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Daily Newsletter, Tuesday, 8/25/2015

Table of Contents

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

Market Wrap

That Was Unexpected

by Jim Brown

Click here to email Jim Brown

The very oversold market rebounded at the open with the Dow up +441 points. Unfortunately, it did not hold with a -650 point decline into the close. This was a very bearish signal.

Market Statistics

The markets were very oversold on at the close on Monday despite the +500 point rebound off the lows. S&P futures rallied overnight by nearly 50 points and a monster short squeeze was born. Despite the +441 Dow gain at the high the internals were weak. Volume was only mediocre and advancers were only about 3:1 over decliners. Given the oversold conditions, the short squeeze was very thin and lacked any follow through. Sellers appeared exhausted and the only buyers were the shorts.

Fast forward to Tuesday afternoon and sellers returned in volume. The market-on-close orders were 95% to the sell side with $3.5 billion in stock for sale. Once the indexes rolled over the selling accelerated. Shorts knocked out at the open came back into the market along with a lot of institutional selling.

Two factors stood out to me. The S&P never got back to the intraday highs from Monday at 1,954. The high today was only 1,948. That is a warning sign. The second was the low at 1,867.08. Monday's low was 1,867.01. As much as I would like it to be, that is not a double bottom. Most double bottoms are formed over weeks or months, not in back-to-back trading days. It can happen but I would not count on it.

What this tells me is that the global economic worries and the currency crisis in the emerging markets is not yet factored into the market. Early Tuesday I thought maybe China was now old news since the Shanghai market closed down -7.63% and under the psychologically important 3,000 level. Our market still rallied at the open and it appeared to ignore China.

After the market close in Shanghai, China cut interest rates for the fifth time in nine months and the reserve rate for the third time. They did it after the close and in the middle of the week. Normally those moves are done on Sunday night before the market opens. This suggests they were trying to trap the shorts and produce a monster short squeeze on Wednesday. China promised to support the market but their actual support did not work. This post close announcement "should" push the market higher on Wednesday. It is possible this announcement erased the negativity over the Shanghai market decline for U.S. investors.


The Dow closed -650 points off its highs. You have to go back to the financial crisis and October 2008 for a reversal that bad.

The afternoon selloff also coincided with a Bloomberg article released at 1:56 ET about Citigroup sticking with their call for a rate hike in September. The bank's economists, led by William Lee, interpreted the FOMC minutes differently than other analysts. Citi said the increased concerns by policy makers over financial stability "cemented the case for a rate hike in September."

Other banks had pushed their forecasts for a rate hike well into the future after China's meltdown, emerging market currency crisis and the U.S. market correction. Barclays said on Monday they had pushed their forecast out until March. The Fed funds futures had been projecting between 55% and 65% chance for a hike in September and they dipped below a 26% chance late last week. Citi pointed to the appearance by Fed vice Chair Stanley Fischer at the Jackson Hole economic policy symposium as the wild card in their forecast. If Fischer expresses further concerns about declining inflation, Citi believes that would be a major change in the Fed stance. Yellen will not be attending the Fed conference. There are whispers that Fischer is being groomed to take over Yellen's job in the near future. He is more hawkish than Yellen. Whether the news from Citi had any impact on the market is unknown.

Later in the day, Mohamed El-Erian said volatility in global financial markets is worrisome and will hamper the Fed's ability to raise rates in September. He said the Fed missed its chance to hike rates a few weeks ago when the economic signals were stronger, the financial markets were in relatively good shape and the international economy was neutral. The second two factors "have turned violently against the Fed, so I don't think the Fed will take the risk of hiking in this environment."

Bridgewater's Ray Dalio said the next Fed move could be further easing with another period of QE. Dalio said the risks of deflationary contraction are increasing relative to the risks for inflationary expansion. Dalio said the banks have few tools left to combat another deflationary cycle and the risks are weighted to the downside. Three rounds of QE plus Operation Twist added $3.7 trillion to the Fed's balance sheet and Dalio believes they are not done regardless of how badly they want to raise rates. He believes the Fed must keep rates low to keep government borrowing costs low on the $8 trillion in debt the government has added since the financial crisis to bring the total debt to nearly $19 trillion.

While the analysts in the U.S. are blaming China for the market rout, the PBOC is blaming the Fed. Yao Yudong, head of the PBOC Research Institute of Finance, said the expected Fed rate hike was responsible for the wild market swings. PBOC analysts are worried that the Fed rate hike could accelerate the plunge in U.S. stocks and trigger a sell-off of assets worldwide and even a new global credit crisis.

Regardless of who, if anyone, is to blame for the current global sell off it is clear that the global economic worries are not yet factored into the markets. Sixteen of the top 30 global markets have already declined into bear territory with declines of more than 20%.

The Emerging Market ETF (EEM) is at post crisis lows despite a minor gain today. The Chinese yuan is still declining and pushing other emerging market currencies lower.


There was a flurry of economic reports today but none of them were market moving. The Case Shiller Home Price Indexes showed prices were up +5% in June over June 2014. No surprise there. The FHFA Purchase Only House Price Index showed a gain of +5.6% over the same period.

New home sales for July rebounded from the June dip to 507,000. That was up from 481,000 in June but down from 521,000 in May. Sales rose in the Northeast, South and West but declined -6.9% in the Midwest. There is a 5.2-month supply of homes on the market. The average home price rose from $279,700 to $288,300.


There was some bad news in the manufacturing sector. The Richmond Fed Manufacturing Survey for August declined from 12.6 to zero. The new orders component fell from 17.4 to 1.0 and backorders declined from 9.7 to -15.1. This follows a decline in the NY Empire Manufacturing Survey last week from 3.9 to -14.9. It is hard to see how the Fed can raise rates when the regional surveys are collapsing. The separate services Survey declined from 32 to 30.



Consumer Confidence for August rose from 91.0 to 101.5 and well over expectations for 93.3. This was the highest level since January. Both internal components posted solid gains. The present conditions component rose from 104.0 to 115.1 and the expectations component rose from 82.3 to 92.5.

The headline numbers did not carry over into the buying patterns of participants. Those respondents planning on buying a car declined from 11.8% to 10.6%, homebuyers declined from 5.9% to 4.1% and appliance buyers fell from 52.1% to 48.9%.

More than 21.9% of respondents claimed jobs were plentiful. However, an equal number of 21.9% said jobs were hard to find but that fell -6.5% from the prior month.


The big report for the week remains the GDP for Q2 on Thursday. Since last week, the expectations have risen from 3.0% growth to 3.2%. I remain in the more bearish camp and expect a number under 3%.

The Kansas Fed Manufacturing Survey will round out the week and hopefully it will improve from the -7.0 reading from July. The Kansas survey is heavily influenced by the automobile manufacturers. Over the summer, automakers cancelled the normal vacation shutdowns and worked extra shifts to accommodate the high demand for vehicles. This suggests the Kansas survey could reflect these positive conditions.


Earnings on tap for tomorrow include Abercrombie & Fitch (ANF) and Avago Technologies (AVGO). Retailers Chicos Fashions (CHS) and Guess (GES) will also report.


Earnings out this morning were highlighted by Best Buy (BBY). The company reported earnings of 49 cents compared to estimates for 34 cents. Revenue of $8.53 billion beat estimates for $8.29 billion. This marked the fifth consecutive quarter of earnings increases. Not bad for a company almost given up for dead a couple years ago.

Same store sales rose +3.8% due to sales in major appliances, large-screen televisions, mobile phones and health and fitness devices. Analysts were only expecting a +1.3% increase. These sales caught everyone off guard since sales in the industry for electronic devices have declined -1.9% in Q2. Computing and mobile phones accounted for 47% of sales, consumer electronics 32%, appliances 10% and entertainment products 6%.

Best Buy said sales would grow in the low single digits in the current quarter. Gross margins also increased from 23.4% to 24.6%. Online sales increased +17%.

The company also said demand was so strong it was expanding the Apple Watch offering from 350 stores to 1,050 stores in time for the holidays. The company said sales were off to a strong start since they began on August 7th. By September 4th, they will have watches in 900 stores with expansion into all 1,050 big box stores by the end of September. They are also expanding the Apple store-within-a-store sections at 740 stores. There will be new fixtures and more display tables for iPhones, iPads, Mac computers and the Apple Watch.

They are also increasing the number of Microsoft, Samsung and Sony store-within-a-store sections with new fixtures and more products. Apparently Best Buy has found the right combination of products, services and presentation to compete favorably with Walmart and Amazon. Shares rose +3.68 in a bad market.


Toll Brothers (TOL) reported earnings of 42 cents compared to estimates for 50 cents. Revenue of $1.03 billion also missed estimates for $1.05 billion. The homebuilder said lower realized prices and slower sales impacted earnings. They blamed higher mortgage rates for a slowdown in orders 9-12 months ago. Costs also rose as it opened new communities. Their average sales price declined from $732,000 to $724,000. Deliveries declined -2% to 1,419 homes. Shares declined -8% on the news.


Shoe retailer DSW Inc (DSW) reported earnings of 42 cents, which matched analyst estimates. Revenue of $627.2 million missed estimates for $635 million. The company projected full year earnings of $1.80-$1.90. Sales rose +1.8% compared to estimates for +3.8%. The company said it was trying to improve margins by reducing clearance events. Shares declined -11% on the news.


Crude prices rose 85 cents in the regular session but remain right at $39 tonight. The bounce was short covering ahead of Wednesday's EIA inventory report. Crude has risen on 10 of the last 12 Tuesdays ahead of the report. Analysts are united in the outlook for lower lows and suggest shorting any bounce in WTI. Crude prices dipped to a 6.5-year low at $37.75 on Monday during the market crash.


Markets

Where do I start? What a week and it is only Tuesday! The Dow is down -1,811 points in just the last seven days. That is a whopping -10.4% decline and it looks like we are going lower. The S&P futures are down -16 points at 8:PM.

The S&P is in crash mode with 66% of the stocks, probably more now, down over 10%. Of those 31% are in a bear market with declines of more than 20% as of Friday's close. Given the last two days of trading that is probably significantly higher today.

I thought we had a good chance of a capitulation event on Monday. Volume was nearly double an average day. 52-week lows were 30:1 over 52-week highs. Decliners were 10:1 over advancers and declining volume was 13:1 over advancing volume. Those are all typical statistics for a capitulation day where all the weak holders were flushed and all the stop losses were erased.


I expected a short squeeze on Tuesday. Typically when the markets are down more than 3% over two days there is an oversold rally the next several days. We got the squeeze but it was lackluster with only mediocre volume in the morning and advancers only about 3:1 over decliners.

I looked at several hundred individual stock charts tonight and the vast majority were ugly. Most did not rebound back to their intraday highs from Monday and most closed well into negative territory.

For weeks I have been showing the chart of the Bullish Percent Index on the S&P-500 with the percentage of stocks with a bullish Point and Figure chart holding at about 53%. The dam has broken. That percentage has fallen to only 22.4% over the last four days. That is easily the most bearish chart in my wrap tonight. The last time we were at this level was October 2011.


The percentage of S&P stocks trading under their 200-day average has also fallen off a cliff from 65% to 17.6%.


The percentage under the shorter-term 50-day average fell to only 4.6%. That is getting awfully close to the 0.4% low from October 2011.


Those three charts show us where we have been and where we are now. They do not show where we are going. However, the bearishness has hit so hard and so completely that it easily suggests a counter trend move is due soon.

Markets rarely become so over balanced. They tend to remain in standard norms whether they are moving up or down. The severity of the decline is so extreme that we should expect a serious rebound soon.

At this point if I could run Aladdin's magic lamp and get a free wish I would ask for a continued drop to 1,820 and the October 2014 intraday low. With sentiment already so bearish, another 47-point decline would not be the end of the world. What that would do is free all the closeted bulls to buy the dip, confident that the bottom had arrived. Unfortunately, I do not have a magic lamp.

However, in the time it took me to type the last 15 paragraphs and copy the charts the S&P futures have rebounded from -16 to +3. Something, somewhere has reversed sentiment in a big way. Whether it will hold until morning is anybody's guess.

There is no material support from today's close at 1,867 to that 1,820 low from October. If we do open lower on Wednesday, there is nothing to stop a continued decline.

Resistance is now 1,950-1,955 and roughly the intraday high from Monday.



The Dow touched 15,370 as the intraday low on Monday. That is just above the 15,340 low from February 2014. A full 18 months of gains were wiped out in a little more than two weeks. To say the Dow was oversold would be an understatement.

Ten Dow stocks are already in a bear market. Those are:

DD -34%
PG -24%
CVX -43%
CAT -33%
XOM -29%
UTX -26%
IBM -25%
AXP -20%
WMT -28%
INTC -24%

On the positive side this should be very strong support assuming China does not meltdown again. They say bull market corrections are short, sharp and scary. I would say this one definitely qualifies.

If we do move lower on Wednesday I would look for a retest of those Monday lows.



The Nasdaq Composite was the best-behaved index with a decline of only 19 points but that does not tell the entire story. The intraday high was 4,689 and the close at 4,508. That is a -181 point decline from the highs. Under normal circumstances, the Nasdaq does not move 181 points in a month, much less in one day.

The big cap favorites sprinted out of the gate at the open with Netflix and Apple posting big gains on multiple upgrades. Netflix closed with a +4.64 gain but that was -$7 off its highs. Apple closed with a fractional gain and -$8 off its highs. There were buyers for the tech stocks but they were covering shorts rather than buying for an investment. Once that short covering faded, it was back to the lows again.

The Nasdaq has not declined as much relative to the October lows at 4,130. We would have to fall another 370 points to test those same lows the other indexes are already testing. This is because the Nasdaq big caps have supported the market for the last six months.

There is light support around 4,320 and then 4,130. Resistance is the 4,695 level and the intraday high from Monday.



The small caps closed at a lower low at 1,104 and -2 points below the intraday low on Monday. This is a bearish signal that suggests the S&P will not hold its intraday lows. The small caps had been relatively stronger due to their lack of impact from the strong dollar and the Chinese yuan. However, when markets are crashing you sell what you can to raise money, not what you want to sell.

Support would be the 1,050 level from the October lows. Resistance is 1,140.


The Vanguard Total stock market ETF (VTI) tested the October lows at $93.78 on Monday and closed at $97 on Tuesday. This suggests the broader market was not quite as weak on Tuesday. This is an index of 3,814 stocks.


I have no bias for the market on Wednesday. While I typed and prepared the last ten paragraphs and charts the S&P futures went negative again to -7. The volatility is extreme and we could easily go in either direction tomorrow. About the only guarantee is that it will be a quick trip.

The market is very oversold and this kind of volatility is typical of tops and bottoms. What we are seeing is the indecision by both buyers and sellers. It is hard to predict a rebound since the short squeeze today was erased so quickly. The volume is so high it has to be coming from institutions and funds and quite a few appear to be liquidating rather than simply taking profits or restructuring their portfolios.

Remember, August and September are the two worst months of the year for the markets. So far August has exceeded its historical norms. Let us hope that September does not follow suit.

In a bull market correction, we normally have a series of negative days that are eventually punctuated by a "high intensity" low. That would be the drop on Monday. After that low there is normally an oversold bounce that lasts for 2-3 days. We got the bounce but it did not last and that suggests a lower low ahead. After the rebound there is normally a retest of the high intensity low followed by a smaller bounce and sometimes a lower low. These bottoms are not made in a couple days. They normally take several weeks. While everyone is hoping for that big "V" bottom, they rarely occur in that manner. Be prepared for continued volatility in both directions.


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Enter passively, exit aggressively!

Jim Brown

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New Plays

Prepare For Another Dip

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Starbucks - SBUX - close: 51.09 change: +0.75

Stop Loss: None. No stop loss at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 25, 2015
Time Frame: Exit prior to earnings in October
Average Daily Volume = 8.0 million
New Positions: Yes, see below

Company Description

Trade Description:
The sell-off in shares of SBUX is a bit ridiculous. The Thursday-Friday-Monday sell-off in the market saw SBUX fall from $57.59 to $42.05. That was a -27% drop in less than three days. The company's fundamentals didn't deteriorate -27%. The recent market turmoil presents an opportunity to buy SBUX. Jump to the bottom of this play description for details.

Here's a little bit about SBUX and the company's performance:

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

Earnings results:

It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.

SBUX reported its Q2 (2015) on April 23rd. Earnings of $0.33 a share were in-line with estimates. Revenues were up +17.8% to $4.56 billion, slightly above expectations. It was their strongest growth in four years. Customers are responding well to new drink options and an updated food menu. They're also developing new delivery options, mobile pay options, and alcoholic drinks available at select locations.

Worldwide same-store sales grew +7%. This was significantly above estimates. It also marked the 21st consecutive quarter where SBUX's comparable store sales were +5% or more.

The company issued mixed guidance. The stronger dollar is having an impact. They see fiscal 2015 results in the $1.55-1.57 range. That compares to Wall Street estimates for $1.57 per share. However, the company's revenue estimates are more optimistic. They're forecasting +16-18% sales growth into the $19.1-19.4 billion zone compares to analysts' estimates of $19.1 billion.

The trend of earnings pops continued in July with shares gapping up to new all-time highs following its Q2 report on July 23rd. Earnings were $0.42 per share, a penny above estimates. Revenues were up +17.5% to $4.88 billion, just a hair above expectations. Global same-store sales were up +7% and their non-GAAP operating margin improved 100 basis points to 19.5%. Management is still guiding 2015 revenues to rise +17% in the $19.1-19.4 billion range.

Recent Sell-off & Entry Point

The recent stock market bloodletting saw SBUX breakdown below a multitude of support levels. The weakness on Monday morning was just ridiculous. SBUX opened on Monday, August 24th near technical support at its 200-dma and then it plunged to $42.05. The stock bounced back to $50 by the closing bell. The rebound struggled today but SBUX displayed relative strength with a +1.48% gain versus a -1.35% drop in the S&P 500 and a -0.4% decline in the NASDAQ.

If the stock market continues to sink we want to take advantage of the weakness in SBUX and launch bullish positions on a dip near its 200-dma. Today the simple 200-dma is at $48.04. We will set our entry trigger at $48.00. We are starting this play without a stop loss. More conservative investors might want to wait on launching positions since the next few days could be volatile for the broader market (SBUX included).

Buy-the-dip Trigger at $48.00

- Suggested Positions -

Buy shares of SBUX @ $48.00

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

Buy the NOV $50 CALL (SBUX151120C50)
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

The Market's Oversold Bounce Fails

by James Brown

Click here to email James Brown

Editor's Note:
Stocks rebounded from oversold levels on Tuesday morning but the rally didn't last. Traders started selling into strength and by the closing bell gains had disappeared.

FTI hit our stop loss.


Current Portfolio:


BULLISH Play Updates

Currently we do not have any active bullish candidates.

Please see tonight's new play section for a new bullish candidate.




BEARISH Play Updates

Continental Resources - CLR - close: 26.39 change: -0.77

Stop Loss: 29.65
Target(s): To Be Determined
Current Gain/Loss: +11.6%
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:
08/25/15: The market's bounce this morning produced a gap open higher for CLR. Yet the rebound failed to make it above the $29.00 level. Shares reversed lower again and closed down -2.8%, underperforming the broader market.

More conservative traders may want to move their stop closer to today's high ($28.99).

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


Marathon Oil Corp. - MRO - close: 14.04 change: -0.35

Stop Loss: 15.55
Target(s): To Be Determined
Current Gain/Loss: +21.1%
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:
08/25/15: The gap higher in MRO this morning failed to make it past yesterday's high. Shares opened at $15.10 and reversed lower. The stock lost -2.4%, underperforming the broader market.

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: 14.27 change: -0.17

Stop Loss: 15.65
Target(s): To Be Determined
Current Gain/Loss: +7.0%
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:
08/25/15: MU garnered some bullish analyst comments this morning but it was not enough to push shares past short-term resistance at $15.40. The stock gapped higher but failed just below this resistance level and then reversed into a -1.1% decline.

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


iPath S&P500 VIX Futures ETN - VXX - close: 26.58 change: +2.19

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -21.8%
Entry on August 25 at $21.82
Listed on August 24, 2015
Time Frame: 2 or 3 weeks
Average Daily Volume = 50 million
New Positions: see below

Comments:
08/25/15: Wow! Talk about big reversals. The financial media pointed out that the Dow Jones Industrial Average was up more than 440 points today. Then it reversed into a -205 point decline. That is the biggest one-day reversal for the $INDU since the 2008-2009 financial crisis.

Another big reversal today was the VXX. Our plan was to launch bearish positions at the opening bell. The VXX gapped down because the market gapped higher. Our trade opened at $21.82 this morning. Unfortunately when the market rolled over this afternoon and stocks raced lower the VXX reversed higher.

We still believe the VXX will decline sharply once this current market panic is over. Traders may want to hesitate on launching new positions. We might decide on another entry point later this week (maybe Thursday morning).

Trade Description: August 24, 2015
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.

(see VIX chart from the August 24th play description)

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).

- Suggested Positions -

Short the VXX @ $21.82

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

Long OCT $20 PUT (VXX151016P20) entry $2.93

08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike

Whiting Petroleum - WLL - close: 14.72 change: -0.19

Stop Loss: 16.25
Target(s): To Be Determined
Current Gain/Loss: +25.8%
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:
08/25/15: WLL gapped higher this morning (as did everything else today). Yet the rally in WLL failed near short-term resistance around the $16.00 level. The stock failed twice under this area and declined into a -1.2% loss.

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 BEARISH PLAYS

FMC Technologies - FTI - close: 28.73 change: -0.26

Stop Loss: 30.15
Target(s): To Be Determined
Current Gain/Loss: +3.1%
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:
08/25/15: Most of the U.S. stock market gapped open higher this morning. FTI opened at $30.32, which was above our new stop loss at $30.15 and immediately closed our play.

The rally didn't last and shares fell to a -0.9% decline.

- Suggested Positions -

Short FTI @ $31.30 exit $30.32 (+3.1%)

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

OCT $30 PUT (FTI151016P30) entry $1.40 exit $1.80 (+28.6%)

08/25/15 stopped out on gap higher at $30.32
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

chart: