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Daily Newsletter, Saturday, 7/25/2015

Table of Contents

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

Market Wrap

Earnings Take a Toll on the Market

by Jim Brown

Click here to email Jim Brown

Weak earnings weighed on the market despite some major wins by several high profile stocks. The constant revenue misses and lowered guidance combined to knock more than -500 points off the Dow for the worst week since January. Without major wins by stocks like Amazon, the damage could have been a lot worse.

Market Statistics

The big cap indexes gave up a lot of ground but the small and mid cap indexes lost more and fell farther. The Russell 2000, S&P Midcap-400 and Small Cap 600 all closed at two-month lows.

On the Nasdaq 100 ($NDX) today the 75-point intraday gain by Amazon was offset by the 80-point loss in Biogen. Those two stocks with share values on Thursday of more than $400 each were the perfect example of the bipolar market.

Biogen ended the day with a loss of -$85 to $300 to lose -$18 billion in market cap. The company cut its growth forecasts by more than half because of slowing sales of the MS drugs Tecfidera, Tysabri and Avonex. The company now sees "extremely limited" patient growth for Tecfidera after the drug was reportedly linked to brain infections. Also weighing on shares was a study that showed an Alzheimer's drug in testing stages showed no significant slowing of mental decline.


On the flipside of earnings, Amazon shares were up nearly $100 early in the day after the company reported a surprise profit. When the market accelerated lower late in the day the stock gave back half its gains but still ended up +47. CEO Jeff Bezos ended the day $5 billion richer after being up +$8 billion at the open.

Amazon said revenue rose +19% to $23.18 billion and nearly $800 million more than consensus. If it were not for the strong dollar Amazon sales would have been up 27%. Earnings came in at +19 cents when analysts were expecting a loss of -14 cents. This equates to an operating profit of $462 million. Amazon Web Services (AWS) their cloud hosting division, saw sales rise +81.5% to $1.8 billion with a $391 million profit, up from $77 million in the comparison quarter, and a 21.4% profit margin. Analysts believe that AWS will be worth more than the rest of Amazon combined by 2020.

Free cash flow rose +69% to $8.98 billion over the last 12 months. This was an extremely strong quarter for Amazon and suggests how much profit Amazon can generate once it quits spending billions every year in building out its infrastructure. Amazon could easily produce billions per quarter in profits once expansion slows.

Morgan Stanley raised its price target on Amazon to $741 and the highest target on the street. Barclays said buy now, do not wait because the stock is going a lot higher. Wedbush raised their target to $700 saying Amazon could have 47 million Prime members by year-end, up from an estimated 35 million at the end of 2014. Amazon has more than 285 million active customers. Robert W Baird raised the target to $630 from $475. Cowen raised their target from $565 to $700 with an outperform rating. RBC Capital Markets raised the target from $500 to $650 with an outperform rating. RBC analyst Mark Mahaney said Q2 was an "inflection point quarter" and the first time in four years that Amazon had exceeded its guidance. Gross profit margins reached a high of 35%. JP Morgan raised the target from $535 to $710. Cantor Fitzgerald raised its target from $460 to $670. Jefferies raised their target from $465 to $730 saying "Amazon is one of the best large cap ideas in our coverage universe, with one of the most significant moats." Canaccord Genuity was the party pooper with a hold rating but did raise their target from $400 to $525.

Amazon shares are now up +26,939% since its IPO. Shares are up +37,824% from the closing low of $5.51 after the 9/11 terrorist attack.


On the economic front, the New Home Sales for June was a big disappointment. The headline number was 482,000 and well below the prior May reading at 546,000 and consensus estimates for 545,000. Unfortunately, the May number was revised down from 546,000 to 517,000. The Northeast region was the only region with increasing sales. Sales in the West fell -17%, Midwest -11.1% and South -4.1%.

The number of homes for sale rose from a 4.7-month supply in April to 5.4 months in June. The average selling price declined -1.8% to $281,800. Builders and analysts said buyers were suffering from price fatigue after two years of rising prices. The number of homes sold that were under construction fell -16.3% to 154,000.

The June sales were a seven-month low. However, sales were still 17.5% higher than June 2014.


News out of China also helped to weaken the U.S. markets. The preliminary Purchasing Managers Index (PMI) from Markit Economics declined from 49.4 to 48.2 for July. That is the lowest level in 15 months and worse than all 16 forecasts in a Bloomberg survey. This means the economic outlook for China has worsened. China continues to claim GDP growth of 7.0% but most independent analysts believe it could actually be as much as 2% less than that. In another report Chinese railroad freight traffic declined -12% in June. The economic news from China and anecdotal reports of falling demand for coal, iron and copper caused commodity prices to decline to multiyear lows.

Economic highlights for next week include the Richmond Fed Manufacturing Survey on Tuesday and the final reading on the Q2 GDP on Thursday. Q3 GDP is tracking about +2.3% growth according to the Fed's GDPNow analysis.

The big hurdle will be the FOMC meeting announcement on Wednesday afternoon. With earnings expectations declining, home sales weakening and U.S. manufacturing slowing because of the strong dollar, the Fed may be less likely to raise rates and send the dollar spiking higher. The Fed announcement will be parsed for every word that provides a clue above and beyond the face value of the press release.


The big news will of course be earnings. I have been writing market commentaries for Option Investor for more than 18 years. I cannot recall ever seeing an earnings week with this many companies reporting. There are more than 1,290 according to my quick count on Friday when I was preparing the earnings calendar. Out of that 1,290 I squeezed 128 in to my graphic and highlighted only 28 in yellow as important. That should give you an idea about how much media noise there will be next week as they try to cover those 1,290 companies.

The big name for the week will be Facebook on Wednesday but the others are important as well. It is just that Facebook will garner all the attention and investors will be hoping for an Amazon like spike rather than an Apple like decline.


There were some other disappointments on Friday. Trip Advisor (TRIP) reported earnings of 54 cents and analysts were expecting 56 cents. Revenue of $405 million also missed estimates for $413.2 million. After a YTD rise of 25% the shares gave back -13% on Friday or -12.50.


LogMein (LOGM) reported earnings of 35 cents compared to estimates for 33 cents. Revenue of $64.8 million beat estimates for $64 million. The company guided for Q3 revenue in the range of $68.8-$68.3 million and analysts were expecting $67.8 million. LogMein is a cloud based service company. Shares rallied +10% on the news.


Visa (V) was the biggest gainer on the Dow after reporting earnings of 74 cents compared to estimates for 59 cents. Revenue rose +12% to $3.5 billion and beat estimates for $3.4 billion. International transaction revenues rose +21% to $1 billion. Overall payment volume rose 11% to $1.3 trillion on more than 18 billion transactions. Shares rallied +4% on the news and added about 23 Dow points.


Starbucks (SBUX) rallied to $59.31 at the open after a big earnings beat. The declining market dragged the stock lower to gain only 75 cents at the close. The company said an expanded menu and improved technology helped them acquire more customers. Same store sales were up +7% globally with an estimated 23 million additional transactions than the comparison quarter. Same store sales in America rose +8%. New drinks like the "Flat White" and the "Smores Frappuccino" along with bistro boxes and breakfast sandwiches boosted sales.

The company said mobile ordering technology is now in place at more than 4,000 stores and was boosting sales and profits at those stores. The ability to preorder and pay online helped bring back customers that got tired of waiting in long lines. CEO Schultz said in stores with mobile ordering "the lines were shorter, service faster and operations were more efficient." Schultz said the technology should be available in all stores before the holidays.

Earnings rose +22% to 42 cents that beat estimates by a penny. Revenue rose +18% to $4.9 billion. Starbucks said the board had authorized the buyback of an additional 50 million shares.


Pandora (P) reported adjusted earnings of 5 cents compared to estimates for 2 cents. Revenue increased +30% to $285.6 million compared to estimates for $283.2 million. Mobile revenue rose +37% to $229.7 million. The company ended the quarter with 79.4 million active listeners, up only slightly from 79.2 million last quarter. The company is targeting 100 million active users. The company guided slightly higher than analyst estimates for Q3/Q4. Shares rallied +15% on the news.


Juniper (JNPR) reported earnings of 53 cents that beat estimates for 40 cents. Revenue of $1.22 billion also beat estimates for $1.11 billion. The company said they were expecting a large uptick in sales in the second half of the year from companies including AT&T, Telefonica and Verizon. They recently announced a lot of new products that compete with the cheaper routers that run brand-agnostic software.


The economic data out of China crushed commodities and copper sank to a new post crisis low. Gold collapsed to a five-year low at $1,080. Oil prices traded under $48 and are closing in on the lows for the year.





The sharp decline in commodities is causing margin selling not just by individual investor but large funds. A trader on the floor of the NYSE said there was evidence of persistent forced margin selling by several large funds. When you cannot clear your margin by selling your commodities, you are forced to sell stocks to make up the difference. This trader said part of the decline in equities was directly related to large margin calls on commodities.

The energy sector is also getting pounded by what is expected to be a very ugly earnings cycle and by the declining fundamentals in the energy market. The S&P Energy Select SPDR (XLE) is at two-year lows and dropping like a rock. Energy stocks are down 35%, 50% even 75% from their 2014 highs. The sector has been in a bear market for all of 2015. Several attempts to rally have failed and long-term holders of energy stocks are being forced to liquidate. Almost no analyst is recommending buying the dip in energy stocks. With more than $800 billion in high-yield energy debt we are going to reach a point where defaults begin to occur and most believe it will be in early 2016 if oil prices do not firm soon.


Crude prices fell under $48 on Friday as a result of active oil rigs surging by 21 rigs to 659. Natural gas rigs declined by 2 to 216 and a new eighteen-year low. Energy investors saw inventories rise by +2.5 million barrels on Wednesday and imports rise to 7.94 mbpd and the highest level since April 3rd. It is not enough that U.S. inventories are just under an 80-year high but imports are rising and rigs are being put back to work. Apparently producers are either expecting prices to raise later this year or they have found a way to produce oil profitably for less than $40. One other reason for the rise in rigs is that they have debt bills coming due and they need to produce oil at any cost just to increase cash flow.



Markets

It was an ugly week for the markets but it could have been worse. The Dow declined -518 points and it was almost entirely due to negative earnings surprises. The focus stocks missed estimates and once the direction was set the other Dow stocks followed them down.

The Industrials Sector select SPDR ETF (XLI) fell to a new nine-month low and the 100-day average is about to cross below the 200-day average. Needless to say the outlook here is bearish.


The S&P Materials Select SPDR fell to a nine-month low and the relative strength to the S&P is at a multiyear low. Compare that to the Energy Select ETF (XLE) in the lower chart. There are 30 materials stocks in the S&P and 43 energy stocks. Together they make up 15% of the S&P-500. The XLE is at the lowest level in 30 months.



The Dow Transports are closing in on the July lows and the downtrend low from March remains intact. With fuel prices falling the transports should be in rally mode but railroad shipments are also declining. This is not a sign of positive economic growth and it is bearish for the broader market.


The Biotech sector was also a major mover with nearly a -5% decline. Much of that was on Friday when Biogen fell -82 points. The Biotech Index ($BTK) has had these upsets fairly regularly over the last couple years. Since early 2014 the 100-day average has been support. With Biogen in freefall with horrible guidance we may not see that 100-day support hold on this decline. If that is the case the market could be in trouble. The S&P and the Russell 2000 both have a large contingent of biotech stocks. On the chart below you can see how the rally began to stumble after the March high and we could be due for a deeper drop.


Over the last three days, the volume has been rising and that is never good in a market decline. Volume on Friday was 7.3 billion shares and the highest since July 7th. Decliners were 3:1 over advancers and new 52-week lows spiked to 926 and the most since October 15th 2014.

The Bullish Percent Index on the S&P declined to 53% and the lowest level since October. That means only 53% of the S&P stocks have a buy signal on a Point & Figure chart.


Only 51% of the S&P-500 stocks are trading over their long-term 200-day average. A dip below 50% will be the lowest level in 2015. The Nasdaq is slightly worse at 47.7%.



The big caps had been leading over the last several weeks but the market breadth continued to narrow. As Art Cashin put it, "there are fewer horses pulling the wagon." Some of those remaining horses pulled up lame last week and the wagon began sliding backwards down the hill.

I mentioned on Wednesday that the hard stop at 2110 on the S&P and the positive gain on the Russell 2000 suggested the worst could be over as long as the negative earnings headlines faded. They did not fade and may have gotten worse.

So far 185 S&P-500 companies have reported earnings and 77% beat estimates on profits, thanks in part to aggressive share buybacks and cost cutting. However, only 51% have beaten revenue estimates. That number is much harder to game with financial engineering. Falling revenue eventually means lower earnings. Analysts were hiking earnings growth estimates two weeks ago and are now lowering those estimates based on results and guidance. Expectations are now for a -4.1% decline in earnings for Q2 according to a Bloomberg survey and a -4% decline in revenues. That would be the worst quarterly performance since 2009. Over the coming week 172 S&P companies will report and now that the largest companies have reported the earnings quality could be worse.

The S&P chart is in freefall. The decline did find support at the 2075 level but it may have only been because time expired in the trading session. Selling is occurring at a moderate pace. It is not like a crash where sellers overwhelm buyers and declining volume is 10:1 over advancing. A decline with the ratio at 3:1 is still a decline but at least there is some order to the selling. Nobody is jumping out of windows.

The key for Monday is the 2071 level and then 2050. With market direction definitely to the downside there may be some follow through next week.

Fortunately we are running out of Dow components reporting earnings. Without any big misses by Dow stocks it may be harder for sellers to set the trend. However, with revenue misses now normal and Q3 guidance quickly declining we may not need a focus stock to upset the wagon.

At this point I would be skeptical of any rebound in the S&P. We have failed at the 2130 level three times in three months and investors may be ready to wait for a real correction before buying the dip again. This is almost August and the Dow is negative for the year and the S&P has only gained +1%. I would not be surprised to see a flurry of analyst revisions on year-end S&P targets. Nobody wants to be quoting 2300 on the S&P with it trading well under 2100 with only six months to go. Two of those months, August and September, are historically the worst two months of the year.


The Dow crashed through 17,600 and could easily test 17,500 on Monday. The 18,100 resistance was rock solid again and the chart pattern is very lackluster. I would doubt we are going to retest that level in the near future. We are more likely to retest 17,150 and the closing low from January. Many of the Dow stocks are sick. The majority of the individual charts are in decline and the strong dollar and worries over the global economy are weighing on their guidance.

Even the banking stocks in the Dow are in crash mode with Goldman the biggest loser on Friday with nearly a -$4 drop. Add in the energy stock weakness with oil under $48 and lingering problems with IBM, UTX, BA, etc and it was a miracle the Dow only lost -163 points.

Support at 17,500 is the key for Monday. If that breaks we could see some cascade selling that takes us to 17,150. The Dow closed well below its 200 day average at 17,748.



The Nasdaq finally cratered on Friday. The declines earlier in the week had been minimal to moderate because there were big gains offsetting some big losses in individual stocks. The Biogen implosion on Friday was offset early by the monster gain in Amazon but once the market started to accelerate lower after lunch the $100 gain slipped to $47 and the Biogen $82 loss became the driver. It was also a catalyst for a greater decline. Biogen tripped up the entire biotech sector so Amazon's gains were offset by dozens of big declines in biotech stocks not just Biogen.

The Nasdaq declined -58 points to 5088 and blew through two levels of support at 5160 and 5100. Unlike the S&P and Dow the Nasdaq is still in an uptrend and can remain in an uptrend for about another 200 points. It may be ugly but until the 4900 level is breached the chart is still positive.

For those with short memories we were at 4900 just three weeks ago. If we were to visit that level again we may not see that support hold.

Initial support for next week is 4950-5000 with resistance at 5200.



The Russell 2000 imploded with a -19 point drop on Friday. This was primarily due to the large number of biotech stocks in the index plus the overall negativity of the market. The Russell closed at a two-month low and below support at 1230. The next material support is 1210 and then it would be a long drop to 1150. The 150-day average has been recent support and that was broken on Friday. Resistance is now 1240.


The S&P Small Cap 600 ($SML) closed at a two-month low and very close to the five-month closing low at 701.32. The small caps have entered a rough neighborhood and once the 700 level breaks it could be a long drop.


The S&P Midcaps ($MID) did close at a four-month low when they broke support at 1480. This is just another example of the big caps leading us higher but fewer horses were pulling the wagon. The market breadth of the small and mid caps was shrinking at a faster rate than the big caps and once those leaders rolled over the smaller stocks accelerated to the downside.


The NYSE Composite Index has more than 1,900 stocks of which more than 1,500 are U.S. companies with the rest are foreign ADRs. The broad index of a variety of companies from the largest like Exxon to the smallest of the small caps gives us a very good reading on market sentiment. Unfortunately, the Advance/Decline line on the NYSE fell below the 50-day average in early June and below the 200-day average last week. This is a dramatic visual of the declining market internals.


It is amazing to see how much market sentiment has changed in just one week. The S&P was testing its highs on Monday and down more than 50 points off those highs by Friday. It would be easy to launch into full bear mode because of the severity of the decline but markets never sprint in either direction without temporary pauses and intermittent short squeezes.

At some point traders will try to pick a bottom and the shorts will race to cover. What happens when that short squeeze occurs will be the key. It is lacks conviction, fails at initial resistance and then rolls over quickly; I would look for lower lows and possibly much lower lows.

If the rebound finds some traction on the second and third days then investors will begin to breathe easier and move back into the market.

Margin calls on commodities may have forced the sales of equities last week. Eventually the selling in commodities will end along with the forced selling of equities.

We are heading into the worst two months of the year for the market. I mentioned several weeks ago that after the first two weeks of the earnings cycle as we approached the FOMC meeting the combination of earnings, calendar and Fed expectations could weigh on the markets. I believe we have reached that point.

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Random Thoughts


The U.S. Mint said it sold the most physical gold in two years as the price of gold hit a five-year low. Three weeks ago, the mint ran out of silver on the day the price fell to $14.62 and the lowest price in 2015. On Friday, it declined to $14.33. The UK Royal Mint said they experienced twice the expected demand for Sovereign bullion coins from customers based in Greece.

As of July 24th, the U.S. Mint had sold 143,000 ounces of physical gold in the month of July, the most in more than two years. Gold Demand Rockets Higher

Hedge funds are holding their first ever net short on gold since the government began collecting data in 2006. Funds are net short 11,345 contracts according to the CFTC. Goldman Sachs said the worst is yet to come for gold and prices could fall under $1,000 an ounce. Hedge funds short gold


The Dow just broke another record. It has swung from positive YTD return to negative for the 21st time in 2015. The prior highs were 20 swings in both 1934 and 1994. With four months to go, the odds are good we will see several more swings to push that record number even higher. Dow Lacks Conviction

Ralph Acampora echoed those statements and warned that the markets have gone nowhere in 2015 and if the markets do not make and hold new highs soon we could be going a lot lower. Clock is Ticking for Stocks


The Fed meets next week and there is a zero chance of a rate hike at this meeting. The Fed is between a rock and a hard place. They want to see inflation as one of their requirements for a rate hike. Unfortunately, commodity prices are imploding and that is going to reduce inflation and possibly risk deflation in the months to come.

Nations that depend on commodity revenue for their income are going to be in trouble. That includes Canada, Australia, Brazil, OPEC nations, Peru, Mexico and even Russia. Currencies that depend on commodity revenue are already crashing. Mexico's peso was down to 15.734 to the dollar last week because of their falling oil revenue. The Brazilian real has fallen -45% against the dollar in the last 12 months.

Venezuela's currency fell another 32% in just the past month. Inflation is running at 772% annually and the government will not be able to pay its debts by the end of 2015, if it lasts that long. Soc Gen rates the probability of default in 2015 at 63% and rising. Venezuela is rapidly becoming the 57th hyperinflation event in modern history. There is no way for them to recover. Deflation is Winning

Emerging market currencies are in free fall. This Bloomberg chart shows currencies in a 15-year low against the dollar. This means everything from the U.S. costs more and will further slow our exports. Emerging Currencies Falling



Investor sentiment is a strange animal. Despite the worst week for the market since January bullish sentiment rose +1.7% and neutral sentiment declined 4.1%. Bearish sentiment rose ONLY +2.4%. Since the major declines in the indexes did not come until late in the week, the sentiment may not have caught up with chart. Next week should be interesting.

This is the 17th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.



Weekly Jobless Claims fell to 255,000 last week and that is important because it was a 42-year low. The vast majority of people reading this commentary were either not yet born or were not paying attention to economic numbers when that happened in November 1973. This is a crazy statistic because hiring is not that strong and the labor force participation rate is at a 35 year low. Apparently, very few companies are laying off workers and those with jobs are not quitting. What does that tell us about the economy? With consumer sentiment declining it suggests workers are doing whatever it takes to keep their jobs.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence."

John Adams, Second U.S. President

 

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New Plays

Facing Tough Competition

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Best Buy Co., Inc. - BBY - close: 32.46 change: -0.40

Stop Loss: 33.80
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 25, 2015
Time Frame: Exit PRIOR to earnings in late August
Average Daily Volume = 4.3 million
New Positions: Yes, see below

Company Description

Trade Description:
Tonight's candidate is almost 50 years old. They were founded under the name "Sound of Music" but changed their name to "Best Buy" in 1983. Today they have over 1,400 locations, employ more than 125,000 people, and generate more than $40 billion in sales annually.

BBY is part of the services sector. According to the company, "Best Buy is a leading provider of technology products, services and solutions. The company offers expert service at an unbeatable price more than 1.5 billion times a year to the consumers, small business owners and educators who visit our stores, engage with Geek Squad Agents or use BestBuy.com or the Best Buy app. The company has operations in the U.S. where more than 70 percent of the population lives within 15 minutes of a Best Buy store, as well as in Canada and Mexico, where Best Buy has a physical and online presence."

The company launched a massive turnaround campaign almost three years ago as they struggled with extremely tough competition from companies like Amazon.com. The biggest problem for BBY is something called "showrooming". This is when customers come into a Best Buy store, they look around at products, ask questions from Best Buy staff, and they compare quality and price. Then they go home and buy what they want online for a cheaper price and have it delivered to their door.

BBY is acutely aware of the showrooming phenomenon. It's hard to compete with someone like Amazon who doesn't have the big overhead for large retail locations. BBY has been trying to compete on service plus they have redesigned their own online e-commerce offerings and they are seeing growth in their own online sales. BBY management has also been slashing expenses.

The turnaround has worked to a point. BBY's focus on cutting expenses is obviously good for profits. Yet sales remain slow. Looking at BBY's last couple of earnings reports their bottom line results have beaten Wall Street estimates (thanks to slashing costs) but revenues have been disappointing.

BBY reported their Q4 results on March 3rd, 2015 and revenues were only up +1.3% to $14.2 billion, which missed expectations. Comparable store sales were only up +1.3%.

BBY's Q1 result was worse. This report was announced on May 21st. They beat the bottom line EPS estimate again but revenues fell -0.9% to $8.56 billion. On the plus side their comparable store sales improved from -1.3% a year ago to +0.6% but this too was disappointing.

Shares of BBY have been in a down trend since they peaked near $42.00 in March this year. The stock has been in a bearish pattern of lower highs and lower lows. It looked like BBY might break this trend and then the stock was downgraded on July 17th.

Bank of America analyst Denise Chai reduced her rating on BBY to the equivalent of a "sell". She believes the company will see a tough second half to 2015. There is no must have product or upgrade cycle to drive customers into the store later this year. Chai expects BBY's sales to turn negative (-1%) in the second half.

BBY's stock collapsed on this downgrade and has been unable to recover. Today shares are poised to breakdown to new 2015 lows. Tonight we are suggesting a trigger to launch bearish positions at $32.15.

FYI: I am listing the October put options. BBY does have September options but the option strikes are at odd prices thanks to a $0.51 special dividend BBY paid in March and the option markets haven't caught up with new (normal) strikes yet.

I also want to point out that the point & figure chart is currently bullish for BBY. If shares traded below $32.00 it should generate a new sell signal.

Trigger @ $32.15

- Suggested Positions -

Short BBY stock @ $32.15

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

Buy the OCT $30 PUT (BBY151016P30) current ask $1.01
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

Energy Stocks Race Lower

by James Brown

Click here to email James Brown

Editor's Note:
Commodities had a rough week. Crude oil continues to slide lower and that's putting pressure on energy stocks. The group has been a significant underperformer lately.

We have updated several stop losses tonight.

Plan on exiting the MUR trade on Monday at the closing bell.


Current Portfolio:


BULLISH Play Updates

Benefitfocus, Inc. - BNFT - close: 45.15 change: -0.57

Stop Loss: 42.85
Target(s): To Be Determined
Current Gain/Loss: +3.4%
Entry on July 14 at $43.65
Listed on July 13, 2015
Time Frame: Exit PRIOR to earnings on August 3rd
Average Daily Volume = 173 thousand
New Positions: see below

Comments:
07/25/15: BNFT followed the market lower on Friday and shares gave back about one third of Thursday's gains. The stock remains under short-term resistance at $46.00. We only have a couple of weeks left on this trade before BNFT reports earnings.

No new positions at this time.

Trade Description: July 13, 2015:
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).

- Suggested Positions -

Long BNFT stock @ $43.65

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

Long AUG $45 CALL (BNFT150821C45) entry $2.85

07/16/15 new stop @ 42.85
07/14/15 triggered @ $43.65
Option Format: symbol-year-month-day-call-strike

chart:


Burlington Stores, Inc. - BURL - close: 54.49 change: -0.60

Stop Loss: 53.65
Target(s): To Be Determined
Current Gain/Loss: -2.8%
Entry on July 16 at $56.05
Listed on July 15, 2015
Time Frame: Exit PRIOR to earnings in September
Average Daily Volume = 1.6 million
New Positions: see below

Comments:
07/25/15: Warning! Our BURL trade could be in trouble. I warned readers previously that Thursday's session created a one-day bearish reversal pattern. Friday's drop just confirmed it and BURL closed below its 100-dma. More conservative traders may want to exit immediately! I am not suggesting new positions at this time.

Trade Description: July 15, 2015:
Investors seem to be in a forgiving mood with BURL. The company's most recent earnings report was a disappointment but the stock has recovered. Now it looks like the longer-term bullish trend is poised to resume.

BURL is in the services sector. According to the company, "The Company, through its wholly-owned subsidiaries, operates a national chain of off-price retail stores offering ladies’, men’s and children’s apparel and accessories, home goods, baby products and coats, principally under the name Burlington Stores."

BURL's Q4 results were pretty good. The company announced these on March 17th. Earnings of $1.43 per share beat estimates and revenues were up +12% to $1.5 billion, also above estimates. Q4 comparable store sales surged +6.7% while gross margins improved 50 basis points. Management did warn that Q1 results would not be so hot but the stock didn't react to the negative guidance.

Shares did react when their chief merchandising officer resigned. This news hit on March 24th and shares of BURL peaked the next day. Shares fell more than 15% with a drop toward round-number support near $50 over the next few weeks. Then BURL reported its Q1 earnings on June 9th. Their bottom line results of $0.41 per share met estimates. Revenues were up +4.9% to $1.18 billion but that missed expectations.

The biggest miss was comps. BURL said their comparable store sales were only +0.8% versus the company's previous guidance of +2-3% and below analysts' estimates of +4%. Management issued mixed guidance for the second quarter and soft guidance for fiscal year 2016. They tried to soften the blow of bad news by announcing a $200 million stock buyback program to be completed over the next 24 months.

Wall Street was not happy over the terrible comps. Analysts are also concerned how a wage hike might impact margins. Wal-Mart, Target, the Gap, and TJX have all raised their minimum wage and other retailers are feeling pressure to raise theirs to retain employees. BURL announced they were raising their minimum wage to at least $9.00 an hour.

BURL's CEO Tom Kingsbury commented on their results, "We are pleased with our 64% increase in adjusted EPS which was driven by a robust gross margin expansion. While our comp sales were positive for the ninth consecutive quarter, we were negatively impacted by the timing of IRS tax refunds, lower markdown sales due to significantly less markdown inventory, increased store closures due to weather, and receipt flow issues in three key Easter businesses."

Naturally the market's reaction to bad news was to sell the stock. BURL plunged more than -8% posting its worst one-day loss since going public in 2013.

Fortunately for investors the sell-off was short-lived. BURL found support near $48.00 and its rising 200-dma. Now six weeks later the stock is above its pre-earnings highs and poised to breakout past potential resistance near $56.00. The long-term up trend looks poised to resume. Tonight we're suggesting a trigger to launch bullish positions at $56.05.

- Suggested Positions -

Long BURL stock @ $56.05

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

Long SEP $60 CALL (BURL150918C60) entry $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.

07/25/15 Conservative investors may want to exit immediately!
07/24/15 BURL just confirmed the bearish reversal pattern.
07/23/15 Caution: BURL has produced a bearish engulfing candlestick reversal pattern
07/16/15 triggered @ $56.05
Option Format: symbol-year-month-day-call-strike

chart:


Coherus Biosciences - CHRS - close: 35.46 change: -0.53

Stop Loss: 34.85
Target(s): To Be Determined
Current Gain/Loss: -5.4%
Entry on July 21 at $37.50
Listed on July 20, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 327 thousand
New Positions: see below

Comments:
07/25/15: Unfortunately I have to issue a similar warning on CHRS. Thursday's session produced a bearish reversal pattern. Friday's drop confirmed it. Plus, CHRS has closed below its simple 10-dma, which is short-term bearish. More conservative traders may want to exit immediately. I am not suggesting new positions at this time.

Trade Description: July 20, 2015:
Biotech stocks remain some of the best performers this year. The IBB biotech ETF is up +31% year to date. That compares to +10% for the NASDAQ composite and +3.4% for the S&P 500 index. CHRS is outperforming these indices and ETF by a wide margin with a +127.8% gain year to date.

CHRS is in the healthcare sector. According to the company, "Coherus is a pure-play biosimilar platform company that develops and commercializes high-quality therapeutics for major regulated markets. Biosimilars are intended for use in place of existing, branded biologics to treat a range of chronic and often life-threatening diseases, with the potential to reduce costs and expand patient access. Composed of a team of proven industry veterans with world-class expertise in process science, analytical characterization, protein production and clinical-regulatory development, Coherus is positioned as a leader in the global biosimilar marketplace. Coherus is advancing three late-stage clinical products towards commercialization, CHS-1701 (pegfilgrastim biosimilar), CHS-0214 (etanercept biosimilar) and CHS-1420 (adalimumab biosimilar), as well as developing a robust pipeline of future products."

I see this as a simple momentum play in one of the market's best-performing industries. CHRS is up seven weeks in a row and is not showing any signs of slowing down. The $35.00 level was briefly overhead resistance but now it seems to be support. Traders were quick to buy the dip this morning near CHRS' rising 5-dma.

I consider this an aggressive, higher-risk trade. We're suggesting a trigger to launch bullish positions at $37.50. We'll try and limit our risk with a stop at $34.40. More conservative traders may want to use a higher stop loss. Just remember that biotech stocks carry an added risk. We never know when the wrong headline could send shares gapping lower. Of course the right headline could send it soaring.

FYI: Earnings should be coming up in early August and we'll plan on exiting prior to the announcement. CHRS does have options but the spreads were a little wide. If you're an option trader you may want to use them to limit your risk.

- Suggested Positions -

Long CHRS stock @ $37.50

07/25/15 Conservative investors may want to exit immediately!
07/24/15 CHRS just confirmed the bearish reversal pattern.
07/23/15 new stop @ 34.85, Caution - CHRS has produced a bearish engulfing candlestick reversal pattern
07/21/15 triggered @ $37.50

chart:


Globant S.A. - GLOB - close: 32.92 change: -1.28

Stop Loss: 31.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 23, 2015
Time Frame: Exit PRIOR to earnings on August 13th
Average Daily Volume = 251 thousand
New Positions: Yes, see below

Comments:
07/25/15: GLOB did not want to be left out of the market's recent weakness. Shares raced lower on Friday with a -3.74% decline. Furthermore Friday's move has generated a bearish engulfing candlestick reversal pattern but it needs to see confirmation. If shares continued to sink on Monday we'll probably remove GLOB. At the moment our suggested entry point is $35.15.

Trade Description: July 23, 2015:
One year ago GLOB priced its IPO at $10.00 per share. It opened at $12.95 on July 18th, 2014. Today the stock is up +164% from its first trade. Investors have been buying the dips and now GLOB is poised for another bullish breakout.

GLOB is in the technology sector. According to the company, "Globant (GLOB) is a new-breed technology services provider focused on delivering innovative software solutions by leveraging emerging technologies and trends. Globant combines the engineering and technical rigor of IT services providers with the creative approach and culture of digital agencies. Customers select Globant as the place where engineering, design and innovation meet scale. In only 12 years, Globant has grown into a company with more than 4,000 professionals working for customers like Google, JWT, EA and Coca-Cola, among others, has been recognized as one of the Top 10 Most Innovative Companies in South America by FastCompany, was included in the 2010 Cool Vendor in Business Process Services Report by Gartner, and has been featured in case studies at Harvard, MIT and Stanford."

As a relatively new public company GLOB does not have a big earnings history but what we do see is positive. Their first report as a public company was November 2014 where GLOB beat the earnings estimates while revenues were in-line. In February 2015 they reported their Q4 results that beat estimates. Revenues were up +19% to $55.1 million, which was also above expectations. Management guided in-line.

Their most recent report was May 14th. GLOB beat estimates on both the top and bottom line. Management guided 2015 earnings in-line with analysts' estimates but they raised their 2015 revenue estimate to $244-250 million, which was above expectations.

Shares of GLOB are currently testing resistance at the $35.00 level. We want to launch positions on a breakout. I'm suggesting a trigger at $35.15. The $32.00 level has been recent support so we'll start with a stop loss at $31.85. I am suggesting small positions. GLOB only has a float of 19 million shares and trades about 250,000 shares a day, which is not very much.

Trigger @ $35.15 *small positions to limit risk*

- Suggested Positions -

Buy GLOB stock @ $35.15

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.

chart:


Guidewire Software, Inc. - GWRE - close: 59.36 change: -0.72

Stop Loss: 56.90
Target(s): To Be Determined
Current Gain/Loss: +1.9%
Entry on July 23 at $58.25
Listed on July 21, 2015
Time Frame: Exit PRIOR to earnings on Sept. 1st
Average Daily Volume = 368 thousand
New Positions: see below

Comments:
07/25/15: After big gains on Thursday it was natural to see a pullback on Friday in GWRE. The stock slipped -1.1%. We are raising the stop loss to $56.90. If shares continue to dip I'd look for short-term support at $58.00 or its 10-dma near $57.50.

No new positions at this time.

Trade Description: July 21, 2015:
The NASDAQ composite is up +10% year to date. GWRE is outperforming with a +13.3% gain. Shares spent three months, March-May, consolidating lower after the rally failed at resistance near $55.00. GWRE's direction changed after its latest earnings report.

GWRE is in the technology sector. According to the company, "Guidewire builds software products that help Property/Casualty insurers replace their legacy core systems and transform their business. Designed to be flexible and scalable, Guidewire products enable insurers to deliver excellent service, increase market share and lower operating costs. Guidewire InsuranceSuite provides the core systems used by insurers as operational systems of record. Additional products provide support for data management, business intelligence, anytime/anywhere access and guidance and monitoring. More than 180 Property/Casualty insurers around the world have selected Guidewire."

Last December GWRE reported its fiscal Q1 results that beat Wall Street estimates on both the top and bottom line. Management raised their Q2 guidance. On March 2nd GWRE reported earnings and revenues that beat analysts' estimates again. GWRE management then raised their fiscal year 2015 estimates. This earnings beat was not enough to lift the stock higher. Shares drifted lower for three months.

Shares of GWRE came alive again following its Q3 report on June 2nd. Earnings actually missed estimates by a penny with a profit of $0.04 per share. Revenues were only up +4% to $85.4 million, although that did beat expectations. The company provided lackluster Q4 guidance but guided for +20% revenue growth in fiscal 2016. The stock soared.

The rally off its June lows has pushed GWRE through multiple layers of resistance. Now the stock is setting new all-time closing highs. The point & figure chart is bullish and forecasting a long-term target of $80.00.

On a very short-term basis the $58.00 level appears to be resistance. We are suggesting a trigger to launch bullish positions at $58.25.

- Suggested Positions -

Long GWRE stock @ $58.25

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

Long OCT $60 CALL (GWRE151016C60) $2.80

07/25/15 new stop @ 56.90
07/23/15 new stop @ 56.40
07/23/15 triggered @ $58.25
Option Format: symbol-year-month-day-call-strike

chart:


Luxoft Holding, Inc. - LXFT - close: 62.91 change: -0.42

Stop Loss: 59.75
Target(s): To Be Determined
Current Gain/Loss: +1.0%
Entry on July 17 at $62.31
Listed on July 16, 2015
Time Frame: Exit PRIOR to earnings on August 12th
Average Daily Volume = 215 thousand
New Positions: see below

Comments:
07/25/15: Friday saw shares of LXFT bounce off short-term technical support at its rising 10-dma. The stock pared its losses to -0.66% by the closing bell. I would consider new bullish positions on a rally past $63.25.

Trade Description: July 16, 2015:
Software stocks, based on the big software ETFs, are outperforming the major indices. One stock in that group is LXFT. The NASDAQ is up +8.3% year to date while LXFT is up +60%.

LXFT is part of the application software industry. According to the company, "Luxoft Holding, Inc. is a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large multinational corporations. Luxoft's software development services consist of core and mission critical custom software development and support, product engineering and testing, and technology consulting. Luxoft's solutions are based on its proprietary products and platforms that directly impact its clients' business outcomes and efficiently deliver continuous innovation. The Company develops its solutions and delivers its services from 24 dedicated delivery centers worldwide. It has over 9,500 employees across 27 offices in 15 countries in North America, Mexico, Western and Eastern Europe, Asia Pacific, and South Africa."

Please note that LXFT is a subsidiary of IBS Group Holding Limited. IBS is a Russian information technology company. Thus far the sanctions from the U.S. and Europe do not seem to be impacting LXFT. However, should the situation get worse between Russia and its neighbors there is no guarantee that LXFT will continue to ignore it.

Earnings and sales growth have been impressive at LXFT. Looking at the last four quarterly reports, LXFT has beaten earnings estimates three out of the last four quarters. They did beat Wall Street revenues estimate four quarters in a row. Revenue growth has been consistently in the +30% range this past year.

LXFT's most recent report was May 13th. The company delivered their 2015 Q4 results with earnings up +27.7% from a year ago to $0.46 per share. This was the first earnings miss in a long time. Analysts were expecting $0.49. Revenues were up +29.2% to $137.3 million, above estimates. Management reported full year sales of $520.5 million in their fiscal 2015. They're forecasting 2016 sales to be $625 million. That's a +20% improvement (actually +26% on a constant currency basis).

The stock's recent breakout past $60.00 is bullish. Traders just bought the dip at $60.00 today and the bounce looks like an entry point. We want to see a little follow through higher before we hop on board. Tonight we're suggesting a trigger to buy the stock at $62.15.

NOTE: LXFT does not trade a lot of volume. Investors may want to limit their position size to reduce risk. Low volume stocks can be more volatile.

*small positions to limit risk* - Suggested Positions -

Long LXFT stock @ $62.31

07/17/15 triggered on an intraday gap higher at $62.31.
Option Format: symbol-year-month-day-call-strike

chart:


Mobileye N.V. - MBLY - close: 60.39 change: -0.27

Stop Loss: 59.45
Target(s): To Be Determined
Current Gain/Loss: +6.9%
Entry on July 09 at $56.50
Listed on July 07, 2015
Time Frame: Exit PRIOR to earnings on August 6th
Average Daily Volume = 3.8 million
New Positions: see below

Comments:
07/25/15: MBLY spent all of last week consolidating sideways in the $60-62 zone. Shares ended with a decline for the week. This snapped a trend of six up weeks in a row.

I don't see any changes from my recent comments. More conservative traders may want to take profits now. No new positions.

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

07/21/15 new stop @ 59.45
07/16/15 new stop @ 57.75, readers may want to take some money off the table right here.
07/14/15 new stop @ 55.85
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

chart:


21Vianet Group, Inc. - VNET - close: 20.51 change: -0.20

Stop Loss: 18.85
Target(s): To Be Determined
Current Gain/Loss: -1.2%
Entry on July 23 at $20.75
Listed on July 22, 2015
Time Frame: Exit PRIOR to earnings on August 25th
Average Daily Volume = 996 thousand
New Positions: see below

Comments:
07/25/15: VNET's decline on Friday ended a streak of six up days in a row. The dip isn't that surprising. However, technically, Friday's decline has produced a bearish engulfing candlestick reversal pattern. This should be a warning signal for bullish investors. No new positions at the moment. Let's see how VNET trades on Monday.

Trade Description: July 22, 2015:
Buckle your seatbelt. We are adding a fast-moving Chinese Internet stock to the play list tonight. This trade is not for the faint of heart. The Chinese market has been very volatile in recent weeks. This has been exacerbated by merger and acquisition news.

VNET is in the technology sector. According to the company, "21Vianet Group, Inc. is a leading carrier-neutral internet data center services provider in China. 21Vianet provides hosting and related services, managed network services, cloud services, content delivery network services, last-mile wired broadband services and business VPN services, improving the reliability, security and speed of its customers' internet infrastructure. Customers may locate their servers and networking equipment in 21Vianet's data centers and connect to China's internet backbone through 21Vianet's extensive fiber optic network. In addition, 21Vianet's proprietary smart routing technology enables customers' data to be delivered across the internet in a faster and more reliable manner. 21Vianet operates in more than 30 cities throughout China, servicing a diversified and loyal base of more than 2,000 customers that span numerous industries ranging from internet companies to government entities and blue-chip enterprises to small- to mid-sized enterprises."

The Wall Street Journal recently noted in June that seven U.S.-listed Chinese companies had been approached with offers to go private. That's a big spike in buyout offers. From January through May this year there had only been five such offers. One of the companies recently approached is VNET.

On June 10th VNET was approached with a preliminary non-binding proposal by Kingsoft Corp. and Tsinghua Unigroup International to go private for $23.00 per American depositary share ("ADSs"). That's the stock we can trade on the NASDAQ. Naturally the stock surged on this announcement. On June 16th VNET announced they had formed a special committee to review this proposal.

Unfortunately for shares of VNET and most Chinese stocks the Shanghai market in China had peaked in mid June and began to crash. The next three weeks saw a -30% plunge in the Shanghai market. The sell-off really accelerated in the first week of July. We can see the impact this market plunge was having on VNET with the big declines in early July.

Shares of VNET produced a huge bounce on July 9th when they announced the company had hired financial advisors and legal counsel to help them review the proposal to go private. In their press release they warned investors that "no decision has been made" nor is there any assurance that any "definitive offer will be made". This warning didn't stop the rally in VNET's stock which has continued to rise.

The Chinese government has thrown billions of dollars at their market to stop the crash and it seems to be working. The fever seems to have broken and this should provide a less dangerous environment for shares of VNET to trade in. We suspect VNET will continue to rally as the M&A talk heats up. However, this is an aggressive, higher-risk trade. There is no guarantee of a deal. Shares of VNET are clearly very volatile. I suggest small positions to limit risk.

NOTE: VNET does have options but the spreads are too wide to trade them.

*small positions to limit risk* - Suggested Positions -

Long VNET stock @ $20.75

07/23/15 triggered @ $20.75

chart:




BEARISH Play Updates

Cabot Corp. - CBT - close: 34.80 change: -1.03

Stop Loss: 36.15
Target(s): To Be Determined
Current Gain/Loss: +4.4%
Entry on July 20 at $36.40
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 4th
Average Daily Volume = 457 thousand
New Positions: see below

Comments:
07/25/15: Shares of CBT accelerated lower on Friday with a -2.8% decline. This is a new 52-week low. We are moving our stop loss down to $36.15. I would not chase it at current levels.

Trade Description: July 18, 2015:
The last couple of years have been rough for CBT investors. The stock peaked near $60.00 a share back in 2014. Today CBT is down -38% from its high and down -16% year to date.

CBT is in the basic materials sector. According to the company, "Cabot Corporation is a global specialty chemicals and performance materials company, headquartered in Boston, Massachusetts. The company is a leading provider of rubber and specialty carbons, activated carbon, inkjet colorants, cesium formate drilling fluids, fumed silica, and aerogel."

CBT's business seems to be slowing down. That's the picture I get looking at their last four earnings reports. 2014 Q3 revenues were up +4.3%. That slowed down to just +1.7% in 2014 Q4. Revenues fell -9.6% in Q1 2015. The slowdown accelerated in the second quarter. CBT reported its Q2 earnings on April 29th and revenues fell -22.7% to $694 million, significantly below analysts' estimates for $824 million. Q2 earnings were $0.53 a share, which missed estimates by 10 cents.

Three of CBT's four business segments saw declining sales. Reinforcement materials saw the biggest drop in the second quarter. Performance chemicals and specialty fluids also saw sales declines. Their purification solutions reported a small rise in sales.

Cabot President and CEO Patrick Prevost commented on his company's results, "We experienced a challenging quarter as the macroeconomic and competitive environment negatively affected our Reinforcement Materials and Specialty Fluids segments. Our volumes held up relatively well on a global basis, but we experienced margin pressure in Reinforcement Materials from lower contract pricing and feedstock-related effects. Purification Solutions results improved as customer orders rose for our mercury removal products in anticipation of the Mercury and Air Toxics Standards (MATS) implementation."

The MATS regulation did not work out well for CBT. That big drop in the stock price on June 29th was a reaction to the U.S. Supreme Court ruling on the EPA's attempt to regulate coal-fired power plant emissions. The market is interpreting the court's decision to mean less demand for CBT's chemicals that help power plants curb mercury emissions.

Technically CBT is in a bear market. The oversold bounce from the late June sell-off just failed. Now CBT is breaking down to new multi-year lows. We want to hop on board since the next support level looks like it could be $32 or lower. Tonight we're suggesting a trigger to launch bearish positions at $36.40. We will plan on exiting prior to CBT's earnings report on August 4th.

- Suggested Positions -

Short CBT stock @ $36.40

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

Long AUG $35 PUT (CBT150821P35) entry $0.75

07/25/15 new stop @ 36.15
07/22/15 new stop @ 36.85
07/20/15 triggered @ $36.40
Option Format: symbol-year-month-day-call-strike

chart:


Continental Resources, Inc. - CLR - close: 34.45 change: -1.22

Stop Loss: 36.15
Target(s): To Be Determined
Current Gain/Loss: +21.3%
Entry on June 22 at $43.75
Listed on June 20, 2015
Time Frame: Exit prior to earnings on August 5th
Average Daily Volume = 8.8 thousand
New Positions: see below

Comments:
07/25/15: Commodities had a rough week and crude oil continued to sink on Friday. This pressured the energy stocks lower. CLR fell -3.4% on Friday to a new six-month low.

We are moving our stop loss down to $36.15. 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

07/25/15 new stop @ 36.15
07/23/15 new stop @ 36.85
07/20/15 new stop @ 37.75
07/16/15 new stop @ 39.25
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

chart:


Murphy Oil - MUR - close: 33.33 change: -1.18

Stop Loss: 35.01
Target(s): To Be Determined
Current Gain/Loss: +19.0%
Entry on July 01 at $41.15
Listed on June 29, 2015
Time Frame: Exit PRIOR to MUR earnings on July 29th
Average Daily Volume = 1.9 million
New Positions: see below

Comments:
07/25/15: MUR has been a great performer for us. Shares dropped another -3.4% on Friday to multi-year lows. Unfortunately we are almost out of time. MUR reports earnings on July 29th. Tonight I am suggesting we exit this trade on Monday, July 27th, at the closing bell. We'll adjust the stop loss down to $35.01 just in case MUR bounces tomorrow.

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

07/25/15 new stop @ 35.01, prepare to exit on Monday at the closing bell
07/23/15 new stop @ 35.75
07/22/15 new stop @ 36.85
07/21/15 new stop @ 37.65
07/20/15 new stop @ 38.25
07/16/15 new stop @ 40.85
07/14/15 new stop @ 41.55
07/06/15 new stop @ 42.35
07/01/15 triggered @ $41.15
Option Format: symbol-year-month-day-call-strike

chart:


Noble Energy, Inc. - NBL - close: 35.37 change: -1.33

Stop Loss: 37.35
Target(s): To Be Determined
Current Gain/Loss: -8.4%
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:
07/25/15: NBL is another energy stock that is accelerating lower and fell -3.6% on Friday. I would not chase it at current levels. We are moving the stop loss down to $37.35.

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

07/25/15 new stop @ 37.35
07/23/15 new stop @ 38.25
07/20/15 new stop @ 39.05
07/16/15 new stop @ 40.15
07/13/15 triggered @ $38.60
Option Format: symbol-year-month-day-call-strike

chart:


Tessera Technologies - TSRA - close: 34.64 change: -0.36

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +2.1%
Entry on July 16 at $35.40
Listed on July 09, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 518 thousand
New Positions: see below

Comments:
07/25/15: TSRA followed the major market indices lower on Friday and settled with a -1.0% decline. Tonight we are adjusting the stop loss down to $35.55, just above the simple 10-dma.

I am not suggesting new positions at this time.

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.

*small positions to limit risk* - Suggested Positions -

Short TSRA stock @ $35.40

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

Long Aug $35 PUT (TSRA150821P35) entry $1.20

07/25/15 new stop @ 35.55
07/20/15 new stop @ $36.65
07/16/15 triggered @ $35.40
Option Format: symbol-year-month-day-call-strike

chart: