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Daily Newsletter, Thursday, 7/9/2015

Table of Contents

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

Market Wrap

Opex Head Fake (Maybe)

by Keene Little

Click here to email Keene Little
The week before opex, typically in the latter half of the week, we often see a head-fake drop followed by a rally into opex week. Wednesday's decline followed by another sharp pullback today might have been the head-fake move. If not, look out below.

Thursday's Market Stats

The rally attempts this week keep getting rebuffed by the bears who have been enjoying selling into the rallies and knocking the bulls back on their kiesters. Wednesday's selling retraced Tuesday's strong reversal to the upside and that had many leaning short. As soon as Wednesday's trading session closed a rally in equity futures started and the buying remained steady during the overnight session. That created a large gap up this morning and it looked like yesterday's selling might have been an attempt to pull the rubber band back and help launch the next rally with short covering this morning.

This morning's gap up was immediately followed by a sharp pullback and once again most of the rally was given back by the end of the day. The failure to rally has many leaning into the bear camp but as I'll show, there might now be too many bears. One of the things the bulls need to do is get the indexes above this morning's highs and then Wednesday's highs. Until they can accomplish that there is the potential for the bears to do a lot more harm to bulls' accounts.

Today's economic reports were just the unemployment data, which showed another little uptick in claims. The initial claims jumped up to 297K from 282K and higher than the expected 276K. Continuing claims also jumped up to 2334K from 2265K and higher than the expected 2230K. The chart below shows how much initial unemployment claims have dropped over the past several years (after peaking in 2009) but is now down to a level where unemployment claims started back up. Over the past 5-6 weeks we've seen claims ticking higher but there's no break of the downtrend yet. The bearish descending wedge is another warning sign we could soon see a change in the downtrend.

Initial Claims, 1997-present, chart courtesy briefing.com

Yesterday's selling approached a 90% downside day (when 90% of the day's volume is in selling) in the NYSE and Nasdaq, which reminded me of a chart I saw recently that a trader in my trading group keeps updated for the Nasdaq. He marks 90% upside and downside days and his chart is shown below, which tracks these events since 2008. Since the rally off the 2009 low you can see the little red diamonds marking the 90% downside days and how well they coincided with the start of sharp reversals to the upside. The message here is that the 90% downside days were washout events followed by a renewed rally and that's a message that bears need to pay close attention to here.

Nasdaq 90% Days, chart courtesy Mark Ungewitter

It's possible this week's selling washed out the weak holders and sucked in a bunch of shorts, which could be the setup for another strong short-covering rally and renewed buying interest into next week. But, and this is a big but, if the market has truly topped out and we've entered a bear phase then the selling is just getting started. Occurrences of 90% down days could be an indication that the massive accumulation of stock over the past several years, on historic margin, is in the process of being liquidated. Look at the number of red diamonds during the 2008 decline -- trying to buy the market based on this signal would have been very painful. So while this chart is interesting and very useful, the bigger question is whether we're still in a bull market, in which case we should be looking for a new rally leg to new highs, or if instead we've turned the corner and started a new bear market.

When you combine the chart above with a look at the Fear & Greed index and the current Extreme Fear reading it should certainly strike fear into the hearts of the bears. An oversold market with extremely bearish sentiment is ripe for a strong reversal. While market crashes come out of oversold conditions I don't think the market is yet ready for a market crash. Instead, the present conditions support at least a decent bounce, which could be sharp and strong as we head into opex. The big players, who love to make money shoving the market around, usually try to catch too many retail traders leaning too hard the wrong way.

Fear & Greed index, chart courtesy cnn.com (Fear&Greed index)

Below the Fear & Greed index I show the SPX weekly chart and how well the rallies followed Extreme Fear readings. It has provided fair warning to the bears whenever it drops below about 15, which it did this week, since the following week was followed by the next rally leg to new highs. But keep in mind that this chart shows only from the latter half of 2012 and in a bear market we'll likely see Extreme Fear readings followed by only short-lived rally spikes before continuing lower. Where we are in the bull-bear cycle is obviously up for debate and while I think there's a very good chance we've entered the next bear cycle the above charts are reason enough for bears to be very cautious about pressing bets to the downside. And if you believe there are additional new highs ahead of us then you should be using this chart to help justify why you want to be a dip buyer here.

There is of course another dynamic at play in this market -- the Fed and government intervention. Japan's government has openly admitted to buying stocks to help support the market. The Fed has openly admitted it wants the stock market higher and commodity prices lower. The Fed and ECB admit to interventions in the bond market but they haven't admitted to any interventions in the stock or commodity markets (including gold). But the fact that the stock market has been in a relentless rally while commodities continue to sell off has many believing our governments are doing the same thing as Japan. Many believe the Fed and government interventions will prevent any serious market crash so while the Fear & Greed index shows Extreme Fear, most still believe there's a safety net below us.

This belief in the Fed and government is what helps sentiment and it's why the dipsters keep plying their trade. It's been a long while since the stock market has experienced even a 10% correction. For all you bears who have been frustrated by this market there is small comfort in the fact that you are not alone. Many professionals who have traded the market for decades lament the fact that the market doesn't work like it used to. In fact there was an article by Jared Dillian, who writes "The 10th Man" for MauldinEconomics.com, in which he discusses the problem for traders who like trading both directions. I thought you might enjoy his short article: The End of the Ends of the World.

And with that let's move to the charts since that's where we'll get our first clues about where this market could be headed next week and next month. I'll start with the DOW's weekly chart to show how it's trying to hold onto important support -- its 50-week MA at 17586 and its uptrend line from October 2011 - October 2014, near 17550. This week has seen some strong bounces off this support level but none of the bounces are sticking, which should be worrisome to bulls. The more it tests support the weaker it becomes. I show an expected bounce, at least, in the coming week but today's failure to rally following the gap up is having me doubt the ability of the market to rally.

Dow Industrials, INDU, Weekly chart

The daily chart shows the struggle to hold support after failing to make it back up to its 200-dma at 17695 (this morning's high was near 17765). Today's loss of more than 200 points from the morning high has it closing on its uptrend line from October 2011 - October 2014 and the bulls need a rally now, as in don't waste any time doing it Friday morning otherwise what looks like a head-fake pullback in front of opex week could turn uglier for the bulls next week. The H&S price objective is 17020 and that level could be reached sooner rather than later if 17500 gives way.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,000
- bearish below 17,500

There's been a lot of choppy price action since the low on June 30th and since Tuesday's low it's looking like it could be developing a sideways triangle as it consolidates. This fits as a bearish continuation pattern and it could break down at any time. If we see another bounce on Friday that is stopped near the top of the triangle, near 17725 by the end of the day, it will be a setup for a decline on Monday, presumably due to more bad news following another Sunday meeting about what to do about Greece. The only way to negate this bearish pattern is with a rally above 17800, even though a rally might only be good enough for a higher bounce before turning back down.

Dow Industrials, INDU, 60-min chart

SPX has dropped down to its 50-dma, near 2046 (Tuesday's low was at 2044, yesterday's was near 2045 and today's low was near 2050, for an average low for the week near 2046). If SPX breaks below the March low near 2040 it would be a strong bearish warning sign, especially after breaking below the uptrend line from March-June (a H&S neckline like that for the DOW) last week, near 2077. That neckline has been in play following the bounce off the June 29th low and the back-test at the end of last week and beginning of this week, followed by the selloff has it looking like a back-test and bearish kiss goodbye. Since then it's been struggling to hold onto its 200-dma at 2056 and just above price-level support at 2040. A loss of both levels by the bulls would be another reason to turn more immediately bearish. Currently, as long as support holds, I'm looking for a high bounce into next week (opex) and then a stronger decline. That's if THE high is now in place but bears need to remain aware of the potential for another rally to new highs (2150-2200 upside target zone).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2100
- bearish below 2040

The strong afternoon rally on Tuesday had SPX breaking its downtrend line from June 24th but it was unable to hold above the line with Wednesday's selloff. This morning's rally (gap up) again broke above the downtrend line but was again unable to hold above it as most of the day's gain was given back. As with the DOW, there is the possibility for a sideways triangle consolidation pattern, which calls for a tightening of the trading range into tomorrow before letting go to the downside on Monday. The bulls need a break above this morning's high at 2074 in order to give us the potential for a rally at least up to the 2100-2110 area before setting up the next shorting opportunity.

S&P 500, SPX, 60-min chart

The Nasdaq Composite gapped down on June 29th and broke its short-term uptrend line from May 6th, which was a good indication its rally finished. It bounced back up on July 1st for a back-test followed by a bearish kiss goodbye and a new low this week. It gapped down Wednesday morning and closed below an uptrend line from March 26th and this morning it almost made it back up to the trend line, near 4988 (with a high at 4982), for another back-test. The selloff following this morning's gap up leaves another bearish kiss goodbye. So far it's all bearish and a drop below its May 6th low near 4888 (the low so far is yesterday's at 4901) would make it really hard to argue for a new high. Instead I'd be looking for a drop down to its 200-dma near 4813.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 5132
- bearish below 4888

The RUT has a similar picture to the Naz with its broken uptrend line frmm January-May, which the RUT tried valiantly to hold onto Monday and Tuesday but closed below it yesterday and today. If the buyers can get the RUT back above the line, near 1249, there's a good chance for at least a higher bounce into next week before heading lower (assuming THE high is in place). But if the RUT continues lower I see the potential for a decline to its 200-dma, near 1205, before trying a higher bounce.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1280
- bearish below 1205

Treasuries have been bouncing all over the place like stocks and this week's candlestick is a long-legged doji so far, which essentially means indecision on traders' part. Treasuries were rallying strong this week but reversed after the FOMC minutes yesterday. As can be seen on the weekly chart of TNX (10-year yield) below, the decline in yields into Tuesday's low was a test of both the 50- and 200-week MAs, at 2.201% and 2.184%, resp. The decline was also back below the broken downtrend line from January-September 2014, near 2.26%, but today's rally (selling in bonds) has it back above the trend line, which keeps the short-term bullish potential alive. Another rally in yields, which could coincide with a rally in the stock market, could see a move up to the downtrend line from June 2007 - December 2013, near 2.65%. But a break below Tuesday's low at 2.187% would be a bearish heads up, which would point to much lower lows sooner rather than later.

10-year Yield, TNX, Weekly chart

Looking at the weekly chart of BKX, there is a parallel up-channel for the price action since the October 2013 low and the top of the channel is where the rally into the June highs stopped. The rally was also another back-test of its broken uptrend line from March 2009 - October 2011, with a small pop above it before dropping back below it, leaving a failed attempt to get back above the line. The June 23rd high at 79.85 was about $1 short of a 62% retracement of its 2007-2009 decline. As I show on the chart, there is the potential for another stab higher to hit the 62% retracement, at 80.87, and give us a 3rd back-test of the broken uptrend line. That would then give us a 3-drives-to-a-high topping pattern with a 5-wave move up from January and a superb longer-term shorting opportunity, either later this month or in August. However, after breaking below its 50-dma on Tuesday, near 76.66, we could see a new low from here, perhaps down to price-level support near 74, and that would give us an impulsive move down from June. That would in turn confirm the trend has changed to the downside and a bounce correction following the new low would be a shorting opportunity. It takes a bounce from here and back above the June 30th low at 76.77 to keep things potentially bullish.

KBW Bank index, BKX, Weekly chart

The U.S. dollar got a nice bounce off the mid-June low and it's currently trading right in the middle of the recent trading range and keeps the sideways triangle in play.

U.S. Dollar contract, DX, Weekly chart

Gold's choppy shallow decline since June 2013, with bullish divergence at the minor new lows is potentially bullish since we could be looking at an ending pattern to the downside. But the repeated tests of price-level support near 1180, which was broken again toward the end of June, could lead to a further breakdown. At the moment the gold bulls are rooting for support at the broken downtrend line from October 2012, which has been back-tested repeatedly since gold broke back above it at the end of March. But the 50-week MA, currently at 1214 has been holding it down. So you can see there's plenty for each side to see supporting their view of gold. I think gold will break down but I see the potential for a bounce up to about 1290 before turning lower. The initial downside potential, if it breaks down, is 1090 (50% retracement of 2001-2011 rally and the bottom of shallow parallel down-channel from August 2013).

Gold continuous contract, GC, Weekly chart

On Tuesday silver lost support near 15.45 and sold off hard. It had been consolidating on top of a H&S neckline (uptrend line from November 2014 - March 2015) since June 26th but lost the battle on Tuesday and today it bounced back up to the line. So far it's just a back-test and a selloff from here would leave a bearish kiss goodbye. A downtrend line from May 18th, near 15.52, could be used as a stop level (closing basis) if you wanted to try a short play on silver here. A break below 14.54 (two equal legs down from January for a possible completion of an a-b-c pullback) would suggest new lows and longer-term (this year) I'm looking for a drop down to the $12 area. A rally above 15.75 (back above its 20-dma) would have me thinking a higher bounce and above 16.50 (200-dma) would have me feeling more bullish but for now I continue to believe the price of the metals will continue lower.

Silver continuous contract, SI, Daily chart

Just as the dollar has bounced back into the middle of its recent trading range, oil has pulled back into the middle of its range. This keeps alive the potential for a sideways triangle consolidation pattern into at least the fall before the next leg down. Until something happens to break this pattern, which means a trade outside of a 44-60 trading range, it remains my preferred wave pattern.

Oil continuous contract, CL, Weekly chart

The only economic report Friday morning is Wholesale Inventories so there will be nothing domestically that should move the market. What happens overseas has been far more important to the market.

Economic reports and Summary

Conclusion

Just as happened Wednesday after the closing bell, equity futures have again taken off to the upside in tonight's after-hours session. Someone is working hard to protect their short puts/long calls into opex. ES gapped up tonight after reopening at 18:00 and quickly rallied up to almost 2062 (better than 20 points from the RTH closing price). This morning's gap up didn't hold and who knows how futures will trade during the overnight session but if we get another gap up there will likely be some bears waiting to take a bite out of the bulls, similar to what the bears do to salmon swimming upstream. And that could be a good analogy here as the bulls, who are accustomed to buying the dip, can't understand why the bounces are failing. They keep trying and they keep getting swatted back down. The relentless selling is the opposite of not long ago when many were complaining about the relentless buying. And this change in character for the market could be a clue that we've got a trend change.

But we still have what is normally a bullish week in front of us and Wednesday's decline and today's decline could be the typical head fake in front of opex. Push the market down, suck in the shorts and get rid of the weak holders of stock and then hit the market with buy orders to get short covering and real buying coming in strong. It has been a favored tactic for a long time and there's still the potential for it. The pattern says the bulls need a rally above this morning's highs and even better, above Wednesday's highs, in order to negate the bearish continuation patterns we're seeing this week. A bounce to a lower low by tomorrow's close would be a potentially bearish setup for Monday and the catalyst for another leg down would presumably be more bad news about Greece following another meeting scheduled on Sunday.

If we do get a bounce to lower lows, especially if the lows are at or below the tops of the sideways triangles shown on the DOW and SPX 60-min charts (near 17720 and 2060, resp., by tomorrow's close) I would not want to be in long positions over the weekend. There is of course the potential for a gap up on Monday (gap up over resistance is another favored tactic) and anyone not long will be forced to chase the market higher. But because we have a sideways consolidation following a decline it makes the higher-odds pattern bearish until it's negated. This is a game of odds that we play and if you can't put the odds in your favor it's best to at least be flat.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Leading The Way Lower

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Fossil Group, Inc. - FOSL - close: 68.56 change: -0.83

Stop Loss: 71.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on July -- at $---.--
Listed on July 09, 2015
Time Frame: Exit PRIOR to earnings on August 11th
New Positions: Yes, see below

Company Description

Trade Description:
Luxury-related stocks are not having a good year. COH, KORS, and MOV are all underperforming the broader market. TIF has outperformed some of these stocks in the last couple of months but it's still down for the year. One stock that seems to be leading the industry lower is FOSL with shares down -38% year to date.

FOSL is in the consumer goods sector. According to the company, "Fossil Group, Inc. is a global design, marketing and distribution company that specializes in consumer lifestyle and fashion accessories. The Company's principal offerings include an extensive line of men's and women's fashion watches and jewelry sold under a diverse portfolio of proprietary and licensed brands, handbags, small leather goods, accessories and apparel. The Company's products are sold to department stores, specialty retail stores and specialty watch and jewelry stores in the U.S. and in approximately 150 countries worldwide through approximately 25 Company-owned foreign sales subsidiaries and a network of over 60 independent distributors. The Company also distributes its products in over 590 Company-owned and operated retail stores, through its international e-commerce websites and through the Company's U.S. e-commerce website at www.fossil.com."

Trading shares of FOSL have been a dangerous game for investors over the last few years. The stock saw a couple of huge crashes back in 2011 and 2012. After slowly recovering from its 2012 lows the stock peaked again in late 2013. Shares appeared to breakout higher in late 2014 but ended up producing a bearish top and the selling continued in January this year.

Sales growth is a major concern for FOSL. The company reported their Q4 results on February 17th. They missed analysts expectations on both the top and bottom line. Revenues were up only +0.3% during the holiday shopping season. Management then guided lower. You can see the big gap down in the stock as the market reacted to this news.

FOSL was dead money for the next couple of months with the stock drifting sideways. Then the sell-off began again after FOSL's Q1 earnings report on May 5th. Earnings were $0.75 per share, which was 10 cents better than expected. Unfortunately revenues fell -6.7% to $725 million. This was below estimates and showed an sharp deceleration from the prior quarter. Their Q1 results saw net sales declines in the Americas, Asia, and Europe. Gross margins retreated as well. Traders sold the news even though FOSL management raised their Q2 guidance.

There has been some suggestion that the stock is a buy because it's so cheap. Shares currently trade with a P/E near 10. Thus far this fact doesn't seem to be helping. The bears appear to be right and the most recent data listed short interest at 21% of the 38.5 million share float.

FOSL has spent the last six weeks consolidating sideways in the $68.50-73.00 range. Today shares displayed relative weakness with a -1.2% decline and a new multi-year closing low. If the $68.50 level breaks the next support area could be the $60-63 region. Tonight we're suggesting a trigger to buy puts at $68.40.

Trigger @ $68.40

- Suggested Positions -

Buy the AUG $65 PUT (FOSL150821P65) current ask $2.40
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:



In Play Updates and Reviews

Opening Bounce Fades

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market delivered a strong bounce at the opening bell thanks to gains overseas in China and Europe. Unfortunately the rally quickly lost steam. The major U.S. indices closed near their lows for the session.


Current Portfolio:


CALL Play Updates

Cracker Barrel Old Country Store - CBRL - close: 154.65 change: -0.25

Stop Loss: 147.75
Target(s): To Be Determined
Current Option Gain/Loss: +35.0%
Average Daily Volume = 332 thousand
Entry on July 01 at $150.25
Listed on June 20, 2015
Time Frame: Plan on exiting prior to August 5th
New Positions: see below

Comments:
07/09/15: Stocks didn't make much progress today. CBRL gapped open higher, just like the major indices, and faded lower throughout the session, just like the major indices.

Should CBRL retreat the nearest support is probably the 10-dma near $151.31 or the $152.00 level.

No new positions at this time.

Trade Description: June 20, 2015:
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.

- Suggested Positions -

Long SEP $155 CALL (CBRL150918C155) entry $4.00

07/07/15 new stop @ 147.75
07/01/15 triggered @ $150.25
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co. - DIS - close: 115.60 change: +0.41

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +52.2%
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:
07/09/15: DIS gapped open higher but the rally failed near Tuesday's highs. Shares drifted to a +0.3% gain on the session. I don't see any changes from my recent comments.

The next few days will bring a ton of headlines for Disney's Lucasfilms division and their presentations for what's next in the Star Wars franchise at the San Diego Comic-con.

No new positions at this time. Readers may want to start adjusting their stop loss higher.

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: 71.80 change: +2.10

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: -12.9%
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:
07/09/15: Shares of DWRE also gapped higher this morning. Yet instead of fading lower DWRE rallied. The stock managed to outperform the major indices with a +3.1% gain. The $72.50 and $73.50 levels remain short-term resistance.

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

07/06/15 new stop @ 68.65
06/22/15 triggered @ $72.35
Option Format: symbol-year-month-day-call-strike


Facebook, Inc. - FB - close: 85.88 change: +0.23

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -30.6%
Average Daily Volume = 24.5 million
Entry on July 06 at $88.15
Listed on July 04, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: see below

Comments:
07/09/15: FB's performance today was disappointing. The morning gap higher failed at its short-term trend of lower highs. The stock drifted back toward unchanged. If the market is weak tomorrow we could see FB break support near $85.00 and hit our stop loss.

No new positions at this time.

Trade Description: July 4, 2015:
Facebook probably needs no introduction. It's the largest social media platform on the planet. As of March 31st, 2015 the company reported 1.44 billion monthly active users and 936 million daily active users. If FB were a country that makes them the most populous country on the planet. China has 1.35 billion while India has 1.25 billion people.

Earlier this year (March) the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

Meanwhile business at FB is great. According to IBD, FB's Q4 earnings were up +69% from a year ago. Revenues were up +49%. Q1 results were out on April 22nd. Earnings were up +20% to $0.42 per share, which beat estimates. Revenues were up +41.6% to $3.54 billion in the first quarter. Wall Street is expecting FB's profit to rise +12% in 2015 and +32% in 2016.

FB continues to see growth among its niche properties. The company bought Instragram for $1 billion in 2012. Last late year Instragram surpassed Twitter with more than 300 million active users. FB is also a dominate player in the messenger industry with more than 600 million users on WhatsApp and 145 million users on Facebook Messenger. FB has not yet started to truly monetize its WhatsApp and Messenger properties. It's just now starting to include ads in Instagram. Eventually, with audiences this big, FB will be able to generate a lot of cash through additional advertising.

Speaking of advertising, FB has jumped into the video ad game with both feet and it's off to a strong start. FB claims that it's already up to four billion video views a day. They had 315 billion video views in Q1 2015. That's pretty significant. YouTube had 756 billion video views in Q1 but YouTube has been around for ten years (FYI: YouTube is owned by Google). FB has only recently focused on video.

Wall Street is growing more optimistic as FB develops its blooming video ad business and its Instagram and messaging properties. In the last few weeks the stock has seen a number of price target upgrades. Bank of America upped their FB price target from $95 to $105. Cantor Fitzergerald upped theirs to $100. Brean Capital raised theirs to $108. Piper Jaffray upgraded their FB target to $120. Currently the point & figure chart is bullish with a $113.00 target.

Technically FB was stuck in a trading range for months while still working on a long-term, slow moving up trend of higher lows. That changed a couple of weeks ago with a bullish breakout to new highs. The recent pullback is an opportunity. If traders continue to buy this dip we want to jump on board. Tonight we are listing an entry point to buy calls at $88.15.

- Suggested Positions -

Long AUG $90 CALL (FB150821C90) entry $2.84

07/06/15 triggered @ $88.15
Option Format: symbol-year-month-day-call-strike


Fiserv, Inc. - FISV - close: 84.45 change: +1.04

Stop Loss: 82.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on July -- at $---.--
Listed on July 07, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: Yes, see below

Comments:
07/09/15: FISV recovered a big chunk of yesterday's losses but shares remain under resistance near $85.00. Currently our suggested entry point to buy calls is at $85.15.

Trade Description: July 7, 2015:
Apple isn't the only one with a mobile payments platform. Last year AAPL launched its Apple Pay service, which allows people to use their smart phones (and now smart watches) to pay for stuff at the register. FISV also jumped into the mobile pay industry late last year. That's on top of a growing business of its traditional payment systems.

FISV is part of the services sector. According to the company, "Fiserv, Inc. (FISV) enables clients to achieve best-in-class results by driving quality and innovation in payments, processing services, risk and compliance, customer and channel management, and business insights and optimization."

Earnings have been relatively on track the last couple of quarters. FISV most recent report was announced on May 5th. They reported earnings of $0.89 per share. That was up +8.5% from a year ago and above Wall Street estimates. Revenues were up +3.4% and slightly behind expectations. The company spent $290 million buying back 3.8 million shares last quarter.

Shares of FISV had been slowly drifting higher in the $75-80 zone from February to June. Suddenly things changed. The market's big rally on June 18th helped FISV breakout from its trading range. The next day the stock was upgraded to an "outperform" and given at $95 target. This launched FISV's stock toward $85.00.

Shares have been trading technically and slowly faded back toward its mid-June breakout high. Once FISV had filled the gap it began to rally again. The stock held up well this morning during the market sell-off. When the major indices reversed higher FISV outperformed them with a +0.77% gain. We want to hop on board if FISV can rally past $85.00. Tonight we're suggesting a trigger to buy calls at $85.15. Plan on exiting this trade prior to their earnings report on July 29th.

Trigger @ $85.15

- Suggested Positions -

Buy the AUG $85 CALL (FISV150821C85)

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


INSYS Therapeutics - INSY - close: 37.04 change: +1.53

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: -44.1%
Average Daily Volume = 607 thousand
Entry on July 01 at $36.30
Listed on June 30, 2015
Time Frame: Exit PRIOR to earnings in August
New Positions: see below

Comments:
07/09/15: INSY displayed significant relative strength today with a +4.3% gain. The stock has also closed above short-term technical resistance at its 10-dma.

More conservative traders might want to move their stop loss closer to short-term support near $35.00.

Trade Description: June 30, 2015:
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.

*Small positions to limit risk* - Suggested Positions -

Long AUG $40 CALL (INSY150821C40) entry $3.40

07/01/15 triggered @ $36.30
Option Format: symbol-year-month-day-call-strike


Under Armour, Inc. - UA - close: 84.49 change: +0.10

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: -32.6%
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:
07/09/15: It was not a good day for UA bulls. Shares broke out past short-term resistance near $85.00 this morning. Unfortunately the rally faded and shares closed back below the $85 level. This looks like a failed rally and arguably the second half of a short-term bearish double top (in combination with the late June peak).

No new positions at this time.

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

Cardinal Health, Inc. - CAH - close: 84.16 change: +0.76

Stop Loss: 85.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.1 million
Entry on July -- at $---.--
Listed on July 08, 2015
Time Frame: Exit PRIOR to earnings on July 30th
New Positions: Yes, see below

Comments:
07/09/15: Most of the market gapped open higher this morning. CAH was no exception. The rally failed at its 10-dma, short-term technical resistance. CAH settled right in the middle of its $83.50-85.50 trading range.

Our suggested entry trigger to buy puts is at $83.15.

Trade Description: July 8, 2015:
The rally in CAH looks tired and seems to have peaked. The stock delivered a nice run from its 2012 lows near $37.00 per share all the way up to (almost) $92.00 in April 2015. That's a +148% move. Unfortunately the rally looks broken.

It would be easy to confuse CAH for a healthcare stock but technically it's in the services sector. According to the company, "Headquartered in Dublin, Ohio, Cardinal Health, Inc. (CAH) is a $91 billion health care services company that improves the cost-effectiveness of health care. Cardinal Health helps pharmacies, hospitals, ambulatory surgery centers, clinical laboratories and physician offices focus on patient care while reducing costs, enhancing efficiency and improving quality.

Cardinal Health is an essential link in the health care supply chain, providing pharmaceuticals and medical products and services to more than 100,000 locations each day and is also the industry-leading direct-to-home medical supplies distributor. The company is a leading manufacturer of medical and surgical products, including gloves, surgical apparel and fluid management products. In addition, the company operates the nation's largest network of radiopharmacies that dispense products to aid in the early diagnosis and treatment of disease. Ranked #26 on the Fortune 500, Cardinal Health employs 34,000 people worldwide."

They seem to be doing everything right. Business has improved. They raised their dividend a few weeks ago. They're making acquisitions. Their last couple of earnings reports have been positive. CAH reported its Q2 report on January 29th. Results beat estimates on both the top and bottom line with sales up +14.8%. Their Q3 report was announced on April 30th this year. Earnings were up +16% to $1.19 per share. That beat estimates. Revenues were up +18.4% to $25.38 billion, also above expectations. Yet traders sold this report with shares of CAH plunging from $89 to $84 in one session. The only complaint seems to be slow sales in CAH's medical segment, which only rose +4% versus a +20% jump in sales for the drug segment.

Six weeks later CAH had crawled its way back to just above the $90.00 level when the stock rolled over again. News that CAH had purchased privately held Harvard Drug Group for $1.12 billion on June 5th didn't seem to do much for the stock.

Wall Street analysts still seem bullish. In June CAH received two new price target upgrades with new targets at $97 and $100. The point & figure chart is not so optimistic. The P&F chart is bearish and currently forecasting at $78.00 target but this could get worse.

Technically CAH had fallen to support near $84 and its simple 200-dma. Shares had been consolidating around this support for the last few days. Today's drop (-1.88%) is a breakdown below $84 and its 200-dma and marks a new four and a half month low. Tonight we're suggesting a trigger at $83.15 to buy puts. Plan on exiting prior to CAH's earnings on July 30th.

Trigger @ $83.15

- Suggested Positions -

Buy the AUG $80 PUT (CAH150821P80)

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


Concho Resources - CXO - close: 109.73 change: +2.88

Stop Loss: 112.50
Target(s): To Be Determined
Current Option Gain/Loss: -32.6%
Average Daily Volume = 1.4 million
Entry on July 07 at $106.90
Listed on July 06, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: see below

Comments:
07/09/15: The volatility continues in CXO with shares bouncing +2.69%. The rally struggled with resistance near $110 and its 10-dma. This back and forth over the last couple of days can be frustrating.

I am not suggesting new positions. More conservative traders might want to move their stop closer to today's high ($111.21). Currently our stop is at $112.50.

Trade Description: July 6, 2015:
It has been a bumpy ride for energy stock traders over the last year. That's especially true for CXO investors. The stock fell from $148 to $80 in less than five months last year. CXO bottomed in December 2014. The stock managed a big bounce from $80 to $130 in the next five months but that rally is over with a big reversal on the company's Q1 earnings report in early May.

CXO is in the basic materials sector. According to the company, "Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. The Company's operations are primarily focused in the Permian Basin of southeast New Mexico and west Texas."

The last couple of quarters have seen CXO's revenues decline. They reported their 2014 Q4 results on February 25th. Earnings were 88 cents a share, which was four cents above estimates. Yet revenues fell -6.0% to $594 million, way below estimates. Their 2015 Q1 results were announced on May 4th. Earnings per shares was $0.06. That was 17 cents worse than expected. CXO's revenues plunged -37.4% to $413.5 million, another big miss. The stock reacted to this news with a spike higher that quickly reversed.

Today the oil stocks are suffering as the commodity sinks due to oversupply concerns. The weekly Baker Hughes active rig count just turned positive two weeks in a row after a 28-week decline. This would suggest the pullback in the industry is over and the market has found a temporary equilibrium that will allow domestic companies to start launching new oil and gas rigs again. This will continue to boost supply and pressure prices lower.

A bigger problem could be the Iran nuclear negotiations. If Iran does sign a deal with the West then sanctions could be lifted that would allow Iran to sell up to one million barrels of oil per day on the global market. Sources suggest Iran already has dozens of crude oil tankers filled up and ready to go if the sanctions are lifted. This is one reason crude oil has been plunging the last few days. The current deadline (and there have been many) is tomorrow, July 7th. If Iran signs a deal then oil will likely drop again. If they don't then oil could bounce. If talks are postponed again then I suspect the prevailing trend, which is down, will remain in effect for oil and the oil stocks.

CXO has technically broken down below support near $110 and its 200-dma. The point & figure chart looks very bearish and is currently forecasting an $89 target. Tonight we're suggesting a trigger to buy puts at $106.90.

- Suggested Positions -

Long AUG $105 PUT (CXO150821P105) entry $4.60

07/07/15 triggered @ $106.90
Option Format: symbol-year-month-day-call-strike


iShares Transportation - IYT - close: 144.13 change: +0.77

Stop Loss: 150.25
Target(s): To Be Determined
Current Option Gain/Loss: +17.1%
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:
07/09/15: Today's bounce in the IYT failed at short-term technical resistance at the falling 10-dma.

I am not suggesting new positions at this time. Readers might want to start adjusting their stop loss lower.

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: 32.52 change: +0.16

Stop Loss: 34.05
Target(s): To Be Determined
Current Option Gain/Loss: +12.3%
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:
07/09/15: Thankfully the bounce in LUV this morning was not very big. Shares popped toward $32.90 and then spent the rest of the day in a relatively narrow range.

I am not suggesting 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

07/06/15 new stop @ 34.05
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: 44.35 change: +1.62

Stop Loss: 45.25
Target(s): To Be Determined
Current Option Gain/Loss: -27.3%
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:
07/09/15: SM is still trying to bounce and they did a good job at it today. This stock outperformed the broader market and most of its peers in the energy industry with a +3.79% gain. The rebound stalled at short-term resistance near $45.00 and its 10-dma. Any follow through higher tomorrow could end up hitting our stop loss at $45.25.

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

07/06/15 new stop @ 45.25
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