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Daily Newsletter, Tuesday, 6/9/2015

Table of Contents

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

Market Wrap

Searching for Support

by Jim Brown

Click here to email Jim Brown

The markets traded on both sides of zero on Tuesday and after being down significantly moved to nearly flat at the close. Initial support was tested as was resistance and the day ended with a tie.

Market Statistics

The Dow traded down to 17,715 before rebounding +100 points to 17,817 only to give most of it back to close at 17,761 and a -2 point loss. Ditto on the S&P with a drop to 2,072 and a rebound to 2,085 before closing right in the middle at 2,079 with a gain of less than 1 point. The scary index was the Nasdaq with a significant dip under prior support at 5,000 to 4,974 before rebounding to close at 5,013. Apple was the reason with a sharp drop to $125.62 before rebounding back over $128 intraday. Those of us wanting to buy Apple at $120 were cursing the rebound.

There were no earth shaking economics this morning but all the reports were positive. The NFIB Small Business Survey for May rose from 96.9 to 98.3 and the strongest showing since December. The job openings component improved from 27 to 29 and the economic expectations improved from -6 to -3 but still in negative territory. More than 14% of respondents said this was a good time to expand your business. That is the second highest reading since 2009. Everything else was basically flat.

The Job Openings and Labor Turnover Survey (JOLTS) showed a rise in the job opening rate from 3.4% to 3.7%. There are plenty of jobs available and layoffs are declining. Available jobs increased to 5.4 million in April and the highest level since 2000 when the report began. Hiring fell slightly from 5.1 million to 5.0 million. However, quits also declined from 5.1 million to 4.9 million.

The Manpower Employment Survey for Q3 found that 20% of respondents planned to hire in Q3, up from 18% in Q2. Only 4% planed to reduce jobs and that was flat with Q2. Most, more than 70% planned no changes to the number of workers.

Lastly the Wholesale Trade for April rose +0.4% compared to +0.1% in the prior report. Sales increased by +1.6%. Sales of durable goods increased from +0.9% to +1.2% while nondurable sales rose from -1.4% to +2.0%. This was a good report.

There is nothing of importance on the calendar for Wednesday. The retail sales report on Thursday is still the most important report for the rest of the week with expectations for a big rebound of +0.9%. There is a significant risk of disappointment if the number is weak.


The biggest news of the day came after the close when NetFlix (NFLX) announced that shareholders had approved an increase of 5 billion shares in order to split the stock. Currently Netflix only has 170 million shares outstanding. The company said it has no plans for selling shares to raise money or for any contemplated mergers.

Netflix shares rose +$20 ahead of the shareholder vote but unfortunately the company left investors out in the cold. CEO Reed Hastings said after the vote approving the shares that management will seek approval from the board "in due course" to pursue a stock split. Previously they had indicated they would announce a split after the shareholder meeting. I guess they didn't say how long after the meeting that announcement would be.


Target (TGT) increased its dividend by +7.7% to 56 cents and boosted its stock buyback plan by $5 billion to $10 billion. However, a few minutes later Target denied buyback expansion and pulled the press release from the website. The company said human error was to blame for the inadvertent press release. Apparently the board was planning on voting on those changes at the board meeting later tonight. Shares rallied slightly on the news since the odds are good the board will follow though tonight.


Lululemon (LULU) shares spiked $6.75 after the company reported earnings and same store sales that rose +6%. Earnings of 34 cents beat estimates of 33 cents and more than double the 13 cents earned in the year ago quarter. Revenue rose from $384.6 million to $423.5 million.

Shares spiked despite weak guidance for both the current quarter and the full year. For the current quarter LULU is forecasting 31-33 cents on revenue of $442.5 million. Analysts were expecting 34 cents on $439.5 million. For the full year the company is expecting $1.86-$1.91 a penny better than the prior forecast but analysts were expecting $1.90.


GE sold its sponsor finance business, Antares Capital, to Canada Pension Plan Investment for $12 billion. The finance unit had about $10 billion in loans on the books and the pension plan said the premium was justified. The plan has a tough time securing debt deals in the U.S. market that are backed by excellent credits. Canada Pension has about $215 billion in assets. This is the first deal since GE said it was planning on selling $200 billion in assets in its financial services division. Canada Pension said it was still open to talks on the $8 billion joint venture between GE and Ares Management. GE shares were flat on the day. It takes a lot to move GE shares with more than 10 billion shares outstanding.


Sears Holdings (SHLD) lost -$2.40 after reporting earnings Monday night that disappointed. Sears reported a loss of -$2.00 compared to expectations for a -$2.59 loss. Revenue declined -25% to $5.88 billion and missed estimates for $6.08 billion. Some of that miss was related to the separation from Lands End and the Canadian division. Same store sales in the U.S. were hammered with a -14.5% decline. Kmart comps fell -7% after a -2.2% decline in the year ago quarter. Sears said it was selling 235 Sears and Kmart stores to REIT Seritage Growth Properties. Sears will receive $2.6 billion in proceeds. Sears has long term debt of $3.2 billion and revolving debt of $3.275 billion. The company said lenders were willing to amend its current revolving debt facility to 2020.

Sears is still struggling and Eddie Lampert would probably like to just shoot it and put the chain out of its misery. Unfortunately he is into Sears up to his neck and he will have to keep fighting the problems for years to come.


FleetCor (FLT) announced a deal with Uber to provide drivers with a Partner Fuel Card for fuel purchases. Eligible Uber drivers will be able to buy gas on the card and have it deducted from their weekly earnings. It will also function as a loyalty card and provide "cents off" discounts at every station along with additional discounts at Exxon Mobil stations. Hundreds of thousands of Uber drivers will be eligible. FleetCor is a global provider of fuel cards and products to businesses with active fleets of vehicles. Shares rallied about $5 in afterhours.


Mattress Firm (MFRM) reported earnings of 33 cents that missed estimates by 6 cents after the close. They raised guidance for 2015 to a range of $2.50-$2.70 compared to analyst estimates for $2.62. Revenue estimates rose to $2.485-$2.535 billion compared to analyst estimates for $2.49 billion. The company said it was adding 20 new stores. Shares declined $1 in afterhours.


Gulfport Energy (GPOR) said it was purchasing additional acreage from American Eagle Utica and announced a secondary offering of 10 million shares to fund the purchase. The acreage was in three parcels consisting of 38,965 acres, 6,198 acres and 4,950 acres all in Ohio. The deal includes some production and 18 drilled but uncompleted wells. The combined purchase price was around $400 million. Shares fell about $2 in afterhours to $43.50.


Oil prices rallied +3.5% to close at $60.55 despite news from the EIA upgrading production forecasts for the U.S. in 2015. The EIA raised its production growth estimates from 530,000 bpd to 690,000 bpd for the full year. They lowered 2016 growth estimates by -160,000 compared to prior estimates for +20,000 bpd of growth. Basically they are expecting oil production to rise in 2015 and decline in 2016.

Traders blamed the rise in oil prices on the spike in gasoline prices ahead of the July 4th weekend. Gasoline prices tend to peak in early July and refiners are rushing to produce more gasoline to sell into this peak. This consumes more oil and reduces inventories. Once past the holiday we should see crude prices begin to decline.


The rising oil prices did not help the Dow Transports. The index declined again to close at 8,307 and just a handful of points away from a potential support failure that could lead to a drop to 8,000. The airline sector continues to plunge on worries over competition as well as the rising oil prices. The new airline ETF (JETS) hit a new low on the drop in the sector.



Markets

The S&P came to a dead stop on support at 2080 and -5 points under the 100-day average at 2085. This represents only a -2% decline from the recent high at 2130.

The low at 2072 was exactly the 150-day average, which has been support since 2012 with one exception last October. This is a key level and probably why the S&P rebounded almost instantly from the touch of that support. Unfortunately one intraday touch does not guarantee a continued rebound. That support level needs to be traded for more than 5 minutes and the rebound needs to be more robust. The initial short covering lasted about 30 minutes until 11:AM but then the index traded sideways the rest of the day.

A -2% decline from the highs is hardly a material correction. That suggests there may be more weakness ahead.


The Dow made another new two-month closing low but it did close well off the intraday lows. The support at 17,800 has failed and suggests we could see 17,600 tested. Much of the Dow's intraday decline was related to a $2 decline in Apple shares. Had Apple shares not rebounded the Dow decline would have been a lot worse. The rest of the Dow components were basically split between winners and losers and most of the moves were only fractional. This shows no conviction by either the buyers or sellers.

Resistance is now 17,800 and 17,900 and support 17,600.



The Nasdaq Composite broke character today with a drop well below support at 5000 to 4974. This was due mostly to the intraday drop in Apple and some weakness in biotechs. Netflix, Lululemon and Ambarella were instrumental in keeping the damage from being much worse. The Nasdaq rebounded to close over 5000 but the damage has been done. Traders will want to see support tested again on decent volume before they will want to buy the dip. The breakdown below 5000 was too easy and that probably put doubts into some investors about its ability to move higher.

Support is 5000 followed by 4975 with resistance 5025.



I have pointed to the strength in the Russell 2000 for the last several days as evidence there was no fear by fund managers. The Russell did decline today and it appears the resistance at 1260 is becoming stronger. Support at 1240 was not tested but the low was 1242 and that is very close.

That should be our directional signal for the rest of the week. If the $RUT moves below 1240 I would be a short term seller. The Russell rebalance trades will begin appearing late in the week and there is an FOMC meeting next week along with option expiration. All should weigh on the small caps.

Conversely should the Russell move over 1260 that would be a buy signal.


Volume continues to be weak with 5.5 billion shares on Monday and 5.8 billion today. The S&P internals are continuing to weaken. The percentage of stocks trading over their 50-day average has fallen to only 34.37% and the lowest level since October.


Those stocks trading over their long term 200-day average have now declined to only 56.91% and other than October that is the lowest level in years. This is a warning that market breadth is shrinking.


The percentage of stocks with a buy signal on the point and figure charts has fallen to 61.8% on the S&P.


All of these charts are telling us to be wary of the market. At this point I would be looking for a drop on the S&P to 2040 for a buy the dip entry. We may never see that level but that would be my ideal buy point.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Biotech Bingo

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Sarepta Therapeutics - SRPT - close: 27.01 change: +0.82

Stop Loss: 24.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below

Company Description

Trade Description:
Often biotech stocks can turn into a binary trade. You win big or lose big based on the company's clinical trials and success or failure with the FDA. SRPT is one such stock. Shares have seen some tremendous, gut-wrenching moves, both up and down, over the last couple of years.

If you're not familiar with SRPT they are a biotech stock (part of the healthcare sector). According to the company, "Sarepta Therapeutics is a biopharmaceutical company focused on the discovery and development of unique RNA-targeted therapeutics for the treatment of rare, infectious and other diseases. The Company is primarily focused on rapidly advancing the development of its potentially disease-modifying DMD drug candidates, including its lead DMD product candidate, eteplirsen, designed to skip exon 51. Sarepta is also developing therapeutics for the treatment of drug-resistant bacteria and infectious, rare and other human diseases."

SRPT does not have any products on the market, which is another reason they might be viewed as a binary trade. If they don't succeed with their Eteplirsen treatment for Duchenne Muscular Dystrophy (DMD) then its stock could collapse. DMD is a very rare disease. Only about 20,000 people a year are diagnosed with it in the U.S. It can be fatal by age 30.

SRPT made headlines on May 20th and the stock surged almost $10 with a +60% move to new eight-month highs. The reason behind the pop in the stock was the company's plan to submit a rolling New Drug Application (NDA) with the FDA for its Eteplirsen. This is a big deal. SRPT tried to get FDA approval to file an NDA back in 2013 but the regulators rejected their application saying they needed more data.

Now that SRPT can start the NDA process they should be able to meet with an advisory committee in the fourth quarter of this year, which could really generate a lot of volatility based on the committee's decision.

It's important to note that SRPT is facing competition from larger biotech firm BioMarin Pharmaceuticals (BMRN) who is working on a treatment for the same disease. If BMRN's treatment gets approved first it could send SRPT shares crashing.

Canaccord Genuity's analyst, Adam Walsh, issued an opinion on this SRPT news and multiple news outlets quoted him. According to Walsh,

"Looking forward, we see two potential catalysts to drive shares higher: 1) FDA acceptance of the NDA filing (60 days post-filing — est. late third quarter 2015); and 2) FDA announcement of Adcom to review the eteplirsen NDA. On the first, we fully expect FDA to accept the filing for review, given its blessing to submit the NDA. On the second, we believe an Adcom would allow for powerful testimony from DMD patients, parents, and advocacy groups in support of eteplirsen, which could sway committee members toward recommending approval. Thus, while we acknowledge that significant approval risks still remain, we would expect Sarepta shares to trend higher into an expected fourth quarter of 2015 Adcom."
The advisory panel is a major event for SRPT. One analyst suggested that if SRPT won approval their stock could shoot into the $40s. A different analysts said approval could launch SRPT's stock toward $100. Both said that another FDA rejection could send SRPT shares toward $10.

Part of the reason behind SRPT's big move in May was short covering. The most recent data listed short interest at 33% of the relatively small 35.8 million share float. Currently shares of SRPT are consolidating in a bullish pattern with resistance near $27.00-27.50. A breakout here could spark another wave of short covering.

There has been some speculation that SRPT is a buyout target although I did not see a lot of discussion about any potential suitors.

We are suggesting a trigger to launch small bullish positions at $27.65. We want to limit our position size because SRPT can be very volatile. I would consider this a higher-risk, more aggressive trade.

Trigger @ $27.65 *small positions to limit risk*

- Suggested Positions -

Buy SRPT stock @ $27.65

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

Buy the AUG $30 CALL (SRPT150821C30) current ask $2.75
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Traders Seem Indecisive

by James Brown

Click here to email James Brown

Editor's Note:
Traders bought the dip in U.S. stocks this morning. The major indices managed to bounce back toward unchanged on the session. There wasn't any follow through higher.

HRC has been removed. THOR and INT hit our stop loss.


Current Portfolio:


BULLISH Play Updates

GoPro, Inc. - GPRO - close: 58.68 change: -0.72

Stop Loss: 54.65
Target(s): To Be Determined
Current Gain/Loss: +15.6%
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:
06/09/15: GPRO encountered some profit taking today. Shares found support at the rising 10-dma near $57.75. There is no change from my recent comments.

More conservative traders will want to consider a higher stop loss. We are not suggesting 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: 32.29 change: -0.01

Stop Loss: 31.45
Target(s): To Be Determined
Current Gain/Loss: -0.2%
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:
06/09/15: HBI still appears to be consolidating for a bullish breakout higher. The stock closed virtually unchanged on the session.

I would be tempted to launch bullish positions on a move above $32.65. The 50-dma is currently at $32.53.

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


LDR Holding - LDRH - close: 44.02 change: +0.21

Stop Loss: 39.45
Target(s): To Be Determined
Current Gain/Loss: +4.4%
Entry on June 03 at $42.15
Listed on June 02, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 231 thousand
New Positions: see below

Comments:
06/09/15: LDRH continues to hold up well. Traders bought the dip near $42.80 this morning and the stock bounced back into positive territory.

No new positions at this time.

More conservative traders may want to raise their stop loss.

Trade Description: June 2, 2015:
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.

- Suggested Positions -

Long LDRH stock @ $42.15

06/03/15 triggered @ $42.15


Starbucks Corp. - SBUX - close: 51.54 change: +0.01

Stop Loss: 49.95
Target(s): To Be Determined
Current Gain/Loss: +1.0%
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:
06/09/15: SBUX bounced off its morning lows to close virtually unchanged on the day. I suspect if the broader market continues to sink then we could see SBUX drop toward $50.00, which should offer support.

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

06/04/15 new stop @ 49.95
05/18/15 triggered @ $51.05
Option Format: symbol-year-month-day-call-strike


Seattle Geneitcs, Inc. - SGEN - close: 46.41 change: -1.39

Stop Loss: 43.75
Target(s): To Be Determined
Current Gain/Loss: -1.6%
Entry on June 08 at $47.15
Listed on June 06, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.1 million
New Positions: see below

Comments:
06/09/15: It was a volatile session for shares of SGEN. The stock followed the biotech space lower this morning but fortunately SGEN found support near $46.00. The intraday low was $45.50 but SGEN spent most of the day hovering near the $46.00 level.

Yesterday I suggested waiting for a dip as our next entry point and we got it. If you're feeling cautious then wait for a rally above $46.60 as a potential entry point.

Trade Description: June 6, 2015:
It has been a very bumpy ride for biotech investors this year. Yet the biotech space continues to outperform the broader market. The IBB biotech ETF is up +20% in 2015 versus the NASDAQ composite's +6.6% gain. SGEN is faring even better with a +45.8% gain this year.

SGEN has been working on its antibody-drug conjugate (ADC) technology for years but it still sounds like science fiction. They can create ADCs that target a specific type of tumor cell in the body. It links up with a cancer cell and then delivers a cytotoxin, which is a cell-killing agent.

According to the company, "Seattle Genetics is a biotechnology company focused on the development and commercialization of innovative antibody-based therapies for the treatment of cancer. Seattle Genetics is leading the field in developing antibody-drug conjugates (ADCs), a technology designed to harness the targeting ability of antibodies to deliver cell-killing agents directly to cancer cells.

The company's lead product, ADCETRIS® (brentuximab vedotin), is a CD30-targeted ADC that, in collaboration with Takeda Pharmaceutical Company Limited, is commercially available for two indications in more than 55 countries, including the U.S., Canada, Japan and members of the European Union.

Additionally, ADCETRIS is being evaluated broadly in more than 30 ongoing clinical trials in CD30-expressing malignancies. Seattle Genetics is also advancing a robust pipeline of clinical-stage programs, including SGN-CD19A, SGN-CD33A, SGN-LIV1A, SGN-CD70A, ASG-22ME, ASG-15ME and SEA-CD40. Seattle Genetics has collaborations for its ADC technology with a number of leading biotechnology and pharmaceutical companies, including AbbVie, Agensys (an affiliate of Astellas), Bayer, Genentech, GlaxoSmithKline and Pfizer."

SGEN has a pretty robust pipeline with multiple therapies in phase 1 to phase 3 trials. That probably makes them a buyout target in this merger happy market. Yet that is just speculation on my part. Here's a list of SGEN's current pipeline (SGEN's pipeline).

I hesitate to mention earnings because most smaller biotech firms don't have any. The earnings they do have tend to be lumpy due to milestone payments from partners. SGEN actually has revenue from sales of its FDA approved therapy (listed above). Yet they continue to run losses every quarter. That's because running so many clinical trials is expensive.

Looking at the last couple of quarters SGEN has reported results that were above Wall Street estimates on both the top and bottom line. Revenues in the fourth quarter were up +10% from a year ago while revenues in the first quarter were up +20% from a year ago.

Recently SGEN has seen some bullish headlines regarding insider buying. The company's largest shareholder, Baker Brothers Advisors, bought more than one million shares of the company. This raised their stake in SGEN from 23.4% to 24.25%. Traditionally insider buying is seen as a big bullish vote of confidence on the company's future.

The stock has been soaring the last few weeks with a run from an intraday low of $33.68 on April 30th to a new 52-week high near $47.00 this Friday. You could definitely argue that SGEN is overbought. I'm sure a big portion of that move could have been short interest. It could be short covering that drives the next move higher. The most recent data listed short interest at 29% of the 92.9 million share float. That's enough for a potential short squeeze. Bears may be panicked with SGEN above resistance near $45.00.

SGEN looks pretty bullish right here. I'd be tempted to buy the stock now. However, tonight we are suggesting bullish positions on SGEN if shares trade at $47.15. Just keep in mind that trading biotech stocks is a higher-risk proposition. Not only do biotech stocks tend to be more volatile but you never know when the right or wrong headline (usually regarding some clinical trial) could send shares of your trade crashing or soaring overnight. Right now the IBB biotech ETF is poised to break through major resistance. That could spark short covering across the biotech space.

- Suggested Positions -

Long SGEN stock @ $47.15

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

Long SEP $55 CALL (SGEN150918C55) entry $2.45

06/08/15 triggered @ $47.15
Option Format: symbol-year-month-day-call-strike


Super Micro Computer - SMCI - close: 33.44 change: -0.10

Stop Loss: 32.45
Target(s): To Be Determined
Current Gain/Loss: -0.6%
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:
06/09/15: It was another quiet session for SMCI. Shares have been stuck churning sideways in the $33-34 zone.

I am not suggesting new positions at this time.

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

06/04/15 new stop @ 32.45
05/22/15 triggered @ 33.65
Option Format: symbol-year-month-day-call-strike


Tempur Sealy Intl. - TPX - close: 62.68 change: +0.07

Stop Loss: 59.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 08, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 890 thousand
New Positions: Yes, see below

Comments:
06/09/15: TPX weathered the market volatility today pretty well. Shares closed virtually unchanged on the session and still look poised to breakout higher.

Trade Description: June 8, 2015:
Activist investors seek to influence management to incorporate major changes in a company with the expectation of unlocking shareholder value. Sometimes the mere mention of an activist investor buying a stock can get shares to move. In TPX's case the activists have won a major battle with management.

TPX is in the consumer goods sector. According to the company, "Tempur Sealy International, Inc. (NYSE: TPX) is the world's largest bedding provider. Tempur Sealy International develops, manufactures and markets mattresses, foundations, pillows and other products. The Company's brand portfolio includes many of the most highly recognized brands in the industry, including Tempur, Tempur-Pedic, Sealy, Sealy Posturepedic, OptimumTM and Stearns & Foster. World headquarters for Tempur Sealy International is in Lexington, KY."

TPX's most recent earnings report was April 28th. They announced their 2015 Q1 results with earnings of $0.55 per share. That was seven cents above estimates. Revenues were up +5.4% to $739.5 million. This was also above expectations. Management raised their 2015 forecast for both earnings and sales. The stock popped to new multi-year highs on this news. Yet the real story is probably the activist investors involved.

Hedge fund H Partners has been urging change with TPX management for months. TPX executives choose to fight. It came down to a proxy fight and shareholders voted to oust the CEO. Two more directors, who were under fire by H Partners have also left the board. H Partners built a website to inform shareholders their opinion on the company (www.fixtempursealy.com). There they posted their 90 page slideshow on why TPX needed a management change. You can see their presentation at this webpage.

The stock has been oscillating sideways in the $58-63 zone the last few weeks. It's starting to look like the consolidation may be over. TPX displayed relative strength last week and it held up today as well while the rest of the market was sinking. If TPX can trade over $63.00 it will generate a new quadruple top breakout buy signal on the P&F chart. We are suggesting a trigger to launch bullish positions at $63.15.

Trigger @ $63.15

- Suggested Positions -

Buy TPX stock @ $63.15

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

Buy the SEP $65 CALL (TPX150918C65)

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




BEARISH Play Updates

CenturyLink, Inc. - CTL - close: 32.07 change: -0.15

Stop Loss: 33.65
Target(s): To Be Determined
Current Gain/Loss: +4.7%
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:
06/09/15: Another day, another decline for shares of CTL. The stock hit a new intraday low of $31.83 before paring its losses. The stock remains oversold and likely due for a bounce back toward its 10-dma near $33.00.

CTL did announce they will hold a financial analyst day on Wednesday, June 24th.

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

06/04/15 new stop @ 33.65
05/26/15 triggered @ $33.65
Option Format: symbol-year-month-day-call-strike


On Deck Capital - ONDK - close: 14.03 change: -0.47

Stop Loss: 16.25
Target(s): To Be Determined
Current Gain/Loss: +2.2%
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:
06/09/15: ONDK rushed lower today and underperformed the market with a -3.24% decline. The stock hit new all-time lows near $14.00 a share.

More conservative traders may want to start lowering their stop loss. I am not suggesting new positions at this time.

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

Hill-Rom Holdings - HRC - close: 51.37 change: -0.47

Stop Loss: 50.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 335 thousand
New Positions: see below

Comments:
06/09/15: HRC underperformed the market today with a -0.9% decline. Shares have fallen below technical support at the 20-dma. The next stop could be the $50.00 level.

We are choosing to remove HRC as a candidate.

Trade did not open.

06/09/15 removed from the newsletter, suggested entry was $52.55

chart:


Thoratec Corp. - THOR - close: 44.89 change: -0.38

Stop Loss: 44.35
Target(s): To Be Determined
Current Gain/Loss: -3.9%
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:
06/09/15: The stock market's widespread weakness this morning helped push THOR toward new three-week lows. Shares rebounded near $44.00 but our stop loss was already hit at $44.35.

- Suggested Positions -

Long THOR stock @ $46.15 exit $44.35 (-3.9%)

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

JUL $45 CALL (THOR150717C45) entry $2.40 exit $1.15 (-52.1%)

06/09/15 stopped out
06/06/15 new stop @ 44.35
06/01/15 triggered @ $46.15
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BEARISH PLAYS

World Fuel Services - INT - close: 49.40 change: -0.82

Stop Loss: 50.70
Target(s): To Be Determined
Current Gain/Loss: -1.9%
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:
06/09/15: INT did not want to cooperate with us. Last night we moved our stop loss down to $50.70. This morning shares gapped open higher at $50.47 and then immediately spiked up to $50.76. Just as fast the stock reversed lower and plunged to a -1.6% decline on the session.

INT looks poised to move lower but our trade was stopped out this morning.

- Suggested Positions -

Short INT stock @ $49.75 exit $50.70 (-1.9%)

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

AUG $50 PUT (INT150821P50) entry $2.50 exit $1.50 (-40.0%)

06/09/15 stopped out
06/08/15 new stop @ 50.70
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

chart: