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Newsletter

Daily Newsletter, Tuesday, 6/2/2015

Table of Contents

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

Market Wrap

Let's Skip Summer

by Jim Brown

Click here to email Jim Brown

The markets are going nowhere. Volume is still declining, earnings are eroding, economic growth is flat and everyone is waiting on a correction. If that correction does not come soon this is going to be a very boring summer.

Market Statistics

The U.S. markets are following the overseas markets and the negativity caused a -115 point decline in the Dow at the open. The dip buyers showed up instantly but volume dried up as the Dow approached resistance at 18,100.



The Dow has returned to the bottom of its formation and any further decline is going to start pushing more investors to the sidelines. There is still plenty of support in the 17,600-17,800 range but once that uptrend breaks we could see the selling increase.


The economics this morning were mixed as usual. The Factory Orders for April declined -0.4% compared to a 2.2% rise in March and expectations for zero for April. Orders for defense capital goods fell -11.3%. Nondefense capital goods excluding aircraft fell from +1.6% to -0.3%. Durable goods orders declined from 5.1% to -1.0%. Backorders slipped to -0.1% for the fourth month in contraction out of the last five months.

The NY ISM rose slightly from 681.7 to 683.7. However, the current conditions component declined from 58.1 to 54.0 and the six-month expectations component fell sharply from 73.4 to 61.8. The employment component declined from 60.0 to 57.3. Revenues also fell sharply from 68.8 to 55.6

The severity of the declines in the components suggests business conditions are starting to fade in New York. This report is not widely watched so it really did not move the market.

The report that did move the market was auto sales for May. Sales rose to an annualized 17.79 million units and the strongest pace since the cash for clunkers program in May 2005. Spring always brings out the car buyers but lower fuel prices are helping fuel the enthusiasm this year.

The average age of currently owned cars is 11.4 years according to an IHS Automotive study based on Polk Co. registration data. The rising age of the fleet is expected to reach 11.7 years by 2019. The average trade-in is 6.5 years old. There are currently about 257 million cars in the USA.

As the fleet ages it causes the upgrade cycle we are seeing today. People are seeing $100-$150 in gasoline savings per month and they have not been spending it in the retail stores. Apparently they are upgrading their cars and iPhones.

The strong dollar is hurting sales abroad but the U.S. market is surging as a result of new models and higher gas mileage ratings.

The positive auto sales data caused treasuries to sell off and yields to rise. The yield on the ten-year treasury spiked +3.37% to close at 2.266% for the second day of strong gains. The rising yields weighed on equities.


The dollar fell sharply with a -1.5% drop after spending a week at the 97.50 level on the Dollar Index. The weak factory orders report pushed the expectations for a rate hike farther into the future. On Monday the Fed's preferred inflation indicator, the PCE, showed no inflation with a trailing 7 month rate of -0.1% and a 12-month rate of only +0.1%. With inflation this low the Fed's rate hike plans just keep slipping away.


The Greek deadline playing out in Europe also weighed on the U.S. markets. Reports of offers, deals and ultimatums created headlines for the last two days. Late today the EU Finance Ministers reportedly agreed on a last ditch ultimatum for Greece but the odds are good Greece will not agree. Time is growing short for Greece with 1.5 billion euros of payments to the IMF due over the next three weeks. If Greece does not agree to the EU deal there is 7 billion euros of bailout funds that will expire at the end of June.

Because of the impending payment dates and deadlines the odds of something happening over the next week or two are very good. The market should breathe a sigh of relief if that happens even though a deal would have no direct impact on the equity markets.

The report schedule picks up again tomorrow. The ADP report is expected to show a gain of +192,500 private jobs. Another forecast miss would send investors scurrying for cover ahead of the nonfarm payrolls on Friday. Nicholas Colas from Convergex, is predicting a range of 140k-160k on the nonfarm payrolls because of all the weak employment components in the regional reports and the jump in weekly jobless claims. He also predicts the Fed is going to hike rates in 2015 regardless of the economy just so they can get the process started and end all the speculation.

If the payrolls come in around his expected range that will push any rate hike even farther out. Various Fed heads have said they would like to see payrolls at 200,000 or more for "several months" before they can hike rates.

The Fed Beige Book is also out Wednesday afternoon and while the information is important it will have a bullish bias because it is produced by the Fed. The report rarely has a bearish outlook.


Stock news was pretty muted today as well. There were a few earnings but nothing exciting. PVH Corp, the old Phillips Van Heusen, posted earnings of $1.50 that easily beat estimates for $1.38. Without the impact of the strong dollar earnings would have risen +20% to $1.77 per share. Revenues declined -4.3% to $1.879 billion but that still beat estimates slightly. The Calvin Klein brand saw revenue rise +5% on a constant currency basis. The Tommy Hilfiger segment rose +1% on a constant currency basis. Heritage Brands revenues increased +5.1% with a +14% spike in Van Heusen comps.

The company raised guidance for the full year for a 3% rise in revenue. Earnings expectations rose from $6.75-$6.90 to $6.85-$6.95. That includes a -$1.25 per share impact from currency headwinds. Earnings are expected to rise 11-14% over 2014, up from the prior forecast for a 10-12% rise. The CEO said free cash flow was allowing them to pay down debt and they were open to further acquisitions. Shares rallied +7%.


Dollar General (DG) reported earnings of 84 cents compared to estimates for 82 cents. Same store sales rose +3.7% but missed estimates for 4.1%. The company said sales were expected to rise 8-9% for the full year with earnings in the range of $3.85-$3.95. Shares rallied +3%.


Calavo Growers (CVGW) reported earnings of 49 cents compared to estimates for 48 cents. Revenue was $221.6 million. The company said double-digit avocado volume growth was accelerating. Mexican avocado operations were "hitting on all cylinders" with pricing and availability trending favorably. Demand is increasing and shipments will ramp up in Q3. Shares rose +8% on the news.


G-III Apparel (GIII) reported earnings of 15 cents beating estimates by 8 cents. Revenues rose +18% to $433 million compared to consensus of $405.8 million. They guided for Q2 at 15-20 cents EPS and the consensus was 19 cents. They did raise full year estimates for 2016 from $2.52-$2.63 to $2.66-$2.76 compared to analyst estimates at $2.63. Shares rallied +3.3%.


After the close chip maker Ambarella (AMBA) reported earnings of 71 cents that beat estimates by 13 cents. Revenues rose +73.6% to $71 million, which also beat consensus of $67.1 million. Gross margin was 64.8%. Ambarella produces the chips in the GoPro cameras as well as several other brands and applications. Shares were flat in afterhours.


Walt Disney (DIS) unveiled a new line of "wearable" toys to get kids off the couch and interacting with other kids. The new line is called "Playmation" and was created in partnership with Hasbro. The first products will be Iron Man gloves and Hulk fists. Kids can interact with other toys in the line or follow narrated stories called "missions" that they can download. The new toys will start at $120 and work with Bluetooth. Multiple kids can join together to carry out the missions or plan their own games. Disney said the toys are expected to bring in about $500 million a year to start and when more characters and games are added that will increase to more than $1 billion a year. Link to news release and video


Crude oil rallied +2% in the regular session to $61.31 ahead of Wednesday's inventory report. Inventories are expected to have declined by another 2.0 million barrels. There may also be some short covering in the market ahead of the OPEC meeting on Friday. While nobody expects any change in production there is always that risk.


Markets

Dip buyers rescued the market once again with the opening dip to -115 on the Dow. The drop stopped at 17,925 and only a handful of points above the 100-day average at 17,919. This has been support for the last two months.

The S&P touched the 50-day at 2099 and the rebound was immediate despite not being a material support point in recent months. The 100-day average is the real target at 2082.

The S&P has a clear pattern of lower highs since the historic high back on May 21st at 2130. The index is only down -21 points from that high close but the weakness appears to be growing. The long tails on today's candle shows how undecided traders really are. There was a big dip, big rebound but the index closed right in the middle. In theory that suggests buyers and sellers are about equal. However, the solid trend of lower highs suggests the sellers are going to win.


The Dow resistance at 18,100 has been solid and today's intraday dip was a four-week low. If we have any weakness in the payroll reports the odds are good we are going to test support at the 17,800 level.



On the bright side the Nasdaq is refusing to give up any ground. The Nasdaq Composite has tested resistance at 5100 almost every day for the last two weeks. Where the Dow looks poised to move lower the Nasdaq looks poised for a breakout.

Every dip is quickly bought but there are plenty of sellers at 5097. Apparently they are content to wait right under that 5100 level but eventually they are going to run out of stock OR they will decide not to wait and dump it all at once on some negative headline. The Nasdaq is holding its gains so well I suggested to James to add a QQQ long on Wednesday just in case we do get a breakout on a strong payroll report.

Support at 5050 has also been strong with back to back declines to that level over the last two days. Both times the dip was bought instantly.

The Nasdaq is well above the 100-day average that is threatening to be tested on the Dow/S&P.



The Russell 2000 is also holding its gains although a little farther away from the recent highs. The resistance at 1260 was tested again today as was initial support at 1240. To illustrate the tie between the buyers and sellers the index closed at 1251 and right in the middle of that range.

Just to emphasize that the small caps are doing ok the Russell Microcap ($RUMIC) closed at a six-week high today and over resistance from the last two weeks. If fund managers are buying microcaps they are not really scared of a June decline. This is one way to boost your beta going into the June window dressing for the first half of the year.



Over the last three months the Dow has traded in the smallest range in 60 years. Volume continues to decline (5.8 billion shares today) as we head into summer and it is a tug of war between the remaining buyers and sellers.

While the Dow and S&P are showing weakness the Nasdaq and Russell are not. The Dow Transports even posted a gain for the last two days.

The markets are coiling with a tremendous amount of cash on the sidelines. Eventually a direction will appear and the move could be explosive. However, there is no expiration date on this sideways consolidation. We will know it is over only when the break out/down appears.

One analyst was laying out his reasons today on why the market could remain lackluster for months. April had record stock buybacks to power it higher. May had record M&A deals to add to gains. Recent IPOs have been mixed with several losing ground almost immediately. NYSE margin debt is at a record high. Everyone that wants to be long is already long on margin. He said there was no catalyst ahead to really power a market move higher.

Everything he said is true and you have read it in these pages in various forms. However, bull markets climb a wall of worry and the adage "don't short a dull market" immediately comes to mind.

While nobody can accurately predict market direction we can predict movement. The odds of a strong directional move increase with every day where nothing happens. The market has not seen a 5% decline in 2015 or a 10% decline in over three years. That is no guarantee one is about to hit but we all know it will eventually arrive. What we also know is that dip buyers are alive and well as evidenced by the last several intraday dips. Once those buyers disappear our troubles will begin.

These are the kind of markets that tend to produce short squeezes. Sellers become convinced that a dip is coming and they load up on shorts at every lower high. Eventually some headline appears and it is off to the races as they rush to cover. Let's hope that is soon.

I remain cautiously long until proven wrong. Translated that means maintain a few long positions but retain some cash and keep your stop losses in place.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Global Market For This Industry Poised To Triple

by James Brown

Click here to email James Brown


NEW BULLISH Plays

LDR Holding - LDRH - close: 41.88 change: +1.13

Stop Loss: 39.45
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 02, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 231 thousand
New Positions: Yes, see below

Company Description

Trade Description:
The worldwide market for nonfusion spinal devices is expected to triple by in the next seven years. That's according to Millennium Research Group (MRG), who said, "the global market for spinal nonfusion devices will almost triple in size through 2022, surpassing $1.6 billion. This market will be driven largely by emerging products and approvals, as well as high growth in emerging regions, such as Asia Pacific and Brazil, India and China (BIC)." ( source.)

One company leading the charge in this industry is LDRH. They are in the healthcare sector. According to the company, "LDR Holding Corporation is a global medical device company focused on designing and commercializing novel and proprietary surgical technologies for the treatment of patients suffering from spine disorders. LDR's primary products are based on its exclusive VerteBRIDGE(R) fusion and Mobi non-fusion technology platforms and are designed for applications in the cervical and lumbar spine. These technologies are designed to enable products that are less invasive, provide greater intra-operative flexibility, offer simplified surgical techniques and promote improved clinical outcomes for patients as compared to existing alternatives. In August 2013, LDR received approval from the U.S. Food and Drug Administration (FDA) for the Mobi-C cervical disc replacement device, the first and only cervical disc replacement device to receive FDA approval to treat both one-level and two-level cervical disc disease."

The recent earnings history for LDRH has been very bullish. They have beaten Wall Street's earnings and revenue estimates the last four quarters in a row. Plus, the company has raised its guidance the last four quarters in a row. Revenues have been surging in the +25% to +30% range the last year.

The company's most recent earnings report was May 6th. They reported their Q1 results after the closing bell. Analysts were expecting a loss of ($0.20) per share. LDRH reported a loss of ($0.12). Revenues were up +25.7% to $39.1 million, above the $36.6 million estimate. Gross margins improved from 83.1% to 83.5%.

LDRH management said that foreign exchange rates would hurt revenues by 5% to 6% in 2015. Yet they still raised their 2015 revenue guidance into the $166.7-168.1 million range, above analysts' estimates of $160.5 million.

The stock shot higher on its May 6th earnings report and bullish guidance. Shares recently peaked near $42.00 and spent the last several days consolidating sideways in the $40-42 zone. This sideways consolidation has alleviated some of LDRH's overbought conditions. The point & figure chart is very bullish and forecasting at $64.00 target.

We like how shares were showing relative strength today. The stock is poised to breakout past short-term resistance at $42.00. Tonight we are suggesting a trigger to launch bullish positions at $42.15. The stock does not trade a lot of volume and it has been somewhat volatile in the past. I would consider this a slightly more aggressive, higher-risk trade.

NOTE: Options are available but the spreads are a little too wide to trade comfortably.

Trigger @ $42.15

- Suggested Positions -

Buy LDRH stock @ $42.15

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.

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Small Caps Eke Out A Gain

by James Brown

Click here to email James Brown

Editor's Note:
The small cap Russell 2000 index managed to eke out a small gain while the big cap indices faded into the red by the closing bell. Strong auto sales numbers couldn't outweigh worries over Greece. The sideways market could be a sign that investors are just waiting for Friday's jobs report.

PCTY has been removed. RLYP hit our stop loss. ONDK hit our entry point.


Current Portfolio:


BULLISH Play Updates

GoPro, Inc. - GPRO - close: 58.40 change: -0.12

Stop Loss: 54.65
Target(s): To Be Determined
Current Gain/Loss: +15.1%
Entry on May 14 at $50.75
Listed on May 13, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.5 million
New Positions: see below

Comments:
06/02/15: GPRO briefly tagged a new high just below round-number resistance at $60.00 this morning. The rally didn't last long and shares faded back toward unchanged on the session.

After the closing bell video chip maker Ambarella (AMBA), who makes the chips for GPRO's cameras, reported better than expected earnings and revenues. This could give GPRO a boost tomorrow but I'm not seeing any movement in GPRO after hours.

No new positions at this time.

Trade Description: May 13, 2015:
GPRO looks like a short squeeze waiting to happen. This company is the premier brand for wearable "action" cameras.

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

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

GPRO came to market with its IPO in June 2014. The stock opened for trading at $28.65 and by October 2014 shares were nearing $100 per share. That proved to be the peak. GPRO spent the next six months correcting lower and finally bottomed near $37 in March this year. Now the stock is building on a steady trend of higher lows as investors digest the company's massive growth.

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

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

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

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

There are plenty of bears who think GPRO is overpriced with P/E above 47 and rising competition. The biggest argument against GPRO is competition from a Chinese rival Xiaomi who has produced a competitive action camera that they're selling for less than half of GPRO's similar model. GPRO critics are worried this could kill GPRO's growth in China and the rest of Asia. It's too early to tell who will be right but momentum is currently favoring the bulls.

The most recent data listed short interest at 24% of the 55.5 million share float. That's plenty of fuel to send GPRO soaring. Right now the stock is hovering around the psychological resistance level at $50.00. We are suggesting a trigger to launch bullish positions at $50.75.

- Suggested Positions -

Long GPRO stock @ $50.75

- (or for more adventurous traders, try this option) -

Long JUL $55 CALL (GPRO150717C55) entry $2.00

06/01/15 new stop @ 54.65
05/28/15 new stop @ 51.45
05/20/15 new stop @ 49.25
05/14/15 triggered @ $50.75
Option Format: symbol-year-month-day-call-strike


Hanesbrands Inc. - HBI - close: 31.81 change: -0.21

Stop Loss: 31.45
Target(s): To Be Determined
Current Gain/Loss: -1.7%
Entry on May 21 at $32.35
Listed on May 20, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.74 million
New Positions: see below

Comments:
06/02/15: HBI bounced around its $31.75-32.20 trading range and ended near its lows for the session. Shares have been stuck in this range the last few days. Readers may want to consider a rally above $32.20 as a new entry point for bullish positions.

Trade Description: May 20, 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 in the $30.50-32.00 zone the last several days and have just recently started to breakout from this trading range. We want to hop on board if this bounce continues. Tonight we're suggesting a trigger to open bullish positions at $32.35.

Long HBI stock @ $32.35

- (or for more adventurous traders, try this option) -

Long JUL $32.50 CALL (HBI150717C32.50) entry $1.05

05/30/15 new stop @ 31.45
05/21/15 triggered @ 32.35
Option Format: symbol-year-month-day-call-strike


Starbucks Corp. - SBUX - close: 51.73 change: -0.49

Stop Loss: 48.40
Target(s): To Be Determined
Current Gain/Loss: +1.3%
Entry on May 18 at $51.05
Listed on May 15, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.8 million
New Positions: see below

Comments:
06/02/15: After a four-day winning streak we shouldn't be surprised to see SBUX slip with the market's major indices down today. I do not see any changes from my recent comments. No new positions at this time.

Trade Description: May 16, 2015:
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. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 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 +23%, 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 in spite of the in-line results and sent SBUX soaring to new all-time highs the next day.

This earnings scenario, where SBUX delivers results in-line with estimates and rallies anyway, just happened again in late April. Of course it's worth noting that even in-line results still represent 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.

SBUX popped to new highs following its results and then spent the next week consolidating lower. Investors started buying the dips again at its bullish trend of higher lows. It looks like the consolidation is over and SBUX is pushing higher. We want to hop on board. Tonight we are suggesting a trigger to open bullish positions at $51.05.

- Suggested Positions -

Long SBUX stock @ $51.05

- (or for more adventurous traders, try this option) -

Long JUL $50 CALL (SBUX150717C50) entry $2.07

05/18/15 triggered @ $51.05
Option Format: symbol-year-month-day-call-strike


Super Micro Computer - SMCI - close: 34.60 change: -0.61

Stop Loss: 31.65
Target(s): To Be Determined
Current Gain/Loss: +2.8%
Entry on May 22 at $33.65
Listed on May 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 622 thousand
New Positions: see below

Comments:
06/02/15: SMCI also encountered some profit taking. Shares gapped open lower and fell to a -1.7% decline (after yesterday's +5.2% gain). Broken resistance near $34.00 should offer some support.

Trade Description: May 18, 2015:
Sometimes the market's expectations get too high. When a company fails to meet these rising expectations the stock can get punished.

SMCI is in the technology sector. According to the company, "Supermicro® (SMCI), the leading innovator in high-performance, high-efficiency server technology is a premier provider of advanced server Building Block Solutions® for Data Center, Cloud Computing, Enterprise IT, Hadoop/Big Data, HPC and Embedded Systems worldwide. Supermicro is committed to protecting the environment through its 'We Keep IT Green' initiative and provides customers with the most energy-efficient, environmentally-friendly solutions available on the market."

It's easy to see why investors might have big expectations for SMCI. Looking at three of their last four earnings reports SMCI has beaten Wall Street estimates on both the top and bottom line and raised guidance three quarters in a row. It was their most recent report where results seemed to stumble.

SMCI report its fiscal Q3 results on April 21st, after the closing bell. Earnings were up 25% from a year ago to $0.47 a share. Yet analysts were expecting SMCI to report earnings in the $0.49-0.50 range. Revenues were up +26% from a year ago to $471.2 million, but this also missed expectations.

Guidance was also a little soft. Traders were used to SMCI raising their guidance. This time guidance for the current quarter (their Q4) was generally below consensus estimates.

The market overreacted to the disappointment. Shares crashed from $35 to almost $28 following its earnings news. Then traders started buying SMCI in the $29-30 region a couple of weeks ago. The rebound has lifted SMCI back above technical resistance at its 200-dma and back above price resistance near $32.00. We are betting this rebound continues. Tonight we're suggesting a trigger to open bullish positions at $33.65.

- Suggested Positions -

Long SMCI stock @ $33.65

- (or for more adventurous traders, try this option) -

Long JUL $35 CALL (SMCI150717C35) entry $1.50

05/22/15 triggered @ 33.65
Option Format: symbol-year-month-day-call-strike


Thoratec Corp. - THOR - close: 45.35 change: -0.40

Stop Loss: 43.85
Target(s): To Be Determined
Current Gain/Loss: -1.7%
Entry on June 01 at $46.15
Listed on May 27, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 602 thousand
New Positions: see below

Comments:
06/02/15: THOR, like most of the market, is just churning sideways. There is no change from my recent comments.

I would wait for a rally past Monday's intraday high ($46.29) if you're looking for an entry point.

Trade Description: May 27, 2015:
Shares of THOR are trading at multi-year highs thanks to a bullish outlook for 2015 results. THOR is in the healthcare sector. They make medical instruments.

According to the company, "Thoratec is a world leader in therapies to address advanced-stage heart failure. The company's products include the HeartMate II® and HeartMate III™ LVAS (Left Ventricular Assist Systems) and Thoratec® VAD (Ventricular Assist Device) with more than 20,000 devices implanted in patients suffering from heart failure. Thoratec also manufactures and distributes the CentriMag®, PediMag®/PediVAS®, and HeartMate PHP™ product lines. HeartMate III and HeartMate PHP are investigational devices and are limited by US law to investigational use. HeartMate PHP is currently in development and not approved for sale. Thoratec is headquartered in Pleasanton, California."

The last couple of earnings results have come in better than expected. You can see the rally in THOR's chart back in February. This was a reaction to the company's 2014 Q4 results. Analysts were expecting a profit of $0.24 a share on revenues of $106.8 million. THOR's results came in significantly above estimates with a profit of $0.39 on revenues of $127.9 million. Gross margins were 70.5% versus 65.5% a year ago.

The stock popped again on May 8th following another better than expected earnings report. Wall Street was expecting a profit of $0.26 a share on revenues of $111 million. THOR managed to beat estimates with a profit of $0.38 on revenues of $121 million. More importantly management raised their 2015 revenue guidance above estimates. THOR now expects revenues of $465-475 million versus consensus estimates around $463 million.

Yesterday the company announced that the FDA had provided a conditional approval for an IDE clinical trial to "investigate use of the HeartMate PHP acute catheter-based heart pump in patients undergoing a high-risk percutaneous coronary intervention."

Aside from a two-week correction in the second half of April the up trend in THOR's stock price has been pretty steady. The point & figure chart is bullish with a long-term target of $86.00. Currently shares of THOR are hovering just below potential resistance near $46.00. We are suggesting a trigger to launch bullish positions at $46.15.

- Suggested Positions -

Long THOR stock @ $46.15

- (or for more adventurous traders, try this option) -

Long JUL $45 CALL (THOR150717C45) entry $2.40

06/01/15 triggered @ $46.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

CenturyLink, Inc. - CTL - close: 32.96 change: +0.09

Stop Loss: 35.05
Target(s): To Be Determined
Current Gain/Loss: +2.1%
Entry on May 26 at $33.65
Listed on May 23, 2015
Time Frame: 8 to 12 weeks (less for option traders)
Average Daily Volume = 4.4 million
New Positions: see below

Comments:
06/02/15: CTL slipped to another new 52-week low today before bouncing back toward unchanged. If shares do bounce the nearest resistance is probably $33.50 or the 10-dma near $33.70.

I am not suggesting new positions at this time.

Trade Description: May 23, 2015:
The earnings picture for CTL appears to be deteriorating and the stock has fallen as a result. CTL is in the technology sector.

They are part of the telecom services industry. According to the company, "CenturyLink (CTL) is a global communications, hosting, cloud and IT services company enabling millions of customers to transform their businesses and their lives through innovative technology solutions. CenturyLink offers network and data systems management, Big Data analytics and IT consulting, and operates more than 55 data centers in North America, Europe and Asia. The company provides broadband, voice, video, data and managed services over a robust 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network."

Looking at the last few earnings reports the guidance picture has been getting worse. Back in November 2014 they reported their Q3 results that beat the bottom line estimate by one cent but management lowered guidance. Then in February this year CTL reported their Q4 results that missed estimates. Revenues were also below estimates and managed lowered their guidance.

Their most recent earnings report was May 5th. CTL delivered their 2015 Q1 report with earnings of $0.67 per share. That was nine cents better than expected. Yet revenues fell -1.9% from a year ago to $4.45 billion and that was below Wall Street estimates. If that wasn't bad enough they also lowered guidance again (if you're counting, that's the third quarter in a row they lowered guidance).

The stock is nearing bear-market territory, down about 19% from its 2014 highs near $42.00 (not counting the spike in July). Bulls could argue that CTL is an income play. They do have a big dividend yield, currently about 6.3%, but their dividend has been this high for weeks and shares have not managed a sustainable rebound.

Technically CTL looks poised to breakdown below support in the $34.00 area and could drop toward the $30-28 region. We are suggesting a trigger to open bearish positions at $33.65.

- Suggested Positions -

Short CTL stock @ $33.65

- (or for more adventurous traders, try this option) -

Long JUL $32 PUT (CTL150717P32) entry $0.55

05/26/15 triggered @ $33.65
Option Format: symbol-year-month-day-call-strike


Gulfport Energy Corp. - GPOR - close: 44.39 change: +0.72

Stop Loss: 45.35
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 30, 2015
Time Frame: 8 to 12 weeks (option traders should exit prior to expiration
Average Daily Volume = 1.5 million
New Positions: Yes, see below

Comments:
06/02/15: A drop in the U.S. dollar helped fuel a bounce in oil. This probably boosted the energy stocks. GPOR displayed some strength with a +1.6% gain. If this rally continues tomorrow we might remove GPOR as a candidate. Currently we are waiting on a new relative low. Our suggested entry point is $42.75.

Trade Description: May 30, 2015:
Normally a weaker dollar is bullish for commodities. Yet the U.S. dollar's decline from March into May did not help the price of natural gas very much. The price of natural gas did bounce for three weeks in May but it's already reversed much of these gains. Now the U.S. dollar is on the rise and expected to keep climbing thanks to weaker foreign currencies.

Another problem for oil and gas explorers like GPOR is falling demand for natural gas. Weather has been mild this spring and that has decreased demand for natural gas from utilities, who are big consumers. At the same time inventories for natgas in the U.S. are building.

The EIA, the U.S. Energy Information Administration, said that current natgas inventories is up +59% from the same time a year ago and it's up +1.7% from the five-year average. Right now natural gas futures are trading around $2.64 per MMBtu (British thermal units in millions) and they look like they're headed for the 2012 lows near $2.00.

GPOR is in the basic materials sector. According to the company, "Gulfport Energy Corporation is an Oklahoma City-based independent oil and natural gas exploration and production company with its principal producing properties located in the Utica Shale of Eastern Ohio and along the Louisiana Gulf Coast. In addition, Gulfport holds a sizeable acreage position in the Alberta Oil Sands in Canada through its 24.9% interest in Grizzly Oil Sands ULC."

Their exposure to Canada's oil sands isn't helping them at the moment. In their most recent earnings report GPOR said that their production in Canada is currently halted due to low commodity prices.

Speaking of earnings, the company has delivered some strong results in recent quarters. Back in November they reported Q3 results above expectations. Revenues soared +146% from the year ago quarter. They reported similar results in February (their Q4 report). This is because GPOR's production has surged. In the fourth quarter of 2014 their oil and gas production was up +282% from the year ago period.

GPOR's most recent earnings report was announced on May 5th. The company reported a loss of ($0.08) per share. Analysts were expecting a loss of ($0.09). Revenues did come in above expectations but traders sold the news. Shares plunged and broke their three-month bullish trend of higher lows.

GPOR's stock price has been unable to recover. Traders have been selling the rallies. Goldman Sachs didn't help when they downgraded GPOR from "neutral" to a "sell" rating on May 18th. The point & figure chart on GPOR is bearish and forecasting at $36.00 target.

This past week was technically bearish with GPOR's relative weakness and breakdown below support in the $44.00 area. Tonight I am suggesting a trigger to open bearish positions at $42.75.

Traders should note that OPEC does have a meeting coming up next Friday. Their decision on oil production could influence the price of natural gas. GPOR produces both oil and gas but most of its business is natural gas.

Trigger @ $42.75

- Suggested Positions -

Short GPOR stock @ $42.75

- (or for more adventurous traders, try this option) -

Buy the JUL $40 PUT (GPOR150717P40)

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


World Fuel Services - INT - close: 50.19 change: +0.40

Stop Loss: 51.25
Target(s): To Be Determined
Current Gain/Loss: -0.9%
Entry on June 01 at $49.75
Listed on May 26, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 468 thousand
New Positions: see below

Comments:
06/02/15: INT is another energy-related stock that was bouncing today. The stock rallied toward short-term technical resistance at its 10-dma before paring its gains. The spike higher at the open was likely a reaction to last night's stock buyback news.

Wait for a new relative low (under $49.72) before considering new bearish positions.

Trade Description: May 26, 2015:
The correction in shares of INT is not over yet. The stock saw a big run from its 2014 lows near $36 to all-time highs near $58 in March this year. That proved to be the peak.

INT is in the basic materials sector. According to the company, "Headquartered in Miami, Florida, World Fuel Services is a global fuel logistics, transaction management and payment processing company, principally engaged in the distribution of fuel and related products and services in the aviation, marine and land transportation industries. World Fuel Services sells fuel and delivers services to its clients at more than 8,000 locations in more than 200 countries and territories worldwide."

Their 2014 Q4 earnings were better than expected with a profit of $0.96 per share versus estimates for $0.77. Yet revenues fell -6.0% from a year ago to $9.78 billion. Analysts had been forecasting $11.36 billion. That's quite a miss.

We see the same pattern in INT's Q1 results. The company reported on April 30th. Analysts were expecting a profit of $0.82 a share on revenues of $9.2 billion. INT delivered $0.83 a share but revenues plunged -30% to $7.34 billion. This time investors took notice and shares of INT dropped sharply on its results.

The stock has been trying to find support near the $50.00 level but traders keep selling the bounces. Now the bearish trend of lower highs is about to push shares of INT through this critical support level at $50.00. Tonight we are suggesting a trigger to launch bearish positions at $49.75.

NOTE: The option spreads are a bit wide. INT does have July options but there's no volume and no open interest on the puts yet.

- Suggested Positions -

Short INT stock @ $49.75

- (or for more adventurous traders, try this option) -

Long AUG $50 PUT (INT150821P50) entry $2.50

06/01/15 After the close, INT announces a $100 million stock buyback program
06/01/15 triggered @ $49.75
Option Format: symbol-year-month-day-call-strike


On Deck Capital - ONDK - close: 14.74 change: +0.28

Stop Loss: 16.25
Target(s): To Be Determined
Current Gain/Loss: -2.7%
Entry on June 02 at $14.35
Listed on June 01, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 431 thousand
New Positions: see below

Comments:
06/02/15: ONDK spiked down to new all-time lows and hit our suggested entry point for bearish positions at $14.35. The stock fell to $14.17 (-2.0%) before bouncing sharply up to $14.92 (a +5.2% move). It looks like the $15.00 level might hold as overhead resistance.

I am suggesting traders wait for a new drop below the mid afternoon low around $14.50 before considering new bearish positions.

Trade Description: June 1, 2015:
You know something is wrong when a stock is down -50% from its post-IPO peak in less than six months.

ONDK is part of the financial sector. Here's how the company describes itself:

"OnDeck (ONDK), a leading platform for small business loans, is committed to increasing Main Street's access to capital. OnDeck uses advanced lending technology and analytics to assess creditworthiness based on actual operating performance and not solely on personal credit. The OnDeck Score®, the company's proprietary small business credit scoring system, evaluates thousands of data points to deliver a credit decision rapidly and accurately. Small businesses can apply for a line of credit or term loan online in minutes, get a decision immediately and receive funds in as fast as the same day. OnDeck also partners with small business service providers, enabling them to connect their customers to OnDeck financing. OnDeck's diversified loan funding strategy enables the company to fund small business loans from various credit facilities, securitization and the OnDeck Marketplace®, a platform that enables institutional investors to purchase small business loans originated by OnDeck.

Since 2007, OnDeck has deployed more than $2 billion to more than 700 different industries in all 50 U.S. states, and also makes small business loans in Canada. The company has an A+ rating with the Better Business Bureau and operates the website BusinessLoans.com which provides credit education and information about small business financing. On December 17, 2014, OnDeck started trading on the New York Stock Exchange under the ticker ONDK."

The company charges outrageous interest rates on its short-term loans. According to the SEC filings these can range from 20% to 99% APRs. They get away with this by only loaning to businesses and not individual consumers. Rising defaults are an issue. The company expects about 7% of their loans to go into default but some of the latest numbers suggest reality is closer to 20%. There is a concern that companies like ONDK will face future regulations that will limit how much interest they can charge. Another bear argument is valuations.

The company was valued around $1.4 billion at its IPO. Even with the decline it's still valued near $1 billion today. That's for a company without any profits. They lost ($0.01) per share in the fourth quarter and that jumped to a loss of ($0.05) per share in the first quarter.

Another potential landmine for shareholders is ONDK's six-month lockup expiration. Currently there are about 13.2 million shares outstanding. On June 15th, 2015 another 56 million shares are unlocked.

The stock broke down on its earnings report in early May. Now it's breaking down below its 2015 lows in the $14.50-15.00 zone. The point & figure chart is bearish and forecasting at $7.00 target.

The stock has seen some volatile moves. I would consider this a more aggressive, higher-risk trade. Tonight I am suggesting a trigger to launch bearish positions at $14.35. Traders may want to use put options to limit their risk.

- Suggested Positions -

Short ONDK stock @ $14.35

- (or for more adventurous traders, try this option) -

Long AUG $14 PUT (ONDK150821P14) entry $1.80

06/02/15 triggered @ $14.35
Option Format: symbol-year-month-day-call-strike


CLOSED BULLISH PLAYS

Paylocity Holding Corp. - PCTY - close: 32.46 change: -0.10

Stop Loss: 31.45
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 206 thousand
New Positions: see below

Comments:
06/02/15: We are removing PCTY as a candidate. Shares are not moving fast enough. The stock appears stuck in this $32-34 trading range.

Trade did not open.

06/02/15 removed from the newsletter, suggested entry was $34.15

chart:


Relypsa, Inc. - RLYP - close: 34.81 change: -0.60

Stop Loss: 34.70
Target(s): To Be Determined
Current Gain/Loss: -7.0%
Entry on June 01 at $37.30
Listed on May 30, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 526 thousand
New Positions: see below

Comments:
06/02/15: RLYP continued to underperform the market with a -1.69% decline today. This loss confirms yesterday's bearish engulfing candlestick reversal pattern. RLYP also hit our stop loss at $34.70 (around 09:51 a.m.).

NOTE: It would have been a rough day if you were trading the option. The bid disappeared and went from $2.00 to $0.25 and then about noon it was back to $2.00. Fortunately, the option did not trade today (or yesterday).

The thinly traded option would have been an ugly trade with the strange spike higher from $3.20 to $5.30 when we were triggered and then the bid evaporating to $0.25.

*Small positions to limit risk* - Suggested Positions -

Long RLYP stock @ $37.30 exit $34.70 (-7.0%)

- (or for more adventurous traders, try this option) -

SEP $40 CALL (RLYP150918C40) entry $5.30* exit $0.25** (-95.3%)

06/02/15 stopped out @ 34.70
**06/02/15 option did not trade
06/01/15 triggered @ $37.30
*06/01/15 option did not trade today. This price was the current ask at the time our stock trade was triggered.
Option Format: symbol-year-month-day-call-strike

chart: