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Newsletter

Daily Newsletter, Wednesday, 7/29/2015

Table of Contents

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

Market Wrap

No Change, No Guidance, Market Rallies

by Keene Little

Click here to email Keene Little
The market has been rallying this week on expectations the Fed will back off on the timing of a rate increase. As expected, today's FOMC announcement was for no change to the rate (still a measly 0.25%) and no guidance for when a rate increase could happen. The market continued rallying on the no-news event.

Today's Market Stats

Some high-profile earnings reports prompted a rally this week, or it could have been nothing more than short covering following a test of supports levels, and there's been an expectation the Fed will back away from a rate increase in September. Economic reports have not been supportive of the stock market's high valuation but its main focus has been, and continues to be, on what the Fed is going to do. The rally into today's FOMC announcement could result in at least a pullback while traders digest this week's gains and news.

The Fed mentioned the economy is expanding at a "moderate pace" while inflation continues to remain under its long-term target of 2%. The labor market is described as healthy, which is an improvement over June's statement in which they said the labor market had "diminished somewhat." With an unemployment rate around 5.3% (we won't count all those people who have dropped off the unemployment lines and who continue to be unemployed or underemployed), the Fed is keeping the door open for a rate hike in September but most believe the conditions are not good enough for a rate hike at that time.

The Fed did say they wanted to see "some further improvement in the labor market" and watch for evidence that inflation is starting to tick back up before raising rates. The policy statement kept the language that risks are "nearly balanced," which suggests the Fed is still more concerned about further weakening in the economy rather than rising inflation.

Most economists believe economic growth will improve in the 2nd half of the year vs. the 1st half. Since most believe that then we know the opposite is going to happen. As the economy continues to sputter along there will be an increasing number of analysts calling for a rate increase in December instead of September. I continue to believe the Fed has successfully painted itself into a corner and will not be able to raise rates for years and instead will likely institute another round of QE next year.

On Tuesday we received the report on new home sales and they were disappointing, coming in at 482K vs. 555K expected and a drop from May's 517K (which had been revised down from the originally reported 546K). Today we received the pending home sales and they also were very disappointing -- down -1.8% vs. expectations for an increase by +1.0% and a drop from May's +0.6% (which had been revised down from the originally reported +0.9%). A slowing housing market is a bad sign for the economy since so many businesses are dependent on the home market. We're getting the same slowing evidence that we saw prior to the 2007 market peak. It's certainly not supportive of the majority of economists who predict stronger economic growth for the 2nd half of this year.

These reports have been ignored by the market since last Friday (ignore that man behind the curtain) and in general the market has been ignoring multiple signs of economic slowing. But that's apparent only in the major indexes. If you look under the hood of the market you'll see a worn fan belt, fluid levels below minimum and a multitude of other problems that suggest your car is not going to take you much further. In a word, market breadth sucks.

On Monday there was an article written by Julie Verhage at Bloomberg.com site (Julie Verhage) in which the author described signs supporting the idea that the stock market could be topping. They're the same things discussed many times here but how it's starting to make mainstream financial press. That's a sword that can swing both ways -- it could scare traders away and make the market even more vulnerable to a selloff or it could be just another wall of worry for bulls to climb over.

Verhage pointed out the fact that the rally in the S&P 500 index was primarily driven by just two sectors -- retail and health care -- and that's the weakest market breadth since the high in 2000. This year's rally has been driven primarily by just six stocks -- Amazon.com Inc., Google Inc., Apple Inc., Facebook Inc., Netflix Inc. and Gilead Sciences Inc. More than half of the $664B in value added this year to the Nasdaq, according to JonesTrading brokerage firm, has come from these six stocks. For SPX, all of its nearly $200B in gains in market cap this year has come from Amazon, Google, Apple, Facebook, Gilead and Walt Disney Co. Market breadth has been weak and it's getting weaker, which is not supportive of higher prices. Prices can go higher but if it does so on continued weakness in market breadth it simply becomes even more vulnerable to a downside disconnect.

Also noted in the article was a quote from Stephan Suttmeier, a technical analyst with BofA Merrill Lynch, referencing a similarity to the condition prior to the spike down in October 2011. The uptrend line from March 2009 through the October 2011 low is what was used to show the bull market but it broke in June. Referring to the 2011 pattern, this is from Suttmeier's report (bold face is mine for emphasis):

"The 2011 build-up in new 52-week lows preceded a breakdown from a top in the S&P 500 and a peak to trough decline of 19.4 percent on a daily closing basis (21.6 percent on an intra-day basis) into October 2011. [The] difference is that over 40 stocks in the S&P 500 have hit new 52-week lows now vs. under 20 prior to the August 2011 S&P 500 breakdown, meaning that the setup might be more bearish now than in 2011."

The deterioration of new 52-week highs while new 52-week lows have been on the rise is shown on chart below. While SPX has been chopping sideways to marginally higher this year, in a pattern many are calling a bullish consolidation, the deterioration in market breadth warns us that it's very likely a topping pattern instead. Even during yesterday's and today's strong rally the new lows beat out new highs.

SPX vs. New 52-week highs and lows

Another chart comparison below shows SPX vs. the advance-decline line, which clearly shows fewer advancing stocks vs. declining stocks. A rally that has gone this long without even a 10% pullback since October 2011, showing this kind of bearish market breadth, is fair warning to those who believe the market only knows how to go higher. A breakdown, when it comes, is likely to catch more than a few investors asleep at the wheel.

SPX vs. advance-decline

The SPX weekly chart is another reminder about the choppy price range we've been in since SPX first climbed above 2040 in the beginning of November and it first reached 2100 in February. That's nine months of a choppy sideways market so if you're feeling whipped by this market and that you're not gaining any traction as an investor you can see why. Traders have had plenty of opportunities to trade both directions but even they have had a tough time because of the many whipsaws and give-backs. The pattern is still not clear and I see an equal chance from here of making new highs or finally breaking down. Some cycle work by traders I respect show now through mid-August as the next timing window for an important high in the market. Knowing this, what I've been trying to figure out is whether it will be THE top or a lower high as part of a correction to a decline that has already started.

S&P 500, SPX, Weekly chart

As depicted on the chart above, the bullish path could take SPX up to its broken uptrend line from March 2009 - October 2011, which was broken near 2105 on June 4th. There were a couple of back-tests in June, each resulting in a spike back down, and now another back-test in mid-August would see it up near 2190 (the trend line is currently near 2170). The 50-week MA has been supporting SPX on a weekly closing basis and it's currently at 2056. A weekly close below that level would be a bearish heads up, especially if it wasn't recovered by the end of the following week. The bottom of a shallow parallel up-channel since the December 2014 high is currently near 2030 and there's price-level support near 2040. A break below both of those levels would confirm a bearish move and below the February low near 1981 would confirm THE top is in place. The bearish divergence shown on the oscillators continues to be a warning sign for bulls to slow down and stay awake since there's potential danger ahead.

Here's another look at the weekly chart that shows a rolling top pattern. Typical of these topping patterns is a lot of chop as the index tops and that's certainly what we've had. Assuming SPX is in fact topping, the question is whether we'll see a choppy decline over the next few months, to mirror what we've seen so far this year, or if instead it will start to spike down. I suspect the latter but obviously we can't know. Just be aware that SPX needs to rally strong above 2200 to negate this rolling top.

SPX weekly chart with rolling top pattern

The sharp rally off Monday's low is just another reversal of a sharp reversal that we've seen multiple times in the past six months. There's no telling whether this rally will any better follow through than the multiple sharp moves before it. From a short-term perspective it's looking like the rally from Monday is completing a 5-wave move up and therefore the minimum expectation from here is for a pullback before heading higher (depicted in green). The bearish possibility is that the rally is another 2nd wave correction, like the July 7-20 rally, and that it will be followed by a very strong decline in a 3rd of a 3rd wave down. Depending on how corrective (choppy) the next pullback is we'll then get some clues as to whether we should be looking for a continuation much lower or if instead we should be looking to get long for a ride higher into mid-August. Roughly between 2045 and 2032 I've labeled the "chop zone" since that's the risk for anyone taking a position.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2115
- bearish below 2040

The 60-min chart simply looks a little closer at the price action since late June. Those are big whippy moves and great trading opportunities if you were able to time the reversals (a challenge to say the least). Monday's low at its 200-dma was a very good setup to catch the ride back up, helped by short covering. Above 2100 keeps it bullish but back below 2090 would be potential trouble for the bulls.

S&P 500, SPX, 60-min chart

While SPX bounced off its 200-dma on Monday the DOW had broken it last week and today's rally brought the DOW back up to it. Will it hold as resistance with a back-test and bearish kiss goodbye to follow? That's certainly what the bears are hoping to see. It's more bullish above the 200-dma, near 17765, but then the bulls will have to battle the 20-dma, near 17805, and then the 50-dma, near 17908. The bulls have their work cut out for them if they try to tackle those MA's without at least a pullback to relieve the short-term overbought indicators. Too much too fast always makes the market vulnerable to a spike reversal, just as the strong selloff into Monday's low led to a spike reversal. One note on the bearish wave count -- it's uber bearish with a series of 1st and 2nd waves to the downside. I always question the count when it develops a series of 1st and 2nd waves like this but the risk is present for an extremely strong decline (call it a crash). I'm not predicting it will happen but I am saying the potential is there.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,140
- bearish below 17,250

The Nasdaq poked below its 20- and 50-dma's on Monday but then rallied back above them yesterday and today. It's now approaching, again, its March 2000 high at 5132. The bearish pattern following the first test of this level back in April is a 3-drives-to-a-high topping pattern (essentially a triple top) around this 5132 level and now a back-test, if followed by a bearish kiss goodbye, would likely lead to stronger selling. But a climb back above 5132 could lead to yet another new high and we'd then have to see if it's got better participation than the previous efforts at new highs.

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for COMPQ:
- bullish above 5132
- bearish below 5025

Last week the RUT dropped below what fits as a H&S neckline, which is the uptrend line from May-July and is currently near 1231, a point below today's high. The RUT pulled back just enough into the close to finish just below the line. Here again we'll have to see if this is a back-test of support-turned-resistance that's followed by a bearish kiss goodbye. A selloff tomorrow would mean a short against today's high is a recommended position. It would be relatively tight stop with lots of downside potential. But it's possible we'll see just a test of Monday's low followed by a bigger bounce into the mid-August timeframe for a lower high in a cycle turn window. As long as the indexes remain inside the 6-month trading range I would stay cautious and don't get married to any positions.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1263
- bearish below 1200

A market sentiment indicator that's not watched by many is a comparison of the performance of junk bonds (using HYG, the high-yield bond ETF) and Treasuries (using TLT, the 20+ year bond ETF). When HYG is outperforming TLT it's an indication traders are feeling more bullish about the market and want a better return from the riskier corporate bonds). But when traders start to get nervous and less bullish, if not bearish, they'll start to favor the safety of Treasuries vs. the riskier HYG. As can be seen in the daily chart below, the HYG:TLT measure had been in decline (from a high in December 2013) until the January 30th low. The daily chart doesn't show the decline from December 2013 but it formed a 5-wave move down. Since the January low we've seen a 3-wave bounce into the June 23rd high that is likely an A-B-C correction to the 2013-2015 decline. Following the rollover from June 23rd it broke its 200-dma on July 23rd, which it had used on May 29th and July 8th as support. Today's rally has it back up to its broken 200-dma and if turns out to be a back-test followed by a drop lower it would be a stronger sell signal and more evidence of traders shying away from risk. That in turn would support a bearish view of the stock market.

High Yield Corporate Bonds (HYG) vs. 20+ Year Treasury Bonds (TLT), daily chart

The TRAN had a strong rally the past two days, which obviously looks bullish, but the rally might be the completion of an a-b-c bounce off its July 8th low. It hit a price projection at 8402, with a high at 8432, and it poked above the top of a parallel down-channel based on an EW (Elliott Wave) pattern. This channel is created by drawing a line from the 1st wave (April 6th) to the 3rd wave (July 8th) and attaching a parallel line to the 2nd wave high (April 24th). The expectation is that the 4th wave should find resistance near the top of the channel, currently near 8380. If the wave count is correct then we'll see today's rally reversed and a drop back down to the bottom of the channel. If the 5th wave in the decline from February 25th achieves equality with the 1st wave we'll see the TRAN drop down to 7675 in August.

Transportation Index, TRAN, Daily chart

The choppy climb off the U.S. dollar's low back in May continues to support the idea that it's in a big sideways consolidation following the strong rally in 2014. There are several ways that consolidation could play out and the sideways triangle idea that I've been tracking is just one. It fits well as a correction pattern in its larger price pattern and I'll continue to track it until price tells me something else is playing out. There's a good chance the dollar will simply consolidate for the rest of the year before heading higher next year. This pattern suggests the Fed is on hold until next year, maybe December, when they might raise rates, in which case the dollar would strengthen against the foreign basket of currencies (the best of the lot but it's not saying much).

U.S. Dollar contract, DX, Daily chart

After gold broke below the price shelf of support near 1141, on July 17th, it then dropped down to support at 1090, which is the 50% retracement of its 2001-2011 rally. A bounce back up to the 1141 S/R line is possible but it doesn't turn at least short-term bullish until it gets back above that level. The weekly oscillators show no bullish divergence and that's another reason why gold bulls should not be too anxious to try to catch falling knives here. While the bounce could make a little higher, the longer it consolidates near 1090 support the more likely it is to break. A break below 1090 would point to a drop down to 1000, which is price-level S/R from 2008-2009. The bearish pattern for the year, which is looking for a 5-wave move down from January's high at 1307.80, targets 893 for an end to its decline, which would be a 62% retracement of its 2001-2011 rally. If that plays out I'd then be looking to be a long-term buyer of gold, but not yet (I might do a little buying at 1000). When I stop hearing about all the people buying gold (and silver) coins at new lows then I'll know it'll be my turn.

Gold continuous contract, GC, Weekly chart

Silver got a little bounce this week but as can be seen on the weekly chart below, it's not much in the larger pattern and so far it's just consolidating near support at 14.65, which was price-level S/R back in 2006-2010. I would not turn bullish silver until it gets back above shorter-term price-level S/R near 15.25, which was the shelf of support from November 2014 until it broke earlier this month. It's now resistance until proven otherwise and in the meantime the downside projection near 12 still holds. But silver bears can't get complacent here since last week's low could have been a successful test of the November 2014 low and the bullish divergence is a warning sign that support might hold here. If silver gets back above 15.25 I would also not want to be short gold since even a bounce correction could be significant.

Silver continuous contract, SI, Weekly chart

As with the dollar, my expectation for oil this year is a sideways consolidation before heading lower next year. But if oil does drop to a new low in the next few months I see the potential for a drop to about 40 and then the start of a much larger rally, maybe even back up to the $80 area early next year. Oil would become more immediately bullish above its May high at 62.58 but potentially choppy between 44 and 59.

Oil continuous contract, CL, Daily chart

We'll get the advance GDP report tomorrow morning before the bell and it could cause some market reaction if it doesn't come in near the expected 1.3%. Much more than that would be a good sign for the economy but a bad sign for Fed watchers. A stronger-than-expected GDP would prompt fears of a rate hike sooner rather than later. Other than that the market is still responding to some earnings reports but those will tend to be stock specific and not market moving now.

Economic reports and Summary

Conclusion

This week's rally has been brought to us via short covering and expectations for a helpful Fed (by staying on the sidelines with their silly talk of a rate increase). If the rally was mostly in anticipation of what the Fed would say then we don't have much more to drive the market higher. Combine that with another too far, too fast bounce and indexes up against lines of resistance, it's possible the flash-in-the-pan rally could be over and the bears will slide back in. The bullish wave pattern suggests we'll get just a pullback, perhaps retracing about 50% of this week's rally, and then another rally leg. The bearish wave pattern suggests this bounce correction is just one of many sharp bounces that we'll see in the "slope of hope" decline that has already started. If true then the next leg down could be rough on the bulls. It's a tricky spot right here and it will be the pattern of the next pullback/decline that will provide clues as to whether or not the bulls should be able to press the market up to new highs. Market breadth says they'll struggle to do that and the bears will pounce on any further signs of weakness. Trade carefully here.

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

Keene H. Little, CMT

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


New Option Plays

Movie Momentum

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Hasbro Inc. - HAS - close: 80.76 change: +1.19

Stop Loss: 78.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on July -- at $---.--
Listed on July 29, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: Yes, see below

Company Description

Trade Description:
The huge momentum from Jurassic World, the highest-grossing film this year, which grossed over $1.5 billion, produced a strong tailwind for toymaker HAS. Now the toy and game maker is poised to cash in on its licensing relationship with X-men and Star Wars. The next Star Wars film comes out in December 2015 and Disney is planning three more episodes of the main story and three spin offs. Analysts are predicting the next Star Wars (episode 7) could generate more than $1.5 billion in gross sales by itself. That should produce another strong tailwind for HAS. Meanwhile the next X-men movie comes out next May. The overall success of the film industry this year and its influence on toy sales could boost HAS to record sales in 2015 and 2016.

If you're not familiar with HAS they are in the consumer goods sector. According to the company, "Hasbro (HAS) is a global company committed to Creating the World's Best Play Experiences, by leveraging its beloved brands, including LITTLEST PET SHOP, MAGIC: THE GATHERING, MONOPOLY, MY LITTLE PONY, NERF, PLAY-DOH and TRANSFORMERS, and premier partner brands. From toys and games, television programming, motion pictures, digital gaming and lifestyle licensing, Hasbro fulfills the fundamental need for play and connection with children and families around the world. The Company's Hasbro Studios and its film label, ALLSPARK PICTURES, create entertainment brand-driven storytelling across mediums, including television, film, digital and more."

The earnings picture has improved this year in spite of tough comparisons to a strong 2014. They reported their Q4 results on February 9th. HAS missed estimates by 2 cents. Revenues rose +1.6% but missed estimates. The stock rallied anyway. HAS management announced an additional $500 million stock buyback program and raised their cash dividend +7% to $0.46 per share.

Their Q1 results were a lot better. HAS announced its Q1 report on April 20th. Earnings of $0.21 per shares beat analysts' estimates by 13 cents. Revenues were up +5% to $713.5 million, which was way above estimates of $660 million. Excluding foreign currency headwinds HAS's sales were up +14%.

Foreign currency issues remained a challenge in the second quarter. HAS announced its Q2 results on July 20th. Earnings were down -8% from a year ago to $0.33 per share but that still beat expectations. Revenues fell -3.8% from a year ago to $797.7 million but this was higher than expected. Excluding the effects of the strong dollar HAS' sales would have been up +5% for the quarter.

The last three quarterly earnings reports have all produced significant rallies in HAS' stock. This most recent earnings pop pushed shares to new all-time highs. The stock has seen some downgrades since its July 20th earnings report but HAS has essentially ignored them.

Last week the stock market was selling off and HAS did see some profit taking but shares found support at $79.00 and held there until today. It looks like the post-earnings profit taking is over and HAS is poised to resume its up trend. The point & figure chart is bullish and forecasting an $87 target. Today's intraday high was $80.92. I'm suggesting a trigger to open bullish positions at $81.15.

Trigger @ $81.15

- Suggested Positions -

Buy the SEP $82.50 CALL (HAS150918C82.5) current ask $1.30
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:



In Play Updates and Reviews

Stocks Shrug Off FOMC Statement, Continue Higher

by James Brown

Click here to email James Brown

Editor's Note:

The oversold bounce in commodities continued on Wednesday. China's Shanghai market delivered a big bounce as it recovers from Monday's crash. These two factors helped fuel another rally in the U.S. market, which quickly digested the FOMC statement and moved on.

SYK hit our bullish entry trigger. The QQQ hit our stop loss.


Current Portfolio:


CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 173.06 change: +2.76

Stop Loss: 165.85
Target(s): To Be Determined
Current Option Gain/Loss: +22.9%
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:
07/29/15: Another broad-based market rally helped AAP confirm yesterday's breakout past $170. The stock surged +1.6% to close at new all-time highs. Broken resistance at $170.00 should now be new short-term support.

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


GoPro, Inc. - GPRO - close: 61.87 change: -0.55

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

Comments:
07/29/15: Hmm... GPRO delivered a disappointing performance. Shares churned sideways and did not participate in the market's widespread rally today.

If GPRO doesn't show some strength tomorrow we may end up removing it as a candidate.

Trade Description: July 25, 2015:
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)

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


Stryker Corp. - SYK - close: 101.98 change: +0.37

Stop Loss: 99.45
Target(s): To Be Determined
Current Option Gain/Loss: -7.1%
Average Daily Volume = 1.1 million
Entry on July 29 at $102.15
Listed on July 28, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
07/29/15: This morning SYK declared a $0.345 dividend payable on October 30th, 2015. The news didn't do much for shares of SYK. The stock continued to rally but it underperformed the major indices. SYK did trade above $102.00 intraday and hit our suggested entry point at $102.15. Our trade is open but I'd wait for a new rally past $102.15 or past today's intraday high of $102.30 before initiating new positions.

Trade Description: July 28, 2015:
The healthcare sector has consistently delivered a strong bullish performance for the last three years in a row. When you think of healthcare you might think health insurance providers. They are not the only healthcare stocks in rally mode. Tonight's candidate is in the medical equipment and supplies industry.

According to the company, "Stryker is one of the world's leading medical technology companies and together with our customers, we are driven to make healthcare better. The Company offers a diverse array of innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine, which help improve patient and hospital outcomes. Stryker is active in over 100 countries around the world."

Late last year the company's earnings growth was lackluster at best but the company has turned things around the last couple of quarters. SYK reported their Q1 results on April 21st. They beat the bottom line estimate. Revenues were only in-line with estimates. Yet management raised the low-end of their 2015 sales and earnings guidance. You can see the reaction to the stock price in April.

Their most recent earnings report was July 23rd. Wall Street was expecting Q2 earnings of $1.17 per share on revenues of $2.41 billion. SYK beat both estimates with earnings growth of +11% to $1.20 per share. Revenues were up +2.9% to $2.43 billion. On a constant currency basis their sales were up +7.6%.

SYK management raised their organic growth forecast to +5.5% to +6.5%. They raised both their Q3 and 2015 earnings forecast above analysts' estimates. SYK now expects full year earnings in the $5.06-5.12 range versus consensus estimates at $5.03 per share. Analyst reaction has been positive with several price target upgrades into the $107-110 range. The point & figure chart is bullish and currently forecasting at $111.00 target.

We like how SYK displayed relative strength last week and resisted most of the market's sell-off (prior to their earnings report). The better than expected Q2 results launched SYK to new all-time highs. Traders bought the dip this morning and today is a new all-time closing high for SYK. Tonight we are suggesting a trigger to buy calls at $102.15.

- Suggested Positions -

Long SEP $105 CALL (SYK150918C105) entry $1.13

07/29/15 triggered @ $102.15
Option Format: symbol-year-month-day-call-strike


Under Armour, Inc. - UA - close: 98.82 change: +0.97

Stop Loss: 93.65
Target(s): To Be Determined
Current Option Gain/Loss: +10.9%
Average Daily Volume = 2.3 million
Entry on July 28 at $97.55
Listed on July 27, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
07/29/15: UA kept the rally going with a +0.99% gain today. Shares are nearing what might be round-number, psychological resistance at the $100.00 mark. I wouldn't be surprised to see UA tag $100 and see a brief pullback.

Trade Description: July 27, 2015:
UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitness platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it's actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA reported their 2014 Q4 results on February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

There was a steady stream of analysts raising their price targets on UA after its February earnings report. The company's most recent earnings report was April 21st when UA announced Q1 results. After raising guidance back in February the company reported earnings of $0.05 per share, which was in-line with Wall Street's new estimates. Revenues were up +25.4% to $804.9 million, which beat expectations.

UA management raised their outlook again. They expect 2015 operating income to improve +13-to-15%. UA expects 2015 revenues to rise +23% to $3.78 billion.

The company delivered a repeat performance when they did it again with their Q2 earnings on July 23rd. Analysts were expecting a profit of $0.05 per share on revenues of $761.7 million. UA beat both estimates with a profit of $0.07 per share. Revenues were up +28.5% to $783.5 million. Management raised their 2015 revenue guidance from $3.78 billion to $3.84 billion. That's above analysts' estimates of $3.83 billion.

Wall Street reacted to UA's Q2 report with a wave of price target upgrades. Several firms upped their target on UA into the $105-114 range. Naturally the stock rallied on this bullish earnings report and the analyst outlook. The stock soared past resistance near $90.00. More importantly UA has managed to maintain these gains in the face of a widespread market sell-off. We like that kind of relative strength.

Tonight we are suggesting a trigger to buy calls at $97.55. We'll try and limit our risk with an initial stop loss at $93.65.

- Suggested Positions -

Long SEP $100 CALL (UA150918C100) entry $2.66

07/28/15 triggered @ $97.55
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 64.94 change: -0.36

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: +23.5%
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:
07/29/15: The early morning bounce in BBBY failed at $65.78 and shares underperformed the broader market with a -0.55% decline on the session. We love to see relative weakness in our bearish candidates when the rest of the market is in rally mode.

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


CLOSED BEARISH PLAYS

PowerShares QQQ ETF - QQQ - close: 111.55 change: +0.42

Stop Loss: 111.65
Target(s): To Be Determined
Current Option Gain/Loss: +39.9%
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:
07/29/15: It looked like our bearish play on the QQQ might survive another day until stocks produced another late-day push higher. The QQQ hit our stop loss at $111.65.

- Suggested Positions -

SEP $112 PUT (QQQ150918P112) entry $1.88 exit $2.63 (+39.9%)

07/29/15 stopped out
07/27/15 new stop @ 111.65
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: