Editor's Note:
Investor sentiment appears to have soured last week and stocks delivered one of their worst weeks of the year all due to a sharp, two-day drop.


Current Portfolio:


BULLISH Play Updates

Hewlett-Packard Co. - HPQ - close: 35.19 change: -0.42

Stop Loss: 33.20
Target(s): To Be Determined
Current Option Gain/Loss: -0.5%
Listed on July 19, 2014
Entry on July 23 at $35.35
Time Frame: 8 to 12 weeks
Average Daily Volume = 8.9 million
New Positions: see below

Comments:
08/02/14: Ouch! The sharp two-day sell-off in the stock market has weighed on HPQ. The stock has erased all of our potential gains. On the plus side traders did buy the dip on Friday and HPQ produced a decent intraday bounce. The bullish trend of higher lows remains intact.

Friday's high was $35.33. Investors may want to wait for a new rise past $35.40 before initiating new positions. Conservative traders might want to move their stop closer to $34.00.

Earlier Comments: July 22, 2014:
Hewlett-Packard was famously started by two Stanford University students back in 1939 in a rented garage. The business that started inside a one-car garage has grown into a massive $65 billion company. Today the company makes printers, personal computers, software, IT services and infrastructure.

It has been a good year for old school technology companies. Microsoft (MSFT) is up +19.8% this year. Intel (INTC) is up +31.2%. HPQ is currently up +23.3%. All three of them are outperforming the major U.S. indices. What's also noteworthy is that all three appear to be benefitting from MSFT's decision to discontinue technical support for its Windows XP operating system.

In April this year Microsoft announced they would stop providing support for XP after 13 years. Instead of upgrading their software the data suggests that many consumers and business have chosen to upgrade their entire computer. Why is that significant? As of April over 25% of computers connected to the Internet were still using XP.

This upgrade cycle was definitely a boon for Intel (INTC). INTC recently reported significantly better than expected earnings and a lot of that was due to stronger PC sales, especially from business clients. This same story will probably be bullish for HPQ as well.

Shares of HPQ have been slowly marching higher and currently sit at two and a half year highs. The stock looks poised to breakout past its mid-June peak. Today's high was $35.29. We are suggesting a trigger to open bullish positions at $35.35.

The Point & Figure chart is forecasting a long-term target of $47.00. We probably won't hold on to HPQ that long since the company is scheduled to report earnings on August 20th.

- Suggested Positions -

Long HPQ stock @ $35.35

- or -

Long Sep $35 call (HPQ140920C35) entry $1.49*

07/23/14 triggered @ 35.35
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

chart:


The Charles Schwab Corp. - SCHW - close: 27.45 change: -0.30

Stop Loss: 26.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 30, 2014
Time Frame: 9 to 12 weeks
Average Daily Volume = 5.2 million
New Positions: Yes, see below

Comments:
08/02/14: SCHW has also been caught up in the market's two-day decline. Shares have given up $1.05. I'm suggesting we give SCHW a couple of days to recover since we're still on the sidelines. We will leave our suggested entry point at $28.75 for now.

More aggressive investors may want to buy a bounce from current levels with a tight stop as an alternative entry strategy.

Earlier Comments: July 30, 2014:
The S&P 500 index is hovering at record highs and currently up +6.5% this year. Yet trading volumes have fallen. Trading was down in the first quarter this year and slowed again in the second quarter. The drop in trading activity is pressuring brokers like E*Trade and TD Ameritrade. Yet SCHW seems to be having a great year. Instead of focusing on trading activity SCHW has been focused on wealth management services and it's working.

According to SCHW's press release, "The Charles Schwab Corporation is a leading provider of financial services, with more than 325 offices and 9.3 million active brokerage accounts, 1.3 million corporate retirement plan participants, 950,000 banking accounts. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors."

SCHW reported earnings on July 16th and earnings rose +27%. They added $22.7 billion in assets in the second quarter. They're up $351 billion in assets from a year ago. That's a +17% jump from June 2013 and the company ended the second quarter with a record-setting total of $2.40 trillion in client assets. SCHW's quarterly revenues were up +10.5% to $1.48 billion, just enough to beat Wall Street's estimates.

SCHW is not a fast-moving stock but the company is executing on its plan to focus on services instead of trading and it has been a winning formula for them. Today saw SCHW outperform the major indices with a +2.0% gain. This happens to be a multi-year closing high. Tonight we're suggesting a trigger to open bullish positions at $28.75. We're not setting an exit target tonight but our time frame is 9-12 weeks.

Trigger @ $28.75

- Suggested Positions -

buy SCHW stock @ (trigger)

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

Buy the 2015 Jan $30 call (SCHW150117C30)

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

chart:


SoftBank Corp. - SFTBY - close: 36.43 change: +0.42

Stop Loss: 35.75
Target(s): To Be Determined
Current Gain/Loss: -0.7%

Entry on June 17 at $36.68
Listed on June 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 499 thousand
New Positions: see below

Comments:
08/02/14: Stocks were down across the board on Friday in Europe, Asia, and the U.S. Fortunately shares of SFTBY did not see any follow through on Thursday's drop. However, Friday's session is an inside day and that suggests indecision. The short-term down trend within SFTBY's trading range may not be over. We're still at risk of a breakdown below support near $36.00.

I am not suggesting new positions at this time.

Alibaba IPO -- Previously there was hope that Alibaba might IPO in July. Then there was speculation that they might IPO on August 8th since the number eight is a lucky number in China. Now the most recent update suggests that Alibaba will not IPO until September.

Earlier Comments: June 16, 2014:
SoftBank Corp. has been referred to as the Warren Buffet of Technology although a better comparison is probably to Buffet's Berkshire Hathaway. They are a holding company with hundreds of businesses. According to the company website SFTBY has 235 subsidiaries and 108 affiliates (including 150 consolidated subsidiaries and 83 equity method companies). SoftBank Group possesses both advanced infrastructure and diverse services and content, and invests in promising companies working in the Internet field.

SFTBY owns 80.2% of Sprint Corp., 33.3% of eAccess Ltd., 100% of WILLCOM, Inc., 33.3% of Wireless City Planning Inc., 58.5% of GungHo Online Entertainment, and 42.5% of Yahoo Japan Corp. They also own 34% of Renren Inc., which is considered the Chinese version of Facebook. They also own 36.7% of Alibaba Corp., which is a much larger and more profitable version of Amazon.com. That's on top of owning SoftBank Telecom, SoftBank BB Corp. and SoftBank Mobile.

SFTBY's combined telecom assets makes the company one of the largest telecom/wireless players in Japan. In 2013 they added 4.1 million new subscribers and more than double the 1.19 million subscriber gain by NTT DoCoMo and 2.8 million for AU, which is owned by KDDI. Softbank added 47% of the Android phones activated in Japan and 39% of the iPhone 4s and 5c models. Both metrics are the largest in Japan and shows how Softbank is gaining market share.

Their Renren investment could be a big. China already has the largest Internet audience on the planet and it's only going to get bigger. Currently Renren has about 200 million users. This will grow. Like Facebook, Renren is developing its mobile platform. Renren is currently valued at about $8 per user but this seems extremely low considering what Facebook paid for WhatsApp.

SFTBY's majority stake in Sprint is starting to pay off. Sprint has had a rough few years working through its merger with Nextel. Sprint later acquired Clearwire. It looks like Sprint is now in recovery mode after adding +477,000 subscribers in Q4 2013 versus losing -337,000 in Q4 2012. SFTBY wants to acquire T-Mobile and combine it with Sprint. Currently 75% of U.S. customers are on AT&T or Verizon. SFTBY calls them an American duopoly but they believe by combining Sprint, the third largest carrier, with T-Mobile, the fourth largest, the combined company could compete with AT&T and Verizon, which would be good for competition and ultimately consumers.

Today the real allure of SFTBY is its 37% ownership of Alibaba. Amazon.com (AMZN) is an Internet powerhouse with sales of $86 billion in 2013 and a net profit of $274 million. Alibaba dwarfs AMZN with 2013 sales of $160 billion and a profit of $2.16 billion. Right now it looks like Alibaba will IPO this summer. Analysts have been estimating they could be the biggest IPO in history with a value of $160 to 185 billion.

There were new numbers out on Alibaba today with the company stating that its Q4 revenues only rose +39% to $1.9 billion. That's down from 62% growth in Q3. Margins retreated from 51.3% to 45.3% on higher marketing costs. This spooked investors today into thinking that maybe the valuation may not be in the $160-185 billion range.

We believe that SFTBY's shares are very undervalued and when the Alibaba IPO does hit this stock could soar. Tonight we're suggesting investors launch positions tomorrow morning at current levels. Depending on your trading style this could be an aggressive entry point. Technically SFTBY still has resistance in the $38-39 zone. More conservative investors may want to wait for SFTBY to close above $39.00 before initiating new positions. The risk of not launching positions now is that we do not know when Alibaba is going to announce its IPO. It could be any day and likely in the next few weeks. We will plan on exiting after Alibaba's first day of trading.

Current Position: Long SFTBY stock @ $36.68

07/24/14 new stop @ 35.75
07/11/14 News hits that SFTBY might buy T-Mobile soon.
06/30/14 new stop $ 35.35
06/17/14 trade opens. SFTBY gapped down at $36.68
note: SFTBY does not have options.

chart:



BEARISH Play Updates

Aaron's Inc. - AAN - close: 26.40 change: +0.02

Stop Loss: 28.55
Target(s): To Be Determined
Current Option Gain/Loss: +4.9%
Entry on July 30 at $27.75
Listed on July 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 809 thousand
New Positions: see below

Comments:
08/02/14: AAN saw a big decline on Thursday. It would not have been a surprise if shares produced an oversold bounce on Friday. The fact that AAN only closed flat on the day is somewhat bearish.

We are not suggesting new positions at current levels.

I will point out that the $26.25 region has been support multiple times in the last 12 months. Odds are AAN will see an oversold bounce on any market rally. Broken support near $28.00 should be resistance. Conservative traders may want to just take some money off the table now to reduce your exposure.

Earlier Comments: July 29, 2014:
Shares of AAN are down -3.7% for the year. Honestly, I'm surprised it's not down a lot more. The company is in the lease-to-own space for residential furniture, consumer electronics, home appliances and more. They have over 2,000 locations in the U.S. and Canada.

Back in February this year AAN reported earnings and guided lower. On April 15th AAN issued a new earnings warning and blamed it on the harsh winter weather. AAN reported earnings just a couple of weeks later and lowered guidance again. AAN issued yet another earnings warning on July 15th. Then when the company reported earnings on July 25th they lowered guidance yet again. With this many warnings I'm surprised investors have not left this stock like rats fleeing a sinking ship.

So why in the world were shares of AAN surging in May and June? Management has been battling with its second largest shareholder for months. In May they moved to declassify the board of directors. This means shareholders can remove all of the board members all at once if they choose to, on an annual basis. Naturally board members who want to keep their job tend to produce more shareholder friendly policies in a situation like this. I suspect this was the driving force behind the May-June rally.

Then the latest round of earnings warnings in July have completely erased all of their gains. Today shares of AAN are sitting near support at the $28.00 mark. The $27.85 level appears to be the level to watch. Tonight we're suggesting a trigger to launch bearish positions at $27.75.

I would consider this more aggressive trade. AAN is down significantly this month and could see another oversold bounce. Just because the path of least resistance is now down doesn't mean AAN can't ricochet higher once in a while.

NOTE: AAN does have options, which might be a way to limit your risk instead of shorting the stock. Unfortunately the option spreads look a bit too wide to actually trade them.

- Suggested Positions -

Short AAN @ $27.75

07/31/14 new stop @ 28.55
07/30/14 triggered @ 27.75

chart:


Cepheid - CPHD - close: 38.77 change: +1.13

Stop Loss: 40.51
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
Entry on July 28 at $39.20
Listed on July 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 680 thousand
New Positions: see below

Comments:
08/02/14: CPHD has extended its losses to four weeks in a row. I do not see any news to account for the bounce on Friday. Odds are it's just an oversold bounce. The $40.00 area should be overhead resistance.

I am not suggesting new positions at this time.

Earlier Comments: July 26, 2014:
CPHD is in the technology sector. If you look deeper the company operates in the scientific and technical instruments industry. According to the company's website, "Cepheid is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests. By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer."

CPHD, like most of the U.S. stock market, had a great 2013. Unfortunately the rally peaked in February-March 2014. This stock set its all-time highs in the $55-56 zone. Market watchers already know that momentum and high-growth names were crushed during the March-April market pullback. CPHD was no exception. The stock corrected from $55 to $40. It looked like CPHD was on the path to recovery but then the stock collapsed again in the last two weeks.

The problem is CPHD's earnings. The company reported earnings on July 17th. Their adjusted results for the second quarter of 2014 was a loss of 10 cents a share. That was better than Wall Street's estimate for a loss of 13 cents a share. CPHD delivered pretty solid revenue growth. Sales in the second quarter surged +21.4% to $116.5 million. That came in better than analysts were expecting. Yet CPHD's net results were down -40% from a year ago.

Listening to the company's management paints an optimistic outlook. CPHD's CEO John Bishop said they sold a record-setting 1,084 of their GeneXpert systems last quarter. That's more than all of 2012. Gross margins improved as well with margins rising from 45% to 49%. So why did the stock fall?

Investors sold the stock on disappointing guidance. CPHD expects 2014 revenues in the 4452-461 million zone. That's relatively close to Wall Street's $459 million estimate. Yet CPHD is forecasting EPS of 10 cents to 13 cents. That is significantly lower than analysts' estimates of 20 cents. You can see the reaction in CPHD stock with the big drop on July 18th.

The post-earnings sell-off continues and now CPHD is breaking down under significant support at the $40.00 level. The next stop could be the $36-35 area or lower. Currently the point & figure chart is bearish and forecasting at $29.00 target.

I would consider this a more aggressive trade. The latest data listed short interest at 16.8% of the 68.9 million share float.

Friday's low was $39.26. We're suggesting a trigger to open bearish positions at $39.00.

- Suggested Positions -

Short CPHD stock @ $39.20

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

Long SEP $40 PUT (CPHD140920P40) entry $2.35

07/31/14 new stop @ 40.51
07/28/14 triggered @ 39.20
Option Format: symbol-year-month-day-call-strike

chart:



DSW Inc. - DSW - close: 26.48 change: -0.11

Stop Loss: 27.35
Target(s): To Be Determined
Current Gain/Loss: + 1.6%

Entry on July 16 at $26.90
Listed on July 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

Comments:
08/02/14: We are going to cut DSW loose. In the Thursday newsletter I noted how DSW was not declining even with a widespread market sell-off. This stock was just not seeing any follow through lower. Big picture the trend looks bearish but short-term DSW is not cooperating. Tonight we're suggesting an immediate exit on Monday morning.

Earlier Comments: July 12, 2014:
DSW Designer Shoe Warehouse runs over 400 company-owned stores. They also participate in hundreds of other shoe departments in regional department stores through their Affiliated Business Group.

There appears to be a bear market in designer shoes. At least that is the picture if you're looking at shares of DSW Inc. The stock has actually been a big winner for investors if you have owned it the past few years. On a post 2-for-1 split adjusted basis DSW traded down to $3.33 in 2009. It peaked in 2013 with a close at $47.22 in November last year. That's a huge run (more than 1,400%). Unfortunately last November was indeed the peak. DSW has been stuck in a bearish trend of lower highs and lower lows since then.

DSW lowered its earnings guidance back in February 2014. Of course back then just about all of the retail companies were warning about lack of sales and blaming it on the extremely cold winter weather. That was after weeks of worry over the 2013 holiday shopping season.

The U.S. economy is slowly recovering but consumer spending has not. There are still large chunks of the consumer who continue to struggle. The sharp rise in food prices this year combined with elevated gasoline prices has not helped. There seems to be a bifurcation in the consumer spending. There has been strong demand for big ticket items like housing and cars. Yet smaller discretionary spending is just not there.

The overall retail industry saw some improvement in May. There was hope that June same-store sales would come in better than expected. Analysts and investors were a bit disappointed when the retail industry delivered June numbers that were only in-line with estimates.

Meanwhile DSW continues to struggle. The company reported earnings on May 28th. Wall Street was expecting a profit of $0.48 per share on revenues of $622.9 million. DSW announced earnings of 42 cents on revenues of $599 million. A miss on both counts. Management then lowered their 2015 guidance. The company blamed the weather (again) and said they were facing an intense promotional retail environment. The Container Store (TCS) has a completely different product mix but recently mirrored DSW's troubles and said they were experiencing a retail "funk" (i.e. lack of sales).

Shares of DSW dropped from $32.50 to $23.60 on its earnings miss and earnings warning late May. Since then the stock has bounced but it has found new resistance in the $28.50 area. Now DSW looks like it is rolling over again.

Friday's low was $27.20. I am suggesting a trigger to open bearish positions at $26.90. If triggered I'm expecting DSW to at least test its May lows if not breakdown to new lows.

We will plan on exiting prior to DSW's late August earnings report.

current Position: short DSW stock @ $26.90

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

Long OCT $25 PUT (DSW141018P25) entry $1.05

08/02/14 prepare to exit on Monday morning.
07/30/14 new stop @ 27.35
07/18/14 new stop @ 28.25
07/16/14 triggered @ 26.90
Option Format: symbol-year-month-day-call-strike

chart: