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Daily Newsletter, Saturday, 7/11/2015

Table of Contents

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

Market Wrap

China Roars Back

by Jim Brown

Click here to email Jim Brown

Hope for Greece and a do or die rebound in the Chinese markets prompted a +211 rally in the Dow but unfortunately it only brought it back to neutral for the week. On the positive side, the morning short squeeze did not fade as the day progressed.

Market Statistics

The Shanghai Composite spiked to a +4.5% gain on Friday after a +5.8% gain on Thursday. This was the biggest two-day gain since 2008. Unfortunately, it came after a -30% decline over the prior three weeks that wiped out more than $3.9 trillion in market cap. More than 1,300 stocks were still halted and trading was limited to only 53% of the market. Of those shares that did trade, about 90% were higher and limited out at the 10% per day maximum gain. Only 7 stocks closed in negative territory. (Hat tip to Art Cashin)

China instituted a ban on major stockholders and executives from selling shares for six months. The government ordered investment firms to buy nearly $42 billion in shares and they launched an investigation into short-selling, suggesting the practice had better stop. There are now more than 90 million individual retail investors and nearly 50 million of those are new to investing. The average investor account in China contains less than $15,000. Only 7% of the population has a brokerage account. The average PE of a Chinese stock has fallen from 108 at the height of the rally to "only" 57 today.

Bank of America (BAC) said the selling pressure would be relentless and there was a decent chance for another leg down once the government begins to withdraw liquidity and allows those 1,300 halted stocks to trade. Margin balances have fallen for 14 consecutive days after a 500% rise over the prior 15 months. Margin debt declined -$132.6 billion from the peak to $232.6 billion on July 8th. The government was trying to create a wealth effect from getting citizens to invest in the rising stock market but now it is losing face. Long term the government cannot manipulate the market and the retail investors will learn a hard investing lesson.

If you really want to know why the Chinese market rebounded consider this. "In an extraordinary statement on Thursday morning before the market opened, the People's Bank of China said it would lend an unspecified amount to the state-owned China Securities Finance Corp., which would use the money to support the stock market. This marks a departure from the CSFC's original mission, which was to finance margin lending by brokers. Already, the CSFC has lent 260 billion yuan ($42 billion) to 21 domestic brokers for the purpose of buying shares, and also bought an unknown amount of stock itself directly." WSJ.com

Basically China has invented a new form of QE where it buys stock instead of bonds in an effort to rescue the market. They are effectively printing new money to buy stock. Obviously, this will eventually end badly for the market since even China cannot print money forever. The goal is to increase the wealth effect for retail investors (consumers). If you are feeling prosperous because you made money in the market then you will spend some of that money on buying consumer goods.


The rally in Chinese stocks helped lift the market but Greek headlines were also in play. Some finance ministers were positive on the "turnaround" in Tsipras. Two weeks ago the Troika presented Tsipras with a list of reforms they needed to see before they would give Greece more money. Tsipras called it criminal coercion. He called a snap referendum to let the people vote on whether or not they were willing to accept the austerity terms offered by the Troika. More than 61% voted no and Tsipras promised to have a better deal with no austerity signed within 48 hours.

Fast forward to Thursday and Tsipras gave the Troika a proposal that was almost exactly the same as what the Troika had given him in the ultimatum two weeks ago. It was exactly the same austerity conditions that 61% of Greeks had voted against one week ago. Their solid vote of NO turned into an audible gasp of OH NO! It has been 140 hours and no signed deal and the deal he proposed could get him lynched when he returns to Greece. The only real change is that Tsipras is no longer asking for 15 billion euros in aid for 6 months but now he is asking for 54 to 80 billion and a three-year deal.

The Greek parliament as well as the parliaments of most of the eurozone nations have to vote on accepting a new deal. Despite huge crowds protesting outside the Greek parliament on Friday night, the lawmakers approved the "criminal coercion" terms that Tsipras has now decided to accept. Remember, he also vowed not to accept any proposal that does not include a write down of the debt, lower interest rates and a longer term. He will not get the write-down because it is prohibited by treaty but the Troika will probably extend the loan terms and pretend they expect the money to eventually be repaid.

Apparently having the banks closed for two weeks has made him a convert because another week of closures would produce rioting in the streets and serious civilian unrest.

On Saturday opposition to the third bailout began to appear among the EU finance Ministers. Many were opposed because they said Greece could not be trusted. Greece lied about their financial condition to get into the eurozone and then lied repeatedly on their periodic financial statements to the EU economic committee. Everything fell apart about six years ago when Greece ran out of money and could not pay their bills. They confessed to the EU and begged for money. When the EU investigated their finances, they found they were still lying and it took two years to find out exactly how much money they actually owed. In bailout 1 and 2, they were given money after they promised to make specific reforms. They said they were making them but they never made any real changes and the Troika implemented a check system to monitor them on a monthly basis.

Since the Greek government has a history of untruthfulness and saying one thing and doing another there are numerous EU countries that do not want to give Greece the money this time around. They are afraid Greece will say anything to get the money so the banks can reopen and then never follow through on the reforms they are proposing. Remember, Tsipras has said repeatedly that "the size of the debt to the Troika is not a Greek problem. They knew we could not pay but gave us the money anyway." The bottom line is that Greece is an economy where the government is still spending more than they take in on taxes and fees. Very few people pay taxes and most consumers pay cash for goods and services and that cash is not reported.

The markets celebrated the rebound in the Chinese markets and the potential for a deal for Greece. Both of those events could fade again next week.

The only economic report in the U.S. was the Wholesale Trade numbers for May. Inventories rose +0.8% compared to +0.4% in April and expectations for a +0.3% rise. While inventories rose the sales in May rose only +0.3% after a +1.7% rise in April. However, sales of petroleum products made up the bulk of sales in May. This is a lagging report for the May period and was ignored.

The calendar for next week has several hurdles. The Fed Beige Book on Wednesday is the Fed's report card on the state of the economy on a region by region basis. If the report is strong we can expect a rate hike in September. If it continues to contain soft spots then forecasts for September could slip.

The Philly Fed Manufacturing Survey on Thursday is the most important regional manufacturing report for the month. Expectations are for a decline from 15.2 to 12.5. The spike from 6.7 to 15.2 last month was the first gain since September and analysts are expecting that gain to fade.

Janet Yellen will give her semi-annual testimony to Congress on Wednesday and Thursday. What we heard on Friday from the Cleveland speech is probably what we are going to hear in her prepared remarks to Congress. Historically, her press conferences and testimony have resulted in a bullish bounce. Her "queen of the doves" role has been good for the market but there was some concern on Friday she may be turning a little more hawkish as the clock ticks down on a rate hike in 2015.

There are plenty of filler reports in green with the Retail Sales for June the most important. Estimates are for a decline from +1.2% to +0.4%. The Housing Market Index on Thursday is also expected to decline since home selling season has passed.


The most important event on the calendar is the Netflix 7:1 split on Tuesday after the close. On Wednesday, investors will finally be able to add Netflix to their portfolio for under $100 per share. I expect significant interest from retail investors. However, using Friday's closing price of $680 the post split price will be $97.14. Buying a 100-share lot will set you back $9,714 and you will have the equivalent of 14.28 shares at Friday's prices. Netflix will report earnings on Wednesday so be prepared for some volatility.

Morgan Stanley (MS) raised the price target from $620 to $750 on Friday because of a hike in earnings estimates. Their price target if the bull case plays out is $940. Other recent target hikes came from Nomura at $750, Oppenheimer at $775 and BTIG at $950.

Kroger (KR) will also split their stock 2:1 after the close on Monday. They had a nice pre-split run of about $3.50 over the last week.




Friday was a busy day for the airline sector. American Airlines said it was cutting capacity growth to only +1%, down from prior forecasts of +2%. Domestic capacity is expected to rise 1% to 2%, down from prior guidance of 2% to 3%. Shares of all airlines rallied on the news. This suggests American is not going to fight with Southwest (LUV) for market share after that company said it was increasing capacity in the coming months. American said total revenue passenger miles in June were 20.4 billion, up +2.8% from June 2014. Total available seat miles were 23.9 billion, up +2.4%. The total passenger load factor was 85.4%, up +0.4%. There are still available seats if you can find them.

American also said it was deferring delivery of five Boeing 787 aircraft and 35 Airbus A320neo planes. Under the new agreement, four of the 787s would be delivered in 2017 instead of 2016 and one will slip from 2016 to 2018. Ten of the A320s due in 2017 and 25 due in 2018 will all be deferred to 2021-2023. American is expecting to take delivery in 2015 of 75 new aircraft and retire 104. Shares were up slightly on the news.


After the close on Thursday United (UAL) lowered its guidance for Q2 saying earnings would be at the lower end of the range because of the strong dollar. United said pre-tax margin would be 12-13% compared to prior guidance of 12-14%. Also, capacity rose +2.3% for the quarter and slightly lower than the forecast range of 2.25% to 3.25%.

United suffered a 10-hour outage with all domestic flights grounded from late Tuesday until 10:AM Wednesday morning. The reason given was a "network connectivity" issue resulting from a router outage. Grounding 3,500 flights is going to cost them in Q3. The airline had an identical grounding on June 2nd that should have impacted Q2 earnings.

UAL shares still rallied on Friday from the American capacity news.


Franklin Electric (FELE) fell more than -30% intraday after they warned that Q2 earnings would be in the range of 35 cents compared to prior guidance of 54-48 cents per share. Shares fell from $31 to $22.71 before rebounding. The company blamed it on record rainfall in May and June in North America. This caused lower than expected shipments of the Pioneer branded water handling equipment. They also blamed the strong dollar for declines in Brazil and developing economies. Shares rebounded to close at $30 and the loss of only $1. Somebody bought the dip.


Shares of Cablevision (CVC) rose after French billionaire Patrick Drahi said he was interested in acquiring U.S. cable companies. He said he was interested in companies like Cablevision and Cox Communications during an interview with the WSJ. Cox is not a public company. Previously he had pursued Time Warner before they agreed to merge with Charter Communications. Shares of CVC rallied +7% on the news.


Barracuda Networks (CUDA) declined -19% after the company reported earnings of 9 cents that beat estimates by a penny but lowered guidance. For the current quarter they projected revenue of $78-$79 million that missed analyst estimates of $80.4 million. Earnings guidance of 9 cents was in line with estimates. Existing subscribers rose +18% to 252,000. Advance billing projections were also weak and that prompted the big selloff.


Zillow (Z) shares collapsed -8% after CFO Chad Cohen said he was resigning effective August 7th. He had been with the company since 2006 and was named CFO in 2011. Whenever a CFO resigns unexpectedly there are always worries over potential accounting problems. In the case of Zillow none of the analysts seem to view that as a possibility but you never know. Zillow is integrating the Trulia acquisition and this quarter and next will see a lot of charges and accounting irregularities in the earnings reports. Maybe Cohen was simply pushed to his limit trying to merge two different sets of books.


Late Friday news broke that Lockheed Martin (LMT) was in advanced talks with United Technology (UTX) to buy Sikorsky helicopter unit in a deal that could be worth more than $8 billion. This would be the largest since Lockheed bought Martin Marietta for $10 billion 20 years ago. Shares did not trade after the news broke.


Costco (COST) was upgraded by Oppenheimer from perform to outperform with a price target of $160. The analyst called it a "rare opportunity" with +15% upside potential. The analyst expects Costco to raise the membership fees and increase prices. Earnings estimates for 2015 are $5.15 to $5.20 and 2016 stretches to $5.70 per share.


The earnings calendar heats up next week with a flood of financial stocks led by JPM, WFC, BAC, C and PNC. Yum Brands reports on Tuesday with their update on the recovery in China. Tech giants Intel and Netflix report on Wednesday. Ebay and Google highlight on Thursday. A total of 39 S&P companies will report.


Crude prices took a tumble over the last week with the low at $50.58 on Tuesday. There are worries about a deal with Iran and the lack of declines in U.S. production. Production rebounded to 9.604 million barrels per day last week and that is only 6,000 bpd below the 40-year peak set the week of June 5th. More than 1,000 rigs have been taken offline but production continues to rise. Active rigs have risen for the last two weeks after 28 consecutive weeks of declines and that has spooked energy investors.

Active oil rigs rose by +12 the prior week and +5 this week to a total of 645. That is down from the peak of 1,609 in December. Gas rigs declined -2 to match their 18-year low at 217 that was set on April 17th.



Janet Yellen spoke on Friday and said it will still "be appropriate to hike rates at some point later this year." Here is the qualification. "However, the course of the economy and inflation remains highly uncertain, and unanticipated events could delay or accelerate this first step." She did not mention Greece in her speech other than to say the Greek debt crisis was one cause of uncertainty. Analysts thought she might have turned slightly more hawkish in her tone since the minimal mention of Greece suggested conditions in the U.S. mattered much more to the Fed.

In a July survey by Bloomberg 76% of analysts expect a rate hike in September and only 10% expect a hike in December. However, she spent a large portion of her 14-page speech explaining why labor markets still have not met the Fed's criteria for full employment. "A significant number of individuals still are not seeking work because they perceive a lack of good job opportunities." She also warned the low price of oil and strong dollar remained a major drag on the economy. She also reiterated that the Fed would not raise rates until it was reasonably confident that inflation would move back toward 2% over the medium term.

The flight to quality in the U.S. Treasuries ended quickly once the Greek government submitted the surrender plan and China's markets rebounded. The yield on the ten-year fell to 2.18% on Tuesday but rebounded to close at 2.417% on Friday as treasuries were sold.


Markets

The markets rebounded from three-month lows but they still closed the week with zero gains. The S&P 500 declined only -0.16 point but it was still a loss for the week and the third consecutive weekly loss. At the risk of boring readers with the facts, the S&P Bullish Percent Index has not budged off its nine-month lows at 54.8%. Only about half of the S&P stocks still have a buy signal. More than 45% of the S&P stocks are in a bear market with declines of more than 20%. The short squeezes on Thr/Fri helped pull the markets back to even for the week but the trend is still lower.


On the much broader NYSE Composite, only 45% of the stocks are trading over their long-term 200-day average after a dip to 39% early last week. That shows the broader market is very weak.


Internals were positive on Friday despite mediocre volume of 5.9 billion shares. Unfortunately, that was the lightest volume of the week. Advancers were nearly 5:1 over decliners. This was a short squeeze so any stock with any material short interest saw an excellent bounce.

Despite the apparent negativity Lipper said for the week ended Wednesday more than $14.1 billion flowed into U.S. equity funds. Another $3.1 billion flowed into bond funds. Investors are buying the dips. How long that will last is of course the mystery.

The S&P rebounded right to resistance at the 2078-2081 level and stalled as it has almost every day since July 1st. This resistance has been rock solid. However, the dip buyers at 2050 have also been very active. Every time the index closes in on that level, the rebounds have been very strong.

The 200-day average at 2056 has been broken multiple times but it remains in play. The 2078 level is the 150-day average and that remains resistance. The index appears trapped between those two averages and waiting for an all clear from Greece and China to break out. The Tue/Wed lows were three-month lows so the uptrend has been broken.

Now the test will be the 2040 level. If that level breaks, we could easily dip back under the support at 2000 from January. I have no reason to expect a further decline ahead of earnings but the charts are still negative.

We are at the mercy of the headlines from overseas until the flow of earnings picks up enough to drown them out. Greece has a good chance of a rescue next week but it is not certain. I fear China's markets could see lower lows because even a -30% dip is not enough to erase a +150% decline. There are a lot of profits to be captured and those 1,300 stocks can only remain halted for 30 days.

There is still a lot of uncertainty and that breeds volatility. There was not enough conviction to push through that 2080 level over the last 7 days and without positive news from overseas, I doubt that will happen on Monday.


The Dow got a lot of help from Apple (AAPL) with a gain of +$3.21 and IBM with a gain of +$3.10. United Health +2.81 and Goldman +2.38 were also big supporters. Apple broke multiple levels of support to decline as low as $119 on Thursday. Volume was nearly three times normal. This suggests somebody with a big position wanted out before earnings. The decline has been persistent since late May at the $133 high. The dip to the 200-day average at about $119 on Thursday was a key buying signal and volume on Friday was nearly twice normal.


Many of the stocks in the Dow, which had been in a downtrend, saw a significant bounce on Friday. I attribute this to short covering rather than a sudden urge to own those stocks. For instance, IBM had been in a downtrend since early May with resistance at $165. The stock exploded higher on Friday. Either sellers ran out of stock or the prospect of a Greek resolution scared the shorts to cover ahead of the weekend.

There were quite a few of the Dow charts that looked like IBM. There was too many to suggest there was a sudden urge to buy one or two stocks ahead of earnings.


The Dow dipped below critical support at 17,600 several times but each time the short squeeze the following day rescued it from any negative follow through. Unfortunately, with the exception of Friday every morning rally was followed by afternoon selling or an outright decline the following day. The volatility has been high with the VIX touching 20 on Thursday.

With multiple Dow components reporting earnings next week, that volatility is likely to stay with us. The expectations for the banks are not strong so there is the potential for an upside surprise. The expectations for Intel are weak so there is a potential for a surprise there also. GE will not surprise anyone but they report on Friday so they will not impact the Dow.

The 17,760-17,800 level has proven to be tough resistance and 17,500 was support on Wednesday and 17,550 on Thursday. Those are the levels to watch for next week.



Like the other indexes, the Nasdaq rallied right to resistance and stalled. That resistance is the 5000 level and despite a +85 point intraday gain it would not hold that 5000 level. Support on both Tuesday and Wednesday was 4900 with the 150-day average at 4906. The tech stocks have not been as weak as the other indexes but the resistance at 5000 could be formidable unless Greece is rescued over the weekend and we gap substantially higher on Monday.

The semiconductor sector ($SOX) is on the verge of breaking critical support at 650 and taking the Nasdaq even lower. With Intel reporting earnings next week, this will be a make or break report.




The Russell 2000 had a decent week and posted the largest gain of the major indexes. It was only .3% but it was a gain. The drop to support at 1230 on Tuesday saw that level hold and the 150-day average came through as support once again. The +18 point rebound on Friday appeared to be actual buying from equity funds but it could have been just short covering like the other indexes. The 1260 level is now resistance.


The Dow Transports closed at a two-week high at 8201 but I am not cheering. Given the weak oil prices and the rally in the airline sector, the transports should have been a lot stronger. This was a heavily shorted index so the 1.8% gain on Friday is no surprise.


I believe Friday's rally was simply short covering ahead of the decision on Greece on Sunday. Traders with short profits were taking them off the table and those with existing short positions were trying to decide what a Greek rescue over the weekend would do to the markets. If the EU agrees to the Greek plan in some form the banks could reopen in a matter of days and the markets should rebound strongly on the hope the Greek disaster has ended.

With the Chinese markets also in rebound mode there was too much risk for a combined Greek/China headline barrage and a monster gap open on Monday. Now that the market imbalances have been corrected, we will have to wait and see what headlines appear. There could also be a sell the good news event but I doubt it. Whatever happens on Monday will be our market tell for the rest of the week. If we gap open to the upside and fail to sell off in the afternoon then I would look for a positive week. If the headlines are mixed and resistance holds then I would expect some weakness until the headlines turn positive.

The best thing working for us next week is the beginning of the Q2 earnings cycle. Hopefully this will take investors focus off the geopolitical headlines and onto the earnings news. The strong dollar is still going to be a problem for international companies so expect that excuse to continue.

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Random Thoughts

I hope everyone has seen the new warnings on the pain relievers Ibuprofen, Advil and Motrin. The FDA has determined that they cause strokes and heart attacks and the risk begins in the first few days of consumption and increases with each day thereafter.

FDA Strengthens Heart Attack Warning on Painkillers


If Greece does not get a deal completed by Monday that allows the ECB to reopen credit lines for banks, many of them could close permanently on Monday. With banks bleeding cash at $100 million a day there is not enough left to open even at the 50 euro per day withdrawal limit. Customers are now lining up starting at midnight to make sure they are first in line because the ATMs run out of cash by late morning. A Greek banker said the banks would collapse if there is no ECB rescue on Monday. Greek Bank Failures Loom


The USA Today disclosed that President Obama had issued 30 Presidential Policy Directives and 11 of them are classified secret. The White House has not even disclosed the subject of the directives. They have the same force and effect as an Executive Order. The White House will not even admit the orders exist but the official numbering scheme was corrected last week to rename PPD29 to PPD30 because PPD29 had already been used. 11 Secret Presidential Directives


Hackers took over a German Patriot Missile battery on the Syrian border on Tuesday. According to officials, the missile system carried out "unexplained" orders. Officials believe the Sensor-Shooter Interoperability function was taken over and possibly the computer chip that controls the weapons guidance. Patriot Missile Battery Hacked


Complete text of the Greek surrender letter to the Troika. What happened to the obstinate and hostile attitude and "criminal coercion" claims?

Dear President and Managing Director,

The attached proposal for a comprehensive and specific reform agenda by the Minister of Finance of Greece - aimed at complementing the request for a loan facility from the ESM of July 8 2015 - is conveyed to you following the Euro Summit decision of July 7 2015.

In this context, it will be assessed by the three institutions to be presented to the Euro Group. It constitutes the result of many months of formal and informal negotiations that the Greek government undertook with the institutions at all levels, aiming at reaching a program that will be economically viable and socially just.

With this proposal, the Greek people and the Greek government, confirm their commitment to, fulfilling reforms that will ensure Greece remains a member of the Eurozone, and ending the economic crisis. The Greek government is committed to fully implementing this reform agenda - starting with immediate actions - as well as to engaging constructively on the basis of this agenda, in the negotiations for the ESM Loan.

This reform agenda constitutes part of the wider effort of the Greek Government, towards reforming the Greek economy and public administration, through fighting corruption, clientilism and inefficiency, promoting social justice and creating a positive environment for sustainable economic growth. Thanking you for our cooperation,

Yours sincerely,

Alexis Tsipras


The bulls and bears continue to change sides with a 5% switch from bearish to bullish last week. This is relatively tame compared to the huge swings over the last several weeks.

This is the 15th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.



An ex-CIA analyst currently working for Goldman Sachs said "We are in an extraordinarily dangerous time right now." He is referring to the deterioration of U.S. and Russian relations and the increasing likelihood of a strategic conflict. Extraordinarily Dangerous Time


PC makers just had their worst quarter in almost two years according to Gartner. Global PC shipments declined -9.5% in Q2. Vendors are struggling to keep the hardware from stacking up ahead of the Windows 10 release later this year. Vendors are trying to liquidate inventory ahead of the Windows 10 shipments later in 2015 but nobody is buying. Prices of computers are rising as a result of their complexity and prices for tablets are falling thanks to carrier subsidies. The strong dollar is hurting sales overseas and both Asus and Acer each posted double-digit declines in sales. Lenovo remains the top supplier but they also had their first quarterly decline since Q2-2013. Hewlett Packard saw sales decline -9.5% and Dell sales fell -4.9%. PC Sales Falling


Morgan Stanley analysts are drinking the hopium Kool Aid. On Thursday they predicted global growth would accelerate to +4.0% in the second half of 2015 compared to +2.9% in the first six-months. Morgan Stanley says monetary stimulus is taking hold and will even be extended by 18 central banks this year. "Domestic demand in developed economies will be the key engine of growth." The analysts believe Greece will provide little contagion regardless of the outcome. Growth to Accelerate 4.0%.


The Iranian nuclear discussions just extended the deadline for the 7th time. It is now Monday evening. Kerry said they will not be rushed but they will not continue talking forever. The longer Iran talks the more they can get done in their research. The current president was a former nuclear negotiator and he has bragged that he kept the talks going for five-years while the research was accelerating. Stonewalling is an Iranian tactic. Cartoon from The Week.com



Apparently China stole the personal information of 21.5 million people when they hacked into the U.S. Office of Personnel Management (OPM). The information stolen included their social security numbers, residency and educational history, employment history, details on immediate family members, business relationships, health, criminal and financial history and other details including fingerprints. The initial hack stole info on 4.2 million current and former government employees. The second breach specifically targeted individuals that had undergone background investigations in order to get security clearances. Victims will receive a "suite" of security services including monitoring of their credit bureau files. Those services will be provided by a third party, private contracting firm for a period of three-years.

The Senate has introduced a bill called Reducing the Effects of the Cyberattack on OPM Victims Emergency Response (RECOVER) Act. The act will provide lifetime identity monitoring and up to $5 million in identity theft protection for the victims. The head of OPM, Katherine Archuleta, resigned on Friday. 21.5 Million Records Hacked


This is a link to a very interesting website run by Norse Corp. They track cyber attacks in real time. Most types of initial penetration attack attempts have an identifiable set of computer code. Since everything has to travel over the Internet. Norse can track when that identifiable code travels through the Internet backbone. They can tell where it came from and who is being attacked. This page is a real time track of those attacks. I have been watching it over the last week and there has been a concentrated attack against something in St Louis from multiple points in China and Russia. The longer you leave the page up the more history is collected. Map.NorseCorp.com


 

Enter passively and exit aggressively!

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Index Wrap

More Churn, More Downside

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The Major Indices saw some lower lows, mostly nominal and not prolonged. EU, China still concerns as is the energy slide but from a technical perspective indices could be near bottoms.

The chart pattern last week showed a possible a bearish 'flag' form. And got me off thinking NO lower low. Another down swing developed this past week true to the flag pattern but the major indices haven't yet seen a NEW down leg just a slightly, not dramatically, lower low in the recent decline.

One way to project lows in the indices continues to be by skillful use of moving average envelopes with a 21-day moving average as the 'centered' average. You'll see my 'envelope' values on my charts below. I start with a 2 percent upper and lower envelope setting at '21' and a Fibonacci number.

The S&P 500 (SPX), S&P 100 (OEX) and the Dow 30 (INDU) in 'average' volatility conditions (in a trend) tend to trade plus or minus 2 percent above or below a centered 21-day moving average. If the bullish trend is being propelled with a lot of demand/buying, rallies may push highs to values equal to 2.5 to even 3 percent above this key moving average.

Only RARELY in an ongoing bull market will the dip to the lower envelope line be as great as seen in rally peaks; e.g., a last big SPX rally got to 3% over the average, last big pullback took prices to 2.5% (or, 2%) BELOW the centered (21-day) moving average, followed soon by a rebound.

The Nasdaq numbers in terms of percent values above/below the 21-day average we often see in the Nasdaq are greater percent values relative to S&P and NYSE, as Nasdaq bull market rallies often reach values equal to 2.5 to 3 percent ABOVE the 21-day. On declines, sell offs might only fall to 2.5 to 2 percent under.

The moving average envelope LOWER line be used as a way of gauging when a sell off may have run its course and where support/buying interest may start to buoy stocks; at least the foregoing reflects a common pattern in the multiyear bull market we've had to date.

The S&P 500 Volatility Index (VIX):

The VIX Volatility Index has again topped out at or near 20, as VIX follows a trendline higher, suggesting just slightly higher resistance around 22.3. 22 is the start of major resistance.

VIX support is highlighted in the 15.7-16 area, with next support at 14.

The pattern suggests a declining VIX and I'd consider downside plays on rallies to near 20. If 15.7 gives way, 14 is the support floor.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) has a bearish near to intermediate-term pattern as SPX fell to 2 percent under its 21-day moving average. It got oversold in terms of its fall to the lower (2%) envelope line, an RSI 'oversold' extreme and an 'oversold' status in terms of the decline in bullish sentiment; or, seen in the reverse way as a perhaps over-done build up in bearish trader expectations.

The foregoing bearish near-term picture needs to be seen in the context of a multiyear bull market, as the primary or major trend remains strongly up. This long-term trend picture suggests bullish strategies at the type of price, momentum and sentiment 'extremes' reached in this last sell off. Risk for another down leg such as to 2000 looks less likely than a rebound back to 2090-2100 resistance.

I've highlighted support at 2050, extending to 2040. Near resistance is seen at 2080, extending to 2100 and the best upside I can see in the coming week. Stay tuned on that.

Buying dips to the 2050 area offered a decent speculative play if risk was held to the low-2040 area, and projecting upside potential on a rebound back to 2090-2100.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is bearish below 920, bullish above it.

Key support is at 900-895. Dips to this area have good upside potential in a rebound.

Near resistance begins at 915, extending to the 920 area. A sustained move that keeps OEX above 920 suggests upside to 930, perhaps again to 935. Stay tuned.

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

The Dow 30 (INDU) has continued its downward slide. Most recently, INDU support came in at 17500. Key near resistance, a 'line' of prior recent highs, is seen in the 17800 area. Above 17800, resistance at 17900, then 18000, is anticipated.

Areas of INDU support this week are highlighted at 17500, then 17400.

Near term upside potential looks at most to the 17900 area near term. Conversely, we see support/buying interest digging in on pullbacks to the 17500-17400 zone in the Dow.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) has declined to 2 and half per cent below its 21-day moving average so I look for support in the 4900 area and on any dips to below this level. Price declines of a day or few days to the low end of these envelope lines have often marked the lows in a move.

I'm bullish at 4850 should there be another slide. Prospects to pierce 5000 in COMP are ok, maybe not so good for the Index to climb above 5050 based on the current pattern. We'll know more about buying interest if 5050 is seen, implied resistance at a key prior downside price gap and the current level of the (21-day) average.

Support is highlighted at 4900, extending next to 4850. 4845-4800 is seen as major support on long-term charts (not shown here).

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nasdaq 100 (NDX) has been in a sideways to lower trend on balance after numerous prior failures for the big cap Nas 100 to climb above 4550.

Near-term resistance is likely to come in around 4450 and the key 21-day moving average; next resistance is highlighted at 4500.

Pivotal lows seen over 3 consecutive days this past week shows 4350 as first key support, extending to 4300.

I'd buy another dip and adopt bullish strategies if there was sell off below 4350; the 4350-4300 zone looks like my sweet spot to look for a tradable bottom.

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

The Nasdaq 100 tracking stock (QQQ) fell to 106 support at QQQ's up trendline, at least the latest 'draw' of one!

The strong rebound from the 106 area at the trendline suggests a possible bottom formed in that area. If so, buying dips back toward 106 is suggested, although some added stop-loss selling could take the Q's to 105.4, possibly 105. I see 105 as sort of my 'worst-case' expectations on the near-term QQQ downside.

Near resistance is suggested at the 21-day average (Friday: at 108.6) then above this area, 110. I don't envision a sustained move just yet above the 108-108.6 resistance zone. A couple of consecutive Closes above the Average in the coming week is an initial indication of a shift in momentum to bullish/up.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) came down to support around 1225, suggested as an 'oversold' extreme by the decline falling 2.5% below its 21-day moving average. RUT has had a tendency for price swings that carried up to an area 2-2.5 per cent above the 21-day moving average and down to the same; in this case apparent support has been triggered at 2.5 percent under the centered moving average.

I favor exiting bearish positions on another dip to the 1225 area, highlighted as support by green up arrow; a sizable dip could also carry to 2015. Adopting bullish strategies in the 1225 to 1215 zone looks favorable on a risk to reward basis. Adhere to a 1210 exit point either on an intraday or end-of-day basis. RUT upside potential over time is to 1300. Max downside in my view is to 1200.

Expected resistance/selling pressure looks to come in around 1260, extending to the level of the 21-day average (currently: 1265). Next resistance is seen at 1270-1274 resistance.


GOOD TRADING SUCCESS!




New Option Plays

Coiling For A Breakout

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Jack In The Box Inc. - JACK - close: 89.89 change: +1.56

Stop Loss: 87.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 600 thousand
Entry on July -- at $---.--
Listed on July 11, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Company Description

Trade Description:
It's a burger-eat-burger world out there in the fast-food business. Jack in the Box is small fries compared to its larger rivals like McDonalds (36,258 locations) and Wendy's (6,515 locations). Let's not forget heavy weights like Taco Bell, Burger King, Subway, Dairy Queen, and a handful of pizza chains. JACK only has about 2,200 restaurants but it also has a secret weapon and that is the Qdoba Mexican Grill, a fast-casual restaurant with about 600 locations. Fast-casual restaurant rival Chipotle Mexican Grill has almost 1,800 locations.

Some of that intense competition being felt by McDonalds and Chipotle Mexican Grill is coming from Jack in the Box and its Qdoba brand, which is growing sharply. A majority of their Qdoba franchisees own multiple stores with 10, 20 even 40 stores common. Enterprising business owners don't open additional stores if the original stores are not working. To have so many owners with high numbers of stores suggests the franchise is consistently profitable.

To be profitable they need solid customer traffic, good food and decent margins. Shares of JACK have been one of the best performers on the S&P over the last couple of years because the company has been posting solid earnings and growth.

With analysts cutting earnings estimates for McDonalds and Chipotle, earlier this year, because of competition in the sector it makes sense to look at what has happened at JACK. Over the last quarter and the last year not a single analyst has lowered their earnings estimates for JACK. According to Zacks, analysts are expecting JACK to grow earnings +11.7% in the current quarter and +22% for 2015.

Customers are trending towards healthier foods and away from the mass produced burgers and fries at McDonalds. Did you know there are 19 ingredients in McDonalds fries? Surely you didn't think they were just potatoes and grease? This trend may not help the Jack in the box brand but it's good news for Qdoba. Restaurants like Qdoba and Chipotle are capitalizing on the healthy food craze.

The company plans to open 15 new Jack in the Box stores in 2015. They're also cashing in on Qdoba's success and planning to open 50 to 60 new Qdoba locations. That compares to just 12 new Jacks and 38 new Qdobas in 2014.

Management is trying to be shareholder friendly. They have an active share buyback program and they reduced the share count by 10% over the last few quarters. In their most recent earnings report (May 13th) the company raised their quarterly dividend by +50%.

JACK reported its Q1 2015 earnings on February 17th. Analysts were expecting a profit of $0.87 a share on revenues of $461.2 million. JACK delivered earnings of $0.93 a share. That's a +24% improvement from a year ago. Revenues were up +4.1% to $468.6 million, above estimates. Their operating margins improved 1% to 19.3%. Management raised their 2015 guidance.

The company did it again in May with their Q2 report. Estimates were for $0.66 per share on revenues of $356 million. JACK reported $0.69 per share with revenues up +5.0% to $358 million. That is a +35.2% earnings improvement from a year ago. Their consolidated restaurant operating margins improved 210 basis points to 20.6%. Plus, management raised their 2015 guidance again.

The stock has ignored a lot of the market's recent volatility. Shares of JACK seem to be marching to the beat of their own drummer. You can see the market reaction to its Q1 earnings report in February with the big surge higher. The rally reversed in late March and shares found support near $86.00. The stock has been bouncing along the 486.00 level for more than two months. Its consolidation has narrow over the last few weeks. It used to be the $86-90 range. The last few days the consolidation has been in the $88-90 zone. JACK looks like it could breakout past $90.00 soon.

We want to be ready if JACK does breakout. Tonight we're suggesting a trigger to buy calls at $90.25. Plan on exiting prior to earnings in early August.

Trigger @ $90.25

- Suggested Positions -

Buy the AUG $95 CALL (JACK150821C95) current ask $1.60
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 Rally Around The World On Friday

by James Brown

Click here to email James Brown

Editor's Note:

Big gains in both Asian and European stock markets helped boost stocks in the U.S. All of the major American indices rallied more than +1% on Friday. New hopes for another deal for Greece sent European stocks flying.

Japan was a notable exception to the widespread rally.

We have removed CAH as a candidate.

We want to exit our DWRE trade immediately.


Current Portfolio:


CALL Play Updates

Cracker Barrel Old Country Store - CBRL - close: 157.14 change: +2.49

Stop Loss: 152.40
Target(s): To Be Determined
Current Option Gain/Loss: +62.5%
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:
07/11/15: The stock market's big bounce on Friday helped lift CBRL to a +1.6% gain and a new all-time closing high. Shares look poised to challenge their intraday high near $160 soon.

We are raising the stop loss to $152.40. 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

07/11/15 new stop @ 152.40
07/07/15 new stop @ 147.75
07/01/15 triggered @ $150.25
Option Format: symbol-year-month-day-call-strike

chart:


The Walt Disney Co. - DIS - close: 116.44 change: +0.84

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +63.0%
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:
07/11/15: The last couple of trading days in DIS look almost identical. The early morning spike higher quickly fails but traders buy the dip intraday. Shares ended the week with a gain and still has short-term technical support at its rising 10-dma.

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

chart:


Demandware, Inc. - DWRE - close: 68.99 change: -2.81

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: -37.5%
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:
07/11/15: Ouch! What's going on with DWRE? Shares ricocheted from the top to the bottom of its recent trading range on Friday. Thursday the stock was up $2.80 only to reverse with a -$2.81 drop on Friday (-3.9%) but DWRE is down -5.9% from Friday's high.

I don't see any news to explain Friday's relative weakness. We want to exit immediately on Monday morning.

- Suggested Positions -

Long OCT $75 CALL (DWRE151016C75) entry $5.28

07/11/15 prepare to exit on Monday morning
07/06/15 new stop @ 68.65
06/22/15 triggered @ $72.35
Option Format: symbol-year-month-day-call-strike

chart:


Facebook, Inc. - FB - close: 87.95 change: +2.07

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -8.5%
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:
07/11/15: FB's big bounce on Friday (+2.4%) lifted shares to a gain for the week. FB is also at the top of its recent $85.00-88.20 trading range. A breakout here could signal the next leg higher. I'd be tempted to buy calls on a rally past $88.35.

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

chart:


Fiserv, Inc. - FISV - close: 86.35 change: +1.91

Stop Loss: 82.40
Target(s): To Be Determined
Current Option Gain/Loss: -12.5%
Average Daily Volume = 1.0 million
Entry on July 10 at $85.41
Listed on July 07, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: see below

Comments:
07/11/15: Our FISV trade is now open. The market's surge higher on Friday gave FISV an extra boost and shares opened higher at $85.41. That immediately triggered this trade since the suggested entry point was $85.15. FSIV outperformed the broader market with a +2.25% gain and closed right at potential resistance near its June highs.

At this point traders may want to wait for a dip near $85.00 or look for a rally past Friday's high as $86.50 as potential entry points.

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.

- Suggested Positions -

Long AUG $85 CALL (FISV150821C85) entry $3.20

07/10/15 triggered on gap open at $85.41, trigger was $85.15
Option Format: symbol-year-month-day-call-strike

chart:


INSYS Therapeutics - INSY - close: 37.53 change: +0.49

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: -52.9%
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:
07/11/15: INSY is cooperating with shares up again for the week. Yet the call option on INSY is not working very well for us.

I am not suggesting new positions at this time. Should the market dip I would expect INSY to slip toward the $35.50-36.00 area.

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

chart:


Under Armour, Inc. - UA - close: 86.24 change: +1.75

Stop Loss: 83.75
Target(s): To Be Determined
Current Option Gain/Loss: -10.9%
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:
07/11/15: UA ended the week on a strong note with shares up +2.0%. Shares look like they could challenge their earnings spike in April near $88.00 soon. I would buy calls on a new rally past Friday's intraday high of $86.40.

Tonight we are moving our stop loss up to $83.75.

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

07/11/15 new stop @ 83.75
06/26/15 triggered @ $86.05
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Concho Resources - CXO - close: 108.44 change: -1.29

Stop Loss: 112.50
Target(s): To Be Determined
Current Option Gain/Loss: -30.4%
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:
07/11/15: The U.S. stock market delivered another widespread rally on Friday. Thankfully CXO did not participate. The stock saw a brief spike higher on Friday morning but the rally quickly failed and shares declined -1.1%.

Energy stocks may have suffered thanks to news from the International Energy Agency (IEA) on Friday who lowered their global demand growth forecast for crude oil from 1.4 million barrels a day in 2015 down to 1.2 million in 2016. Their report suggest the oil market may not have bottomed yet and crude oil prices could retreat again.

I would be tempted to buy puts again on a new drop below $107.75.

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

chart:


Fossil Group, Inc. - FOSL - close: 69.08 change: +0.52

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

Comments:
07/11/15: FOSL was not immune to the market's broad-based rally on Friday but it did underperform the major indices. Shares churned sideways in a 90-cent range. I don't see any changes from the Thursday night new play description. Our suggested entry point to buy puts is at $68.40.

Trade Description: July 9th, 2015:
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)

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

chart:


iShares Transportation - IYT - close: 146.87 change: +2.74

Stop Loss: 148.35
Target(s): To Be Determined
Current Option Gain/Loss: -22.9%
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:
07/11/15: The big bounce in the IYT on Friday looks like short covering. News of a potential deal with Greece sparked the widespread rally across the market. The IYT gapped open higher and surged +1.9%.

Tonight we are adjusting our stop loss down to $148.35 to limit our risk.

If the market rallies on another deal for Greece then the IYT might bounce to its four-month trend line of higher lows (and we would be stopped out). 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

07/11/15 new stop @ 148.35
06/29/15 triggered @ $146.90
Option Format: symbol-year-month-day-call-strike

chart:


Southwest Airlines Co. - LUV - close: 33.83 change: +1.31

Stop Loss: 34.05
Target(s): To Be Determined
Current Option Gain/Loss: -19.8%
Average Daily Volume = 7.9 million
Entry on June 16 at $33.85
Listed on June 15, 2015
Time Frame: Exit prior to earnings in late July
New Positions: see below

Comments:
07/11/15: Investors have been worried about the airlines overbuilding capacity for months. This has been one of the driving factors behind the sell-off among the major airline stocks. Friday's news that American Airlines (AAL) was cutting its capacity was welcome news for the bulls. This helped fuel a big bounce for the group. The XAL airline index rallied +3.4% while LUV soared +4.0% on Friday. Shares almost hit our stop loss at $34.05. If there is any follow through higher on Monday we'll most likely be stopped out.

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

chart:


SM Energy Company - SM - close: 42.47 change: -1.88

Stop Loss: 45.25
Target(s): To Be Determined
Current Option Gain/Loss: +3.0%
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:
07/11/15: Friday was a good day for SM bears. The bounce last week just failed at resistance near $45.00. SM underperformed with a -4.2% decline. I mentioned the IEA news in the CXO update tonight. If the IEA is right then the oil stocks could be underperformers for months to come.

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

chart:


CLOSED BEARISH PLAYS

Cardinal Health, Inc. - CAH - close: 85.48 change: +1.32

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: see below

Comments:
07/11/15: We are removing CAH as a candidate. The trade is not open yet and shares have bounced to the top of its recent trading range. On the weekly chart CAH just produced a bullish engulfing candlestick pattern, which is a potential bullish reversal signal.

Trade did not open.

07/11/15 removed from the newsletter, suggested trigger was $83.15

chart: