Option Investor
Newsletter

Daily Newsletter, Monday, 7/13/2015

Table of Contents

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

Market Wrap

Greek Deal! Rally On!

by Thomas Hughes

Click here to email Thomas Hughes
Greece got a deal and the market rallied.... now it's time to focus on earnings and data.

Introduction

They announced a Greek deal, an Agreekment as one official put it, and global markets rallied. The really amazing thing is the deal is worse, not better, than the deal offered two weeks ago and refused through referendum. The news was well received by global markets and somehow made PM Tsipras even more popular with the Greek people. Of course, the deal still has to pass parliamentary approval, there are at least 6 major reforms that must be passed this week with more on the way, so it is possible it could still fall apart. As of now the Greek banks are still closed with Thursday the earliest day mentioned to expect an opening.

In any event global markets rallied on the news and are already refocusing attention their attention. China remains a concern but their market seems to be bouncing back on the combination of moves over the past week that have so far supported the market. The mainland Shang Hai index led with gains near 2.5% followed by the Nikkei and Hang Seng. European markets also rallied, primarily on relief for the Greek deal, with gains in the range of 1-1.8%.

Market Statistics

Index futures for US markets were positive all morning. The S&P was indicated higher by 15 points or more for most of the morning and that held into the opening bell. No data was released today and earnings were light although the calendar is full of both later in the week.

The market opened strong on today's news and kept on climbing. The broad market gained about 0.85% within the first half hour trading and hit the morning high around 10:15AM. Once the high was hit trading consolidated just below those levels. The indices tread water throughout the afternon but held near their early highs. Just before 3PM the bulls got their wind back and were able to push to another new high, extending today's gains. The pop lasted the entire final hour of trading leaving the indices at their highs for the day when the closing bell sounded.

Several headlines about the Iran deal crossed the wires throughout the day as well. None seemed to impact the broad market but oil prices were volatile. The pendulum swung both ways, at one point no deal was expected today, at another a deal was seen to come soon but sticking points remained. The last I heard was that a deal would likely be announced by morning.

Economic Calendar

The Economy

No data today but it is a big week for releases. We're mid month which means that housing data starts coming out, as well as CPI/PPI and the Beige Book with this go round. Tomorrow is Retail Sales, Import/Export Prices and Business Inventories. Wednesday PPI, Empire Manufacturing and Industrial Production/Capacity Utilization come out in the morning with the Fed's Beige Book scheduled for the afternoon. Thursday the weekly jobless claims are rounded out by the Philly Fed survey and the Home Builders index. Friday caps the week with CPI, Housing Starts, Building Permits and Michigan Sentiment. No one data point really stands out as most important but the Beige Book and CPI/PPI could have the most impact on FOMC rate hike outlook.

Moody's Survey Of Business Confidence continues to decline from its all time high but remains strong and above the 40 level. This week the diffusion index fell by -0.6% to 40.2, the lowest level since March. Despite the decline Moody's economist Mark Zandi says the survey shows strength in the global economy. Strength is led by the US where business spending and hiring are notably strong.


According to FactSet the expected blended rate for S&P 500 Q2 earnings growth is now -4.4%. This is up slightly from last week when it was -4.5%. Based on the four year averages this could rise to as high as -1.1% with a chance of turning positive by seasons end. Ex-energy the blended growth rate rises to +1.75%. So far 24 S&P 500 companies have reported with 16 beating estimates for EPS and 12 beating estimates for sales. Another 42 are scheduled to report this week. Healthcare, Financials and Consumer Discretionary are expected to lead with earnings growth of 8.2%, 4.5% and 4.5% this quarter.

It is time to start looking toward third quarter earnings in earnest. The blended rate for the quarter is projected at -1% with that rising to +4.8% ex-energy. Based on the four year average for earnings growth we can expect the blended rate to rise into the range of +3%-+8% by the end of the 3rd quarter reporting season. The Consumer Discretionary sector is expected to lead with earnings growth of +12.6%, followed by the Financials and Healthcare with growth of +10.5% and 9.3% respectively.

The Oil Index

Oil prices fell in early trading as supply outweighs demand and the Iran nuke deal looms closer. Late day prices rebound to post a small gain only to retreat back to early lows by days end. The Iran deal still has significant sticking points, according to reports, but is closer than ever to becoming reality. At last report it could be announced as early as tomorrow morning. Once signed Iranian supply could add as much as 200,000 barrels a day to an already oversupplied market, with that rising to an additional 1 million per day in as little as a year. Meanwhile, fighting in Yemen rages on between Saudi and Iranian backed forces and could escalate if the deal goes through. WTI closed the day just above $52.

The Oil Index was able to squeak out a gain just over 0.5% in today's action. The index created a small doji candle just beneath my rising trend line with indicators consistent with an upward swing in momentum. The bottom of the trend line is potential resistance, near 1290, and needs to be watched as it could keep prices in check. The long term trend is up but a failure to break back above this line could indicate another move to test long term support near 1250 or lower, to the long term low near 1200. Earnings are going to be bad for this sector and could lead to further downside pressure in the near term but long term outlook remains positive. Reports from the major names in this sector are due out the last week of this month and first week of August. I'll be looking for indications of next year's expectations.


The Gold Index

Gold traded down today on rising dollar value but lost only -0.20%. Prices bounced off the long term low, near $1150, for the third time five days and so far appear to be supported. Janet Yellen's comments from Friday, indicating a rate hike was needed this year, has helped to strengthen the dollar while at the same time raising the specter of inflation which is pressuring and supporting gold at the same time. This week's Beige Book as well as the CPI and PPI data are potential movers of gold. The $1150 level could prove to be very important in the short to long term. A break below this level would be bearish and take the metal to new 5 year lows.

The miners remain under pressure as gold trades near its long term low. The miners ETF GDX gained a little over 0.30% after an early loss greater than -1% in a move confirming long term support. This support is coincident with two previous bottoms and the base line of a possible market reversal I have been tracking since last year. Support is near $16.50 and also coincident with the possible bottom gold has been building along the $1150 level.

This third pullback to support by the miners is much deeper than I first anticipated and could move lower if gold prices do not hold their support levels. The indicators are bearish but consistent with a retreat to support within a trading range. If support is broken next target is near $15.75 and the 100% retracement of the previous bull market.


In The News, Story Stocks and Earnings

Earnings this week will be dominated by the financials although there are some other important names and sectors on the list as well. The financials are expected to produce earnings growth near 4.5% this quarter and could easily beat this as expectations are low. Tomorrow JP Morgan and Wells Fargo lead off, both expected to produce earnings in-line with the past quarter but showing gains in the range of 5% over last year at this time. The XLF Financial Spyder gained 1.22% in today's session and looks like it will move higher. The ETF has moved above the short term 30 day moving average and looks like it will retest resistance at the top of the 7 month trading range. The indicators are mixed but rolling into a bullish signal, consistent with a move to the upper end of a trading range. Earnings will play a big part in this move, better than expect and/or positive forward outlook could help break it to new highs.


The Consumer Discretionary sector was a top performer today. The XLY Consumer Discretionary Spyder gained over 1.4%, closed at today's high and set a new all time high. Today's move was led by moves in Amazon and Priceline which both jumped by more than 2%. Amazon is getting a lift from its upcoming Amazon Day sales event and set a new high in today's session. Priceline got an upgrade from Cantor Fitzgerald giving a target 18% above last week's closing price. Priceline is also expected to see a near 50% jump in earnings from last quarter to this. Significant moves in Starbucks, Walt Disney and Nike also contributed to today's move. The ETF is now trading at all time highs confirmed by bullish indicators and positive outlook. The indicators are signaling a bullish trend following entry, MACD has just confirmed a stochastic bullish crossover which triggered at the end of last week. Upside target is now near $80.


Johnson&Johnson reports tomorrow as well. The healthcare conglomerate is expected to report earnings that are 2.4% above last year at this time and 9% higher than the first quarter. Today the stock traded up, gaining a little over 0.70%. It is now trading above the short term moving average with bullish indicators. The indicators are pointing to higher prices with $102.50 as an upside target, dependent on earnings results. A fall from this level could take it down to $97.50 in the near to short term.


Rail carrier CSX is expected to report tomorrow as well. The carrier is unique in its global reach, acquired through use of intermodal shipping container technology, is expected to net $0.53/share for investors. This is up $0.08 from last quarter, in-line with earnings last year at this time and the highest quarterly earnings for at least the last two years. The results are expected despite the drop in oil prices. In a recent report the company financial officer reaffirmed full year guidance and said that based on current traffic volumes 2nd quarter earnings could be flat to slightly up, putting CSX in position to possibly beat expectations. Today the stock lost close to -0.75% and is trading at a long term support level. The indicators are mixed but consistent with support, bearish MACD is receding while stochastic is forming a bullish crossover low in the oversold range. Positive earnings could produce a bounce from this level, negative could help prices fall through.


The Indices

The market rallied throughout the day. While the Greece news appears to be the catalyst I think today's move was more than just Greece. The move started early, hit a high, consolidated for several hours and then broke out to new highs and all led by the tech heavy NASDAQ Composite. The index gained 1.48% in today's session, extending its bounce from the long term trend line and breaking above resistance. Resistance was the previous all-time high, near 5050, and the short term moving average, with next resistance at the current all time high. The indicators are mixed but rolling into what could be a trend following signal. MACD remains bearish but is fast approaching the zero line while stochastic has made a weak bullish crossover. The move is to the upside, in line with underlying trends, with the current all time as target.


The Dow Jones Industrial Average made the next largest gain, 1.22%. The blue chips created a long white candle, extending Friday's bounce, and broke above the short term moving average. The indicators are confirming the move with a weak bullish trend following signal that points to a test of resistance at least. Resistance is just above the current level, near 18,000, with next resistance above that near 18,350.


The broad market S&P 500 made the third largest move in today's session, 1.22%. The index created a long white candle and broke above the short term moving average. The move is in line with the underlying trend and appears to be strong but still has resistance above it. One resistance was broken today with next target about 20 points above today's close. The indicators are rolling over into a trend following signal and will likely confirm with a MACD crossover in tomorrow's action.


The Dow Jones Transportation Average made the smallest gain today, only 1.11%. The transports were however able to close above resistance near 8280 and the short term moving average. The indicators are confirming this break with bullish crossovers on MACD and stochastic with a target near 8500. This signal is in line with the underlying long term uptrend and could result in significant upside, if the nearer term down trend is reversed. At this time the upside move is still in its early phases so caution remains a must.


Now that we are able to see past Greece economic and earnings trends are going to become the focus again. So long as they remain positive the long term trends in the market should remain positive as well. Today's action is an early indication that the bull market is still intact, but it is only an early indication, there are still risks that could wreck the market including earnings, data and global news. Earnings begin to roll out in force with reports from several important sectors, I don't expect much from reports this quarter but I would like to see positive outlook. We will also get a lot of important macro data, some of which having a direct impact on GDP estimates, so it will be nice to see improvement here as well. As for global news, such as Greece or Iran deals, headlines could flash at an time so be wary.

Until then, remember the trend!

Thomas Hughes


New Plays

Short Squeeze Candidate

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Benefitfocus, Inc. - BNFT - close: 43.17 change: +0.99

Stop Loss: 38.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 13, 2015
Time Frame: Exit PRIOR to earnings in August
Average Daily Volume = 173 thousand
New Positions: Yes, see below

Company Description

Trade Description:
BNFT was founded 15 years ago with a dream to simplify understanding your healthcare benefits. They went public in 2013. Now they're the #1 cloud-based benefits management platform.

The company is considered part of the technology sector, specifically the application software industry. According to the company, "Benefitfocus, Inc. (BNFT) is a leading provider of cloud-based benefits software solutions for consumers, employers, insurance carriers and brokers. Benefitfocus has served more than 25 million consumers on its platform that consists of an integrated portfolio of products and services enabling clients to more efficiently shop, enroll, manage and exchange benefits information. With a user-friendly interface and consumer-centric design, the Benefitfocus Platform provides one place for consumers to access all their benefits. Benefitfocus solutions support the administration of all types of benefits including core medical, dental and other voluntary benefits plans as well as wellness programs."

Revenue growth has been pretty strong. BNFT reported its Q4 results back on February 24th. Earnings were a loss of ($0.39) per share. That was 23 cents better than expected. Revenues were up +32.7% to $40.2 million, which was above estimates. Management raised their Q1 guidance.

On May 6th the company announced its Q1 results, which were a loss of ($0.48) per share. That beat estimates by four cents. Revenues were up +39% from a year ago to $42.7 million, again this was above expectations. This time guidance was a little soft for Q2 and in-line with estimates for 2015.

Shares started to rally in June. That rally accelerated mid June thanks to an analyst upgrade. Now after a -18% correction from its June highs shares of BNFT look poised to run again. A rally from here could spark some short covering. The most recent data listed short interest at 32% of the very small 18.37 million share float. Tonight we are suggesting a trigger to open bullish positions at $43.65. More conservative traders may want to use a trigger at $44.05 instead. Our short-term target is the $50.00 area but we will plan on exiting prior to BNFT's earnings report in mid August (no firm date yet).

Trigger @ $43.65

- Suggested Positions -

Buy BNFT stock @ $43.65

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

Buy the AUG $45 CALL (BNFT150821C45) current ask $2.80
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

Europe Close To A New Greek Deal

by James Brown

Click here to email James Brown

Editor's Note:
News that European leaders were significantly closer to a new bailout deal for Greece sent stocks soaring this morning. Most of the U.S. market gapped open higher.

KLAC has been removed. SYMC hit our stop loss.


Current Portfolio:


BULLISH Play Updates

Chimerix, Inc. - CMRX - close: 48.21 change: +1.31

Stop Loss: 43.75
Target(s): To Be Determined
Current Gain/Loss: +4.5%
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:
07/13/15: The rally continues for CMRX with shares up three days in a row. The stock displayed relative strength today with a +2.79% gain and a new record high.

Readers may want to raise their stop loss. I am not suggesting new positions.

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

07/11/15 new stop @ 43.75
06/26/15 triggered @ $46.15
Option Format: symbol-year-month-day-call-strike


Mobileye N.V. - MBLY - close: 58.44 change: +1.09

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: +3.4%
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:
07/13/15: MBLY kept the rally going as well. Shares are also up three days in a row. The stock added +1.9% on Monday. I want to caution readers that MBLY is nearing prior resistance from 2014 in the $58.60-60.00 range. I would not be surprised to see MBLY trade near $60.00 and then retreat for a couple of days.

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

07/11/15 new stop @ 53.85
07/09/15 triggered on gap open at $56.50
Option Format: symbol-year-month-day-call-strike


Neurocrine Biosciences Inc. - NBIX - close: 50.49 change: +2.33

Stop Loss: 44.85
Target(s): To Be Determined
Current Gain/Loss: +4.6%
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:
07/13/15: NBIX broke out from its recent sideways consolidation with a +4.8% surge today. Not only is this a bullish breakout from its consolidation but it's also a rally past potential round-number resistance at $50.00.

Nimble traders may want to consider buying a dip near the $50.00 mark.

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

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

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

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

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

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

- Suggested Positions -

Long NBIX stock @ $48.15

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

Long AUG $50 CALL (NBIX150821C50) entry $3.60

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


Spirit AeroSystems - SPR - close: 55.49 change: +0.36

Stop Loss: 53.75
Target(s): To Be Determined
Current Gain/Loss: -1.7%
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:
07/13/15: SPR only added +0.65% on Monday, which underperformed the broader market. However, today's move does break the short-term trend of lower highs and pushed SPR above its 10-dma and 20-dma. This is a bullish development but I would still hesitate to launch positions.

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: 70.40 change: +0.51

Stop Loss: 66.40
Target(s): To Be Determined
Current Gain/Loss: +11.5%
Entry on June 10 at $63.15
Listed on June 08, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 890 thousand
New Positions: see below

Comments:
07/13/15: I don't see any changes from my weekend comments. TPX added another +0.7%. Shares remain overbought and due for a pullback. More conservative investors may want to take profits right here.

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

07/11/15 new stop @ 66.40, readers may want to take profits now!
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: 37.54 change: +0.18

Stop Loss: 40.65
Target(s): To Be Determined
Current Gain/Loss: +14.2%
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:
07/13/15: Oil and energy stocks were not immune to the market's widespread rally on Monday but they did underperform. CLR only added +0.48% versus the +1.1% gain in the S&P 500. The September put has doubled in value. Readers may want to take some money off the table.

I don't see any changes from my prior 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


Murphy Oil - MUR - close: 40.45 change: +0.39

Stop Loss: 42.35
Target(s): To Be Determined
Current Gain/Loss: +1.7%
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:
07/13/15: Most of the stock market gapped open higher this morning. MUR was moving the opposite direction. Shares gapped open lower after Morgan Stanley downgraded the stock to "underweight" before the opening bell. Shares of MS rebounded and managed to end the day with a +1% gain.

Considering the market's big bounce and MUR's rebound I am not suggesting new positions tonight.

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


Noble Energy, Inc. - NBL - close: 38.90 change: -0.16

Stop Loss: 41.75
Target(s): To Be Determined
Current Gain/Loss: -0.8%
Entry on July 13 at $38.60
Listed on July 11, 2015
Time Frame: Exit PRIOR to earnings on August 3rd
Average Daily Volume = 4.2 million
New Positions: see below

Comments:
07/13/15: NBL is another energy stock that is underperforming the broader market. Shares slipped to new lows today and fell to $38.59 before trimming its losses. Our suggested entry point to launch bearish positions was $38.60 so the trade is open. Readers may want to wait for a new relative low before launching positions tomorrow.

Trade Description: July 11, 2015:
Crude oil prices are down sharply the last two weeks and its putting pressure on the oil stocks. NBL is an oil company who has seen its stock plunge to new multi-year lows.

According to the company, "Noble Energy is a leading independent energy company engaged in worldwide oil and gas exploration and production. The Company has core operations onshore in the U.S., primarily in the DJ Basin and Marcellus Shale, in the Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa."

There are several issues impacting the price of oil, which is pressuring oil stocks lower. Back in April we saw crude oil inventories in the U.S. hit 80-year highs. They stayed elevated for awhile before eventually fading. Summer time is driving season. A lot of people are on the road for vacation. The weather is more favorable. This time of year demand for oil rises as oil refiners boost their production of gasoline and other fuels.

Given the seasonality of U.S. oil demand normally rising in summer it was a surprise to see oil inventories rising instead of falling. The U.S. Energy Information Administration (EIA) has reported an inventory build the last two weeks in a row. Their most recent report was for the week ending July 3rd. Analysts were expecting oil inventories to drop 1 million barrels. Yet the EIA said inventories rose almost 300,000 barrels.

This EIA news was followed on Friday with a report from the International Energy Agency (IEA) who downgraded their global oil demand growth forecast from +1.4 million barrels per day in 2015 to +1.2 million barrels in 2016. That is still growth but the world is currently facing oversupply issues. If demand falls it's going to put pressure on oil prices.

Saudi Arabia, the biggest member of Organization of the Petroleum Exporting Countries (OPEC) made it clear that they are willing to sacrifice price to maintain their market share. At the June 4th meeting OPEC left their output quota unchanged at 30 million barrels a day.

Crude oil is off its 2015 lows but the weakness this year has wreaked havoc in the oil sector. NBL reports its Q4 results in February. They beat the bottom line by three cents but revenues were down -19.4% from a year ago to $1.07 billion. That missed estimates by $233 million.

The sales decline accelerated in the first quarter. NBL reported its Q1 results on May 5th. They beat the bottom line by a penny but revenues crashed -45% to $759 million. That was $140 million below estimates.

If the oversupply issue wasn't bad enough the industry now faces a potential deal with Iran and the P5+1 nations. These countries are currently negotiating over Iran's nuclear program. If they do get a deal done it will unlock sanctions on Iran, which would allow the country to bring millions of barrels of oil to a market that is already struggling. Of course the opposite could occur. If the quarrelsome talks breakdown, and they could since they're already on their umpteenth postponed deadline, then crude oil prices could rally. That's probably our biggest risk on a bearish play in the oil sector. If the Iran talks breakdown it could fuel a big spike in the price of oil.

Technically NBL looks very weak. On the weekly chart below you can see the bear-flag consolidation pattern and the breakdown. On the daily chart there is what appears to be a bearish head-and-shoulders pattern. Plus, the simple fact that NBL continues to underperform, continues to sink, with the path of least resistance being lower. The point & figure chart is bearish and forecasting at $34.00 target.

The $38.70-38.80 area appears to be short-term support. Tonight we are suggesting a trigger to launch bearish positions at $38.60.

- Suggested Positions -

Short NBL stock @ $38.60

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

Long AUG $37.50 PUT (NBL150821P37.5) entry $1.40

07/13/15 triggered @ $38.60
Option Format: symbol-year-month-day-call-strike


Tessera Technologies - TSRA - close: 36.27 change: +0.34

Stop Loss: 37.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 09, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 518 thousand
New Positions: Yes, see below

Comments:
07/13/15: TSRA spent Monday's session hovering near support in the $36.00 region. We are waiting for a new relative low. Our suggested entry point to launch bearish positions is $35.40.

Trade Description: July 9th, 2015:
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)

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

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



CLOSED BEARISH PLAYS

KLA-Tencor - KLAC - close: 56.32 change: +1.21

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: see below

Comments:
07/13/15: We are throwing in the towel with KLAC. Shares rallied +2.19% on Monday. It's been three days since we added KLAC to the newsletter and shares are not cooperating.

I will point out that the longer-term trend for KLAC is still bearish. More aggressive traders may want to keep an eye on KLAC for a failed rally near $58.00 as a potential bearish entry point. Keep in mind that I would hesitate to hold positions over its earnings report on July 30th.

Trade did not open.

07/13/15 removed from the newsletter, suggested entry was $54.40

chart:


Symantec Corp. - SYMC - close: 23.42 change: +0.10

Stop Loss: 23.55
Target(s): To Be Determined
Current Gain/Loss: -4.9%
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:
07/13/15: The oversold bounce in SYMC continued today. The widespread market rally certainly didn't hurt if you were a bull. Shares pierced the $23.50 level and its 20-dma. The intraday high was $23.55, which just happens to be our stop loss.

- Suggested Positions -

Short SYMC stock @ $22.45 exit $23.55 (-4.9%)

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

AUG $22 PUT (SYMC150821P22) entry $0.69 exit $0.28 (-59.4%)

07/13/15 stopped out @ $23.55
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

chart: