Option Investor
Newsletter

Daily Newsletter, Monday, 7/6/2015

Table of Contents

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

Market Wrap

Global Markets Slip On Greece

by Thomas Hughes

Click here to email Thomas Hughes
Global markets slip on the results of Greece' no-vote to austerity measures.

Introduction

Somewhat surprisingly Greece voted no in the referendum on Sunday and sent global markets into a nosedive. The nosedive wasn't unexpected, it was the no vote that was a little surprising to me. I think others felt the same, Indices from Asia to the Americas fell on the news, with one notable exception. The mainland Chinese Shang Hai index gained 2.5% following announcements from the government they would be taking measures to help support the local market and long term investors.

Here's a quick recap of Greek developments today. Following the vote Greek finance minister Varoufakis resigned, apparently from pressure from PM Tsipras in order to help smooth out the next step he plans to take. The Greek banks remain closed and the limit for withdrawal has been lowered to 50 euros, the ECB says no change to its help with liquidity, and there no sign of when they may reopen. PM Tsipras has announced he will be coming to the the negotiating table with a new proposal tomorrow. Angela Merkel says any new offer must be on the table this week and seems willing to talk. The IMF says they stand ready to aid Greece, but hands are tied until they get current with loan obligations. Tomorrow a summit of creditors is scheduled that may also be reviewing a Greek proposal.

Market Statistics

US index futures took a big hit in overnight trading. The Dow was indicated down by as much as 200 points at one time but that moderated into the morning hours. The early pre-market session saw declines of -153 for the Dow Jones Industrials, -17 for the S&P 500 and -35 for the NASDAQ. These levels held into the opening bell and precipitated a -20 point drop for the SPX in the first few minutes of open trading.

The initial sell-off did not move quite as low as the futures indicated. Support came into the market within the first 5 minutes of trading and drove the indices back to break even and then into positive territory by 11AM. The push into positive territory brought the bears back into the action. They were able to drive the indices back below break-even and eventually down near the early low. These lows turned out to be support and sparked another bounce that lasted into the close of trading. The market was able to recover most of the daily loss but not all, closing with losses in the range of -0.50%.

Economic Calendar

The Economy

Only one economic release today, ISM non-manufacturing index. The index rose, as expected, to 56 from a previous 55.7. All segments within the report are expansionary although labor market expansion has slowed. The business index gained 2% to 61.5, new orders rose 0.4% to 58.3 and employment fell -2.6% to 52.7. Prices paid also remain above the expansionary 50 mark but have moderated their rate of pace.

Moody's Survey of Business Confidence slipped -1.5 points to 40.8. This is the fifth week of decline but the index remains near recent all time highs and above levels seen during the 2008 housing bubble. This week's decline may be explained away by the holiday shortened week but we will have to wait until next week to know for sure. According to Moody's chief economist Mark Zandi business confidence remains strong with "robust" employment and business spending in the US.

According to FactSet the expected blended rate for S&P 500 2nd quarter earnings growth is -4.5%. This is slightly higher than -4.6% last week but still well below the -2.1% predicted at the beginning of the quarter. So far 21 companies have reported with 14 beating estimates for EPS and 10 beating estimates for earnings. There are 3 companies reporting this week, including Alcoa. Looking at the expectations ex-energy the expected growth rate is +1.9% and could go as high as +6% if the four year averages hold true. Third quarter earnings are also still expected to show mild decline but I am looking for that to change over the next few weeks as 2nd quarter earnings are released. The full year 2015 is expected to see growth of 1.5%, 2016 is expected to be near 11.9%, both of these estimates have fallen in the last week.

The Oil Index

Oil prices finally succumbed to the pressures of over supply and under demand. WTI and Brent both fell, WTI nearly -7.5%, Brent just over -6%, as the summer driving season peaks, rig counts increase and Iran supply hovers on the edge of the market. The Greece referendum and surprise moves in China may have been the triggers and helped to extend the drop but the Iran nuclear deal has the biggest impact on supply/demand issues driving prices, after counting in high storage production levels around the world. The Iran deal could add a million barrels of supply to an already well supplied market so tomorrow's deadline is being watched closely. Latest reports say no deal is at hand and the deadline may be extended.

The oil sector took a hit but not near as bad as you might think, given a 6% drop in the underlying commodity. The Oil Index lost only about -1.25% after a much lower opening and in the face of the late day route in the oil pits. Today's action opened below the long term trend line and created a white candle that moved up, counter to the day long slide in oil. The indicators are pointing lower in the near term suggesting that support will be tested further with a possible fall below the trend line. Looking out over the short to long term the indicators remain consistent with uptrend and potential support along the trend line. Falling oil prices and 2nd quarter earnings outlook, along with global headlines, may continue to put pressure on gold as we get into earnings season. Outlook into the end of this year and next remains positive so I think the trend will remain up making today's drop below trend an attractive entry point. JPMorgan may agree, they upgraded BP from neutral to overweight.


The Gold Index

Gold prices rose today as flight to safety trades and long term outlook overpowered the affects of a stronger dollar. Gold rose nearly a full percent in today's action to move up from last week's low. Prices remain above the 4 month low and are currently bouncing higher within the range. The play by play with Greece will continue to affect day to day prices but the big catalyst for the week is likely to be the FOMC minutes on Wednesday. I still see a win-win scenario for bulls in that a hint of later rate hikes is likely to weaken the dollar and lift gold, and a hint of sooner rate hikes implies inflation and could wind up lifting gold.

The Gold Miners got a lift from today's rise in gold prices. The miners ETF GDX gained nearly 2% in a move that came up to challenge resistance at $18. This resistance is coincident with the bottom of both the support line drawn from the March 31st bottom and my rising trend line. Today's action created a strong white candle that formed a bullish piercing pattern swallowing up the prior three days of candles. The indicators are mixed. MACD is bearish, weak and nearing the zero line while stochastic is has just made a bullish crossover with %D pointing lower and extremely oversold. A break above $18 would help to confirm support and my longer term bullish stance on the sector. If so this move could take the index toward the to of the range near $20. A failure could take the it down to the long term low near $16. Randgold Resources received an upgrade from hold to buy which could help add lift to the sector.


In The News, Story Stocks and Earnings

Amazon made headlines early in the day as it tries to create its own holiday. The online retail behemoth is offering a host of deals, scheduled for July 15th, and targeted at its Prime customers. According to reports the company is expecting to "bury Black Friday" with more and expanded deals from the traditional shopping holiday. Non Prime members can sign up for a trial and get access to the deal. This move is not surprising, it follows in the footsteps of Ali Baba's highly successful Singles Day and just about every other mass market holiday in the US. I'm sure it will be a success, they will sell billions of dollars of merchandise, how it will impact business going forward is being debated. The news may have helped the stock in today's session, it only fell about a half percent and held above the short term moving average.


Alcoa reports earnings on Wednesday and kicks off the start of the earnings reporting season. The aluminum giant is not expected to produce stellar results as it has been facing strong headwinds. Number one is affect of strong dollar and currency conversions which is expected to be large. Along with this is tepid demand, down to +6% this year from +9% last year. The consensus estimate is EPS of $0.23, down from the previous quarter but up from the same quarter last year. Today the stock fell about -1% and set a new 15 month low.


Kuerig Green Mountain got another downgrade today, this time from Suntrust. Their target is in line with previous downgrades putting fair value in the rang of $70. The stock fell nearly -4% on the news hitting a new 18 month low. The indicators are weak and confirming further downside with a bearish stochastic crossover and strengthening bearish momentum. GMCR reports earnings in one month on August 5th.


PriceSmart is scheduled to report on Thursday. The membership discount retailer is scheduled to report $0.70, in line with the previous quarter. The last quarter report saw a +11% increase in sales that has been followed up by double digit increases in monthly sales each month since. The company has also announced the opening of a new club store in Nicaragua of all places that should help the bottom line. Shares of the stock lost a little over -0.60% in today's session, creating a small doji/spinning top about 2% below potential resistance.


The Indices

The bulls and bears were fighting it out until the end of the day but the bears were dominant. Today's move was led by the transports, which closed with a loss of -0.54%. The sector remains under pressure despite upgrades and low oil prices and set a new 9 month low. Today's action created a long-legged candle, not a doji but clearly a sign of mixed emotions concerning the market. There is some indication of support around the 8,050 level and just above 8,000 but the indicators are still pointing lower so those level could be easily reached and/or surpassed. Downside target should the index begin to move lower and break 8,000 is 7,750.


The S&P 500 was the next largest decliner in today's session. The broad market fell -0.39% in a move that tested support at last week's low and bounced back. The index created a hammer-like candle with small body and long lower shadow that at once highlights downside pressures carrying over from last week and support near 2,060 at the same time. The indicators are pointing lower at this time, suggesting that support levels could be tested again in the least. Momentum remains weak and stochastic %K is bouncing so support in the 2,050-2,060 range looks like it could be strong. A break below here could lead to correction to trend with a target near 2,000.


The NASDAQ Composite shed -0.34%, coming third in today's decline. The tech heavy index created a white bodied candle with a long white wick between my long term trend line and the previous all time high near 5,042. Today's action is the 5th since falling below the short term moving average and the described range. The index appears to be in a little consolidation that could go either way. A break below the trend line could go as low 4,750 in the near to short term with a break above resistance finding next resistance near 5,160. The indicators are pointing lower in the near term but remain consistent with the ongoing up trend over the short to long term. Tomorrow may also be affected by an after hours guidance revision, negative, made by AMD. The company now sees revenue down -8% rather than the previously expected -3%.


The Dow Jones Industrial Average fell only -0.25% after it tested support near 17,600. The blue chips created a black candle falling from previous support now resistance but were halted by last week's low. This low is coincident with the March lows and is looking like a possible bottom to the near term down draft in the market. The indicators remain bearish as with the other indicators but also show signs of possible support in declining bearish MACD and bouncing %K on stochastic. Support looks likely to be tested with a possible break through carrying a target near the long term trend line near 17,500.


The bulls tried to bounce back from today's drop but just couldn't do it. The catalyst was Greek referendum but I think that was more likely an excuse than a real scare. In other words, I think it no coincidence the market has been selling off over the past week with earnings season set to start two days from now. Greece, Iran and China are all geopolitical in nature, all have potential to affect the US economy but are also issues that have been plaguing us for years, if not longer. In that time none of them has caused a global melt-down and all the while we have been recovering and expanding. News may help to push the indices lower in the near term but long term outlook remains bullish and in line with the trends.

We won't get a lot of data or earnings this week but by the end of next week we should have a pretty good picture of how earnings season is going to be and whether or not the summer is seeing the expansion we have been looking for. This week the FOMC minutes is top on my list of known events, I say known eents because Greece and maybe Iran will be top headline makers but who knows when or what those will say. Earnings is dominated by Alcoa on Wednesday, followed up by Pricesmart, Walgreens and Pepsico on Thursday. Alcoa might not be that great but as always it will be the forward outlook that is more important. Next week the big banks report, along with quite a few big names in the industrial, consumer, technology and transportation sectors so it is bound to be active.

Until then, remember the trend!

Thomas Hughes


New Plays

Dramatically Underperforming Its Peers

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Symantec Corp. - SYMC - close: 22.67 change: -0.36

Stop Loss: 23.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 06, 2015
Time Frame: exit PRIOR to earnings on August 11
Average Daily Volume = 4.3 million
New Positions: Yes, see below

Company Description

Trade Description:
Cyber security is big business. Research firm Gartner Inc. recently forecasted sales for cyber security to grow more than +8% in 2015 to $78 billion. Yet analysts are forecasting SYMC's sales to decline. Falling sales of desktop and laptop computers along with tougher competition is hurting sales of SYMC's Norton anti-virus business.

If you're not familiar with SYMC they are part of the technology sector. According to the company, "Symantec Corporation (SYMC) is an information protection expert that helps people, businesses and governments seeking the freedom to unlock the opportunities technology brings -- anytime, anywhere. Founded in April 1982, Symantec, a Fortune 500 company, operating one of the largest global data-intelligence networks, has provided leading security, backup and availability solutions for where vital information is stored, accessed and shared. The company's more than 19,000 employees reside in more than 50 countries. Ninety-nine percent of Fortune 500 companies are Symantec customers. In fiscal 2015, it recorded revenues of $6.5 billion."

The company spent $13.5 billion to buy data-storage company Veritas back in 2004. That investment has not paid off. Veritas is currently valued between $5-to-$8 billion. It was widely rumored that SYMC had been shopping around to sell its Veritas business but couldn't find any buyers. Today SYMC is planning to split Veritas back into its own standalone company. Currently the spinoff is forecasted to take place on January 2, 2016.

Earnings for SYMC have been struggling. They reported their Q3 results back in February. Revenues missed estimates and management guided lower. On May 14th SYMC announced its Q4 results. Earnings missed estimates by a penny with a profit of $0.43 per share. Revenues fell -6.2% to $1.55 billion. SYMC management lowered their Q1 guidance and their fiscal year 2016 guidance on both the top and bottom line.

Since its earnings warning in May the stock has been struggling with traders selling the rallies. UBS recently downgraded the stock to a "sell". Technically shares have now broken down below key support near $23.00. Tonight we are suggesting a trigger to launch bearish positions at $22.45.

Trigger @ $22.45

- Suggested Positions -

Short SYMC stock @ $22.45

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

Buy the AUG $22 PUT (SYMC150821P22) current ask $0.67
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

Biotech Bounces While Oil Stocks Sink

by James Brown

Click here to email James Brown

Editor's Note:
Traders bought the dip this morning for most of the market. Biotech stocks managed to show relative strength. Meanwhile weakness in crude oil weighed heavily on energy stocks.

W has been removed as a candidate.


Current Portfolio:


BULLISH Play Updates

Chimerix, Inc. - CMRX - close: 47.02 change: +0.94

Stop Loss: 42.95
Target(s): To Be Determined
Current Gain/Loss: +1.9%
Entry on June 26 at $46.15
Listed on June 25, 2015
Time Frame: exit PRIOR to earnings in August
Average Daily Volume = 428 thousand
New Positions: see below

Comments:
07/06/15: Biotech stocks were showing relative strength again. CMRX rebounded off its rising 10-dma this morning. The stock surged to a +2.0% gain. I would consider new positions on a rally past $47.50.

Trade Description: June 25, 2015:
Biotech stocks have been outperforming the broader market for the last couple of years. That outperformance continues in 2015. The IBB biotech ETF is up +23% in 2015 versus a +8% gain in the NASDAQ and a +2% gain in the S&P 500. CMRX has been lagging its peers with a +13.9% gain this year but that could be about to change as the stock looks poised to run.

According to the company, "Chimerix is a biopharmaceutical company dedicated to discovering, developing and commercializing novel, oral antivirals in areas of high unmet medical need. Chimerix's proprietary technology has produced brincidofovir (CMX001), a clinical-stage nucleotide analog lipid-conjugate, which has potent in vitro antiviral activity against many clinically relevant dsDNA viruses and a favorable safety profile in clinical studies conducted to date. Chimerix has completed enrollment of SUPPRESS, a Phase 3 study of brincidofovir for the prevention of cytomegalovirus (CMV) in adult hematopoietic cell transplant (HCT) recipients. In addition, Chimerix is enrolling the Phase 3 AdVise trial of brincidofovir for treatment of adenovirus (AdV) infection. Chimerix is working with BARDA to develop brincidofovir as a potential medical countermeasure to treat smallpox due to a threat of bioterror or accidental release."

In April this year CMRX was award an exclusive contract from the U.S. government to build a new smallpox vaccine. The Biomedical Advanced Research and Development Authority (BARDA) wants another treatment available just in case enemies of the U.S. try to use smallpox as a weapon or if there is some sort of accidental breakout from a lab. The 60-month contract is valued at $100 million but if all the options are awarded it could be worth up to $435 million in revenue to CMRX. The company's revenues for the trailing twelve months are only $4.5 million.

Earlier this month (June) CMRX announced they were going to raise $150 million in capital by selling 3,775,000 shares of stock. That was later bumped up to 4.3 million shares. These priced at $39.75. You can see how CMRX stock briefly dipped toward $39.00 on June 10th and investors immediately bought the dip. It's impressive to see CMRX increase its shares outstanding by 10% and the impact only lasted a few days as buyers gobble up the stock.

Technically CMRX appears to be in breakout mode. The stock consolidated sideways in the $35.00-43.50 range for five and a half months before finally breaking out a few days ago. The stock encountered some profit taking yesterday but traders bought the dip today. The point & figure chart is bullish and forecasting at $61.00 target.

Tonight we are suggesting a trigger to launch bullish positions at $46.15. Plan on exiting prior to CMRX's earnings report in August.

- Suggested Positions -

Long CMRX stock @ $46.15

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

Long AUG $50 CALL (CMRX150821C50) entry $2.10

06/26/15 triggered @ $46.15
Option Format: symbol-year-month-day-call-strike


Neurocrine Biosciences Inc. - NBIX - close: 48.32 change: +1.01

Stop Loss: 44.85
Target(s): To Be Determined
Current Gain/Loss: +0.1%
Entry on July 01 at $48.27
Listed on June 30, 2015
Time Frame: Exit PRIOR to earnings in August
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
07/06/15: NBIX shot higher at the open this morning. Shares rallied from $47.00 to $49.50 before paring its gains. The stock managed to outperform the broader market with a +2.1% gain.

NBIX has failed twice at $49.50 in the last three weeks. I'd wait for a rally past $49.50 or better yet a rally past $50.00 before considering new positions.

Trade Description: June 30, 2015:
Biotech stocks remain one of the best performing groups in the market this year. Year to date the IBB is up +21% versus a +0.2% gain in the S&P 500 and a +5.3% gain in the NASDAQ composite. NBIX is outpacing its peers with a +113% gain in the first half of 2015.

NBIX is in the healthcare sector. According to the company, "Neurocrine Biosciences, Inc. discovers and develops innovative and life-changing pharmaceuticals, in diseases with high unmet medical needs, through its novel R&D platform, focused on neurological and endocrine based diseases and disorders. The Company's two lead late-stage clinical programs are elagolix, a gonadotropin-releasing hormone antagonist for women's health that is partnered with AbbVie Inc., and NBI-98854, a vesicular monoamine transporter 2 inhibitor for the treatment of movement disorders. Neurocrine intends to maintain certain commercial rights to its VMAT2 inhibitor for evolution into a fully-integrated pharmaceutical company."

I like to remind readers that biotech stocks can be tough to trade. Normally they are volatile with lots of headline risk. The right headline about a successful test or clinical trial or FDA approval can send shares soaring. The wrong headline could see a biotech stock crash or even gap down several points. Due to the nature of biotech work and how many smaller companies get paid with milestone payments as they develop treatments tends to make their earnings are very lumpy.

While we normally don't focus on earnings for the smaller biotech companies, I will point out that NBIX's most recent earnings report was much better than expected. Their 2014 Q1 results were a loss of ($0.17) per share. Analysts were expecting 2015 Q1 results to be a loss of ($0.30). NBIX reported a loss of ($0.01) per share. Revenues were $19.76 million for the first quarter. Management held a successful secondary offering last quarter and raised $270 million. This increased the company's cash and cash equivalents to $518 million. Hopefully investors won't have to worry about NBIX needing to raise capital any time soon.

After NBIX's Q1 results the stock was upgraded by two analysts. One raised their price target to $64. The other raised their price target to $69. Currently the point & figure chart is forecasting at $66 target.

Technically NBIX looks bullish following its breakout past resistance near $45.00. The recent pullback among the biotech stocks saw NBIX dip back toward this area, which is now support. Today's bounce looks like a potential entry point. Tonight we're suggesting a trigger to open bullish positions at $48.15.

- Suggested Positions -

Long NBIX stock @ $48.15

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

Long AUG $50 CALL (NBIX150821C50) entry $3.60

07/01/15 triggered on gap open at $48.27
Option Format: symbol-year-month-day-call-strike


Spirit AeroSystems - SPR - close: 55.16 change: +0.01

Stop Loss: 53.75
Target(s): To Be Determined
Current Gain/Loss: -2.3%
Entry on June 22 at $56.44
Listed on June 18, 2015
Time Frame: 6 to 8 weeks, exit prior to earnings in very late July
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
07/06/15: SPR held up reasonably well. The stock gapped down at the open but quickly bounced. Shares ended the day virtually unchanged on the session.

No new positions at this time.

Trade Description: June 18, 2015:
Airline stocks have gotten crushed lately as investors worry about the airliner industry overbuilding capacity. It's a different story for the airplane makers. Shares of SPR just closed near all-time highs. The Dow Industrial Average is up +1.6% year to date. The S&P 500 is up +3.0%. SPR is outpacing them both with a +30% gain this year.

SPR is in the industrial goods sector. According to the company, "Spirit AeroSystems, with headquarters in Wichita, Kan., USA, is one of the world's largest non-OEM designers and manufacturers of aerostructures for commercial aircraft. In addition to its Wichita and Chanute facilities in Kansas, Spirit has locations in Tulsa and McAlester, Okla.; Kinston, N.C.; Prestwick, Scotland; Preston, England; Subang, Malaysia; and Saint-Nazaire, France.

In the U.S., Spirit's core products include fuselages, pylons, nacelles and wing components. Additionally, Spirit provides aftermarket customer support services, including spare parts, maintenance/repair/overhaul, and fleet support services in North America, Europe and Asia. Spirit Europe produces wing components for a host of customers, including Airbus."

On their website SPR notes that they "have long-term agreements in place with our largest customers, Boeing and Airbus. Other major customers include Bombardier, Rolls-Royce, Mitsubishi, Sikorsky and Bell Helicopter." SPR does so much business with Boeing (BA) that buying SPR is almost a stealth trade on BA's backlog. Looking at BA's most recent earnings report their backlog hit a record high of $495 billion. That's about 5,700 new planes. BA plans to significantly increase production in 2017 and again in 2018, which should mean an increase in revenues for SPR.

Earnings from SPR have been somewhat mixed. On February 3rd they reported their 2014 Q4 results with earnings at $0.87 per share. That was 10 cents better than expected. Yet revenues were only up +5% to $1.57 billion, which missed expectations.

Results improved in the first quarter. On April 29th SPR said earnings were up +18% from a year ago. Their $1.00 per share beat expectations. Revenues were almost flat at $1.74 billion but that still came in better than analysts were expecting. SPR management issued somewhat bullish guidance on 2015 earnings but their revenue estimate was soft.

The stock initially sold off on its Q1 report but traders bought the dip the very next day. SPR continues to build on its bullish pattern of higher lows. Today the stock is poised to breakout past short-term resistance at $56.20. We are suggesting a trigger to launch bullish positions at $56.35. Plan on exiting prior to SPR's Q2 earnings report in very late July or early August.

- Suggested Positions -

Long SPR stock @ $56.35

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

Long OCT $60 CALL (SPR151016C60) entry $1.60

06/22/15 triggered on gap open at $56.44
Option Format: symbol-year-month-day-call-strike


Tempur Sealy Intl. - TPX - close: 67.86 change: +0.16

Stop Loss: 64.95
Target(s): To Be Determined
Current Gain/Loss: +7.5%
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:
07/06/15: TPX continued to show relative strength and posted a +0.2% gain. The stock managed to tag a new multi-year high intraday.

No new positions at this time.

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

06/27/15 new stop @ 64.40
06/22/15 new stop @ 61.90
06/10/15 triggered @ $63.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Continental Resources, Inc. - CLR - close: 37.40 change: -2.60

Stop Loss: 40.65
Target(s): To Be Determined
Current Gain/Loss: +14.5%
Entry on June 22 at $43.75
Listed on June 20, 2015
Time Frame: 6 to 8 weeks, exit prior to earnings in August
Average Daily Volume = 8.8 thousand
New Positions: see below

Comments:
07/06/15: Today's drop in crude oil was a heavy burden for the oil names and CLR plunged -6.5% to new multi-month lows. We are moving our stop loss down to $40.65.

No new positions at this time.

Trade Description: June 20, 2015:
There are a lot of currents moving the oil industry these days. Currency moves, OPEC production, access to capital, falling rig counts, and potential bankruptcies. The stock performance for U.S. shale oil drillers have been suffering. CLR is one such stock.

CLR is in the basic materials sector. According to the company, "Continental Resources (CLR) is a Top 10 independent oil producer in the United States and a leader in America's energy renaissance. Based in Oklahoma City, Continental is the largest leaseholder and one of the largest producers in the nation's premier oil field, the Bakken play of North Dakota and Montana. The Company also has significant positions in Oklahoma, including its SCOOP Woodford and SCOOP Springer discoveries and the Northwest Cana play."

Earnings have taken a hit. CLR reported their Q1 results on May 6th. They reported a net loss of $186 million or 36 cents a share. That's a big drop from a 61-cent profit a year ago. After adjusting for writedowns and one-time items CLR said their quarterly earnings were a loss of ($0.09) per share. That was actually four cents better than analysts' estimates for a ($0.13) loss. Revenues plunged -41% to $592.89 million even though CLR's production surged +36% from a year ago.

Bullish investors could argue that crude oil put in a bottom earlier this year and the commodity should rally toward year end. Bulls can also point to falling production costs as a tailwind for the industry. CLR said their completion costs for wells dropped -15% from the end of 2014. Obviously this makes the company more profitable (or at least cuts their losses). Optimistically CLR expects their cost reductions to hit 20% by mid-year. There are some on Wall Street who think the industry has seen a bottom. Shares of CLR were upgraded by Goldman Sachs to a "buy" in May.

Bulls also note that the plunge in active rigs should be bullish for oil and thus oil companies. Weekly rig count, compiled by Baker Hughes, showed that the number of active oil and gas rigs fell again last week. This is the 28th week in a row that the number of rigs has declined. We're now down to 857 active oil and gas rigs, which hasn't been this low since early 2003.

Naturally you might think that a plunge to 12-year lows for active rigs means that U.S. oil production would shrink as well. That hasn't happened yet. While costs are going down oil producers are actually more efficient at pumping per well so production is going up. The low rig count is a leading indictor that production will eventually decline but it could be months from now. The U.S. EIA doesn't expect U.S. production to fall until early next year.

A bigger problem for the oil industry is competition. The recent OPEC meeting showed that the Saudis are willing to pump as much oil as they can to maintain their market share regardless of the price of oil. These are state-run oil companies and don't have to report to shareholders like American drillers. Plus the average cost per barrel of oil is a lot lower in Saudi than the U.S.

Another challenge for many drillers is capital. Drilling shale oil wells and fracking costs a lot of money. The drop in crude oil prices has made lenders less likely to loan money to drillers. To compensate for the lack of capital the oil drillers might be forced to sell more stock to raise capital and this would dilute current shareholders and drive stock prices lower. This past week the Cowen research company said, ""We expect ... E&Ps to issue additional equity in 2H2015 to fund 2016 capex as borrowing bases will be declining and debt metrics deteriorating."

The issue of debt and access to capital could be a fatal one. There are growing predictions that we will see up to a dozen publicly traded oil and gas companies file for bankruptcy between July 2015 and June 2016. Now CLR is not on the list but if we see smaller rivals start to go bankrupt it is going to put pressure on all the oil-industry stocks.

Oil stocks are also going to react to currency moves. The Federal Reserve wants to raise rates and that will lift the dollar. Even if the Fed doesn't raise rates the QE programs in Japan and Europe could drive the yen and euro lower, which boosts the dollar. A rising dollar pressures commodity prices lower.

A lot of investors are already betting on CLR to decline. The most recent data listed short interest at 17.9% of the 84.8 million share float. We think the bears are right. CLR has been underperforming the broader market. The point & figure chart is bearish and forecasting at $35.00 target. I suspect the 2015 lows near $42.00 could be support. Tonight we are suggesting a trigger to open bearish positions at $43.75.

- Suggested Positions -

Short CLR stock @ $43.75

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

Long SEP $40 PUT (CLR150918P40) entry $2.00

07/06/15 new stop @ 40.65
07/04/15 new stop @ 43.55
06/27/15 new stop @ 44.85
06/25/15 new stop @ 48.35
06/22/15 triggered @ $43.75
Option Format: symbol-year-month-day-call-strike


Murphy Oil - MUR - close: 40.78 change: -0.64

Stop Loss: 42.35
Target(s): To Be Determined
Current Gain/Loss: +0.9%
Entry on July 01 at $41.15
Listed on June 29, 2015
Time Frame: Exit PRIOR to MUR earnings in very late July
Average Daily Volume = 1.9 million
New Positions: see below

Comments:
07/06/15: MUR is another energy name that struggled today and shares fell -1.5%. Tonight we are adjusting our stop loss down to $42.35.

Trade Description: June 29, 2015:
The crash in crude oil prices in the second half of 2014 was pivotal turning point for the U.S. energy industry. Suddenly the booming oil and gas sector had its future being question with the price of oil now unprofitable for many drillers. Oil has managed a bounce from its 2015 lows while many of the oil and gas producers are still seeing their stocks decline.

MUR is in the basic materials sector. According to the company, "Murphy Oil Corporation is an independent exploration and production company with a strong, oil-weighted portfolio of global offshore and onshore assets. Exploration activities are focused in four main regions: Deepwater Gulf of Mexico, the Atlantic Margin, Southeast Asia and Australia."

The company reduced its 2015 capex outlook by -33% when they reported their 2014 Q4 results back in January. MUR's Q1 results came out in May. Profits evaporated with MUR delivering a loss of ($1.11) per shares versus a profit of $0.96 a year ago.

Management is trying to prop up their floundering stock price. On May 20th the company announced an accelerated stock buyback program of $250 million. This is part of a previously announced $500 million repurchase program from August 2014. The buyback doesn't seem to be working.

Goldman Sachs downgraded MUR to a "sell" in late May. Nearly a month later UBS has also downgraded MUR to a "sell". The UBS analyst expressed concern that MUR's production would likely decline in 2015 and 2016 since the company has cut back on investment.

The stock's attempt at an oversold bounce failed near $44 a couple of weeks ago and now shares are breaking down to new multi-year lows. The point & figure chart is bearish and forecasting at $34.00 target. Tonight we are suggesting a trigger to open bearish positions at $41.15.

- Suggested Positions -

Short MUR stock @ $41.15

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

Long AUG $40 PUT (MUR150821P40) entry $1.30

07/06/15 new stop @ 42.35
07/01/15 triggered @ $41.15
Option Format: symbol-year-month-day-call-strike


On Deck Capital - ONDK - close: 11.84 change: +0.08

Stop Loss: 12.16
Target(s): To Be Determined
Current Gain/Loss: +17.5%
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:
07/06/15: ONDK bounced off its early morning lows. What I find interesting is that shares did not drop to a new relative low before rebounding. Has ONDK finally found a bottom?

More conservative traders may want to exit now to lock in potential gains. We will inch our stop loss down to $12.16. The 10-dma, near $12.12, should be resistance.

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

07/06/15 new stop @ 12.16
07/04/15 new stop @ 12.25
06/29/15 new stop @ $12.45
06/20/15 Caution! ONDK may have formed a bullish double bottom
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


Whole Foods Market, Inc. - WFM - close: 39.27 change: +0.12

Stop Loss: 40.51
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 04, 2015
Time Frame: Exit PRIOR to earnings on July 29th
Average Daily Volume = 4.0 million
New Positions: Yes, see below

Comments:
07/06/15: WFM came close but did not hit our suggested entry point today. The intraday low was $38.90. Our suggested entry trigger is $38.85. WFM spiked off its morning low but the rally failed near very short-term resistance in the $39.60 area.

I don't see any changes from the weekend new play description.

Trade Description:
The natural foods market (i.e. organic foods) has bloomed from $6 billion annually in 1998 to $48 billion in 2012. Whole Foods Market (WFM) is probably the best known brand for organic groceries. The company has ridden that tidal wave of growth over the years. Unfortunately its rivals have caught on and now WFM is facing every increasing competition.

The grocery business is not a very high-margin game. Organic foods tend to be more expensive and allowed for better margins. A few years ago traditional grocery stores caught on and started expanding their selection of organic foods. Today traditional retail groceries control more than half of the total natural foods market. According to BMO Capital Markets, Costco (COST) actually sells more organic food than WFM.

Just in case you're not familiar with WFM, here's a brief description, "Founded in 1978 in Austin, Texas, Whole Foods Market (wholefoodsmarket.com) is the leading retailer of natural and organic foods, the first national "Certified Organic" grocer, and uniquely positioned as America's Healthiest Grocery Store. In fiscal year 2014, the Company had sales of approximately $14 billion and currently has 422 stores in the United States, Canada, and the United Kingdom."

All this competition has started to hurt WFM's growth but the company is still growing. Q1 results were announced on February 11th. WFM delivered earnings of $0.46 per share while revenues grew +10.2% to $4.67 billion. The EPS number was one cent above estimates while revenues matched estimates.

WFM's Q2 results came out on May 6th. Earnings were only in-line with estimates at $0.43 per share. Revenues were up +9.8% to $3.65 billion, which actually missed estimates. Investors were not happy with WFM's comparable store sales growth, which was below estimates at +3.6% for the quarter. Plus, WFM management lowered their fiscal year 2015 revenue estimate to $15.47 billion compared to Wall Street's estimate at $15.74 billion.

Shares of WFM collapsed the next morning (May 7th) with a plunge from about $47.75 to $41.00 before settling near $43.00. WFM has slowly withered since that earnings report. Management's estimate for +9% sales growth in 2015 doesn't seem to be enough to please investors. Analysts are forecasting earnings growth of +11% in 2015.

Investors seem doubtful about WFM's new store concept too. The company has suffered the "whole paycheck" nickname for years due to their high-price selection. Management has acknowledged that they are more of a luxury retailer. They've decided to try and target younger millennials with a "value" idea. This new value proposition will be smaller stores, cheaper prices, and somehow maintain WFM's reputation for quality products. Critics are worried that this new concept, due to launch in 2016, is a good recipe to cannibalize WFM's higher-margin business.

This past week WFM was snagged by a pricing scandal in New York. The New York Department of Consumer Affairs found that WFM was consistently overcharging consumers. The department tested 80 product categories and found WFM overcharging on several prepackaged items. The differences ranged from 80 cents to $15. Management confessed that they made some mistakes and would do a better job training their staff to fix the issue. WFM promised that if a consumer found they were being overcharged then WFM would give them the product for free. This negative story is probably just a temporary black cloud for WFM. The larger problem for the company is tougher competition.

Before I continue it's worth mentioning that WFM is a popular company for rumors. There have been rumors that WFM might buy some of its smaller competitors, like Sprouts (SFM). There have also been rumors that activist hedge funds or investors might get involved to try and improve the stock's performance. Occasionally these rumors might spark a bump in WFM but the overall trend is down.

WFM has broken down below round-number support near $40.00 and below its early June lows. Thursday's intraday low was $39.10. We're suggesting a trigger to launch bearish positions at $38.85. Plan on exiting prior to WFM's earnings on July 29th.

Trigger @ $38.85

- Suggested Positions -

Short WFM stock @ $38.85

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

Buy the AUG $37 PUT (WFM150821P37)

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



CLOSED BULLISH PLAYS

Wayfair Inc. - W - close: 36.90 change: -0.80

Stop Loss: 35.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 27, 2015
Time Frame: exit PRIOR to earnings in August
Average Daily Volume = 884 thousand
New Positions: see below

Comments:
07/06/15: We are giving up on shares of W. The stock is not cooperating. Shares came close to breaking out past the $38 level last week but today W underperformed with a -2.1% decline. We had been waiting for W to rise to $38.35 but we were never triggered.

I would keep W on your watch list. Major resistance is $39.43. If shares to rally past $39.43 it could definitely spark a big short squeeze.

Trade did not open.

07/06/15 removed from the newsletter, trade did not open
07/04/15 short interest has increased from 47% to 52% of the float
Option Format: symbol-year-month-day-call-strike

chart: