Option Investor
Newsletter

Daily Newsletter, Monday, 8/10/2015

Table of Contents

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

Market Wrap

Manic Market

by Thomas Hughes

Click here to email Thomas Hughes
The bulls were out on good news but it may not mean the rally is back on just yet.

Introduction

A host of good news, or semi-good news, had the bulls gunning for big gains in today's session. US markets jumped at the open and pushed their way throughout the day. The cause? Weaker than expected data in China, hints of a new deal for Greece, better than expected earnings for us and nothing significant in the way of economic data. Despite today's gains the major indices remain within recent ranges and below potential resistances.

Starting in Asia, indices were mixed. The Japanese Nikkei finished up 0.42%, the Chinese Heng Seng lost -0.13%. The mainland Shang Hai index however gained nearly 5%, all because Chinese PMI and Export data declined more than expected. Chinese PPI fell by -5.4% in July while exports made their biggest drop in four months, -8.3%, both adding fuel to additional QE measures from the central bank.

European indices were buoyed by the news as well as reports that Greece was about to reach a new deal with creditors. This deal would add an estimated $94 million to Greek coffers and before the next round of stress tests. At last report the deal is expected to be announced tomorrow.

Market Statistics

Futures trading was positive during the early pre-market session. Aside from China and Greece there was not of lot of real news before the bell. One bit is the announcement that Berkshire Hathaway would be buying Precision CastParts for $32 billion. Futures held steady into the opening bell at which time the market began to gain strength. Once the bell sounded the indices began to move higher, hit the early indications within the first few minutes, with the S&P 500 up by 18 points by 9:35. Bullish sentiment lasted all morning, carrying the indices to a high just before12:00AM. Afternoon trading kept the indices moving higher, setting new highs several times, and left them near the highs of the day at the closing bell.

Economic Calendar

The Economy

No economic data was released today. There are some important announcements later this week including reads on the consumer and inflation. Tomorrow look for Industrial Production, Capacity Utilization, Wholesale Inventory and then the JOLTs report and Wednesday. Thursday is the usual release of jobless claims figures as well as Retail Sales, Import/Export prices and Business Inventories. Friday finishes the week off with PPI, Industrial Production, Capacity Utilization and Michigan Sentiment.

According to Moody's Survey Of Business Confidence business remain upbeat with confidence on the rise. This week's diffusion index reading of 43.2 is a full point higher than last week, the fifth week of gain and the highest level in just over 2 months. Mark Zandi, Moody's economist and creator of the survey, says that businesses are reporting robust sales, sturdy prices and ample credit along with strong investment spending and hiring.


FactSet reports that 436, 81%, of the S&P 500 have reported earnings so far. Of those 73% have beaten estimates for earnings while only 51% have beaten estimates for revenue/sales. The blended rate for earnings growth now stands at -1%, a half percent better than last week and 3.8 % better than at the beginning of the season with. The surprise rate is 4.5% better than expected, slightly below the four year average. So far 56 companies have issued negative guidance and 22 positive guidance. Ex-energy earnings growth jumps more than 6% to +5.5%. 15 S&P 500 companies are reporting this week.

The energy and health care sectors are leaders in this seasons activity. The energy sector is leading in surprise percentage, the health care sector in terms of earnings growth. To date, the health care sector has reported a +15.4% increase in year over year profits, more than double the rate predicted by analysts. Hmmm, I wonder what could be causing that?

The market is still expecting to see an overall earnings decline in the next quarter. Current projections show a -3.2% decline, led again by energy. Based on trends we can expect the final rate to be in the range of 0 to +1% with the ex-energy figure in the range of 3.2% to 7.5%. Earnings growth is expected to return, by the analysts, by the 4th quarter with full year 2015 growth of 1.2% (7.1% ex energy).

The Oil Index

Oil prices snapped back in today's session. WTI gained nearly 2.5% to trade just beneath $45 with Brent moving back above $50. Today's gains may have been in response to the bombings in Turkey, one of which targeted the US embassy. The bombings are reportedly in response to intensified cooperation between us and Turkey in the fight against ISIS. Other news, namely the China data, did nothing to change to supply/demand picture which remains heavily tilted to the supply side.

The Oil Index responded with a 2.5% gain. Today's candle is the fourth in a row to trade at my recently drawn support line at 1175 and is setting a 6 day high. Current action appears to be the second bounce of a possible near/short term double bottom following the recent 3 month down trend. This move would be in line with the long term trend and so far supported by the indicators. Stochastic for one is creating a strong trend following signal with MACD hitting the zero line and on the cusp of confirming with a bullish crossover. Stochastic is already making a bullish crossover, low in the range with the lower signal line as support, with both lines moving higher. First target is about 30 points above today's close near the short term moving average and 50% retracement line, next target is the bottom of the currently broken up trend line near 1,300.


The Gold Index

Gold prices gt a boost today in what looks more like short covering than anything else. Gold prices have been trading in a tight range, at long term lows, over the past few weeks on interest rate/dollar strength outlook but but downside momentum has waned. Today's move barely breaks price out of that range and is helping to alleviate oversold conditions. Both indicators are now confirming a bullish movement but in light of the recently set lows, FOMC rate hike lift off and a lack of inflation it is more likely setting up for bearish entry rather than reversing trend. Support is in the range of $1070-$1180 with potential resistance in the range of $1130-$1150.

The miners moved higher in tandem with the underlying commodity. The miners ETF GDX gaining about 6.5% in today's session. The indicators are confirming a bullish movement with upside targets near the short term moving average at $15 and then the 100% retracement level that was broken mid July. This move would close the window that opened with the drop below the retracement level but not necessarily reverse the down trend in gold to an uptrend. At best I think we can expect more sideways trading and consolidation. Longer term direction will depend on gold prices, as always. The miners reported slightly better than expected on improving production leaving them ripe for advance should gold prices recover. However, until inflation rears it ugly head strengthening dollar and FOMC rate hikes will keep the pressure on the miners.


In The News, Story Stocks and Earnings

Warren Buffet made the news this morning with the Berkshire Hathaway acquisition of Precision CastParts. The deal is worth $37.2 billion in cash and gives Berkshire exposure to the booming aircraft building business. Mr. Buffet said this in a his statement "I've admired PCC's operation for a long time. For good reasons, it is the supplier of choice for the world's aerospace industry, one of the largest sources of American exports,". The news took shares of Precision CastParts up nearly 20%. Shares of BRK/B traded up after a lower opening but failed to recover all the loss. They closed -0.35%.


Dean Foods reported before the bell. The dairy and specialty foods maker beat earnings and revenue but sent shares tanking on guidance. Despite beating the projections Dean set guidance in line with expectations. The company is expecting earnings in the range of $0.17 to $0.27, consensus is $0.21. This was a surprise given strength of pricing and cash flow. Shares of the stock lost more than -10% on an intraday basis but closed with a loss near -3.0%.


Shake Shack reported after the bell and blew away consensus estimates. Adjusted earnings of $0.09 per share beat estimates by at least $0.06 and comes on a 75% increase in revenue and a 78% increase in sales. The company went on to raise full year guidance and announce the addition of 5 new stores. Shares of the stock jumped more than 4% after the news, support along the 30 day moving average had been tested during the day.


Retail was in focus after the bell as well with earnings guidance from Gap Stores. The jeans company released information on July and 2nd quarter sales, both down, and provided guidance for its upcoming earnings announcement due out August 20th. The company now expects to earn in the range of $0.60 to $0.63 per share, below current guidance and consensus estimates. Shares of the stock fell over -1.5% just after the announcement but recovered the loss just as quickly.


Google made a rather unusual announcement, after the bell. The company is becoming another company, Google will still exist but it is now going to be a wholly owned subsidiary of Alphabet, a new company which will be the umbrella/parent company of Google itself as well as the many side businesses that are now part of Google. Shares of Google will convert to shares of Alphabet and rallied by 6% in after hours trading.


The Indices

The market opened positive and moved higher all day, closing at or near the high for each of the major indices. Today's move was a good sign for bulls but still light on volume. Action was led by the Dow Jones Transportation Index which gained 1.47%. The transports created a long whit candle moving up from support and the short term moving average. The indicators are mixed but it looks like the index is confirming support and the recent bounce from long term lows. MACD is showing bullish momentum, although it is currently in decline, and stochastic is moving higher in the longer term while lower in the shorter term. The index could move higher in the next day or two with upside target near 8,500. This level provided resistance last week and may do so again, a move above this level could take the index up to 8,750 or 9,000.


The Dow Jones Industrial Average made the next biggest gains in today's session. The blue chips gained 1.39% and also created a long white candle. Today's action extended the Friday support bounce and moved the index back above the long term trend line. The index is still below potential resistance levels such as the short term moving average but the indicators are in support of a trend following bounce, if a little mixed. Stochastic is making a strong bullish crossover and MACD is approaching the zero line with 17,750 looking like a good target for resistance over the next few days. Support is currently near 17,300.


The NASDAQ Composite made the third biggest gain in today's session, 1.28%. The tech heavy index created the smallest candle though, what looks like a spinning top compared to the blue chips and the transports. The indicators on this one are still more bearish than not but price action has so far confirmed the long term trend line. Stochastic is pointing lower in both the near and the short term, MACD momentum is still bearish. Today's price action was centered on the short term moving average and appears to be heading up to test resistance at the all time high.


The S&P 500 made the smallest gain today, only 1.16%, but is making one of the stronger signals relative to the other indices. Today's candle is long and white, moves up from support, breaks resistance and the short term moving average and is supported by the indicators. MACD has reached the zero line and is about to form a bullish crossover while stochastic is forming a strong bullish crossover, both in line with the underlying trend. The index appears to be moving up with only the all time high as potential resistance at this time. Support may be found along the short term moving average or just below that near 2,075.


The indices look, once again, like they want to move higher. They are supported by trend, economic data, earnings and outlook. The only problem is that they are still within their respective ranges without a truly clear signal so are just as likely to remain range bound as to break out.

A few things may be keeping them in check including options expiration (next Friday), summer market volume (still low), fear of China (will probably not go away anytime soon), FOMC outlook (September lift-off looking likely), news from Greece and of course the uncertainty of the presidential race.

While trends in earnings (ex energy) and economics are leading the market higher low volume, news and speculation could easily keep the market range bound. It'll be at least at least 3 weeks until more "normal" trading volumes return, and another 2 weeks until the FOMC meeting which I think may be the biggest limiters for any upside movement. In between then and now there will be lots of data as well as plenty of news from Europe and China to move our manic market. I remain bullish, buying on the dips, but as cautious as ever.

Until then, remember the trend!

Thomas Hughes


New Plays

Outperforming The Market

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Chicago Bridge & Iron Co. - CBI - close: 53.26 change: +0.99

Stop Loss: 50.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 10, 2015
Time Frame: Exit PRIOR to October option expiration
Average Daily Volume = 1.8 million
New Positions: Yes, see below

Company Description

Trade Description:
Last year was a horrible one for shares of CBI. The stock had rallied from less than $5.00 per share at its 2009 lows to almost $90. They traded above $89 in April 2014. Then CBI reversed lower and didn't stop until it hit a capitulation low of $32.16 on January 30th, 2015. That was a -64% plunge in less than a year. It looks like CBI has turned the corner. The stock is outperforming the major indices with a +26% gain year to date.

CBI is in the industrial goods sector. According to the company, "CB&I (CBI) is the most complete energy infrastructure focused company in the world. With 125 years of experience and the expertise of approximately 54,000 employees, CB&I provides reliable solutions while maintaining a relentless focus on safety and an uncompromising standard of quality."

The company's most recent earnings report was July 23rd. CBI delivered a profit of $1.55 per share. That was 13 cents better than estimates. Revenues did fall -2.6% to $3.21 billion but mostly due to foreign currency headwinds, which shaved off about $270 million. CBI had a strong quarter with $2.8 billion in new contract wins. Their backlog remains one of the biggest in the business at more than $29 billion.

Philip K. Asherman, CB&I's President and Chief Executive Officer, commented on his company's quarterly results, "We continue to deliver solid performance despite a volatile commodity market and geopolitical issues that create instability in many of the traditional international energy markets. The U.S. remains a great opportunity for us particularly in LNG, petrochemicals and fossil power generation markets. East Africa will be a source of solid backlog for many years as Anadarko and other owners develop these tremendous assets. Additionally, we continue to produce significant profitability from not only our insourcing capabilities but also the diverse portfolio of new opportunities in our facilities maintenance, engineered products, steel plate storage, pipe fabrication, technology licensing and catalyst businesses."

Zacks Equity Research had some positive things to say about CBI. They looked at the company's growth rate and believe CBI will grow earnings at 12%, which is almost double the industry average of 6.7%. Zacks also noted that CBI's cash flow growth of 19% was significantly above its industry average of just 4.9%.

CBI has not been an easy stock to own this year. Shares have been volatile. The month of May saw a rally from about $44 to $59 in a matter of days. Then CBI gave it all back with a six-week plunge. It looks like CBI is back in rally mode. Previously weakness in oil played a part in CBI's troubles but shares appear to be divorced from crude oil movement. There are concerns about a slowing global economy but CBI's ability to grow earnings seem to be shielding it at the moment. The point & figure chart is bullish and forecasting at $65.00 target.

On a short-term basis CBI appears to be breaking out from a bull-flag consolidation pattern over the last several days. Tonight I am suggesting a trigger to open bullish positions at $54.05.

Trigger @ $54.05

- Suggested Positions -

Buy CBI stock @ $54.05

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

Buy the OCT $55 CALL (CBI151016C55) current ask $2.60
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Reverse Higher With Widespread Gains

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market produced widespread gains on Monday. A broad-based rally in Europe and a big rally in China didn't hurt. We also had a big oversold bounce in energy stocks thanks to a rebound in oil.

KR hit our stop loss. MIK hit our stop loss.

ATI has been removed.

CAG and HIG both hit our bullish entry triggers.


Current Portfolio:


BULLISH Play Updates

AGCO Corp. - AGCO - close: 57.87 change: +0.94

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: +3.1%
Entry on August 06 at $56.15
Listed on August 05, 2015
Time Frame: Exit PRIOR to earnings
Average Daily Volume = 1.1 million
New Positions: Yes, see below

Comments:
08/10/15: The rally in shares of AGCO continued on Monday. The stock surged +1.65% and rushed past its June highs. This is the fourth gain in a row for AGCO. I would expect a pullback sooner rather than later. The next area of resistance to watch is probably the $59-60 region.

Tonight we will move the stop loss to $53.85.

Trade Description: August 5, 2015:
Wall Street has been very forgiving when it comes to AGCO's sales outlook. The company expects sales to drop -20% in 2015 from the last year. Yet investors continue to buy the dips. Even more impressive is the fact that AGCO is up +23% year to date, outperforming all of the major indices.

AGCO is in the industrial goods sector. According to the company, "AGCO is a global leader in the design, manufacture and distribution of agricultural equipment. AGCO supports more productive farming through a full line of tractors, combines, hay tools, sprayers, forage equipment, grain storage and protein production systems, seeding and tillage implements and replacement parts. AGCO products are sold through five core equipment brands, Challenger©, Fendt©, GSI©, Massey Ferguson© and Valtra© and are distributed globally through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries. Founded in 1990, AGCO is headquartered in Duluth, GA, USA. In 2014, AGCO had net sales of $9.7 billion."

Looking at AGCO's recent earnings reports the company has reported sales declines the last three quarters in a row. Yet thanks to cost-cutting management has beaten analysts bottom-line earnings estimates each quarter. Management started raising their full-year 2015 earnings guidance in April with their Q1 report and boosted their earnings forecast above analysts' estimates.

They did it again when they reported their Q2 results on July 28th. Wall Street expected Q2 earnings of $1.01 per share. AGCO delivered $1.25 per share. Revenues were down -24.8% to $2.07 billion, which was in-line with expectations. The company said sales were down in every geographical region.

Martin Richenhagen, AGCO's Chairman, President and Chief Executive Officer, commented on their quarter, "Our second quarter results reflect the significant challenges caused by weaker global industry demand and currency headwinds." Yet management raised their 2015 earnings outlook again. They now expect $3.10 per share versus estimates of $2.90. They're forecasting 2015 sales in the $7.7 to $7.9 billion range.

The most recent data listed short interest at more than 18% of the 70.7 million share float. That's plenty of fuel for a short squeeze. The recent breakout past short-term resistance near $55.00 is bullish. Tonight we are suggesting a trigger to launch small bullish positions at $56.15.

*small positions to limit risk* - Suggested Positions -

Long AGCO stock @ $56.15

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

Long NOV $60 CALL (AGCO151120C60) entry $1.35

08/10/15 new stop @ 53.85
08/06/15 triggered @ $56.15
Option Format: symbol-year-month-day-call-strike


ConAgra Foods, Inc. - CAG - close: 44.99 change: -0.16

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: -0.8%
Entry on August 10 at $45.35
Listed on July 30, 2015
Time Frame: Exit PRIOR to earnings on September 22nd,
Average Daily Volume = 3.3 million
New Positions: see below

Comments:
08/10/15: CAG followed the market this morning and shares popped higher at the open. The gap open at $45.35 immediately triggered our play since the suggested entry point was $45.25. Unfortunately there was no follow through on the morning rally. Shares of CAG reversed and actually underperformed the market with a decline today.

At this time I would wait for a new rally past $45.25 before initiating positions or more conservative traders could wait for a rally past today's high near $45.50 instead.

Trade Description: July 30, 2015:
Two years ago CAG spent $5 billion to buy private-label food maker Ralcorp. At the time, CAG called it a "transformational" deal. Unfortunately their private-label business has been nothing but a money pit.

CAG is in the consumer goods sector. According to the company, "ConAgra Foods, Inc., (CAG), is one of North America's leading food companies, with brands in 99 percent of America’s households. Consumers find Banquet, Chef Boyardee, Egg Beaters, Hebrew National, Hunt's, Marie Callender's, Orville Redenbacher's, PAM, Peter Pan, Reddi-wip, Slim Jim, Snack Pack and many other ConAgra Foods brands in grocery, convenience, mass merchandise and club stores. ConAgra Foods also has a strong business-to-business presence, supplying frozen potato and sweet potato products as well as other vegetable, spice and grain products to a variety of well-known restaurants, foodservice operators and commercial customers."

In spite of CAG's troubles with its private-label business the stock was trading at multi-year highs in mid June this year. Then on June 19th the stock soared more than +10%. Shares were already flirting with its all-time highs from the late 1990s in the $38-39 area. They vaulted higher when activist hedge fund JANA Partners announced they had amassed a 7.2% stake in CAG. JANA argued that CAG was undervalued and not doing enough to build shareholder value.

It would appear that CAG's management has embraced JANA's involvement and direction. They have already appointed two of JANA's nominees to the Board of Directors. When CAG reported its Q4 earnings on June 30th they announced they would exit the private-label business.

The private-label business, Ralcorp, makes stuff like cereal, pasta, crackers, jams, jellies, syrups, and frozen waffles. They currently account for about 25% of CAG's sales but they're also the only business segment that lost money last quarter.

Multiple companies, including TreeHouse Foods (THS) and Post Holdings (POST), are said to be bidding for the private-label business. Estimates suggest it could sell for $3.5 billion. That's a big drop from the $5 billion price tag CAG paid.

Shares of CAG saw a two-week correction from its early July highs but traders have started to buy the stock again and recently broke the short-term trend of lower highs. We suspect this activist-investor fueled rally in CAG has further to run. Often activist investors urge companies to break up to unlock shareholder value or push for a company to sell itself. We'll have to see what the next move is. Today's high was $44.51. We are suggesting a trigger to launch bullish positions at $45.25.

- Suggested Positions -

Long CAG stock @ $45.35

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

Long SEP $45 CALL (CAG150918C45) entry $1.35

08/10/15 triggered on gap higher at $45.35, suggested entry was $45.25
Option Format: symbol-year-month-day-call-strike


The Hartford Financial Services Group - HIG - close: 48.38 chg: +0.45

Stop Loss: 46.40
Target(s): To Be Determined
Current Gain/Loss: +0.1%
Entry on August 10 at $48.35
Listed on August 03, 2015
Time Frame: Exit PRIOR to September option expiration
Average Daily Volume = 3.0 million
New Positions: see below

Comments:
08/10/15: HIG also gapped higher at the open. Shares began trading at $48.25 and hit $48.53 at its best levels. HIG ended the session at $48.38 and a new seven-year closing high. Our trigger to launch positions was hit at $48.35. I would consider new positions at current levels.

Trade Description: August 3, 2015:
HIG had been hovering near multi-year highs from March through June this year. Then in July the stock began to accelerate higher. The catalyst was merger and acquisition news in its industry.

On July 1st ACE Limited (ACE) announced it would buy Chubb Corp. (CB) for $28.3 billion. This lit a fire under the property and casualty insurance stocks and HIG surged to new highs for the year.

If you're familiar with HIG they are in the financial sector. According to the company, "With more than 200 years of expertise, The Hartford (HIG) is a leader in property and casualty insurance, group benefits and mutual funds. The company is widely recognized for its service excellence, sustainability practices, trust and integrity."

The last couple of earnings reports for HIG have been mixed. They have been beating Wall Street's bottom line estimate but have missed the revenue numbers. Their most recent report was July 27th. Analysts were expecting a profit of $0.77 per share. HIG crushed the number with a profit of $0.91 per share. That is a +193% improvement from the $0.31 profit a year ago. Revenues were up +1.5% to $4.68 billion.

In addition to beating the estimate HIG raised its dividend and boosted its stock buyback program by an additional $1.6 billion. The current repurchase program stands at $2 billion through December 31, 2016.

Shares have garnered a couple of price target upgrades since its earnings report. The new targets are $53 and $55. There has been more chatter and speculation that HIG is a potential takeover target, which is probably why shares are outperforming its peers. The S&P SPDR Insurance ETF is up +7.8% year to date while HIG is up +15.6%.

Tonight we are suggesting small bullish positions if HIG can trade at $48.35 or higher.

*small positions to limit risk* - Suggested Positions -

Long HIG stock @ $48.35

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

Long SEP $50 CALL (HIG150918C50) entry $1.13

08/10/15 triggered @ 48.35
Option Format: symbol-year-month-day-call-strike


21Vianet Group, Inc. - VNET - close: 20.99 change: +0.34

Stop Loss: 19.20
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 26th
Average Daily Volume = 996 thousand
New Positions: see below

Comments:
08/10/15: Chinese stocks saw a big bounce at home today. The Shanghai index surged almost 5%. This may have helped provide some support for VNET and shares rallied +1.64%. The rally stalled right at resistance near the $21.00 level. I'd prefer to see a breakout past $21.00 before considering new bullish positions. Keep in mind our plan is to exit prior to earnings on August 26th.

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

08/01/15 new stop @ 19.20
07/27/15 The Chinese Shanghai index plunged -8.48%
07/23/15 triggered @ $20.75




BEARISH Play Updates

Best Buy Co., Inc. - BBY - close: 31.29 change: +0.53

Stop Loss: 31.65
Target(s): To Be Determined
Current Gain/Loss: +2.5%
Entry on July 27 at $32.10
Listed on July 25, 2015
Time Frame: Exit PRIOR to earnings in late August
Average Daily Volume = 4.3 million
New Positions: see below

Comments:
08/10/15: The widespread market rally today helped fuel an oversold bounce in BBY. Shares gained +1.7%. If this rebound continues tomorrow we could see BBY hit our new stop at $31.65. More aggressive investors might want to give BBY more room (i.e. raise your stop) since the $31.75 area looks like it could be overhead resistance.

No new positions at this time.

Trade Description: July 25, 2015:
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.

- Suggested Positions -

Short BBY stock @ $32.15

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

Long OCT $30 PUT (BBY151016P30) entry $1.28

08/08/15 new stop @ 31.65
08/01/15 new stop @ 33.05
07/27/15 triggered on gap down at $32.10, trigger was $32.15
Option Format: symbol-year-month-day-call-strike


GrubHub Inc. - GRUB - close: 29.58 change: +0.73

Stop Loss: 30.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 08, 2015
Time Frame: Exit PRIOR to earnings
Average Daily Volume = 2.2 million
New Positions: Yes, see below

Comments:
08/10/15: GRUB snapped a five-day losing streak with today's bounce. Keep an eye on the $30.00 level, which should be overhead resistance.

Trade Description:
It's been a rough ride for investors in GRUB over the last year and a half. The roller coaster ride in the stock has taken a bearish turn for the worse in spite of strong growth numbers.

The company held its IPO in April 2014. GRUB priced about 7 million shares at $26.00 each. The stock opened at $40.00. Four months ago shares peaked at $48.00 after a very volatile year of trading. Today there are over 83 million shares outstanding (77 million in the float) giving GRUB a market cap of $2.4 billion. Annual revenues over the last twelve months were $283 million.

GRUB is considered part of the technology sector. It's lumped in with the Internet stocks. According to the company, "GrubHub (GRUB) is one of the nation's largest portfolios of online and mobile takeout food ordering and delivery services. Connecting diners to more than 35,000 restaurants in 900 U.S. cities and London, the company's platforms and services strive to make takeout better through innovative restaurant technology, easy-to-use platforms and an improved delivery experience. The GrubHub portfolio of brands includes GrubHub, Seamless, AllMenus, MenuPages, Restaurants on the Run and DiningIn."

The bulls do have a case. GRUB is seeing strong growth. They reported their Q1 results on April 29th. Earnings were $0.12 per share, which beat estimates by a penny. Revenues were up +50% to $88.2 million, also above estimates. GRUB said their Q1 saw active diners rise +46% from a year ago to 5.6 million. Their number of "daily average grubs" rose +30% from a year ago to 234,700.

The strong growth continued in the second quarter. GRUB reported on July 28th and results were $0.17 per share. That beat estimates by four cents. Revenues were up +46.7% to $88 million, also above estimates. Active diners were up +42% from a year ago to 5.9 million. Daily average "grubs" were up +26% from a year ago to 220,000.

Matt Maloney, GRUB's CEO, commented on their results, "We delivered significant year-over-year growth in the seasonally slower second quarter, driven by strong performance in all of our markets across the country."

Management then raised their 2015 revenue guidance from $346-361 million to $358-364 million. Wall Street was forecasting $360 million.

Unfortunately traders sold the news. The Q1 results ignited a sell-off in late April and GRUB continued to sink. There was a lot of volatility in the stock surrounding its Q2 results but investors have continued to sell GRUB in spite of its growth numbers.

The bears argue that GRUB is not only super expensive but it's facing growing competition. Uber is building up its UberEATS meal delivery service. Yelp is trying to build up its Eat24 service. That's on top of other competitors like BeyondMenu, Delivery.com, and MyPizza.com. Even Amazon.com is getting in the food delivery game with a service for Amazon Prime members in Manhattan.

The shorts seem to have momentum in their favor. The most recent data listed short interest at 18% of the 77.2 million share float. The point & figure chart is bearish and forecasting at $13.00 target. The $30.00 level was major support and the breakdown is technically very bearish. It's possible that the IPO price at $26.00 is potential support but I doubt it. Traders have been selling every rally. Tonight we are suggesting a trigger to launch at $28.60. More conservative traders may want to wait for a new low under $28.00 as an alternative entry point.

Trigger @ $28.60

- Suggested Positions -

Short GRUB stock @ $28.60

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

Buy the SEP $27.50 PUT (GRUB150918P27.5)

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

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


Whiting Petroleum - WLL - close: 20.11 change: +2.19

Stop Loss: 20.35
Target(s): To Be Determined
Current Gain/Loss: -1.3%
Entry on August 03 at $19.85
Listed on August 01, 2015
Time Frame: Exit PRIOR to earnings
Average Daily Volume = 7.1 million
New Positions: see below

Comments:
08/10/15: Ouch! WLL surged higher today. Weakness in the U.S. dollar fueled a widespread bounce among commodities. Crude oil bounced and that sparked a big rally among the energy stocks. Shorts appeared to panic in WLL as the stock delivered a +12.2% gain. It stalled just above what should have been resistance at $20.00 and its simple 10-dma. I'm afraid odds are good we'll see WLL hit our stop loss at $20.35 tomorrow morning.

No new positions at this time.

Trade Description: August 1st, 2015:
The price of crude oil has fallen more than 50% in the last year. It's wreaking havoc on energy company earnings and revenues. Unfortunately the outlook is not very bullish. The global economy is stalling. China, the biggest buyer of commodities, is growing at multi-year lows. The U.S. is creeping along at +2% GDP growth while oil inventories in the U.S are near 80-year highs.

The Middle East OPEC cartel is pumping a high-volume of oil, regardless of price declines, to maintain market share. A recent report showed that OPEC boosted production by +140,000 barrels a day in July from its June production. OPEC is hoping to pressure the U.S. fracking industry out of business but it's not working. U.S. production remains resilient and near record highs.

If that wasn't enough the Federal Reserve is desperate to raise interest rates and would like to raise in September. Rising interest rates usually boost a country's currency. If the Fed does raise rates the U.S. dollar should rally even further. A rising dollar puts downward pressure on commodity prices. This paints a bearish picture for crude oil prices.

Given this outlook for crude we're adding a bearish play in the energy industry. Some view WLL as a barometer of the U.S. shale oil and gas industry. If that's the case the stock price is suggesting a dire forecast.

WLL is in the basic materials sector. According to the company, "Whiting Petroleum Corporation, a Delaware corporation, is an independent oil and gas company that explores for, develops, acquires and produces crude oil, natural gas and natural gas liquids primarily in the Rocky Mountain and Permian Basin regions of the United States. The Company’s largest projects are in the Bakken and Three Forks plays in North Dakota, the Niobrara play in northeast Colorado and its Enhanced Oil Recovery field in Texas."

WLL just reported its Q2 earnings on July 29th. Analysts were only expecting a profit of $0.02 per share. WLL delivered $0.04. However, that's a -97% drop from a year ago. Revenues plunged -29.4% to $590 million, which was significantly below analysts' estimates of $677 million.

We have to give the company credit for cutting costs dramatically during a tough time in the oil industry. Otherwise they would not have managed a profit for the quarter. WLL also managed to set a new company record for production of 170,000 barrels a day in the second quarter. Unfortunately, these positives are not enough to outweigh the overall bearish impact of plunging oil prices.

Plus, investors and analysts might shun WLL as the company is sending mixed messages. The company claimed that based on strong results during the second quarter they were raising their capex budget from $2 billion to $2.3 billion. That was two weeks ago. This past week WLL has already cut its capex budget. Now they're forecasting $2.15 billion. They only plan on running eight drilling rigs in the second half of 2015 instead of their previous guidance of 11 rigs.

Wall Street is turning more cautious on WLL. The stock has seen several downgrades and lowered price targets recently. The stock has been very weak. Momentum is bearish. The oversold bounce last week just failed under technical resistance at its simple 10-dma. Now WLL is testing round-number resistance at $20.00. We are suggesting a trigger to launch bearish positions at $19.85.

- Suggested Positions -

Short WLL stock @ $19.85

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

Long SEP $20 PUT (WLL150918P20) entry $2.05

08/05/15 new stop @ 20.35
08/05/15 new stop @ 21.25
08/03/15 triggered @ $19.85
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

The Kroger Co. - KR - close: 37.54 change: -0.28

Stop Loss: 37.45
Target(s): To Be Determined
Current Gain/Loss: -4.1%
Entry on July 30 at $39.05
Listed on July 28, 2015
Time Frame: Exit PRIOR to earnings on Sept. 11th
Average Daily Volume = 3.9 million
New Positions: see below

Comments:
08/10/15: KR has taken a turn for the worse with a sharp three-day decline. I wouldn't blame KR. Nearly all of the grocery-related stocks have been underperforming, even during today's market rally. KR is probably the best among them but that doesn't mean it is immune to industry weakness.

Shares dropped toward technical support at the 50-dma before trying to bounce. Our stop loss was hit at $37.45.

- Suggested Positions -

Long KR stock @ $39.05 exit $37.45 (-4.1%)

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

SEP $40 CALL (KR150918C40) entry $0.74 exit $0.41 (-44.6%)

08/10/15 stopped out
08/08/15 new stop @ 37.45
07/30/15 triggered @ $39.05
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BEARISH PLAYS

Allegheny Technologies - ATI - close: 22.55 change: +1.59

Stop Loss: 22.10
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 04, 2015
Time Frame: Exit PRIOR to September option expiration
Average Daily Volume = 1.5 million
New Positions: see below

Comments:
08/10/15: It looks like ATI may have found a bottom. We were positioned to launch bearish positions if shares broke support. Instead of breaking, shares of ATI have been bouncing and they outperformed the market in a big way today with a +7.5% gain.

We are removing ATI as a candidate.

Trade did not open.

08/10/15 removed from the newsletter, suggested entry was $19.85

chart:


The Michaels Companies, Inc. - MIK - close: 26.06 change: +0.68

Stop Loss: 26.05
Target(s): To Be Determined
Current Gain/Loss: -5.3%
Entry on July 28 at $24.75
Listed on July 27, 2015
Time Frame: Exit PRIOR to earnings in late August
Average Daily Volume = 729 thousand
New Positions: see below

Comments:
08/10/15: Another big rally in MIK pushed shares through resistance. The stock hit our stop loss at $26.05.

The $27.00 area could be a challenge since MIK still has a bearish trend of lower highs.

- Suggested Positions -

Short MIK stock @ $24.75 exit $26.05 (-5.3%)

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

SEP $25 PUT (MIK150918P25) entry $1.45 exit $0.71 (-51.0%)

08/10/15 stopped out
08/01/15 new stop @ 26.05
07/28/15 triggered @ $24.75
Option Format: symbol-year-month-day-call-strike

chart: