Option Investor
Newsletter

Daily Newsletter, Wednesday, 7/8/2015

Table of Contents

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

Market Wrap

A Glitch and the FOMC

by Thomas Hughes

Click here to email Thomas Hughes
Global markets are under pressure as China, Greece and FOMC outlook dominate headlines.

Introduction

Global markets were under pressure this morning as Greece negotiations wear on and the Chinese sell-off extends itself. Starting in Asia, markets closed with a loss near -6%. The sell-off was not restricted to China, the Japanese Nikkei fell a little more than -3% in response to growing fears and a warning from China's regulator that "panic sentiment" was entering the market. A move by many Chinese companies to have their shares halted has only added to downside momentum as investors seek to sell whatever they can.

European markets were down in early trading, following Asia's lead, but were able to rebound by mid-day. A new proposal from Greek PM Tsipras renewed hopes a deal would be made and lifted indices around the region by nearly a full percent. Tsipras has delivered a set of proposals, with concrete plans expected to be unveiled as early as Friday with a Sunday meeting of creditors scheduled for Sunday. Today's meeting was canceled in response to the latest developments. Until then the ECB has pledged to keep emergency liquidity for Greek banks flowing.

The feeling was not matched here at home, futures were indicating a lower open right from the start and only moved lower throughout the morning. Other news included a ground-halt of United Airlines flights due to computer glitches, a couple of high-profile downgrades, a new round of lay-offs announced by Microsoft and a halt to trading on th NYSE . . . and all before the 2PM release of FOMC minutes.

Market Statistics

The minutes were not too revealing. One member was in favor of hiking rates last month, the rest of the panel is in agreement that the time is close but not quite yet. More data is needed, specifically sign of inflation reaching target levels. Looking back at the first quarter they say seasonal factors were involved that are likely not to carry over into the spring and summer. Global concerns were mentioned, including Greece and China. At the time of the meeting there was little expectation a deal for Greece would materialize.

A mid-day computer glitch had quotations on the NYSE reading zero. Trading on NYSE stocks were halted to address the issue which only affected that exchange and orders directed to it. NYSE stocks were still being traded through NASDAQ, ARCA and other routes. The problem was linked to a coding issue that was fixed in late afternoon. All orders routed directly to the NYSE prior to the halt were canceled.

Stocks fell as soon as the opening bell sounded. The indices hit lows over -1% by late morning. These losses were amplified following the NYSE foul-up, the low was hit just before noon. A small bounce shaved a half percent off of today's loss but once the FOMC minutes were released indices retreated back to their lows. By 2:45 the indices had hit the low of the day and trying to bounce. The NYSE glitch was resolved at 3:10, hours after it began, and drove the market back down to the lows of the day where it remained into the close of trading.

Economic Calendar

The Economy

The economic calendar was light on releases today, but heavy on impact. Only 2 releases today but one was minutes from the June FOMC meeting. The Mortgage Index, released at 7AM, shows a +4.6% jump in mortgage applications last week, this is up from a -4.7% drop the previous week. The data was adjusted for the shortened holiday week. On a not-adjusted basis applications fell -6%.

The rest of the week is pretty light on data as well. Tomorrow we'll get jobless claims, Friday we'll get Wholesale Inventories. Next week gets active again with a number of important releases including the Fed's Beige Book, Building Permits/Housing Starts, PPI/CPI, Philly Fed and Michigan Sentiment.

The Oil Index

Oil prices continue to fall as global concerns and rising supply weigh on outlook. The EIA announced a surprise build in WTI inventory that sent prices down by more than -1.75% on an intraday basis. WTI is now trading below $52 and at a three month low. Two other developments, one being an apparent impasse in the Iran nuclear talks and the other being an upgrade of 2015/2016 production levels, added to today's volatility and supply/demand expectations. It looks like supply is overcoming demand and could push WTI to the long term low just below $50.

The Oil Index fell more than -2.5% on the fall in oil prices. The index is still trading below the long term trend line and is testing 6 month lows set yesterday. The indicators continue to point lower in the near term but remain consistent with support over the short to long term. The 1,250 level could prove to be support but it looks like it will be tested in the coming days. 2nd quarter earnings could help push the index lower but so long as forward outlook remains positive it will most likely be an entry for long term bulls.


The Gold Index

Gold prices bounced from the $1150 level in today's session. This is long term support and just above the 12 month low. Prices have been pushed lower by strengthening dollar, driven by the Greek issue more than anything else, and are now at the bottom of the 5 month trading range. The indicators show gold is extremely oversold but could continue lower if support levels are broken. The FOMC minutes did little to strengthen to dollar and with the FOMC on inflation watch I remain bullish on gold. News could move gold over the next few day, I think the CPI/PPI data next week could give better clues to long term direction.

The gold miners traded flat most of today but succumbed to selling pressure before the close of trading. The gold miners ETF GDX is now trading just above long term support set over the past year. The indicators are bearish but very weak and consistent with support, MACD is divergent from prices and stochastic is deep in oversold territory while the index is trading within a range. This could lead to further downside but I think it would take another drop in gold prices to do so. The charts still look like a bottom is forming but caution is due given current market conditions. Inflation data could be the deciding factor and could result in a gold rally on low inflation/weakening dollar/no rate hike or rising inflation/rate hike.


In The News, Story Stocks and Earnings

Tesla got another major downgrade this morning. Pacific Crest moved the car maker to sector weight from over weight on valuation concerns. This makes the 2nd downgrade in 2 days, including a similar from Deutsch Bank yesterday. Pacific Crest puts price target at $293, a near 10% discount from Tuesday's closing price. The stock responded by slumping more than -4.6%. Earnings are scheduled for the end of the month, 7/30.


Harley Davidson also received a downgrade today. The company was downgraded from Outperform to sector perform by RBC Capital Markets based on flat demand. Price target was lowered to $59 from $65 with consensus in the range of $65. The stock fell a little more than -2.5% to break potential support near $55. Earnings are scheduled for 7/21, about two weeks from today.


Microsoft announced another round of lay-off's in its efforts to restructure the Nokia portion of the business. The tech giant is planning on cutting 7,800 jobs and will incur a $7.6 billion impairment charge. The cuts will come mostly from the hardware/smartphone segment and are in addition to the 18,000 cuts announced last year. Shares of the stock moved higheri nitially on the news and were the only Dow Component to do so but were not able to hold the gains into the close. Microsoft is scheduled to report earnings in two week, 7/21.


Alcoa reported earnings after the bell. The aluminum producer was expected to report a 18% decline in quarterly earnings from the previous quarter, the actual was much worse. EPS of $0.19 is $0.03 below consensus estimates but come on a small beat in revenues. The company is projecting steady growth for the rest of the year but cited weakness in South American and China. Company CEO was very positive on the results and forward outlook for the companies turnaround. Shares of the stock had been trading lower throughout the day, shedding more than -5%, and did not recover the loss after the report.


The Indices

The market fell today. Greece again was the excuse but other factors are at play. The move was led by the Dow Jones Transportation Index which a set new low. The transports fell over -2% to set a new near-9 month low in a move that looks more and more like it will go even lower. The index is now extending the fall below support that began two weeks ago and could go another 250 points lower. The indicators are bearish, pointing lower and indicating weakness. Stochastic confirms this today with a a bearish crossover of the lower signal line.


The NASDAQ Composite made the second largest decline today, falling more than -1.65%. The tech heavy index closed at the long term trend line and is setting up for a possible break of trend. The indicators are pointing lower in confirmation of a test of support along the trend line at least with a target near 4,750 should it break. The indicators remain consistent with an up-trend in the longer term so until further developments this appears to be a pull-back to trend.


The S&P 500 made the third largest decline, a little over -1.5%. The broad market is testing support levels near 2,050 and is indicated lower in the near term. The indicators are both bearish and moving lower with a break of support very possible. Next target for support is the long term trend line near the 2,000 level, about -2.5% below today's closing price. A retreat to the trend line would constitute a correction greater than -5%. Long term charts are still indicative of up trend so this dip still looks like a normal market correction and not a reversal.


The Dow Jones Industrial Average made the smallest decline today, only -1.47%. The blue chips set a new low in a move down from previously broken support and are heading for the long term trend line near 17,250. The indicators are pointing lower, as with the rest of the major indices, and suggest that this could happen in the next few days. If the trend line is broken next target is just below near 17,000.


The correction continues as we enter earnings season, as of now there is a dark cloud hanging over us in the form of negative earnings growth and global woe. Greece, China and Iran are all problems and need to be watched but even counting FOMC concern are not affecting our economy other than in the form of strengthening dollar. They will impact trading on a day to day basis but the long term trends remain up, except for the transports.

Some businesses are going to be hurt by forex but not all of them. Some other companies are going to post poor earnings, ie the energy sector. However, based on earnings trends, I expect this season is likely to be much better than expected and lead to higher market prices later this year. The correction may continue but the economy also continues to improve so until that changes I'll be looking to buy on the dip.

Until then, remember the trend!

Thomas Hughes


New Plays

Path Of Least Resistance

by James Brown

Click here to email James Brown


NEW BEARISH Plays

KLA-Tencor - KLAC - close: 54.80 change: -1.30

Stop Loss: 56.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 08, 2015
Time Frame: Exit PRIOR to earnings on July 30th
Average Daily Volume = 1.3 million
New Positions: Yes, see below

Company Description

Trade Description:
Semiconductor stocks have been some of the market's worst performers in the last several weeks. The SOX index broke down under key support a few days ago and underperformed the market again today (-2.6%). While the semiconductor industry saw its stocks peak in early June, shares of KLAC peaked back in December 2014. The stock has been sinking under a bearish trend of lower highs and lower lows.

KLAC is part of the technology sector. According to the company, "KLA-Tencor Corporation, a leading provider of process control and yield management solutions, partners with customers around the world to develop state-of-the-art inspection and metrology technologies. These technologies serve the semiconductor, LED, and other related nanoelectronics industries. With a portfolio of industry standard products and a team of world-class engineers and scientists, the company has created superior solutions for its customers for nearly 40 years. Headquartered in Milpitas, Calif., KLA-Tencor has dedicated customer operations and service centers around the world."

The company reported its Q2 2015 results on January 22nd. They beat estimates on both the top and bottom line even though revenues were down -4.1% from a year ago. Management lowered their guidance below Wall Street estimates.

KLAC announced its Q3 results on April 23rd. Earnings and revenues beat estimates again. Unfortunately their weakness in sales accelerated with revenues down -11.3%. Management followed this up with another round of weaker than expected earnings and revenue guidance. They tried to soften the blow by announcing a -10% reduction in their workforce to be completed by Q1 2016.

There have been multiple downgrades and price target reductions since their earnings report and soft guidance in April. Shares have continued to breakdown. Today saw KLAC underperform with a -2.3% decline and a new 2015 closing low. We want to hop on board this bearish momentum. Tonight we're suggesting a trigger to launch bearish positions at $54.40.

Trigger @ $54.40

- Suggested Positions -

Short KLAC stock @ $54.40

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

Buy the AUG $52.50 PUT (KLAC150821P52.5) current ask $1.60
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

China Losses Pressure Stocks Lower

by James Brown

Click here to email James Brown

Editor's Note:
The Chinese government is desperately trying to stop their stock market meltdown but it is not working. Another big decline in the Shanghai market pressured American markets. Meanwhile the nonstop drama with Greece doesn't help.


Current Portfolio:


BULLISH Play Updates

Chimerix, Inc. - CMRX - close: 44.16 change: -2.69

Stop Loss: 42.95
Target(s): To Be Determined
Current Gain/Loss: -4.3%
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:
07/08/15: The market sell-off on Wednesday sparked some heavy selling in biotech stocks. The IBB biotech ETF underperformed the broader market with a -2.8% decline. Unfortunately CMRX delivered a worse performance with shares plunging -5.74% before stalling at short-term support near $44.00.

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

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


Mobileye N.V. - MBLY - close: 54.12 change: -1.79

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 07, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 3.8 million
New Positions: Yes, see below

Comments:
07/08/15: MBLY gapped open lower at $55.48 and fell to a -3.2% decline. At the moment I don't see any changes from the Tuesday night new play description. Our suggested entry point to launch bullish positions at $56.40. We may have to re-evaluate our entry strategy if this pullback continues.

Trade Description: July 7, 2015:
The future of hands free driving is a lot closer than you might think. MBLY is leading the charge. Their technology is already in more than three million cars made by companies like BMW, General Motors, and Tesla.

What exactly does this technology do? DAS stands for driver assistance systems. Sometimes you might see it called ADAS for advanced driver assistance systems. This new technology helps drivers avoid collisions with other vehicles, pedestrians, bicyclists, and more while also alerting the driver to road signs and traffic lights.

The company website describes Mobileye as "a technological leader in the area of software algorithms, system-on-chips and customer applications that are based on processing visual information for the market of driver assistance systems (DAS). Mobileye's technology keeps passengers safer on the roads, reduces the risks of traffic accidents, saves lives and has the potential to revolutionize the driving experience by enabling autonomous driving."

MBLY said their technology will be available in 160 car models from 18 car manufacturers (OEMs). Further, Mobileye's technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016.

The company is already developing a system for autonomous driving or hands free driving. They currently plan to launch an autonomous system in 2016 that will work at highway speeds and in congested traffic situations.

MBLY stock came to market in August 2014. Demand was strong enough that they upped the number of shares available from around 27 million to 35.6 million shares. They raised the IPO price from the $22 range to $25. This valued MBLY at $5.3 billion. The first day of trading saw MBLY opened at $36.00. Two months later MBLY traded at $60.00.

It's easy to see why investors are optimistic on MBLY. Annual revenues have soared from $19.2 million in 2011 to $143.6 million in 2014. Their revenues last year rose +77% from 2013. Currently a poll of analysts by Thomson Reuters is forecasting sales to rise +50% in 2015 to $218.3 million. Earnings are forecasted to surge +95%.

MBLY's most recent earnings report was May 11th. They reported their Q1 results of $0.08 per share, which was a penny above estimates. Revenues were up +28% to $45.6 million, also above estimates.

Last year the New York Post ran an article discussing how the White House might generate a bullish tailwind for MBLY. The National Highway Traffic Safety Administration issued a research report that estimated ADAS type of technology could eliminate almost 600,000 left-turn and intersection crashes a year. They report also suggested that adding FCAM and lane departure technology on big vehicles like over the road trucks could reduce accidents with these huge vehicles by up to 25%. Following this report the White House said they would draft new rules that required this sort of tech in new vehicles.

Most of Wall Street analysts seem bullish. Industry experts forecast the camera-based ADAS market to grow +37% CAGR from 2014 to 2020. Goldman Sachs Recently upgraded the stock to a buy. They believe MBLY will see a 34% CAGR in sales through 2020 and will have 65% of the market by then. MBLY also garnered positive comments from a Morgan Stanley analyst who raised their price target to $68. They believe the street's 2015 estimates for MBLY are too low after the company delivered super strong growth in the last couple of quarters. A couple of weeks ago another analyst firm raised their price target on MBLY to $67.00.

The stock has displayed significant strength with a big bounce from its March 2015 lows near $32. The rally accelerated in mid June with a breakout past resistance in the $48.00 area. Traders quickly bought the dip last week on the market's big selloff (June 29th). Bulls bought the dip again today and MBLY looks poised to hit new multi-month highs tomorrow. Tonight we're suggesting a trigger to launch bullish positions at $56.40.

Trigger @ $56.40

- Suggested Positions -

Buy MBLY stock @ $56.40

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

Buy the AUG $60 CALL (MBLY150821C60)

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


Neurocrine Biosciences Inc. - NBIX - close: 46.94 change: -1.50

Stop Loss: 44.85
Target(s): To Be Determined
Current Gain/Loss: -2.8%
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:
07/08/15: NBIX was not immune to the market's downdraft. Shares fell -3.0% and settled near short-term support in the $47.00 area.

The 20-dma might offer some support at $46.50 but if the market continues to sink we could see NBIX testing round-number support at $45.00.

No new positions at this time.

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: 54.37 change: -0.45

Stop Loss: 53.75
Target(s): To Be Determined
Current Gain/Loss: -3.7%
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:
07/08/15: It was a quiet day for SPR. Shares consolidated sideways in the $54.00-54.50 zone. The $54.00 level is support. I'm concerned that another down day in the market tomorrow could see SPR hit our stop at $53.75.

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: 67.50 change: -0.45

Stop Loss: 65.65
Target(s): To Be Determined
Current Gain/Loss: +6.9%
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:
07/08/15: TPX is still holding up well. Shares have been relatively resistant to any profit taking. The simple 20-dma has risen to $65.75. Tonight we'll raise our stop loss to $65.65.

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

07/08/15 new stop @ 65.65
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: 37.50 change: -1.96

Stop Loss: 40.65
Target(s): To Be Determined
Current Gain/Loss: +14.3%
Entry on June 22 at $43.75
Listed on June 20, 2015
Time Frame: Exit prior to earnings on August 5th
Average Daily Volume = 8.8 thousand
New Positions: see below

Comments:
07/08/15: The oil and energy stocks did not see any follow through on yesterday's big bounce. CLR reversed lower with a -4.9% decline today.

More conservative traders may want to lower their stop loss again. 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: 40.31 change: -0.69

Stop Loss: 42.35
Target(s): To Be Determined
Current Gain/Loss: +2.0%
Entry on July 01 at $41.15
Listed on June 29, 2015
Time Frame: Exit PRIOR to MUR earnings on July 29th
Average Daily Volume = 1.9 million
New Positions: see below

Comments:
07/08/15: MUR reversed yesterday's bounce. Shares fell -1.68% and set a new multi-year closing low.

I am not suggesting new positions at this time.

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


Symantec Corp. - SYMC - close: 22.82 change: +0.03

Stop Loss: 23.55
Target(s): To Be Determined
Current Gain/Loss: -1.6%
Entry on July 07 at $22.45
Listed on July 06, 2015
Time Frame: exit PRIOR to earnings on August 11
Average Daily Volume = 4.3 million
New Positions: see below

Comments:
07/08/15: We were expecting SYMC to open higher today after last night's story that SYMC could be close to selling its Veritas business. There is no official announcement yet but the financial press is still reporting that SYMC is close to getting a deal done.

The stock gapped open higher at $22.94 and managed to rally up to $23.16 before rolling over. More conservative traders may want to move their stop closer to today's high.

I'd like to see more follow through lower before considering new bearish positions.

Trade Description: July 6, 2015:
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.

- Suggested Positions -

Short SYMC stock @ $22.45

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

Long AUG $22 PUT (SYMC150821P22) entry $0.69

07/07/15 Caution! After hours, Bloomberg reported that SYMC could be close to selling its Veritas business. Shares of SYMC are trading higher after hours
07/07/15 Triggered @ $22.45
Option Format: symbol-year-month-day-call-strike


Whole Foods Market, Inc. - WFM - close: 39.90 change: +0.01

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:
07/08/15: The oversold bounce in WFM continued with shares hitting $40.37 intraday. The stock seemed to tag technical resistance at its 20-dma before paring its gains. There is no change from yesterday's comments.

If this rebound continues tomorrow we'll likely remove WFM as a candidate. Currently our suggested entry point for bearish positions is $38.85.

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