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Daily Newsletter, Saturday, 7/18/2015

Table of Contents

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

Market Wrap

Tech Blowout

by Jim Brown

Click here to email Jim Brown

The mother of all short squeezes appeared in the tech sector last week after Netflix and Google beat overly bearish earnings expectations and shorts in those stocks were crushed. The severity of the squeeze in those stocks caused shorts in other tech stocks to run for cover and the Nasdaq soared to a new high.

Market Statistics

It was not a case of irrational exuberance that sent certain tech stocks sharply higher but a major short squeeze in those stocks. Google (GOOGL) spiked +16% or +$98 dollars to a new high but not because earnings were so good that investors just had to buy shares regardless of the price. The spike came after shorts were forced to cover because of the margin calls and rapidly escalating losses. If you were short 500 shares that was a $50,000 loss. That will put a dent in your account really quick. Anybody short calls was forced to either buy them back at a huge premium or buy shares in the market to cover those short calls. Shares were $540 just a week ago and they closed today at $700 and it was not because everyone just had to own Google this week.

Google added $65 billion in market cap on Friday alone and +$100 billion for the last 8 days. Google added twice the total market cap of Hewlett Packard at $50 billion. There are more than 400 companies in the S&P with a market cap less than $65 billion. This was the first quarter since 2013 that Google has beaten on earnings. Expectations were for another earnings miss and more whining about advertising click rates. They knocked the ball out of the park despite a $1.1 billion decline in revenue because of the strong dollar.

I looked at options on Google because we know this spike it not going to last. I looked at selling a call spread or buying a put spread but the premiums were crazy. If you are willing to take a $20 risk you could make about $5 using either method in the September strikes. That does not fit my risk profile.


For a change, the market concentrated on stocks rather than headlines. Yellen's testimony is over and the Greek bailout has begun. China's monster bailout of the equity market has halted the decline but more than 50% of the stocks are still halted for trading and there has been only a moderate rebound. China's GDP miraculously came in at 7% to nobody's surprise since everyone on this side of the pond is convinced it is a phony number manufactured by the government. Still, the 7% GDP soothed some market worries and China slipped from the headlines.

In the U.S. the Consumer Price Index rose sharply at +0.3% for June after a +4.0% rise in May. On a trailing 12-month basis it is now positive at +0.2%. While that may be the weakest sign of inflation you could imagine it is probably enough for the Fed to hike rates in September. Yellen reminded everyone last week that the Fed would not wait for 2% inflation as long as they were convinced inflation is rising.

With oil prices falling again the CPI for July and August is likely to cool off again. Food prices rose +0.3%, energy prices +1.7% and gasoline +3.4%. Gasoline always rises in June ahead of the July 4th holiday. That should also decline in July. Food prices are up because of an 18% rise in egg prices due to the bird flu. That is the biggest monthly gain since the 1970s. Rents accelerated because of the difficulty of financing a home is putting more families into rentals.

The core CPI, excluding food and energy, rose +0.2%, which put it up +1.8% on a year over year basis. This is what the Fed is watching rather than the headline number.


Consumer sentiment for July declined with a drop from 96.1 to 93.3. The present conditions component declined from 108.9 to 106.0 and the expectations component fell from 87.8 to 85.2. Analysts said consumers were worried about the Greek, Chinese and Iranian headlines and the potential impact to the U.S. economy. Sixty percent of respondents said the economy had improved and 27% said conditions had declined. That is up from 23% declines in the prior month.


New residential construction starts surged from a revised 1.069 million to 1.174 million because of a spike in multifamily housing starts. Single-family starts declined from 691,000 to 685,000. Multifamily rose sharply from 378,000 to 489,000. The Northeast saw the largest spurt in multifamily starts with a rise of +14.7%.


The economic calendar for next week is positively boring with nothing that should move the market. We are in that part of the cycle where the new home and existing home sales numbers decline because everyone has already moved before the back to school cycle begins. The Chicago and Kansas Fed surveys are not followed closely and rarely have any market impact.

The big event is the following week with the July FOMC meeting. Yellen moved even closer to a September rate hike with her comments during the testimony to Congress. The announcement from the July meeting will be critical for analysts since there is no August meeting. The equity market could begin to price in a rate hike once we get past the July FOMC meeting.


There were no new splits announced last week. AstraZeneca is the next to split with the ex-date on July 27th. The stock splits after the close on Friday July 24th.

There are quite a few stocks that could announce splits in the near future such as Amazon, Chipolte, Google and many others. The big post split spike in Netflix shares last week should have stimulated some of those high dollar companies to try some financial engineering of their own and announce a stock split. Full Calendar


On Monday Paypal (PYPL) and Ebay (EBAY) will trade independently. The spinoff of Paypal was effective at the close on Friday. You can tell approximately where the stocks will trade on Monday by looking at their "when issued" charts. Paypal when issued (PYPLV) closed just over $38 on Friday and Ebay (EBAYV) closed at $28. The regular shares of Ebay closed just over $66 before the split. Paypal shares are expected to do well as an independent company again and there are still rumors that Google is waiting for the spinoff to make an offer. Paypal has more than 10% of the online payment market and growing. Susquehanna started PYPL with a $75 price target.




Amazon (AMZN) said "Prime Day" was here to stay after a very successful promotion. Same day sales rose +266% and they sold 34.3 million units. Amazon also said it signed up "hundreds of thousands" of new Prime customers. If those customers do not cancel before the end of their trial period they will be billed the $99 annual subscription fee. Amazon said a Prime customer spends an average of $1,565 per year compared to the non-prime customer at around $600 per year. Amazon shares did really good last week with better than a $50 gain to a new high. The big short squeezes in Google and Netflix had Amazon shorts running for the exits ahead of earnings next week.

Slice Intelligence said Walmart won the retailer war. They also offered online specials to combat the Amazon Prime Day promotion. Slice said Walmart sales increased +268% on Wednesday to slightly edge out Amazon. However, Amazon's prices were just for the one day and Walmart's are good for 90 days. Walmart will be the big winner for the overall promotion.

There were also come complaints about the quality of the merchandise in the Amazon promotion. Other than a few high dollar deals that were sold out relatively quickly the majority of the deals were low dollar "junk" items that you would expect to see in a garage sale according to lots of comments on Twitter and Facebook. Walmart actually beat Amazon by a mile in the quality department with hundreds of deals on electronics and stuff people actually wanted. I would bet Amazon is better prepared next year and it will be a huge sale rather than only clearance items.


Etsy Inc (ETSY) shares gained +30% after Google mentioned in its earnings that the new Google search algorithm was really benefitting marketers like Etsy and they had seen a significant improvement in their search results.


Hertz (HTZ) shares rallied +12% after the company said it had finished restating earnings for the last two years and expects to realize $300 million in cost savings by year-end. That is $100 million more than their goal. The company found $207 million in additional pretax misstatements from 2011 through 2013. The errors reduced pretax income by as much as 23% and net income by 26%.

Hertz blamed the errors on the prior CEO who created a "pressurized operating environment" that produced "inconsistent and sometimes inappropriate" directives." CEO Mark Frissora resigned for "personal reasons" but investors had been pushing for his ouster. He is now CEO of Caesar's Entertainment (CZR).

Hertz reaffirmed its $1 billion buyback and the company is preparing to close the sale of its leasing unit, which was announced in March 2014.


Tesla (TSLA) shares gained +$8 after CEO Elon Musk said on a conference call they were making changes to the Model S with price cuts on some models and increases on others. Musk said they were adding the "Ludicrous Mode" as an option to the Model S for $10,000 more. This is the super fast upgrade that will take you from 0-60 mph in 2.8 seconds and represents a 10% improvement in acceleration. This is an extension of "Insane Mode." Musk said it would also be offered on the Model X SUV with an estimated 0-60 of 3.3 seconds. Tesla also offered an improved battery pack option with 15 additional miles of range.

The cheapest Model S will see prices decline by -$5,000 to $70,000 and the high-end version will rise by $10,000. Musk will hold another conference call on Monday at noon on the Space X rocket.


General Electric (GE) reported adjusted earnings on Friday that declined -14% to 31 cents on revenue of $32.8 billion. The earnings matched estimates. The company increased the lower end of guidance from $1.10-$1.20 to $1.13-$1.20. Jeffery Immelt was upbeat and optimistic about the company as he works to sell off all the financial divisions. He also has two major deals in the pipeline. The $17 billion purchase of France's Alstrom's energy assets with French regulators demanding concessions. In the U.S., regulators are trying to block the sale of the appliance division to Stockholm-based Electrolux. Immelt was adamant that both deals would close this year. Shares rose fractionally on the news. GE shares rarely move higher on earnings because there is no excitement. They always match the estimates. Q1 was the exception with news of the sale of some financial assets.


Honeywell (HON) reported earnings of $1.51 that rose +9 and beat estimates for $1.49. Revenue declined -5% to $9.77 billion due to the strong dollar but still beat estimates for $9.74 billion. Excluding the impact of the dollar revenue was up +3%. The company raised the low end of guidance from $6.00-$6.15 to $6.05-$6.20.


Comerica (CMA) reported earnings of 73 cents compared to estimates for 75 cents. The big news was the warning over energy loans. With 7% of its loan portfolio tied to energy and 20% of its deposits based in Texas the falling oil prices are causing trouble. Comerica said "at-risk" energy loans rose by $329 million in Q2 with past due accounts rising +$100 million. About 14% or $578 million of its energy loans have been classified as in trouble. Comerica has made loans to shale drillers for years and some of those drillers are struggling. Halcon Resources (HK, $1.03), Laredo Petroleum (LPI, $10.78) and Sanchez Energy (SN, $7.93) have loans with Comerica and could be in the problem portfolio.


Progressive Corp (PGR) reported earnings of 54 cents, up +24%, that matched estimates but revenue of $5.21 billion beat estimates for $5.05 billion. Premiums rose +11% to $4.51 billion. Catastrophe losses totaled $154 million for Q2 on hail and flooding in Texas and Colorado. Progressive is set to increase profits because their competitors have recently increased rates and that generates new business for Progressive. Progressive shares soared to a new high on the news.


More than 450 companies report earnings next week. The most watched will be Apple on Tuesday. There is a significant amount of chatter about what they will report. Over the last 10 years, Apple has beaten on earnings 37 times and missed 3 times. Nobody expects them to miss estimates this time but they are worried about the quality of earnings. The watch is the wildcard but nobody really expects a blowout quarter on watch sales. There were delivery problems early in the quarter and this is the first version. Most buyers are going to wait until version 2 or 3 before spending several hundred dollars on an electronic accessory.

The Wall Street Journal reported last week that Apple had placed an order for 89 million iPhone S models for Q4 delivery. They were all giddy because their initial estimate was for 70 million. However, the analyst community was expecting 100 million and if the 89 million number is correct it would be the first time Apple ordered less on a model S upgrade. That could be for multiple reasons. They have sold so many model 6 versions that Apple may not believe the upgrade market is going to be that strong. They blew away estimates for iPhone sales in Q1 and said sales were still strong in Q2. However, after such a strong Q1 there could be worries they may have overpromised and will under deliver in Q2.

There is also the unknown over the Apple Music product. Hopefully they will give us some numbers on subscribers and many analysts expect that number to be large. This is a new revenue source for Apple and it could be huge since it is a monthly subscription product. The unknown is how many Apple fans actually loaded the application and are using it. We also do not know about fees on Apple Pay. We know they do not get much per transaction but there could be billions of transactions.

