Option Investor
Newsletter

Daily Newsletter, Sunday, 7/19/2015

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Relief Rally Fuels Widespread Gains

by James Brown

Click here to email James Brown

The stock market breathed a huge sigh of relief and the S&P 500 index delivered its best weekly gain since March. The Greek debt crisis appears temporarily solved. The Chinese market crash has begun to reverse. Iran and the P5+1 nations actually agreed on something and a deal on Iran's nuclear program might actually get signed. With good news breaking out all over the world the U.S. equity market surged. Google put the finishing touch on the bullish week with a record-shattering, one-day surge in market cap of $65 billion. To put that in perspective, the bottom 400 companies in the S&P 500 large cap index have a market cap of less than $65 billion (individually).

The euro currency fell to six-week lows. This boosted the U.S. dollar to six-week highs. A rising dollar pressures commodity prices. Gold sank -2.6% for the week to close at multi-year lows near $1,132 an ounce. Silver plunged -4.7% to end the week under $15.00 an ounce - a new five-year low. Crude oil dropped -3.24% and closed under $51.00 a barrel. This weighed on energy stocks (-0.89%) and oil service stocks (-4.5%). Yields on the U.S. ten-year bond fell to 2.348%.

Economic Data

The U.S. Commerce Department reported retail sales in June slipped -0.3% while May's reading was revised lower from +1.2% to +1.0%. Economists had been expecting June to see a +0.3% gain. Eight of the 13 retail categories posted declines. It was a disappointing report and doesn't bode well for Q2 GDP growth. A good chunk of the decline was auto sales. If you exclude automobile sales then U.S. retail sales only fell -0.1% in June. The latest reading on motor vehicle sales saw a drop from a seasonally adjusted annual rate of 17.8 million in May down to 17.2 in June. This is still a very strong year for U.S. car sales with more than 8.5 million vehicles sold thus far in 2015.

The New York Empire State manufacturing fed survey improved from -2.0 to +3.9 in July. Unfortunately this was countered with a big decline in the Philly Fed survey. The regional fed survey for Philadelphia was expected to drop from 15.2 down to 12.0 but it came in at 5.7.

Inflation continues to rise. The Producer Price Index (PPI), a wholesale inflation gauge, rose +0.4% in June, which follows a +0.5% rise in May. Gasoline was a big part of the rise as fuel rose +4.3% in June. The core-PPI, which excludes food and energy, rose +0.3% in June. The Consumer Price Index (CPI), which is a retail-level look at inflation, rose for the fifth month in a row. The CPI reading for June rose +0.3% following a +0.4% jump in May. The core-CPI was up +0.2%.

The University of Michigan Consumer Sentiment survey slipped from 96.5 in June to 93.3 in July. Odds are this is a reflection of all the negative headlines in recent weeks and the rebound in the price of gasoline at the pump.

The NAHB housing market index, which is a confidence survey among the major homebuilders, improved from 59 to 60. Analysts were expecting no change. The NAHB index is now at its highest level since November 2005 and it should be a bullish indicator for the housing industry. Another data point on the residential industry was the monthly housing starts number, which surged +9.8% in June to an annual pace of 1.174 million units. Nearly all of this gain was due to a huge surge in multi-family construction. Apartment rents have been rising for years and builders are trying to cash in on the demand for rental units.

Federal Reserve Chairman Janet Yellen made headlines with her two-day testimony before the House and the Senate. The five-month trend of rising inflation is significant because Yellen said the Fed won't wait until inflation reaches their previous target of 2.0%. If it looks like the inflation trend is steady then they could pull the trigger early.

Yellen clearly stated she wants to raise rates and would like to do so this year. However, she said her Fed remains data dependent. Based on current forecasts they will raise rates but only if current growth trends remain intact. She also reminded listeners that when the Fed starts raising rates the trajectory will be very gradual (so as not to spook the markets).

One big fear is that Yellen raises interest rates too soon and squashes economic growth in the U.S. She wants to avoid a recession. Unfortunately our neighbor to the north, Canada, is officially in a recession. This past week a Bank of Canada governor didn't want to use the "R" word but did say Canadian GDP has turned negative for the first half of 2015.

Overseas Economic Data

Speaking of GDP growth, the Bank of Japan lowered their 2015 GDP forecast from +2.0% down to +1.7%. Another GDP headline was China's GDP. The last several weeks there have been multiple clues that the Chinese economy is slowing down. Yet somehow the country's Q2 GDP remains at +7.0%. This official report was widely criticized as being falsely fabricated by the government.

In other Chinese economic news their retail sales for June jumped +10.6% from a year ago. Estimates were for +10.2%. Chinese industrial production was +6.8% in June, which was also better than expected.

One of the biggest stories on China was their stock market. The government has been doing all it can to stop the bear-market plunge from its June highs and it seems to be working. Last week more than 500 companies removed their trading halts on their stock although that still leaves more than 500 stocks that are still halted. After a volatile week of trading the Shanghai index did manage to post a +2% gain.

Looking at Europe the European Central Bank left their interest rate policy unchanged at 0.05%. ECB President Draghi said there was no change in the ECB's current QE program, which is scheduled to last until September 2016. The Eurozone reported their industrial production for May fell -0.4% for the month, which was worse than expected. Eurozone CPI was unchanged in June but still up +0.2% from a year ago.

Greece

Thankfully Greece was no longer a market-moving story last week. Last Monday, after a long weekend of negotiations, Greek leaders and their EU counterparts agreed to the framework on a third bailout deal. This included 25 billion euros to recapitalize the Greek banks. On Thursday the Greek parliament voted in favor of the new austerity measures, which would pave the way for the new 86 billion euro bailout.

The ECB approved an additional 900 million euros to the Emergency Liquidity Assistance program that would help the Greek banks open on Monday, July 20th. Banks in Greece have been closed for the last three weeks. They are expected to open tomorrow but the cap on withdrawals is expected to remain at 60 euros a day although they're talking about allowing customers to withdraw multiple days worth at one time (possibly two or three days worth).

On Friday the German parliament approved the new bailout deal for Greece after German Chancellor Angela Merkel reiterated that debt reduction would not be allowed since it violates EU treaty. The International Monetary Fund (IMF) disagrees and does not think Greece will survive without debt reduction. They just issued another debt sustainability report on Greece that outlines why Greece will need major debt relief and restructuring.




Major Indices:

The S&P 500 index produced a +2.4% gain for the week and is now up +3.29% for the year. The index rallied past potential resistance near 2,100 and its 50-dma but stalled right at resistance near its 2015 highs. After an 82-point rally in less than two weeks the S&P 500 is arguably short-term overbought here but that doesn't mean it can't breakout higher in the week ahead.

The 2,130-2,135 area is immediate resistance. Above 2,135 would be new all-time high territory. Using a Fibonacci retracement tool on the two-week rebound we can estimate short-term support at 2,110 and the 2,095-2,100 area.

chart of the S&P 500 index:

The NASDAQ delivered a great week with the composite index surging +4.25% thanks to some big gains in many of its largest components. These are new all-time highs for the index.

After a 210-point rally in less than two weeks it does look short-term overbought and due for a dip. I'd look for broken resistance near 5,100 to be new support. The 5,250 and 5,300 levels are potential overhead resistance. Year to date the NASDAQ is up +10%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) did post a gain for the week (+1.2%) but it significantly underperformed its large-cap rivals. The $RUT seems to be struggling with resistance in the 1,275 area.

It's hard to say where the $RUT might go next. The 1,250 level could be short-term support while 1,280 and 1,300 are additional levels of overhead resistance. Year to date the $RUT is up +5.1%.

chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead is very quiet on the economic and event calendar. We'll see a couple of reports on home sales. Then on Thursday a couple of PMI reports from overseas. The two regional fed surveys are not market movers.

- Monday, July 20 -
...nothing significant...

- Tuesday, July 21 -
...nothing significant...

- Wednesday, July 22 -
Existing home sales data

- Thursday, July 23 -
Chicago Fed regional survey
Chinese manufacturing PMI
Japanese manufacturing PMI
Kansas Fed manufacturing survey

- Friday, July 24 -
New home sales data
Eurozone PMI

Additional dates to be aware of:

July 29th - FOMC meeting (end of two-day meeting)
Sept. 7th - Markets closed for Labor Day holiday
Sept. 17th - FOMC meeting, policy update, economic forecasts
Sept. 17th - Fed Chairman Yellen press conference

Looking Ahead:

The week ahead should be focused on Q2 earnings results. It's the second biggest week for Q2 earnings announcements with over 450 companies reporting (that includes a lot of companies not in the S&P 500). Investors and analysts will be focused on how companies are dealing with a slower global economy and the impact of a strong dollar (especially for big multi-national companies).

According to FactSet, analysts' estimates were forecasting S&P 500 Q2 earnings to fall -4.5% as of June 30th. Now that 61 of the S&P 500 companies have already reported that estimates has fallen to -3.7% earnings decline. This is significant since it would be the first quarterly decline in S&P 500 earnings growth since Q3 2012 (-1.0%) and the worst earnings decline since Q3 2009 (-15.5%).

The five-year average reveals that 73% of S&P 500 companies normally beat analysts' earnings estimates but only 57% manage to beat Wall Street's revenue estimate. Thus far, with 12% of the S&P 500 companies reporting, the Q2 earnings results are just a tiny bit below the long-term average.

FactSet pointed out that Healthcare stocks, Industrials, and Consumer Staples have the best track record at beating earnings estimates. Energy stocks, materials, and financials have the worst track record. There's a lot more earnings data on the FactSet website. You can View that data here (it is a .PDF file).

Apple (AAPL) will be the biggest earnings story of the week. The company has a history of beating earnings more than 90% of the time. Wall Street will be curious to hear what AAPL has to say about its smartwatch sales and how many people have signed up for their Apple-branded streaming music service. AAPL's earnings are expecting to rise +40% from a year ago.

Reuters ran an interesting article on Friday discussing the world economy. The U.S. and the U.K. are seeing enough growth that both countries are on the verge of raising interest rates. The rest of the world is not that healthy. As I mentioned earlier, Japan recently lowered their GDP estimates and they are in the midst of a massive QE program. China's economy supposedly grew +7% last quarter but the government has been very accommodative with a lot stimulus. Canada just announced they're in a recession. Multiple countries have cut rates in the last four weeks. If you count all the central bank actions this year there are 37 central banks that have reduced interest rates or added stimulus as they try to boost economic growth or stave off deflation (or both). You can read more about the global outlook here.

On a short-term basis the big cap stock market indices look overbought and due for a dip. Odds are any decline is probably an entry point as traders jump in to buy the dip. That's assuming the Greek deal doesn't fall apart, the Chinese market doesn't crash again, and the Iran deal doesn't crumble.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market's widespread rally last week was led by big cap stocks. The NASDAQ hit a record and the S&P 500 is close to a new record. The small cap Russell 2000 index underperformed its large-cap peers.

We want to exit half of our Facebook (FB) position on Monday, July 20th to lock in a potential gain.

GD and HSIC have joined the play list.

I have updated the stop loss on DNKN, FB, NKE, SBUX, and UA.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Celebrating With Widespread Gains

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(July 19, 2015)

Now that the Greece deal, Iran deal, and Chinese stock market collapse is out of the way the U.S. market is celebrating.

The S&P 500 delivered its best one-week performance since March. The NASDAQ composite sprinted higher to hit a new record. Both look short-term overbought, over-extended, and due for a pullback.

As long as worries regarding Greece, Iran, and China don't resurface then the path of least resistance for U.S. stocks should be higher. Unfortunately, there is no guarantee that these three issues won't return to the headlines.

I am not adding any new trades tonight.

Last week our watch list was successful with both GD and HSIC graduating to the active play list. Tonight I've added CVS and LGF as new watch list candidates.

I've also updated my radar screen below.

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself. In no particular order:

XON, BAC, WFC, MS, AMBA, DHR, EXPE, WFM, RAI, MSFT,



Play Updates

Prepare For The Earnings Deluge

by James Brown

Click here to email James Brown

Editor's Note:

Several companies on our active play list will report earnings this week. Earnings announcements are always risky since there are so many variables that could sink a stock. Double check your stop loss placement and expect post-earnings volatility.

GD and HSIC have graduated from our watch list to the play list.

NOTE: We want to exit half of our Facebook (FB) position on Monday morning to lock in potential gains.


Closed Plays



None. No closed plays this week.




Play Updates


Apple Inc. - AAPL - close: 129.62

Comments:
07/19/15: The last couple of weeks have been volatile for shares of AAPL. That volatility will likely continue this week. The stock has soared from its July lows near $119 up to round-number resistance near $130. Where AAPL heads next will be determined by its earnings results.

The company reports earnings on Tuesday, July 21st. Wall Street expects earnings to grow +40% from a year ago. The company beats analysts' earnings estimates just over 90% of the time. If the company misses the reaction in the stock could be big. Analysts will be looking at iPhone sales, smartwatch sales, and will be curious how the company's new music streaming business is doing.

More conservative investors may want to adjust their stop prior to AAPL's earnings report on Tuesday night. I am not suggesting new positions in AAPL at this time.

Trade Description: November 2, 2014:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $633 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit f $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $133 target. Yet we do not want to chase AAPL here. The stock is up $12 from its October low. We do want to be ready if shares see a pullback.

Tonight I am suggesting a buy-the-dip trigger to buy calls at $103.50 with a stop loss at $98.90. (We amended the buy-the-dip trigger to $111.00 on Nov. 30th).

- Suggested Positions -
DEC 09, 2014 - entry price on AAPL @ 110.19, option @ 9.55
symbol: AAPL160115C120 2016 JAN $120 call - current bid/ask $13.95/14.10

06/20/15 AAPL underperformed the broader market this past week. Shares look like they could break support in the $125 area
04/27/15 AAPL crushes earnings estimates (again)
04/12/15 new stop @ 118.00
03/01/15 Caution: AAPL could be poised for a pullback. Consider taking profits now and then re-enter this trade later.
02/22/15 new stop @ 114.00
02/15/15 new stop @ 109.50
12/09/14 triggered on gap down at $110.19, trigger was $111.00
11/30/14 raise the buy-the-dip entry trigger to $111.00
11/16/14 raise the buy-the-dip entry trigger to $108.00
Adjust the strike price to the 2016 Jan $120 call.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 118.00
Play Entered on: 12/09/14
Originally listed on the Watch List: 11/02/14


Adobe Systems - ADBE - close: 82.10

Comments:
07/19/15: ADBE is getting a lot of bad press about security flaws in its Adobe Flash platform. This news isn't affecting the stock price since Flash is not a big money maker for ADBE. Wall Street is more concerned with subscriber growth for ADBE's creative suite.

I would consider new positions at current levels. Readers may want to consider a stop closer to the $77-78 area. Currently our stop loss is at $74.75.

Trade Description: May 3, 2015:
ADBE is in the technology sector. According to the company's website, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe® Creative Cloud® software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

The company's most recent earnings report was March 17th. Results were $0.44 a share, which was five cents better than expected. Revenues were up +10.9% to $1.11 billion, also above expectations. The company continues to see success with their subscription model and added 517,000 new creative cloud subscriptions, a +28% improvement from a year ago.

Technically the stock is in a long-term up trend. Shares just spent the last few weeks consolidating sideways and looks ready for the next move higher. A rise past $78.00 would generate a new buy signal on the point & figure chart.

I am suggesting we wait for ADBE to close above $77.75 and then buy calls the next morning with a stop loss at $71.85. More conservative investors may want to wait for ADBE to close over short-term resistance at $80.00 as an alternative entry point for bullish positions.

- Suggested Positions -
MAY 15, 2015 - entry price on ADBE @ 80.00, option @ 4.60
symbol: ADBE160115C85 2016 JAN $85 call - current bid/ask $4.15/4.45

06/28/15 new stop @ 74.75
06/20/15 new stop @ 73.90
05/15/15 trade begins. ADBE opens at $80.00
05/14/15 triggered. ADBE closed @ $79.43, above our trigger of $77.75
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 74.75
Play Entered on: 05/15/15
Originally listed on the Watch List: 05/03/15


Capital One Financial - COF - close: 90.99

Comments:
07/19/15: COF displayed relative strength last week and outperformed the broader financial sector. Shares rallied past resistance at the June highs near $90.00.

The company reports earnings this week on July 23rd. The stock could see some profit taking on the 24th no matter what COF reports.

Readers may want to consider raising their stop loss prior to COF's announcement. No new positions at this time.

Trade Description: June 7, 2015:
Interest rates will rise. The Federal Reserve has kept its main interest near zero (0.0%) since December 2008. There has been mountains of speculation on when the fed will finally raise rates. It looks like they could start in September this year. If not this year then definitely next year. Rising rates are going to be bullish for big banks.

COF describes itself as, "Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N. A., had $205.5 billion in deposits and $308.9 billion in total assets as of December 31, 2014. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia."

COF's most recent earnings report was April 23rd. Earnings were $2.00 per share, which was 13 cents above estimates. Management said they saw strong loan growth. The company has recently raised their dividend and they have a big stock buy back program.

The stock has been stuck under resistance near $85.00 for almost a year. The stock's posture changed when it recovered from its January 2015 lows near $73. Since then COF has been rising in a bullish trend of higher lows and higher highs. Now it's poised to breakout past key resistance at $85.00. The point & figure chart is already bullish and forecasting at $97.00 target.

I am suggesting we look for COF to close in the $86.00-87.00 zone as our entry point. Then buy calls the next morning with a stop loss at $81.75. This is a long-term trade. We're using the 2017 calls.

Just a reminder - use 2017 calls.

- Suggested Positions -
JUN 11, 2015 - entry price on COF @ 86.99, option @ 3.95
symbol: COF170120C100 2017 JAN $100 call - current bid/ask $3.45/4.70

06/28/15 new stop @ 83.75
06/11/15 trade begins. COF opens at $86.99
06/10/15 Triggered with COF closing at $86.93
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 83.75
Play Entered on: 06/11/15
Originally listed on the Watch List: 06/07/15


Tableau Software - DATA - close: 126.34

Comments:
07/19/15: The rally continued for DATA and the stock pushed past potential resistance at its June highs. Our option has almost doubled in value. More conservative investors may want to take some money off he table.

No new positions at this time.

FYI: DATA's earnings are expected on July 29th.

Trade Description: April 26, 2015:
The market for analyzing big business data is growing fast. DATA is leading the charge. According to the company, "Tableau Software (NYSE: DATA) helps people see and understand data. Tableau helps anyone quickly analyze, visualize and share information. More than 26,000 customer accounts get rapid results with Tableau in the office and on-the-go. And tens of thousands of people use Tableau Public to share data in their blogs and websites."

The last couple of earnings reports have been very impressive. DATA released their Q3 results on November 5, 2014. Results were 12 cents above estimates with revenues up +71% to $104.5 million, also above estimates.

Their Q4 results came out in early February. Analysts were expecting a profit of $0.11 a share on revenues of $122.58 million. DATA delivered $0.42 a share with revenues up +75% to $142.9 million. In the fourth quarter they added 2,600 new customers. They closed 304 transactions worth more than $100,000, a +70% improvement from a year ago.

Christian Chabot, Chief Executive Officer of Tableau. "In 2014, we experienced the strongest demand we've seen in our history, as the move to agile analytics grows faster than ever."

Management offered earnings guidance that was in-line with Wall Street estimates but they see revenues coming in above expectations.

Wall Street is bullish and the last couple of weeks have seen new price targets at $115 and $127. The point & figure chart is forecasting at $117.00 target.

DATA has been talked about as a potential takeover target and that might be why their options are so expensive. DATA's next earnings report is coming up on May 7th. More conservative traders may want to sit this one out until we see how the market reacts to DATA's Q1 results.

I am labeling this a more aggressive play because shares can be volatile with multi-point single-day moves. Tonight we want to buy calls on a dip at $100.00.

- Suggested Positions -
APR 27, 2015 - entry price on DATA @ 100.00, option @ 12.10
symbol: DATA160115C110 2016 JAN $110 call - current bid/ask $21.50/24.50

07/12/15 new stop @ 112.75
06/29/15 Sell half of position. DATA opens lower at $115.40
2016 Jan $110 call exit $15.31 (+26.5%)
06/28/15 Plan on selling 1/2 of option position on Monday, June 29
06/14/15 new stop @ 109.00
06/07/15 new stop @ 104.85
05/24/15 new stop @ 102.75
05/17/15 new stop @ 97.40
05/10/15 new stop loss @ 94.75
05/08/15 the stock soars to new highs in reaction to earnings and a couple of upgrades.
05/07/15 DATA delivered better than expected earnings and raises guidance above Wall Street expectations
04/27/15 triggered @ $100.00
Remember, this is a higher-risk trade. Consider small positions to limit risk.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 112.75
Play Entered on: 04/27/15
Originally listed on the Watch List: 04/26/15


Dunkin' Brands Group - DNKN - close: 54.98

Comments:
07/19/15: Uh-oh! Last week the broader market was in rally mode and DNKN did not participate. Granted shares had been showing relative strength in the last few weeks. It's odd to see DNKN underperforming.

Shares of DNKN popped to a new high last Monday and then Tuesday DNKN produced a bearish engulfing candlestick reversal pattern. DNKN has continued to slide and is now down four days in a row.

Tonight we will raise our stop loss up to $51.85. More conservative investors may want to bump their stop even higher.

FYI: DNKN is scheduled to report earnings on July 23rd.

Trade Description: May 31, 2015:
Investors appear to be in the mood for donuts this year. Shares of DNKN are significantly outperforming the broader market with its stock up about +26% year to date versus the S&P 500's +2.3% gain.

The company is in the services sector. According to the company, "Founded in 1950, Dunkin' Donuts is America's favorite all-day, everyday stop for coffee and baked goods. Dunkin' Donuts is a market leader in the hot regular/decaf/flavored coffee, iced coffee, donut, bagel and muffin categories. Dunkin' Donuts has earned the No. 1 ranking for customer loyalty in the coffee category by Brand Keys for nine years running. The company has more than 11,300 restaurants in 37 countries worldwide. Based in Canton, Mass., Dunkin' Donuts is part of the Dunkin' Brands Group, Inc. (DNKN) family of companies."

DNKN also owns the Baskin Robbins franchise, which has more than 7,500 retail locations in almost 50 countries.

The company seems to be undergoing a turnaround in its earnings results. Back in December shares plunged on an earnings warning when management lowered their 2015 guidance. When they reported their Q4 results in February they missed by a penny with revenues in-line (+5.5%). Their donut store comps were +1.4% but their ice cream store comps were +9.3%. Management raised their dividend +15% and announced a $700 million stock buy back program.

Results improved significantly in the first quarter of 2015. Analysts were expecting a profit of $0.35 a share on revenues of $180.7 million. DNKN reported earnings of $0.40 a share, which is a +21% improvement from a year ago. Margins improved 310 basis points to 47.1%. Their revenues rose +8.1% to $185.9 million, above estimates. Their donut store comps improved to +2.7% while their ice cream store comps hit +8.0%. Management raised their 2015 earnings estimates above Wall Street's consensus.

The stock soared to new all-time highs following this earnings report in late April. Since then shares have seen a correction but investors have bought the dip. Analysts have begun to raise their price targets. The point & figure chart is very bullish with a long-term target of $78.00. Currently shares of DNKN are hovering below resistance in the $54.00 area. Tonight I am suggesting we wait for DNKN to close above $54.25 and buy calls the next morning.

- Suggested Positions -
JUN 24, 2015 - entry price on DNKN @ 54.83, option @ 1.60
symbol: DNKN160115C60 2016 JAN $60 call - current bid/ask $1.25/1.65

07/19/15 new stop @ 51.85
06/24/15 Trade begins. DNKN opens at $54.83
06/23/15 DNKN closed at $54.96, above our trigger of $54.35
06/21/15 adjust entry trigger to a close above $54.35
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 51.85
Play Entered on: 06/24/15
Originally listed on the Watch List: 05/31/15


Facebook, Inc. - FB - close: 87.95

Comments:
07/19/15: The NASDAQ's rally to new all-time highs was fueled by big gains in its high-profile components. Google did the heavy lifting on Friday but FB also contributed to the market's surge with a big rally of its own.

FB announced they were working on an e-commerce platform that would allow businesses to sell to consumers from their Facebook pages. If they're successful it could generate another huge revenue stream for FB, which would probably get some sort of fee or percentage of sales.

Friday's $4.00 rally boosted the stock's weekly gain to more than $7.00 or +8%.

Our FB option has doubled in value. Tonight I am suggesting we sell half of our FB call option at the opening bell on Monday to lock in a potential gain. We will also raise the stop loss to $87.45.

FYI: FB's earnings are July 29th.

Earlier Comments: March 22, 2015:
Facebook probably needs no introduction. It's the largest social media platform on the planet. As of December 31st, 2014 the company reported 1.19 billion monthly active users and 890 million daily active users. If FB were a country that probably puts them as the third most populous country on the planet (behind India and China).

This past week the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

The announcement combined with a broad market rally helped fuel a +7% gain in FB's stock last week. FB's market cap has risen past $230 billion making it the tenth largest company in the S&P 500.

Growth has been phenomenal. According to IBD, FB's Q4 earnings were up +69% form a year ago. Revenues were up +49%. Wall Street is expecting FB's profit to rise +12% in 2015 and +32% in 2016.

Technically shares of FB have broken out from a very significant consolidation pattern. The point & figure chart is bullish and forecasting at $96.00 target. I think it will go higher. After a five-day run we do not want to chase it here. I'm suggesting a buy-the-dip entry trigger at $82.00 with a stop loss at $74.75.

- Suggested Positions -
APR 01, 2015 - entry price on FB @ 81.00, option @ 4.92
symbol: FB160115C90 2016 JAN $90 call - current bid/ask $10.40/10.60

07/19/15 plan on exiting half of our FB call option on Monday (July 20th) to lock in potential gains.
07/19/15 new stop @ 87.45
06/28/15 new stop @ 78.45
04/23/15 Q1 earnings report
04/01/15 triggered @ 81.00
03/29/15 move the buy-the-dip trigger from $82.00 down to $81.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 87.45
Play Entered on: 04/01/15
Originally listed on the Watch List: 03/22/15


General Dynamics - GD - close: 148.65

Comments:
07/19/15: GD is a watch list candidate from last weekend. The plan was to wait for shares to close above $147.00 and then buy calls the next day. GD closed at $147.25 on July 15th. Our trade opened the next morning with GD gapping higher at $148.00. I would still consider new bullish positions now at current levels.

Trade Description: July 12, 2015:
The last time we had GD in the newsletter was back in November 2014. Shares have spent the last seven months building a massive consolidation in the $130-146 range. The stock could be poised for a major breakout higher.

GD is considered part of the industrial goods sector. The company is a huge aerospace and defense company. They have four significant segments: aerospace, combat systems, information systems, and marine systems (ships and submarines). The defense industry in the U.S. has been saddled with significant budget cuts due to the 2011 sequestration deal that will shave $500 billion from U.S. defense spending from 2012 through 2021. The industry has managed to thrive in spite of these budget cuts.

GD has beaten Wall Street's earnings estimates seven quarters in a row. They're also beating analysts revenue estimates as well. Margins have been steadily improving.

The world isn't getting any safer and the major defense contractors have been working on boosting their overseas sales just in case the U.S. decides to cut defense spending again. Considering the current state of world affairs with a growing military rival in China, a new cold war brewing with Russia, and an openly hostile ISIS, defense spending should stay healthy.

I mentioned earlier that GD had consolidated sideways for the last seven months. Today it's on the verge of a bullish breakout higher. The point & figure chart is already bullish and forecasting at $175.00 target.

Friday's intraday high was $146.98. I am suggesting we wait for GD to close above $147.00 and then buy calls the next morning with a stop loss at $141.75.

- Suggested Positions -
JUL 16, 2015 - entry price on GD @ 148.00, option @ 2.85
symbol: GD160115C160 2016 JAN $160 call - current bid/ask $2.40/2.60

07/16/15 trade begins. GD opens at $148.00
07/15/15 Triggered. GD closed at $147.25, above our $147.00 trigger
Option Format: symbol-year-month-day-call-strike

Chart of GD:

Current Target: To Be Determined
Current Stop loss: 141.75
Play Entered on: 07/16/15
Originally listed on the Watch List: 07/12/15



Hanesbrands Inc. - HBI - close: 33.95

Comments:
07/19/15: HBI spent last week quietly consolidating sideways in the $34.00-34.25 area. I expect shares to continue this sideways consolidation into its earnings report.

HBI will most likely report earnings on July 23rd but this date has not been confirmed by the company yet.

I am not suggesting new positions at this time. The $34.80 level remains overhead resistance.

Trade Description: June 14, 2015:
HBI was founded back in 1901. Today you will find Hanes products in more than 80 percent of U.S. homes.

HBI is in the consumer goods sector. According to the company, "HanesBrands, an S&P 500 company, is a socially responsible leading marketer of everyday basic apparel in the Americas, Europe and Asia under some of the world’s strongest apparel brands, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die/Nur Der, Lovable and Gear for Sports.

We sell bras, panties, shapewear, sheer hosiery, men's underwear, children's underwear, socks, T-shirts and other activewear in the United States, Canada, Mexico and other leading markets in the Americas, Asia and Europe. In the United States, we sell more units of intimate apparel, male underwear, socks, shapewear, hosiery and T-shirts than any other company."

What makes HBI different than most of its competitors is that HBI owns and operates its own manufacturing facilities. About 90% of their apparel comes from company-run plants. That helps them control costs throughout the production process.

This year the company has been very shareholder friendly. Back in January they raised their dividend 33% and announced a 4-for-1 split. The stock split took place in March this year.

HBI's most recent earnings report was April 23rd. HBI reported their Q1 earnings were up +16% from a year ago to $0.22 a share. That missed estimates of $0.23. Revenues were up +14% to $1.21 billion. This was just below expectations of $1.22 billion.

In the company press release HBI Chairman and CEO Richard Noll commented on their results, saying, "We are off to a great start in 2015, once again delivering a double-digit increase in EPS, while tracking to our full-year growth plans. Our acquisition strategy continues to create value with DBApparel, Maidenform and Gear for Sports all contributing substantially to our double-digit growth. In addition, we are raising our 2015 performance outlook to reflect the recent acquisition of Knights Apparel."

Management raised their earnings guidance for 2015 from $1.58-1.63 to $1.61-1.66 per share. Wall Street estimates were at $1.64. HBI also raised their 2015 revenue guidance from $5.78-5.83 billion to $5.90-5.95 billion. Consensus estimates were already at $5.95 billion.

The stock was hammered on the earning miss as investors ignored the improved earnings and revenue guidance. The stock corrected from about $34.60 to under $31.00 in four days (-10% correction).

Analysts' reaction to HBI's results have been positive. Some have noted that Q1 is normally a slower season for HBI. They see the pullback in HBI's stock as a buying opportunity. Multiple firms have raised their price target since the earnings report (new targets are $37, $38, and $40 per share).

Technically HBI has been consolidating sideways the last few weeks. However, this past week the stock displayed relative strength. Not only did it rally past resistance near $32.50 but it closed technical resistance at its 50-dma. Tonight I am suggesting we wait for HBI to close above $33.00 and then buy calls the next morning. The stock does have resistance in the $34.75 area so we'll have to keep an eye on that level. Currently the point & figure chart is forecasting at $41.00 target.

- Suggested Positions -
JUN 17, 2015 - entry price on HBI @ 33.04, option @ 1.85
symbol: HBI160115C35 2016 JAN $35 call - current bid/ask $1.70/1.90

07/19/15 HBI might report earnings on July 23rd, no confirmation yet
06/28/15 new stop @ 31.25
06/17/15 trade begins. HBI opens at $33.04
06/16/15 triggered. HBI closed @ $33.06, above our trigger at $33.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 31.25
Play Entered on: 06/17/15
Originally listed on the Watch List: 06/14/15


Henry Schein, Inc. - HSIC - close: 148.10

Comments:
07/19/15: HSIC is also a new watch list candidate that graduated to an active trade with last week's rally. The plan was to wait for HSIC to close above $146.50. Shares closed at $146.53 on July 13th. Our trade opened the next morning with HSIC at $147.00. I would still consider new positions now at current levels or you could wait for a dip near $146.50. FYI: HSIC is expected to report Q2 earnings in early August.

Trade Description: July 12, 2015:
HSIC has been relatively resistant to the market's ups and downs lately. That's a good thing considering some of the recent volatility in stocks.

HSIC is in the services sector. They're part of the medical equipment industry. According to the company, "Henry Schein, Inc. is the world's largest provider of health care products and services to office-based dental, animal health and medical practitioners. The Company also serves dental laboratories, government and institutional health care clinics, and other alternate care sites. A FORTUNE 500 Company and a member of the S&P 500 and NASDAQ 100 Indices, Henry Schein employs more than 18,000 Team Schein Members and serves more than one million customers.

The Company offers a comprehensive selection of products and services, including value-added solutions for operating efficient practices and delivering high-quality care. Henry Schein operates through a centralized and automated distribution network, with a selection of more than 100,000 branded products and Henry Schein private-brand products in stock, as well as more than 150,000 additional products available as special-order items. The Company also offers its customers exclusive, innovative technology solutions, including practice management software and e-commerce solutions, as well as a broad range of financial services.

Headquartered in Melville, N.Y., Henry Schein has operations or affiliates in 30 countries. The Company's sales reached a record $10.4 billion in 2014, and have grown at a compound annual rate of approximately 16 percent since Henry Schein became a public company in 1995.

HSIC has managed to beat Wall Street estimates the last couple of quarters. Revenue growth has been negatively impacted by foreign currency headwinds but they're still seeing growth. Analysts are only forecasting +3.3% revenue growth in 2015 but they expect that to almost double in 2016 to +6.4%.

Technically the stock looks bullish with a breakout from a major consolidation pattern back in June. The point & figure chart shows a quadruple top breakout buy signal with a $195.00 target.

Shares of HSIC have been churning sideways in the $142-146 range the last couple of weeks. If it can breakout we want to be ready. Tonight I am suggesting a trigger to buy calls if HSIC can close above $146.50.

- Suggested Positions -
JUL 14, 2015 - entry price on HSIC @ 147.00, option @ 3.90
symbol: HSIC160115C155 2016 JAN $155 call - current bid/ask $3.90/4.60

07/14/15 trade begins. HSIC opens at $147.00
07/13/15 HSIC closed @ $146.53, above our trigger of $146.50
Option Format: symbol-year-month-day-call-strike

Chart of HSIC:

Current Target: To Be Determined
Current Stop loss: 139.75
Play Entered on: 07/14/15
Originally listed on the Watch List: 07/12/15


iShares US Home Construction ETF - ITB - close: 27.60

Comments:
07/19/15: A strong housing starts number and a better than expected NAHB home confidence survey was not enough to fuel a rally in the ITB. This ETF underperformed the broader market. If this dip continues the ITB should find support in the $27.00 area.

No new positions at this time.

Earlier Comments: January 11, 2015:
The ITB is an exchange traded fund that mimics the Dow Jones U.S. Select Home Construction Index. The top 12 holdings are DHI, LEN, PHM, TOL, NVR, HD, TPH, LOW, RYL, SHW, KBH and MTH.

This index has been stuck in a trading range for years. That looks like it's about to change. Have you looked at a chart of the 10-year bond yield lately? Bond yields are going lower. That's going to pressure mortgage rates lower and that's bullish for home sales. This past week saw 30-year mortgage rates dip below 3.6%. That's a 19-month low.

If that wasn't enough of a tailwind President Obama wants to help. On January 7th the White House announced plans to reduce the government mortgage insurance premiums in an effort to boost home ownership. Another positive for the homebuilders is the U.S. Federal Reserve. We just had two fed governors come out last week saying they think the Fed should hold off on raising rates. The longer the Fed waits to start raising rates the better it will be for homebuilders.

Currently the ITB appears to be breaking out past major resistance and closed at multi-year highs. I'd like to see a little bit more follow through. Tonight I'm suggesting we wait for the ITB to close above $27.00 and then buy calls the next morning with a stop loss at $23.95.

- Suggested Positions -
FEB 11, 2015 - entry price on ITB @ 27.09, option @ 1.70
symbol: ITB160115C30 2016 JAN $30 call - current bid/ask $0.65/1.00

07/12/15 new stop @ 25.90
06/28/15 last week new home sales surged to their best levels since early 2008
06/15/15 the NAHB confidence survey hits 9-month highs
05/31/15 the ITB is not performing well. Investors may want to consider an early exit.
03/01/15 new stop @ $25.45
02/11/15 trade begins. ITB opens at $27.09
02/10/15 ITB closes at $27.10, above our trigger at $27.00
Option Format: symbol-year-month-day-call-strike

Current Target: ITB @ TBD
Current Stop loss: 25.90
Play Entered on: 02/11/15
Originally listed on the Watch List: 01/11/15


MasterCard Inc. - MA - close: 96.08

Comments:
07/19/15: MA spent last week consolidating sideways under resistance near $96.00. Shares look poised to breakout on Monday and we could see MA make a run towards the $100 level. Odds are good the $100.00 mark is round-number, psychological resistance that might take a few days to overcome.

There has not been any more news on the EU complaint about MA overcharging in Europe.

I am not suggesting new positions at this time.

FYI: MA's earnings are July 29th.

Trade Description: May 3, 2015:
We are adding MA back to the watch list. Here's our recent watch list play description from April:

Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.

Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone."

MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.

The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.

Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.

Recently MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.

"Despite a mixed global economy, we delivered solid results for the quarter and for the full year in 2014," said Ajay Banga, president and CEO, MasterCard. "This year is off to a good start with several new wins, as well as renewals of some important customer agreements, with more in the pipeline. Looking ahead, we will continue to be at the forefront of our industry by driving payment innovation with solutions such as MasterPass, and by increasing electronic payments usage globally as demonstrated by our significant expanded acceptance footprint across Africa."

Shares of MA look like a potential trade again. The company recently reported earnings on April 29th. The beat estimates on the bottom line with a profit of $0.89 per share. Revenues were only up +2.7% to $2.23 billion, which was below expectations. Part of the challenge were currency headwinds.

Wall Street seems to think that MA will do well in spite of the tough business environment. The spike higher on April 22nd was news that the country of China was going to open up their market to foreign companies. Previously companies like MA and Visa could only do business in China by partnering with a domestic firm (China UnionPay). Now the Chinese government is opening up the bank card-clearing market to foreigners. This is huge. The Chinese market for this business was $6.8 trillion in transactions last year. Now MA gets a chance to compete for its share of this business.

Shares of MA still have resistance near $93.00. We want to see MA close above $93.25 and then buy calls the next morning with a stop loss at $88.00.

- Suggested Positions -
MAY 11, 2015 - entry price on MA @ 93.48, option @ 5.95
symbol: MA160115C95 2016 JAN $95 call - current bid/ask $5.75/5.95

07/10/15 EU files charges against MA regarding excessive fees
06/21/15 new stop @ 89.75
05/11/15 trade begins. MA opens at $93.48
05/08/15 triggered with a close @ $93.51 (above $93.25)
Option Format: symbol-year-month-day-call-strike

Current Target: MA @ TBD
Current Stop loss: 89.75
Play Entered on: 05/11/15
Originally listed on the Watch List: 05/03/15


Nike, Inc. - NKE - close: 112.80

Comments:
07/19/15: NKE has spent the last four days consolidating sideways in the $111.75-113.00 range. The stock did manage to eke out a gain for the week. That puts the current run at seven up weeks in a row. NKE looks poised to breakout past $113.00 if the market cooperates on Monday.

Tonight we will raise the stop loss to $107.75.

I am not suggesting new positions at this time.

Earlier Comments: March 29, 2015:
In Greek mythology Nike is the winged goddess of victory. It's an appropriate brand name for the American athletic wear giant. Nike is the 800-pound gorilla in the industry with annual sales of more than $30 billion.

If you're not familiar with the company, "NIKE, Inc., based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

The company's most recent earnings report was March 19th, after the closing bell. NKE reported its Q3 2015 results. Analysts were expecting a profit of $0.84 a share on revenues of $7.62 billion. NKE delivered a profit of +0.89 a share or +16% from a year ago. Revenues were up +7% to $7.46 billion. However, if you back out the currency headwinds, their revenues were up +13%.

The company reported sales growth across every geographical region. Their gross margins improved 140 basis points to 45.9 percent. Management said their online sales are soaring. Nike.com saw its revenues jump +42% last quarter.

The current quarter is NKE's 2015 Q4 (March-July) and the company said orders for Q4 in North America are up +15%, which is above analysts' estimates of +11.6%. Orders from China are up +11%, also above estimates. In the company's earnings release NKE said, "As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent."

One big concern is the U.S. dollar. Sales in Europe were up +21% but when you factor in euro weakness and dollar strength that sales growth drops to +10%. The strength in the U.S. dollar is a major headwind but after NKE's Q3 results Wall Street feels that the company is managing the currency impact very well. The company is forecasting low double digit sales growth in the current quarter.

Wall Street applauded the results and shares of NKE gapped open higher on March 20th to hit all-time highs. There was a parade of bullish analyst comments. Several firms raised their price target on NKE. Here's a brief list of new price target: $106, $110, $115, $116.00. The point & figure chart is more optimistic as it is forecasting at $125.00 target.

Shares of NKE have seen some profit taking, which isn't a surprise considering the market's recent decline. However, now that NKE has filled the gap, traders jumped in to buy the dip. The stock looks poised to breakout past round-number resistance at $100.00 (again). Tonight I am suggesting investors wait for NIKE to close above $101.00 and then buy calls the next morning with a stop loss at $94.45.

- Suggested Positions -
MAY 11, 2015 - entry price on NKE @ 102.42, option @ 4.20
symbol: NKE160115C110 2016 JAN $110 call - current bid/ask $7.45/7.55

07/19/15 new stop @ 107.75
07/12/15 new stop @ 104.25
07/05/15 new stop @ 103.25
06/28/15 new stop @ 102.25
06/25/15 NKE beats earnings and revenue estimates
06/21/15 new stop @ 99.50
06/07/15 new stop @ 97.85
05/31/15 NKE down last week on rumors it might be involved in the FIFA scandal
05/11/15 trade begins. NKE opens at $102.42
05/08/15 Triggered with a close @ $102.44 (above 102.00)
05/03/15 move the stop loss from 95.75 to 97.45
04/12/15 Strategy update: adjust the trigger to a close above $102.00 and the stop loss to $95.75 (from a close above $101.00 and a stop at $94.45)
Option Format: symbol-year-month-day-call-strike

Current Target: NKE @ TBD
Current Stop loss: 107.75
Play Entered on: 05/11/15
Originally listed on the Watch List: 03/29/15


Starbucks Corp. - SBUX - close: 55.69

Comments:
07/19/15: SBUX is another big cap stock that has ended the week at new all-time highs. The company's earnings report is coming up soon on July 23rd. After such a big rally over the last few months there is a good chance that SBUX could see some profit taking following its earnings report.

I am not suggesting new positions at this time. We will raise the stop loss to $51.85. SBUX has not traded below its simple 50-dma in almost six months. Today the 50-dma is at $52.68.

Trade Description: April 26, 2015:
SBUX shares are soaring to new all-time highs.

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +26%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pops. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

That whole scenario just happened again on Friday with the company delivering exceptional growth. SBUX reported its Q2 (2015) on April 23rd. Earnings of $0.33 a share were in-line with estimates. Revenues were up +17.8% to $4.56 billion, slightly above expectations. It was their strongest growth in four years. Customers are responding well to new drink options and an updated food menu. They're also developing new delivery options, mobile pay options, and alcoholic drinks available at select locations.

Worldwide same-store sales grew +7%. This was significantly above estimates. It also marked the 21st consecutive quarter where SBUX's comparable store sales were +5% or more.

The company issued mixed guidance. The stronger dollar is having an impact. They see fiscal 2015 results in the $1.55-1.57 range. That compares to Wall Street estimates for $1.57 per share. However, the company's revenue estimates are more optimistic. They're forecasting +16-18% sales growth into the $19.1-19.4 billion zone compares to analysts' estimates of $19.1 billion.

The stock market applauded SBUX's results and shares popped to new highs. We do not want to chase it. Shares will likely fill the gap from Friday morning. Tonight I am suggesting a buy-the-dip trigger at $50.00. More nimble traders may want to consider a trigger closer to $49.70 instead.

- Suggested Positions -
APR 28, 2015 - entry price on SBUX @ 50.00, option @ 1.59
symbol:SBUX160115C55 2016 JAN $55 call - current bid/ask $3.45/3.60

07/19/15 new stop @ 51.85
06/29/15 Sold half, SBUX gapped down. Option exit $2.67 (+67.9%)
06/28/15 Sell half of our call position on Monday, June 29, to lock in a potential gain
06/21/15 new stop @ 49.65
06/07/15 new stop @ 49.25
05/31/15 new stop @ 48.25
04/28/15 triggered @ 50.00
Option Format: symbol-year-month-day-call-strike

Current Target: SBUX @ TBD
Current Stop loss: 51.85
Play Entered on: 04/28/15
Originally listed on the Watch List: 04/26/15


Under Armour, Inc. - UA - close: 87.22

Comments:
07/19/15: It was a volatile week for shares of UA. The stock surged to new all-time highs on Monday's market rally. Shares plunged on Thursday in reaction to an analyst' downgrade. Fortunately traders bought the dip and UA rebounded +2.19% on Friday. The longer-term bullish up trend remains intact.

The week ahead could be quiet ahead of UA's earnings report on July 23rd and then volatile on the 24th when investors react to the news.

Tonight I am raising our stop loss to $82.40. No new positions at this time.

Trade Description: June 14, 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 Fitnessâ„¢ 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 stock has rallied sharply into its earnings report and shares suffered some post-earnings depression with a -$12.00 drop (-13.6%) in the next two weeks. The price target upgrades continued but UA spent most of May consolidating sideways inside a narrow range. Finally on June 5th shares of UA broke out past multiple layers of resistance on another upgrade. The stock was upgraded to a "buy" with a $91 price target. Since then UA has been digesting its gains in a sideways consolidation between what should be support at $80 and short-term resistance near $82.00.

Tonight I am suggesting we wait for UA to close above $82.25 and then buy calls the next morning with a stop loss at $75.90.

FYI: I am listing the 2016 calls but investors may want to consider the 2017 January calls if you're willing to pay for the time premium.

- Suggested Positions -
JUN 17, 2015 - entry price on UA @ 83.06, option @ 4.50
symbol: UA160115C90 2016 JAN $90 call - current bid/ask $5.60/6.20

07/19/15 new stop @ 82.40
07/12/15 new stop @ 79.75
06/28/15 new stop @ 78.90
06/17/15 trade begins: UA opens at $83.06
06/16/15 Triggered: UA closed at $82.78, above our trigger at $82.25
Option Format: symbol-year-month-day-call-strike

Current Target: UA @ TBD
Current Stop loss: 82.40
Play Entered on: 06/17/15
Originally listed on the Watch List: 06/14/15




Watch

Pharmacies & Movies

by James Brown

Click here to email James Brown


New Watch List Entries

CVS - CVS Health Corp

LGF - Lions Gate Entertainment


Active Watch List Candidates

ATVI - Activision Blizzard Inc.

DIS - The Walt Disney Co.

FEYE - FireEye, Inc.


Dropped Watch List Entries

GD and HSIC have graduated to our active play list.

STZ has been removed.



New Watch List Candidates:

CVS Health - CVS - close: 110.14

Company Info

Healthcare stocks have been strong performers this year. CVS is no exception with the stock up +14% year to date.

According to the company, "CVS Health is a pharmacy innovation company helping people on their path to better health. Through its 7,800 retail pharmacies, nearly 1,000 walk-in medical clinics, a leading pharmacy benefits manager with more than 70 million plan members, and expanding specialty pharmacy services, the company enables people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs."

Their most recent earnings report was May 1st. CVS announced its Q1 results were $1.14 per share. That beat estimates by six cents. Revenues were up +11% to $36.33 billion, also above estimates. CVS did lower their Q2 guidance but left their 2015 forecast unchanged.

Wall Street loves a deal and CVS has been busy making deals. On May 21st the company announced they were buying Omnicare (OCR) for $12.7 billion. OCR is a pharmacy benefits provider to seniors citizens. This deal is expected to close by the end of 2015. CVS believes OCR will add 20 cents in earnings to their fiscal 2016. CVS CEO Larry Merlo commented on the deal, "The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel. It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients."

CVS didn't stop there. On June 15th they announced a deal to buy all of the pharmacies inside Target stores (TGT). Here's an excerpt from the company's press release explaining the Target pharmacy deal:

CVS Health to acquire Target's pharmacy and clinic businesses for approximately $1.9 billion. Through this agreement, CVS Health will acquire Target's more than 1,660 pharmacies across 47 states and operate them through a store-within-a-store format, branded as CVS/pharmacy. In addition, a CVS/pharmacy will be included in all new Target stores that offer pharmacy services. Target's nearly 80 clinic locations will be rebranded as MinuteClinic, and CVS Health will open up to 20 new clinics in Target stores within three years of the close of the transaction. The new clinics will be part of CVS/minuteclinic's plan to operate 1,500 clinics by 2017. In addition, CVS Health and Target plan to develop five to 10 small, flexible format stores over a two-year period following the deal close, which will each be branded as TargetExpress and include a CVS/pharmacy.
Wall Street also reacted positively to the Target pharmacy news.

Rival pharmacy operator WBA reported earnings on July 9th that beat estimates by 15 cents and WBA raised their guidance. That should bode well for CVS who reports earnings on August 4th.

Shares of CVS are trading at all-time highs near $110. We don't want to chase it here. Tonight I am listing a buy-the-dip entry trigger to jump in on a pullback. Prior to the July rally the June high was $106.88. I'm suggesting a buy-the-dip trigger at $107.00.

Buy-a-dip trigger: $107.00, start with a stop loss at $103.40.

BUY the 2016 Jan $115 call (CVS160115C115) current ask $2.78

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

Chart of CVS:

Originally listed on the Watch List: 07/19/15


Lions Gate Entertainment - LGF - close: 37.85

Company Info

Have you ever wanted to trade the hype on a particular movie release? We might be able to do just that with LGF.

LGF is in the services sector. According to the company, "Lionsgate is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, new channel platforms, video games and international distribution and sales. Lionsgate currently has more than 30 television shows on over 20 different networks spanning its primetime production, distribution and syndication businesses, including such critically-acclaimed hits as the multiple Emmy Award-winning Mad Men and Nurse Jackie, the broadcast network series Nashville, the syndication success The Wendy Williams Show, the hit series Orange is the New Black, the critically-acclaimed drama Manhattan and the breakout series The Royals."

What that company description neglects to mention is the Hunger Games franchise. LGF makes the movies for the extremely popular franchise and the fourth and final movie is due to hit the U.S. market in November this year. Shares of LGF will likely rally into November as hype builds for the "Hunger Games: Mockingjay - Part 2" movie.

The stock already looks bullish with a rally from its May lows. Today shares are hovering near significant resistance in the $38.00 area and a breakout here should launch the next leg higher.

Tonight I am suggesting an intraday trigger to buy calls on LGF when shares hit $38.50. More conservative traders may want to use an alternative entry strategy and wait for a close above $38.25 instead. However, the most recent data listed short interest at 18% of the 99.0 million share float. A breakout past resistance near $38.25 could spark some short covering and we could miss our entry point.

I want to warn readers that LGF is scheduled to report earnings on August 6th. This is a risk should the company warn or miss estimates. Currently the point & figure chart is forecasting at $52.00 target. We will plan on exiting prior to the movie's release date in November.

Breakout trigger: Use an intraday trigger at $38.50
Start with a stop at $34.65.

BUY the 2016 Jan $40 call (LGF160115C40) current ask $1.94

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

Chart of LGF:

Originally listed on the Watch List: 07/19/15


Active Watch List Candidates:



Activision Blizzard, Inc. - ATVI - close: 25.81

Comments:
07/19/15: ATVI is hovering at all-time highs but just below resistance in the $26.00 area.

Currently the plan is to wait for ATVI to close above $26.15 and then buy calls the next morning.

Please note that ATVI could be volatile following its earnings report on August 4th. More conservative investors may want to wait until August 6th before considering new positions.

Trade Description: May 24, 2015:
Consumer spend more money on video games than they do at the movie theater. ATVI is the biggest with annual sales of $4.58 billion. Electronic Arts (EA) is hot on its heels with revenues of $4.52 billion a year.

ATVI is home to some of the biggest franchises in video game history. According to the company, "Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty , Call of Duty Online, Destiny , Skylanders, World of Warcraft , StarCraft , Diablo, and Hearthstone: Heroes of Warcraft. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world."

Investors have been pretty forgiving when it comes to ATVI's recent earnings reports. On February 5th they beat the bottom line estimate but missed the revenue number. Revenues were down -2.6% from a year ago. ATVI blamed currency headwinds for the revenue miss since half of their sales are outside the U.S. and represent a significant chunk of their profits. Plus, the video game business is prone to lumpy quarters as sales rise and fall on new releases and expansions. Management lowered their Q1 and 2015 guidance.

ATVI just reported its Q1 results on May 6th. Earnings per share fell -15.7% from a year ago to $0.16 but that was actually 9 cents better than expected. Revenues fell again, this time down -8.9%. Management lowered their Q2 guidance but they raised their fiscal 2015 earnings guidance above Wall Street estimates. That was enough to send shares of ATVI higher. A few analysts have commented that ATVI's 2015 guidance is too conservative.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, commented on his company's quarterly results, "...This deepening level of engagement with a widening base of players across our franchises is what drove another successful quarter. We delivered better-than-expected Q1 results, increased our 2015 non-GAAP revenue outlook to $4.425 billion and earnings per share outlook to $1.20. Last quarter, on a non-GAAP basis, we delivered record higher-margin digital revenues of over half a billion dollars a Q1 record on an absolute basis and an all-time high on a percentage basis."

There were a number of headlines about how ATVI's Warcraft MMORPG saw its subscriber numbers fall from 10 million to 7.1 million in the last quarter. Investors don't seem to care. The Warcraft game is a cash cow but it's 11 years old. Investors could be looking forward.

ATVI said their new Destiny sci-fi shooter game and the Blizzard's fantasy card game have more than 50 million registered players (between them) with over $1 billion in sales.

ATVI also has several new titles coming out. They're on the verge of releasing "Heroes of the Storm", which will take on the current category champion "League of Legends" for the MOBA-style video game. More than ten million people have already signed up for the Heroes beta. ATVI has announced the next iteration of their Call of Duty franchise (CoD), which will be "Call of Duty: Black Ops III", which is another major cash-generating franchise. ATVI is also launching a new game called "Overwatch" and they'll release a new version of "Guitar Hero", which had 40 million players at its peak.

Currently shares of ATVI are up three weeks in a row and look a little bit overbought. Broken resistance near $24.00 should be significant support. Tonight I am suggesting a buy-the-dip trigger at $24.25 with a stop loss at $21.85.

trigger: Wait for a close above $26.15, then buy calls the next morning. Start with a stop loss at $23.65.

BUY the 2017 Jan $30 call (ATVI170120C30) current ask $1.79

07/12/15 new entry strategy: Wait for a close above $26.15, then buy calls
Use the 2017 Jan $30 call
06/28/15 adjust the entry trigger to $23.75 and the stop to $21.85.
06/21/15 move the stop loss to $22.85
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 05/24/15


The Walt Disney Co. - DIS - close: 118.86

Comments:
07/19/15: Shares of DIS continue to soar. The company had another strong opening weekend for its Marvel movie studio with the new Ant-Man movie.

I am still expecting DIS to see some profit taking relatively soon. Shares are currently hovering near a trend line of resistance (trend of higher highs). Plus the $120 level could be round-number resistance. We will wait for a pullback.

Currently our buy-the-dip trigger is $113.55. We may not get an entry point until after DIS reports earnings on August 4th.

Trade Description: June 28, 2015:
Scrooge McDuck isn't the only one with a wealth of riches these days. Long-term investors in DIS have been rewarded with big gains in recent years. From Mickey Mouse to the thousands of characters owned by Marvel to Pixar, everything DIS touches has turned to gold lately.

Disney is an American icon. The company is over 90 years old. They have grown into a massive content generating giant. Today DIS runs five business segments. Their media networks include broadcast, cable, radio, publishing, and digital businesses headlined by their Disney/ABC television group and ESPN Inc. DIS' parks and resort business includes Disneyland, Disneyworld, plus theme parks in Tokyo, Paris, Hong Kong, Shanghai, and a cruise line.

The company's products division licenses the company's horde of names, characters, and intellectual property to a wide range of products. They've also jumped into the online world with their Disney Interactive division. Last but not least is the Walt Disney Studios segment. Disney started making movies 90 years ago. Today their studio business includes Disney animation, Pixar Animation, Disneynature, Disney Studios Motion Pictures, Disney music group, Touchstone Pictures, and Marvel Studios.

Their movie business has been a money maker over the years with huge hits like the Pirates of the Caribbean franchise, Tangled, Wreck-it Ralph. In 2013 they released the animated film "Frozen", which has turned into the largest grossing animated movie of all time. Pixar has a stable of successful movies that have grossed almost $9 billion. DIS is also mining gold in Marvel Entertainment's library of over 8,000 characters of comic book history. Marvel had two big hits in 2014 Captain America: Winter Soldier and Guardians of the Galaxy. Their 2015 Avengers: Age of Ultron was also a big winner at the box office grossing more than $1.3 billion worldwide. Of course not every Disney movie crushes it. Their recent Tomorrowland was a big disappointment and they could lose more than $100 million on the film.

Back in 2012 Disney purchased Lucasfilm and all the Star Wars properties from George Lucas for $4 billion. The company is busy filming the next three episodes of the Star Wars franchise. The next Star Wars film it titled "The Force Awakens." It will be episode seven in the franchise. The movie doesn't hit theaters until December 2015 but analysts are already predicting that "The Force Awakens" will generate $1.2 billion at the global box office.

DIS management loves movie franchises because they can fuel years of sequels, park rides, and merchandise. The approach seems to be working. Revenues and net income have hit all-time highs for five consecutive quarters. Their 2015 Q1 results saw earnings per share up +23% to $1.27. Their Q2 results saw earnings grow +14% to $1.23 per share. Their domestic theme parks showed a strong surge in both attendance and in customer spending. Analysts are forecasting DIS earnings to grow +17% this year.

The recent success of movie "Jurassic World", which was produced by Universal (not a Disney company), has generated even more excitement for DIS' upcoming Star Wars films. Jurassic World has broken all sorts of records and was the fastest movie to reach $1 billion in global box office sales. This has analysts expecting even bigger numbers from Star Wars. The next Star Wars film: "The Force Awakens" (episode seven), doesn't hit theaters until December 2015.

Morgan Stanley analyst Benjamin Swinburne is forecasting "Force Awakens" to do almost $2 billion in box office sales. This could boost DIS' bottom line by more than $1 billion. Plus the merchandising associated with Star Wars will bring a bountiful harvest for DIS too. Consumers spend close to $3 billion a year on licensed toys, clothing, and similar merchandise. The Star Wars movies will rake in the money in this category. DIS plans to release a Star Wars movie every year between now and 2020 (six more movies).

The stock surged to new all-time highs back in early May after its Q2 earnings report. Shares followed that rally with a six-week consolidation allowing DIS to digest its gains. A couple of weeks ago DIS started to rally again and broke through major resistance in the $112.00 area. Today the stock is at all-time highs.

Credit Suisse recently upped their price target to $130. Meanwhile the point & figure chart is bullish and forecasting at long-term target of $160.00.

We want to be ready to take advantage of weakness in DIS due to any broader market sell-off. Just because stocks might plunge on the Greece debt story doesn't mean DIS' business is going to change. Any dip near support should be a buying opportunity. Tonight I am suggesting a buy-the-dip trigger at $111.00. We'll start with a stop loss at $107.00.

You could definitely play the 2016 calls but tonight I'm listing the 2017s.

Buy-the-Dip trigger @ $113.55 (use a stop at $107.00)

BUY the 2017 Jan $125 call (DIS170120C125)

07/12/15 adjust the trigger to $113.55
07/05/15 move the trigger to $112.00
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 06/21/15


FireEye, Inc. - FEYE - close: 48.07

Comments:
07/19/15: The weakness in FEYE last week was a surprise. Shares briefly traded above resistance near $50.00 on Monday but the rally failed. FEYE spent the week trending lower while the rest of the market was in rally mode. That's normally a bad sign.

Currently we are waiting for FEYE to close in the $50.25-51.25 range and then we'll buy calls the next morning.

FYI: FEYE is scheduled to report earnings on July 30th.

Trade Description: July 12, 2015:
We recently had FEYE on the LEAPStrader newsletter as a bullish candidate. The play was stopped out this past week thanks to the market's volatility and a stop loss that may have been a little too tight. FEYE recovered and now looks poised to resume its up trend.

I see last week's rebound as a new opportunity for bullish investors. Jump to the bottom of this play for new entry details.

Here's our previous play description:
The cyber attack on media giant Sony last year was headline news for weeks. It was a major warning bell for corporations around the world to spend more on cyber security. Today it still seems like every week we hear about some high-profile cyber attack. Online criminals and saboteurs are growing more sophisticated and that's fueling corporate demand for high-tech defenses.

The company describes itself as, "FireEye has invented a purpose-built, virtual machine-based security platform that provides real-time threat protection to enterprises and governments worldwide against the next generation of cyber attacks. These highly sophisticated cyber attacks easily circumvent traditional signature-based defenses, such as next-generation firewalls, IPS, anti-virus, and gateways. The FireEye Threat Prevention Platform provides real-time, dynamic threat protection without the use of signatures to protect an organization across the primary threat vectors and across the different stages of an attack life cycle. The core of the FireEye platform is a virtual execution engine, complemented by dynamic threat intelligence, to identify and block cyber attacks in real time. FireEye has over 3,100 customers across 67 countries, including over 200 of the Fortune 500."

The stock was a real high flyer in late 2013 and into 2014. Shares began to fade in early 2014 and then really got crushed when FEYE issued an earnings warning in May 2014. FEYE spent the rest of 2014 consolidating sideways in a very wide $25-40 trading range.

This year FEYE's stock has seen a reversal of fortunes. Suddenly shares are soaring and up more than +45% thanks to better than expected earnings results. FEYE's reported its 2014 Q4 results on February 11th. Earnings improved from a loss of 50 cents a year ago to a loss of 38 cents in the fourth quarter, which was eleven cents better than expected. Revenues soared a whopping +149% to $143 million, which was above expectations.

Management guided 2015 earnings and revenues essentially in-line with consensus. The company is forecasting revenues in the $605-625 million range. FEYE expects a 2015 loss of $1.80 to $1.90 per share. Gross margins are expected to be in the 71-75 percent range.

Analysts have expressed concern with the surge in FEYE's spending but management said they are spending in-line with the company's growth. FEYE CEO Dave DeWalt said FEYE saw its growth double in 2014 and is up tenfold in the last three years.

The trend of improving results continued in the first quarter of 2015. FEYE reported earnings on April 30th. Wall Street was expecting a loss of ($0.51) a share on revenues of $120.5 million. FEYE delivered a loss of ($0.48) per share. Revenues surged +69.5% to $125.4 million. Guidance was in-line with their prior forecast.

The results were good enough that multiple analysts firms have raised their price target on FEYE in the last month. Jim Cramer talks about cyber security stocks on his CNBC show last week. I don't watch Cramer's show but he essentially said that cyber security stocks like FEYE could be great long-term investments. He's probably right. Hacking attacks on corporations have been getting worse every year. They are not going away. It's a constant arms race between hackers versus security specialists. Cyber security is going to be a long-term need for every corporation big or small.

Meanwhile FEYE has seen great success with its cyber security subscription services. This is great for the company since they get recurring revenues and not a one-time sale. Management also believes they have a ton of opportunity overseas. Most of their sales are in the U.S. but cyber security is a global need.

(July 12th update): Last week FEYE dipped toward multiple layers of support and rebounded. Today the stock is hovering just below round-number resistance at $50.00. Tonight I am suggesting we wait for FEYE to close in the $50.25-51.25 range and then open bullish positions the next morning with a stop loss at $44.85.

We're not setting a target tonight but the point & figure chart is forecasting a long-term target of $85.00.

NOTE: FEYE is scheduled to report earnings on July 30th.

Breakout trigger: Wait for FEYE to close in the $50.25-51.25 range
Then buy calls the next morning with a stop at $44.85.

BUY the 2016 Jan $60 call (FEYE160115C60)

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

Originally listed on the Watch List: 07/12/15


Constellation Brands - STZ - close: 117.78

Comments:
07/19/15: STZ managed a gain for the week but shares are just not moving fast enough. The stock seems stuck in this $115-118 range. Plus there is additional resistance in the $120-122 area.

We are removing STZ as a watch list candidate.

Trade did not open.

07/19/15 removed from the watch list, suggested entry was a close in the $122-123 zone.
07/01/15 STZ reports Q1 earnings above estimates and raises 2016 guidance

Originally listed on the Watch List: 06/07/15