Option Investor
Newsletter

Daily Newsletter, Monday, 8/3/2015

Table of Contents

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

Market Wrap

Digesting The Data

by Thomas Hughes

Click here to email Thomas Hughes
An unusually full economic calendar, plunging oil prices and global headlines gave the market pause.

Introduction

This is a big week for economic data, today included. It is once again the beginning of another month and a new round of macro-economic data. Today there were four major releases to move the market and they, along with a few global headlines, gave the market pause.

Starting in Asia data from China is adding to fear of slowing growth. PMI fell to 47.8 in July, more than the previously reported level of 48.2 and other measures of Chinese PMI. Chinese indices fell hardest, losing about -1%, the Nikkei held steady with a drop of only -0.18%.

European indices opened lower but rebound during the day. The Chinese PMI news and reopening of the Greek stock market responsible for the early loss. Shares of Greek stocks fell more than -15% while other major indices closed with gains. The DAX led with an increase over 1%.

Market Statistics

Our market was positive in the early hours of the morning. Futures trading was mildly volatile, within a tight range, but largely indicating a flat to positive opening for most of the indices. Earnings and economic data were the largest contributors to sentiment. Stocks sold off at the open, but not sharply, with losses for some indices reaching -0.5%. A mid-morning bounce had them all flirting with positive territory until a lunch time sell off sent them back down.

Afternoon saw things deteriorate, perhaps due to the sharp decline in oil prices. The indices fell to test the early lows and then set new lows. The S&P 500 was down close to -15 at one point, the Dow nearly -200. Puerto Rico was an also issue for the market to digest today. Early reports the territory had defaulted on its debt payments helped to depress the market. A late afternoon announcement it had made a partial payments helped to lift stocks off of the their lows.

Economic Calendar

The Economy

Lots of data for a Monday. Personal Income and Spending was released first. According to the Department of Economic Analysis Personal Income rose by 0.4%. This is above expectation and in line with the previous month and equal to a gain of $68.1 billion. Disposable Personal Income rose by 0.5%, spending only rose 0.2%. The only disappointment is the spending number which came in below expectations and with a downward revision to last month, 0.9% to 0.7%.

Auto sales were released by the individual auto makers throughout the day. Ford, Fiat, Toyota and GM announced before the bell, all coming in better than expected. Ford says they grew sales by 4.9%, more than double expectations, GM say they grew sales 6%, also double expectations. GM went on to say they see industry wide sales pace for July at 17.6 million, well above current expectations. Fiat also increased sales by over 6%. Toyota is the laggard at 0.6% but is still well above expectations.

Construction Spending and ISM were released at 10AM. Construction Spending rose only 0.1%, below consensus estimates for 0.4%, and the lowest level since January. The good news is that June spending was revised up from 0.8% to 1.8% and that total year on year spending is up more than 12% from June,2014.

The ISM report shows that the economy is expanding, but that expansion has slowed from last month. This month's reading of 52.7 is a decline from last month's 53.5 and the expected reading near 54. Within the report all areas measured are expanding except inventories. Inventories have slipped below the equilibrium level of 50 to 49.5. New orders and production both saw small increases while employment fell to 52.7 from 55.5.

Moody's Survey Of Business Confidence jumped 1.2% in this week's data. The diffusion index moved up to 42.2% from 41%, the fourth week of gains and the highest level in over 5. Despite the dip in sentiment over the past month it still trending near record highs and according to Mr. Zandi's analysis confidence remains strong and stable. He uses words like robust, healthy and ample when describing sales, hiring and credit.

There is a lot of data out this week. Tomorrow is relatively light, only Factory Orders, but Wednesday things heat up. ADP and ISM Services Index are followed on Thursday by Challenger Job Cuts and Initial Claims. Friday rounds out the week with Consumer Credit, Non Farm Payrolls and Unemployment numbers. Look for jobs creation to remain steady with a possible fall in overall unemployment.


According to data from Factset the blended rate for S&P 500 earnings growth improved a full percent over the last week. This is because 9/10 of the sectors are beating earnings estimates, led by the healthcare sector. So far 354 companies have reported earnings, 73% of which have beaten EPS estimates. Only 52% have beaten on the revenue side of the line. This week there are another 92 S&P companies scheduled to report so expect another increase in the blended rate next week.

On a sector by sector basis healthcare is doing best. The sector was projected to grow earnings by 7.6% at the beginning of the reporting period and has just about doubled expectations. The only sector not beating expectations is the industrials. Energy continues to lag with year over year declines of -57% but is 3% better than expected. Looking at earnings ex-energy things are looking even better. The blended rate jumps to 5.36% and near the upper end of my projections.

The Oil Index

Oil prices are falling and lost another -3.75% in today's action. The sell off gained momentum in late day trading and may have been what led the broader equities market lower. WTI fell to $45.25, Brent dropped below $50, both driven by overwhelming supply and production with little to no expected increase in demand. Today's data from China only helps to increase doubts about demand. Oil prices could fall to $43 or lower for WTI.

The Oil Index traded lower today It fell more than -1.9% but has not reached a new low. It is still a little off of the recently set long term low with mixed indicators. Momentum is shifting back to the bear side but so far has not been overly strong. The indicators, relative to the long term trend line(broken in early July), remain consistent with support. It looks like prices will test support at least, target near 1,170. Earnings outlook for 2016 is still positive so I am still looking for a bounce to form, but if prices for oil remain low this outlook could rapidly change.


The Gold Index

Gold prices fell about -0.75% in today's session on stronger dollar. Economic data remains positive and in-line with FOMC rate hike time lines and likely to keep pressure on the metal. Inflation remains a concern for me but is so far low to non-existant and adding little support. A break below current levels could take it down to $1150 with quickness.

The gold miners are moving. The miners ETF GDX hit a new closing low today, dropping -3.5%. Despite the drop today's action is still within the three week congestion band, stochastic is oversold and momentum is shifting back towards bullishness. This does not mean that the recent down trend is over but a better entry point for bearish positions may be forthcoming. A move to $15.75 would bring price back to the short term moving average and the recently broken retracement level as well as closing the gap formed when prices broke that gap. However, if gold prices continue to fall then the miners are likely to fall with them.


In The News, Story Stocks and Earnings

Noble Energy reported before the bell. The company reported a net loss that when adjusted beat expectations. The company says production is up and should grow through the end of the year, causing them to raise full year volume guidance. The company is moving forward with recent plays in the Eagleford and Delaware Basin that should help to keep oil prices low for the foreseeable future. Shares of the stock lost -3.7% in today's session.


Tyson Foods reported before the bell and did not please investors. The company reported earnings of $0.83, up from the previous quarter but well below consensus of $0.93. The company also lowered its full year guidance. Results were blamed primarily on beef markets where the company is experiencing export issues as well as higher costs. Chicken and pork are both experiencing headwinds but not to the extent as beef. Shares of the stock fell more than -9% in early trading and created a long legged doji around the $40 level.


Clorox gave a mixed report. Both earnings and sales beat estimates but full year guidance was a little short. Results were driven by increases in sales, volumes and margins. 2016 guidance is calling for only 1% growth due to currency conversions (3-4% constant currency) with a 25 basis point increase in margins. Shares of the stock responded well despite weak guidance, climbing more than 2.7% after initially opening lower.


AIG reported after the bell and barely moved the stock. The company reported $1.39 per share, beating expectations for revenue and earnings. Execs also announced a $5 billion stock buy back plan and increase to the regular dividend by 124%. Shares of the once bailed-out company lost ground in after hour trading, falling about -0.20% after trading marginally higher in the open session.


The Indices

Today's action was a little wild but not crazy. Data and earnings helped to support the market but the day's trading was focused on bad news. Indices closed mostly lower, after poking into positive territory early in the day, but not all of them. The Dow Jones Transportation Average was the one major to eke out a gain, climbing 0.30%. Falling oil prices has increased optimism in the sector and sparked another round of upgrades for the airlines and other sectors who rely on fuel as a primary cost of business. The index created a small bodied candle, the third spinning top since bouncing from the long term low last week, and is accompanied by increasing momentum. The index appears to be moving higher with sights set on resistance at the 8600 level.


Today's biggest decliner was the Dow Jones Industrial Average which fell a little over -0.5%. The blue chips fell from resistance with bearish indications but bounced from support at the long term trend line, near 17,500. The indicators are pointing lower at this time so further testing of support along the trend line could come. The indicators also remain consistent with long term support, along the trend line, so any test or break is likely to result in buying opportunities. This level is also consistent with the recent lows For now, the index is trapped between support and resistance waiting to break out.


The broad market S&P 500 made the next biggest decline, -0.28%. The index is trading above the short term moving average and test support at the average in today's action. This support is consistent with previous support bounces near the 2,100 level. The indicators are mixed but setting up for a potential trend following signal; MACD has turned positive with today's candle, stochastic is pointing lower but trending higher and on the cusp of a bullish crossover. Potential resistance is just above the current level, about 20-30 points higher, and needs to be broken for more significant upside movements. If resistance is not broken the index could remain within the recent range between 2050 and 2020.


The NASDAQ Composite made the smallest decline in today's session falling -0.25%. The tech heavy index is in mid-bounce and tested support along the short term average. The indicators remain weak and suggest further testing of support could come but the trend remains up. A fall below the moving average could take the index to support along the long term trend line near 5,000. A move up would find resistance at the all time high near 5218.


Today's action was a little wild, primarily driven on news. Near term fears helped to drive stocks lower, economic and earnings trends helped to provide support. China, Greece and Puerto Rico all played a part, including President Obama and his new Clean Air Plan. The plan allows the EPA to regulate carbon emissions under the Clean Air Act and will require each state to develop its own schedule for reducing emissions.

The market faces potential headwinds this week, on top of declining oil prices. Falling oil prices could help the market move lower as energy stocks get hammered but are a bonus for all other sectors longer term. Other headwinds include economic data and earnings. The data needs to remain in the Goldilocks range, showing growth without inflation, and growth without so much strength it forces the FOMC into more than what the market is expecting. Earnings need to remain better than expected, with positive forward outlook.

The indices appear to be moving higher but August is notoriously a tepid month for stocks so I am cautious. It is important to remember that although it is the end of the summer but market volumes usually remain low until after Labor Day leaving the market highly susceptible to daily news events. This alone is reason enough to keep the market bouncing between support and resistance, when you add in earnings season, economic data, FOMC anticipation, China and Greece the chances of range bound trading increase.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Earnings Improvement and a Big Acquisition

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: ULTI, LII, MKC, ALK

Bearish ideas: LYB, ROK, CAT, OXY, PII, IBM,




NEW DIRECTIONAL CALL PLAYS

Teva Pharmaceuticals - TEVA - close: 70.06 change: +1.04

Stop Loss: 67.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.4 million
Entry on August -- at $---.--
Listed on August 03, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Company Description

Trade Description:
The combination of M&A news and improving earnings results has been a win-win for shares of TEVA. The stock recently soared to new all-time highs on some key headlines in the last several days.

TEVA is in the healthcare sector. They're part of the drug manufacturing industry. According to the company, "Teva Pharmaceutical Industries Ltd. is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions to millions of patients every day. Headquartered in Israel, Teva is the world's largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area. In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. Teva integrates its generics and specialty capabilities in its global research and development division to create new ways of addressing unmet patient needs by combining drug development capabilities with devices, services and technologies. Teva's net revenues in 2014 amounted to $20.3 billion."

TEVA's most recent earnings report was July 27th. Analysts were expecting a profit of $1.29 per shares for TEVA's Q2 results. The company delivered $1.43 per share. Revenues fell -1.5% to $4.97 billion but that was actually better than expected. TEVA's management then raised their 2015 guidance from $5.05-5.35 per share to $5.15-5.40 compared to Wall Street's estimate at $5.21.

If beating earnings and raising guidance wasn't enough to drive the stock higher TEVA also announced major acquisition news. TEVA had been trying to buy British drug firm Mylan (MYL) with an unsolicited bid. Meanwhile MYL is trying to buy Perrigo (PRGO). MYL didn't seem interested in being acquired by TEVA and actually adopted a poison pill strategy to make it less attractive to hostile takeovers.

On July 27th TEVA announced they had dropped their bid for MYL and instead announced a deal to buy Allergan's (AGN) generic drug business for $40.5 billion. TEVA will pay $33.75 billion in cash and $6.75 billion in stock, giving AGN a 10% stake in TEVA. They expect the deal to close in the first quarter of 2016.

According to a Reuters article, "Teva, which will gain a portfolio of more than 1,000 products, forecast a double-digit boost to adjusted earnings per share in 2016 and a more than 20 percent benefit in years two and three after closing the deal. It expects cost synergies and tax savings of $1.4 billion annually by the third anniversary from efficiencies in operations, manufacturing, and sales and marketing."

Wall Street applauded the deal with AGN and shares of TEVA soared from $62 to $72 in a single day.

TEVA has continued its M&A with another story out today. This morning, before the opening bell, TEVA announced it will purchase a 51% stake in a privately-held, genomic-analysis company, Immuneering Corporation. According to the press release "Immuneering uses advanced proprietary techniques to identify hidden signals and biological insights across an array of genetic, genomic, and proteomic data that can direct research for enhanced discovery, development and clinical success." The two companies have worked together before. Financial terms were not disclosed.

The AGN deal has gotten Wall Street's seal of approval. Several analyst firms have upgraded TEVA since then with multiple price target upgrades including: $82 from Deutsche Bank, $82 from Argus, $85 from RBC, $85 from Morgan Stanley, $86 from Citigroup. Just today J.P.Morgan restarted coverage on TEVA with an "overweight" and an $82 target. The point & figure chart is bullish and forecasting a long-term target of $98.00 for TEVA.

Shares of TEVA saw a $4.00 pullback but traders have started buying the dip. We want to hop on board if this bounce continues. Tonight we're suggesting a trigger to buy calls at $70.25.

Trigger @ $70.25

- Suggested Positions -

Buy the SEP $70 CALL (TEVA150918C70) current ask $2.05
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:



In Play Updates and Reviews

Stocks Weaken Again

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market was weak thanks to another drop in commodities and persistent global growth slowdown worries. An up day for European markets was offset by widespread weakness in Asian markets.

Our new bearish play on HES has been opened.


Current Portfolio:


CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 173.81 change: -0.40

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: +20.0%
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:
08/03/15: Stocks had another down day on Monday. Traders bought the dip in AAP near $172.25. Shares pared their loss to -0.2% by the closing bell.

I am not suggesting new positions at this time.

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


Accenture plc. - ACN - close: 103.21 change: +0.10

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:
08/03/15: ACN slipped to $103.39 intraday. The stock bounced back into positive territory but essentially closed unchanged on the session. It was a small victory for the bulls.

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


Stryker Corp. - SYK - close: 101.51 change: -0.76

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -33.6%
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:
08/03/15: We need to turn more cautious on our SYK trader. Shares underperformed the broader market averages with a -0.74% decline. Furthermore today's move has generated a bearish engulfing candlestick reversal pattern.

No new positions at this time.

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


Under Armour, Inc. - UA - close: 98.26 change: -1.07

Stop Loss: 94.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
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:
08/03/15: I have been warning readers the last few days that $100 was probably resistance for UA and that we should expect a temporary pullback. It looks like that decline started today. Traders did buy the dip near $97.00 and UA managed to trim its losses by the closing bell.

No new positions at this time.

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




PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 64.37 change: -0.86

Stop Loss: 66.25
Target(s): To Be Determined
Current Option Gain/Loss: +31.4%
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:
08/03/15: It was a good day for BBBY bears. The stock underperformed the market with a -1.3% decline and shares broke down form their recent sideways consolidation.

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


Hess Corp. - HES - close: 57.70 change: -1.31

Stop Loss: 62.05
Target(s): To Be Determined
Current Option Gain/Loss: +8.2%
Average Daily Volume = 2.8 million
Entry on August 03 at $58.21
Listed on August 01, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/03/15: Crude oil plunged to new relative lows today and that pressured energy stocks lower. HESS gapped open lower at $58.21, which immediately triggered our play since the suggested entry was $58.65. HES looks poised to breakdown below its July lows in the $57.20-57.50 area.

Trade Description: August 1, 2015:
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.

- Suggested Positions -

Long SEP $57.50 PUT (HES150918P57.50) entry $2.31

08/03/15 triggered on gap down at $58.21, trigger was $58.65
Option Format: symbol-year-month-day-call-strike