Option Investor
Newsletter

Daily Newsletter, Tuesday, 8/18/2015

Table of Contents

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

Market Wrap

Currency Jitters Continue

by Jim Brown

Click here to email Jim Brown

China's Shanghai Composite fell another 6.2% last night on worries that China was going to devalue the yuan once again. Other Asian countries followed China's markets lower on currency war fears.

Market Statistics

Chinese regulators have their work laid out for them in preventing a meltdown in the equity markets. They said last week they would be supporting the markets for "years to come." After that monster rally in less than a year, the odds are good they are going to be fighting sellers in every session.

With China's economy slowing in every sector, the commodity speculators are getting killed. Prices for commodities are declining because of lack of demand. In China commodities have been used as security for margin loans to buy stocks. With commodity prices hitting six year lows some of those loans are being called and investors have to sell both equities and commodities. This is a recipe for a continued slow motion train wreck.


Copper, sometimes called Dr Copper for its ability to foretell economic direction, is at a six-year low. Global demand is crashing and mines have been slashing output to support prices. Apparently it is not working. Dr Copper is telling us that global manufacturing is slowing. Since copper is part of almost every electrical item as well as wiring for cars, homes, buildings, planes, transportation infrastructure, etc, the slowing demand is an economic warning.


Other Asian countries are crashing and that decline has accelerated since the yuan devaluation. Thailand is at an 18-month low. Malaysia and Indonesia shares are falling off a cliff. If the Fed hikes rates the dollar will spike and all these countries will plunge even farther. The U.S. markets are weak because of the turmoil in the emerging markets and the worry about our own economics. What is a Fed head to do?




In the U.S. the NY Empire Manufacturing Survey on Monday was the weakest since 2009. The survey declined from +3.9 to -14.9 with both new orders and shipments falling by double digits. New orders declined from -3.5 to -15.7. Inventories fell from -8.5 to -17.3. Shipments declined a whopping -22 points and the biggest drop since 2001. All the components were weak and suggest the Fed is going to have a tough time justifying a rate hike in September. It is not that the market is not prepared for a rate hike after nearly a decade but it is not prepared for a hike with economics this weak.


There was only one economic report today. The New Residential Construction for July showed housing starts rose from 1.174 million to 1.206 million. That was well over the consensus for 1.190 million. While the headline number was strong, the internals painted a different story. Housing permits, a gauge for what starts will look like in the future, declined sharply from 1.337 million to 1.119 million. That was a -16.3% decline. Single family permits fell -1.9% and multifamily declined -31.8%. Single family starts rose +12.8% while multifamily starts fell -17%. Completions rose +2.4% to 987,000.

Analysts blamed the expiration of permit tax subsidies in New York and other Northeast states for the decline in permits. The subsidies expired at the end of June.


The big item on the calendar for Wednesday is the FOMC minutes. Investors will be looking for a clue about what to expect at the September 16th FOMC meeting. In the April minutes, the clue said "many participants saw a June rate hike as unlikely, while a few favored a move that month." While we are not likely to see such a blatant clue in these minutes, you never know what they will insert to direct market expectations.

In past minutes, the Fed said they wanted to see "some further improvement in employment." The word "some" was added to the sentence from the prior statement. So, what is the meaning of the word some? Jobs have declined for two consecutive months from the high of +260,000 in May to 231,000 in June and 215,000 in July. I don't see ANY improvement there but the Fed's prior guidance was they wanted to see jobs over 200,000 for several months. So what are we going to see in the minutes this time around? "Some improvement" suggests better than before and we have not seen that.

Since the last Fed meeting the situation in the emerging markets has gone from bad to worse. They are the markets that will be hurt the worst by a rate hike and the upward impact on the dollar. However, in previous statements the Fed has said they are the U.S. central bank, not the global central bank. Unfortunately the Fed cannot work in a vacuum whatever they do will have consequences. This is why the FOMC minutes on Wednesday are so important.

After the crash in the NY Manufacturing Survey the Philly Fed Manufacturing Survey on Thursday is going to be very important. This will show us whether the NY number was an outlier and specific only to New York or a symptom of a larger problem.


The Dow was pushed and pulled by two of its components this morning. Home Depot (HD) shares broke out to a new high at $123 after reporting earnings that beat the street. The company reported earnings of $1.73 that beat estimates for $1.71. Revenue of $24.8 billion barely edged out estimates for $24.7 billion. The average sale rose +1.7% to $59.42 and the number of transactions rose +2.6%. Transactions over $900 rose +6.3%. U.S. same store sales rose +5.7% and international sales +4.2%. HD also raised full year guidance to $5.31-$5.36 compared to estimates of $5.27. HD added 24 points to the Dow.


Walmart (WMT) shares lost ground after the company reported earnings of $1.08 compared to estimates for $1.12. This was also down from the $1.21 earned in Q2-2014. The company blamed the miss on shrinking margins in the pharmacy section. Drug costs are rising and Walmart always tries to be the lowest price. The company also said labor costs were rising as minimum wages are raised around the country. Walmart said it paid 24 cents a share for higher wages, training and hiring additional sales people. Walmart shoppers have complained for over a year that the shelves were not stocked and many items were missing. Walmart has pledged to fix that.

Walmart lowered full year guidance from $4.70-$5.05 to $4.40-$4.70. The consensus was for earnings of $4.77 per share. Same store sales rose +1.5% and that was the fourth consecutive quarter of sales growth. Walmart is planning on opening 60-70 supercenters and 160-170 Neighborhood Markets in 2015. Walmart's drop erased 19 points from the Dow.


Sandisk (SNDK) was cut to a sell by Bank of America Merrill Lynch and the price target was lowered from $75 to $40. SNDK closed at $57. Apparently, BAML cannot make up their mind because they just raised SNDK from neutral to a buy on July 23rd or less than a month ago. The analyst said a sudden increase in excess capacity has become a concern.

Micron (MU) announced on Friday it was raising capex spending in 2016 from $3.6-$4.0 billion to $5.3-$5.8 billion. However, Micron said some of that money is coming from third parties like Intel.

Hynix said it was considering a $39 billion investment in factories but there was no time frame specified.

BAML said sell Sandisk and Micron on the capex news. Yesterday Wells Fargo upgraded Micron. Wedbush cut Micron to a neutral. Lots of conflicting opinions on chip stocks.



A slow motion Chipwreck appears to be in progress. The Semiconductor Index ($SOX) is down -17% since the June high at 751. The chip stocks have been a crowd favorite for several years but the bloom is quickly fading from the rose.


Dow component Disney (DIS) was slammed by Wells Fargo with a cut from buy to neutral and cut its target range to $112-$119. The bank cited a lack of visibility combined with negative sentiment on cable networks. The Well Fargo analyst said he was a little more cautious now. "We love Disney as a company and we do not think ESPN is broken as some have suggested. Yes, it has slowed, which is important since ESPN is 50% of operating income, but it really is not broken." The analyst raised earnings estimates for 2016 saying they did not give the company enough credit for the strong slate of movies other than Star Wars. I strongly disagree with the downgrade on Disney given all the sources of income they have today and those they are building for the future. I cannot imagine Disney will not be a lot higher a year from now. Disney shares erased -16 points from the Dow.


Dicks Sporting Goods (DKS) reported earnings of 77 cents compared to estimates for 75 cents. However, revenue of $1.82 billion missed estimates for $1.83 billion. The company raised guidance for the full year to a range of $3.13-$3.21 per share. The company added 45 stores in the last 12 months to bring their total to 619. Gross margins rose to 30.4% as the result of adding their own branded merchandise to the mix.


TJX Companies (TJX) was the big earnings winner. The company reported earnings of 80 cents compared to estimates for 76 cents. Revenue of $7.4 billion beat estimates for $7.3 billion. Currency issues subtracted 4% from sales or the revenue would have been a lot higher. Same store sales rose +6% compared to +3% in the year ago quarter. That is the fifth consecutive quarter of same store sales improvement. TJX raised guidance slightly from $3.21-$3.27 to $3.24-$3.28 per share. That was still below analyst estimates for $3.32. They guided for the current quarter to a range of 80-82 cents and that was below estimates for 89 cents. The weak guidance did not have any impact on the stock with a +7% gain.


Headline earnings out on Wednesday include Lows, L Brands, Staples and Target.


Crude oil continues to hover over support at $42. Shares were up this afternoon on short covering ahead of Wednesday's inventory report. On 9 of the last 11 Tuesdays WTI has closed higher on short covering. Nobody wants to be caught short if there is a big drawdown in inventories.

Energy equities continue to find a bid but they are no longer rising. The brief spurt we saw last week has faded only slightly and they are holding their gains. However, should crude oil decline into the $30s as most analysts expect the equities are likely to decline as well. The analyst consensus is to buy now knowing that oil could drop another $5 before it rebounds. At this point $5 is a lot and I think equities will feel the pain. The next two months are typically negative for oil prices.


Markets

Volume over the last three days has averaged about 5.3 billion shares. Friday's volume at 5.17 billion was the lowest day of the year. Today's volume at 5.46 billion was definitely lackluster.

With low volume comes a lack of conviction. This is option expiration week and volume should be higher than next week. That means the next 13 trading days could be very boring. With the earnings cycle drawing to a close there will be little in the way of headlines to power the market. Historically the last week of August is negative. Labor Day is not until September 7th so the entire first week of September will also be lackluster ahead of the holiday weekend. Investors will be focused entirely on the payroll report on Friday Sept 4th and then on the FOMC meeting announcement on Thursday the 17th.

With nothing to power the market over the next two weeks, we could be highly susceptible to geopolitical headlines and whatever stray article hits the news in the USA. With earnings fading, we should not have any high profile earnings misses to dodge.

This suggests we are going to be at the mercy of whichever side feels the most conviction. Buyers have been weak but sellers appear to be exhausted after those major downdrafts we saw over the last two weeks. If they could not force a breakdown with multiple 200-point losses then they may not have enough firepower left to try again in the days to come.

Recently we have seen the dips bought with a little more enthusiasm. That suggests buyers may be feeling a little more conviction than sellers. With recent events putting pressure on the Fed to stand still we could see buyers gain a little more confidence in a calm market. Corporations are in buyback mode at this point in the cycle. That means their purchases will increase on every dip.

On the negative side the resistance at 2100 on the S&P remains firm. We traded over that level intraday but sellers appeared at 11:00 and it was downhill from there. The resistance at 2100-2110 could be a serious hurdle to cross.

We did have several tests of support at 2080 after the Wednesday rebound so that is now the line to watch for direction.


The Dow was unable to retest resistance at 17,600 and remains in a downtrend. That was an admirable rebound from the 17,150 level but it may have run out of steam. Fortunately, there are no further Dow components reporting earnings this week.

The winners and losers were almost evenly matched and that simply emphasizes the lack of conviction by either side.



The Nasdaq also failed to retest resistance at 5100 and gave back more than half its gains from Monday. The biotechs rallied for +2.5% on Monday and gave back -1% today. With the chip stocks crashing and biotechs weak the Nasdaq did not have a chance. Support is now 5020 and resistance remains 5100.



The Russell 2000 gained +1% on Monday and gave back -0.8% today. That is 5 steps forward and 4 steps back. We are not going to gain any ground unless the small caps show some strength. Resistance at 1230 remains untested and support at 1200 remains critical. The index closed right in the middle of that range at 1215.


I am neutral on market direction for the rest of the week. Our direction will most likely be headline driven and those headlines are yet unknown. With very low volume we could see some dramatic moves but that would require a big headline to provide motive power.

Nearly all the noted analysts are still expecting to see a 2015 close in the 2225-2250 range on the S&P with some higher and some lower. That would be a significant move and it could be violent once the short covering begins as resistance levels are broken. However, forecasting a closing level does not make it happen. We need to trade what the market gives us not what we want to see. However, given the strong rebounds of late I would be a buyer of any decent dips.


If you are not getting the posts I have been making to the Option Investor Facebook page, please like our page so you will receive the posts on specific stock events as they occur.


Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

 


New Plays

Path of Least Resistance Is Lower

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Micron Technology - MU - close: 16.38 change: -0.84

Stop Loss: 18.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 18, 2015
Time Frame: Exit prior to earnings in late September.
Average Daily Volume = 28.4 million
New Positions: Yes, see below

Company Description

Trade Description:
The tech-heavy NASDAQ composite index is up +6.8% in 2015. Yet a key technology industry the semiconductor stocks are underperforming. The SMH semiconductor ETF is down -8.2% and the SOX semiconductor index is off -9.1% The group is suffering from what one analyst says is an uncertain macroeconomic environment, currency headwinds, and rising competition. One semiconductor stock significantly underperforming its peers is MU, which is down -53% year to date.

If you're not familiar with the company, here's a bit from their press release, "Micron Technology, Inc., is a global leader in advanced semiconductor systems. Micron's broad portfolio of high-performance memory technologies - including DRAM, NAND and NOR Flash - is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron's memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications."

MU sparked new concerns after their recent analysts day. The company announced plans to boost their 2016 capex budget by +45% more than 2015's. The company is forecasting a 2016 budget of $5.3-to-$5.8 billion and analysts are worried it's going to hurt their financial results.

Wedbush Securities analyst Betsy Van Hees said, "While we believe [Micron] is laying the right ground work with capex spend for long-term success, until we see signs that DRAM industry supply/demand environment is stabilizing, shares will likely continue to struggle." Van Hees downgraded shares of MU from outperform to a neutral.

Bank of America Merrill Lynch analyst Simon Dong-Je Woo was also cautious on the memory chip sector. Woo is worried that rising capex spending will be a short-term negative. He downgraded MU from a buy to a neutral.

Not everyone agrees. The research team at Wells Fargo actually upgraded MU from an underperform to a market perform. Bulls could argue that MU's stock looks cheap with a P/E ration around 5. However, even CNBC's Jim Cramer warned that cheap stocks tend to stay cheap for a while.

Momentum is bearish and MU underperformed the market today with a -4.8% drop to new multi-year lows. We are suggesting a trigger to launch bearish positions at $15.85.

Trigger @ $15.85

- Suggested Positions -

Short MU stock @ $15.85

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

Buy the OCT $15 PUT (MU151016P15) current ask $0.90
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

Market Rebound Stalls On Tuesday

by James Brown

Click here to email James Brown

Editor's Note:
Stocks have been in rebound mode after reversing higher last week. Unfortunately the rally stalled today. Disappointing earnings from retail giant Wal-Mart (WMT) and a big drop in the Chinese market didn't help.

We closed the GMT trade this morning.


Current Portfolio:


BULLISH Play Updates

Bright Horizons Family Solutions - BFAM - close: 62.77 change: -0.04

Stop Loss: 59.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 17, 2015
Time Frame: Exit
Average Daily Volume = 176 thousand
New Positions: Yes, see below

Comments:
08/18/15: Traders bought the dip to BFAM's simple 10-dma and the rebound managed to hit a new two-week high. However, shares did not hit our suggested entry point at $63.05. If BFAM sees any follow through higher tomorrow we should get triggered.

Trade Description: August 17, 2015:
BFAM has been a publicly traded company for less than three years. Since its IPO in early 2013 the stock has been marching higher and currently trading near all-time highs. The stock's relative strength is noteworthy with BFAM up +33% in 2015 versus an S&P 500 that's only up +2.1%.

BFAM is in the services sector. According to the company, "Bright Horizons Family Solutions is a leading provider of high-quality child care, early education and other services designed to help employers and families better address the challenges of work and life. The Company provides center-based full service child care, back-up dependent care and educational advisory services to more than 900 clients across the United States, the United Kingdom, Ireland, the Netherlands, Canada and India, including more than 130 FORTUNE 500 companies and more than 80 of Working Mother magazine's 2014 "100 Best Companies for Working Mothers". Bright Horizons is headquartered in Watertown, MA."

The company delivered +26.6% earnings growth in 2014. Their long-term earnings growth is estimated at +19%. However, 2015 is likely to outperform. Looking at BFAM's recent results the company has been beating analysts' estimates on the bottom line while the revenue number has been relatively close to in-line each quarter.

BFAM's most recent report was August 4th. They announced their Q2 earnings rose +29% to $0.53 a share. That was four cents above estimates. Revenues were up +6.4% to $370.5 million. Management raised their 2015 guidance. They now expect 2015 revenues to grow +7-10%. They're guiding for earnings growth to be in the +23-26% range.

Shares of BFAM surged to new highs and hit $66.00 following this earnings report and bullish forecast. The stock held support near its prior highs recently. This is impressive because on August 10th BFAM announced a secondary offering of three million shares. Normally investors tend to sell stocks when a company announces a secondary offering. No one likes seeing their investment diluted. Yet shares of BFAM held support. The secondary, being sold by stock holders and not the company, priced at $61.25 a share.

The trend of higher lows continues and now BFAM looks poised to rally again. Tonight we are suggesting a trigger to open bullish positions at $63.05.

Trigger @ $63.05

- Suggested Positions -

Buy BFAM stock @ $63.05

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.


ConAgra Foods, Inc. - CAG - close: 44.84 change: -0.29

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: -1.1%
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:
08/18/15: It was a disappointing session for CAG. The stock rallied off the morning spike lower but there was little follow through and the afternoon slide lower seemed to be picking up speed into the closing bell.

I would wait for a rally past $45.60 before launching new positions.

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: 49.53 chg: +0.37

Stop Loss: 47.45
Target(s): To Be Determined
Current Gain/Loss: +2.4%
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:
08/18/15: HIG displayed relative strength. Shares ignored the market's relatively widespread decline and managed a +0.75% gain.

No new positions at this time.

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

08/15/15 new stop @ 47.45
08/10/15 triggered @ 48.35
Option Format: symbol-year-month-day-call-strike


Hologic Inc. - HOLX - close: 42.60 change: -0.32

Stop Loss: 39.70
Target(s): To Be Determined
Current Gain/Loss: -0.1%
Entry on August 17 at $42.65
Listed on August 15, 2015
Time Frame: Exit prior to earnings report in November.
Average Daily Volume = 2.5 million
New Positions: see below

Comments:
08/18/15: HOLX tried to rally this morning but struggled at the $43.00 level. It looked like traders were starting to buy the dip late this afternoon. I would consider new positions at current levels. More conservative traders might want to wait for a rally past $43.00 instead.

Trade Description: August 15, 2015:
HOXL looks like a strong bullish momentum trading candidate. The S&P 500 index is only up +1.6% this year. The NASDAQ is up +6.6%. Yet HOLX is up +58% and has more than doubled from its 2014 lows. That's because the new leadership team has turned things around.

HOLX's CFO was recently interviewed in CNBC. He said that 18 months ago their business was in decline and new leadership has turned things around. They see a lot of growth opportunities both in the U.S. and internationally, especially for their Genius 3D mammography business.

If you're not familiar with HOLX they are in the healthcare sector. According to the company, "Hologic, Inc. is a leading developer, manufacturer and supplier of premium diagnostic products, medical imaging systems and surgical products. The Company's core business units focus on diagnostics, breast health, GYN surgical, and skeletal health. With a unified suite of technologies and a robust research and development program, Hologic is dedicated to The Science of Sure."

The company has beaten Wall Street's bottom line earnings estimates the last four quarters in a row. Their most recent report was July 29th. HOLX reported its Q3 results of $0.43 per share. That's a +16% improvement from a year ago and four cents better than expected. Revenues were up +9.7% to $693.9 million, significantly above the $654 million estimate. GAAP gross margins soared +520 basis points to 54.6%.

Management raised their 2015 sales guidance from +7-7.4% to +9.1-9.5%. They also upgraded their earnings forecast growth from +13-13.7% to +17.1-17.8%. The stock soared almost +10% on this earnings report and bullish outlook.

Shares of HOLX have spent the last couple of weeks consolidating sideways in the $40.00-42.50 zone. This is bullish. Instead of correcting lower the stock has been digesting its gains in a sideways range. What makes this even more impressive is that HOLX has managed to maintain its gains even after legendary investor Carl Icahn said he had trimmed his position in HOLX. Icahn's company sold about six million shares in the $40 range. After this sale Icahn still owns 9.99% of HOLX. It's not like he's bearish on the stock.

Technically HOLX looks poised to breakout past short-term resistance near $42.50. If that occurs we want to jump on board. Tonight we are suggesting a trigger to open bullish positions at $42.65.

- Suggested Positions -

Long HOLX stock @ $42.65

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

Long DEC $45 CALL (HOLX151218C45) entry $1.50

08/17/15 triggered @ $42.65
Option Format: symbol-year-month-day-call-strike


Total System Services, Inc. - TSS - close: 48.64 change: +0.41

Stop Loss: 45.85
Target(s): To Be Determined
Current Gain/Loss: +1.2%
Entry on August 14 at $48.05
Listed on August 12, 2015
Time Frame: Exit 6 to 9 weeks.
Average Daily Volume = 969 thousand
New Positions: see below

Comments:
08/18/15: TSS performed well today. The stock essentially ignored the market's weakness and pushed higher to post a +0.85% gain.

More conservative traders might want to start adjusting their stop loss higher.

Trade Description: August 12, 2015:
TSS is probably one of the best performing stocks in the S&P 500 this year. The S&P 500 index is up +1.3% year to date. The financial sector is up +1%. Yet TSS has surged +39% in 2015 and shares look poised to keep running.

TSS is in the financial sector. According to the company, "As one of the world's largest payment solutions and services companies, TSYS believes payments should revolve around people, not the other way around. Since we got our start in the payments space more than 30 years ago, we have evolved from a supporting role servicing several hundred bank card issuers and bank acquirers to directly touching hundreds of thousands of merchants and millions of consumers.

TSYS is a global, publicly traded company with operations in more than 80 countries, including many of the world’s most high-growth emerging markets. We provide electronic payment services to financial institutions and companies around the globe with a broad range of issuing and acquiring payment technologies, including consumer, credit, debit, healthcare, loyalty, prepaid, chip and mobile payments."

Earnings are supposed to be the main driver behind stock price appreciation. TSS has not disappointed. The company has beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row. Revenues have grown +8.9%, +11.7%, and +15.1%, respectively over the last three quarters.

TSS' most recent earnings report was July 28th. They announced their Q2 results were $0.58 per share. This was a +29% improvement from a year ago and five cents above expectations. Management then raised their 2015 guidance.

Since this late July earnings report shares of TSS have been consolidating sideways in the $46-48 range and essentially ignoring the market's recent volatility. Shares displayed some relative strength today and we want to be ready to hop on board if TSS can breakout. Tonight we're listing a trigger to open bullish positions at $48.05.

- Suggested Positions -

Long TSS stock @ $48.05

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

Long NOV $50 CALL (TSS151120C50) entry $1.20

08/14/15 triggered @ $48.05
Option Format: symbol-year-month-day-call-strike


21Vianet Group, Inc. - VNET - close: 21.05 change: -0.36

Stop Loss: 19.80
Target(s): To Be Determined
Current Gain/Loss: +1.4%
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:
08/18/15: It was a rough day for the Chinese market with the Shanghai index falling -6.15%. To the best of my knowledge VNET does not trade on the Shanghai but the pressure at home may have weighed on its ADR shares in the U.S. as VNET underperformed with a -1.68% decline. Fortunately VNET held the $21.00 level, which as broken resistance should be new support.

VNET is scheduled to report earnings on August 26th. We plan to exit before their announcement.

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

08/15/15 new stop @ 19.80
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

Marathon Oil Corp. - MRO - close: 17.48 change: +0.12

Stop Loss: 19.55
Target(s): To Be Determined
Current Gain/Loss: +1.8%
Entry on August 14 at $17.80
Listed on August 13, 2015
Time Frame: Exit
Average Daily Volume = 7.8 million
New Positions: see below

Comments:
08/18/15: Crude oil managed a little oversold bounce today and that helped MRO rebound. Shares settled with a +0.69% gain but that's after retreating from its midday highs.

No new positions at this time.

Trade Description: August 13, 2015:
Falling crude oil prices are crushing oil-sector stocks. A -50% drop in crude oil that began in the second half of 2014 was horrendous for the U.S. and global oil industry. Oil managed a bounce off its March 2015 lows but that rebound has failed.

Since late June the price of oil has fallen about -30%. Today saw crude oil close near $42.00 a barrel, the lowest since March 2009 (during the bear market in stocks).

Shares of MRO are getting hammered on this oil slide. According to the company, MRO is a global energy company. They explore for, produce, and market oil and natural gas. They are also involved in the oil sands mining in Canada and the big shale oil and gas basins in the United States. The company has operations in Angola, Equatorial Guinea, Ethiopia, Gabon, Kenya, Libya, Norway, the United Kingdom, and the Kurdistan region of Iraq.

There are a ton of factors impacting crude oil and the energy sector. OPEC's largest producer, Saudi Arabia, has decided keep production high. They would rather suffer low oil prices than lose market share to rival producers.

According to CNBC today, "OPEC's second-largest producer, Iraq, plans to export near-record volumes of Basra crude in September, adding to an already oversupplied market." Plus, "The U.S. Energy Information Administration also said on Thursday that Iran's release of oil held in storage could boost global supplies by 100,000 barrels per day this year, and that it had the 'technical capability' to boost output by 600,000 bpd by the end of next year."

If that wasn't enough the recent focus on China is undermining oil prices. China is one of the largest, if not the largest, consumer of commodities on the planet. Their economy has been slowing down for years. The central bank of China's decision to devalue their currency this week stokes fears that China's economy is falling even faster than previously expected. That doesn't bode well for China's future oil demand.

Meanwhile back at home in the U.S. we see crude oil inventories building. Wall Street is worried that domestic oil companies have not cut their spending budgets enough. There is growing concern that MRO may have to slash its dividend. The plunge in MRO's stock price has boosted its dividend yield to more than 4%.

A quick look at MRO's last few earnings reports shows the trend in revenues. Their Q3 2014 results saw revenues fall -5%. Q4 results saw revenues drop -16% from the prior year. Their Q1 2015 report said revenues plunged -46%. Their most recent report, their Q2 report on August 5th, said MRO's revenues dropped -47.9% to $1.53 billion. The company reported a loss of ($0.23) per share. Management has been slashing their budgets and cutting expenses but it wasn't enough.

The last few days have seen MRO's stock hovering above short-term support at $18.00. Unfortunately today's drop (-5.45%) left shares poised for a breakdown. Tonight we are suggesting a trigger to launch bearish positions at $17.80. We're not setting a target tonight but I will point out that the point & figure chart is bearish and forecasting at $5.00 target.

FYI: MRO does have a 21-cent dividend coming up. The stock will trade ex-dividend in the August 17-19th time frame.

- Suggested Positions -

Short MRO stock @ $17.80

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

Long OCT $17 PUT (MRO151016P17) entry $1.03

08/17/15 began trading ex-dividend today ($0.21)
08/14/15 triggered @ $17.80
Option Format: symbol-year-month-day-call-strike


Whiting Petroleum - WLL - close: 19.17 change: +0.23

Stop Loss: 20.35
Target(s): To Be Determined
Current Gain/Loss: +3.4%
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:
08/18/15: Today's bounce in crude oil also helped WLL, which managed a +1.2% gain. Keep an eye on the $20.00 level for overhead resistance.

I am not suggesting new positions in WLL 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 BEARISH PLAYS

GATX Corp. - GMT - close: 49.58 change: -0.80

Stop Loss: 50.65
Target(s): To Be Determined
Current Gain/Loss: -2.3%
Entry on August 12 at $49.35
Listed on August 11, 2015
Time Frame: Exit 4 to 6 weeks
Average Daily Volume = 334 thousand
New Positions: see below

Comments:
08/18/15: We were not happy with GMT's recent performance. In last night's newsletter we decided to exit this trade on Tuesday morning. Naturally shares immediately reversed lower and underperformed the market with a -1.58% decline today.

- Suggested Positions -

Short GMT stock @ $49.35 exit $50.48 (-2.3%)

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

SEP $50 PUT (GMT150918P50) entry $2.45 exit $1.30 (-46.9%)

08/18/15 planned exit 08/17/15 prepare to exit tomorrow morning
08/15/15 new stop @ 50.65
08/12/15 Caution: GMT has produced a bullish engulfing candlestick reversal pattern.
08/12/15 triggered @ $49.35
Option Format: symbol-year-month-day-call-strike

chart: