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Daily Newsletter, Wednesday, 7/15/2015

Table of Contents

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

Market Wrap

Rally Running Out of Steam

by Keene Little

Click here to email Keene Little
The strong rally in the past week is showing signs of weakening as indexes hit some lines of resistance. The rally has been enough to open the door to new highs but it remains possible another hopium-induced rally will be followed by a reversal back down as disappointment once again sets in.

Wednesday's Market Stats

This morning started relatively flat with the blue chips flat, techs slightly positive and small caps slightly negative. The picture didn't change much from there although there was a small rally to minor new highs in the morning before pulling back in the afternoon. The RUT struggled in the red for most of the day and closed weaker, which is a warning sign for bulls. A final-hour rally rescued the other indexes from closing in the red as well, except for the S&P 500, which closed marginally in the red. The day essentially finished as a doji day near lines of resistance as traders tried to figure out whether or not there's additional buying power to move the market higher. Part of today's indecision is what's going to happen next with Greece.

The Greek Tragedy
The rally over the past week was brought to us courtesy of a "resolution" for the Greek debt drama. But it's more of another hope-filled rally rather than having something more concrete and the rally has been in the face of further deteriorating economic signs. Rallies on hopium are obviously risky to trade since hope can turn to despair quickly and typically it happens overnight while most U.S. traders are asleep. A bear market, which is not confirmed yet, is often called the "slope of hope" as declines to new lows are often interrupted with spikes to the upside on hope-filled news events.

Waking up to large gaps, up and down, is something we're seeing plenty of times. It seems to be a favored way of getting a lot of volume in the morning, something the HFTs love to trade, and in a decline one could be forgiven for thinking the overnight moves are manipulated but in fact are typically related to news events from overseas. Last Sunday night equity futures gapped down on the news that there was no agreement between Greece and the EU finance heads. Germany had executed their only remaining option, which was to require Greece give up its financial sovereignty in order to receive additional bailout money and this was at first completely rejected by Tsipras. After occupying Greece during WWII it's understandable that the Greeks are not at all comfortable with Germany now occupying their country again, this time financially.

But the EU held the winning cards and Tsipras knew it. He executed his only option, to threaten leaving the EU and declaring bankruptcy (in hopes of scaring the EU into accepting at least a write-down of Greek debt) and when the EU called him on his threat he was forced to back down and accept an early-Monday agreement. The Greek legislature is predicted to approve the agreement that Tsipras reluctantly signed (but does not approve) but the protests on the streets are ramping up. To say an agreement is locked in would be premature at this point and that's what makes the past week's rally dangerous to depend on.

Keep in mind that the agreement hammered out is for 86 billion euros over the next three years. This is primarily to keep the banks from failing but does not help Greece pay its bills (only some interest on their loans). The money loaned to Greece over the years has mostly (more than 90%) been to repay European banks and the Greeks feel the bailout money is mostly to help The EU banks rather than Greece. The early loans to Greece were of course pay used for their own overspending and shame on them for not being more financially responsible (easy cheap debt will do that, including what's been happening in the rest of the world). But lenders also have a responsibility to check the borrower's ability to repay and therefore they should share some of the burden that Greece is now facing. But so far the EU leaders, primarily Germany, have been unwilling to recognize their own culpability and therein lies much of the argument between Greece and the EU banks.

Greece's economy has already shrunk about 25% over the past five years and their economy is hardly strong enough to make much, if any, progress towards paying off their debt. The additional austerity measures being demanded of Greece will only make paying off their debt that much more difficult. That's one reason why Greece has been trying to get the EU banks to write down at least a portion of their debt. But Tsipras was forced to blink first in the showdown with the EU since the EU leaders are worried about contagion (whatever is done to help Greece will be demanded by other weak EU countries.

Germany is the real powerhouse behind the EU and while the Union was designed to ensure Germany and France, long-term enemies in the past 150 years, stay aligned but it is Germany that is running the show. It has now been forced to declare itself publicly as the power behind the EU, which is something it never wanted to do (at least not publicly). And this new "occupation" requirement for more money is what upsets Greece. They will be forced to sell off sovereign assets over the next few years to help pay down their debt. Greece will not have a choice in what assets are sold. They just also accept the following primary points of the agreement (and which the legislature needs to approve) in order to receive another 86 billion euros ($95B) over the next three years (the full text of the agreement can be read here: Eurozone Summit Statement):

-- VAT changes that include: a top rate of 23% for items such as processed food and restaurants; 13% for fresh food, energy, water and hotels (get the tourists to contribute); and 6% for medicines and books
-- The abolition of the VAT discount of 30% for Greek islands
-- An increase in the corporate tax rate from 26% to 29% for small companies
-- A luxury tax increase on big cars, boats and swimming pools
-- An end to early retirement by 2022 and a retirement age increase to 67 (this will really upset public unions and other vocal groups)

The whole agreement is considered by most Greeks to be a public humiliation and even if the Greek government signs off on the deal there will likely be many protests on the street and one can only guess how bad it could become. The Syriza party was voted in because of their anti-austerity position and if they capitulate there could be blood in the streets with demands for a new government. How that could affect the immediate future is one big guess.

What could make matters worse is that Tsipras is telling his people that even if the agreement is ratified the banks could still stay closed for another month before any EU money starts flowing into their country. A bad agreement, in the eyes of the Greek majority (who voted to flip the royal bird to the EU) and a continuation of closed banks probably won't sit well with the people. A month is a long time to see drastic changes made in Greece.

Further confusing matters is an IMF prediction that in two more years Greek debt will reach 200% of GDP. That's considered unrecoverable, especially with the inability to print their way out of debt (with the consequent hyperinflation so for all intents and purposes, 200% of GDP is simply not recoverable). The IMF is therefore recommending a "very dramatic extension" of the maturity dates of Greek debts, such as 30-year extensions. They're also recommending debt write-offs, something Greece has been demanding and EU (Germany) has been adamant about denying. The IMF report is very different from the deal hammered out on Sunday/Monday but while the IMF report deals with straight facts about the debt load and Greece's ability to pay, the EU-Greek deal is purely political. Care to guess which one is more likely to be an accurate assessment of the chances for success with the current agreement?

Well, with all that said, it was a long-winded way of saying the market's rally over the past week could be given up in an instant if the "agreement" suddenly fails. Another hopium-induced rally could turn to dust in a new slope-of-hope bear market decline. But the bears need to be cognizant of the effort being made by central banks around the world working to prevent a market decline. They're not more powerful than the markets but that won't stop them from trying to prop things up. We could still get new market highs for the indexes before a new bear market begins.

Complicating, or at least exacerbating, these issues is the fact that liquidity in the market has been drying up over the past couple of years. This is something that hasn't been reported by many because it's not a concern as long as the market is rallying. But in a selloff, liquidity provides an orderly decline as sellers continue to find buyers. Once the buyers disappear it becomes much more difficult to provide an orderly market and declines can quickly become crashes (we've had tastes of this with previous flash crashes).

Liquidity Issue
Bill Gross, who now manages the Janus Global Unconstrained Bond Fund, came out on Tuesday to warn investors about the vulnerability of the markets due to a pullback in liquidity. He stated the obvious when he said mutual funds, hedge funds and ETFs are most vulnerable when liquidity dries up. While the printing of trillions of dollars by central banks has kept the spigot turned on for the markets, there will be difficult times ahead when the spigot is turned off, or at least partially closed. His point about the funds mentioned above is that they're part of the "shadow banking system" and since they're not required to maintain reserves or even emergency cash they could be especially vulnerable to a market decline.

If a decline prompts selling by all these funds they'll likely find the Fed unable to handle the cash requirement needed to keep the banks liquefied. While the Dodd-Frank bill made banks less risky, that risk has been transferred to these "shadow banks" and the system is at greater risk, not less, than before Dodd-Frank, and we know how vulnerable the banking system was in the 2008 decline. A run on these shadow banks could be unstoppable for a while as the funds try to sell into a market that has insufficient buying power. As an aside, this is why it's extremely important to allow short selling since that group will be one of the few who has buying power.

Gross said trading in investment-grade bonds has declined 35% since 2005 and 55% in high-yield bonds. Since the Fed's ending of bond buying (but they continue to roll out expiring bonds) in 2014, combined with their desire to raise rates, it has made less cash available for the markets, which is only exacerbating a decline in market liquidity. This has resulted in magnified price moves in many bond markets, including "safe" ones such as U.S. Treasuries. What's happening in Greece and the possible ramifications for the EU and the other weak countries and their bonds is only making the situation worse. It's an intricate and tightly connected global financial system, one in which a butterfly flapping its wings in Africa really can make a disturbance half way around the world (chaos theory).

Markets
As always, we can't predict world events and it's even harder to predict the market's reaction to world events. We can only go with the charts and make our best guess based on what we're seeing. The rally from last week's low has been on weaker volume as the bounce has progressed

The SPX weekly chart below shows price stuck in the middle of a trading range since last December's high at 2093 and upside potential is the top of a parallel up-channel from the December high/February low, currently near 2160 and its broken uptrend line from March 2009 - October 2011. The bottom of the channel is near 2030 so about 50 points of upside potential vs. 80 points of downside potential, maybe less since price-level S/R is near 2040 and its 50-week MA, which supported the decline into the July 7th low, is near 2050. So we'll call it even odds for either the bottom or the top of the channel to be hit first. Combine all the choppy price action we've seen for over 6 months now and it's not hard to see the risk in trying for a position trade.

S&P 500, SPX, Weekly chart

It's easier to see the whippy choppy price action over the past many months on the daily chart below. Any solid idea which way it will go from here? I could just as easily argue for a continuation higher, for at least a test of the May high near 2135 before pulling back, as I could argue for a strong decline from here. The important point for short-term traders though is that at this point I believe upside potential is once again dwarfed by downside risk, especially right here. The bearish wave count suggests a strong 3rd of a 3rd wave down in the decline from May is about to start. This would be a move that would likely break down through multiple layers of support and in a hurry. We could see 1850-1900 in a matter of a few weeks, or sooner.

The bulls need to see just a consolidation off today's high, or a continuation higher from here, while the bears need to see a sharp decline below the July 7th high near 2083 in order to confirm the top of the bounce is in place. A double tap at its broken uptrend line from October 2014 - June 2015, yesterday and today, is another warning sign and today's doji at resistance could be the middle candle of a reversal pattern if Thursday's candle is a red one, especially a long red one. The first upside target for the bulls is the downtrend line from May-June (near 2125) followed by June's high (near 2130) and then May's high (near 2135).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2125
- bearish below 2083

Because of all the choppy price action it's difficult to get a high-confidence wave count but at the moment the bounce off the June 7th low is a 3-wave move and that sets up a possible reversal back down from here. Below 2100 would be a bearish warning sign while below 2083 would leave a confirmed 3-wave (corrective) bounce and it would likely mean a continuation lower below 2040. Additional upside could be choppy from this point.

S&P 500, SPX, 60-min chart

Unlike SPX, the DOW hit its downtrend line from May-June today, near 18085, with a high at 18090. The DOW would be more bullish above 18100 but be careful about a test of its June high near 18189. The bullish wave count suggests a stair-step move higher into the end of the month, with a projected high in the 18400-18600 area. The bears want to see a drop back below the 50-dma at 17973 and especially the July 7th high near 17793. Like SPX, the bearish 1-2, 1-2 wave count to the downside from May suggests a very strong decline to follow this bounce and that's why I think downside potential is much more significant than upside potential. A short play here with a stop at today's high is a very low-risk play.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,100
- bearish below 17,793

The techs were relatively stronger today and the Nasdaq came close to its March 2000 high at 5132 again, with today's high at 5125, but couldn't muster enough buying to break back above that level, which it did briefly on June 22nd and held above it for two days. The highs in April, May and June are now being tested again and the bearish divergence continues. Will the 3rd test be the winner for the bulls? There's additional upside potential but I don't think it's enough to exceed the downside risk.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4562
- bearish below 4435

Yesterday the RUT back-tested its broken uptrend line from October 2014 - May 2015 and today's selloff has it looking like a bearish kiss goodbye, in which case it's the RUT once again leading the way in a reversal. I see the potential for a bounce higher to 1280-1282 and while a rally above 1282 would be more bullish I don't think it would even make it up to its June 23rd high near 1296 before at least pulling back in a larger correction.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1282
- bearish below 1249

Looking at the big index, the NYSE, the picture is no different -- the rally made it up to the broken uptrend line from December, which had been broken with the snap to the downside on Greek news (so what else is new) on June 29th. Back up for a back-test on a supposed Greek settlement would be fitting. Recovery back above the line, near 11000, would be bullish but the bulls would be in better shape above the June 29th gap closure at 11040. The bears of course want to see a bearish kiss goodbye following the back-test, which might have started with today's pullback.

NYSE Composite Index, NYA, Daily chart

Watching the bond market for some clues is not helping at the moment. As can be seen on the TYX (30-year yield) chart below, it's inside a rising wedge pattern but has additional upside potential to the top of the wedge and its downtrend line from February 2011, both of which cross near 3.55% at the end of August. But a 3-wave move up from the January low could be all we'll get before the resumption of the longer-term decline.

30-year Yield, TYX, Weekly chart

The banking index has had a strong bounce back up off last Wednesday's low. It is now back up against its broken uptrend line form March 2009 - October 2011 and the top of a parallel up-channel from October 2013. Additional upside potential is to the top of a parallel up-channel off the January low, which will be near 82 by the end of July. But the near test of June high is so far showing bearish divergence and there is the potential for a failure of the bounce at any time. The top will be in place once BKX drops below last week's low at 74.92.

KBW Bank index, BKX, Weekly chart

The bounce in the U.S. Dollar has continued this week and slightly higher, at 98.02, it would have two equal legs up from May 14th. The top of the sideways triangle that I have drawn on its weekly chart below, which is just a guess at the moment, is near 99.50 in early August. The dollar looks like it has a little more upside potential before pulling back and I continue to watch for signs as to whether or not the sideways triangle is the higher-odds probability.

U.S. Dollar contract, DX, Weekly chart

Gold is again nearing short-term price-level support near 1141 (previous lows since last November. It's also again back-testing its broken downtrend line from September 2012 but it's not showing enough bullish divergence to suggest support is going to hold. If it breaks down from here we should see a drop down to the next support level near 1090 and a break below that would lead to a drop to price-level support near 1000.

Gold continuous contract, GC, Weekly chart

The same shelf of support for silver, near 15.25, was broken last week and then it bounced off price-level support at 14.65 (from 2006-2010), with a low at 14.62. Today's close at 15.05 is another break below 15.25 and could lead to a stronger breakdown from here, in which case the downside target will be near 12.

Silver continuous contract, SI, Weekly chart

The pattern for oil suggests we'll get at least a test of the January-March lows near 42-43, maybe down to about 40, before starting a larger bounce correction. But if the dollar consolidates sideways in a triangle pattern, we could see the same for oil. But there's the potential for a higher bounce and if oil starts back up from here (a lower probability pattern but it can't be ignored) we could see it up to the 71 area for two equal legs up from March and a back-test of its broken uptrend line from 1998-2008.

Oil continuous contract, CL, Weekly chart

Today's economic reports included PPI numbers, which showed a bump up in inflation, as can be seen in the table below. In addition to the inflation numbers the Empire Manufacturing and Industrial Production numbers were better than expected and the numbers should have scared the market into thinking the Fed will be moved closer to raising rates. But has been true for a while, since the Greek tragedy, the market is ignoring economic news. Other than reactions in individual stocks the market is also ignoring earnings news. It's Greece that matters and the news cycle is not over yet for what happens there. Continue to expect gyrations around overseas news instead of what happens domestically.

Economic reports and Summary

Conclusion

Even while the market rallied a little this morning the advance-decline numbers were negative and they got more negative as the day wore on. It was a clear sign that the rally is tiring and it's on the backs of fewer stocks as it makes it higher. Bearish divergences are showing up and trading volume has been declining as the rally off last week's lows has pushed higher. It doesn't prevent the indexes from being pushed higher, especially since this is opex week, which is a week known for manipulation and bullishness. But considering the multiple lines of resistance that the indexes are hitting, on weakening momentum in a rally that might be too much too fast, it's a time for caution by the bulls and a time for the bears to look for a shorting opportunity. We are in a trading range full of choppy price action and therefore the trading opportunity is short term (days, not weeks).

But there is the potential for a strong decline that will last weeks and therefore I like the opportunity for a short trade at this time. A long trade is now the risker side and frankly not worth the risk. Trying to catch rising knives is of course dangerous, especially this week, but if the market holds up through this week I believe next week will not be kind to the bulls. The best case for the bulls will be a choppy consolidation that last a few days followed by a push higher. But a test of the May high at SPX 2135 is about the most I would expect whereas the downside potential is below 2000. Upside potential of about 20 points vs. downside of about 120+ is what we're probably looking at. You can decide which side you'd rather play.

Good luck and I'll be back with you next Monday as I fill in for Todd.

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

Earnings & Revenues Are Soaring

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Molina Healthcare - MOH - close: 73.13 change: +1.22

Stop Loss: 69.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 890 thousand
Entry on July -- at $---.--
Listed on July 15, 2015
Time Frame: Exit PRIOR to earnings on July 30th
New Positions: Yes, see below

Company Description

Trade Description:
One of the biggest impacts that the Affordable Care Act (ACA) has had on the healthcare insurance business is boost the Medicaid and Medicare programs. That's a shift that plays to MOH's strengths.

MOH is in the healthcare sector. According to the company, "Molina Healthcare, Inc., a FORTUNE 500 company, provides managed health care services under the Medicaid and Medicare programs and through the state insurance marketplaces. Molina serves more than 3 million members through locally operated health plans in 11 states across the nation and in the Commonwealth of Puerto Rico. Doctor C. David Molina founded the company in 1980 as a provider organization serving low-income families in Southern California. Today, the company continues his mission of providing high-quality and cost-effective health care to those who need it most."

The company's earnings have soared. The big rally in MOH's stock this February was a reaction to its Q4 earnings results. Q4 EPS was $0.69 per share, which beat estimates by 8 cents. Revenues were up +64% to $2.8 billion. A couple of days later MOH management raised their 2015 earnings and revenue guidance significantly above Wall Street estimates.

The Q1 earnings report sparked the big rally in May. Analysts were expecting a profit of $0.49 per share. MOH delivered $0.71, which is a +163% improvement from a year ago. Revenues were up +53% to $3.17 billion, above expectations.

J. Mario Molina, M.D., chief executive officer of Molina Healthcare, Inc., commented on his company's quarter, "We are very pleased with our first quarter results, which represent a down payment on the improved profitability we committed to at our investor day this past February. We are off to a very good start in 2015, and remain confident that we can deliver both top-line and bottom-line growth in 2015."

On June 17th UBS initiated coverage on MOH with a "buy" and an $80 price target. The point & figure chart is bullish and forecasting a $103 target. Currently MOH has rallied toward its May highs near $74.00. A breakout past $74.00 could spark some short covering. The most recent data listed short interest at 20% of the small 33.3 million share float.

We are suggesting a trigger to buy calls at $74.05. Keep in mind that this is a short-term trade. We plan on exiting prior to the company's earnings report on July 30th. However, after seeing the reaction to the last couple of earnings announcements, I'm tempted to hold over the report.

Trigger @ $74.05

- Suggested Positions -

Buy the AUG $75 CALL (MOH150821C75) current ask $2.05
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 Drift Ahead Of Greek Parliament Vote

by James Brown

Click here to email James Brown

Editor's Note:

Yet another Greek vote is affecting the stock market. This time it's the Greek parliament who is supposed to vote on accepting the new bailout deal that leaders agreed to over the weekend. The U.S. market spent today's session consolidating sideways as it waits for the vote results.

CBRL hit our stop loss.


Current Portfolio:


CALL Play Updates

Adobe Systems Inc. - ADBE - close: 82.12 change: +0.23

Stop Loss: 78.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.64 million
Entry on July -- at $---.--
Listed on July 14, 2015
Time Frame: Exit PRIOR to earnings in September
New Positions: Yes, see below

Comments:
07/15/15: It was a relatively quiet day for stocks and ADBE spent the session consolidating sideways near the $82.00 level. There is no change from last night's new play description. Our suggested entry point to buy calls is $82.50.

Trade Description: July 14, 2015:
ADBE appears to have successfully completed its transition from a traditional pay up front software sales model to a subscription based pay-as-you-go model for its industry leading creative software.

ADBE is in the technology sector. They are part of the software industry. According to the company, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe Creative Cloud software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

Looking at the last couple of earnings reports ADBE has beaten Wall Street's bottom line estimate. They reported their Q1 report on March 17th. Earnings were up +46% from a year ago to $0.44 per share. It was their best quarterly earnings growth in four years and above analysts' estimates. Revenues were up almost +11% to $1.11 billion.

During the first quarter they added 517,000 customers to their subscription service. While that was up +28% from a year ago it missed expectations. Jumping to the second quarter ADBE said they added +639,000 new subscribers, which was well above estimates for +575K.

The company announced their Q2 earnings on June 16th. Earnings were up +30% to $0.48 per share, which beat estimates. Revenues hit a record of $1.16 billion, which was in-line with expectations.

Shantanu Narayen, Adobe's president and CEO, commented on the quarter, "Strong execution against our Creative Cloud, Document Cloud and Marketing Cloud businesses drove record revenue. We are accelerating the pace of innovation in our Cloud offerings and are thrilled to be launching our best Creative Cloud release to date, which includes Adobe Stock - our new stock content service." ADBE's executive vice president and CFO, Mark Garrett, said, "With our business model transition largely behind us, the positive financial benefits are now reflected in our P&L. We are driving more profit, earnings per share, cash flow and deferred revenue and unbilled backlog."

Management did lower their Q3 and 2015 forecast on both the top and bottom line. Yet investors seemed to ignore this earnings warning because it was all due to foreign currency exchange headwinds. ADBE is expecting their Adobe Marketing Cloud sales to grow more than +20% year over year.

Mr. Narayen, CEO, mentioned their new Adobe Stock service. This is a multimedia marketplace where users can buy and sell images. Analysts think this could add a significant revenue boost by 2017 (up to $1 billion a year).

Multiple analysts have upgraded their price target on ADBE since its earnings report. The most recent was on July 6th where ADBE garnered a new price target at $103.00. Currently the point & figure chart is only forecasting at $92.00 target.

Shares of ADBE broke out past major resistance near $80.00 in mid June. Then the market reversed lower in the last several days of June and shares of ADBE sank back toward prior resistance and now new support in the $80.00 region. The intraday low was $78.94 on July 7th where ADBE bounced off technical support at its rising 50-dma.

Investors have started buying the dip again and this bounce from support near $80.00 is a bullish entry point. We are suggesting a trigger to buy calls at $82.50.

Trigger @ $82.50

- Suggested Positions -

Buy the OCT $85 CALL (ADBE151016C85)

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

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


The Walt Disney Co. - DIS - close: 118.30 change: +0.45

Stop Loss: 115.85
Target(s): To Be Determined
Current Option Gain/Loss: +102.2%
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:
07/15/15: Shares of DIS continued to inch higher in spite of the market's widespread dip today.

The big story for DIS on Wednesday was news the company will spend $5.5 billion to build a 20 square kilometer theme park near Shanghai, China. The park is expected to open in spring 2016.

No new positions at this time.

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

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

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

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

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

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

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

- Suggested Positions -

Long AUG $115 CALL (DIS150821C115) entry $2.30

07/14/15 new stop @ 115.85
06/27/15 new stop @ 112.25
06/18/15 triggered @ $112.25
Option Format: symbol-year-month-day-call-strike


Facebook, Inc. - FB - close: 89.76 change: +0.08

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: +18.0%
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:
07/15/15: Morgan Stanley raised their price target on FB from $94 to $110. This news didn't do much for the stock, which closed virtually unchanged on the session.

There is no change from my recent comments. If the market dips we can look for FB to find support near $88.00.

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: 87.19 change: -0.21

Stop Loss: 85.85
Target(s): To Be Determined
Current Option Gain/Loss: +6.2%
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:
07/15/15: Traders quickly bought the dip in FISV this morning but there wasn't much follow through higher. Shares ended relatively flat.

No new positions at this time.

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

07/14/15 new stop @ 85.85
07/10/15 triggered on gap open at $85.41, trigger was $85.15
Option Format: symbol-year-month-day-call-strike


INSYS Therapeutics - INSY - close: 39.89 change: +0.70

Stop Loss: 36.35
Target(s): To Be Determined
Current Option Gain/Loss: -11.8%
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:
07/15/15: The relative strength in INSY continued on Wednesday. Shares were up +4.3% intraday. INSY eventually settled with a +1.7% gain, just below potential round-number resistance at $40.00.

No new positions at this time.

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

07/14/15 new stop @ 36.35
07/01/15 triggered @ $36.30
Option Format: symbol-year-month-day-call-strike


Jack In The Box Inc. - JACK - close: 92.21 change: -0.68

Stop Loss: 89.75
Target(s): To Be Determined
Current Option Gain/Loss: +28.1%
Average Daily Volume = 600 thousand
Entry on July 13 at $90.25
Listed on July 11, 2015
Time Frame: Exit PRIOR to earnings
New Positions: see below

Comments:
07/15/15: JACK bounced off super, short-term support at $92.00 this morning. While that is encouraging today's performance has produced a bearish engulfing candlestick reversal. These patterns need to see confirmation.

No new positions at current levels.

Trade Description: July 11, 2015:
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.

- Suggested Positions -

Long AUG $95 CALL (JACK150821C95) entry $1.60

07/14/15 new stop @ 89.75
07/13/15 triggered @ $90.25
Option Format: symbol-year-month-day-call-strike


Under Armour, Inc. - UA - close: 88.28 change: -0.52

Stop Loss: 83.75
Target(s): To Be Determined
Current Option Gain/Loss: +19.6%
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:
07/15/15: UA is still seeing some profit taking after Monday's big surge to new highs. The stock fell -0.58% today. If this dip continues the nearest support looks like $86.00.

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

07/14/15 new stop @ 86.85
07/11/15 new stop @ 83.75
06/26/15 triggered @ $86.05
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Barracuda Networks, Inc. - CUDA - close: 30.21 change: -0.75

Stop Loss: 32.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 512 thousand
Entry on July -- at $---.--
Listed on July 13, 2015
Time Frame: 2 or 3 weeks
New Positions: Yes, see below

Comments:
07/15/15: There was no follow through on yesterday's bounce, which is good news if you're bearish. CUDA erased yesterday's gains but remains just above support near $30.00. Our suggested entry point is $29.75.

Trade Description: July 13, 2015:
Cyber-security is a hot industry right now. We constantly hear about hackers stealing information from major corporations. There has also been a high-profile attack on U.S. government employee data. This has driven gains for a number of cyber security stocks. Yet one security firm is underperforming its peers. That is CUDA.

CUDA is in the technology sector. According to the company, "Barracuda (CUDA) provides cloud-connected security and storage solutions that simplify IT. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployments. Barracuda's customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data security."

They reported their 2016 Q1 earnings on July 9th. Earnings rose +39% from a year ago to $0.09 per share. That beat estimates of $0.08. Revenues were up +17.8% to $78 million, also above expectations. Their subscribers grew +18% to 252,000 and their subscription revenue was up +19.6%.

It looks like a pretty good report. So why did the stock plunge -19% on Friday? That's because Wall Street was not happy with CUDA's gross billing number or its soft Q2 guidance.

CUDA reported their Q1 gross billings were up +7.6% to $94.3 million. Yet that was below expectations in the $103 million region. Management also guided Q2 revenue estimates into the $78-79 million range. That's below estimates of $80.4 million.

Shares were crushed on Friday and there was no oversold bounce today. CUDA continued to underperform with a -3.8% drop in spite of the market's widespread rally today. The point & figure chart is now bearish and forecasting a $26.00 target. We think CUDA could drop toward $25.00. However, I will warn you that CUDA does have potential support in the $29.50-30.00 range.

Tonight we are suggesting small bearish positions to buy puts at $29.75. More conservative traders may want to sit this one out or wait for a drop below $29.00 as an alternative entry point. I consider this a higher-risk, more aggressive trade.

Trigger @ $29.75 *small positions to limit risk*

- Suggested Positions -

Buy the AUG $30 PUT (CUDA150821P30)

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: 108.10 change: -3.15

Stop Loss: 112.50
Target(s): To Be Determined
Current Option Gain/Loss: -28.3%
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:
07/15/15: The Iran deal should mean more Iranian oil coming to market sooner rather than later. This pushed crude oil sharply lower today and that pressured the energy stocks. CXO fell -2.8%.

I would be tempted to buy puts again on a drop below today's low ($107.00).

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


SM Energy Company - SM - close: 40.38 change: -2.86

Stop Loss: 45.25
Target(s): To Be Determined
Current Option Gain/Loss: +42.4%
Average Daily Volume = 1.6 million
Entry on June 19 at $44.49
Listed on June 13, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/15/15: SM is another energy stock that underperformed the market today. Shares plunged -6.6% toward round-number support at $40.00.

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



CLOSED BULLISH PLAYS

Cracker Barrel Old Country Store - CBRL - close: 160.42 change: -3.10

Stop Loss: 156.40
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:
07/15/15: Our bullish trade on CBRL was stopped out as investors sold the rally following the company's special dividend.

Shares had been accelerating higher and Monday saw CBRL breakout to new record highs. This morning the stock gapped open lower at $156.61 and eventually fell to $151.51 before paring its losses. The decline was thanks to a $3.00 special dividend. Shares of CBRL began trading ex-dividend today.

Our stop was hit at $156.40 in the first minute of trading.

- Suggested Positions -

SEP $155 CALL (CBRL150918C155) entry $4.00 exit $6.50 (+62.5%)

07/15/15 stopped out
07/14/15 new stop @ 156.40
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: