Option Investor
Newsletter

Daily Newsletter, Saturday, 7/25/2015

Table of Contents

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

Market Wrap

Earnings Take a Toll on the Market

by Jim Brown

Click here to email Jim Brown

Weak earnings weighed on the market despite some major wins by several high profile stocks. The constant revenue misses and lowered guidance combined to knock more than -500 points off the Dow for the worst week since January. Without major wins by stocks like Amazon, the damage could have been a lot worse.

Market Statistics

The big cap indexes gave up a lot of ground but the small and mid cap indexes lost more and fell farther. The Russell 2000, S&P Midcap-400 and Small Cap 600 all closed at two-month lows.

On the Nasdaq 100 ($NDX) today the 75-point intraday gain by Amazon was offset by the 80-point loss in Biogen. Those two stocks with share values on Thursday of more than $400 each were the perfect example of the bipolar market.

Biogen ended the day with a loss of -$85 to $300 to lose -$18 billion in market cap. The company cut its growth forecasts by more than half because of slowing sales of the MS drugs Tecfidera, Tysabri and Avonex. The company now sees "extremely limited" patient growth for Tecfidera after the drug was reportedly linked to brain infections. Also weighing on shares was a study that showed an Alzheimer's drug in testing stages showed no significant slowing of mental decline.


On the flipside of earnings, Amazon shares were up nearly $100 early in the day after the company reported a surprise profit. When the market accelerated lower late in the day the stock gave back half its gains but still ended up +47. CEO Jeff Bezos ended the day $5 billion richer after being up +$8 billion at the open.

Amazon said revenue rose +19% to $23.18 billion and nearly $800 million more than consensus. If it were not for the strong dollar Amazon sales would have been up 27%. Earnings came in at +19 cents when analysts were expecting a loss of -14 cents. This equates to an operating profit of $462 million. Amazon Web Services (AWS) their cloud hosting division, saw sales rise +81.5% to $1.8 billion with a $391 million profit, up from $77 million in the comparison quarter, and a 21.4% profit margin. Analysts believe that AWS will be worth more than the rest of Amazon combined by 2020.

Free cash flow rose +69% to $8.98 billion over the last 12 months. This was an extremely strong quarter for Amazon and suggests how much profit Amazon can generate once it quits spending billions every year in building out its infrastructure. Amazon could easily produce billions per quarter in profits once expansion slows.

Morgan Stanley raised its price target on Amazon to $741 and the highest target on the street. Barclays said buy now, do not wait because the stock is going a lot higher. Wedbush raised their target to $700 saying Amazon could have 47 million Prime members by year-end, up from an estimated 35 million at the end of 2014. Amazon has more than 285 million active customers. Robert W Baird raised the target to $630 from $475. Cowen raised their target from $565 to $700 with an outperform rating. RBC Capital Markets raised the target from $500 to $650 with an outperform rating. RBC analyst Mark Mahaney said Q2 was an "inflection point quarter" and the first time in four years that Amazon had exceeded its guidance. Gross profit margins reached a high of 35%. JP Morgan raised the target from $535 to $710. Cantor Fitzgerald raised its target from $460 to $670. Jefferies raised their target from $465 to $730 saying "Amazon is one of the best large cap ideas in our coverage universe, with one of the most significant moats." Canaccord Genuity was the party pooper with a hold rating but did raise their target from $400 to $525.

Amazon shares are now up +26,939% since its IPO. Shares are up +37,824% from the closing low of $5.51 after the 9/11 terrorist attack.


On the economic front, the New Home Sales for June was a big disappointment. The headline number was 482,000 and well below the prior May reading at 546,000 and consensus estimates for 545,000. Unfortunately, the May number was revised down from 546,000 to 517,000. The Northeast region was the only region with increasing sales. Sales in the West fell -17%, Midwest -11.1% and South -4.1%.

The number of homes for sale rose from a 4.7-month supply in April to 5.4 months in June. The average selling price declined -1.8% to $281,800. Builders and analysts said buyers were suffering from price fatigue after two years of rising prices. The number of homes sold that were under construction fell -16.3% to 154,000.

The June sales were a seven-month low. However, sales were still 17.5% higher than June 2014.


News out of China also helped to weaken the U.S. markets. The preliminary Purchasing Managers Index (PMI) from Markit Economics declined from 49.4 to 48.2 for July. That is the lowest level in 15 months and worse than all 16 forecasts in a Bloomberg survey. This means the economic outlook for China has worsened. China continues to claim GDP growth of 7.0% but most independent analysts believe it could actually be as much as 2% less than that. In another report Chinese railroad freight traffic declined -12% in June. The economic news from China and anecdotal reports of falling demand for coal, iron and copper caused commodity prices to decline to multiyear lows.

Economic highlights for next week include the Richmond Fed Manufacturing Survey on Tuesday and the final reading on the Q2 GDP on Thursday. Q3 GDP is tracking about +2.3% growth according to the Fed's GDPNow analysis.

The big hurdle will be the FOMC meeting announcement on Wednesday afternoon. With earnings expectations declining, home sales weakening and U.S. manufacturing slowing because of the strong dollar, the Fed may be less likely to raise rates and send the dollar spiking higher. The Fed announcement will be parsed for every word that provides a clue above and beyond the face value of the press release.


The big news will of course be earnings. I have been writing market commentaries for Option Investor for more than 18 years. I cannot recall ever seeing an earnings week with this many companies reporting. There are more than 1,290 according to my quick count on Friday when I was preparing the earnings calendar. Out of that 1,290 I squeezed 128 in to my graphic and highlighted only 28 in yellow as important. That should give you an idea about how much media noise there will be next week as they try to cover those 1,290 companies.

The big name for the week will be Facebook on Wednesday but the others are important as well. It is just that Facebook will garner all the attention and investors will be hoping for an Amazon like spike rather than an Apple like decline.


There were some other disappointments on Friday. Trip Advisor (TRIP) reported earnings of 54 cents and analysts were expecting 56 cents. Revenue of $405 million also missed estimates for $413.2 million. After a YTD rise of 25% the shares gave back -13% on Friday or -12.50.


LogMein (LOGM) reported earnings of 35 cents compared to estimates for 33 cents. Revenue of $64.8 million beat estimates for $64 million. The company guided for Q3 revenue in the range of $68.8-$68.3 million and analysts were expecting $67.8 million. LogMein is a cloud based service company. Shares rallied +10% on the news.


Visa (V) was the biggest gainer on the Dow after reporting earnings of 74 cents compared to estimates for 59 cents. Revenue rose +12% to $3.5 billion and beat estimates for $3.4 billion. International transaction revenues rose +21% to $1 billion. Overall payment volume rose 11% to $1.3 trillion on more than 18 billion transactions. Shares rallied +4% on the news and added about 23 Dow points.


Starbucks (SBUX) rallied to $59.31 at the open after a big earnings beat. The declining market dragged the stock lower to gain only 75 cents at the close. The company said an expanded menu and improved technology helped them acquire more customers. Same store sales were up +7% globally with an estimated 23 million additional transactions than the comparison quarter. Same store sales in America rose +8%. New drinks like the "Flat White" and the "Smores Frappuccino" along with bistro boxes and breakfast sandwiches boosted sales.

The company said mobile ordering technology is now in place at more than 4,000 stores and was boosting sales and profits at those stores. The ability to preorder and pay online helped bring back customers that got tired of waiting in long lines. CEO Schultz said in stores with mobile ordering "the lines were shorter, service faster and operations were more efficient." Schultz said the technology should be available in all stores before the holidays.

Earnings rose +22% to 42 cents that beat estimates by a penny. Revenue rose +18% to $4.9 billion. Starbucks said the board had authorized the buyback of an additional 50 million shares.


Pandora (P) reported adjusted earnings of 5 cents compared to estimates for 2 cents. Revenue increased +30% to $285.6 million compared to estimates for $283.2 million. Mobile revenue rose +37% to $229.7 million. The company ended the quarter with 79.4 million active listeners, up only slightly from 79.2 million last quarter. The company is targeting 100 million active users. The company guided slightly higher than analyst estimates for Q3/Q4. Shares rallied +15% on the news.


Juniper (JNPR) reported earnings of 53 cents that beat estimates for 40 cents. Revenue of $1.22 billion also beat estimates for $1.11 billion. The company said they were expecting a large uptick in sales in the second half of the year from companies including AT&T, Telefonica and Verizon. They recently announced a lot of new products that compete with the cheaper routers that run brand-agnostic software.


The economic data out of China crushed commodities and copper sank to a new post crisis low. Gold collapsed to a five-year low at $1,080. Oil prices traded under $48 and are closing in on the lows for the year.





The sharp decline in commodities is causing margin selling not just by individual investor but large funds. A trader on the floor of the NYSE said there was evidence of persistent forced margin selling by several large funds. When you cannot clear your margin by selling your commodities, you are forced to sell stocks to make up the difference. This trader said part of the decline in equities was directly related to large margin calls on commodities.

The energy sector is also getting pounded by what is expected to be a very ugly earnings cycle and by the declining fundamentals in the energy market. The S&P Energy Select SPDR (XLE) is at two-year lows and dropping like a rock. Energy stocks are down 35%, 50% even 75% from their 2014 highs. The sector has been in a bear market for all of 2015. Several attempts to rally have failed and long-term holders of energy stocks are being forced to liquidate. Almost no analyst is recommending buying the dip in energy stocks. With more than $800 billion in high-yield energy debt we are going to reach a point where defaults begin to occur and most believe it will be in early 2016 if oil prices do not firm soon.


Crude prices fell under $48 on Friday as a result of active oil rigs surging by 21 rigs to 659. Natural gas rigs declined by 2 to 216 and a new eighteen-year low. Energy investors saw inventories rise by +2.5 million barrels on Wednesday and imports rise to 7.94 mbpd and the highest level since April 3rd. It is not enough that U.S. inventories are just under an 80-year high but imports are rising and rigs are being put back to work. Apparently producers are either expecting prices to raise later this year or they have found a way to produce oil profitably for less than $40. One other reason for the rise in rigs is that they have debt bills coming due and they need to produce oil at any cost just to increase cash flow.



Markets

It was an ugly week for the markets but it could have been worse. The Dow declined -518 points and it was almost entirely due to negative earnings surprises. The focus stocks missed estimates and once the direction was set the other Dow stocks followed them down.

The Industrials Sector select SPDR ETF (XLI) fell to a new nine-month low and the 100-day average is about to cross below the 200-day average. Needless to say the outlook here is bearish.


The S&P Materials Select SPDR fell to a nine-month low and the relative strength to the S&P is at a multiyear low. Compare that to the Energy Select ETF (XLE) in the lower chart. There are 30 materials stocks in the S&P and 43 energy stocks. Together they make up 15% of the S&P-500. The XLE is at the lowest level in 30 months.



The Dow Transports are closing in on the July lows and the downtrend low from March remains intact. With fuel prices falling the transports should be in rally mode but railroad shipments are also declining. This is not a sign of positive economic growth and it is bearish for the broader market.


The Biotech sector was also a major mover with nearly a -5% decline. Much of that was on Friday when Biogen fell -82 points. The Biotech Index ($BTK) has had these upsets fairly regularly over the last couple years. Since early 2014 the 100-day average has been support. With Biogen in freefall with horrible guidance we may not see that 100-day support hold on this decline. If that is the case the market could be in trouble. The S&P and the Russell 2000 both have a large contingent of biotech stocks. On the chart below you can see how the rally began to stumble after the March high and we could be due for a deeper drop.


Over the last three days, the volume has been rising and that is never good in a market decline. Volume on Friday was 7.3 billion shares and the highest since July 7th. Decliners were 3:1 over advancers and new 52-week lows spiked to 926 and the most since October 15th 2014.

The Bullish Percent Index on the S&P declined to 53% and the lowest level since October. That means only 53% of the S&P stocks have a buy signal on a Point & Figure chart.


Only 51% of the S&P-500 stocks are trading over their long-term 200-day average. A dip below 50% will be the lowest level in 2015. The Nasdaq is slightly worse at 47.7%.



The big caps had been leading over the last several weeks but the market breadth continued to narrow. As Art Cashin put it, "there are fewer horses pulling the wagon." Some of those remaining horses pulled up lame last week and the wagon began sliding backwards down the hill.

I mentioned on Wednesday that the hard stop at 2110 on the S&P and the positive gain on the Russell 2000 suggested the worst could be over as long as the negative earnings headlines faded. They did not fade and may have gotten worse.

So far 185 S&P-500 companies have reported earnings and 77% beat estimates on profits, thanks in part to aggressive share buybacks and cost cutting. However, only 51% have beaten revenue estimates. That number is much harder to game with financial engineering. Falling revenue eventually means lower earnings. Analysts were hiking earnings growth estimates two weeks ago and are now lowering those estimates based on results and guidance. Expectations are now for a -4.1% decline in earnings for Q2 according to a Bloomberg survey and a -4% decline in revenues. That would be the worst quarterly performance since 2009. Over the coming week 172 S&P companies will report and now that the largest companies have reported the earnings quality could be worse.

The S&P chart is in freefall. The decline did find support at the 2075 level but it may have only been because time expired in the trading session. Selling is occurring at a moderate pace. It is not like a crash where sellers overwhelm buyers and declining volume is 10:1 over advancing. A decline with the ratio at 3:1 is still a decline but at least there is some order to the selling. Nobody is jumping out of windows.

The key for Monday is the 2071 level and then 2050. With market direction definitely to the downside there may be some follow through next week.

Fortunately we are running out of Dow components reporting earnings. Without any big misses by Dow stocks it may be harder for sellers to set the trend. However, with revenue misses now normal and Q3 guidance quickly declining we may not need a focus stock to upset the wagon.

At this point I would be skeptical of any rebound in the S&P. We have failed at the 2130 level three times in three months and investors may be ready to wait for a real correction before buying the dip again. This is almost August and the Dow is negative for the year and the S&P has only gained +1%. I would not be surprised to see a flurry of analyst revisions on year-end S&P targets. Nobody wants to be quoting 2300 on the S&P with it trading well under 2100 with only six months to go. Two of those months, August and September, are historically the worst two months of the year.


The Dow crashed through 17,600 and could easily test 17,500 on Monday. The 18,100 resistance was rock solid again and the chart pattern is very lackluster. I would doubt we are going to retest that level in the near future. We are more likely to retest 17,150 and the closing low from January. Many of the Dow stocks are sick. The majority of the individual charts are in decline and the strong dollar and worries over the global economy are weighing on their guidance.

Even the banking stocks in the Dow are in crash mode with Goldman the biggest loser on Friday with nearly a -$4 drop. Add in the energy stock weakness with oil under $48 and lingering problems with IBM, UTX, BA, etc and it was a miracle the Dow only lost -163 points.

Support at 17,500 is the key for Monday. If that breaks we could see some cascade selling that takes us to 17,150. The Dow closed well below its 200 day average at 17,748.



The Nasdaq finally cratered on Friday. The declines earlier in the week had been minimal to moderate because there were big gains offsetting some big losses in individual stocks. The Biogen implosion on Friday was offset early by the monster gain in Amazon but once the market started to accelerate lower after lunch the $100 gain slipped to $47 and the Biogen $82 loss became the driver. It was also a catalyst for a greater decline. Biogen tripped up the entire biotech sector so Amazon's gains were offset by dozens of big declines in biotech stocks not just Biogen.

The Nasdaq declined -58 points to 5088 and blew through two levels of support at 5160 and 5100. Unlike the S&P and Dow the Nasdaq is still in an uptrend and can remain in an uptrend for about another 200 points. It may be ugly but until the 4900 level is breached the chart is still positive.

For those with short memories we were at 4900 just three weeks ago. If we were to visit that level again we may not see that support hold.

Initial support for next week is 4950-5000 with resistance at 5200.



The Russell 2000 imploded with a -19 point drop on Friday. This was primarily due to the large number of biotech stocks in the index plus the overall negativity of the market. The Russell closed at a two-month low and below support at 1230. The next material support is 1210 and then it would be a long drop to 1150. The 150-day average has been recent support and that was broken on Friday. Resistance is now 1240.


The S&P Small Cap 600 ($SML) closed at a two-month low and very close to the five-month closing low at 701.32. The small caps have entered a rough neighborhood and once the 700 level breaks it could be a long drop.


The S&P Midcaps ($MID) did close at a four-month low when they broke support at 1480. This is just another example of the big caps leading us higher but fewer horses were pulling the wagon. The market breadth of the small and mid caps was shrinking at a faster rate than the big caps and once those leaders rolled over the smaller stocks accelerated to the downside.


The NYSE Composite Index has more than 1,900 stocks of which more than 1,500 are U.S. companies with the rest are foreign ADRs. The broad index of a variety of companies from the largest like Exxon to the smallest of the small caps gives us a very good reading on market sentiment. Unfortunately, the Advance/Decline line on the NYSE fell below the 50-day average in early June and below the 200-day average last week. This is a dramatic visual of the declining market internals.


It is amazing to see how much market sentiment has changed in just one week. The S&P was testing its highs on Monday and down more than 50 points off those highs by Friday. It would be easy to launch into full bear mode because of the severity of the decline but markets never sprint in either direction without temporary pauses and intermittent short squeezes.

At some point traders will try to pick a bottom and the shorts will race to cover. What happens when that short squeeze occurs will be the key. It is lacks conviction, fails at initial resistance and then rolls over quickly; I would look for lower lows and possibly much lower lows.

If the rebound finds some traction on the second and third days then investors will begin to breathe easier and move back into the market.

Margin calls on commodities may have forced the sales of equities last week. Eventually the selling in commodities will end along with the forced selling of equities.

We are heading into the worst two months of the year for the market. I mentioned several weeks ago that after the first two weeks of the earnings cycle as we approached the FOMC meeting the combination of earnings, calendar and Fed expectations could weigh on the markets. I believe we have reached that point.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

Random Thoughts


The U.S. Mint said it sold the most physical gold in two years as the price of gold hit a five-year low. Three weeks ago, the mint ran out of silver on the day the price fell to $14.62 and the lowest price in 2015. On Friday, it declined to $14.33. The UK Royal Mint said they experienced twice the expected demand for Sovereign bullion coins from customers based in Greece.

As of July 24th, the U.S. Mint had sold 143,000 ounces of physical gold in the month of July, the most in more than two years. Gold Demand Rockets Higher

Hedge funds are holding their first ever net short on gold since the government began collecting data in 2006. Funds are net short 11,345 contracts according to the CFTC. Goldman Sachs said the worst is yet to come for gold and prices could fall under $1,000 an ounce. Hedge funds short gold


The Dow just broke another record. It has swung from positive YTD return to negative for the 21st time in 2015. The prior highs were 20 swings in both 1934 and 1994. With four months to go, the odds are good we will see several more swings to push that record number even higher. Dow Lacks Conviction

Ralph Acampora echoed those statements and warned that the markets have gone nowhere in 2015 and if the markets do not make and hold new highs soon we could be going a lot lower. Clock is Ticking for Stocks


The Fed meets next week and there is a zero chance of a rate hike at this meeting. The Fed is between a rock and a hard place. They want to see inflation as one of their requirements for a rate hike. Unfortunately, commodity prices are imploding and that is going to reduce inflation and possibly risk deflation in the months to come.

Nations that depend on commodity revenue for their income are going to be in trouble. That includes Canada, Australia, Brazil, OPEC nations, Peru, Mexico and even Russia. Currencies that depend on commodity revenue are already crashing. Mexico's peso was down to 15.734 to the dollar last week because of their falling oil revenue. The Brazilian real has fallen -45% against the dollar in the last 12 months.

Venezuela's currency fell another 32% in just the past month. Inflation is running at 772% annually and the government will not be able to pay its debts by the end of 2015, if it lasts that long. Soc Gen rates the probability of default in 2015 at 63% and rising. Venezuela is rapidly becoming the 57th hyperinflation event in modern history. There is no way for them to recover. Deflation is Winning

Emerging market currencies are in free fall. This Bloomberg chart shows currencies in a 15-year low against the dollar. This means everything from the U.S. costs more and will further slow our exports. Emerging Currencies Falling



Investor sentiment is a strange animal. Despite the worst week for the market since January bullish sentiment rose +1.7% and neutral sentiment declined 4.1%. Bearish sentiment rose ONLY +2.4%. Since the major declines in the indexes did not come until late in the week, the sentiment may not have caught up with chart. Next week should be interesting.

This is the 17th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.



Weekly Jobless Claims fell to 255,000 last week and that is important because it was a 42-year low. The vast majority of people reading this commentary were either not yet born or were not paying attention to economic numbers when that happened in November 1973. This is a crazy statistic because hiring is not that strong and the labor force participation rate is at a 35 year low. Apparently, very few companies are laying off workers and those with jobs are not quitting. What does that tell us about the economy? With consumer sentiment declining it suggests workers are doing whatever it takes to keep their jobs.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence."

John Adams, Second U.S. President

 

subscribe now

 


Index Wrap

Healthy Rally; followed by Healthy Decline

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The S&P 500 (SPX) quickly retraced 62% of its prior sharp run up, the Dow nearly 100%, all, of its prior weaker gains. The big cap Nasdaq 100 has only given back a mild 38%.

The Market has two 'problems' technically in terms of achieving a next sustained bull move:

1.) The inability for the non-tech stock 'economy' to pick up; enough so to see the S&P 500 break out above prior highs that formed a line of resistance at 2125-2135, as highlighted on that chart below.

SPX is in a large 'rectangle' formation or in old time trader speak a trading range. In a primary bull market, sideways trends like the pattern of the past few months are typically resolved with a decisive upside penetration move in the DIRECTION of the major trend which is up.

Occasionally a 'rectangle' is part of a rectangle top. A decisive DOWNSIDE penetration of the lower end of such a rectangle as seen in the SPX chart further on might suggest a bearish intermediate or even long-term trend reversal.

2.) The second 'problem' so to speak with the technical position that the Market is in has to do with the major tech indices hitting resistance(s) implied by the UPPER end of long-term uptrend price channels.

Why the significance of this (upper channel) line? It's simply it being the high end of the advancing price trajectory of the Nas Composite (COMP). The long-term COMP chart seen first of the charts sees slow going or stopping when it's bumping up against its upper channel line; and, implying the upper level of COMP valuations that investors are willing to pay. That's what it means to be up against the trendline. The RATE of price increase SLOWS down considerably.

The S&P 500 Volatility Index (VIX):

The VIX Volatility Index topped out at 20 recently but found support when VIX fell to the 12 support area where it then rebounded some.

Initial resistance to a further VIX rise is in the 15.7-16 area.

A tendency for a future jump in implied volatility has been seen after periods when the 13-day Relative Strength Index (RSI) gets 'oversold' (like a stock or Index would) such as seen in a couple of recent instances.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) has been in a broad trading range for some months now in what in technical analysis speak is a rectangle pattern. A rectangle such as highlighted below suggests that a decisive upside penetration of the UPPER end of the box would suggest potential for a substantial move higher.

Conversely, a rectangle top is suggested by a decisive DOWNSIDE penetration of the lower end of a broad trading range like this; i.e., to SPX daily, then Weekly, Closes below 2050-2040.

I'm of the mind that we'll see an eventual move above 2130-2135 resistance but further sideways action like we've seen could go on for a few weeks. Weekly Closes above 2050 best keep bullish potential alive.

Initial support is anticipated in the 2070-2075 area. Major support comes in around 2050. Near resistance is at 2100, extending to 2120. Major resistance is at 2130-2135.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) saw a steep rally and now an equally steep decline that's retraced a little more than half of the prior upswing. The 62-66% retracement zone often develops as a bottom or interim bottom, suggesting to look for support at 918-915.

Support/buying interest below the 915 area is at 905 extending to 900. Overhead resistance is highlighted at 930, extending to 935.

I'm bullish on OEX in the 915 area, but that area should be the low unless the Index is going to retest 900. Doubtful I think but price volatility is picking up with earnings.

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

The Dow 30 (INDU) has been the weak sector within the larger NYSE universe. INDU's intermediate trend is sideways but will turn LOWER with any sustained decline below 17500.

Near support is seen at 17500 and extending to 17430. Since late-February the INDU pattern as been for a strong rebound only after a move to my lower envelope line at two percent below the 'centered' 21-day moving average. The Dow is nearing that point again.

Key near resistance is at 17800 at what was expected support, but which became, the recent 'breakdown' point. Next resistance is at 17900.

A 100% retracement is back to the area of prior lows in the 17500 area and if reached, this area down to 17430 has favorable risk to reward on bullish strategies. Controlling risk is the key by setting an exit point at just under 17400.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) sailed above the prior top in the 5150 area, hitting 5230 but only to see a quick and sharp pullback. One that should be noted hasn't yet seen a 'normal' 50% retracement; i.e., to 5065.

Near support is anticipated around 5050. A retracement pattern to 62-66 percent suggests bullish alerts for apparent lows being made at 5027-5011. 5000 is seen as major chart support.

Near resistance/selling pressure anticipated at 5150, extending next to 5200 at was the recent bullish 'breakdown' point.

A bullish buy into dips into the 62-66 percent retracement zone at 5027-5011, with an exit below 5000, offers a trade look.

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nasdaq 100 (NDX) hit an upper overbought 'extreme' implied by brief highs made around 4700 at my upper moving average envelope line (at 3.5% above NDX's 21-day moving average). It's unlikely to see any prolonged advance above this upper line in this kind of market and quite often sharp pullbacks come next, as seen this past week.

I discussed in my initial bottom line Market overview, that the broad Composite (COMP) and the big cap Nas 100 (NDX), given prior monster multiyear gains, are now hitting the upper resistance ends of long-term uptrend price channels (shown for COMP at top).

4700 looks like fairly major resistance currently. Near resistance is also likely at the low end of the upside price gap at 4643. Near support is suggested in the 4500 area and at the 21-day moving average currently, with support then extending to 4450. Fairly major support begins at 4400.

I favor looking at possible bullish plays on pullbacks to the 4500 area knowing a sell off in that area could extend to at or near 4450. I wouldn't stay in with Closes below 4400.

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

The Nasdaq 100 tracking stock (QQQ) chart is bullish but short-term trend down given the sharp sell off carrying fast back to the 111; surprise, as 111 was so recently a (upside) 'breakout' point. Holding the line here at 111 support is my 'most' bullish expectation.

A next expectation is the Q's drop back to the 110 area and hold around its 21-day moving average. If NOT, support is at 108, where I'd be a buyer of the stock; a rally to 111-112 as a target and exiting if wrong just under 107.

I've highlighted expected resistance at 113, then at 114.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) as quick as it went up, back down again. From my upper 'envelope' extreme now to the area of the lower trading band at 2.5 percent under the 21-day average.

1225 is noted as possible support if the drop stops here. Otherwise, support at 1220, then 1215 should put breaks on further selling. Overhead resistance looks likely at 1250, and probably a next point to short. Next resistance is just overhead at 1260. Two consecutive Closes over 1260 would suggest trend momentum was back up.

In the 1220-1215 area, if reached, RUT seems like a 'low-risk' buy adhering to a 1205 exit anticipating a potential rebound to near 1260.


GOOD TRADING SUCCESS!




New Option Plays

Bucking The Trend

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

GoPro, Inc. - GPRO - close: 62.17 change: -1.78

Stop Loss: 58.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 6.1 million
Entry on July -- at $---.--
Listed on July 25, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Company Description

Trade Description:
The U.S. stock market delivered one of its worst weekly performances all year long as investors reacted to disappointing earnings results. GPRO managed to buck the trend and shares rallied to new six-month highs thanks to significantly better than expected earnings results.

Here's the company's rather self-confident description, "GoPro, Inc. is transforming the way consumers capture, manage, share and enjoy meaningful life experiences. We do this by enabling people to self-capture engaging, immersive photo and video content of themselves participating in their favorite activities. Our customers include some of the world's most active and passionate people. The quality and volume of their shared GoPro content, coupled with their enthusiasm for our brand, virally drives awareness and demand for our products.

What began as an idea to help athletes document themselves engaged in their sport has become a widely adopted solution for people to document themselves engaged in their interests, whatever they may be. From extreme to mainstream, professional to consumer, GoPro has enabled the world to capture and share its passions. And in doing so the world, in turn, is helping GoPro become one of the most exciting and aspirational companies of our time."

GPRO came to market with its IPO in June 2014. The stock opened for trading at $28.65 and by October 2014 shares were nearing $100 per share. That proved to be the peak. GPRO spent the next six months correcting lower and finally bottomed near $37 in March 2015.

GPRO reported their 2015 Q1 results on April 28th. Wall Street was expecting a profit of $0.18 per share on revenues of $341.7 million. GPRO beat estimates with a profit of $0.24 a share. Revenues were up +54% from a year ago to $363 million.

Management said it was their second highest revenue quarter in history. Their GAAP results saw gross margins improve from 40.9% in Q1 2014 to 45.1% today. Their net income attributable to common stockholders increased 98.2% compared to the first quarter of 2014. International sales surged +66% and accounted for just over half of total sales in Q1 2015. GPRO shipped 1.3 million devices in the first quarter. This was the third quarter in a row of more than one million units.

GPRO management raised their guidance. They now expect 2015 Q2 revenues in the $380-400 million range with earnings in the $0.24-0.26 region. Analysts were only forecasting $335 million with earnings at $0.16 a share.

The better than expected Q1 results and the upgraded Q2 guidance sparked several upgrades. Multiple analysts raised their price target on GPRO. New targets include: $56, $65, $66, $70, and $76.

GPRO reported its Q2 report on July 21st. Results were way above expectations. Analysts were expecting earnings of $0.26 per shares on revenues of $396 million. GPRO said Q2 earnings came in at $0.35 per shares. That's a +337% improvement from a year ago. Revenues were up +71.7% to $419.9 million, significantly above the estimate. Gross margins improved from 42.2% to 46.4%.

Naturally GPRO management was enthusiastic. GoPro Founder and CEO, Nicholas Woodman, commented on their quarterly results saying, "I couldn't be more proud of our aggressive pace of innovation. With the introduction of HERO4 Session and HERO+ LCD, we've launched five new cameras in the past 10 months, exciting both new and existing customers and contributing to strong second quarter results. Our core business is enjoying terrific momentum as we charge forward into attractive adjacent markets."

This better than expected Q2 result sparked another round of upgrades. Piper Jaffray raised their GPRO target to $72. Barclays bumped theirs to $71. Another firmed raised theirs to $70. Shares of GPRO saw a bit of a short squeeze this past week. There are plenty of traders who think GPRO is overpriced and too rich with a P/E above 42, especially when you consider the company is facing rising competition.

The biggest argument against GPRO is competition from a Chinese rival Xiaomi who has produced a competitive action camera that they're selling for less than half of GPRO's similar model. GPRO critics are worried this could kill GPRO's growth in China and the rest of Asia. It's too early to tell who will be right but momentum is currently favoring the bulls. The point & figure chart is forecasting a long-term target at $95.00.

The stock experienced some profit taking on Friday with a -2.7% decline. Shares failed at the $65.00 level on Thursday and Friday. We want to be ready if GPRO reverses higher again. Tonight we're suggesting a trigger to buy calls at $65.05. We'll start with a wide stop loss at $58.65, making this a more aggressive, higher-risk trade. It might take GPRO a couple of days to get back to $65.00. I don't expect a new relative high on Monday.

Trigger @ $65.05

- Suggested Positions -

Buy the SEP $67.50 CALL (GPRO150918C67.5) current ask $2.46
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

A Perfect Exit On SM Energy (SM)

by James Brown

Click here to email James Brown

Editor's Note:

Our plan was to exit the SM put play on Friday at the close.

FISV and JACK were stopped out.

We have updated nearly all of our stop losses tonight!


Current Portfolio:


CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 168.31 change: -0.08

Stop Loss: 165.85
Target(s): To Be Determined
Current Option Gain/Loss: -21.4%
Average Daily Volume = 1.0 million
Entry on July 23 at $170.25
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 13th
New Positions: see below

Comments:
07/25/15: It was another down day for stocks on Friday but AAP held up reasonably well. Shares closed virtually unchanged for the day. We are going to try and reduce our risk by raising the stop loss up to $165.85.

I am not suggesting new positions at current levels. Wait for another rally past $170.25.

Trade Description: July 18, 2015:
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.

- Suggested Positions -

Long AUG $175 CALL (AAP150821C175) entry $3.50

07/25/15 new stop @ 165.85
07/23/15 triggered @ $170.25
Option Format: symbol-year-month-day-call-strike

chart:


Adobe Systems Inc. - ADBE - close: 80.98 change: +0.34

Stop Loss: 79.85
Target(s): To Be Determined
Current Option Gain/Loss: -26.4%
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:
07/25/15: ADBE bucked the market's downtrend on Friday. Shares bounced off technical support at the 50-dma and managed a +0.4% gain. I'm a little hesitant to launch new positions here with the broader market in decline.

We will raise our stop loss to $79.85.

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

07/25/15 new stop @ 79.85
07/22/15 new stop @ 79.65
07/16/15 triggered @ $82.65 (gap open)
Option Format: symbol-year-month-day-call-strike

chart:


Costco Wholesale - COST - close: 144.99 change: -0.61

Stop Loss: 143.85
Target(s): To Be Determined
Current Option Gain/Loss: -21.7%
Average Daily Volume = 2.0 million
Entry on July 23 at $146.85
Listed on July 22, 2015
Time Frame: Exit PRIOR to earnings on Sept. 30th
New Positions: see below

Comments:
07/25/15: Our COST trade is not off to a very good start. Shares are down two days in a row. Friday saw COST testing potential technical support at its 100-dma near $144.85.

I am suggesting readers wait on launching new positions. Let's see if COST can bounce from current levels. Just in case it doesn't bounce we are raising the stop loss to $143.85.

Trade Description: July 22, 2015:
Shares of COST are only up +3% year to date but they seem to have turned the corner after a three-month correction lower. The stock saw big gains in early February but that proved to be the peak. Shares fell almost $20 or -12% from its late March high to late June. Fortunately for the bulls the correction appears to be over.

If you're not familiar with COST they are in the services sector. The company runs a membership warehouse business that competes with the likes of Sam's Club (a division of Wal-Mart). According to the company, "Costco currently operates 672 warehouses, including 474 in the United States and Puerto Rico, 89 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, seven in Australia and one in Spain. The Company plans to open up to an additional 16 new warehouses (including one relocation to a larger and better-located facility) prior to the end of its fiscal year on August 30, 2015. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico."

Earnings growth has been lackluster. Their most recent earnings report was May 28th. COST reported their Q3 earnings of $1.17 per share. That only beat estimates by a penny. Revenues were up +1.2% to $26.1 billion, which missed estimates. The company seems to be suffering from slow same-store sales.

COST's April same store sales fell -2.0% versus estimates for -0.3%. May same-store sales were flat (+0.0%). June's same-store sales were -1.0% against estimates for -0.1%. Analyst Charles Grom, with Sterne Agee CRT, says the headline number is not showing the whole picture.

According to Grom, COST's June same-store sales decline was only the second time since 2009 they were negative. If you remove currency headwinds and volatile gasoline prices from the mix then COST's sales are up +5.5% and traffic has been rising +4.0%.

Sterne Agee is not the only analyst firm bullish on COST. Piper Jaffray recently defended COST and reiterated their bullish "overweight" rating and $154 price target. A few days later Oppenheimer's analyst Brian Nagel upgraded COST from perform to outperform and gave the stock a $160 price target.

Shares of COST have definitely broken their three-month bearish trend of lower highs. COST has also rallied past technical resistance at its 50-dma, 200-dma, and the $145.00 level. We think the rally continues. Today's high was $146.48. We're suggesting a trigger to buy calls at $146.75.

- Suggested Positions -

Long OCT $150 CALL (COST151016C150) entry $3.00

07/25/15 new stop @ 143.85
07/23/15 triggered on gap open at $146.85, trigger was $146.75
Option Format: symbol-year-month-day-call-strike

chart:


The Walt Disney Co. - DIS - close: 118.91 change: +0.11

Stop Loss: 117.85
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:
07/25/15: Shares of DIS were upgraded (again) on Friday and given a $138 price target. The news didn't do much for the stock but shares did not follow the broader market lower so I can't complain.

DIS appears to be stuck consolidating sideways between short-term support at its 10-dma and short-term resistance at $120.00. We plan to exit prior to DIS' earnings report on August 4th.

Tonight we are raising the stop loss up to $117.85.

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

07/25/15 new stop @ 117.85
07/22/15 new stop @ 117.25
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:


INSYS Therapeutics - INSY - close: 43.34 change: -0.91

Stop Loss: 41.85
Target(s): To Be Determined
Current Option Gain/Loss: +26.5%
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:
07/25/15: Friday was actually a relatively quiet day for INSY if we an overlook the 30 minutes of selling that drove shares down toward $42.20 on Friday morning. Shares managed to pare their losses but still closed down -2.0%.

INSY is now up four weeks in a row and up eight of the last nine weeks. Tonight we are raising our stop loss to $41.85. More aggressive traders may want to keep their stop under the simple 10-dma (currently $41.50) since that moving average is likely the nearest support.

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

07/25/15 new stop @ 41.85
07/23/15 new stop @ 41.45
07/22/15 new stop @ 40.85
07/21/15 new stop @ 39.30
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:




PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 65.80 change: -1.47

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: +13.7%
Average Daily Volume = 2.0 million
Entry on July 24 at $66.80
Listed on July 23, 2015
Time Frame: Exit PRIOR to earnings in late September
New Positions: see below

Comments:
07/25/15: Our new bearish put play on BBBY is off to a good start. The stock underperformed the broader market on Friday with a -2.1% drop. Our entry trigger was hit at $66.80.

Broken support at $67.00 should be new resistance. We are moving our stop loss down to $67.65.

Trade Description: July 23, 2015:
This year is not shaping up very well for bullish investors in BBBY. The stock is down -11.6% year to date. The trouble started with its earnings report back in January.

If you are not familiar with BBBY they are in the services sector. According to the company, "Bed Bath & Beyond Inc. and subsidiaries (the "Company") is a retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in store, online or through a mobile device.

The Company has the developing ability to have customer purchases picked up in store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, food service, healthcare and other industries.

Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. Shares of Bed Bath & Beyond Inc. are traded on NASDAQ under the symbol "BBBY" and are included in the Standard and Poor's 500 and Global 1200 Indices and the NASDAQ-100 Index. The Company is counted among the Fortune 500 and the Forbes 2000."

On January 8th BBBY reported its 2014 Q3 results. Earnings were in-line with estimates but revenues missed. Management lowered their same-store sales guidance. The stock plunged the next day. A few weeks later BBBY had managed to recover but the rally failed producing a bearish double top.

The trouble continued in April. BBBY had rallied up into its earnings report and then disappointed. Their 2014 Q4 results were in-line with estimates at $1.80 a share. Yet revenues missed estimates again. They lowered their Q1 guidance. The stock plunged the next day.

On June 24th BBBY reported earnings of $0.93 per share. That was down -1% from a year ago and a penny worse than expected. Revenues were only up +3% to $2.74 billion, which met expectations. Yet comparable store sales were +2.2% when Wall Street was expecting +2.5%. Management lowered their Q2 guidance. Guess what happened the next day? Yup, the stock dropped. Traders immediately sold the bounce and BBBY now has a clearly defined bearish trend of lower highs and lower lows. One has to wonder how bad would BBBY's Q1 results have been had the company not spent $385 million buying back stock last quarter?

In summary, BBBY has been missing Wall Street's revenue or earnings estimates the last three quarters in a row. They have warned twice and same-store sales are disappointing. Technically shares have broken down below multiple layers of support. The company is more of a home furnishing store so back to school season may not give them much of a boost. The point & figure chart is bearish and forecasting at $60.00 target. The last few days have seen some support near $67.00. We are suggesting a trigger to buy puts at $66.80.

- Suggested Positions -

Long NOV $65 PUT (BBBY151120P65) entry $2.55

07/25/15 new stop @ 67.65
07/24/15 triggered @ $66.80
Option Format: symbol-year-month-day-call-strike

chart:


Concho Resources - CXO - close: 103.01 change: -2.61

Stop Loss: 107.05
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:
07/25/15: It looks like the oversold bounce in CXO is over with shares falling -2.4% on Friday. I wish we had more time as CXO looks poised to drop. Unfortunately earnings are coming up on July 29th. We need to plan on exiting soon. Tonight I suggest we exit this trade on Monday (July 27th) at the closing bell.

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

07/25/15 prepare to exit on Monday, July 27th at the closing bell
07/20/15 new stop @ 107.05
07/18/15 new stop @ 110.05
07/07/15 triggered @ $106.90
Option Format: symbol-year-month-day-call-strike

chart:


PowerShares QQQ ETF - QQQ - close: 111.10 change: -1.10

Stop Loss: 113.25
Target(s): To Be Determined
Current Option Gain/Loss: +55.9%
Average Daily Volume = 27.5 million
Entry on July 21 at $114.02
Listed on July 20, 2015
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
07/25/15: Big gains for AMZN on Friday morning were not enough to boost the QQQs. As AMZN's early morning pop began to fade the QQQ accelerated lower and the ETF settled with a -0.98% decline.

We are moving our stop loss down to $113.25.

Trade Description: July 20, 2015:
Big cap technology stocks have been strong performers this year and that has boosted the NASDAQ-100 index ($NDX) to new all-time highs. The $NDX is also outperforming the broader market with a +10% gain year to date versus a +3.4% gain in the S&P 500 index. The long-term up trend for the $NDX is still intact and yet we are short-term bearish on the $NDX. It's move too far, too fast, and on very, very narrow leadership. One way for us to play the $NDX is options on the QQQ ETF that tracks the index.

The QQQ is one of the largest and most liquid exchange traded funds. This particular ETF tracks the NASDAQ-100 index, which includes 100 of the largest non-financial stocks on the NASDAQ (lots of technology stocks). AAPL, MSFT, AMZN, GOOG, GOOGL, FB, GILD, INTC, CMCSA, CSCO and AMGN are its top holdings. You can see a list of the top twenty five holdings here.

The lack of leadership in the NASDAQ-100 (and QQQ) has been exceptionally narrow. That's a bearish sign.

On Friday the QQQ surged to new highs even though three stocks declined for every two advancing stocks in the QQQ. Today there were two declining stocks for every one stock that advanced (on the NASDAQ composite). More than 50% of the NASDAQ-100 components are actually negative for the year. So how is the index (and the Qs) at a new record high? The answer is because the $NDX is a market-cap weighed index.

The rally in the QQQ has been fueled by just four stocks with huge market caps. Here are the four stocks driving the QQQ (and their July gains):

Google (GOOG/GOOGL) +29%
Amazon.com (AMZN) +11%
Facebook (FB) +10%
Apple (AAPL) +3%
Those are some impressive numbers in just the last three weeks.

Now consider their market cap and their impact on the QQQ. AAPL's weighting in the QQQs is 13.9%. GOOG is 4.3% while GOOGL is 3.75%. AMZN is 4.19% and FB is 3.9%. For the record Microsoft (MSFT) is 7.0% of the QQQ.

The NASDAQ-100 index has a market cap of $5.4 trillion. If we combine the market cap of AAPL, AMZN, FB, and GOOG they are worth $1.7 trillion. These four stocks are almost 31% of the $NDX market cap. So what happens to the QQQ when these four stocks start to see some profit taking after those big July gains?

Cable television business and stock market channel CNBC noted the above observations on air today. They also posted an article regarding this interesting situation on their website. You can read the CNBC article here.

CNBC also noted that the NASDAQ-100 index is more than three standard deviations above its simple 50-dma. That almost never happens. It's so rare it's only happened nine times in the last 35 years. While that is not a big sample size the $NDX was down the following week 8 out of 9 times.

There are no guarantees in the market. However, odds are good that the QQQ is due for a pullback that should happen soon. The lack of leadership driving the $NDX higher makes the rally very fragile.

There is one big caveat here. Apple (AAPL), the biggest component in the $NDX, is scheduled to report earnings on Tuesday evening, after the closing bell. AAPL tends to beat Wall Street's earnings estimates 90% of the time. Thus expectations tend to be pretty bullish for AAPL's results. If they disappoint it could have a significant negative impact on the QQQ. Since expectations are already bullish for AAPL's quarter they probably need to really blow the doors off and crush the estimate to move the QQQ. It's possible but it seems unlikely that AAPL will singlehandedly lift the QQQ on Wednesday.

We suspect the market could start to see some profit taking tomorrow. Therefore we are suggesting traders buy QQQ puts at the opening bell tomorrow morning (Tuesday, July 21st). If you're worried about AAPL's earnings you could wait until Wednesday morning to buy puts. That way you could hear the results and see how the markets is reacting to AAPL's numbers after hours and pre-market on Wednesday.

Please note we are not setting a stop loss for this trade yet. We'll add a stop in the Wednesday evening newsletter.

- Suggested Positions -

Long SEP $112 PUT (QQQ150918P112) entry $1.88

07/25/15 new stop @ 113.25
07/23/15 expect the QQQ to gap higher tomorrow in reaction to AMZN's earnings report tonight
07/22/15 new stop @ $114.50
07/21/15 trade begins. QQQ opened @ $114.02
Option Format: symbol-year-month-day-call-strike

chart:


Energy SPDR ETF - XLE - close: 69.51 change: -1.36

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +47.3%
Average Daily Volume = 13.3 million
Entry on July 22 at $71.22
Listed on July 21, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
07/25/15: The sell-off in crude oil continues and the XLE lost another -1.9% on Friday. This ETF is down 11 out of the last 12 weeks and just closed at new multi-year lows.

The XLE is definitely short-term oversold at current levels. I would not be surprised to see a bounce. Looking at its recent history the bounces only last a couple of days before the XLE rolls over again.

Tonight we are moving the stop loss down to $72.25. No new positions at this time.

Trade Description: July 21, 2015:
The 2015 bounce in crude oil appears to be over. The price of crude oil was cut in half with a plunge that started in the second quarter of 2014 and didn't stop until early 2015. Oil managed a multi-week bounce off its March 2015 lows but the rally stalled in May and oil prices churned sideways for almost two months. Now the commodity has resumed its decline.

Today WTI crude oil is hovering near $50.00 a barrel, which is a three-month low. Oil consumption is rising but it's not outpacing oil production. The big drop last year was the market realizing we (temporarily) have more supply than demand.

The Iran deal over the country's nuclear program, if it doesn't get derailed again, will remove sanctions on Iran and allow the oil-producing country to sell more oil on the global market. That's more supply to a market that doesn't need it. Iran denies it but sources say the country has more than 50 million barrels of oil just sitting in oil tankers ready for transport.

Another problem for the energy sector is natural gas supplies. Last month the U.S. Energy Information Administration said natural gas inventories rose 132 billion cubic feet to 2.2 trillion cubic feet. That's more than 50% above last year's inventory levels and the largest surplus in 12 years. The Natural Gas Supply Association expects industry production to hit a new all-time record this summer.

One way to play this bearish supply/demand issue on oil and natural gas is the XLE.

The XLE is an exchange traded fund (ETF) designed to track the Energy Select Sector Index. This is a great way for investors to play the energy sector of the S&P 500 index, which includes oil, gas & consumable fuels, and energy equipment and services companies.

Top 10 Holdings (61.54% of Total Assets)
Company Symbol % Assets
Exxon Mobil Corporation XOM 15.79
Chevron Corporation CVX 12.46
Schlumberger N.V. SLB 7.68
Kinder Morgan, Inc KMI 4.48
EOG Resources, Inc. EOG 3.94
ConocoPhillips COP 3.76
Williams Companies, Inc. (The) WMB 3.67
Occidental Petroleum Corporation OXY 3.51
Pioneer Natural Resources PXD 3.15
Anadarko Petroleum Corporation APC 3.10
The market is well aware of the supply issues facing the energy sector and the XLE has been falling 11 out of the last 12 weeks. We don't see any catalyst that would reverse this momentum.

Currently the XLE has broken down to new multi-year lows and the nearest support levels could be down near $66 or $60. The point & figure chart is bearish and forecasting at $61.00 target. Tonight we are suggesting a trigger to buy puts at $71.25.

- Suggested Positions -

Long SEP $70 PUT (XLE150918P70) entry $1.84

07/25/15 new stop @ 72.25
07/22/15 triggered on gap down at $71.22, suggested entry was $71.25
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

Fiserv, Inc. - FISV - close: 85.99 change: -0.68

Stop Loss: 85.85
Target(s): To Be Determined
Current Option Gain/Loss: -22.2%
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:
07/25/15: The widespread market sell-off was too much for shares of FISV. The stock fell toward technical support at its 20-dma and hit our stop loss at $85.85 along the way.

The long-term trend for FISV is still bullish so I'd keep this stock on your radar screen. Once the correction is over we may jump in again.

- Suggested Positions -

AUG $85 CALL (FISV150821C85) entry $3.20 exit $2.49 (-22.2%)

07/24/15 stopped out
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:


Jack In The Box Inc. - JACK - close: 91.62 change: -1.38

Stop Loss: 91.75
Target(s): To Be Determined
Current Option Gain/Loss: +6.2%
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:
07/25/15: JACK has betrayed us. After a bullish breakout on Wednesday the stock has reversed sharply in the last two sessions. Friday saw JACK fall below prior support in the $92.00 area and hit our stop loss.

- Suggested Positions -

AUG $95 CALL (JACK150821C95) entry $1.60 exit $1.70 (+6.2%)

07/24/15 stopped out
07/22/15 new stop @ 91.75
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:


CLOSED BEARISH PLAYS

SM Energy Company - SM - close: 33.40 change: -1.89

Stop Loss: 36.55
Target(s): To Be Determined
Current Option Gain/Loss: +275.8%
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:
07/25/15: SM ended the week with another plunge lower. Shares fell -5.35% on Friday. Our plan was to exit this trade on Friday, at the closing bell. The company has earnings coming up on July 28th and we do not want to hold over the report.

- Suggested Positions -

AUG $40 PUT (SM150821P40) entry $1.65 exit $6.20 (+275.8%)

07/24/15 planned exit on Friday
07/23/15 new stop @ 36.55, Prepare to EXIT tomorrow at the close
07/20/15 new stop @ 38.05
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: