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Newsletter

Daily Newsletter, Tuesday, 6/30/2015

Table of Contents

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

Market Wrap

Toothpaste is Out of the Tube

by Jim Brown

Click here to email Jim Brown

Greek PM Alexis Tsipras realized he has made a grave mistake not accepting the bailout and calling a referendum hoping the citizens would support him. After two days of bank closures, limited ATM withdrawals and all Greek credit cards invalid for purchases outside Greece the enormity of the mistake is hitting home.

Market Statistics

On Tuesday, Tsipras sent a two-page letter to the EU Finance Ministers saying he was willing to accept some of their conditions if they would immediately give Greece some cash and extend the Greek bailout for two more years. Unfortunately, Tsipras has already burned his bridges and you can use whatever analogy you like for his predicament. The toothpaste cannot be put back in the tube. The bell cannot be unrung. The one I like best is you cannot retrieve a grenade once it has been thrown.

The Tsipras grenade brought Greek commerce to a screeching halt and the majority of citizens are becoming hostile. Their phones are being cutoff for nonpayment, their iTunes charges are being denied and their cloud backups are being deleted for nonpayment. All of this because of the capital controls preventing citizens from transferring money out of the country. Yes, using your Greek bank issued credit card is a money transfer and is now prohibited.

With ATMs limiting withdrawals to 60 euros, most ATMs out of cash and the banks closed for a week the economy is coming to a sudden halt and Greek citizens are becoming increasingly hostile.

The Tsipras letter to the EU Finance Ministers was a Hail Mary pass and it was quickly deflected by Angela Merkel. She said there will be no checks written and no discussions held until after the Sunday vote. The EU leaders made it perfectly clear. A yes vote means staying in the eurozone and accepting the bailout conditions. A no vote means no further loans and leaving the eurozone is a likely event. With Greece in shutdown mode as a result of Tsipras actions the likelihood of a yes vote is rapidly gaining momentum. Tsipras will have failed in his campaign promises and he will probably resign.

Even while he is pleading with the EU to reopen negotiations and give Greece more money, he is still telling Greek citizens to vote no on the referendum. After a week with no banks, no money and no credit, Greek citizens are not likely to vote for economic suicide on Sunday.

The EU, ECB, IMF, known as the troika, finally had enough of Tsipras. When the deadline was looming and he decided to fight the troika with his sudden call for a referendum he forgot one important detail. You do not jump bare handed into an arena filled with gladiators and expect to win. Tsipras had no weapons to use against the troika and they had several large weapons to use against him. The troika was holding all the cards, and the money, with the ECB funding of Greek banks as their ace in the hole. When he announced the referendum the ECB countered with a halt in funding for the banks. Game over. From that point Tsipras had nothing to counter attack with and the troika will win this fight.

The market rebounded this morning on the knowledge that the outcome of the battle was already decided. It declined in the afternoon because the headlines will remain with us for the rest of the low volume holiday week and investors are worried some new headline will disrupt the market again.

The economic calendar was light with only the Texas Service Sector Outlook and Consumer Confidence. The Texas report rose from 1.1 in May to 4.1 in June. The revenue component surged from 3.8 to 13.2. This is the most important component in the index. The 3.8 reading in May was a three-year low. However, the employment component declined from 8.9 to 5.1 and the hours worked component fell from 1.9 to 0.1. The retail sales component rocketed higher from -10.7 to 13.1. Apparently, the service sector in Texas is improving despite the slowdown in the energy activity.

Consumer confidence for June soared +6.8 points from 94.6 to 101.4 thanks to a sharp spike in the expectations component. Present conditions rose from 107.1 to 111.6 and expectations rose from 86.2 to 94.6. Respondents said they were better off financially and 17.5% expected gains ahead.


The next two days are chock full of big economic news. The Nonfarm Payroll report has been moved up to Thursday because of the holiday on Friday. That means traders will have only a few hours after the ADP Employment on Wednesday to adjust positions ahead of the Nonfarm report on Thursday. In a low volume week these two reports back to back with the ISM Manufacturing report in the same period we could see some additional volatility.


This would normally be a very quiet week for stock news. Companies that are not going to warn on earnings are moving into their quiet period and press releases will dry up. Those that are going to warn would normally wait until Thursday after the bell if possible in order to escape notice by the majority of investors that have already left for the holiday.

Wynn Resorts (WYNN) rallied nearly $5 after China relaxed the visa restrictions on travelers headed to Macau. Travelers holding mainland China passports can now stay 7 days, up from the current limit of 5 days. The time was shortened last year after the government claimed citizens were cheating by claiming they were visiting other destinations but really only staying in Macau. Another change was in the time between visits. Gamblers can now visit twice every 30 days rather than twice every 60 days. Another big drag on casinos is the imposition of a total smoking ban several months ago. Since most wealthy Chinese gamblers are also smokers it further limited the number of gamblers.

June was expected to see the biggest decline in Macau casino revenue ever. Apparently, the Macau economy had fallen to the point where China had to do something to support it. Macau is relatively independent but it is still one of two "special administrative regions" that is broadly governed by China.

Casino revenue for June should be reported later this week and the rebound by WYNN and others could be short lived. The 5% rebound in WYNN was miniscule compared to the -36% decline since February.


The China stock market had a rare up day with a +2% gain. That came after yesterday's close at 4192 and an 18.8% decline from the highs. However, the intraday low today was 3847 and a -25.5% decline from the highs. The volatility was extreme but the dip was bought.


Wives are not the only people that change their minds on a whim. ConAgra Foods (CAG) announced it was selling the store brands packaged food business. This is significant because it just spent $5 billion two years ago buying Ralcorp to increase its exposure in this area. The CEO said it wants to spend the money improving the market share for its name brand products like Chef Boyardee, Slim Jim, Banquet, Healthy Choice and others. Jana Partners bought a 7.2% stake in early June because of disappointing results by ConAgra. Shares rose only slightly after a big opening drop.


Apollo Education (APOL) was expelled by investors today for bad grades. Shares declined -17% after the company provided soft guidance for 2016. Enrollments are expected to drop -25% to 150,000, stabilize in 2017 and then return to growth in 2018. That is a long-term view that is not very appealing.

Earnings of 44 cents, declined -28%. Revenue of $681 million declined -14%. University of Phoenix revenue fell -17.7%. New enrollment declined from 33,900 to 29,400. Total enrollment fell -14.5% to 206,900. With expectations for a decline to 150,000 Apollo got a failing grade from investors. Shares fell to a 15-year low at $12.88.


Bond insurers Ambac Financial (AMBC) and MBIA (MBI) are in free fall after the governor of Puerto Rico said the commonwealth was in a debt spiral and could not pay the $1.9 billion due this week. He said it was "unlikely" Puerto Rico would repay all its debt. Both companies have guaranteed billions in Puerto Rican debt and the outlook is not good.

Puerto Rico owes a combined debt of roughly $72 billion and the most per capita of any U.S. state. Puerto Rico is home to 3.6 million people. As recently as last week, some analysts expected Puerto Rico to pull out of its crisis and honor a plan to repay the debt. In theory a chapter 9 bankruptcy is not an option and hedge funds may have the most to lose.

Major funds including OppenheimerFunds, Franklin Templeton, Citigroup, Paulson & Co, Davidson Kemper, Brigade Capital, Fir Tree Partners and others have been buying up Puerto Rican debt because of the high yields and their inability to file bankruptcy. One analyst claimed 53% of U.S. open-end bond funds have exposure to Puerto Rican debt. A lot of the debt is on utilities such as their power monopoly Prepa and cannot access chapter 9 bankruptcy protection. Creditors can sue for payment. Prepa facilities are so old and outdated they still burn crude oil to generate power.


The decline in Western Digital (WDC) accelerated with another -4% loss today. The hard drive maker was downgraded last week because of slowing demand in the enterprise space and Micron's warning about falling PC demand. Western Digital makes mechanical hard disk drives and the real enterprise demand is moving to solid-state drives called SSDs. A SSD is just memory chips configured to look like a hard drive to the computer. Instead of spinning drives, it is just software to manage the data in memory. SSDs are significantly faster than hard drives and the cost per gigabyte is falling so rapidly that companies can afford to buy a faster SSD for the same price as an enterprise hard drive.

Hard drives are not going away because there are reasons why you would want to keep your long-term data on an actual drive rather than on a group of memory chips that can degrade over time. However, Western Digital may continue to decline until the Windows 10 upgrade cycle later this year.


Markets

The markets opened with a bang this morning with the Dow gaining +105 points but the selling was immediate. The Dow fell back into negative territory by 12:30 after Merkel said no to the Tsipras offer letter and no discussions at all until after the vote. This pushed the indexes to their lows but the dip buyers were ready and waiting. With the S&P at five-month lows, this appears to be a level some investors are willing to buy.

The Dow rallied back to 17,715 and the high of the day at 2:PM but sellers were still ready to unload some more shares and the rebound did not last long.

The S&P had a solid top at 2074 that ended the morning and afternoon rallies. The low for the day at 2056 was just 2 points above the 200-day average at 2054. This should be decent support with 2040 the next level if the 200-day fails.

The percentage of S&P stocks above their 50-day average declined to 27% on Monday and rebounded slightly today to 30.4%. That is hardly encouraging. The number of new 52-week lows on Monday were 620 and well above the 150 per day average the prior week.


The percentage of stocks with a P&F buy signal on the S&P declined to 58.6% and the lowest level since October. As of Friday 45% of the stocks in the S&P were in a bear market with declines of 20% or more.


Despite today's rebound, the market internals are still weak. Volume today was 7.6 billion shares and slightly higher than Monday's 7.3 billion. Advancers were only about 4:3 over decliners. That is hardly bullish considering the magnitude of the decline on Monday. Yesterday decliners were 8:1 over advancers and down volume was 9:1 over advancing volume. Monday could be considered a washout with cascading selling and grossly skewed internals. Today was not a typical rebound but I attribute that to the ongoing headline war from Greece and the desire to be flat rather than invested until after the holiday.

Support on the S&P is 2054-2056 and resistance 2074. Should either be broken on Wednesday that could be the direction for the rest of the week. Those holding losing positions now are hoping for a continued rebound so they will not have to sell. If the market continues lower, a move below 2054 could be the sell signal they are fearing and a reason to exit. Those who are looking for a signal to buy would like to see a move over 2075 as a signal the worst is over and Monday was the bottom.

One negative is the break below the 150-day average. That has been support since September and it failed. That makes the 200-day even more important for the rest of the week.


The Dow was helped the most by the rebound in Goldman, Disney and Apple. The Dow broke below the 200-day qt 17,679 on Monday and tried to move back above it with the 17,714 high but could not hold the gains.

Today's low of 17,576 was a lower low and suggests the Dow could be vulnerable to further declines. However, the 17,585 support from March is the level to watch. That was broken for a few seconds today but the rebound was immediate.

Resistance will be that 17,714 high from today, which was tested twice.



The uptrend on the Nasdaq was crushed with the -122 drop on Monday. Today's +28 point rebound was decent but resistance at 5000 was solid. Given the problems the big cap techs had over last week I am not as encouraged by the rebound on the Nasdaq. While I hope the rebound is lasting I am worried by the minor gains. The biotech sector was the only major winner for the Nasdaq and that was responsible for the majority of the gains.

Resistance 5000, support Tuesday's lows at 4970.




The Russell 2000 small caps were knocked back to the 100-day average at 1247 on Monday with a close at 1246.75. You do not get confirmation of support much better than that. Today the index tacked on +7 points to 1253 and support held.

The Russell should have a positive bias this week from left over rebalance adjustments. Let us hope the rebound continues. It was not as strong as I would have liked so there is a concern there could be more profit taking from the two-month rally.


Europe does not appear to be too concerned about Greece. The European markets were down about 1.25% on Tuesday but that is not earth shaking. The key point here is that the euro currency has been flat. There was a little spike on Monday but that was erased today. The euro is not in danger and that suggests Europe has ring fenced the Greek problem. If the European markets are up on Wednesday I would expect the U.S. markets to follow.



The rest of the week should be a whirlpool of conflicting events. The Greek headlines will continue to rule but the economic suicide is now priced into the market unless something else appears to worsen or improve the situation. If Greece votes yes to accept the creditor demands and remain in the eurozone then the market should rally on Monday, assuming the votes are counted in time. This means we could see some speculative buying ahead of the holiday weekend.

Wednesday is also the first day of the new quarter and half and there should be some month-end retirement contributions being put to work. That could help lift the markets. Offsetting that will be actively managed funds that window dressed their portfolios going into the end of the quarter. They may decide to undress those windows once into July.

 

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New Option Plays

Poised For A Short Squeeze

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

INSYS Therapeutics - INSY - close: 35.92 change: +1.26

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 607 thousand
Entry on July -- at $---.--
Listed on June 30, 2015
Time Frame: Exit PRIOR to earnings in August
New Positions: Yes, see below

Company Description

Trade Description:
INSY is probably best known for its synthetic cannabinoid drugs that use THC, the same ingredient in marijuana. Yet it is the company's Subsys treatment, a painkiller several times stronger than morphine, that generates the most revenues for INSY. The marketing practices behind Subsys have generated some scandal-worthy headlines but nothing seems to be slowing down the stock's long-term rally.

INSY is in the healthcare sector, more specifically the biotech industry. According to the company, "Insys Therapeutics is a specialty pharmaceutical company that develops and commercializes innovative drugs and novel drug delivery systems of therapeutic molecules that improve the quality of life of patients. Using our proprietary sublingual spray technology and our capability to develop pharmaceutical cannabinoids, Insys addresses the clinical shortcomings of existing commercial products. Insys currently markets two products: Subsys, which is sublingual Fentanyl spray for breakthrough cancer pain, and a generic version of Dronabinol (THC) capsules. The Company's lead product candidate is Dronabinol Oral Solution, a proprietary, orally administered liquid formulation of dronabinol that Insys believes has distinct advantages over the current formulation of dronabinol in soft gel capsule. Insys is developing a pipeline of sublingual sprays, as well as pharmaceutical cannabidiol."

The company's earnings growth has been impressive. They have consistently beaten Wall Street's bottom line earnings estimates the last six quarters in a row. They normally beat the revenue estimate as well. Looking at the last three quarters INSY has seen its revenues jump +99.7%, +65.4%, and +70.2%. Most of that has been on strong Subsys sales, which were up +69% in the fourth quarter and up +74% in the first quarter.

INSY management is very optimistic and expects to complete four Phase III clinical trials in 2015. If successful it will significantly broaden their product line. The company just recently announced a New Drug Application (NDA) for its "proprietary Dronabinol Oral Solution for anorexia associated with weight loss in patients with AIDS; and nausea and vomiting associated with cancer chemotherapy in patients who have failed to respond adequately to conventional antiemetic treatments. Dronabinol Oral Solution is an orally administered liquid formulation of the pharmaceutical cannabinoid dronabinol, a synthetic version of tetrahydrocannabinol (THC)."

INSY's stock has been a strong performer since the company's IPO in 2013. Shares saw a 3-for-2 split in 2014. They just completed a 2-for-1 split on June 5th.

Before I continue I want to remind traders that biotech stocks can be tough to trade. Normally stocks in this group can be volatile with lots of headline risk. The right headline about a successful test or clinical trial or FDA approval can send shares soaring. The wrong headline could see a biotech stock crash or even gap down several points.

It is important to note that not all the news is good for INSY. In late 2014 the Wall Street Journal (WSJ) ran a story about some shady marketing practices for INSY's Subsys painkiller. This is an under-the-tongue spray version of the painkiller fentanyl. Subsys has a very high risk of dependency and is currently only approved for cancer patients. Yet strangely enough only 1% of prescriptions last year were written by oncologists. Several doctors with the biggest number of Subsys prescriptions have also been under review or disciplined. The WSJ noted that the Office of the Inspector General of the U.S. Department of Health and Human Services and the U.S. Attorneys in the Central District of California and Massachusetts are all looking into the matter. This is significant because Subsys accounts for the vast majority of INSY's revenues.

Thus far the stock market has managed to ignore the shadow cast by Subsys and how the drug is prescribed and INSY's financial relationship with the doctors who prescribe it.

Last week saw biotech stocks retreat. The IBB biotech ETF had broken out in mid June and rallied to new record highs. The group reversed lower last week with a sharp correction. INSY followed its peers lower with a painful drop from $42 to $34 in about three days. Currently the $34.00 level is holding up as support. If INSY can bounce from current levels the move could be big.

A rally from here could spark a short squeeze. The most recent data listed short interest at 68% of the small 23.6 million share float. Tonight we are suggesting a trigger to buy calls at $36.30.

Trigger @ $36.30 *Small positions to limit risk*

- Suggested Positions -

Buy the AUG $40 CALL (INSY150821C40) current ask $2.45
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 Inch Higher Ahead Of Greek Deadline

by James Brown

Click here to email James Brown

Editor's Note:

Monday was the worst day of the year for stocks as traders reacted to Greek headlines. Today saw the U.S. market produced an oversold bounce although gains were muted. Everyone seems to be waiting for additional fallout from the Greek debt crisis.

HACK hit our entry trigger.


Current Portfolio:


CALL Play Updates

Aetna Inc. - AET - close: 127.46 change: +0.18

Stop Loss: 125.85
Target(s): To Be Determined
Current Option Gain/Loss: +112.0%
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:
06/30/15: Tuesday was a relatively quiet day for shares of AET. The stock drifted sideways inside a $1.50 range. More conservative traders may want to take some money off the table.

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

06/25/15 new stop @ 125.85, healthcare stocks rally on SCOTUS decision
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


Cracker Barrel Old Country Store - CBRL - close: 149.16 change: +2.02

Stop Loss: 144.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 332 thousand
Entry on June -- at $---.--
Listed on June 20, 2015
Time Frame: Plan on exiting prior to August 5th
New Positions: Yes, see below

Comments:
06/30/15: CBRL displayed relative strength with a +1.3% gain. Shares not only erased yesterday's losses but the stock challenged round-number resistance at $150.00. The intraday high was $150.16. Our suggested entry point is $150.25.

Trade Description:
It's summertime and that means vacations and road trips for a lot of Americans. That's good news for a company like CBRL because most of their 634 restaurants are located along major highways.

CBRL is in the services sector. According to the company, "Cracker Barrel Old Country Store, Inc. provides a friendly home-away-from-home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping that’s surprisingly unique, genuinely fun and reminiscent of America's country heritage…all at a fair price. Cracker Barrel Old Country Store, Inc. (CBRL) was established in 1969 in Lebanon, Tenn. and operates 634 company-owned locations in 42 states."

Wall Street loves earnings growth and CBRL continues to deliver. Back in February the company beat earnings and revenue estimates and raised their 2015 guidance. Their most recent report was June 2nd. CBRL reported their fiscal third quarter. Analysts were expecting a profit of $1.37 per share on revenues of $680 million. CBRL beat estimates with a profit of $1.49 per share. This is a +21% rise from a year ago and marks the fifth quarter in a row of double-digit earnings growth. Revenues also beat estimates with a +6.3% rise to $683.7 million. CBRL said their comparable store sales were up +5.2%. Their comparable retail store sales were up +4.5%.

Management raised their normal quarterly dividend +10% to $1.10. They also announced a special one-time dividend of $3.00 per share. Both are payable on August 5th, 2015 to shareholders on record as of July 17th. CBRL offered a bullish outlook for both their fourth quarter and 2015. Management raised their 2015 earnings guidance from $6.40-6.50 to $6.60-6.70 per share. Wall Street was only expecting $6.55.

Technically the stock looks bullish. Shares have been consolidating their post-earnings gains the last couple of weeks but traders are buying the dip. Today CBRL is poised for a breakout past short-term resistance near $148.50. If the stock does breakout it could see some short covering. The latest data listed short interest at 17% of its small 18.9 million share float. Meanwhile the point & figure chart is very bullish and forecasting a long-term target at $231.00.

Tonight we are suggesting a trigger to buy calls at $150.25. More aggressive traders may want to jump in early on a rally past $148.75.

Trigger @ $150.25

- Suggested Positions -

Buy the SEP $155 CALL (CBRL150918C155)

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


The Walt Disney Co. - DIS - close: 114.14 change: +1.09

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +4.8%
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:
06/30/15: DIS shares were showing strength with a +0.96% gain versus the +0.26% rally in the S&P 500. The rally today did struggle with recent resistance near $115.00.

No new positions at this time.

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

06/27/15 new stop @ 112.25
06/18/15 triggered @ $112.25
Option Format: symbol-year-month-day-call-strike


Demandware, Inc. - DWRE - close: 71.08 change: +2.13

Stop Loss: 67.75
Target(s): To Be Determined
Current Option Gain/Loss: -16.7%
Average Daily Volume = 417 thousand
Entry on June 22 at $72.35
Listed on June 20, 2015
Time Frame: 6 to 8 weeks, exit prior to earnings in August
New Positions: see below

Comments:
06/30/15: DWRE managed to recover about 2/3rds of yesterday's losses. While the +3.0% gain today is encouraging technicians will note that today's move is nothing more than an inside day, which suggest indecision. On the plus side there was no follow through lower.

No new positions at this time.

Trade Description: June 20, 2015:
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.

- Suggested Positions -

Long OCT $75 CALL (DWRE151016C75) entry $5.28

06/22/15 triggered @ $72.35
Option Format: symbol-year-month-day-call-strike


Cyber Security ETF - HACK - close: 31.55 change: +0.62

Stop Loss: 29.85
Target(s): To Be Determined
Current Option Gain/Loss: -33.3%
Average Daily Volume = 769 thousand
Entry on June 30 at $31.55
Listed on June 29, 2015
Time Frame: Exit PRIOR to August expiration
New Positions: see below

Comments:
06/30/15: Right on cue shares of HACK bounced from support. Shares hit our suggested entry point at $31.55.

Trade Description: June 29, 2015:
Cyber security is a huge business because the threat is so large. Criminals and unfriendly foreign countries can wreak havoc and damage anyone. Victims include individuals, small businesses, large businesses, schools, organizations, and governments. The FBI Internet Crimes Complaint Center registered almost 270,000 complaints in 2014. McAfee reported that cyber crime cost the global economy $400 billion last year. Another report, by KPMG, suggests damages by online criminal activity could reach $560 billion in 2015.

We constantly hear about successful hacking attacks against large U.S. companies like Target, Home Depot, and JPMorgan Chase. Just recently there was a massive scandal where Chinese hackers allegedly stole extremely confidential information on tens of millions of U.S. government employees. Cyber crime is a constant threat. It's no surprise that investors have flocked to a relatively new ETF focused on cyber security.

Here's a description of HACK and why it was created:

The World's first Cyber Security ETF, the PureFunds ISE Cyber Security ETF (HACK) was created to provide the market with a transparent vehicle to invest in the increasingly important Cyber Security industry. Anyone that has fallen victim to a cyber attack understands that the fear, consequences and helplessness associated are real. Hundreds of millions of people around the world have suffered from some form of cyber attack. Although a personal cyber attack can seem overwhelming and significant, those that happen on a corporate or government level can be disastrous. In addition to financial losses, cyber attacks have the ability to shut down or manipulate energy infrastructure, weapons defense systems, medical devices, financial markets, transportation networks/vehicles, or harvest highly personal or secret information and a constantly growing amount of other potential threats.

Given the devastating effects cyber attacks can present, it is no coincidence that both corporations and governments around the globe have committed billions of dollars annually in hopes of preventing future attacks. This ongoing digital arms and defense race has vastly grown the size and importance of the Cyber Security industry. This constantly evolving battle will force efforts and capital to focus on this essential space. An increased spending and demand for cyber security solutions may benefit the always morphing Cyber Security Industry.

The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Cyber Security Index.

HACK currently has 32 components. The top ten stocks are: IL, PFPT, SAIC, IMPV, SPLK, VDSI, FTNT, BLOX, AVG, and PANW. You can see all the components
here, scroll to the bottom and select "show all".

This ETF already has more than $1 billion in assets, which is shocking since it just debuted about eight months ago.

The ETF was a strong performer from early May until mid June. Last week shares began to see some profit taking. Today's market-wide sell-off has pushed HACK toward support at its trend line of higher lows (support) and technical support at the 50-dma. After a -8% correction the pullback may be over. We want to be ready if HACK rebounds from here. Tonight we're suggesting a trigger to buy calls at $31.55.

Please note this should be considered a higher-risk trade. The option spreads on HACK's options are wide. The spreads have probably been exaggerated today due to the surge in volatility. We are suggesting the August $33 calls. You may want to use a different strike.

*small positions to limit risk* - Suggested Positions -

Long AUG $33 CALL (HACK150821C33) entry $0.90

06/30/15 triggered @ $31.55
Option Format: symbol-year-month-day-call-strike


Sirona Dental Systems - SIRO - close: 100.42 change: +0.36

Stop Loss: 99.65
Target(s): To Be Determined
Current Option Gain/Loss: -37.9%
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:
06/30/15: SIRO is still ricocheting between short-term support near $100 and short-term resistance near $102.

No new positions at this time.

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

06/23/15 new stop @ 99.65
06/15/15 triggered @ $101.05
Option Format: symbol-year-month-day-call-strike


Under Armour, Inc. - UA - close: 83.44 change: +0.51

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: -41.3%
Average Daily Volume = 2.0 million
Entry on June 26 at $86.05
Listed on June 23, 2015
Time Frame: Exit prior to August expiration
New Positions: see below

Comments:
06/30/15: UA managed a bounce but shares seemed stuck in the $83-84 zone today. Let's see how UA fares tomorrow before considering new positions.

Trade Description: June 23, 2015:
UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitnessplatform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it is actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but UA grew +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance.

UA reported their 2014 Q4 results on February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

There was a steady stream of analysts raising their price targets on UA after its February earnings report. Many of these new price targets were in the low $90s ($91-94).

The company's most recent earnings report was April 21st when UA announced Q1 results. After raising guidance back in February the company reported earnings of $0.05 per share, which was in-line with Wall Street's new estimates. Revenues were up +25.4% to $804.9 million, which beat expectations. UA management raised their outlook again. They expect 2015 operating income to improve +13-to-15%. UA expects 2015 revenues to rise +23% to $3.78 billion.

The stock has rallied sharply into its earnings report and shares suffered some post-earnings depression with a -$12.00 drop (-13.6%) in the following two weeks. The price target upgrades continued but UA spent most of May consolidating sideways inside a narrow range. Finally on June 5th shares of UA broke out past multiple layers of resistance on another upgrade. The stock was upgraded to a "buy" with a $91 price target.

UA spent about a week digesting its bullish breakout and then took off. The company recently announced a 2-for-1 stock split. However, instead of a normal split the company is creating a new Class C stock which will have no voting rights.

Why a new class of shares? That's because the company's founder and current CEO Kevin Plank does not want to lose control. This way he can maintain control by keeping his voting shares while still selling the new Class C shares. Just in case you were curious, Class A UA stock has one vote per share. Class B stock has ten votes per share, which Plank owns the majority of.

This stock "split" will be disbursed as a dividend. There's no word yet on the new ticker symbol for the class C shares. There is a special meeting of UA shareholders on August 26, 2015 to approve the necessary changes so they can proceed with this stock split. Google did a similar stock split back in 2014 so the founders could maintain control. Both GOOG's and UA's decision has rankled some shareholders. However, normally stock splits tend to be viewed as a bullish move since stocks don't split if they're not rising. Stocks that split tend to outperform the broader market.

Tonight we are suggesting a trigger to buy calls at $86.05. More conservative traders may want to consider waiting for a dip instead. The nearest support is $82.00. We'll start with a stop loss at $81.75.

- Suggested Positions -

Long AUG $90 CALL (UA150821C90) entry $2.30

06/26/15 triggered @ $86.05
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Entergy Corp. - ETR - close: 70.50 change: +0.55

Stop Loss: 72.55
Target(s): To Be Determined
Current Option Gain/Loss: -32.4%
Average Daily Volume = 1.2 million
Entry on June 26 at $69.25
Listed on June 25, 2015
Time Frame: Exit PRIOR to earnings on August 4th
New Positions: Yes, see below

Comments:
06/30/15: ETR bounced again. Today saw its rally fail at its descending 20-dma. What's noteworthy about today is the volume. Average volume is about 1.2 million shares a day. ETR traded more than 4.5 million today although I don't see any news that might explain the surge in volume.

No new positions at this time.

Trade Description: June 25, 2015:
Dividend lovers and income investors often consider the utility stocks. Many have hefty dividends that are considered safe and reliable. When the bond market peaked in January this year the utility sector reversed as well.

According to the company, "Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including nearly 10,000 megawatts of nuclear power, making it one of the nation's leading nuclear generators. Entergy delivers electricity to 2.8 million utility customers in Arkansas, Louisiana, Mississippi and Texas. Entergy has annual revenues of more than $12 billion and approximately 13,000 employees."

Earnings have been mixed. Back in February ETR reported its Q4 results where earnings missed estimates but revenues came in better than expected. That switched in the first quarter. ETR reported its Q1 results on April 28th. Earnings soared past expectations but revenues fell -9.0% and came in below estimates.

Most utility stock investors are not looking at earnings so much as they are looking at yields. ETR still has a dividend yield near 4.8%. That's about twice the U.S. 10-year bond yield, which closed at 2.39%. Investors are selling the utility stocks anyway because expectations are growing for the Federal Reserve to raise rates this year or early next year. History shows that the Fed almost never raises just once. It's always a series of rate hikes. This will boost bond yields and make high-dividend stocks less attractive.

ETR's recent oversold bounce just failed near $72.50 last week. Now the stock has reversed and broken down below round-number support at $70.00. The next support level could be $65.00 or it could be $60.00. We are suggesting a trigger to buy puts at $69.25.

I will issue one caveat. The Greece situation is a wildcard. It looks like Greece is headed for a default. If the world reacts poorly to this long-expected event we could see central banks, including the Fed, remain extraordinarily dovish in their monetary policy to reduce any impact of Greece's implosion. This could push the next Fed rate hike farther into the future and might be interpreted as bullish for utilities. I doubt this is a serious threat to our bearish play over the next two months but it could happen.

- Suggested Positions -

Long AUG $67.50 PUT (ETR150821P67.5) entry $1.70

06/30/15 ETR saw a surge in volume today
06/26/15 triggered @ $69.25
Option Format: symbol-year-month-day-call-strike


iShares Transportation - IYT - close: 144.98 change: +0.19

Stop Loss: 150.25
Target(s): To Be Determined
Current Option Gain/Loss: +5.7%
Average Daily Volume = 397 thousand
Entry on June 29 at $146.90
Listed on June 27, 2015
Time Frame: exit PRIOR to August expiration
New Positions: see below

Comments:
06/30/15: The IYT, like most of the market, experienced an oversold bounce on Tuesday. The transports continue to underperform. The IYT only rose +0.13% versus a +0.26% gain in the S&P 500.

No new positions at this time.

Trade Description: June 27, 2015:
The transportation stocks have been a sore spot for the wider bull market. Year to date the Dow Industrials are up +0.7% while the S&P 500 index is up +2.0%. Yet the IYT transportation ETF is down -10% in 2015 and down -12% from its all-time highs set in November 2014.

The IYT is the ETF that tracks the Dow Jones Transportation Average. Both have 20 stocks in them. The biggest components are railroad and trucking companies. Here's the full list of components: FDX, UPS, UNP, KSU, NSC, R, LSTR, JBHT, ALK, CHRW, KEX, UAL, EXPD, CAR, DAL, CNW, MATX, LUV, CSX, and JBLU.

Airlines grabbed a lot of headlines in the last several weeks as their stocks fell sharply. Investors are worried that the airlines will build up too much capacity and oversupply the market forcing them to lower fares and slash their profitability.

Railroad stocks are suffering on multiple fronts. The plunge in crude oil has wiped out demand for drilling new wells. That means less demand to move equipment and less demand for proppants (like fracking sand). Plus coal demand is falling.

Delivery stocks have struggled as well. FedEx (FDX) recently reported earnings that missed expectations on both the top and bottom line. Their previous earnings report the company lowered their 2015 guidance. Back in January UPS lowered their 2015 guidance and their most recent report saw revenues below estimates. The big railroad companies have been missing earnings and lowering estimates as well.

There has been a lot of attention given to the bearish divergence between the transportation stocks and the Dow Industrials. Thus far the broader market has ignored this weakness in transports. Traditionally investors viewed the transports as a thermometer of the market's health. If transports were seeing a healthy business then the economy was healthy. If transports were struggling then the economy was or would struggle. For decades there was a pretty good correlation between the two. These days there has been some doubt over how much this relationship still exists, especially since so much business takes place online.

Tonight we're not arguing if the transports are signaling a decline for the market or the economy. Instead we're looking at the transports themselves and focusing on the IYT. The ETF is clearly underperforming. It looked like it might bottom with support near $148.00. Unfortunately for the bulls the IYT just broke down under this support level. The next support could be down near its October 2014 lows in the $137-138 area. The point & figure chart is suggesting a target of $139.00.

We want to take advantage of this breakdown. Tonight we're suggesting a trigger to buy puts at $146.90. Plan on exiting prior to the August option expiration.

- Suggested Positions -

Long AUG $145 PUT (IYT150821P145) entry $3.50

06/29/15 triggered @ $146.90
Option Format: symbol-year-month-day-call-strike


Southwest Airlines Co. - LUV - close: 33.09 change: -0.09

Stop Loss: 35.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
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:
06/30/15: LUV underperformed both the broader market and its peers in the airline industry. Shares of LUV slipped -0.27% and is poised to breakdown under its June lows.

Later this week Delta (DAL) will report its June traffic numbers. Most of the major airlines will report their June numbers next week. These announcements could either fuel the sell-off or spark a bounce. We should expect more volatility in the airline stocks next week.

No new positions at this time.

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

06/22/15 new stop @ $35.45
06/16/15 triggered @ $33.85
Option Format: symbol-year-month-day-call-strike


SM Energy Company - SM - close: 46.12 change: +0.58

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: -39.4%
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:
06/30/15: SM gapped open higher at the open. Fortunately the rally failed at its descending 20-dma (again). By lunchtime SM had settled into a sideways churn near the $46.00 level and stayed there the rest of the session.

No new positions at this time.

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

06/23/15 new stop @ 48.75
06/19/15 triggered on gap down at $44.49, suggested entry was $44.90
Option Format: symbol-year-month-day-call-strike