All of this uncertainty is causing Apple shares to lag the market. Nothing would please me more than to see Apple explode to a new high on Tuesday after the close. However, while other stocks were surging on Friday as shorts covered, shares of Apple were only modestly higher. In one way that is good. It means investors are somewhat bearish on Apple earnings. I would rather them be too bearish than too bullish because bearish means they are short and another squeeze is possible.

Analyst Ananya Bhattacharya said Apple was setting up to post a record profit in 2015 of $52.5 billion. That would be the largest annual profit ever generated from a company's operations. Exxon holds the record at $45 billion in 2008. Earnings for Q2 (Apple's Q3) are expected to be $10.4 billion after $18 billion in Q4 and $13.6 billion in Q1. The current quarter is expected to be $10.5 billion. Q2 and Q3 earnings are always low because of the sales cycle. Iphone sales were 61 million in Q1 and expected to be 47 million in Q2. Global PC sales declined -11.8% in Q1 according to IDC. However, Apple's MacBook sales rose +16.1%. The biggest risk to Apple is China. They received 29% of their revenue last quarter from China. If consumer sales declined because of the economy or the volatility in the stock market then Apple's earnings could be at risk. Since the market was up until the last couple weeks of June, I do not think that is a big risk for Q2.

Apple Watch 2015 sales are estimated to be between 10.5 million and 40 million depending on which analyst you read. Apple's Record Profits


There are some big names reporting next week including IBM, GoPro, Microsoft and a bunch of Dow components. By the time the week is over, we will have a very good idea how the Q2 cycle will end. Currently S&P Capital IQ expects a -4% decline in S&P earnings. If you remove energy that rises to a +8% gain. However, Q3 is expected to see a -1.5% decline and Q4 only a +2.4% gain. That means guidance in this cycle will be very important for Q3 estimates. So far the cycle has been good with a 75% beat rate and numerous guidance raises despite the strong dollar. If this continues we could see Q3 revised up sharply and the market would celebrate.

S&P said more than 20% of the S&P-500 companies reduced their outstanding shares by 4% or more in Q1. That means less stock in the market and a better chance of beating on earnings per share since there are fewer shares.


The fading uncertainty in Greece, Iran and the Chinese markets and the expectations for the Fed to hike rates sent the dollar to a three-month high. This is only going to get worse as we move closer to a September rate hike. The dollar strength is crushing commodities and especially metals.

Gold closed at a four-year low and silver at a five-year low. Oil prices flirted with $50 intraday and copper was only 5 cents off its post financial crisis low.



The low in copper suggests China is not telling the truth about their economic growth. They are the biggest user and copper producers claim demand is falling. Doctor Copper is a very widely used indicator for economic growth and copper demand is telling us that growth is slowing. The dollar is having an impact but demand is also a key factor.


Crude prices declined on the strong dollar but also on worries over rising production in OPEC. Production in the U.S. has not declined despite a 50% drop in active rigs. Now that the July 4th holiday is behind us the demand for gasoline will decline and with it the demand for oil.

The energy sector is imploding again on expectations for oil to decline into the $40s. We came close on Friday with the intraday low at $50.14. Baker Hughes said the active rig count declined -6 to 857 with oil rigs declining -7 to 638. Total rigs rose for the prior three weeks but only by a total of +6 rigs. That gain was wiped out and the 857 active rigs today is a 10-year low. Oil rigs at 638 are now 10 above their low at 628.

Schlumberger (SLB) reported earnings last week and they said they expect exploration and production spending in North America to decline another 35% over the rest of the year. They are expecting a 15% decline internationally.



Markets

The S&P moved to within 4 points of the closing high at 2130.82 set back on May 21st. With Google, Priceline and a bunch of big cap tech stocks all surging on short covering I am surprised the S&P did not close higher. Unfortunately, a lot of other sectors including industrials and healthcare were losers for the day. The tech sector was the only S&P sector positive at 3:PM with the other 9 in the red.

We cannot kid ourselves about the Nasdaq sprint to a new high. Netflix split 7:1 on Tuesday and traded down to $97.50. On Friday, the intraday high was just under $118 or $826 in presplit terms. That is a major impact on the Nasdaq. Add in Google's $98 gain to $700, Amazon +7, Tesla +8 and a huge list of big biotech gainers and the Nasdaq had nowhere to go but up.

Unfortunately this will not last. The best bet in the house was probably on QQQ puts at the close on Friday. For confirmation, this was a Nasdaq only rally you need to look at the Russell 2000. The index was lethargic for the last three days and on Friday it closed down -6 points. This was a short squeeze on big cap techs and nothing more.

I wrote on Tuesday that Russell 1275 was going to be a critical test for the small caps after a four day rebound from the 150-day average at 1228. That resistance test failed. The Russell rallied right to that level on Tuesday and could not penetrate.


We all know how market cycles work. When big caps are running you sell small caps to raise cash. When small caps are running you sell big caps to raise cash. When you are caught in a short squeeze you sell anything you can to raise cash. Friday was an "anything you can" day.

Volume over the last five days averaged only 6.0 billion shares with Friday the highest at 6.2 billion. For an option expiration week those numbers were really low.

The candle formation on the S&P is a spinning top and can signal a change in direction. It means the buyers and sellers were both active in the session and there was indecision by both. Neither could press their advantage.

When a spinning top comes after a long string of gains it typically suggests a top has formed. Coming at resistance as it did on Friday is doubly problematic.


Over the last few weeks I have been showing the Bullish Percent Index chart for the S&P. You would think after a major rebound of +62 points on the S&P that the BPI chart would have improved significantly. Unfortunately, it has not. The percentage of bullish stocks with buy signals rose only 2% from 54% to 56%.


The percentage of S&P stocks over their short-term 50-day average did improve significantly from 27% to 52%. Stocks did move higher at least temporarily.


I am not pointing these facts out to be bearish. The market was entering a bearish phase the prior week and the tech rebound rescued it from disaster. The -4% correction turned out to be just one more buying opportunity generated by headlines from Greece, Iran and China. Now that those events are behind us, investors are free to focus on earnings and make intelligent buying decisions rather than act on emotion.

The Dow has failed for three-days at 18,100. The narrow index of 30 stocks can be pushed around by 1-2 advancers/decliners on any given day. The drop in crude oil has weighed on Chevron and Exxon and anything non-tech has been lagging. This kept the Dow from posting any material gains although it did close well off its Friday lows.

Next week will be no different. There are plenty of Dow components reporting earnings and each will be either the hero or zero for the day. Clump a couple of those together and we could move in either direction. However, as more components report there will be less excitement left in the index. Typically, after a component reports, traders will move on to some other stock and the previously reported stocks will weaken. That means the farther we get into the cycle the more heroes we need to keep the index moving higher.

The 18,100 and 18,165 levels remain strong resistance and I would not be surprised if we don't move over those levels by next Friday unless one of those reporting components posts a major surprise and adds a lot of points.



The Nasdaq exploded into new high territory and there is no near-term resistance until 5250. In my opinion, the Nasdaq chart is showing a significantly unsupported short squeeze that is begging for a retracement.

The biotechs were major support as they also broke out to a new high and never looked back. Google is in an unsupported breakout. Call me crazy but I cannot conceive of Google shares holding this level for very long. There may be some additional short covering at the open on Monday but gravity will eventually return.


The Nasdaq could easily return to the prior high at 5160 as support. The index is up +309 points (+6.3%) since the July 8th low at 4901. In what fairy tale world does that rally continue without a decent bout of profit taking? Granted there are a lot of tech stocks reporting earnings next week and there could be some more upside surprises but adding significantly to the existing gains is only a remote possibility. I hope I am wrong but historically the trend is for a pause after a giant gain.



The NYSE Composite is not a tech index. It has stocks of all flavors and sizes. The NYSE is well below the 2015 highs and was down -37 points on Friday.


The Russell 1000 ($RUI) is the 1,000 largest stocks in the market and it did post a fractional gain on Friday but stopped right at strong resistance. The gain was caused by those big cap techs that are included in the index.

At the beginning of the week, more than 500 of the stocks in this index were down more than 10% off their recent highs.


The Vangard Total Stock Market Index ETF (VTI) also posted only a fractional gain of 3 cents and remains well under strong resistance. The index declined -4% the prior week in conjunction with the S&P decline of the same amount and rebounded +4% this week to stop right at resistance at $110. There are 3,814 stocks in the VTI. Vangard VTI


The point I am trying to make here is that the Nasdaq rally was out of character with the rest of the market. Several big cap tech stocks posted outsized gains on monster short squeezes. These gains are unlikely to continue. This suggests the market could experience some volatility this week and more than likely early in the week.

Option expiration is over and earnings are in full swing. Once we get past the FOMC meeting the week after next there is the potential for fade in August as we approach the September FOMC meeting and the first rate hike. While a minor hike will have zero real impact on the economy or equities there is the perceived notion that rate hikes hurt and the equity markets tend to decline immediately before and after. However, once the initial dip is over the equity markets tend to rally on the theory that rates are rising because the economy is improving. We should plan accordingly for the next six weeks.

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Random Thoughts


Janet Yellen continues to press for a rate hike later this year despite some members of the FOMC in strong disagreement. In her speeches last week she both warned that a hike is coming but also qualified it so much that analysts were confused. Bold notes from Scott Krisiloff.

Appropriate to normalize at some point this year

"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy."

But this is not a statement of intent

"But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time."

This is a sign of progress

"A decision by the Committee to raise its target range for the federal funds rate will signal how much progress the economy has made in healing from the trauma of the financial crisis. That said, the importance of the initial step to raise the federal funds rate target should not be overemphasized."

Highly accommodative for quite some time

"What matters for financial conditions and the broader economy is the entire expected path of interest rates, not any particular move, including the initial increase, in the federal funds rate. Indeed, the stance of monetary policy will likely remain highly accommodative for quite some time after the first increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2 percent inflation."


The Volatility Index ($VIX) hit a 10 month low at 11.77 on Friday and closed at 11.95. This suggests investors have lost all fear of a summer decline and are not buying put options as insurance against an unexpected drop. After trading at 20 the prior week, this was a dramatic decline. Remember the market adage, "When the VIX is high it is time to buy, when the VIX is low it is time to go."



The Bank of Canada admitted on Wednesday that Canada was in a recession. A recession is defined as two consecutive quarters of negative GDP. However, BoC governor Stephen Poloz was afraid to say the "R" word. Instead he said, "Real GDP is now projected to have contracted modestly in the first half of the year." He was pressed by reporters to say "recession" but he said the "R-word is unhelpful." Also, "I just find the discussion quite unhelpful. It's especially unhelpful when what has happened to the economy is very narrowly defined." I guess if you do not like the R-word you can just change your definition. Bank of Canada Admits Recession

The real discussion now is whether the U.S. is going to follow Canada down that recession path. Currently analysts are predicting 2.4% to as much as 4.0% GDP growth in Q3/Q4 so something drastic would have to occur to drop back into negative territory.

The most important regional Fed manufacturing survey is the Philly Fed report that was out last week for the July period. The headline number declined from 15.2 to 5.7 and just a couple tenths of a point above the low for the year. Analysts were expecting 12.0. This is not a signal that the U.S. economy is accelerating.



So many analysts are complaining about China's "bogus" GDP numbers that China actually pushed back against the claims and did so quite strongly in multiple venues. Maybe China "protests too much?" China GDP Not Overestimated

China GDP actually 2% lower than reported


After a big week in the market you would expect bullish sentiment to be surging. However, neutral sentiment rose +3.0% compared to a bullish gain of +2.9%. Bearish sentiment saw the biggest move with a -5.9% decline.

Apparently, a bunch of new highs was not enough to sway investors back into the bullish camp ahead of the summer doldrums.

This is the 16th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.



A mini ice age may be on the way according to European scientists. You would not know it now with record high temperatures all around the world in 2015. They claim their models are predicting a decade of very cold winters that have not been seen in 370 years. The last time this happened was between 1645 and 1715. The reason for this is the solar cycle and scientists claim there is 97% accuracy in the prediction. They are predicting this decade of winter to appear before 2030. A former NASA consultant and space shuttle engineer John Casey wrote a book called Dark Winter predicting the same scenario. Maybe the Game of Thrones series has it right. Winter really is coming. Winter is Coming


 

Enter passively and exit aggressively!

Jim Brown

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Index Wrap

Index 'Envelopes' Pointed To Recent Bottom

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

Key moving average 'envelopes' pointed To the Recent Bottom, especially in conjunction with a 'fully' oversold RSI, coupled with low bullishness as displayed with the SPX and COMP charts seen below. Price and indicator patterns predict prices!

I wrote about some of the whys and wherefores of using moving average envelope lines, using a 'centered' 21-day moving average in my recent Trader's Corner article, which may be worth a second, or first(!) look via the above LINK.

The 21-day moving average (and a Fibonacci number) is ALWAYS what I use with the Indexes, not with stocks, where I stick to the 50 and 200-day moving averages mostly. I note in the aforementioned article and all the time that the moving average envelope lines are percentage values that float above or below the daily 21-day moving average Close.

With the S&P and Dow 30, in low to normal volatility periods, I use moving average envelope values of 2 to 2.5 percent. I look to see what values intersect the highest highs and lowest lows in price swings over the most recent multimonth periods. At times, during more volatile price swings, the values used might increase to 3% or more. In a rising trend/bull market, dips to the LOWER envelope line will tend to have a greater probability to represent a bottom or interim bottom.

With the more volatile Nasdaq I tend to use envelope values of 2.5 to 3 to 3.5 percent above/below the centered moving average. Sometimes, the envelopes 'expand'; e.g., I just adjusted my UPPER moving average envelope value to 3.5 percent, from 3% in the big cap Nasdaq Composite as Google (GOOG) mania took over in the big cap Nas 100. On a big run higher, an envelope that 'contains' most of the rallies that occur could expand to 5 percent.

The use of moving average envelopes is not a 'mechanical' trading system; e.g., automatically buy every SPX dip to the lower line, short rallies to the upper line. Not! Especially don't attempt to play the downside on every rally to the upper envelope line as bull markets play out with repeated new rally attempts. The moving average envelope indicator, used in this way, is a measuring tool that give you an idea or 'yardstick', of not only that an index in question is 'overbought' or 'oversold' but at what price points this might be the case.

Adding to an evaluation of extreme moves that carry to the upper and lower moving average lines, is when a dip in an index to the lower envelope line in a long-term uptrends occurs in TANDEM with a low reading (oversold) in the 13-day Relative Strength Index (RSI) AND low bullish sentiment figures on my CPRATIO indicator; e.g., the CBOE daily equity call to put volume ratio FALLS to the highlighted oversold zone seen on my SPX and COMP daily charts.

The line up of my 'BIG 3' indicators have offered some very profitable prior trading opportunities, most recently this past week. You do have to BELIEVE that there is a floor to every decline and a ceiling to every rally. When we get caught up in a bearish or bullish outlook we can LOSE that perspective. Having seen HOW this works in the Market over the past 3 decades helps. In my ("Essential Technical Analysis") I describe how my trading wizard/mentor used the envelope technique masterfully in tandem with the two other technical indicators mentioned above.

TRADE SUGGESTIONS RECAP:

Previously, I suggested bullish plays in the S&P 500 (SPX) in the 2050 area (currently at 2126), in the Dow on dips to 17500-17400 (now 18086), in the Nas Composite on dips to/below 4900 (last at 5210) and my bullish sweet spot in the big cap Nas 100 in the 4350-4300 zone (last at 4661). I recount this because it was because these prices were at or near my lower 'oversold' envelope lines. Not my 'genius', just past experience of when all 3 indicators mentioned get oversold; i.e., price, RSI and sentiment.

LAST but not least, repeat 50 times that: we are in a bull market and remain in a bull market:-) Moreover, sideways/lateral trends even of months duration, tend to resolve themselves by resumption of the primary or major Market trend.

The S&P 500 Volatility Index (VIX):

The VIX Volatility Index has, as predicted, again topped out at or near 20. VIX followed a trendline higher as is highlighted below. Resistance stands at 20, then around 22 as the start of major resistance.

VIX fell like a stone this past week as soon the major (up) trend resumed. VIX has come back down to what has been fairly major support around 12.

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) had a major rebound after my 'big 3' indicators in tandem got to bullish oversold readings; this, as seen in the dip to my lower envelope line (at the extended green arrow), the 13-day Relative Strength Index (RSI) reaching my 'fully' oversold zone AND (very importantly) a low level of bullishness preceding the other two indicators.

Bullish/bearish sentiment extremes usually PRECEDE significant price reversals by 1 to 5-days. Sentiment indicators are 'leading' indicators. Also, sentiment models do not often turn on a dime. As SPX rallied on Mon-Wed, bullish sentiment actually DECLINED. This in the face of a great-looking rally as momentum shifted to up, seen as early as Monday as SPX achieved a decisive upside penetration of its 21-day moving average. Traders and Investors, once convinced, take significant contrary market action to get 'unconvinced'.

Resistance is seen initially at the area of prior SPX highs at 2130-2135; resistance then extends to 2145, then perhaps to 2170. Support is seen at 2100 at what was 'resistance', with support extending to 2080.

I wrote last week 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." SPX easily cleared 2100 and next up is for the Index to clear its prior highs (2130-2135) which I think will happen.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart has seen a strong bullish rebound. A bullish OEX breakout was seen first (this past week) in the decisive upside penetration of its 21-day moving average. OEX found 'final' recent support at the milestone 900 level with the lowest intraday low within a hair's breath of the lower 2 percent envelope line. The extended green up arrow marks the low at the lower envelope line. At the same time the 13-day RSI reached an oversold extreme, which is perhaps too simple of a buy 'signal' by itself, but combined with the dip to the lower envelope AND a bullish sentiment low (the CPRATIO indicator is seen above with SPX) was unbeatable trading 'gold'.

The recent low made two weeks back was followed by 3 more days' of lows that were successively (a bit) higher. Usually, given a similar oversold condition in the S&P, you don't get repeated lows in the same area for longer than 2-3 days. The pattern of important lows is for short-lived 'spike' declines; rallies in bull trends see gradually higher highs over a much longer period.

Support is now indicated at 930, next at 925. Resistance is suggested at 945, then at 950-952, extending to perhaps 975 over time.

OEX is at new highs so projections of further gains such as to 975-1000 over time, is based on longer-term chart analysis not shown here. But it's somewhat predicable to assume OEX reaching the milestone 1000 level once 900 was powerfully retested.

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

The Dow 30 (INDU) is bullish in its pattern but doesn't show the strength seen in the broader S&P indices. The move above 17800, then 17900 was bullish but INDU next needs to clear 18150-18200 and then re-test and exceed 18300-18350 to match new highs in OEX and what looks to be coming with SPX also.

Areas of INDU support this week are highlighted at 17900, then at 17800. Technical/chart resistance is seen at 18200, extending to 18300-18350.

Last week I suggested upside this past week as perhaps only being to 17900 as I thought the 21-average would offer initial resistance; Nope, not with all the other indices in strong rebounds. The Dow is the 'dog' of the Market it seems.

The chance for a triple top in the Dow 18300 area is there but eventually INDU could break out and reach 19000. A sizable new up leg would take turnarounds in such Dow stocks as CAT, CVX, DD, IBM, PG, WMT and XOM. Apple (AAPL) looks to have resistance at 130. A decisive upside penetration of this level would help also.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) chart is bullish and COMP has cleared prior highs decisively. Go tech!

I wrote last time that the Composite "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 and below this level." As with the S&P 500 I've circled the 3 oversold levels seen at the recent bottom in price, RSI and in bullish sentiment. However, it was ONLY on the most recent dip that support implied by the lower envelope line was reached.

Both RSI and sentiment indicators had bullish readings on a prior recent low. It was the line up of ALL 3 of my key indicators in tandem on the recent lower low that suggested STRONG potential for an upside trend reversal.

Support is seen around 5100-5125, then at 5050; fairly major support should be found at 5000 going forward. Resistance is suggested at 5215, then at 527, based on certain upside projections for a possible extension of the recent strong advance.

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nasdaq 100 is bullish like the broad Nas Composite with its strong rally to new highs. At recent lows the same bullish line up of indicators was seen that also occurred with COMP.

I wrote previously that the 4350-4300 zone was "my sweet spot to look for a tradable bottom." Sweet indeed if you believed that the world was not coming to an end and trusted the long-term (UP) trend!

Near support is indicated at 4550, extending to 4500-4480. 'Resistance' is projected at 4670, extending to 4750. Resistance in quotes reflects these levels projected as possible extensions of the current bull move; as opposed to a PRIOR high with a history of prior selling pressure in that area.

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

The Nasdaq 100 tracking stock (QQQ) is bullish. It found 'final' support in the 106 area, at its up trendline AND at the lower support 'envelope' line.

The strong advance seen in On Balance Volume (OBV) was a good ancillary bullish indicator.

Support is seen at 110, extending to 109.2-109, then 108 even. Resistance is projected at 114, extending to 115.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) has seen a strong recovery rally and has a pattern of higher pullback or downswing lows which also maintains an overall bullish chart pattern.

Support is noted at 1260, extending to 1250. Near resistance comes in at 1280, then is assumed at the prior 1296 high with potential to touch 1300.

I anticipate the Russell making it to its prior high. Whether such a retest will form a potential double top or exceed the old high but perhaps just by a bit is hard to predict; e.g., a nominal new high is seen at 1320-1325. Stay tuned!


GOOD TRADING SUCCESS!




New Option Plays

Is This A Bulletproof Stock?

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Advance Auto Parts Inc. - AAP - close: 169.70 change: +0.34

Stop Loss: 164.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on July -- at $---.--
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 13th
New Positions: Yes, see below

Company Description

Trade Description:
If you listen to financial media long enough you will eventually hear pundits talk about "bulletproof stocks". AAP just might be a bulletproof stock. The company has lowered its earnings guidance three quarters in a row and yet traders continue to buy the stock. Today AAP is hovering at all-time, record highs.

AAP is part of the services sector. According to the company, "Headquartered in Roanoke, Va., Advance Auto Parts, Inc., the largest automotive aftermarket parts provider in North America, serves both the professional installer and do-it-yourself customers. As of January 3, 2015, Advance operated 5,261 stores and 111 Worldpac branches and served approximately 1,325 independently owned Carquest branded stores in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. Advance employs approximately 73,000 Team Members."

There seems to be a divergence in the U.S. We are half way through 2015 and new car sales are surging. Dealers have already sold more than 8.5 million vehicles and the industry is on pace to challenge the all-time record of 17.4 million autos in one year. Yet the age of the average car on the road continues to climb. Next time you're stuck in traffic and all you see is a river of cars, bear in mind that the average car is now 11.4 years old. It's forecasted to 11.7 years old by 2019. Americans are keeping their car longer and longer (because most can't afford a new car). That's really good news for car part sales.

I mentioned AAP's earnings guidance earlier. AAP has actually missed Wall Street's bottom line estimates the last two quarters in a row. They have lowered their guidance three quarters in a row. On May 21st AAP reported its Q1 results of $2.39 per share. Revenues were up +2.3% to $3.04 billion. They lowered their fiscal year 2015 earnings guidance from $8.35-8.55 per shares down to $8.10-8.30. Analysts were expecting $8.51. AAP seems to be having a few issues digesting its acquisition of General Parts International, which took place in 2014.

Normally when a company lowers guidance the stock gets crushed. Yet traders keep buying the dips in AAP. Looking at the AAP's recent announcements there is an knee-jerk reaction gap down in their stock price and then shares of AAP immediately rebound. It's happened multiple times. You have to like that kind of resilience. You could say AAP is almost bulletproof.

The stock has been trading off technical support as it climbed from its May 2015 lows. Last week's breakout past resistance near $165.00 is very bullish. The point & figure chart is forecasting at $193.00 target. Odds are AAP will rally up to its earnings report on August 13th. We want to exit prior to the announcement.

Trigger @ $170.25

- Suggested Positions -

Buy the AUG $175 CALL (AAP150821C175) current ask $3.30
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

Google's Pop Caps A Strong Week

by James Brown

Click here to email James Brown

Editor's Note:

Google's huge rally on Friday put the finishing touch on a bullish week for the stock market. Investor fears seem to be fading with a volatility index (VIX) back near its lows.

AMCX hit our entry trigger on Friday.


Current Portfolio:


CALL Play Updates

Adobe Systems Inc. - ADBE - close: 82.10 change: -0.42

Stop Loss: 78.85
Target(s): To Be Determined
Current Option Gain/Loss: -11.1%
Average Daily Volume = 2.64 million
Entry on July 16 at $82.65
Listed on July 14, 2015
Time Frame: Exit PRIOR to earnings in September
New Positions: see below

Comments:
07/18/15: Friday's -0.5% dip snapped a four-day winning streak in ADBE. Shares fell to short-term technical support at the 10-dma before paring its losses.

If the market dips in the week ahead we might see ADBE trade near support at $80.00 and its 50-dma, which could be an alternative entry point if you are willing to be patient.

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.

- Suggested Positions -

Long OCT $85 CALL (ADBE151016C85) entry $2.80

07/16/15 triggered @ $82.65 (gap open)
Option Format: symbol-year-month-day-call-strike

chart:


AMC Networks Inc. - AMCX - close: 85.78 change: -0.49

Stop Loss: 83.75
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
Average Daily Volume = 573 thousand
Entry on July 17 at $86.55
Listed on July 16, 2015
Time Frame: Exit PRIOR to earnings on August 6th
New Positions: see below

Comments:
07/18/15: AMCX briefly traded at a new high before slipping to a -0.5% decline on Friday. The stock rallied high enough to hit our suggested entry point at $86.55.

At the moment, I would wait for a new rise to $86.60 before initiating new positions.

Trade Description: July 16, 2015:
AMC Networks is probably best known for hit TV shows like "Breaking Bad", "The Walking Dead", and "Mad Men". Their "Breaking Bad" and "Mad Men" series are over but AMCX is still knocking it out of the park with its content. Lately Wall Street lows content makers. Earlier this year Piper Jaffray describes AMCX as "one of the best content plays in the media space". AMCX solidified its position as one of the best studios by winning 28 Emmy award nominations for the 67th Annual Primetime Emmy Awards.

AMCX is in the services sector. According to the company "Dedicated to producing quality programming and content for more than 30 years, AMC Networks Inc. owns and operates several of the most popular and award-winning brands in cable television. AMC, IFC, SundanceTV, WE tv, and IFC Films produce and deliver distinctive, compelling and culturally relevant content that engages audiences across multiple platforms. The company also operates BBC America through a joint venture with BBC Worldwide. In addition, the company operates AMC Networks International, its global division."

Earnings have improved in the last few quarters. Looking at the last three quarters AMCX has beaten Wall Street estimates on both the top and bottom line. The last two quarters have beaten estimates by more than 10%. On November 6th, 2014 AMCX said their Q3 revenues were up +31%. On February 26th they announced their Q4 results with revenues up +40%.

AMCX reported their Q1 results on May 4th. Analysts were expecting a profit of $1.44 per share on revenues of $654 million. The company delivered earnings of $1.66 per share, which is a +69% improvement from a year ago. Revenues were up +27.5% to $668.6 million, another beat.

After seven years AMCX aired their final "Mad Men" episode in May. While Mad Men got a lot of press their Walking Dead franchise is significantly larger. The Walking Dead is actually the most watched show on television. It's bigger than Sunday Night Football. Now the company is about to launch a Walking Dead spin-off called "Fear the Walking Dead". Plus they have seen early success with "Better Call Saul", which is a spin-off from its "Breaking Bad" series.

Technically shares have been building a bullish pattern of higher lows and higher highs. Shares spent a couple of weeks consolidating sideways in the $81-84 zone but broke out higher on July 13th. The point & figure chart is bullish and forecasting at $100.00 target. We want to hop on board if this rally continues. Tonight we're suggesting a trigger to buy calls at $86.55.

- Suggested Positions -

Long AUG $90 CALL (AMCX150821C90) entry $1.60

07/17/15 triggered @ $86.55
Option Format: symbol-year-month-day-call-strike

chart:


The Walt Disney Co. - DIS - close: 118.86 change: -0.21

Stop Loss: 115.85
Target(s): To Be Determined
Current Option Gain/Loss: +117.4%
Average Daily Volume = 5.7 million
Entry on June 18 at $112.25
Listed on June 17, 2015
Time Frame: Exit PRIOR to earnings on August 4th
New Positions: see below

Comments:
07/18/15: It was another bullish week for DIS with shares hitting a string of new highs. The stock is up four out of the last five weeks. You could argue DIS is a little short-term overbought here but there is a chance DIS continues to rally up until its earnings report on August 4th.

Remember, we want to exit prior to the earnings announcement.

If the market dips in the week ahead DIS has short-term support at its rising 10-dma (currently near $117.25).

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

07/16/15 Our call option has more than doubled in value. Traders may want to take some money off the table here.
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

chart:


Facebook, Inc. - FB - close: 94.97 change: +4.12

Stop Loss: 93.45
Target(s): To Be Determined
Current Option Gain/Loss: +144.7%
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:
07/18/15: The huge rally in shares of Google (GOOG & GOOGL) generated a strong tailwind that lifted the rest of the high-flying technology stocks on the NASDAQ. FB is one of those stocks. However, FB probably got an additional boost thanks to a Wall Street Journal story that the company is experimenting with a new e-commerce feature that would allow businesses to sell their products from their Facebook page.

FB soared +4.5% on Friday to close at a new record high. We think shares are headed for $100. However, it may not get to $100 in a straight line. After a big rally last week FB could be due for some profit taking.

More conservative traders will want to seriously consider just taking some money off the table right now. We want to give FB an opportunity to keep climbing but we still want to protect our potential gains. Therefore tonight we're adjusting the stop loss to $93.45.

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

07/18/15 new stop @ 93.45
07/16/15 new stop @ 89.35
07/06/15 triggered @ $88.15
Option Format: symbol-year-month-day-call-strike

chart:


Fiserv, Inc. - FISV - close: 88.04 change: -0.19

Stop Loss: 85.85
Target(s): To Be Determined
Current Option Gain/Loss: +21.9%
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:
07/18/15: FISV delivered a very quiet performance on Friday with shares drifting sideways near $88.00.

Thursday was a new all-time high and FISV is arguably short-term overbought here. Readers may want to inch their stop higher again. 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

chart:


INSYS Therapeutics - INSY - close: 41.49 change: +0.46

Stop Loss: 38.85
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:
07/18/15: INSY has delivered an impressive run with shares outperforming the market on Friday with a +1.1% gain. The stock is up seven days in a row and up three weeks in a row.

The stock is nearing what looks like resistance at its June highs in the $42.00 region. After such a strong run so far INSY will likely see some profit taking the closer it gets to $42.00. Don't be surprised to see a little pullback. If it reverses lower too sharply it could look like a bearish double top pattern.

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

07/16/15 new stop @ 38.85
07/14/15 new stop @ 36.35
07/01/15 triggered @ $36.30
Option Format: symbol-year-month-day-call-strike

chart:


Jack In The Box Inc. - JACK - close: 92.34 change: -0.56

Stop Loss: 90.85
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:
07/18/15: JACK posted a gain for the week but shares have been consolidating sideways the last three days in a row. The stock is churning between short-term support at its 100-dma near $91.65 and short-term resistance in the $93.00-93.25 area.

I am suggesting readers wait for a breakout past $93.25 before considering new positions. More conservative traders may want to raise their stop closer to the 100-dma.

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

07/16/15 new stop @ 90.85
07/14/15 new stop @ 89.75
07/13/15 triggered @ $90.25
Option Format: symbol-year-month-day-call-strike

chart:


Molina Healthcare - MOH - close: 73.43 change: +0.72

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

Comments:
07/18/15: Shares of MOH displayed some relative strength on Friday with a +0.99% gain. Yet shares remain stuck under resistance in the $74.00 region.

Our suggested entry point to buy calls is at $74.05. Don't forget that this is a short-term trade!

Trade Description: July 15, 2015:
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)

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:




PUT Play Updates

Barracuda Networks, Inc. - CUDA - close: 29.75 change: -0.48

Stop Loss: 32.15
Target(s): To Be Determined
Current Option Gain/Loss: -5.9%
Average Daily Volume = 512 thousand
Entry on July 17 at $29.75
Listed on July 13, 2015
Time Frame: Exit PRIOR to August expiration
New Positions: see below

Comments:
07/18/15: CUDA has continued to underperform the broader market. Shares ended the week at new 2015 lows and posted their fourth weekly decline in a row. CUDA also broke down below round-number support at $30.00 and hit our suggested entry point at $29.75. I would consider new positions at current levels.

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.

*small positions to limit risk* - Suggested Positions -

Long AUG $30 PUT (CUDA150821P30) entry $1.70

07/17/15 triggered @ $29.75
Option Format: symbol-year-month-day-call-strike

chart:


Concho Resources - CXO - close: 105.04 change: -2.47

Stop Loss: 110.05
Target(s): To Be Determined
Current Option Gain/Loss: -10.9%
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:
07/18/15: Crude oil hit new multi-month lows on Friday and that weighed on the energy stocks. CXO underperformed with a -2.29% decline and a new three-month closing low.

Tonight we are adjusting our stop loss down to $110.05. No new positions at this time.

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

07/18/15 new stop @ 110.05
07/07/15 triggered @ $106.90
Option Format: symbol-year-month-day-call-strike

chart:


SM Energy Company - SM - close: 36.71 change: -1.29

Stop Loss: 40.05
Target(s): To Be Determined
Current Option Gain/Loss: +166.7%
Average Daily Volume = 1.6 million
Entry on June 19 at $44.49
Listed on June 13, 2015
Time Frame: Exit PRIOR to earnings on July 28th
New Positions: see below

Comments:
07/18/15: The weakness continues in SM with another -3.3% drop on Friday. The stock is off three days in a row and down nine out of the last ten weeks.

Readers may want to consider taking some money off the table. We are moving the stop loss down to $40.05.

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

07/18/15 new stop @ 40.05
07/16/15 new stop @ 41.55
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: