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Daily Newsletter, Wednesday, 8/19/2015

Table of Contents

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

Market Wrap

Charts Are a Mess

by Keene Little

Click here to email Keene Little
After the sideways chop that we've seen all year, including this week's whipsaws, about the only thing that can be said for the charts is they're a mess. And it's driving investors out of the market, something that should be of great concern.

Today's Market Stats

The trading range in tightening but the whipsaws have continued and there continues to be no sense of direction to this market. Traders who can catch the daily (hourly) swings have had some good trading opportunities. I suspect mostly HFTs, who have the ability to get in front of trades, have been the primary beneficiaries of this market. Investors are getting tired of it and leaving (pulling their money out) and that's leaving the market vulnerable from a low-liquidity perspective. What that means for the next week/month is the bigger question.

The market dropped hard this morning, following the global indexes, which were spooked by what's happening in China. It dropped -4% before a rally back up into the green and closed +1.2%. China policy makers have already said repeatedly that they will support the stock market and have money backing up their pledge. Today's trading in China is proof positive (so much for free markets). Even though China's support of the market will create this kind of bounce-back, in the long run its scaring investors out of the Chinese market, who are taking advantage of bounces to relieve themselves of their stock holdings. All parabolic rallies do not end well and while the government can try to delay the inevitable, it will be a losing battle and the government will merely add to the amount of money that makes it to money heaven.

Asian markets tanked and then European markets followed and that had us starting in the red this morning, which was then followed by strong selling into a midday low. The DOW was down about -230 points but then retraced all of its loss in the afternoon and made it +4 into the green following the FOMC minutes. That was followed by a reversal back down and the DOW gave up about 170 points into its afternoon low. Needless to say, today was a wild ride for traders trying to keep up and it's only a part of what we're seeing in the larger pattern, which suggests we might see stronger selling soon, possibly tomorrow and Friday.

Inflation data is a big part of the "data" that the Fed watches to help with their decisions about interest rates and for a long time they have said they want to see inflation around 2%, which helps pay down longer-term debt but causes loss of purchasing power (something the bankers don't care about). But this morning's data, in the CPI reports out before the bell, is not helping the Fed's cause. The rate of rise in inflation is dropping and both the CPI and core CPI rose only +0.1% in July instead of the +0.2% most economists expected.

For the past 12 months inflation is up only +0.2%, close to the dreaded "disinflation" that economists are worried about. Most of the disinflation is a result of a significant drop in commodities' prices, including energy. Excluding what's important to us, food and energy, the core index is up +1.8% for the past 12 months, which is in line with the average of +1.9% over the past 10 years. But while the longer-term average inflation rate is where the Fed wants it (near +2%), it's the short-term trend that isn't supporting the Fed's desire to raise rates.

One thing about the Fed that one needs to keep in mind, no matter how much jawboning they do for the market, and that is they will avoid embarrassment at all costs. And it would be very embarrassing for them to raise rates even a little bit if they're worried that the next quarter will require them to lower rates because the economy is slipping further into contraction territory. While they might be a little embarrassed about not being able to raise rates this September, or December, they have an easy out by saying the data didn't support the move, which is an out they've been carrying with them since first talking about raising rates (everything is "data dependent"). But to have to lower rates back down after trying to raise them would show their incompetence and they will avoid that embarrassment. The Fed will not raise rates this year or probably next either (and if they do I'll be surprised, wink).

The FOMC minutes did not present any new information and I'm not sure why there was such a volatile reaction following the release. It could be opex related as much as anything else. Squaring of opex positions before tomorrow generally creates some volatility if the market gets moving in one direction or the other.

The minutes show most Fed officials believe conditions are "approaching" what's needed for the Fed to start raising rates. Basically the Fed officials want to raise rates sooner rather than later and want to see if the August labor data will support an increase in September. The Fed is also looking for signs of an increase in inflation but this morning's numbers are not supporting them. While most economists believe the Fed will raise rates in September, it adds to my confidence in saying the Fed will not raise rates. Economists have an extremely poor record with their predictions.

The minutes also reflected the Fed's desire to continue rolling over expiring bonds and to keep reinvesting the proceeds, which keeps the Fed's balance sheet stable. This can be defined as QEL (QE light) and they want to continue that through the "early stages" of rate hikes, which tells me they'll be rolling over expiring bonds for years to come. Both the stock and bond markets liked this since the demand for bonds remains stable through Fed purchases and there's less fear about the Fed withdrawing more liquidity from the market.

There are legitimate concerns about the declining level of liquidity in today's market. There are people who study this and have been warning for a while that liquidity is drying up, especially after the Fed stopped its QE4 program (now holding with QEL). The reason for concern is that liquidity is what provides an orderly market -- it makes it easier to match sellers and buyers. But when liquidity vanishes, especially during a selling event, sellers can find themselves without buyers. The computers then go looking for prices and if you're in a market order to sell (as many stops are), you could find yourself selling at a drastically lower price than you thought likely.

Part of the problem causing liquidity to dry up is that investors are leaving the market. The current bull market is often described as the most-hated bull market anyone has seen. There are several reasons for that and without investor participation we've seen the indexes holding up on the backs of fewer and fewer stocks. That's been worrisome for some time. And this lack of participation is showing up in sentiment numbers. Tom McClellan posted the below chart to a small trading group that I'm with and asked the following question: "Does this really feel as bad as the Ebola Panic, when we were all about to die of hemorrhagic fever?"

Investors Intelligence Sentiment vs. SPX, July 2012 - August 2015, chart courtesy Tom McClellan

As you can see in the above chart, the Bullish minus Bearish sentiment is now back down near where it was at the market low in October 2014 (when the Ebola scare was as much to blame as other factors) and yet the market has held near its high as it trades sideways vs. the spike down as we had last October. The sentiment reading is now significantly below the lower band that McClellan uses to judge extreme moves and the current decline in sentiment looks ripe for a reversal (with a stock market rally) from a contrarian perspective. If most everyone is out and the market runs out of sellers we could then get a strong rally as everyone rushes back in (including the buying from short sellers).

The other interpretation of the above chart is that it's just more evidence for how much this market is hated by investors. I've talked with a number of people who are sick of being in the stock market. They're complaining that the only ones making money are their financial advisors. They're tired of losing money as the market goes nowhere, especially since there's still a lot of residual fear about another market crash (especially among baby boomers who can't afford another 50% loss). Many money managers are feeling the same and this in turn is reducing the liquidity in the market.

The Fed is not injecting new money (only rolling over expiring bonds) and investors are pulling out, all of which has significantly reduced the market's liquidity. And market liquidity is like oil to an engine -- without out it things begin to seize up. The real risk is that any selling could get carried away to the downside as liquidity simply disappears (which we've seen before in flash crashes). Sometimes very bearish sentiment means bad things for the market, not good things in a contrarian sense.

Exacerbating the liquidity problem is what we see happening in the emerging markets. There has been a surge in outflows, which is hurting the economies of these smaller countries. Like small businesses helping get an economy growing, it's the small emerging markets that help get global economies (and markets) growing. The opposite appears to be happening. China's yuan devaluation seems to have accelerated this trend. In the past year nearly $1T has left these markets and for small markets that's a lot of liquidity that has vanished.

As funds leave the emerging markets it puts downward pressure on the local currency, making the U.S. dollar stronger, which dampens demand for imports, which drives down demand for commodities and further negatively affects those countries dependent on commodity sales. It creates a downward spiral and at the moment no one is quite sure where this will end, all of which makes it even harder for the Fed to raise interest rates. Previous stock market crashes have followed a currency collapse in a small country and we're probably not far from that happening again. The cracks in the dam are widening...

As mentioned in the title of tonight's report, the charts are a mess and have been all year. It's getting quite frustrating trying to figure out what the market is up to and about the only thing that has been accurate in any prediction is that you should expect reversals of reversals. Lack of follow through has been the hallmark of this market and when that breaks is anyone's guess. But that's what I do (guess) and I'll provide my best guess on what the current pattern tells me.

Starting with the SPX weekly chart, it still supports the idea for another rally up to the top of a shallow rising wedge to complete the final 5th wave off the October 2014 low. That would take SPX up to about 2150-2160 by mid-September but the rally needs to get started now otherwise the rounding top pattern will begin to look like the more important pattern. A drop below 2040 would be a significant break and it would likely begin the stampede for the one and only narrow exit door. Have I mentioned the lack of liquidity in this market (wink)?

S&P 500, SPX, Weekly chart

Choppy mess. Need I say more about the daily chart? There's a sideways triangle that has formed after the July 20 high and July 27 low, the bottom of which was tested with today's low. A trade above Tuesday's high near 2104 would be bullish while a trade below the July 27 low near 2063 would be bearish. Mind the chop in between. The good news for bulls so far is that the 200-dma continues to hold as support on a daily closing basis. But how many times can it be tested before it runs of buyers at support?

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2104
- bearish below 2063

I continue to look for impulsive (5-wave) moves to help indicate market direction but we're seeing repeated 3-wave moves and that fits with the sideways triangle noted above. I've noted on the daily chart above and 60-min chart below the key levels to let us know when a break is confirmed but keep in mind that it could result in just a larger 3-wave move before reversing again. Trades need to be managed closely and look for base hits instead of home runs.

S&P 500, SPX, 60-min chart

Using the arithmetic price scale shows the DOW trying to hold its uptrend line from October 2011, near 17375, but closed slightly below it today. It's possible there's a slightly larger bullish descending wedge pattern for the decline from May and we could see a relatively small break below its December 2014 low before it sets up for a larger rally. It could of course simply rally from here. But the bearish wave count is a series of 1st and 2nd waves to the downside (with the series of lower highs for the bounces) and that supports the idea that we're about to see a disconnect to the downside. While I don't like to predict these kinds of moves (since they're rare), it's important to understand the downside risk here. Don't let the market move much against a long position that you might have.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,630
- bearish below 17,340

Following the high for NDX on July 20th, it had a 3-wave pullback with two equal legs down at 4446.76, which was achieved last Wednesday with its low at 4436. It was a good setup for bulls to get long and it was starting to look good for a rally that could take it to new highs. But after only a 3-wave bounce into Monday's high at the 20-dma it has dropped back down, leaving the upside in question (and the downside). It closed back below its 50-dma today, at 4519, which is bearish but this one could go either way. In other words, there is no good setup to recommend. It's bearish below 4415 and bullish above 4635. Mind the chop in between.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4635
- bearish below 4415

Since Monday's high, when the RUT stopped dead at its downtrend line from July 16th and was not able to jump above it on Tuesday, this is the one that has had me feeling more bearish about the market. The blue chips, until today, had me feeling the bulls had some good potential but the NDX and especially the RUT had me feeling like the bears are not done yet. Last Wednesday's low fit well as the completion of a bullish descending wedge (with the potential that it's instead a leading diagonal 1st wave down from the June 23rd high) but the 3-wave bounce into Monday's high followed by the downturn says we're still stuck inside the descending wedge. We could see a rally from here, in what will become a larger corrective move to the upside in the final rally, but a drop back down to the bottom of the wedge, near 1175 by next Monday, seems to be a higher-odds play. If the bottom of the wedge is reached we'll then get some clues as to whether or not we should get a higher bounce correction. A break below the bottom of the wedge would be very bearish and it would support the uber-bearish wave count on the DOW's chart (crash leg lower). Strict discipline required here on your trades.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1245
- bearish below 1175

Bonds have been just as choppy as the stock market in the past week and they're not providing much help in figuring out what the stock market is doing. Looking at TLT, Monday finished with a doji sitting on its 200-dma and still inside its rising wedge from early July. Tuesday it broke down and closed below the bottom of the wedge, which had it looking like we'd see some follow through to the downside today. While there was a selloff this morning it was immediately reversed after the open and TLT had a relatively strong rally. Today's candle is a bullish engulfing candlestick (lower open followed by a higher high and close above yesterday's high), which has it now looking like a 3-wave pullback from last Wednesday might have completed this morning and now we'll see a continuation of the rally (decline in yields). But today's rally took TLT back up to its broken uptrend line from July 13th and could be nothing more than a back-test, to be followed by a bearish kiss goodbye tomorrow. It did close marginally back above its 200-dma at 124.60. Confirmation for the bears would be a selloff tomorrow but at the moment it could go either way. Gun to my head, I'd say TLT is going higher and that would put additional pressure on stocks.

20+ Year Treasury ETF, TLT, Daily chart

Looking to the banks for clues, the BKX looks just as confused as the others. From the high on July 23rd it had a 3-wave pullback with two equal legs down at 75.89, achieved with the spike down last Wednesday to 75.90 (OK, missed by a penny). This is a very common pattern among different indexes, which is what had me feeling confident about a rally this week and into September. This week's price action has negated those bullish thoughts. A rally could still happen but it's certainly looking less likely. After its 3-wave pullback into last Wednesday's low the BKX then bounced back above its broken uptrend line from January and used that trend line for support this morning and again this afternoon when it pulled back into the close. That all looks bullish but it's been struggling to get through its 20- and 50-dma's, both now near 78.30, since last Friday. A close above 78.30 would be bullish and even more so above its August 10th high at 79.54, but a close below 75.89 would be bearish.

KBW Bank index, BKX, Daily chart

The U.S. dollar's choppy pattern since its high in March leaves many different corrective patterns available and figuring out which kind it will be in advance is very difficult. I've been showing an idea for a sideways consolidation through the rest of this year based on the larger pattern before it and where I think it is in the large wave count. As long as it stays trapped between 93-100 there's not much to do with the dollar but wait to see which way it's going to eventually break, which I believe will be to the upside next year.

U.S. Dollar contract, DX, Weekly chart

Gold is looking like it could rally up to price-level resistance near 1141, which was a shelf of support since last November until breaking in mid-July. It would be at least short-term bullish above that level but remains bearish below it.

Gold continuous contract, GC, Weekly chart

Silver has already made it back up to its previous shelf of support since last November, near 15.25. An uptrend line from November 2014 (ignoring the spike down on December 1st) was tagged with last week's high at 15.58 but it then dropped back down below 15.25 for the weekly close and continues to struggle near this 15.25 resistance level. The bullish divergence on the chart continues to caution bears not to be aggressive on the short side but as long as support-turned-resistance holds price below 16 I would not look to get long silver.

Silver continuous contract, SI, Weekly chart

Oil has declined for eight straight weeks and has made mincemeat out of anyone who has tried to catch falling knives in this commodity (every week I read more trade recommendations to get long oil and the oil stocks because they're so low). I too have been expecting a bounce back up but the relentless decline has it looking like it could head lower still. I continue to show the potential for a large sideways triangle for a consolidation into next year but if it continues to head lower, especially down to its January 2009 low, it could put in a bottom sooner rather than later. Where that bottom could be (many other commodities have already broken below their respective 2009 lows) is anyone's guess but I do think it's risky trying to short it here.

Oil continuous contract, CL, Weekly chart

Thursday will finish up the week for economic reports and it will include the usual unemployment data and more importantly for the market, the Philly Fed index, which the market will be watching carefully to see if yesterday's Empire index is starting a pattern or instead was an outlier. Leading indicators is expected to show further slowing while Existing Home Sales is expected to be relatively flat from June.

Economic reports and Summary

Conclusion

The rally off last Wednesday's lows had the potential to turn into something more bullish, as in new highs into September, but that is no longer looking like a high-probability move. We could still get a higher bounce/rally but with the corrective 3-wave structure it would likely be a very sloppy choppy rally or it will be just a higher bounce before turning back down. The short-term pattern now better supports the idea that we'll see a continuation of the selling.

It's possible the selling could become quite intense over the next couple of weeks if the bearish wave counts are correct. With the problem of liquidity drying up in the markets (globally and especially in emerging markets) and all the currency devaluations happening (the race for the bottom), things could turn ugly in a hurry for markets. That's always a dicey prediction because market crashes are rare. Probably the best thing to say is that I see an elevated risk for a market crash at this point and that requires tight stop management on long positions.

Investors (those who don't want to trade in and out) should also establish a stop level, a break of which would convince you that the downside risk is greater than the upside potential. We're there now in my opinion but trend following says you should use your judgment for when the trend has broken and then honor your stops and get out. The risk is that stops could get triggered on a large gap down and either not be executed (if it was a stop-limit order) or be executed at a price much lower than your stop. Getting into a trade is much easier than getting out (it's the fear/greed factor) and the best time to make the decision about getting out is when you don't have to -- there's a reason why many money managers sell into rallies instead of panicking out in a decline.

We continue to be in a sideways choppy trading zone, which has been full of whipsaws as we get reversals of reversals and then another reversal for good measure. That could continue for months but I think what we're seeing is a topping pattern (rolling top), which typically sees a lot of chop like this. Following such a long bull market it's not hard to recognize a topping pattern could easily take a year. It's painful for traders and investors and it will be nice when we get a break out of this maddening trading range and start to make some money in swing and position trades again. In the meantime, stay safe and carefully manage your trading account.

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

Keene H. Little, CMT

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


New Plays

Look Out Below

by James Brown

Click here to email James Brown


NEW BEARISH Plays

FMC Technologies - FTI - close: 31.61 change: -1.02

Stop Loss: 33.15
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 19, 2015
Time Frame: Exit PRIOR to earnings on October 20th
Average Daily Volume = 3.1 million
New Positions: Yes, see below

Company Description

Trade Description:
The sell-off in energy stocks is heating up again. We are hearing more and more analysts calls for crude oil to fall into the low $30s. Today WTI crude oil closed at $40.66 a barrel. That's after a more than -55% drop from its 2014 highs.

FTI is in the basic materials sector. They're part of the oil services industry and stocks in this group tend to be more volatile than the larger integrated oil names. According to the company, "FMC Technologies, Inc. (FTI) is the global market leader in subsea systems and a leading provider of technologies and services to the oil and gas industry. We help our customers overcome their most difficult challenges, such as improving shale and subsea infrastructures and operations to reduce cost, maintain uptime, and maximize oil and gas recovery."

Like most oil-related businesses FTI has seen its revenues decline as oil companies cut back. FTI reported its Q2 results on July 21st. Net income fell -52% with a profit of $0.52 a share. That was 9 cents worse than expected. Revenues were down -14.6% to $1.7 billion, which was relatively in-line with estimates.

Management said their land technologies business saw sales fall -29% and its energy infrastructure business retreat -32%. Their subsea business only fell -7%. However, FTI management announced they were cutting their workforce in the subsea business. Ocean floor drilling is really expensive and FTI probably sees fewer jobs in the near future as major oil companies cut their capex budgets.

Shares of FTI plunged -10% following its earnings report. Yet there was little follow through lower. FTI spent almost three and a half weeks consolidating sideways in the $32.00-34.00 range. That changed today. The oil-sector weakness today sparked a bearish breakdown in FTI that pushed the stock below its trading range.

We suspect that FTI has just launched into its next leg lower. If $30.00 does not hold as support the next support level could be $25 or $22. The point & figure chart is bearish and forecasting a long-term target of $20.00. Today's low was $31.45. I'm suggesting a trigger to open bearish positions at $31.30.

Trigger @ $31.30

- Suggested Positions -

Short FTI @ $31.30

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

Buy the OCT $30 PUT (FTI151016P30) current ask $1.35
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

A Brief Rally On The FOMC Minutes

by James Brown

Click here to email James Brown

Editor's Note:
Weakness in the Chinese stock market and plunging oil prices remained in the spotlight today. The U.S. market managed a brief rally following the FOMC minutes but gains faded by the closing bell.

BFAM hit our entry trigger today.


Current Portfolio:


BULLISH Play Updates

Bright Horizons Family Solutions - BFAM - close: 62.69 change: -0.08

Stop Loss: 59.75
Target(s): To Be Determined
Current Gain/Loss: -0.6%
Entry on August 19 at $63.05
Listed on August 17, 2015
Time Frame: Exit prior to earnings in November
Average Daily Volume = 176 thousand
New Positions: see below

Comments:
08/19/15: The stock market's spike higher following the FOMC minutes was enough to lift BFAM above $63.00. Shares hit our suggested entry point at $63.05.

This play is open but I would wait for a rally past today's high of $63.11 before initiating new positions.

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.

- Suggested Positions -

Long BFAM stock @ $63.05

08/19/15 Triggered @ $63.05


ConAgra Foods, Inc. - CAG - close: 44.53 change: -0.31

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: -1.8%
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:
08/19/15: CAG followed the market lower today with a -0.69% decline. This stock looks headed for short-term support near $44.00 soon.

No new positions at this time.

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: 49.20 chg: -0.33

Stop Loss: 47.45
Target(s): To Be Determined
Current Gain/Loss: +1.8%
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:
08/19/15: HIG held up reasonably well considering the market's widespread weakness. If the market does accelerate lower I would expect HIG to dip into the $48.00-48.50 region.

More conservative traders might want to move their stop loss closer to the simple 20-dma, currently near $47.85.

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: 42.21 change: -0.39

Stop Loss: 39.70
Target(s): To Be Determined
Current Gain/Loss: -1.0%
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:
08/19/15: The market's decline today pressured HOLX to a -0.9% loss. Readers may want to wait for a rally past $43.00 before considering new positions.

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: 48.32 change: -0.32

Stop Loss: 45.85
Target(s): To Be Determined
Current Gain/Loss: +0.6%
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:
08/19/15: TSS dipped toward $48.00 before trimming its losses today. If the market continues to sink tomorrow we could see TSS test its prior highs in the $47.70-47.80 region.

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: 20.42 change: -0.63

Stop Loss: 19.80
Target(s): To Be Determined
Current Gain/Loss: -1.6%
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:
08/19/15: It was another rough day for the Chinese stock market. This may have pressured VNET shares lower. The stock underperformed with a -2.99% decline. The breakdown back below $21.00 is bearish. The nearest support is $20.00 and its 100-dma.

VNET is scheduled to report earnings on Wednesday, 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: 16.23 change: -1.25

Stop Loss: 18.15
Target(s): To Be Determined
Current Gain/Loss: +8.8%
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:
08/19/15: Crude oil crashed again with a -5% drop toward $40 a barrel. Analysts were expecting the weekly oil inventory number to show a decline. Unfortunately the U.S. Energy Information Administration said oil inventories rose +2.6 million barrels. This sparked a sell-off in crude oil and energy stocks were hammered.

Shares of MRO fell -7.15% to new multi-year lows. Tonight we are adjusting the stop loss down to $18.15.

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

08/19/15 new stop @ 18.15
08/17/15 began trading ex-dividend today ($0.21)
08/14/15 triggered @ $17.80
Option Format: symbol-year-month-day-call-strike


Micron Technology - MU - close: 15.90 change: -0.48

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

Comments:
08/19/15: Shares of MU continued to sink, right on cue. Yet the stock didn't sink enough. The intraday low was $15.88. Shares settled with a -2.9% decline. Our trigger to launch bearish positions is currently at $15.85, which will likely be hit tomorrow morning.

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 $1.05
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


Whiting Petroleum - WLL - close: 17.73 change: -1.44

Stop Loss: 20.35
Target(s): To Be Determined
Current Gain/Loss: +10.7%
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:
08/19/15: The crashing price of crude oil weighed heavily on energy stocks and WLL plunged -7.5%.

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