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Daily Newsletter, Saturday, 8/1/2015

Table of Contents

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

Market Wrap

Weekend Profit Taking

by Jim Brown

Click here to email Jim Brown

The major indexes rolled over Friday afternoon as traders that profited from the early week short squeeze grew frustrated by the lack of further gains and headed to the exits ahead of the weekend. When the rebound slows, traders take profits.

Market Statistics

Friday afternoon trading was lackluster just like the rebound from the opening drop. This was a summer Friday and volume was mediocre and conviction lacking.

Pushing the markets lower at the open was another drop on the Shanghai Composite to close at 3,663.73, down -1.13% for the day. China has a problem. The government said they would support the market with the $450 billion they loaned to the agency tasked with that effort, UNTIL the index returned to 4,500. Being educated investors, we all know what is going to happen every time the index nears 4,500 again. That is now resistance and everyone will take profits when the index nears that level. China is new to the stock market management game and this mistake will cost them dearly. It is ok for them to support it to that level but they cannot tell investors the magic level where support ends. Eventually they are going to have to retract that statement and replace it with some generic statement without a specific level.


Also weighing on the U.S. markets was the Employment Cost Index for Q2. Civilian employee compensation rose at the slowest rate on record since the data began in 1982. After rising +0.7% in Q1 the rate of growth slowed to +0.2% in Q2 and well under estimates for a +0.6% increase. That headline number disguises the real facts. Private civilian compensation was flat at +0.0% while benefits declined -0.2%. However, government compensation rose +0.6% while government benefits rose +0.8%. Apparently, if you want your income and benefits to rise sharply you need to work for state and local governments.

Wage growth is not specifically a criteria the Fed is counting on to raise rates but you can bet they are paying attention. They need higher wages to stimulate more consumer spending and induce inflation. Wages are going in the wrong direction for that. This is going to make the payroll reports next week even more important.

The sentiment and confidence numbers are also declining. The final reading of Consumer Sentiment for July declined from 96.1 to 93.1. The present conditions component declined from 108.9 to 107.2 and the expectations component declined from 87.8 to 84.1.

We saw in the Consumer Confidence report a couple days earlier that respondents were growing concerned about their jobs and felt their incomes were slowing. Confidence came in at 90.9, a ten-month low, and well below estimates for 99.3. The ECI reported above is a sign that consumers are right to be worried.

Both confidence and sentiment peaked in January and have been flat to down for the last six months. This is not a good sign for the economy.



The dollar crashed at the open -1.19 points to 96.31 on the dollar index. This was a direct result of the shock from the ECI numbers and the declining chances for a September rate hike. The dollar did rebound as the day progressed.


Yields on the ten-year treasury collapsed nearly -3% on the ECI news and they did not recover. The drop to 2.2% was a two-month low and right on the edge of a steeper drop. If the payroll numbers show any weakness next Friday analysts claim we could see yields decline to 2.0%. Any payroll weakness on top of the slowing wage growth would be the kiss of death to the Fed's rate hike hopes for September. Analysts believe the chance of a September hike has fallen to about 39% with, 20% chance for October and 41% chance for December.


The economic calendar for next week is headlined by the ADP Employment and Nonfarm Payroll reports. The ADP survey is expecting around 215,000 new jobs, down from 237,000 in June. The Nonfarm estimates are in the same range at 217,500. If the job concerns in the Consumer Confidence survey translate to slower hiring for July the Fed is going to have a tough time hiking rates in September.

The ISM Manufacturing Index is due out on Monday and expectations are for no gain. This is the national activity index. Some of the regional surveys were showing weakness, especially in employment. If the ISM shows the same weakness the estimates for the payroll reports could drop quickly.


Reynolds American (RAI) announced a stock split with earnings. They will split 2:1 on August 31st.

Medivation (MDVN) announced a 2:1 split on Friday to occur on September 15th.


The big earnings news on Friday came from the energy sector. Dow component Chevron (CVX) reported the worst quarterly earnings in six-years and warned that the outlook was bleak. Chevron took a non-cash charge of $2.6 billion for halted projects and a revision on the value of reserves.

Adjusted earnings of 97 cents declined from year-ago levels of $2.98 and missed estimates for $1.13. Revenue fell to $36.83 billion from $55.48 billion but did beat estimates for $35.7 billion.

The company said the upstream E&P sector was especially hard hit by the 50% drop in crude prices. The average sale price for a barrel of crude was $50 in Q2, down from $92 in the comparison quarter. The average sale price for natural gas was $1.92, down from $4.09.

Global production was 2.60 million Boe per day, up from 2.55 mbpd. Chevron is on track to drill 325 gross wells in 2015 in the USA. The sixth production well in the Jack/St. Malo deepwater gulf project is now online and that project is ramping up to 80,000 bpd in production. The existing production base declined -49,000 bpd as a result of normal depletion and field decline.

Work in the Partitioned Zone between Saudi Arabia and Kuwait has been shutdown since May and has cut production by 38,000 bpd. There is no estimate on when that production will be restarted. Chevron operates a concession there with Saudi Arabia and Kuwait each receiving credit for 50% of the oil produced. In 2009 Saudi Arabia renewed the concession with Chevron for 30 years until 2039. However, Saudi Arabia did not consult with Kuwait and tension ensued. Chevron has been operating in the zone since 1949 when Texaco acquired Getty Oil. Chevron acquired Texaco in 2001. Kuwait had been leasing land at Mina al-Zour to Chevron for export of the Wafra oil. Kuwait was planning on cancelling Chevron's lease and building a 615,000 bpd refinery on that land. Saudi Arabia upset those negotiations and now Kuwait will not renew work permits for Chevron and has asked them to move out of the area. Since Chevron has about 200,000 bpd of total production in the area this is a serious challenge.

Chevron said it was reducing its workforce and scaling back on some projects because of fears that low oil prices would linger. When asked directly on the conference call what price they were expecting the CFO said I am not going to give you our proprietary oil price projections. I will say the revised outlook was based on two factors. One was expectations for global GDP growth, which was being impacted by a slowdown in China. The other was the much higher production in the U.S. where ingenuity and cost efficiencies have raised the economics of those barrels and put more supply into the marketplace. Basically, new completion methods, a nearly 50% decline in fees from service companies and lower well costs means the cost per barrel has declined.

Shares declined -$4.55 to $88 on the news to close at a four-year low to erase -35 Dow points.


Dow component Exxon (XOM) posted its worst quarterly earnings in 6 years. The company reported $1.00 compared to estimates for $1.13. That was down from $2.05 in the comparison quarter. Revenue declined from $111.2 billion to $74.1 billion but that did beat estimates of $66.4 billion. Production averaged 3.979 Boepd, up +3.6%. Liquid production rose +11.9% to 2.291 mbpd. Natural gas production was 10.13 Bcf per day, down -5.8%. Exxon refined 4.3 mbpd, down -2.8% but the $1.2 billion in refining profits helped to defer the losses in the E&P division.

Exxon returned $4.1 billion to investors through buybacks and dividends during the quarter. However, they are cutting back on stock purchases to only $500 million in Q3. Capex spending declined -16% to $8.3 billion. Spending on major projects like floating crude platforms and gas export terminals declined -20% to $6.746 billion.

Exxon cut spending by -9.4% in 2014 and was targeting another -12% in 2015. However, that target will probably be exceeded. CEO Rex Tillerson warned at a Houston energy conference that the supply glut and low prices will persist for the "next couple years, at least." Tillerson has been negative on oil prices since well before the July crash began last year.

Exxon shares fell -$3.80 to a three year low and erased -29 points from the Dow.

"This is the beginning, not the end, of the write down process," Paul Sankey, an energy analyst at Wolfe Research LLC, said on Bloomberg. "The biggest concern is that we'll see weaker demand over the second half of the year."


Ocwen Financial (OCN) declined -28% after the mortgage servicer said expenses were higher than expected because of regulatory scrutiny. A loss of 12 cents missed estimates for an 18-cent profit. The company shrank its portfolio by 26% to $316 billion in the last 12 months. It is now the fifth largest mortgage servicer. Regulators have been pressing the company to clean up its act since the financial crisis. Every other quarter it appears Ocwen is on the road to recovery only to have some new crisis emerge.


Seagate Technology (STX) reported adjusted earnings of 77 cents that beat consensus estimates for 65 cents. Revenue of $2.93 billion barely squeezed past estimates of $2.92 billion. The company approved a quarterly dividend of 54 cents payable on August 25th to holders on August 11th. The company said it was well positioned with 35% less inventory than their competitor (WDC). However, Q3 was expected to be flat with a ramp up into Q4. Seagate said the weakness in the PC sector appeared to be bottoming and they expected sales to increase in Q4 thanks to Windows 10 PCs hitting the market for the holidays.


Expedia (EXPE) shares spiked +13% after posting earnings of 89 cents that beat estimates of 84 cents. Recent acquisitions of Trivago, Wotif and Travelocity are contributing to the growth and increasing market share. Revenue of $1.66 billion rose 21.1% sequentially and 11.2% from the year ago quarter. The OTA segment saw revenue rise +25% sequentially with Expedia and Hotels.com the major drivers. Expedia shares are in nosebleed territory and I would wait for a return to the 50-day average to add to your portfolio.


Outerwall (OUTR), the owner of the Redbox DVD and Coinstar kiosks, posted adjusted earnings of $2.19 that easily beat estimates for $1.73 but shares imploded after the news. Revenue of $545.4 million missed estimates of $570.8 million. Outerwall expects full-year earnings in the range of $8.12 to $9.12 per share, with revenue in the range of $2.26 billion to $2.35 billion.

The problem for Redbox is that streaming movies are cutting into their sales. Overnight rentals of DVDs declined -19% in Q2. Pacific Crest Securities said the problem was only going to get worse as time passes. Despite an increase in DVD rental prices the rental revenue per kiosk declined -8.9% and the fifth consecutive quarter of declines. The analyst said Q3 could be especially weak because of a large number of new movie releases that would draw people to the theaters and away from their DVD players. Outerwall has 41,340 Redbox kiosks and 21,140 Coinstar kiosks.

The company is also suffering from a perceived failure of its EcoATM business. That is a kiosk that buys used cellphones and tablets. They grew the number of kiosks from 980 in Q2-2014 to 2,260 in Q2-2015 but revenue only rose +9.5% when it should have more than doubled. Wireless carriers are becoming more aggressive on trade-ins and consumers are keeping their devices longer. The company took an impairment charge of $86 million related to the EcoATM business. I predict this business will be a failure.


Columbia Sportswear (COLM) reported a loss of 9 cents but analysts were expecting a loss of 22 cents. Revenue of $380.2 million blew past estimates for $346 million. Columbia increased their guidance for the second time this year and now expects to earn $2.25-$2.35 for the full year.


SkyWest (SKYW) shares soared +18% after reporting earnings of 61 cents compared to estimates for 27 cents. Revenue of $788.4 million beat estimates for $771.1 million. The earnings came from reduced costs, aircraft that are more efficient and solid bookings. They operate 3,500 flights a day under the name SkyWest and ExpressJet under partnerships with United, Delta, US Airways, American and Alaska Airlines. SkyWest was named Regional Airline of the Year in 2014.


Royal Caribbean (RCL) posted earnings of 84 cents compared to estimates for 73 cents. Revenues rose +4% despite the strong dollar impacting fares from Europe. The expansion into the Asian market is going very well with 95% of the cruises booked for the year. Demand is so strong they have eliminated discounts in the 40-days prior to a cruise. Historically, cruise lines deeply discounted unsold rooms in the weeks ahead of departure in order to fill the cabins.

Lower fuel costs, which account for 9.8% of expenses, also helped profitability. Strong bookings have allowed the company to raise prices, which should help profits in the next two quarters. RCL raised full year guidance from $4.45-$4.65 to $4.65-$4.75. Analysts were expecting $4.61.


There are still plenty of earnings due out next week with close to 1,000 companies reporting. However, the number of big names are dwindling. Disney, Zillow and MGM headline on Tuesday. Priceline, GoDaddy, Fit Bit and Time Warner report on Wednesday. Michael Kors, Mobileye, Lions Gate and Monster Worldwide highlight on Thursday.


Alpha Natural Resources (ANR) could file for bankruptcy as soon as Monday. The carnage in the coal sector is getting worse by the day. Walter Energy (WLT) filed for bankruptcy earlier in July. The price of metallurgical coal has declined to the lowest price in a decade and thermal coal prices and demand are continuing to decline. Alpha will miss a debt payment of $109 million due on August 1st. ANR has already been delisted from the NYSE for being priced too low. Rumors suggest Citigroup may give it another loan to see it through bankruptcy. Alpha has assets but no money.

Peabody Energy (BTU) shares have declined from $65 to $1.20 over the last four years despite being the largest in the sector and having a relatively strong business. They posted a loss of 58 cents compared to estimates for 59 cents. Revenues declined -23.8% to $1.34 billion because of lower sales prices for coal.

Last week Vale SA and Japan's Sumitomo Corp sold the Isaac Plains coking-coal mine in Australia to Stanmore Coal Ltd for $1. The mine was valued three years ago at $631 million. Sumitomo bought a 50% interest in 2012 for $430 million. The mine has reserves of 40 million tons of coking coal. Previously it produced 2.8 million tons a year from 2006 to 2014, which was sold to steelmakers in Japan and China. It was closed in 2014 for lack of demand. When China claims its economy is not shrinking just ask them how much met coal are they buying today.



GoPro (GPRO) was upgraded from neutral to buy at Citi in a monster 30-page report. The analyst upgraded the target price from $63 to $90. Jeremy David said GoPro is poised to benefit from both drone mounted flying cameras and virtual reality. Citi estimated the flying camera opportunity to rise to 10 million units and $5-$10 billion in sales by 2020. If GoPro only acquired 50% of the drone business that would be worth an additional $3 in annual earnings.

Citi raised earnings estimates for 2016 to $2.27 and 2017 to $3.00. Jeremy said "while everyone was expecting U.S. sales to decelerate, GoPro appears to have executed its product launches and distribution growth flawlessly and we expect more of the same going forward." Shares spiked above $64 at the open but faded with the market to close at $62.


Crude prices are heading back to the lows for the year after the warnings from Chevron and Exxon. WTI lost -1.75 on Friday to close at $46.77. Prices had rallied strongly on Wednesday after inventories fell -4.2 million barrels for the week and production declined sharply. Daily production fell -145,000 bpd last week to 9.413 mbpd. That is now down -197,000 bpd from the 40-year peak at 9.61 mbpd on June 5th. This should have energized the oil bulls but the temporary spike in prices lasted only about an hour. Crude inventory levels are still 36.5% over historical averages dating back to 1984.

On Friday afternoon, Baker Hughes reported another increase of 5 active rigs targeting oil to raise the total to 664. That is up from the low of 628 on June 26th. Natural gas rigs declined -7 to 209 and another 18-year low.



Markets

Next week could be tough on the markets. With all the big news behind us, with the exception of the payroll reports, investors will be looking at a rapidly disappearing summer with kids returning to school in just a couple weeks. That normally keeps traders out of the market as they try to cram a few more family days into what is left of summer. These are the summer doldrums for the market.

Over the last five years, the S&P has averaged a -2.5% decline in August. While past performance is no guarantee of future results, August and September are the two worst months of the year for the markets.

If the payroll reports come in hot, the odds of a September rate hike will move up sharply. If they come in weak, the odds will shift towards December rather than September. It is not that a 25 basis point hike will actually hurt the market but it is the perception that rate hikes (plural) will hurt the market long term and there is normally an adverse market reaction when the first hike occurs. For that reason the market could be volatile with the next Fed meeting only six weeks away.

If you look at the S&P chart since March we have not made any gains. We have traded in a 90-point range but the March 2nd close was 2117 and we closed at 2103 on Friday. There has been some extreme volatility but no direction other than sideways. Eventually that will end but probably not in the direction investors are hoping for over the next six weeks.

You have heard it many times. "This is the most hated bull market in history." They say this because the bull exhausted itself with the sprint out of the October lows and has not been able to jump the resistance fence at 2130 to find greener pastures.

If it were just the U.S. economy investors were worried about we could muddle through until October and hope for a yearend rally. Greece has not been solved but it is out of the headlines for now. The European economy is actually improving despite the Greek bailout. The weakness in China is the huge cloud over the market. Despite the claims by the Chinese government of 7% growth the demand for every commodity has collapsed. Ignore what they say, watch what they do. They are not consuming commodities and that is the key to the scenario.

U.S. earnings have been better than expected but overall guidance is weak. The reformulated GDP numbers lifted us out of negative territory for Q1 but only got us to +1.5% growth for the first half. If you do not like the numbers change the calculation and that is what the government did to try and improve the outcome. Even with the new formula, growth is still anemic. "There are 3 kinds of lies: lies, damned lies, and statistics."- Mark Twain

All of those facts I listed are going to weigh on the S&P in August. Will it be another -2.5% decline or worse? Nobody really knows but next week should provide some clues. We know how earnings are going to turn out now that more than 2,000 companies have reported. Hopeful earnings expectations are no longer going to support the market.

Joshua Brown pointed out last week that the range between the highs and lows in 2015 is among the narrowest on record. In the last 90 years there have only been 12 instances where the S&P was between +2% and -2% for the year at the end of July. Only once in those 12 did the market end the year basically unchanged. In fact only 3 years ended down, 1 flat, and 8 were up nicely by year-end with a 6% average gain. While we cannot count on those averages ending up in our favor this year there is a historical precedent. However, the Fed was not hiking rates for the first time in six years in any of those 12 years.

You may have seen the Bloomberg article last week claiming that all the S&P gains for the year ($199 billion in market cap addition) came from only 6 stocks. (Amazon, Google, Apple, Facebook, Gilead and Disney) According to the Wall street Journal 50% of the Nasdaq gains ($664 billion in market cap increase) came from those six stocks. Biotech and healthcare account for the rest.

Bloomberg said U.S. equities are being pushed along by the fewest stocks in more than 15 years, which is a sign of fatigue in a bull market. This is the third longest bull market since 1940 and we have gone three years without a 10% correction. Reliance on fewer and fewer companies has been the hallmark of maturing bull markets, most memorably the Internet bubble when six computer and software companies accounted for 55% of the S&P gain in the 12 months leading to the peak. Market's Ugly Truth

If you take the market capitalization factor out of the equation a different market picture appears. The S&P is a capitalization-weighted index. The bigger the stock the more it impacts the S&P. That is why Google, Amazon, Apple, etc can "move the market" when they have those outsized gains.

Guggenheim has an "equal weighted" S&P ETF (RSP) where all stock gains/losses are treated equal. Rather than have only six stocks pushing the index around the ETF factors in all 500.

The second chart is the SPY ETF, which is the normal S&P where big caps rule. Note that the trend is not so bearish as long as the 205 level holds as support.



The biggest problem with the market being led along by 6 stocks is that eventually those stocks will fail. Everybody always hopes those superstars will continue making new highs but that very rarely happens. With the rest of the market already lagging that creates some serious volatility with the heroes suddenly turn into zeros.

The Bullish Percent Index on the S&P improved very slightly last week with a bounce from 50% to 52.6%. That means 52.6% of the S&P stocks still have a chart with a positive long-term trend.


The chart below came from Bank of America Merrill Lynch through Josh Brown and shows the rising number of 52-week lows on the S&P despite the index itself near its historic highs. This is not a good sign. Oppenheimer technician, Ari Wald, expects a correction because this is the worst market breadth since 2007. Worst Market Participation since October 2007


The AAII Investor Sentiment Survey for last week changed dramatically despite the short squeeze rebound from Monday's lows. Bullish sentiment declined -11.4% and neutral sentiment fell -3.7%. Bearish sentiment spiked an amazing +15.1% to 40.7% to exceed neutral sentiment for the first time in months.

This is the 18th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.

Abnormally high bullish or bearish sentiment is seen as a contrarian indicator.


The bottom line to this market discussion is that it will be tough to make new highs from here in August. The big names mentioned above are already beginning to weaken and once they break support the decline could be severe. GOOGL has been holding at support at $650 for a week, down from its $700+ adventure. Amazon is holding over $525 but the intraday ranges are narrowing suggesting a direction will appear soon. Apple closed at a four-week low on Friday at $121, which happens to be the 200-day average and a level that analysts have suggested as a buy point. If that level were to break there would be a flood of sellers appear.


The S&P touched the 200-day at 2063 on Monday and rebounded +50 points to the 2114 high on Friday. However, Friday was a bearish engulfing candle where the high and low were outside the high and low from Thursday. That is typically a bearish signal. If we do get another negative day on Monday that would make Friday's peak a lower high.

For a summer Friday the volume was moderate at 6.8 billion shares and it was almost dead even on advancing/declining volume. Also, advancers at 4,281 outpaced decliners at 2,803. Based on those numbers investors were not rushing to the exits. Nobody has given up on the market yet but once we move into August we need to watch carefully for signs the fat lady is warming up in the wings.


The Dow chart is the most concerning this weekend. The Dow rebound came to a dead stop at 17,775 and the 200-day average but also horizontal resistance for the last three months. With the majority of Dow components already reported there is very little excitement left to push the Dow stocks higher. Disney is the only Dow component reporting next week. I expect Disney to do well but it will not be able to carry the Dow by itself for more than one day.

The energy stocks Chevron and Exxon are not likely to suddenly rebound next week. There is a good possibility they will continue making new lows and that is going to drag the index lower.

The levels to watch are 17,775 and 17,650. If either breaks that should set the short-term direction.



The Nasdaq rebounded to resistance at 5150 and stalled on Friday. However, the afternoon decline only succeeded in pushing it fractionally negative. You can thank the biotechs for that with a +1% gain for the day. The 5160 level is going to be the key as well as the 5075 level on any dip. Investors should watch those big five stocks, Facebook, Apple, Amazon, Netflix and Google because they will determine the Nasdaq direction.




The small cap Russell 2000 was positive on Friday despite giving back half of its early gains. With big caps weak, this suggests investors are rotating back out of the big caps. However, this was month end and there could have been some portfolio rebalancing in play as well.

The 1240 level is now resistance with the 200-day as support.


The hurdle for next week is the payroll reports. A strong report means a better chance of a rate hike in September while a weak report suggests no hike until December. Strong jobs means investors will probably begin to position themselves for a negative market heading into the September FOMC meeting.

We are heading into the worst two months of the year for the market. Adding the fear of the Fed and weak Q3 earnings guidance into the mix and the market outlook is questionable at best. However, rallies, like corrections, tend to appear without warning and when you least expect them. Since quite a few traders are expecting a correction and short interest is at 8-year highs the market is definitely primed for a lasting short squeeze if some good news suddenly appeared.

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Random Thoughts


The average length of an economic expansion is 58 months. The current one has lasted roughly 72 months. Only three others have lasted longer. The expansion ending in 1969 lasted 105 months, 1990, 92 months, 2000, 120 months.

Since the growth over the last four years has been below normal and the economy is nowhere near its potential at 4% or better, JP Morgan expects the expansion could last until 2018 and would put it near the record for the one ending in 2000. How long will the current economy recovery last?


Highlights from analyst Scott Krisloff from last week:

There is plenty to worry about

"This relative tranquility belies the fact that there's still plenty to worry about. The U.S. economic recovery remains tepid. Interest rates are poised to rise sometime in the coming year, and the global economic environment is quite unsettled with the overhang of the Greek debt crisis and a slowing Chinese economy." Oaktree Asset Management

UPS saw softening in the US economy

"The U.S. Domestic business is on track with its revenue management and efficiency gains; however, we are seeing some softening in the economy…We think the economy was certainly slower for sure." UPS

Visa sees very little improvement in the US Consumer

"We continue to see very little change in the overall global economy, with a few exceptions. We are hopeful, but not counting on an improvement in the US economy, but we see very little improvement with the US consumer in our numbers thus far, if any." Visa


Commodities in general declined -10.1% in July. The Fed has been saying since last July that the drop in commodity prices pushing inflation lower was "transitory" and would rebound soon. I think "soon" has come and gone and inflation is still headed lower.



The Greek stock market will reopen on Monday after a five-week trading halt. However, local investors will face restrictions to avoid capital flight. Under the ECB approved plan the Athens Stock Exchange will open for business but with strict rules. Local investors will be able to buy shares with existing cash holdings, but not withdraw money from their Greek bank accounts to buy shares. There will be no rules for foreign investors. Trading in all stocks including banking shares will be allowed with volatility limits at 30%. The GREK ETF closed at a three-year low on Friday.


Greece may ask for 24 billion euros in the first tranche of bailout aid from the Troika in August. That will be used to prop up the banks and make payments on prior loans to the IMF and ECB. Lone us 24 billion so we can pay those missed payments from June and July. This is equivalent of getting a cash advance on your credit card to pay your credit card bill. This will eventually end in disaster.


Short interest on stocks in the S&P-500 hit its highest level in more than two-and-a-half years in July at 2.5% according to Markit. That is the highest level since December 2012. The energy sector had the highest short interest at 4.5%. Some analysts believe this is a good thing since shorts can get squeezed and cause monster rallies. WSJ MoneyBeat Shorts Hit Highs



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Economic expansions do not die in their beds from old age. They are murdered by Federal Reserve rate hikes."

Rudi Dornbusch, MIT Economist (1942-2002)

(The same quote has been used for bull markets)

 

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Index Wrap

A 9-Month S&P Trading Range

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The S&P 500 has now been in a 2000-2130 trading range for 9 months, not crazy unusual given the prior 67 month monster advance. The Nas Composite has advanced some in the same period, but has resistance not far overhead at 5270-5300.

I wrote in my recent 7/30 Trader's Corner column as to what price and indicator patterns suggested recent lows as having made a possible bottom.

Since I usually do a month end review of monthly charts and I didn't yesterday on the July Close, I'll include one such chart here, that of the monthly S&P 500 (SPX). This helps visualize the prior 9-month trading range, a pattern in technical analysis called a 'rectangle'. Rectangle patterns after a prior advance are usually price consolidations. Assuming there's a decisive upside breakout ABOVE the top end of SPX's range, it would tend to 'confirm' the major bull trend. (Rectangles can be a top pattern also, which would be suggested with a decisive downside penetration of SPX 2000.)

The monthly SPX chart suggests major support beginning in the 2000 area and extending over time to the 1850-1900 area at the low end of SPX's broad multiyear uptrend channel. Major resistance begins in the 2130 area and extends to the upper (resistance) end of the uptrend channel.

I want to set the stage for what might be developing for August, which tends to be a seasonally weak month, although last year saw a rise of 3.8% in August. I told traders ahead of August not to get complacent in thinking that this has to be a down month. If the Market always did the same thing, we'd all be rich trading off this predictability.

I mentioned the past 9-months in the Nasdaq Composite (COMP) as advancing versus going strictly sideways. From its late-November low around 4600, COMP has advanced to a recent top in the 5200 area (5215). However, COMP's rate of gain has slowed from its prior 2009-2014 gangbuster advance, which I attribute to COMP hitting resistance implied in the 5270 area, at the top end of its upper monthly trend channel line (not shown).

Going back to the S&P and the idea of a trading range that 'consolidates' prior gains, there's another technical aspect to sideways consolidations. The sideways trend also tend to 'throw off' a prior overbought condition and I point out the 8-month Relative Strength Index or RSI below which has been trending lower and taken SPX out of its previous overbought range.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) chart is mixed intermediate term due to the sideways trend over several months, but SPX has resumed short-term upside momentum and I point to the Index recently trading back above its 21-day moving average. The long-term SPX trend is up per the monthly chart seen above.

In uptrends or even in a trading range pattern there can be advantage in buying retracements of between 62% (representing a Fibonacci 61.8) and 66%. On the recent downswing, SPX fell below this zone but then quickly rebounded after some panic and stop-loss selling ran its course.

Where to from here? I think SPX could reach 2120 again, and possibly re-test strong overhead resistance at 2130-2135. For this outlook to 'work' I'd also like to see the Index hold above its 21-day moving average; a single day below the average not withstanding.

I've highlighted pivotal near SPX support as around 2080, extending to 2065. Near resistance is seen at 2120, then 2130-2135 and already mentioned.

Bullish sentiment climbed quickly this past week to one 'overbought' reading as noted with my CPRATIO indicator. This may be a warning of traders being too quick to assume prices are going to have an extended run. Stay tuned!

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) had a retracement right into the zone I anticipated. Which is why I wrote last week that: "I'm bullish on OEX in the 915 area, but that area should be the low unless the Index is going to retest 900."

So far so good for a trade but the big cap S&P 100 has to first get through 938 resistance and then 945-948. I see potential for OEX to re-test its prior highs which was a bullish move to above the line of OEX prior resistance (935-938). Near support is suggested in the 925 area then back at 914.

OEX has seen a RECENT pattern of going from an oversold to an overbought 'extreme' as measured by the 13-day RSI. Trading at the extremes so to speak can be a good bet but this in-between stuff is murder waiting out how prices go next. Stay tuned!

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

The Dow 30 (INDU), monster cap narrow index that it is, is nevertheless how the 'public' gauges the overall Market. INDU has enough 'dogs' of the Dow to wonder if there can be an extended lift off from beyond the recent rebound.

I wrote about INDU last week: "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." The lowest 'print' of the Dow for this past week was 17399 and I don't consider that as just 'under' 17400 and will track a bullish play and update accordingly.

To gain much upside traction, INDU needs to clear 17800 and the 21-day moving average. Next resistance is probably 17900, but pivotal resistance looks more like 18000, with fairly major resistance coming in the 18100 to 18200 zone. Technical/chart support is at 17600, extending to 17500 currently.

Buying the Dow when it's oversold according to its 13-day Relative Strength Index has been a good bet for at least a short term upside play. I think the Dow could make it to 18000-18100 next but haven't bet the ranch on it.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) remains bullish in its pattern as the recent retracement stopped AT the Fibonacci 62% mark, which was a good bet on the lows for the recent pullback.

I wrote last Saturday that "A bullish buy into dips into the 62-66 percent retracement zone at 5027-5011, with an exit below 5000, offers a trade look." This past week's downswing low was 125.6, so it was a tight fill going strictly by my suggestion.

Immediate overhead resistance is suggested in the 5150 area, then at 5200, extending to recent highs around 5223-5231. Technical/chart support is suggested in the 5050-5025 zone. 4950-4900 begins major support.

I mentioned before that bullish trader 'sentiment' may have gotten a bit carried away this past week, on Thursday specifically. But if you are going to play the best bet for further upside, the tech heavy Nasdaq is the playpen you are going to be in.

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nasdaq 100 (NDX) is bullish in its pattern with the retracement of 'just' 50 percent of the prior upswing and by rebounding strongly from its brief touch to support implied by its 21-day moving average.

I wrote last week that: "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." No indeed and to update my suggestion, I wouldn't want to stay with NDX calls if 4500 is pierced. I'd also look to take profits on NDX calls if the Index hits 4700 or not wait and exit on a move to near prior highs at 4645-4650.

Resistance is highlighted around 4645, extending to 4693-4700. Near support is noted at 4506 currently, with next support coming in at 4435, extending to 4400.

To anyone who played the downside from the recent 'extended' highs, the dip to, and rebound from, the 21-day average suggested that the pullback had run its course at least short-term.

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

The Nasdaq 100 tracking stock (QQQ) is bullish and mirrors the underlying Nas 100 chart. Only the names have been changed, err, in this case price support/resistances.

The QQQ pullback was also exactly to ITS 21-day moving average and I alerted you to this possibility by writing last week that my: "next expectation is the Q's drop back to the 110 area and hold around its 21-day moving average." So, where to next?

The Q's would need to climb above 113 near resistance in order to to re-test prior highs in the 114-114.4 area. I don't have current expectations that there will be a substantial further up leg above 114.

Near support is highlighted at 110, then around 109, extending to 108.5 which is seen at the up (green) arrow. Fairly major support begins in the 108 area.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) fell to another recent oversold RSI extreme. That fact and that recent pullback lows were at the extreme suggested by my lower moving average envelope line suggested bullish expectations for a rebound. I wrote last time that:

"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." All looks good there except I'd raise my exit point to 1220 and keep the 1260 trade target. It's a trade, not a long-term buy!

Near resistance is suggested in the area of the 21-day moving average, currently intersecting at 1247. Next resistance is projected for 1260. Fairly major resistance begins at 1273-1276 and extends to the prior top at 1295-1296, extending to 1300.

Technical support is highlighted initially around 1230, extending to 1220.


GOOD TRADING SUCCESS!




New Option Plays

The Bounce Has Failed

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

Bullish ideas: DPS, TMO, LII, ALK, MKC, WBA

Bearish ideas: MON, NSC, OXY, DOV, VMI, BXP, MJN




NEW DIRECTIONAL PUT PLAYS

Hess Corp. - HES - close: 59.01 change: -1.32

Stop Loss: 62.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.8 million
Entry on August -- at $---.--
Listed on August 01, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: Yes, see below

Company Description

Trade Description:
The price of crude oil has fallen more than 50% in the last year. It's wreaking havoc on energy company earnings and revenues. Unfortunately the outlook is not very bullish. The global economy is stalling. China, the biggest buyer of commodities, is growing at multi-year lows. The U.S. is creeping along at +2% GDP growth while oil inventories in the U.S are near 80-year highs. The Middle East OPEC cartel is pumping a high-volume of oil, regardless of price declines, to maintain market share. OPEC is hoping to pressure the U.S. fracking industry out of business but it's not working. U.S. production remains resilient and near record highs.

If that wasn't enough the Federal Reserve is desperate to raise interest rates and would like to raise in September. Rising interest rates usually boost a country's currency. If the Fed does raise rates the U.S. dollar should rally even further. A rising dollar puts downward pressure on commodity prices. This paints a bearish picture for crude oil prices.

Given this outlook for crude we're adding a bearish play in the energy industry. HES is part of the basic materials sector. They explore and produce crude oil, NGL, and natural gas. The company operates in the United States, Denmark, Equatorial Guinea, Malaysia/Thailand, and Norway.

The plunge in oil prices has killed HES' revenues. They reported their 2014 Q4 results on January 28th this year and revenues were down -18.7%. Their Q1 report came out on April 29th and revenues fell -40%. On July 29th HES reported their Q2 results. Wall Street was expecting a loss of ($0.72) per share. HES came in better than expected with a loss of ($0.52) but that was a big drop from a profit of $1.38 a year ago. Revenues plunged -46% from $3.58 billion down to $1.93 billion.

The company is seeing strong production gains. Their Q2 production came in better than analysts expected at 391,000 barrels of oil equivalent per day. Yet this positive news couldn't outmatch the revenue declines. The oversold bounce in HES' stock failed pretty quickly. The long-term trend is down and the point & figure chart is forecasting at $52.00 target. We suspect HES is about to start on another leg lower. Tonight we're suggesting a trigger to buy puts at $58.65.

Trigger @ $58.65

- Suggested Positions -

Buy the SEP $57.50 PUT (HES150918P57.50) current ask $2.00
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks End Week On Soft Note

by James Brown

Click here to email James Brown

Editor's Note:

Last week's widespread bounce began to stall on Thursday and stocks started to slip lower on Friday. After enduring a massive week for earnings results we face another full week of earnings and economic news.

Traders could be in a wait and see mode for the new few days.

ACN hit our entry trigger.

We have updated a few stop losses. GPRO and HAS have been removed.


Current Portfolio:


CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 174.21 change: +1.67

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: +28.6%
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:
08/01/15: AAP continued to rally on Friday with a +0.96% gain. The stock is testing potential round-number resistance at $175.00. Shares ended the week and month at new all-time highs.

Tonight we are moving the stop loss up to $169.75.

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

08/01/15 new stop @ 169.75
07/25/15 new stop @ 165.85
07/23/15 triggered @ $170.25
Option Format: symbol-year-month-day-call-strike

chart:


Accenture plc. - ACN - close: 103.11 change: +0.45

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -15.6%
Average Daily Volume = 2.3 million
Entry on July 31 at $103.35
Listed on July 30, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/01/15: ACN surged to new highs on Friday but the rally failed near $104.00. Shares retreated to a +0.4% gain but that was enough to outperform the major indices. Our trigger to buy calls was hit at $103.35.

At the moment I would wait for a new rally past $103.35 or nimble traders may want to consider buying a dip near the 10-dma (near $101.75) as an alternative entry point.

Trade Description: July 30, 2015:
Sometimes slow and steady wins the race. Patient investors have been rewarded in ACN. The stock is up +290% from its 2009 lows. Sales and earnings have also improved. From 2010 to 2014 ACN has seen revenues rise +38% and net income soar +54%. Year to date ACN is up +14%. The S&P 500 index is only up +2.4%.

ACN is in the technology sector. They're considered part of the information technology services industry. According to the company, "Accenture is a global management consulting, technology services and outsourcing company, with more than 336,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world's most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014."

A recent article on Investopedia.com noted that ACN is on a buying spree. "Since the beginning of 2015, Accenture has acquired nine other companies: smart grid company Structure, supply chain analytics company Gaspo, strategy consulting companies Axia and Javelin, Salesforce consulting services provider Tquila UK, digital design company Reactive Media, and digital solutions companies Agilex, Brightstep, and PacificLink Group. All of these acquisitions should strengthen Accenture's position in IT services against rivals like IBM and Infosys."

Last year ACN's earnings progress seemed to slow. Last September they reported their Q4 results that missed estimates by two cents. They beat the revenue number but guided lower. In December they beat analysts' estimates on both the top and bottom line but guided lower again. Guidance improved somewhat with ACN's 2015 Q2 report in March where the company beat estimates and guided in-line.

Their most recent report was June 25th when the company announced its 2015 Q3 results. Earnings were $1.30 per share, which was seven cents above estimates. Revenues were relatively flat (+0.4%) at $7.77 billion but that was significantly above expectations. New bookings last quarter were $8.5 billion. North American sales rose +12% on a local currency basis. Europe sales were up +7% while the rest of the world saw sales rise +13%. Management reaffirmed their fiscal year 2015 guidance and expect new bookings to be $33-to-$35 billion for the year.

The stock has been popping on its recent earnings reports. Then shares fade lower until they hit the long-term up trend and investors buy the dip. The up trend seems to be getting stronger. ACN recently broke out past round-number resistance at $100.00 and managed to hold this level during last week's market sell-off. Now ACN is poised to hit new highs. Tonight we're suggesting a trigger to buy calls at $103.35.

- Suggested Positions -

Long SEP $105 CALL (ACN150918C105) entry $1.60

07/31/15 triggered @ $103.35
Option Format: symbol-year-month-day-call-strike

chart:


Stryker Corp. - SYK - close: 102.27 change: +0.43

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: +6.2%
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:
08/01/15: SYK displayed relative strength on Friday with a +0.4% gain versus the S&P 500's -0.2% decline. This is a new all-time closing high for the stock.

Tonight we are moving the stop loss a little bit higher to $99.85. Should the market retreat we expect SYK to find support near its 10-dma, currently near $100.30.

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

08/01/15 new stop @ 99.85
07/29/15 triggered @ $102.15
Option Format: symbol-year-month-day-call-strike

chart:


Under Armour, Inc. - UA - close: 99.33 change: +0.05

Stop Loss: 94.65
Target(s): To Be Determined
Current Option Gain/Loss: +20.3%
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:
08/01/15: Shares of UA were upgraded again on Friday. This time by Argus, to a "buy" rating, with a $120 price target. Unfortunately this news was not enough to push UA past round-number resistance at $100.00. I am still expecting a pullback so no new positions. We will adjust our stop loss to $94.65. More conservative traders may want to use a higher stop loss.

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

08/01/15 new stop @ 94.65
07/28/15 triggered @ $97.55
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 65.23 change: -0.00

Stop Loss: 66.25
Target(s): To Be Determined
Current Option Gain/Loss: +17.6%
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:
08/01/15: BBBY continues to hover near its recent lows. The stock closed unchanged on Friday. I'm not suggesting new positions at this time. We will adjust the stop loss down to $66.25.

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

08/01/15 new stop @ 66.25
07/25/15 new stop @ 67.65
07/24/15 triggered @ $66.80
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

GoPro, Inc. - GPRO - close: 62.10 change: +0.41

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: see below

Comments:
08/01/15: On Friday morning Citigroup upgraded GPRO shares from "neutral" to a "buy" and gave the stock a $90.00 price target. GPRO reacted by gapping open higher but the rally failed at $64.63 and the stock gave up most of its gains by the closing bell.

The stock has been struggling all week and given the lackluster reaction to the upgrade news we are removing GPRO as a candidate.

Trade did not open.

08/01/15 removed from the newsletter, suggested entry was $65.06

chart:


Hasbro Inc. - HAS - close: 78.74 change: -1.25

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: see below

Comments:
08/01/15: HAS underperformed on Friday. Shares fell -1.5% and a late day drop pushed shares below short-term support.

Our trade has not opened yet and given this relative weakness we are removing HAS as a candidate.

I do want to point out, for more adventurous traders, that HAS has not broken the longer-term up trend of higher lows yet. I would keep HAS on your watch list. The story behind the stock's potential hasn't changed.

Trade did not open.

08/01/15 removed from the newsletter, suggested entry was $81.15

chart: