Option Investor
Newsletter

Daily Newsletter, Wednesday, 6/17/2015

Table of Contents

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

Market Wrap

Market Remains Uncertain of Fed's Intentions

by Keene Little

Click here to email Keene Little
Today's FOMC announcement provided little new information but remains on track to raise rates before the end of the year. Or at least that's what they say but the date continues to get pushed out and the market is not sure how to react to the expectations.

Wednesday's Market Stats

The market started the day with a quick pop to the upside but then steadily sold off into the early afternoon before the FOMC announcement at 14:00. Some say it was because of worry about Yellen saying something about raising rates sooner rather than later. But it may have been nothing more than pulling the rubber band back to then launch another leg up as part of the opex shenanigans we've come to know and love so well.

There were no significant economic reports to move the market this morning and the initial pop up at the open had followed an effort to rescue the futures market from a pre-market selloff. A low near 8:00 AM was followed by a pre-market rally and a high in the first 5 minutes of trading. But SPX then dropped about 14 points into a low shortly before the FOMC announcement and the day was starting to look a little more bearish. Following the announcement there was a brief spike down that was then followed by a rally of almost 19 points to a new daily high in the next hour before settling back down to close 4 points in the green.

The initial downside reaction was due to wording in the Fed's statement about the economy being strong enough to withstand an interest rate hike by the end of this year. That's nothing new -- the Fed has been trying to prepare the market for a rate increase even if it doesn't come. The only change is that the market now expects the rate hike to come in December instead of October. Any bets that will get moved out further? The Fed is desperate to get rates back to a more normal level but the economy is not really cooperating. There have been many more signs of economic slowing than of growth and while the labor market has improved some, it likely will not be enough to give the Fed room to maneuver with higher rates. I continue to believe they'll be forced into more QE before they'll be raising rates.

While discussing a tightening labor market the Fed is also hinting that the magnitude of rate-hike expectations may be less than they had been hoping. This hemming and hawing is part of what caused some of the up-and-down movement in the indexes this afternoon. GDP expectations are for an improvement over the 1st quarter's decline but they downgraded their expectations for all of 2015, which is the second downgrade in their forecast this year. I strongly suspect it's not the last downgrade that will be coming from them this year.

The problem for the Fed is that using the labor market for signs of economic strength tends not to be a good predictor of the economy. The unemployment rate is usually at its lowest level following a stock market peak and we've already seen a peak in the economy. The opposite is true at market bottoms and this is likely a result of hiring practices tending to follow about 6 months behind (it takes about that long from approval to hire to actually hiring and also about as long to document reasons for laying off/firing people).

We've had very consistent reports this year that demonstrate we've got a slowing economy. The Fed's monthly index of industrial production is just one example of a slowing economy. The chart below shows the decline in industrial production since it peaked in July last year. For the past six months the number has been negative growth for four months and flat in the other two, which technically puts the manufacturing sector in a recession and the rest of the economy is following right behind. May's decline was -0.2%, which was on top of April's -0.5% and it's weaker than even the most pessimistic estimates of dozens of economists who were polled by Econoday. Not one economist predicted this negative data, which is typical. June's data is so far not promising and as Jim Rickards tweeted Monday morning, "Lots of bad data...we should probably blame it on the warm weather."

Industrial Production, June 2012 - May 2015, chart courtesy MarektWatch/agorafinancial.com

In the meantime the stock market keeps whistling past the graveyard, making believe ghosts (economic contraction) don't really exist. Investors remain so convinced of a continuing rally that they've margined themselves to the hilt. The chart below shows a negative spike in the total credit balance (sum of free cash and available margin minus margin debt) in April (data current through April), which means more margin has been used to buy stock. Most of the negative credit balance is associated with a bull market and is actually supportive of the market. But when it gets excessive it becomes dangerous because of the margin calls that can hit when the market declines. The spike in margin debt in April has not resulted in a continuing market rally and that could be a hint of trouble for investors who might soon regret using too much margin.

SPX vs. NYSE credit balance, chart courtesy dshort.com

We've got plenty of reasons to believe the stock market could soon be in trouble but the bottom line is that it only matters what the charts tell us. As long as there is more buying than selling, and the Fed's liquidity certainly helps in this regard, we will continue to have a bullish market. Only when some key support levels break, especially if with a strong impulsive decline, will we have some information that the bulls are losing it. There are plenty of warning signs that the bulls might soon be in trouble but so far they continue to hold on.

The SPX weekly chart below shows one key support level has broken (on June 4th), which is the uptrend line from March 2009 - October 2011, currently near 2125. There remains a chance for another rally to a new high but if it doesn't get back above 2125 in the next week I think its chances of making a new high become much slimmer. As will be seen more easily on the daily chart next, there's a parallel up-channel for price action since March, the bottom of which was tested with Monday's low at 2072, and I think that's an important level for the bulls to defend. From a weekly perspective it's the March low, near 2040, that's the key level for the bears to break. Its 50-week MA has now moved up to that level as well.

S&P 500, SPX, Weekly chart

The parallel up-channel from March is shown on the daily chart below and a break below it would likely mean a quick trip down to its 200-dma, climbing up to 2050. I suspect that level would only be a speed bump to much lower prices but before worrying about that we'd have to see SPX break below 2072. Today's rally was stopped by resistance near 2106, which includes the downtrend line form May and its 20- and 50-dma's. The bulls would be in better position above today's high at 2106.79 would still need to fight through several layers of resistance to make it up to an upside target near 2150 (potentially higher).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2121
- bearish below 2072

The price action since the May 20th high, just shy of 2135,has been choppy and at first glance it looks like a corrective pullback that should lead to new highs. But there's a bearish wave count that is very bearish, which suggests a strong breakdown if SPX breaks below 2072. If that happens I would look at small bounce attempts as shorting opportunities and I would not look to buy the "dip" until the February low near 1980 is tested. In the meantime the bulls haven't done anything wrong yet and while I see real danger to the downside (calling for caution trading the long side) this afternoon's spike back up shows why it's dangerous to short this market until we get a clearer signal (with a break below 2072).

S&P 500, SPX, 60-min chart

The DOW has essentially the same pattern as SPX. Other than Monday's intraday break below the bottom of a parallel up-channel from March it is holding above support. Last week's rally and now today's rally both probed above its downtrend line from May and this afternoon's rally attempt failed short of its 20- and 50-dma's, currently near 18006 and 18032, resp. (the 20 crossed down below the 50 yesterday). A rally above price-level resistance near 18205 is needed to clear the way to new highs. The bears need to see a break of Monday's low at 17698 and then the 200-dma, currently near 17645, to prompt stronger selling.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,206
- bearish below 17,698

A parallel up-channel for price action since March is also common to the NDX and Monday's low came close to testing the bottom of the channel. If the bulls can get things going this summer there's upside potential to the top of the channel, currently near 4650. But so far the bulls could be in trouble if today's rally is the best they can do. Today's high is so far just a back-test of its broken uptrend line form March 2009 - June 2013, which was broken last Friday. Today is the 3rd close below the line and that's usually an indication the break is real (as opposed to the head-fake break on June 8-9) and if it's followed by a drop below Monday's low at 4396 it would mean the back-test was followed by a bearish kiss goodbye and likely lead to a stronger selloff. But if the bulls can get the NDX back above its 20-dma and trend lines near 4489 it will then stay bullish.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4540
- bearish below 4392

Today's rally in the RUT took it to the top of a rising wedge pattern off its May 6th low and only 4 points shy of its April 15th high at 1278.63. The tag of the top of the rising wedge after the FOMC announcement followed by the selloff might have been the last rally attempt on a news-related push, which is a common way these patterns finish. A drop below Monday's low near 1247 would indicate the high is in place but beware of the risk of a breakdown from here. I show the potential for a pullback and then one more push higher into early next week to finish the wedge and test the April high but that's not all certain here. It would be more bullish if it can rally above 1279 and hold above (not just an intraday break).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1279
- bearish below 1247

Treasury yields spiked lower following today's FOMC announcement, which tells us the bond market is thinking a rate increase has been moved out further (if at all). Yields had been rallying during the day but then completely reversed to new lows by the end of the day. Following last Wednesday's high, where TNX (10-year yield) achieved its price projection at 2.453%, it is now back down near its broken downtrend line form January-September 2014 and its 20-dma, both near 2.285%. If a back-test of this level is followed by a rally above last week's high at 2.489% it would keep yields bullish (prices bearish) and that would be supportive for the stock market. But a drop below 2.28% would be a bullish sign that the bounce pattern off the January low has completed.

10-year Yield, TNX, Daily chart

I like to keep an eye on the home builders index because it helps provide some information what investors think about the housing market, which in turn provides additional clues about the economy. The housing market is a huge component of the economy, which is one reason why the Fed has worked hard to keep interest rates low and why they've bought so many mortgage-backed securities over the years (in an attempt to free up money for the banks to lend to home owners). Yesterday's housing numbers were positive for the industry and as can be seen on the chart below, building permits saw a nice bump in May. So far the recovery off the 2009 low has retraced a Fibonacci 38.2% of the decline. Housing starts (bar chart at the bottom) have been running an average annual rate of about 1 million for more than a year and the data is supportive of a market that's at least holding its own, if not improving.

Housing Starts, May 2013 - May 2015, chart courtesy briefing.com

While the housing numbers above show the potential for higher numbers, the same thing can't be said with certainty about the home builders and it's a little concerning about what investors see with these companies. At the moment the home builders index is dancing on support and it's decision time for investors in this sector, which in turn will tell us whether or not they believe the home construction market will rise or fall from here. As can be seen on the weekly chart below, it has been supported by both its 50-week MA and uptrend line from October 2011 - October 2014, near 520 and 530, resp. To the upside, the bounces since the May 6th low have been blocked by its 50-day MA, currently near 551 and coming down (daily chart now shown). It also has price-level S/R near 553 (its May 2013 high). Price is getting pinched between support and resistance and will soon break in one direction or the other and give us a clue for what the next month or more should look like. At the moment the daily pattern suggests it will break down and a drop below its June 9th low near 528 would trigger a sell signal. From there the decline could be quick and a 100-point drop over the next month or two is something I would expect to see. Waiting now to see if the bulls can thwart the bearish setup.

DJ Home Construction index, DJUSHB, Weekly chart

Unless the U.S. dollar breaks out from its recent high and low at 100.78 (March) and 93.17 (April) I'll continue to look for the dollar to consolidate sideways this year.

U.S. Dollar contract, DX, Weekly chart

Last week I had mentioned that I thought gold would look better with another leg up to complete a larger a-b-c bounce off its June 5th low. If we get another leg up I'll be looking for a rally to the 1200 area before setting up the next decline, one which should take gold below 1140 and potentially below 1000 before the end of the year.

Gold continuous contract, GC, Daily chart

So far silver is confirming my bearish interpretation for gold. It has been chopping sideways/up since last week as it tests support at its uptrend line from March-April. The choppy consolidation looks like a bearish continuation pattern that should lead to a break lower. A drop below a neckline (uptrend line from November 2014 - March 2015), near 15.40, would likely lead to a strong selloff.

Silver continuous contract, SI, Daily chart

Oil has been consolidating in a tight range of about 57-61.75 and looks like a bullish continuation pattern following its March-May rally. If it pops higher it would first hit its declining 200-dma, which is dropping down toward 63. Above that level it would have clear sailing up to about 68-69 where it would run into its declining 50-week MA and broken uptrend line from 1998-2008, both shown on its weekly chart below. But a drop below its June 5th low would be a confirmed break of its 50-day MA, currently nearing its price-level S/R near 58.50, and that would likely lead to a drop back down.

Oil continuous contract, CL, Weekly chart

Thursday's economic reports will finish this week's reports as Friday will have no important ones. We'll get the unemployment numbers and then more importantly the CPI numbers before the open. The Philly Fed and Leading Indicators will be reported at 10:00 AM. The Fed has already made their statement and therefore the CPI numbers probably won't have much of an impact in the futures market. The Philly Fed number is expected to show improvement and if it doesn't then we'd have more evidence of economic contraction so the market could react to disappointment there. But then again it could react opposite to what would normally be expected since it's still more concerned about the Fed than the actual economy.

Economic reports and Summary

Conclusion

The price consolidation over the past four months has made it very difficult for traders to figure out where this market is headed next. Even day to day we constantly find reversals of reversals. Today was an example of intraday reversals mimicking all of the daily and weekly reversals. If you feel like you've been beating your head against the wall trying to figure out this market you're not alone. There's a reason why participation in the market has been drying up and why many are becoming increasingly worried about liquidity drying up and how that could negatively impact the market, especially in any kind of panic selling environment.

Compounding the problem is the excessive use of margin debt right now -- it's a dangerous combination that many participants are simply not aware of. The next flash crash, and there will be one, will have many recognizing the situation in hindsight.

Because the bulls are simply hanging on in a bullish market there is the potential for higher prices this month and possibly into next. But so far the bounces following May's high have led to a series of lower highs and by definition that puts us in a downtrend since May. The exception is the RUT but it has formed a bearish rising wedge for what looks like its final 5th wave in its rally. The breakdown from rising wedge patterns tends to lead to a fast retracement of the wedge.

The choppy pullback pattern for the other indexes can easily be interpreted as a bullish continuation pattern and that's what's leaving me guessing which direction the market will choose next. The one caution is that the series of lower highs in the pullback could be a very bearish pattern (a series of 1st and 2nd waves to the downside), which calls for a strong selloff to follow. That's why Monday's lows are important -- break those and it could be a flush to the downside. It's why I keep saying upside potential is dwarfed by downside risk. Trade carefully and know your downside risk (and of course upside risk if you're trying to get into a short position), since your stops might not trigger or you won't like the price you stopped out at.

Good luck and I'll be back with you in two weeks (traveling next week).

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Plays

Looking For Follow Through

by James Brown

Click here to email James Brown

Editor's Note:

No new trades tonight.

The U.S. stock market rallied on the FOMC news and Yellen's comments in her press conference. However, the first move following an FOMC meeting is often reversed the next day (sometimes the same day). We'd like to see some follow through higher especially since the S&P 500 stalled under its three-week trend of lower highs.

Additional Trading Ideas:

Consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:

Bullish ideas: PKI, XL, AFAM, GLNG, HZNP, TTPH, SEE, THRM, LBTYA, DPLO

Bearish ideas: CNW, KNX, NAV, TRN, IYT




In Play Updates and Reviews

Stocks React To FOMC & Yellen With Gains

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market rallied off their lows of the session following the FOMC announcement and the Fed Chairman's press conference. Yellen seemed to have a dovish outlook on raising rates.


Current Portfolio:


BULLISH Play Updates

Natus Medical Inc. - BABY - close: 42.30 change: -0.32

Stop Loss: 40.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 16, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 249 thousand
New Positions: Yes, see below

Comments:
06/17/15: BABY tried to rally this morning but it ran out of steam under resistance near $43.00. Today's display of relative weakness is a little bit ominous but I don't see any changes from last night's new play description. Our suggested entry point is $43.10.

Trade Description: June 16, 2015:
Healthcare stocks are getting a lot of press because of the merger speculation among the big healthcare insurers. One area of healthcare that's doing well without the press is medical equipment makers. The S&P 500 index is up +1.8% year to date. The XHE healthcare equipment ETF is up +8.9%. BABY is in this industry and their stock is up +18% in 2015.

Here is a brief company description, "Founded in 1989, Natus Medical Incorporated is a leading manufacturer of medical devices and software and a service provider for the Newborn Care, Neurology, Sleep, Hearing and Balance markets. Natus products are used in hospitals, clinics and laboratories worldwide. Our mission is to improve outcomes and patient care in target markets through innovative screening, diagnostic and treatment solutions."

BABY has been steadily growing earnings. They have beaten Wall Street's bottom line earning estimate the last four quarters in a row. They raised guidance the last three quarters in a row. Their most recent earnings report was April 22nd.

BABY reported that their Q1 earnings were up +19% from a year ago to $0.31 per share. Revenues were up +3.7% to $94.0 million. Management raised their 2015 guidance above analysts' estimates.

Jim Hawkins, President and Chief Executive Officer of BABY, commented on his company's results, "I am very pleased with our first quarter results as we achieved record revenues and earnings. Revenue came in at the high end of our guidance while earnings exceeded our guidance. I am most satisfied that we were able to achieve these results in the face of approximately $2 million of negative currency effects on revenue during the quarter."

Earlier this month (June 5th) BABY announced they were increasing their stock buyback program. A year ago they launched a $10 million share repurchase program. They just added another $20 million to their program.

Technically BABY has been showing relative strength the last three weeks. The point & figure chart is very bullish and forecasting a long-term target of $73.00. At the moment BABY is hovering just below resistance in the $42.75-43.00 area. Tonight I am suggesting a trigger to launch bullish positions at $43.10. FYI: I am urging caution on the options. The spreads are pretty wide for all of BABY's October calls.

Trigger @ $43.10

- Suggested Positions -

Buy BABY stock @ $43.10

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

Buy the OCT $45 CALL (BABY151016C45)

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


Hanesbrands Inc. - HBI - close: 32.97 change: -0.09

Stop Loss: 31.45
Target(s): To Be Determined
Current Gain/Loss: +1.9%
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:
06/17/15: HBI quietly churned sideways near $33.00. I don't see any changes from my recent comments.

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


IMAX Corp. - IMAX - close: 42.65 change: +0.21

Stop Loss: 39.90
Target(s): To Be Determined
Current Gain/Loss: -0.2%
Entry on June 15 at $42.75
Listed on June 13, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 732 thousand
New Positions: see below

Comments:
06/17/15: IMAX managed to outperform the market with a +0.49% gain today. If the market turns lower tomorrow we might see IMAX test what should be support at the $42.00 level.

Trade Description: June 13, 2015:
It's shaping up to be a blockbuster summer for IMAX. First there was the second Avenger movie in May. Now Jurassic World is stomping its way to box office success while IMAX gets to ride its coattails.

The "Avengers: Age of Ultron" delivered the second biggest opening day with $84.4 million in U.S. sales. That's just below the last Harry Potter movie, which brought in $91 million on its first day. The new Jurassic World movie, the fourth Jurassic Park dinosaur flick, notched the third biggest opening day with $82.8 million. The new dinosaur-themed juggernaut is poised to do $200 million over the weekend.

As of early May, this Avengers 2 movie has already raked in $425 million overseas and is poised to do more than $200 million this weekend. Estimates suggest it could hit $600 million in the U.S. It had already crossed the $1 billion mark for worldwide sales by the middle of May. This movie is produced by Marvel Studios, a division of Disney (DIS), but it also means big business for IMAX. The Ultron movie delivered the biggest opening night sales for any IMAX film ever.

IMAX is part of the services sector. They're considered part of the entertainment industry. According to the company, "IMAX, an innovator in entertainment technology, combines proprietary software, architecture and equipment to create experiences that take you beyond the edge of your seat to a world you've never imagined. Top filmmakers and studios are utilizing IMAX theatres to connect with audiences in extraordinary ways, and, as such, IMAX's network is among the most important and successful theatrical distribution platforms for major event films around the globe. IMAX is headquartered in New York, Toronto and Los Angeles, with offices in London, Tokyo, Shanghai and Beijing. As of March 31, 2015, there were 943 IMAX theatres (820 commercial multiplexes, 18 commercial destinations and 105 institutions) in 63 countries."

Today there is a battle for consumer's viewing habits. People consume their content on all sorts of devices from their smartphones, tablets, laptops, desktops, and their big screen TVs at home. Netflix and other streaming services have changed viewer habits and expectations. When consumers choose to go to the movies they want something different. According to IMAX's CEO that's why IMAX tickets are doing so well. It's an experience that can't be replicated at home.

The company had a lot of momentum going into 2015 thanks to huge hits like "American Sniper". IMAX has managed to beat Wall Street's earnings and revenue estimates for the last four quarters in a row. Their most recent earnings report was April 30th. Income surged +50% from a year ago. Analysts were expecting $0.05 a share. IMAX delivered $0.07. Revenues rose +29% to $62.2 million, significantly above estimates for $55.4 million.

IMAX CEO Richard Gelfond commented on their results, "This is a very exciting time for IMAX. Our continued progress in expanding our theatre network globally, along with our strong film performance during the first quarter, resulted in robust financial results with almost 30% revenue growth and over 50% adjusted earnings growth compared to the same period last year. With record results from Furious 7 in April and a great start to the Avenger's sequel internationally, the momentum has continued into the second quarter."

2015 is expected to be a huge year. The "Fast & Furious 7" film kept the momentum going. IMAX will also benefit from high-profile movies like "Avengers: Age of Ultron", Jurassic World, Terminator Genisys, Hunger Games: Mockingjay Part 2, the new James Bond movie, another Mission Impossible film (#5), and the next episode of Star War (#7) this December.

IMAX is rolling out new laser systems and they've signed long-term film deals with Disney and Warner Brothers. IMAX is currently growing at about 120 theaters a year. They're doing well in China. The Chinese movie box office is expected to eclipse the U.S. market by 2020.

Shares of IMAX popped to new all-time highs on May 28th after announcing its majority owned subsidiary, IMAX China Holding Inc., had filed for an IPO in Hong Kong. According to Reuters, IMAX is "looking to benefit from booming entertainment demand in the world's second largest economy." IMAX owns 80% of IMAX China. Shares of IMAX have spent the last couple of weeks churning sideways in the $40-42 zone but with a bullish trend of higher lows.

Friday's breakout past resistance near $42.00 could spark some short covering. The most recent data listed short interest at 18.4% of the 53.7 million share float. We are suggesting a trigger to launch bullish positions at $42.75

- Suggested Positions -

Long IMAX stock @ $42.75

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

Long SEP $45 CALL (IMAX150918C45) entry $1.60

06/15/15 triggered @ $42.75
Option Format: symbol-year-month-day-call-strike


LDR Holding - LDRH - close: 44.43 change: -0.04

Stop Loss: 41.85
Target(s): To Be Determined
Current Gain/Loss: +5.4%
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:
06/17/15: The sideways consolidation in shares of LDRH continued on Wednesday with shares closing virtually unchanged.

More conservative traders may want to use a higher stop loss.

No new positions at this time.

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

06/10/15 new stop @ 41.85
06/03/15 triggered @ $42.15


Starbucks Corp. - SBUX - close: 53.24 change: +0.28

Stop Loss: 49.95
Target(s): To Be Determined
Current Gain/Loss: +4.3%
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:
06/17/15: SBUX was making headlines today for its announcement they will close all 23 of its La Boulange bakery cafes by the end of September. They do plan to maintain the brand and sell the bakery foods inside Starbucks locations. The market reacted positively to the news and pushed the stock to a new record high.

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

06/16/15 SBUX expands it mobile service app coverage to more than 4,000 locations
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: 46.85 change: +0.23

Stop Loss: 45.75
Target(s): To Be Determined
Current Gain/Loss: -0.6%
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:
06/17/15: Shares of SGEN rallied this morning after the company announced new data on its ADCETRIS treatment for lymphoma at a conference. The rally eventually faded and shares pared their gains to +0.49%.

I am not suggesting new positions at this time.

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

06/16/15 new stop @ 45.75
06/08/15 triggered @ $47.15
Option Format: symbol-year-month-day-call-strike


Silicon Laboratories Inc. - SLAB - close: 56.64 change: +0.10

Stop Loss: 53.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 311 thousand
New Positions: Yes, see below

Comments:
06/17/15: SLAB is inching closer to a bullish breakout past short-term resistance near $57.00. Our suggested entry point is $57.05.

Trade Description: June 10, 2015:
The Internet of Things (IoT) is poised to surge and SLAB plans to capture its chunk of the IoT pie.

Here's an excerpt from SLAB's explanation on the Iot:

The Internet has come a long way over the last 30 years. Old-fashioned IPv4 is giving way to IPv6 so that every device on the Internet can have its own IP address. Machine-to-machine (M2M) communication is on the rise, enabling devices to exchange and act upon information without a person ever being involved. The scope and scale of the Internet have changed as well: industry leaders predict that the number of connected devices will surpass 15 billion nodes by 2015 and reach over 50 billion by 2020. The challenge for the embedded industry is to unlock the value of this growing interconnected web of devices, often referred to as the Internet of Things (IoT). (You can read more about it here.)

SLAB is part of the semiconductor industry. According to the company, "Silicon Labs (SLAB) is a leading provider of silicon, software and system solutions for the Internet of Things, Internet infrastructure, industrial automation, consumer and automotive markets. We solve the electronics industry's toughest problems, providing customers with significant advantages in performance, energy savings, connectivity and design simplicity. Backed by our world-class engineering teams with unsurpassed software and mixed-signal design expertise, Silicon Labs empowers developers with the tools and technologies they need to advance quickly and easily from initial idea to final product."

SLAB has been beating Wall Street's estimates on both the top and bottom line. Revenues were up +10.8% in the fourth quarter and up +12.4% in the first quarter this year.

The company has recently been considered a takeover target. This speculation helped push SLAB through resistance near the $54.00 level. Shares have been able to maintain these gains. Now SLAB is starting to breakout from its recent sideways consolidation. The point & figure chart is bullish and forecasting at long-term target of $70.00. Today's intraday high was $56.75. We are suggesting a trigger to launch bullish positions at $57.05.

Trigger @ $57.05

- Suggested Positions -

Buy SLAB stock @ $57.05

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

Buy the OCT $60 CALL (SLAB151016C60)

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


Sarepta Therapeutics - SRPT - close: 29.10 change: +0.80

Stop Loss: 24.85
Target(s): To Be Determined
Current Gain/Loss: +5.2%
Entry on June 10 at $27.65
Listed on June 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
06/17/15: Shares of SRPT surged +7.0% this morning. The move appears to be a reaction to a SunTrust Robinson Humphrey (analyst) report listing SRPT as one of their top five biotech picks for the next six months. The firm has SRPT rated as a "buy" with a $33 target.

SRPT saw its gains fade to +2.8% by the closing bell. More conservative traders may want to raise their stop again.

Trade Description: June 9, 2015:
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.

*small positions to limit risk* - Suggested Positions -

Long SRPT stock @ $27.65

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

Long AUG $30 CALL (SRPT150821C30) entry $3.00

06/10/15 triggered @ $27.65
Option Format: symbol-year-month-day-call-strike


TASER Intl. Inc. - TASR - close: 34.65 change: +0.05

Stop Loss: 32.25
Target(s): To Be Determined
Current Gain/Loss: -1.6%
Entry on June 16 at $35.20
Listed on June 15, 2015
Time Frame: Exit PRIOR to earnings in late July
Average Daily Volume = 2.3 million
New Positions: see below

Comments:
06/17/15: This morning TASR announced multiple orders for its next generation smart weapons. The company listed 26 different orders from police departments various police departments and security forces around the country and overseas.

The stock popped higher this morning but gains didn't last and shares faded back to unchanged on the day.

Trade Description: June 15, 2015:
50,000 volts. That's what a TASER electro-muscular disruption (EMD) device shoots through your body to override the central nervous system. Your body freezes as all of your skeletal muscles contract at once.

Their website describes the company as "TASER International makes communities safer with innovative public safety technologies. Founded in 1993, TASER first transformed law enforcement with its electrical weapons. TASER continues to define smarter policing with its growing suite of technology solutions, including AXON body-worn video cameras and EVIDENCE.com, a secure digital evidence management platform."

They may have started with electrical weapons but now the company is expanding to mobile video cameras worn on a law enforcement officer's gear. The company was in the news earlier this year thanks to President Obama. Back in January Obama announced he wanted to spend $75 million over the next three years to outfit the nation's police force with body-worn cameras.

The White House believes that body-worn cameras on police will help reduce violence and avoid another event like the one in Ferguson, MO. As of January 2015 estimates suggest there are only 70,000 police wearing cameras now. Obama's plan would almost double that. Industry analysts are forecasting significant growth if the federal government approves Obama's plan. There are nearly 800,000 policemen in the U.S. There's plenty of room to grow. Plus TASR is expanding internationally.

The bears will argue that TASR's stock is priced for perfection and very expensive with a P/E near 77. There is no denying that. However, the body-camera business could soar. Currently it's less than 8% of their annual sales. The real winner could be TASR's Evidence.com ecosystem. This is a subscription service for law enforcement to back up and manage all the data from TASER electric weapons, body-worn cameras, and more.

In the last few months we've seen more and more police departments announcing they are spending millions on body camera systems. It's not just the U.S. The London police force just announced they were buying 20,000 body cameras for their policemen although they didn't say what brand they were choosing. We do know they were testing TASR's products.

Technically shares of TASR have been showing relative strength. The stock is up three weeks in a row and tagged new all-time highs last week. Traders bought the dip today at short-term technical support on the 10-dma. TASR bounced with a +2.69% gain that outperformed the major indices.

If this rally continues it could spark a potential short squeeze. The most recent data listed short interest at 25% of the 52.1 million share float. Tonight we are suggesting a trigger to launch bullish positions at $35.20. Please keep in mind that TASR can be a volatile stock. Traders may want to use small positions to limit their risk.

*consider using small positions to limit risk*

- Suggested Positions -

Long TASR stock @ $35.20

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

Long SEP $37 CALL (TASR150918C37) entry $2.65

06/16/15 triggered @ $35.20
Option Format: symbol-year-month-day-call-strike


Tempur Sealy Intl. - TPX - close: 65.05 change: +0.17

Stop Loss: 59.25
Target(s): To Be Determined
Current Gain/Loss: +3.0%
Entry on June 10 at $63.15
Listed on June 08, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 890 thousand
New Positions: see below

Comments:
06/17/15: TPX continues to push higher. Shares added +0.26% today. The stock is on track for its third weekly gain in a row. More conservative investors might want to move their stop closer to the $62.00 area.

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.

- Suggested Positions -

Long TPX stock @ $63.15

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

Long SEP $65 CALL (TPX150918C65) entry $3.50

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.

06/10/15 triggered @ $63.15
Option Format: symbol-year-month-day-call-strike


Zoetis Inc. - ZTS - close: 50.17 change: +0.46

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 11, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.3 million
New Positions: Yes, see below

Comments:
06/17/15: ZTS displayed relative strength today with a +0.9% gain. The stock's close above round-number resistance at $50.00 is also encouraging. The intraday high was only $50.37. Our suggested entry point to launch positions could be hit tomorrow at $50.50.

Trade Description: June 11, 2015:
ZTS is in the healthcare sector but they are not your average healthcare stock. The company is the world's biggest manufacturer of medicine and vaccinations for livestock and pets. They were spun off from pharmaceutical giant Pfizer (PFE) back in 2013. Last year ZTS' stock was a big performer with a gain of more than +50%. That outperformance continues this year with ZTS up +15.9% in 2015.

According to the company, "Zoetis is the leading animal health company, dedicated to supporting its customers and their businesses. Building on more than 60 years of experience in animal health, Zoetis discovers, develops, manufactures and markets veterinary vaccines and medicines, complemented by diagnostic products and genetic tests and supported by a range of services. In 2014, the company generated annual revenue of $4.8 billion. With approximately 10,000 employees worldwide at the beginning of 2015, Zoetis has a local presence in approximately 70 countries, including 27 manufacturing facilities in 10 countries. Its products serve veterinarians, livestock producers and people who raise and care for farm and companion animals in 120 countries."

ZTS CEO Juan Ramon Alaix recently spoke at an investor conference. He said the domestic pet and livestock market has hit $100 billion. While the market for animal health is currently at $24 billion and is expected to reach $33 billion by 2020. Alaix told investors that the animal health industry is extremely resilient and has continued to grow regardless of global economic conditions.

While Alaix has a bullish long-term outlook for his industry they company's sales growth seemed to stall last quarter. ZTS reported earnings on May 5th. 2015 Q1 results were $0.41 per share, which beat analysts' estimates. Yet revenues were flat at $1.10 billion. Guidance was in-line with Wall Street estimates.

What is noteworthy is that within their earnings press release the company discussed plans to cut costs and boost profits. ZTS will cut up to 25% of its workforce. They will exit several of its manufacturing plants. Plus they plan to discontinue several underperforming products. This is expected to generate $300 million in cost saves by 2017 and boost their adjusted operating margins from 25% in 2014 to 34% in 2017.

Why is ZTS launching its first major restructuring? Odds are Bill Ackman had an influence here. Mr. Ackman is the founder and CEO of Pershing Square Capital Management, an activist hedge fund. Late last year Pershing bought a big stake in ZTS. They currently own about 8% of the company or 41.8 million shares, valued around $2 billion. Since the hedge fund has jumped into ZTS they now have two board seats.

Looking at the bullish trajectory on ZTS' stock it appears that the rest of Wall Street is along for the ride and they expect Ackman to unlock more shareholder value out of ZTS. There has been some speculation that ZTS is actually a takeover target. Both Bayer and Sanofi have been rumored to be possible suitors.

The rally in ZTS stalled at round-number resistance near $50.00. Now after consolidating sideways in the $48-50 zone for the last several days ZTS looks poised to breakout. We are suggesting a trigger to open bullish positions at $50.50.

Trigger @ $50.50

- Suggested Positions -

Buy ZTS stock @ $50.50

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

Buy the Oct $55 CALL (ZTS151016C55)

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: 32.21 change: -0.01

Stop Loss: 33.65
Target(s): To Be Determined
Current Gain/Loss: +4.3%
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:
06/17/15: It was a quiet day for CTL. Shares churned sideways above short-term support near $32.00.

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: 12.59 change: -0.02

Stop Loss: 13.25
Target(s): To Be Determined
Current Gain/Loss: +12.3%
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:
06/17/15: After yesterday's session we were expecting ONDK to spike one way or the other. Shares spiked higher this morning but the rally failed at $12.86. ONDK collapsed back to unchanged on the session. The stock remains short-term oversold.

No 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

06/16/15 new stop @ 13.25
06/15/15 new stop @ 14.25
06/10/15 new stop @ 15.15
06/02/15 triggered @ $14.35
Option Format: symbol-year-month-day-call-strike