Option Investor
Newsletter

Daily Newsletter, Thursday, 7/9/2015

Table of Contents

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

Market Wrap

Opex Head Fake (Maybe)

by Keene Little

Click here to email Keene Little
The week before opex, typically in the latter half of the week, we often see a head-fake drop followed by a rally into opex week. Wednesday's decline followed by another sharp pullback today might have been the head-fake move. If not, look out below.

Thursday's Market Stats

The rally attempts this week keep getting rebuffed by the bears who have been enjoying selling into the rallies and knocking the bulls back on their kiesters. Wednesday's selling retraced Tuesday's strong reversal to the upside and that had many leaning short. As soon as Wednesday's trading session closed a rally in equity futures started and the buying remained steady during the overnight session. That created a large gap up this morning and it looked like yesterday's selling might have been an attempt to pull the rubber band back and help launch the next rally with short covering this morning.

This morning's gap up was immediately followed by a sharp pullback and once again most of the rally was given back by the end of the day. The failure to rally has many leaning into the bear camp but as I'll show, there might now be too many bears. One of the things the bulls need to do is get the indexes above this morning's highs and then Wednesday's highs. Until they can accomplish that there is the potential for the bears to do a lot more harm to bulls' accounts.

Today's economic reports were just the unemployment data, which showed another little uptick in claims. The initial claims jumped up to 297K from 282K and higher than the expected 276K. Continuing claims also jumped up to 2334K from 2265K and higher than the expected 2230K. The chart below shows how much initial unemployment claims have dropped over the past several years (after peaking in 2009) but is now down to a level where unemployment claims started back up. Over the past 5-6 weeks we've seen claims ticking higher but there's no break of the downtrend yet. The bearish descending wedge is another warning sign we could soon see a change in the downtrend.

Initial Claims, 1997-present, chart courtesy briefing.com

Yesterday's selling approached a 90% downside day (when 90% of the day's volume is in selling) in the NYSE and Nasdaq, which reminded me of a chart I saw recently that a trader in my trading group keeps updated for the Nasdaq. He marks 90% upside and downside days and his chart is shown below, which tracks these events since 2008. Since the rally off the 2009 low you can see the little red diamonds marking the 90% downside days and how well they coincided with the start of sharp reversals to the upside. The message here is that the 90% downside days were washout events followed by a renewed rally and that's a message that bears need to pay close attention to here.

Nasdaq 90% Days, chart courtesy Mark Ungewitter

It's possible this week's selling washed out the weak holders and sucked in a bunch of shorts, which could be the setup for another strong short-covering rally and renewed buying interest into next week. But, and this is a big but, if the market has truly topped out and we've entered a bear phase then the selling is just getting started. Occurrences of 90% down days could be an indication that the massive accumulation of stock over the past several years, on historic margin, is in the process of being liquidated. Look at the number of red diamonds during the 2008 decline -- trying to buy the market based on this signal would have been very painful. So while this chart is interesting and very useful, the bigger question is whether we're still in a bull market, in which case we should be looking for a new rally leg to new highs, or if instead we've turned the corner and started a new bear market.

When you combine the chart above with a look at the Fear & Greed index and the current Extreme Fear reading it should certainly strike fear into the hearts of the bears. An oversold market with extremely bearish sentiment is ripe for a strong reversal. While market crashes come out of oversold conditions I don't think the market is yet ready for a market crash. Instead, the present conditions support at least a decent bounce, which could be sharp and strong as we head into opex. The big players, who love to make money shoving the market around, usually try to catch too many retail traders leaning too hard the wrong way.

Fear & Greed index, chart courtesy cnn.com (Fear&Greed index)

Below the Fear & Greed index I show the SPX weekly chart and how well the rallies followed Extreme Fear readings. It has provided fair warning to the bears whenever it drops below about 15, which it did this week, since the following week was followed by the next rally leg to new highs. But keep in mind that this chart shows only from the latter half of 2012 and in a bear market we'll likely see Extreme Fear readings followed by only short-lived rally spikes before continuing lower. Where we are in the bull-bear cycle is obviously up for debate and while I think there's a very good chance we've entered the next bear cycle the above charts are reason enough for bears to be very cautious about pressing bets to the downside. And if you believe there are additional new highs ahead of us then you should be using this chart to help justify why you want to be a dip buyer here.

There is of course another dynamic at play in this market -- the Fed and government intervention. Japan's government has openly admitted to buying stocks to help support the market. The Fed has openly admitted it wants the stock market higher and commodity prices lower. The Fed and ECB admit to interventions in the bond market but they haven't admitted to any interventions in the stock or commodity markets (including gold). But the fact that the stock market has been in a relentless rally while commodities continue to sell off has many believing our governments are doing the same thing as Japan. Many believe the Fed and government interventions will prevent any serious market crash so while the Fear & Greed index shows Extreme Fear, most still believe there's a safety net below us.

This belief in the Fed and government is what helps sentiment and it's why the dipsters keep plying their trade. It's been a long while since the stock market has experienced even a 10% correction. For all you bears who have been frustrated by this market there is small comfort in the fact that you are not alone. Many professionals who have traded the market for decades lament the fact that the market doesn't work like it used to. In fact there was an article by Jared Dillian, who writes "The 10th Man" for MauldinEconomics.com, in which he discusses the problem for traders who like trading both directions. I thought you might enjoy his short article: The End of the Ends of the World.

And with that let's move to the charts since that's where we'll get our first clues about where this market could be headed next week and next month. I'll start with the DOW's weekly chart to show how it's trying to hold onto important support -- its 50-week MA at 17586 and its uptrend line from October 2011 - October 2014, near 17550. This week has seen some strong bounces off this support level but none of the bounces are sticking, which should be worrisome to bulls. The more it tests support the weaker it becomes. I show an expected bounce, at least, in the coming week but today's failure to rally following the gap up is having me doubt the ability of the market to rally.

Dow Industrials, INDU, Weekly chart

The daily chart shows the struggle to hold support after failing to make it back up to its 200-dma at 17695 (this morning's high was near 17765). Today's loss of more than 200 points from the morning high has it closing on its uptrend line from October 2011 - October 2014 and the bulls need a rally now, as in don't waste any time doing it Friday morning otherwise what looks like a head-fake pullback in front of opex week could turn uglier for the bulls next week. The H&S price objective is 17020 and that level could be reached sooner rather than later if 17500 gives way.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,000
- bearish below 17,500

There's been a lot of choppy price action since the low on June 30th and since Tuesday's low it's looking like it could be developing a sideways triangle as it consolidates. This fits as a bearish continuation pattern and it could break down at any time. If we see another bounce on Friday that is stopped near the top of the triangle, near 17725 by the end of the day, it will be a setup for a decline on Monday, presumably due to more bad news following another Sunday meeting about what to do about Greece. The only way to negate this bearish pattern is with a rally above 17800, even though a rally might only be good enough for a higher bounce before turning back down.

Dow Industrials, INDU, 60-min chart

SPX has dropped down to its 50-dma, near 2046 (Tuesday's low was at 2044, yesterday's was near 2045 and today's low was near 2050, for an average low for the week near 2046). If SPX breaks below the March low near 2040 it would be a strong bearish warning sign, especially after breaking below the uptrend line from March-June (a H&S neckline like that for the DOW) last week, near 2077. That neckline has been in play following the bounce off the June 29th low and the back-test at the end of last week and beginning of this week, followed by the selloff has it looking like a back-test and bearish kiss goodbye. Since then it's been struggling to hold onto its 200-dma at 2056 and just above price-level support at 2040. A loss of both levels by the bulls would be another reason to turn more immediately bearish. Currently, as long as support holds, I'm looking for a high bounce into next week (opex) and then a stronger decline. That's if THE high is now in place but bears need to remain aware of the potential for another rally to new highs (2150-2200 upside target zone).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2100
- bearish below 2040

The strong afternoon rally on Tuesday had SPX breaking its downtrend line from June 24th but it was unable to hold above the line with Wednesday's selloff. This morning's rally (gap up) again broke above the downtrend line but was again unable to hold above it as most of the day's gain was given back. As with the DOW, there is the possibility for a sideways triangle consolidation pattern, which calls for a tightening of the trading range into tomorrow before letting go to the downside on Monday. The bulls need a break above this morning's high at 2074 in order to give us the potential for a rally at least up to the 2100-2110 area before setting up the next shorting opportunity.

S&P 500, SPX, 60-min chart

The Nasdaq Composite gapped down on June 29th and broke its short-term uptrend line from May 6th, which was a good indication its rally finished. It bounced back up on July 1st for a back-test followed by a bearish kiss goodbye and a new low this week. It gapped down Wednesday morning and closed below an uptrend line from March 26th and this morning it almost made it back up to the trend line, near 4988 (with a high at 4982), for another back-test. The selloff following this morning's gap up leaves another bearish kiss goodbye. So far it's all bearish and a drop below its May 6th low near 4888 (the low so far is yesterday's at 4901) would make it really hard to argue for a new high. Instead I'd be looking for a drop down to its 200-dma near 4813.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 5132
- bearish below 4888

The RUT has a similar picture to the Naz with its broken uptrend line frmm January-May, which the RUT tried valiantly to hold onto Monday and Tuesday but closed below it yesterday and today. If the buyers can get the RUT back above the line, near 1249, there's a good chance for at least a higher bounce into next week before heading lower (assuming THE high is in place). But if the RUT continues lower I see the potential for a decline to its 200-dma, near 1205, before trying a higher bounce.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1280
- bearish below 1205

Treasuries have been bouncing all over the place like stocks and this week's candlestick is a long-legged doji so far, which essentially means indecision on traders' part. Treasuries were rallying strong this week but reversed after the FOMC minutes yesterday. As can be seen on the weekly chart of TNX (10-year yield) below, the decline in yields into Tuesday's low was a test of both the 50- and 200-week MAs, at 2.201% and 2.184%, resp. The decline was also back below the broken downtrend line from January-September 2014, near 2.26%, but today's rally (selling in bonds) has it back above the trend line, which keeps the short-term bullish potential alive. Another rally in yields, which could coincide with a rally in the stock market, could see a move up to the downtrend line from June 2007 - December 2013, near 2.65%. But a break below Tuesday's low at 2.187% would be a bearish heads up, which would point to much lower lows sooner rather than later.

10-year Yield, TNX, Weekly chart

Looking at the weekly chart of BKX, there is a parallel up-channel for the price action since the October 2013 low and the top of the channel is where the rally into the June highs stopped. The rally was also another back-test of its broken uptrend line from March 2009 - October 2011, with a small pop above it before dropping back below it, leaving a failed attempt to get back above the line. The June 23rd high at 79.85 was about $1 short of a 62% retracement of its 2007-2009 decline. As I show on the chart, there is the potential for another stab higher to hit the 62% retracement, at 80.87, and give us a 3rd back-test of the broken uptrend line. That would then give us a 3-drives-to-a-high topping pattern with a 5-wave move up from January and a superb longer-term shorting opportunity, either later this month or in August. However, after breaking below its 50-dma on Tuesday, near 76.66, we could see a new low from here, perhaps down to price-level support near 74, and that would give us an impulsive move down from June. That would in turn confirm the trend has changed to the downside and a bounce correction following the new low would be a shorting opportunity. It takes a bounce from here and back above the June 30th low at 76.77 to keep things potentially bullish.

KBW Bank index, BKX, Weekly chart

The U.S. dollar got a nice bounce off the mid-June low and it's currently trading right in the middle of the recent trading range and keeps the sideways triangle in play.

U.S. Dollar contract, DX, Weekly chart

Gold's choppy shallow decline since June 2013, with bullish divergence at the minor new lows is potentially bullish since we could be looking at an ending pattern to the downside. But the repeated tests of price-level support near 1180, which was broken again toward the end of June, could lead to a further breakdown. At the moment the gold bulls are rooting for support at the broken downtrend line from October 2012, which has been back-tested repeatedly since gold broke back above it at the end of March. But the 50-week MA, currently at 1214 has been holding it down. So you can see there's plenty for each side to see supporting their view of gold. I think gold will break down but I see the potential for a bounce up to about 1290 before turning lower. The initial downside potential, if it breaks down, is 1090 (50% retracement of 2001-2011 rally and the bottom of shallow parallel down-channel from August 2013).

Gold continuous contract, GC, Weekly chart

On Tuesday silver lost support near 15.45 and sold off hard. It had been consolidating on top of a H&S neckline (uptrend line from November 2014 - March 2015) since June 26th but lost the battle on Tuesday and today it bounced back up to the line. So far it's just a back-test and a selloff from here would leave a bearish kiss goodbye. A downtrend line from May 18th, near 15.52, could be used as a stop level (closing basis) if you wanted to try a short play on silver here. A break below 14.54 (two equal legs down from January for a possible completion of an a-b-c pullback) would suggest new lows and longer-term (this year) I'm looking for a drop down to the $12 area. A rally above 15.75 (back above its 20-dma) would have me thinking a higher bounce and above 16.50 (200-dma) would have me feeling more bullish but for now I continue to believe the price of the metals will continue lower.

Silver continuous contract, SI, Daily chart

Just as the dollar has bounced back into the middle of its recent trading range, oil has pulled back into the middle of its range. This keeps alive the potential for a sideways triangle consolidation pattern into at least the fall before the next leg down. Until something happens to break this pattern, which means a trade outside of a 44-60 trading range, it remains my preferred wave pattern.

Oil continuous contract, CL, Weekly chart

The only economic report Friday morning is Wholesale Inventories so there will be nothing domestically that should move the market. What happens overseas has been far more important to the market.

Economic reports and Summary

Conclusion

Just as happened Wednesday after the closing bell, equity futures have again taken off to the upside in tonight's after-hours session. Someone is working hard to protect their short puts/long calls into opex. ES gapped up tonight after reopening at 18:00 and quickly rallied up to almost 2062 (better than 20 points from the RTH closing price). This morning's gap up didn't hold and who knows how futures will trade during the overnight session but if we get another gap up there will likely be some bears waiting to take a bite out of the bulls, similar to what the bears do to salmon swimming upstream. And that could be a good analogy here as the bulls, who are accustomed to buying the dip, can't understand why the bounces are failing. They keep trying and they keep getting swatted back down. The relentless selling is the opposite of not long ago when many were complaining about the relentless buying. And this change in character for the market could be a clue that we've got a trend change.

But we still have what is normally a bullish week in front of us and Wednesday's decline and today's decline could be the typical head fake in front of opex. Push the market down, suck in the shorts and get rid of the weak holders of stock and then hit the market with buy orders to get short covering and real buying coming in strong. It has been a favored tactic for a long time and there's still the potential for it. The pattern says the bulls need a rally above this morning's highs and even better, above Wednesday's highs, in order to negate the bearish continuation patterns we're seeing this week. A bounce to a lower low by tomorrow's close would be a potentially bearish setup for Monday and the catalyst for another leg down would presumably be more bad news about Greece following another meeting scheduled on Sunday.

If we do get a bounce to lower lows, especially if the lows are at or below the tops of the sideways triangles shown on the DOW and SPX 60-min charts (near 17720 and 2060, resp., by tomorrow's close) I would not want to be in long positions over the weekend. There is of course the potential for a gap up on Monday (gap up over resistance is another favored tactic) and anyone not long will be forced to chase the market higher. But because we have a sideways consolidation following a decline it makes the higher-odds pattern bearish until it's negated. This is a game of odds that we play and if you can't put the odds in your favor it's best to at least be flat.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

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


New Plays

Cracking Support

by James Brown

Click here to email James Brown
NEW BEARISH Plays

Tessera Technologies - TSRA - close: 35.90 change: -0.64

Stop Loss: 37.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 08, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 518 thousand
New Positions: Yes, see below

Company Description

Trade Description:
TSRA claims that their technology is in 100% of today's smartphones. The stock was a pretty big winner last year with a rally from $18 to almost $36 in 2014. Shares appear to have peaked in March this year.

TSRA is in the technology sector. They're considered part of the semiconductor industry. According to the company, "Tessera Technologies, Inc., including its Invensas and FotoNation subsidiaries, generates revenue from licensing our technologies and intellectual property to customers and others who implement it for use in areas such as mobile computing and communications, memory and data storage, and 3DIC technologies, among others. Our technologies include semiconductor packaging and interconnect solutions, and products and solutions for mobile and computational imaging, including our FaceTools, FacePower, FotoSavvy, DigitalAperture, LifeFocus, face beautification, red-eye removal, High Dynamic Range, autofocus, panorama, and image stabilization intellectual property."

TSRA is not a widely followed stock on Wall Street. Their most recent earnings report managed to beat the estimates for the few analysts that follow the stock. Revenues were above expectations at $79.85 million but sales fell -9.6% from a year ago. Management did guide higher for the second quarter but the market reaction to this news was muted.

Shares of TSRA had been stuck under resistance near $40 for weeks. Unfortunately for shareholders TSRA began to breakdown in the last few days, possibly due to weakness in the semiconductor stocks. The point & figure chart has turned bearish and is forecasting at $29.00 target.

Today TSRA is hovering above key support near $35.00 and its simple 200-dma. A breakdown here could signal a drop toward round-number support at $30.00. Tonight we're suggesting small bearish positions at $35.40. We want to limit our positions size because TSRA has seen some sharp one-day spikes in the past.

Trigger @ $35.40 *small positions to limit risk*

- Suggested Positions -

Short TSRA stock @ $35.40

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

Buy the Aug $35 PUT (TSRA150821P35) current ask $1.30
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

Stocks Gap Higher, Rally Fades

by James Brown

Click here to email James Brown

Editor's Note:
Big bounces in both the Chinese and European stock markets produced a gap open higher for most of the U.S. market this morning. Unfortunately there was no follow through and stocks spent the rest of the day paring their gains.

WFM has been removed.


Current Portfolio:


BULLISH Play Updates

Chimerix, Inc. - CMRX - close: 45.82 change: +1.66

Stop Loss: 42.95
Target(s): To Be Determined
Current Gain/Loss: -0.7%
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:
07/09/15: After yesterday's big drop CMRX managed a decent bounce today. Shares gained +3.75%. Unfortunately today's move is nothing more than an "inside day" with CMRX's movement stuck inside yesterday's range. This suggest indecision. Tomorrow could hold the key on which direction CMRX moves next.

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: 56.89 change: +2.77

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: +0.7%
Entry on July 09 at $56.50
Listed on July 07, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 3.8 million
New Positions: see below

Comments:
07/09/15: Our new trade on MBLY is now open. Most of the market gapped open higher this morning. MBLY followed suit and opened at $56.50. This immediately triggered our play since the trigger was $56.40. MBLY rallied up to $57.81 before paring its gains. Today's display of relative strength and +5% gain was thanks to an upgrade from RW Baird. The firm raised their rating to "outperform" and raised their price target to $73.00.

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.

- Suggested Positions -

Long MBLY stock @ $56.40

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

Long AUG $60 CALL (MBLY150821C60) entry $2.00

07/09/15 triggered on gap open at $56.50
Option Format: symbol-year-month-day-call-strike


Neurocrine Biosciences Inc. - NBIX - close: 47.83 change: +0.89

Stop Loss: 44.85
Target(s): To Be Determined
Current Gain/Loss: -0.9%
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:
07/09/15: NBIX spent most of today churning sideways below the $48.00 level. By the closing bell NBIX was outperforming the market with a +1.89% gain. The relative strength is encouraging but I am hesitant about launching new positions here.

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: 54.50 change: +0.13

Stop Loss: 53.75
Target(s): To Be Determined
Current Gain/Loss: -3.4%
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:
07/09/15: The action in SPR today was not very encouraging. Shares gapped open higher like most of the market. Yet the rally immediately failed under short-term resistance at its trend of lower highs and its 10-dma.

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: 68.59 change: +1.09

Stop Loss: 65.65
Target(s): To Be Determined
Current Gain/Loss: +8.6%
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:
07/09/15: The market's rally this morning launched TPX to new multi-year highs. Shares managed to keep a good chunk of those gains to close up +1.6%.

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: 38.07 change: +0.57

Stop Loss: 40.65
Target(s): To Be Determined
Current Gain/Loss: +13.0%
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:
07/09/15: CLR's morning rally failed near $39.20 and shares closed on their lows for the session, albeit with a +1.5% gain. There is no change from my recent comments.

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


KLA-Tencor - KLAC - close: 54.73 change: -0.07

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

Comments:
07/09/15: KLAC spent the day churning sideways between $54.73 and what looks like new short-term resistance at $56.00. The stock looks poised to hit new lows tomorrow. Our suggested entry point is $54.40.

Trade Description: July 8, 2015:
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)

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


Murphy Oil - MUR - close: 40.67 change: +0.36

Stop Loss: 42.35
Target(s): To Be Determined
Current Gain/Loss: +1.2%
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:
07/09/15: MUR, like so many stocks today, gapped higher this morning. Yet the rally immediately failed at short-term resistance near $41.30 (recent highs) and the simple 10-dma (technical resistance).

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: 22.99 change: +0.17

Stop Loss: 23.55
Target(s): To Be Determined
Current Gain/Loss: -2.4%
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:
07/09/15: SYMC did not see much of a move today. The rally attempt was stymied by resistance in the $23.20 area and its 10-dma.

No new positions at this time.

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



CLOSED BEARISH PLAYS

Whole Foods Market, Inc. - WFM - close: 40.87 change: +0.97

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: see below

Comments:
07/09/15: WFM's oversold bounce re-accelerated today with shares surging +2.4%. We are giving up on WFM as a short-term bearish candidate and removing it from the newsletter.

WFM remains beneath its four-month trend line of lower highs. More aggressive traders may want to keep WFM on their watch list and launch bearish positions if the stock fails at this trend line again.

Trade did not open.

07/09/15 removed from the newsletter, suggested entry was $38.85

chart: