Option Investor
Newsletter

Daily Newsletter, Monday, 8/24/2015

Table of Contents

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

Market Wrap

Could It Be Capitulation

by Thomas Hughes

Click here to email Thomas Hughes
Global woe, tepid earnings, low oil, mixed data and FOMC speculation has been weighing the market down, today it may have capitulated.

Introduction

Many factors have been weighing on the market. Global woe, mixed data, Chinese currency manipulation, low oil prices, Greece and weak earnings growth have each played their part. A confused market began to sell off last week, the sell off turned into a correction and today may have reached the point of capitulation.

Futures on the major indices had been negative in early trading but nothing like what we saw going into the opening bell. A major sell-off in China was today's primary news, there were no economic releases and no earnings reports of note. The Shang Hai index fell more than -8% and closed at those levels, driven no doubt by ongoing market skittishness and government intervention. Other indices in Asia fell as well, but in the range of -4% to -5%.

Market Statistics

European markets were equally affected by the sell-off in Asia and our market last Friday. They lost -3% to -4% and were able to move up off of the lows before the end of the day. Futures trading here are home indicated an open -2.5% - 3% lower in the early part of the pre-market session. This deepened to greater than -5% by the opening bell. The open saw a rush to get out of the market with the indices gapping lower and moving down to reach indicated levels and lower within the first 5 minutes of trading. The move sparked support, as often happens on days like this, and was able to generate a bounce back rally that more than halved the initial decline.

By 10:30 the indices were hovering with losses near -2.75% and held these levels for the next hour. By early afternoon they had regained nearly all of the losses, coming within a percentage point in most cases. This level held for an hour so but eventually began to falter. Later afternoon saw the indices fall back to roughly -4.5%, nearly to the early lows but not quite, where they managed to find some buyers. A few minutes of consolidation led to another rally that sent the indices back up to close with losses of only 3.7%-3.9%.

Economic Calendar

The Economy

There was no official economic data today. There is some important data due out this week, and next week will probably be even more significant. Tomorrow we get the Case Shiller 20, Housing Price Index, New Home Sales and Consumer Confidence. Wednesday is Durable Goods, Thursday is jobless claims, Pending Home Sales and the 2nd Estimate For 2nd Quarter GDP. Friday is Personal Income and Spending, and Michigan Sentiment. GDP is expected to rise from 2.3% to 3.1%. A miss here would not help sentiment. Next week is the turn of the month, which means lots of macro data including the jobs bundle; ADP, Challenger, Claims, NFP and Unemployment.

There is no new earnings data from FactSet this week. At last report 2nd quarter earnings growth was -1% with 81% of the S&P 500 reporting. By next week another 15% or more will have reported so I expect the blended rate to go up. Ex-energy earnings growth was 5.5% with 73% of all companies beating earnings expectations. Third quarter growth was still expected to be negative, but with the likelihood of it reaching positive levels based on recent earnings trends. 2016 S&P 500 earnings growth is expected in the range of 10-12%.

Moody's Survey Of Business Confidence declined slightly but remains near the all-time high. This week's reading is 44.2, -0.3 from last week's 44.5. In his summary Moody's economist and survey creator Mark Zandi said market volatility had not yet made an impact on results and that global businesses remain upbeat. US business lead, Asian lag but all are positive. US businesses are characterized as reporting robust sales, sturdy pricing and ample credit.


The Oil Index

Oil prices sank to new lows. China has taken the fore front in the eyes of energy traders. Fear of slow down is fueling concern for demand outlook while supply and production remain high. WTI and Brent both fell more than 5% in today's action hitting new lows. No sign of a bottom is present here and without a change in supply/demand perspective oil could go much lower. At this time price outlook for 2016 has WTI trading near $50 on average.

The Oil Index gapped more than -8% lower at the open but managed to regain some of the loss before the close. Despite the drop, the index was able to make a white candle with long upper shadow and looks poised to snap back and retest my recently broken resistance line near 1,180. I say this because today's move leaves the index extremely extended, well below the short term moving average and far out side their deviation bands with only weakly bearish momentum and stochastic consistent with longer term support and highly divergent from prices. Upside targets are near 1110, 1180 and 1200. Support target is near the bottom of today's candle just above the 1,000 level.


The Gold Index

Gold prices fell about $5 but are basically holding steady above $1150. Price has snapped back on a recent rapid decline in dollar value driven primarily on FOMC outlook. Weakness in China is adding to fear of a US slowdown sparked by some of last week's data. Together they are spurring speculation of a later rather than sooner rate hike, weakening the dollar and lifting gold. Add in the volatility of global markets and the flight to safety and gold trades near a two month high. If the rate hike does get pushed back significantly then gold could trade much higher with $1180, $1200 and $1215 as targets. Data will continue to be important, so long as it remains strong we can not rule out a rate hike.

The gold miners ETF GDX fell a little over -7% in today's action. The ETF created a long black candle and broke the short term moving average with mixed indicators. The indicators are mixed but stochastic is showing a bearish cross with bullish momentum on the decline so it is possible we could see another move down to support. Regardless of today's action in gold, with it trading near $1150 and oil below $40 the miners profitability potential increases making them buy. It looks like $13.00 is support with upside resistance in the range between $15.50 and $16.50.


In The News, Story Stocks and Earnings

The dollar was a big mover in today's session. The Dollar Index DXY fell more than -2% to test recent support levels and bounced back from them. Support was met at $92.50 with a move back above the previous 7 month low a positive sign. However, both indicators are weak and weakening, supportive of at least a retest of the new low if not new lower prices. Data and FOMC outlook will be the biggest factors over the next few weeks but global woes and their possible affect on the US economy will take their toll as well.


No significant earnings reports today but there are a few to take note of this week, man of which in the retail sector. One of which is Best Buy. The consumer electronics company is expected to report $0.34 per share, down 3 cents from the previous quarter and ten cents from the comparable quarter last year. Expectations for next quarter are flat from this quarter and last year. The company has been struggling to maintain relevancy in the era of internet shopping so any signs of improvement and/or positive surprise will be welcome. Today the stock gapped lower at the open, dropping more than -5%, but regained all of the loss by end of day. This could be a sign of optimism going into tomorrow's earnings report but a new 12 month intra-day low was set and volume was light.


Toll Brothers is reporting its earnings tomorrow as well. The home builder is expected to report $.50 per share, 35% higher than last quarter and 10% above the comparable quarter last year. Based on recent housing data estimates could be light. Existing home sales was better than expected and Home Builder Confidence is at long term highs. New Home Sales data is due out tomorrow as well. Today the stock gapped lower and tested support but did not quite regain as much as the broader market. The short term moving average provided resistance and capped gains at $39.25 and left it with a loss near $38.50 at the close.


Intel was one of only a handful of S&P stocks to trade in positive territory today. At least half of those that were are tech stocks, and at least marginally connected to the semiconductor industry. Intel and others in the space have been under pressure over the past few quarters as sluggish growth and a rapidly changing environment has weighed on earnings. Today Intel opened at a new 12 month low but found support and regained all of the loss and more, on an intra-day basis at least. Intra-day volatility saw the stock up as much as it was down, leaving it with a loss more than -1% at the close of day.


The Indices

The indices moved lower right from the start and nearly just as fast were bouncing back. The bears were definitely in control but the bulls held their ground once they got into the fray. Today's action was led by the S&P 500 which closed with a loss of -3.92%. The broad market created the largest candle I've seen and broke through numerous support levels. Today's action found support above 1,850 and the low set by the correction last October. The indicators are bearish and consistent with low prices so a test of the low set today is very likely.


The NASDAQ Composite was the next biggest loser in today's action. If not for the rebound in chip makers it would have been today's loss leader. The tech heavy index created a long white candle, after gapping nearly -8% lower, with long upper and lower shadows. The upper shadow is very pronounced, revealing that selling pressure is still present, but also revealing that buying pressure is present as well. The indicators are moving lower with strong momentum convergent with prices so a retest of the lows is likely.


The Dow Jones Industrial Average shed only -3.58%, about -588 points, after falling more than 1000 points at the low of the day. Price action created a long bodied candle, black, with long lower shadow indicative of support. The indicators are bearish and pointing lower so a retest of the day's low, near 15,500, is likely. Volume is on the rise here as well, nearly triple the past 30 days average, adding weight to any signals given. Support appears to be present near 15,800, just above the low set last October.


The Dow Jones Transportation Average made the smallest decline, only -3.52%, but did not close above support levels set last fall. Some support is indicated though by the long lower shadow and rising volume levels but it may not have been reached yet. The indicators are bearish and moving lower so the new low set by the indicator could be retested in the least. So far the transports have been leading the broader market lower, if this keeps up today's action could be an ominous sign.


It was a volatile day of trading and there was not really a cause for it. Sure, there are lots of reasons to have caution but no real reason for the market to correct. The economy isn't tanking, earnings aren't in the toilet. The economy is trending higher, earnings are flat this time around but expected to grow in the next quarter or so. Too many near term and peripheral issues got the market wound up and now it is unwinding. It is no coincidence that this is happening now, we just had an expiration Friday and we are on the cups of the fall trading season and September FOMC meeting/rate hike lift off, but it is surprising how deep the correction is.

Today's move may have been sparked by capitulation. If so we could see them begin to bounce back as early as tomorrow but that may be wishful thinking. A positive sign is the level of today's volume. Volume, using the SPY S&P 500 index tracking stock as a proxy volume has been on the rise over the past three days and 4 times the previous 30 days average.

Today's move had cause. There reasons to fear. However, today's move also look over blown. Near term fears and news have caused volatility but long term trends are positive. There could be more down side but I really don't see a reason for reversal. This is most likely just another dip, a really big dip, but another dip, it'll play out and the bull market will carry on. There is a lot of data this week, GDP top of the list, with even more due out next week, including the Fed's Beige Book.

The really ominous sign is the Dow Transports. They set a new low today. The transports have been in correction for two months and led the broader market there as well. If this leadership continues we could see lower prices on the indices as well.

Until then, remember the trend!

Thomas Hughes


New Plays

Trading The Market's Volatile Moves

by James Brown

Click here to email James Brown


NEW BEARISH Plays

iPath S&P500 VIX Futures ETN - VXX - close: 24.37 change: +3.65

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August 25 at $---.--
Listed on August 24, 2015
Time Frame: 2 or 3 weeks
Average Daily Volume = 50 million
New Positions: Yes, see below

Company Description

Trade Description:
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

chart of the volatility index (VIX)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

Short the VXX at the open tomorrow morning.

- Suggested Positions -

Short the VXX @ the opening bell.

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

Buy the OCT $20 PUT (VXX151016P20) current ask $2.31
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Plunge With Another Global Panic

by James Brown

Click here to email James Brown

Editor's Note:
The market mania on Monday was all bearish as stock collapsed at the open. Big declines overseas, especially in China, fueled another round of panic selling. Stocks did see a big bounce intraday but the rebound rolled over into the close.

BFAM was stopped out. The XHB trade did not open.

We have updated stop losses on all of our bearish trades.


Current Portfolio:


BULLISH Play Updates

We do not have any active bullish candidates.

The market's collapse in the last three days has been extreme.



BEARISH Play Updates

Continental Resources - CLR - close: 27.16 change: -2.85

Stop Loss: 29.65
Target(s): To Be Determined
Current Gain/Loss: +9.0%
Entry on August 21 at $29.85
Listed on August 20, 2015
Time Frame: Exit 6 to 9 weeks
Average Daily Volume = 3.4 million
New Positions: see below

Comments:
08/24/15: Shares of CLR were downgraded to a "neutral" today. That just poured salt on the wound as energy stocks underperformed. Shares gapped down at $25.00 and tagged $22.58 at its lows. CLR managed to pare its losses but still underperformed the market with a -9.49% decline.

Tonight we are moving the stop loss to $29.65.

No new positions at this time.

Trade Description: August 20, 2015:
Unless you have been living under a rock for the last year then you already know crude oil is getting crushed. Oil is down nearly -60% from its 2014 highs. Today oil closed at $40.94 a barrel. More and more we are hearing analysts forecasting oil in the low $30s. A few outliers are suggesting oil in the $20s or even lower. That's because so far none of the oil producers have been willing to cut production.

OPEC is producing as much oil as they can. Russia is producing as much as they can. Iraq is boosting its production. If the Iran nuclear deal gets approved then they will start unloading more oil on the market. The problem is that all of these producers are desperate. They need the cash flow. OPEC has been trying to price U.S. producers out of the market but American energy companies have been resilient and U.S. production remains near all-time highs.

Put it all together and we have high oil production as demand stalls. The global economy, especially China, is slowing down. That means less demand for oil. Add to that a rising dollar and you have a very bearish recipe for commodities. Today oil is trading at levels not seen since 2009. The market is worried that crude oil won't bottom until we see a number of bankruptcies in the U.S. energy sector. Anyone with a high debt load is being seen as a risk.

CLR is in the basic materials sector. According to the company, "Continental Resources (CLR) is a Top 10 independent oil producer in the United States and a leader in America's energy renaissance. Based in Oklahoma City, Continental is the largest leaseholder and one of the largest producers in the nation's premier oil field, the Bakken play of North Dakota and Montana. The Company also has significant positions in Oklahoma, including its SCOOP Woodford and SCOOP Springer discoveries and the Northwest Cana play. With a focus on the exploration and production of oil, Continental has unlocked the technology and resources vital to American energy independence and is a strong free market advocate in favor of lifting of the domestic crude oil export ban. In 2015, the Company will celebrate 48 years of operations."

The plunge in oil prices is very evident in CLR's revenues. Their 2014 Q4 results saw revenues down -0.1% to $902.3 million. 2015 Q1 revenues were down -41% to $592.8 million. 2015 Q2 revenues were down -30% to $790 million.

The trend is lower. While we are short-term bearish on the stock I have to give credit to CLR for their ability to manage costs. The company has been doing a great job cutting expenses and boosting efficiencies. Through the first half of 2015 CLR has managed to reduce their costs by -20%. They see further efficiencies throughout 2015 and just lowered their estimated cost per barrel of oil by another $1.00.

When oil finally finds a bottom CLR should be a winner. Unfortunately, in the meantime, investors are selling everything in the oil business. CLR's high debt load, about $7 billion, is a negative. Bulls can argue that yes, CLR has high debt, but none of it is due until 2019. Hopefully by then crude oil will have recovered.

The challenge is that crude oil may not recover any time soon. There is a growing camp of analysts forecasting oil in the $30s for much of 2016. That's bad news for CLR. The company's CEO Harold Hamm said if crude oil is under $50 a barrel they will have cash flow issues (outspending their cash inflow).

Technically the trend for CLR's stock is down. Shares of CLR have declined toward major support near $30.00. A breakdown here would be very bearish. A drop under $30.00 would also generate a new sell signal on the point & figure chart.

My biggest concern is volatility in the stock. There are already a lot of investors who are bearish on CLR. The company has 370 million shares outstanding but only 82 million shares in their float. The most recent data listed short interest at 18% of the float. Traders may want to use options to limit their risk. Tonight I am suggesting a trigger to open bearish positions at $29.85.

- Suggested Positions -

Short CLR @ $29.85

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

Long DEC $28 PUT (CLR151218P28) entry $3.40

08/24/15 new stop @ 29.65
08/21/15 triggered @ $29.85
Option Format: symbol-year-month-day-call-strike


FMC Technologies - FTI - close: 28.99 change: -1.02

Stop Loss: 30.15
Target(s): To Be Determined
Current Gain/Loss: +7.4%
Entry on August 20 at $31.30
Listed on August 19, 2015
Time Frame: Exit PRIOR to earnings on October 20th
Average Daily Volume = 3.1 million
New Positions: see below

Comments:
08/24/15: Shares of FTI ricocheted between its morning low near $28.00 and potential resistance at $30.00. Tonight we are adjusting the stop loss down to $30.15.

No new positions at this time.

Trade Description: August 19, 2015:
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.

- Suggested Positions -

Short FTI @ $31.30

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

Long OCT $30 PUT (FTI151016P30) entry $1.40

08/24/15 new stop @ 30.15
08/22/15 new stop @ 31.55
08/20/15 triggered @ $31.30
Option Format: symbol-year-month-day-call-strike


Marathon Oil Corp. - MRO - close: 14.39 change: -1.34

Stop Loss: 15.55
Target(s): To Be Determined
Current Gain/Loss: +19.2%
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:
08/24/15: Shares of MRO were also downgraded this morning. The stock opened lower at $14.51. The intraday bounce failed at $15.24. We are adjusting the stop loss down to $15.55.

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

08/24/15 new stop @ 15.55
08/22/15 new stop @ 17.05
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: 14.44 change: -0.09

Stop Loss: 15.65
Target(s): To Be Determined
Current Gain/Loss: +5.9%
Entry on August 20 at $15.35
Listed on August 18, 2015
Time Frame: Exit prior to earnings in late September.
Average Daily Volume = 28.4 million
New Positions: see below

Comments:
08/24/15: I am urging caution on our MU trade. The stock market is in crash mode and MU only lost -0.6% today. That compares to a -3.9% drop in the NASDAQ composite. The SOX semiconductor index lost -2.0%.

Traders bought the dip in MU at $13.50 this morning. The bounce failed near recent resistance in the $15.40 area. Tonight we are adjusting the stop loss down to $15.65.

No new positions at this time.

Trade Description: August 18, 2015:
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.

- Suggested Positions -

Short MU stock @ $15.35

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

Long OCT $15 PUT (MU151016P15) entry $1.26

08/24/15 new stop @ 15.65
08/22/15 new stop @ 16.15
08/20/15 Triggered on gap down at $15.35, suggested entry was $15.85


Whiting Petroleum - WLL - close: 14.91 change: -0.93

Stop Loss: 16.25
Target(s): To Be Determined
Current Gain/Loss: +24.9%
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:
08/24/15: WLL also had a rough start to its day with another analyst downgrade. Shares were cut to a neutral after an 12-month plunge from $92 to $15 (nice job, analyst!).

WLL dipped to $13.50 intraday. The bounce pared its loss to -5.8% by the close. Tonight we are moving the stop loss down to $16.25.

No new positions.

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

08/24/15 new stop @ 16.25
08/22/15 new stop @ 18.05
08/05/15 new stop @ 20.35
08/05/15 new stop @ 21.25
08/03/15 triggered @ $19.85
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Bright Horizons Family Solutions - BFAM - close: 59.34 change: -2.10

Stop Loss: 59.75
Target(s): To Be Determined
Current Gain/Loss: -5.7%
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:
08/24/15: The market collapse on Monday was too much for BFAM. Shares broke down below support near $60 and its 50-dma. Overall the stock is still holding up better than the broader market but our trade was closed today. We had a stop loss at $59.75 and BFAM gapped open lower at $59.43.

- Suggested Positions -

Long BFAM stock @ $63.05 exit $59.53 (-5.7%)

08/24/15 stopped out on gap down at $59.43
08/19/15 Triggered @ $63.05

chart:


SPDR S&P Homebuilder ETF - XHB - close: 35.64 change: -1.63

Stop Loss: 35.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 22, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.3 million
New Positions: see below

Comments:
08/24/15: Wow! You don't see days like today very often. The trading in XHB was unreal. Shares gapped down at $35.23 and plunged to $31.70 this morning. That means this ETF was down -14.9% intraday. Shares rallied back up to $36.72 midday before rolling over again.

Our plan was to launch bullish positions on a dip at $36.75 with a stop at $35.25. The XHB completely jumped past both.

We are removing the XHB as a trading candidate.

Trade did not open.

08/24/15 removed from the newsletter. Suggested entry was $36.75
Option Format: symbol-year-month-day-call-strike

chart: