss: -11.4%
Average Daily Volume = 697 thousand
Entry on June 18 at $90.25
Listed on June 16, 2015
Time Frame: Exit PRIOR to earnings in very late July
New Positions: see below

Comments:
06/20/15: MAN closed virtually unchanged on Friday. The lack of profit taking after two strong up weeks is a pretty good sign. I would consider new bullish positions at current levels.

Trade Description: June 16, 2015:
The U.S. Q1 GDP growth estimate was a dismal -0.7%. Yet Q2 estimates have been rising the last few weeks. It looks like the U.S. will avoid a recession. The average estimate is above +2.0%. Most believe that if the Federal Reserve is going to raise rates they will only do so because they believe the economy is healthy enough and growing fast enough to endure higher rates. At the same time we are hearing improving economic data out of Europe thanks to the ECB's massive QE program. While growth in Europe is expected to be slow it is still growth and the ECB's QE program is set to last through September 2016.

One way to play improving economies in U.S. and Europe is the staffing industry. MAN is part of the services sector. According to the company, "ManpowerGroup (MAN) is the world's workforce expert, creating innovative workforce solutions for more than 65 years. As workforce experts, we connect more than 600,000 people to meaningful work across a wide range of skills and industries every day. Through our ManpowerGroup family of brands – Manpower®, Experis, Right Management and ManpowerGroup Solutions – we help more than 400,000 clients in 80 countries and territories address their critical talent needs, providing comprehensive solutions to resource, manage and develop talent."

Their most recent earnings report was April 21st. MAN announced their 2015 Q1 results were $0.83 per share. That was down -3.4% from a year ago but it was four cents better than analysts were expecting. Revenues were down -7.4% to $4.5 billion but this too was above expectations. The EPS and revenues declines were "significantly impacted" by the strong U.S. dollar. On a constant currency basis MAN's earnings were up +16% and revenues were up +7%.

Jonas Prising, ManpowerGroup CEO, said, "2015 is off to a strong start as we built on the progress we made last year delivering good results in the first quarter. It is encouraging to see the early signs of more broad based improvement in Europe, setting the stage for what we believe could be a slow but sustained labor market recovery in that region. The strong start to the year gives us confidence that we are on the right track and that our focus on permanent recruitment and our market leading solutions offerings continues to pay off. We are well placed to seize further opportunities as economic trends improve."

MAN has recently upped their semiannual dividend +63% from $0.49 to $0.80 per share. They're also making acquisitions. The company recently purchased the Australian and Singapore divisions of Greythorn, a professional services and recruiting firm. They just announced they were buying the 7S Group in Germany for 136.5 million euros.

Most of Wall Street is bullish on MAN. The last few months have seen a parade of upgraded price targets. Some of the new analyst price targets are: $89, $94, $95, $98, $99, and $103. Currently the point & figure chart is only forecasting a $94.00 target I suspect that if shares of MAN can breakout past $90.00 the stock is headed for $100.00.

Technically shares have been consolidating sideways beneath resistance near $87.00-88.00 for more than two months. The rally last week and this week looks like a bullish breakout past this level. The $87.00 region has been resistance going back to late 2013 so a breakout here could be significant. Tonight we're suggesting a trigger to buy calls at $90.25.

- Suggested Positions -

Long SEP $95 CALL (MAN150918C95) entry $2.20

06/18/15 triggered @ $90.25
Option Format: symbol-year-month-day-call-strike

chart:


Sirona Dental Systems - SIRO - close: 102.10 change: +0.09

Stop Loss: 97.85
Target(s): To Be Determined
Current Option Gain/Loss: -20.7%
Average Daily Volume = 316 thousand
Entry on June 15 at $101.05
Listed on June 11, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/20/15: The major U.S. stock market indices slipped into the red on Friday. SIRO managed to buck the trend and eke out another gain. These are all-time highs. I would consider bullish positions here. However, it might pay off to wait for a dip in the $100-101 region.

Trade Description: June 11, 2015:
Revenue growth in SIRO's business has been disappointing due to foreign currency headwinds thanks to the strong dollar. Yet investors seem to be ignoring this issue. Shares of SIRO have outperformed the broader market with a +15.3% gain this year.

SIRO is in the healthcare sector. They sell dental equipment. According to the company, "Sirona, the dental technology leader, has served dealers and dentists worldwide for more than 130 years. Sirona develops, manufactures, and markets a complete line of dental products, including CAD/CAM restoration systems (CEREC), digital intra-oral, panoramic and 3D imaging systems, dental treatment centers and handpieces."

The last couple of earnings reports for SIRO have only been mediocre. The company has been meeting analysts estimates on the bottom line (earnings). Unfortunately revenues have been seeing declines in U.S. dollar terms. On a local currency basis their sales have grown. One positive that helps the bullish picture for SIRO is margin growth. The company has seen margin growth improve the last two quarters in a row.

Shares of SIRO spiked down on May 8th, its most recent earnings report, but traders immediately bought the dip at technical support on its 50-dma. The stock seems to be stair stepping higher with a rally, then a week or two of consolidation that breaks out into another rally. Shares just broke through major round-number resistance at the $100.00 mark today. Tonight we are suggesting a trigger to buy calls at $101.05. Volume on SIRO's stock and its options is a little light. I would start this trade with small positions to limit risk.

*small positions to limit risk* - Suggested Positions -

Long SEP $105 CALL (SIRO150918C105) entry $2.90

06/15/15 triggered @ $101.05
Option Format: symbol-year-month-day-call-strike

chart:


Skyworks Solutions Inc. - SWKS - close: 110.20 change: +0.22

Stop Loss: 97.95
Target(s): To Be Determined
Current Option Gain/Loss: +38.8%
Average Daily Volume = 4.0 million
Entry on June 10 at $103.44
Listed on June 09, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/20/15: SWKS tagged a new all-time high on Friday. The rally faded thanks to the market's widespread dip. If shares retreat here we can watch for broken resistance near $107.00 to be new support. More conservative traders may want to raise their stop loss now.

Trade Description: June 9, 2015:
SWKS seems to be everywhere. They make semiconductor chips for just about every industry including aerospace, automotive, consumer electronics, wearables, and the Internet of Things. They have been called the leading wireless semiconductor company. They're probably best known for being a component supplier to Apple (AAPL) for the company's iPhones.

The stock has soared from its October 2014 lows near $45 a share to over $100 today (a +126% move). SWKS is up +39.7% year to date versus a +5.5% gain in the NASDAQ composite and a +3.6% gain in the SOX semiconductor index.

If you're not familiar with SWKS they're in the technology sector. According to the company website, "Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

The company is really cashing in on some major global trends including smart phones and smart(er) cars. Data suggests that over 90% of mobile phone users are still using 2G and 3G phones. That means SWKS should benefit as they upgrade to 4G phones. Meanwhile SWKS is also poised to benefit from the surging trend of interconnectivity in automobiles. One forecast estimates that 75% of automobiles in 2020 (about 70 million vehicles) will have Internet-connectivity. Today that number is only around 10 million cars.

The company's earnings growth has been phenomenal. They have beaten Wall Street's earnings and revenues estimates the last four quarters in a row. They have also raised their guidance the last four quarters in a row. Their 2014 Q4 report saw revenues up +50%. Their 2015 Q1 reported revenues were up +59% while earnings were up +88%. SWKS' Q2 report on April 30th delivered earnings growth of +85% on revenue growth of +58%.

Several analysts upgraded their price target on SWKS following the April results. Analysts are expecting strong year-over-year growth for the next several quarters. One reason is the Apple iPhone upgrade cycle. There are about 450 million iPhones in circulation. Thus far only about 20% have upgraded to the iPhone 6 or 6+. That leaves a lot more iPhone sales to come.

A fast-growing company like SWKS can be a buyout target. There have been rumors that QCOM is a potential suitor.

Shares of SWKS have seen an intraday correction from $111.60 on June 1st to $98.07 today. That's a -11% pullback and traders pounced on SWKS when it started to bounce. The $100 region and the 50-dma coincide with the bullish trend of higher lows. We want to hop on board the SWKS train if shares continue to rebound. Tonight we are suggesting a trigger to buy calls at $103.25. I should warn you that SWKS can be a volatile stock. You may want to consider this a higher-risk trade. We'll start this trade with a stop loss under today's low (just below $98.07).

- Suggested Positions -

Long AUG $110 CALL (SWKS150821C110) entry $4.90

06/10/15 triggered on gap open at $103.44, suggested entry was $103.25.
Option Format: symbol-year-month-day-call-strike

chart:


Universal Health Services - UHS - close: 134.72 change: +2.61

Stop Loss: 128.90
Target(s): To Be Determined
Current Option Gain/Loss: +5.8%
Average Daily Volume = 697 thousand
Entry on June 19 at $132.75
Listed on June 18, 2015
Time Frame: 6 to 8 weeks, exit prior to Q2 earnings
New Positions: see below

Comments:
06/20/15: Our new trade on UHS is off to a strong start. The stock spent the first 90 minutes of trading just quietly consolidating sideways. Then suddenly shares surged past resistance and eventually outperformed the market with a +1.97% gain. Our trigger to buy calls was hit at $132.75.

Trade Description:
The Affordable Care Act, a.k.a. Obamacare, has been a boon for the health insurance companies. Another industry that has profited from the ACA is hospitals. Stocks like UHS and HCA are outperforming the broader market. The S&P 500 is up +3.0% year to date. UHS is up +18.7%.

According to the company's website, "Universal Health Services, Inc. (UHS) is one of the nation's largest and most respected healthcare management companies, operating through its subsidiaries, behavioral health facilities, acute care hospitals and ambulatory centers throughout the United States, the United Kingdom, Puerto Rico and the U.S. Virgin Islands. UHS was founded in 1978 by Alan B. Miller, Chairman and CEO, and today has more than 68,000 employees. UHS maintains one of the strongest balance sheets and is rated amongst the highest in the hospital services industry by Moody's and Standard & Poor's. This strong capital position has enabled the company to develop and acquire many new facilities over the past few years.

The UHS strategy is to build or purchase healthcare properties in rapidly-growing markets and create a strong franchise based on exceptional service and effective cost control. UHS owes its success to a responsive management style and to a service philosophy that is based on integrity, competence and compassion."

UHS owns and operates more than 235 acute care and behavioral health locations and surgery centers. Together they generated annual revenues of $8.0 billion in 2014.

Looking at the last couple of quarters the company's revenues have been improving. Their Q4 results were out on February 26th. Earnings were in-line with expectations at $1.51 per share. That's a +46% improvement from a year ago. Revenues were up +7.0% and above estimates at $2.26 billion.

The trend continued in the first quarter. UHS reported its Q1 results on April 27th. Earnings were up +30% to $1.78 per share. That was 21 cents better than expected. Revenues rose +10.9% to $2.38 billion, also above estimates.

In their earnings press release the company said, "The increased operating performance experienced at our acute care facilities during the first quarter of 2015, as compared to the comparable quarter in 2014, was due in part to continued improvement in general economic conditions as well as a decrease in the number of uninsured patients treated at our hospitals. The decrease in the number of uninsured patients treated at our acute care hospitals was due primarily to the favorable impact of the Affordable Care Act which includes the expansion of Medicaid in certain states in which we operate and the enrollment of patients in newly created commercial exchanges."

This trend should continue but there is a risk. The U.S. Supreme Court is currently mulling a decision on Obamacare subsidies. If they decide that the current structure of the law makes these subsidies illegal it could bring down the entire piece of legislation and that would hurt the healthcare industry. The major healthcare and hospital stocks could all drop if this were to occur.

Technically shares of UHS look very bullish with trend of higher lows and higher highs. The point & figure chart is bullish and forecasting at $147.00 target. On a short-term basis UHS is hovering just below resistance in the $132.50 area. Today's intraday high was $132.70. We are suggesting a trigger to buy calls at $132.75. Plan on exiting prior to UHS' next earnings report in very late July or early August.

- Suggested Positions -

Long OCT $140 CALL (UHS151016C140) entry $5.20

06/19/15 triggered @ $132.75
Option Format: symbol-year-month-day-call-strike

chart:


Zebra Tech. - ZBRA - close: 116.58 change: +1.35

Stop Loss: 111.85
Target(s): To Be Determined
Current Option Gain/Loss: -15.0%
Average Daily Volume = 475 thousand
Entry on June 10 at $113.54
Listed on June 06, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/20/15: ZBRA outperformed the broader market with a +1.1% gain on Friday. This is a new all-time closing high for the stock. While shares of ZBRA are up $3.00 from our entry point the call option isn't keeping pace. I would still be tempted to buy calls here. On the intraday chart there is potential short-term resistance at $117.00.

Trade Description: June 6, 2015:
Traditionally known for bar code scanning and RFID technology, ZBRA has changed. They have grown into a company that management says puts them right in the middle of three major tech trends: the Internet of Things, mobility, and cloud computing. Today the company has thousands of customers in more than 100 countries, including more than 95 percent of all Fortune 500 companies.

ZBRA is in the industrial goods sector. In April 2014 they announced a $3.45 billion deal to buy the Motorola Solutions enterprise unit. According to the company, "Zebra Technologies is a global leader in enterprise asset intelligence, designing and marketing specialty printers, mobile computing, data capture, radio frequency identification products and real-time locating systems. Incorporated in 1969, the company has over 7,000 employees worldwide and provides visibility into valued assets, transactions and people The company's extensive portfolio of marking and printing technologies, including RFID and real-time location solutions, illuminates mission-critical information to help customers take smarter business actions."

The company has been consistently delivering on the earnings front. ZBRA has reported seven quarters in a row of double-digit earnings growth. The numbers have boomed since the addition of the enterprise unit in October last year.

Looking at the last few quarterly reports ZBRA has been beating Wall Street estimates on both the top and bottom line . Their most recent report was May 13th where ZBRA announced its 2015 Q1 results of $1.39 per share. That was a +53% improvement from the prior year and 28 cents above estimates. Revenues surged +210% to $893 million, which was above estimates. That was thanks to $561 million in sales from the Motorola solutions business. Even ZBRA's legacy business saw a +15% improvement in sales.

Anders Gustafsson, ZBRA's CEO, commented on his company's report, saying, "We started the year with strong, positive momentum, as business activity remained high specifically in North America and Europe. Our partners and customers are responding enthusiastically to our greatly expanded portfolio of solutions and capabilities, and our enhanced focus on giving them improved visibility into their assets, transactions and people for better enterprise asset intelligence. During the quarter we also made material progress on achieving our cost-synergy targets, pursuing growth initiatives and integrating Zebra with the Enterprise business acquired from Motorola Solutions in October. The favorable business trends are continuing into the second quarter, as Zebra is well positioned to benefit over the long term from the convergence of technology trends in the Internet of Things, mobility and cloud computing."

ZBRA guided in-line with analysts' estimates. Wall Street expects full year 2015 earnings growth of +50% and +24% growth in 2016. This bullish earnings picture has fueled big gains for ZBRA's stock price. The S&P 500 is up +1.6% year to date versus the NASDAQ composite's +6.6% gain. Currently ZBRA is up +47% this year. The stock has almost doubled from its October 2014 lows near $60.

ZBRA produced huge gains after its earnings report in May. After consolidating several days near $110 the stock broke out again on June 2nd. We like how traders bought the dip on Friday morning and expect ZBRA to hit new highs soon. Tonight we are suggesting a trigger to buy calls at $115.15.

- Suggested Positions -

Long AUG $120 CALL (ZBRA150821C120) entry $4.00

06/16/15 new stop @ 111.85
06/10/15 triggered @ $113.54 (intraday gap higher)
06/09/15 Entry strategy adjustment: Move the entry trigger from $115.15 to $113.25. Adjust the stop loss from $110.85 to $109.85
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Southwest Airlines Co. - LUV - close: 34.22 change: +0.36

Stop Loss: 36.05
Target(s): To Be Determined
Current Option Gain/Loss: -19.8%
Average Daily Volume = 7.9 million
Entry on June 16 at $33.85
Listed on June 15, 2015
Time Frame: Exit prior to earnings in late July
New Positions: see below

Comments:
06/20/15: Airline stocks were one of the few groups showing gains on Friday. LUV continued its intraday bounce that started on Thursday. LUV still posted a loss for the week. If this bounce continues the $35.25 area should be overhead resistance. I'd wait for the next failed rally or lower high before initiating new bearish positions.

Trade Description: June 15, 2015:
Last year LUV was one of the best performing stocks in the S&P 500 with a +124% gain. Shares are not seeing a repeat this year. In fact the stock is down -19% year to date. Most of the major airline stocks have been suffering as investors fear overcapacity will kill profits.

LUV is in the services sector. They're part of the regional airline industry. According to the company, "In its 44th year of service, Dallas-based Southwest Airlines (LUV) continues to differentiate itself from other air carriers with exemplary Customer Service delivered by more than 46,000 Employees to more than 100 million Customers annually. Southwest operates more than 3,400 flights a day, serving 93 destinations across the United States and five additional countries."

There are plenty of bullish investors rooting for LUV. After years of belt tightening with high oil prices the airline industry finally found some discipline and profits boomed. LUV has been a great example and many consider it the "best-in-breed" among the major airliners. LUV's earnings have surged from $0.43 a share in 2011 to $1.64 per share in 2014.

The big drop in crude oil last year was a major boon for most of the airline companies. Fuel is a huge expense and while oil has bounced off its 2015 lows it is still a lot cheaper than last year's prices. So why are airline stocks getting crushed? The biggest worry is the industry will build into much capacity (over supply) and this will lead to price wars, which could slash profitability.

On May 20th airline stocks were crushed, shares of LUV included, after the American Airlines CEO said they would aggressively compete on price. This is after AAL had already warned that their margins would shrink in 2016 versus 2015. News that LUV was planning to boost capacity by +8% in 2015 also helped spark the plunge lower.

The sell-off in airline stocks has continued as more companies downgrade their outlook. United Airlines (UAL) recently reported that their capacity had outpaced traffic growth. Delta (DAL) warned that their Q2 revenues would decline. Even LUV warned that their May passenger revenue per available seat mile (PRASM) was down -6% from a year ago. They adjusted their 2015 Q2 PRASM estimate to be down -4% to -5% from a year ago.

In spite of all the negativity there are a ton of analysts who are still bullish on the group. If you do any research you'll see a lot of voices shouting that the airline stocks are a buy. You'll hear how the airlines will avoid the mistakes of the past. There are plenty of analysts suggesting the airlines are a buy because their valuations are so cheap. Even the International Air Transport Association (IATA) recently raised their 2015 global estimate on airline profits from $25 billion to 29.3 billion thanks to lower oil prices and record high load factors (near 80%).

On one hand the bullish view point on airline stocks is true. Traffic is still growing. Oil prices remain depressed compared to the last few years. Valuations do look cheap. Eventually this group will get so cheap that they will find a bottom. Unfortunately that could be another -10% to -20% from current levels.

Technically LUV is a sell. The stock produced a bearish double top with its peaks in January and March. It has sliced through multiple layers of support and broken the longer-term up trend. The $34.00 level looks like short-term support. We are suggesting a trigger to launch short-term bearish positions at $33.85. Earnings are coming up in late July and we'll likely exit before LUV reports.

- Suggested Positions -

Long SEP $33 PUT (LUV150918P33) entry $1.87

06/16/15 triggered @ $33.85
Option Format: symbol-year-month-day-call-strike

chart:


SM Energy Company - SM - close: 44.78 change: -0.36

Stop Loss: 50.25
Target(s): To Be Determined
Current Option Gain/Loss: -21.2%
Average Daily Volume = 1.6 million
Entry on June 19 at $44.49
Listed on June 13, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/20/15: Energy stocks were widespread underperformers on Friday. SM gapped down below support near $45.00 and opened at $44.49. This triggered our bearish play since our suggested entry was $44.90 (a breakdown under $45.00).

SM initially bounced off these morning lows but each rally attempt on Friday was met with more selling. I would consider new bearish positions at current levels.

Trade Description: June 13, 2015:
SM has been around a long time. They were founded back in 1908. The company was formerly known as St. Mary Land & Exploration Company but they changed their name to SM Energy Company about five years ago.

SM is in the basic materials sector. According to the company, "SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in onshore North America."

SM operates in the Rocky Mountain region including the Bakken and Three Forks formations. Further south, they drill in the Haynesville and Woodford shales of Texas and Oklahoma. SM also operates in the Permian region of Texas and New Mexico. Even further south SM drills in the South Texas area with the Eagle Ford shale formation.

Crude oil's plunge in late 2014 crushed the oil sector and shares of SM followed it lower. Yet SM appeared to be having trouble before the big drop in oil prices. The company has missed Wall Street's earnings estimates the last four quarters in a row.

The huge drop in oil sparked significant cutbacks across the oil and gas industry with most major exploration companies reducing their capital spending plans. When SM reported their Q4 earnings in February 2015 they missed the EPS number by five cents and revenues were down -6.4% from a year ago. Management also slashed their 2015 investment plans by -44% from $1.9 billion to $1.0 billion.

SM reported its 2015 Q1 numbers on May 5th. Analysts were expecting a profit of $0.29 per share on revenues of $543.1 million. SM delivered a profit of $0.21 as revenues plunged -42% to $365.9 million.

Citigroup issued a research report last month that suggested U.S. oil producers will still be able to profit with oil at depressed prices. Here's a quote from a Bloomberg article, "belt-tightening across the industry and more strategic drilling in prolific areas would deliver ample profits even at $50 crude. The improvement is driven by costs that are expected to fall by 20 to 30 percent and techniques that allow rigs to wring 30 percent more oil or natural gas from each well compared with a year ago." That definitely seems like ammunition for the bulls to be buying some of the oil producers. Yet the group continues to lag. They are facing some stiff headwinds.

Crude oil has produced a +25% bounce off its March 2015 lows. Yet the rally in oil has stalled the last few weeks with the commodity churning sideways. The recent OPEC meeting showed that the Middle East shows no signs of slowing down their production. The world is temporarily facing a small oil glut.

Meanwhile currencies could play an issue here. It is widely accepted that the long-term trend for the U.S. dollar is now higher. The Federal Reserve will eventually raise rates, either later this year or early next year. When they start raising rates it should boost the dollar. At the same time central banks around the world (like Japan and Europe) are in the middle of huge QE programs that will drive their currencies lower. Naturally this will lift the dollar even higher. A rising dollar pushes commodities lower.

Technically shares of SM have been very weak. The broke down from a bullish channel a couple of weeks ago. The stock has also sliced through some psychological support levels. The point & figure chart is currently forecasting at $40.00 target. You could argue that SM is already oversold. However, the path of least resistance is lower. Tonight we are suggesting a trigger to buy puts at $44.90 with a wide stop loss at $50.25 just in case SM does see a little oversold bounce.

- Suggested Positions -

Long AUG $40 PUT (SM150821P40) entry $1.65

06/19/15 triggered on gap down at $44.49, suggested entry was $44.90
Option Format: symbol-year-month-day-call-strike

chart:


CLOSED BEARISH PLAYS

Kohl's Corp. - KSS - close: 63.81 change: +0.61

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: -29.2%
Average Daily Volume = 3.3 million
Entry on June 05 at $63.90
Listed on June 01, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/20/15: The oversold bounce in KSS continued on Friday. Shares managed to outperform the market and rally past short-term resistance. The stock hit our new stop loss at $64.15.

- Suggested Positions -

OCT $60 PUT (KSS151016P60) entry $2.40 exit $1.70 (-29.2%)

06/19/15 stopped out
06/18/15 new stop @ 64.15
06/09/15 Down 5 days in a row, testing support at $62.00
06/05/15 triggered @ $63.90
Option Format: symbol-year-month-day-call-strike

chart:


Zillow Group - Z - close: 90.77 change: +3.79

Stop Loss: 88.25
Target(s): To Be Determined
Current Option Gain/Loss: -32.7%
Average Daily Volume = 2.0 million
Entry on June 01 at $89.85
Listed on May 30, 2015
Time Frame: exit prior to July expiration
New Positions: see below

Comments:
06/20/15: Our Z trade has been stopped out. The stock shot higher on Friday morning and outperformed the market with a +4.35% gain. I warned readers that Z could see sharp one-day moves due to so much short interest in the name. Our stop loss was $88.25 but Z gapped higher on Friday at $88.50 immediately closing our trade.

Friday's move actually looks like a potential bullish reversal on both the daily and weekly chart but Z needs to see some follow through.

- Suggested Positions -

JUL $85 PUT (Z150717P85) entry $2.60 exit $1.75 (-32.7%)

06/19/15 stopped out on gap open at $88.50
06/16/15 new stop @ 88.25
06/10/15 new stop @ 91.05
06/04/15 new stop @ 93.55
06/01/15 triggered @ $89.85
Option Format: symbol-year-month-day-call-strike

chart: