Option Investor

Daily Newsletter, Saturday, 6/6/2015

Table of Contents

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

Market Wrap

Jobs Rebound Confuses Market

by Jim Brown

Click here to email Jim Brown

The Dow closed at a 4-week low with a loss of -56 but the Nasdaq Composite rallied +9 to post a minor gain. One payroll report does not make a trend but the strong jobs gain would seem to suggest the Fed is going to get its wish for a rate hike in 2015.

Market Statistics

The yield on the ten-year treasury soared to 2.438% intraday before fading only slightly to close at 2.4%. The soaring interest rates weighed on equities as fears of a Fed rate hike increased sharply.

European indexes were all lower as the game of chicken with Greece moved into a new phase. The Greek Prime Minister said Greece could never agree to some of the conditions required by the EU Finance Ministers and Greece put off making the June 5th payment to the IMF until month end when 1.5 billion euros will be due and Greece only has 300 million. This is also when the second phase of the Greek bailout expires and the 18 billion in funding still on hold will evaporate if not dispensed. Both sides have some serious objections to a deal but both sides agree a deal must be reached by June 30th. This is a game of political chicken and whoever blinks first loses.

The Shanghai Composite broke out to a new seven-year high at 5,023 on Friday as the China bubble continues. The Chinese market is now trading at an average PE of more than 50. This is a bubble in search of a pin but that may not happen for some time because of the bullish sentiment from individual investors. Since they were allowed to invest in the market several months ago the rally has been a rocket ride. The Shanghai Index was the only positive market in Asia on Friday.

The big news in the U.S. was of course the Nonfarm Payrolls. The May number came in much hotter than expected with a gain of +280,000 and well over estimates of 225,000. The April number of +223,000 was revised down only slightly by -2,000 to 221,000 but the March number was revised significantly higher from 85,000 to 119,000 for a net revision for the two month of +32,000 additional jobs.

The internals were very strong. Leisure and hospitality added +74,000, professional and business services added +63,000, healthcare +58,000, retail trade +31,000, construction +17,000. Even government payrolls rose by +18,000. The sector that lost jobs was the energy/mining sector with a loss of -18,000.

The unemployment rate increased slightly from 5.4% to 5.5% because more people entered the workforce. The BLS said 397,000 people decided to get off the couch and look for work. This raised the labor force participation rate from 62.8% to 62.9% and a four-month high.

Before we rush out to celebrate the strong jobs numbers let's remember that 92,986,000 people are still not in the labor force. That includes everyone that are 16 years and older who are not employed and did not look for work in the prior four weeks. Obviously that includes a large number of housewives, retirees, etc, that don't want to be employed. The civilian workforce rose +397,000 in May to 157,469,000 of which 148,795,000 were employed and 8,674,000 were unemployed.

Average hourly earnings rose +2.3%, which was a significant gain and something the Fed was hoping to see. Wages rose +2.2% in April so back to back gains are Fed positive. This could be the result of Walmart giving raises to the majority of its workforce over the last two months. Starting in April Walmart gave raises to more than 500,000 workers. That raised their minimum wage from $7.25 an hour to $9.00 and Walmart said that would rise to $10 an hour by February 2016 for those that complete six months of training.

While that is still far below the national average of $24.96 for private-sector workers it still represents an additional $1 billion in wages according to Walmart. That is a pretty significant injection into the average wage calculation.

Analysts claim the strong payrolls over the last two months are concrete evidence of a rebound from the economic contraction in Q1 and that the economy is beginning to accelerate. It may take 2-3 more months to prove that out but for now the Fed should be relieved.

The broader U6 number for unemployment remained flat at 10.8% or twice the more commonly reported rate of 5.5% this month. The U6 number includes everyone out of work that would take a job if one was offered.

Overall it was a good report and it should give the Fed a reason to relax after the economic contraction in Q1. It was the second month of stronger than expected payrolls and when combined with the strong pending home sales and strong auto sales for May it would appear the economy is rebounding and the Q1 contraction will be an exception caused by weather and the port strike.

The FOMC meets on June 17th and there are no expectations for a rate hike in June. The next meeting is at the end of July and that only gives them one more month of data and it is not followed by a press conference. Analysts believe the Fed will only hike at a quarterly meeting with a press conference especially for the first time. There will be numerous questions and explanations that Yellen will have to answer. That means September is the most likely meeting for the first hike. The Fed does not have to wait but several Fed heads are being overly cautious on making sure the economy is really growing rather than just a short term rebound.

Earlier last week the Director of the IMF, Christine Lagarde, asked Janet Yellen to postpone any rate hikes until the middle of next year because of the impact on the global economy. The IMF believes the conditions that caused the contraction in Q1 will drag U.S. economic growth down to +2.5% for the full year. Previously they were expecting +3.1% for 2015. The IMF also downgraded the global growth outlook from +3.8% to +3.1% for 2015. Lagarde said the dollar was already "moderately overvalued" after a 13% gain in the last 12 months. Hiking rates would send the dollar even higher. The problem with holding off until the middle of 2016 could mean that inflation accelerates and the pace of rate hikes would need to be faster and more damaging to the economy.

Fed Vice Chair Stanley Fischer said last week the Fed was "not the central bank for the world" meaning the Fed was not responsible for what happens to the rest of the world if they raise rates. The next three months should be really interesting.

The pace of economic reports slows dramatically next week with nothing of any importance other than maybe the May Retail Sales on Thursday and Producer Price Index on Friday. Analysts are looking for a huge spike in retail sales of +0.9% after a zero rise in April. There could be a disappointment there.

Energy Transfer Equity LP (ETE) announced a 2:1 split but they are not likely to produce a split run. We are still waiting for the Netflix (NFLX) shareholder meeting on Tuesday to approve the five billion in additional shares. Once the shares are approved the company will announce the split rate and with shares at $633 they could easily do a 10:1 split and that would be a serious event.

There was almost no stock news on Friday. The payroll report overpowered the headlines and pushed the stock news out of the headlines. The big mover was Diageo Plc (DEO) a producer of premium alcoholic beverages. A Brazilian news agency said Brazilian billionaire Jorge Paulo Lemann was considering a takeover bid. Lemann's firm 3G Capital orchestrated the $52 billion buyout that produced Anheuser-Busch InBev (BUD). 3G also worked with Warren Buffett to acquire Heinz and helped combine Burger King with Tim Horton's. DEO is well off its 2014 highs at $133. With a market cap of $74 billion it would be a major deal if 3G could get it done.

Security stocks all rocketed higher after the government disclosed that a government sponsored cyberattack stole information on 4 million people that had applied for various security clearances. The hack was discovered in April and it took the government more than a month to determine which files had been stolen. The security companies helping the government track the hack and remove the code from the government computers said it was clearly a Chinese sponsored cyber attack. The code they left behind was nearly identical to other hacks that were also tracked back to China. The government stopped short of specifically blaming China but the implications were clear.

The specificity of the hack to look for people that had applied for security clearances is troubling. Investigators believe that China targeted them in order to develop some spies in America. Security applications include background checks and interviews with friends and relatives as well as financial information. Applicants with problems in their background could be leveraged or blackmailed to exchange secrets rather than have their background problems exposed to the world. The data could be used to target individuals with access to sensitive information that have financial, marital or other problems and might be subject to bribery, blackmail, entrapment and other espionage tools, according to the spokesman.

FireEye (FEYE) spiked +6.4%, Palo Alto Networks (PANW) rose +3%, Fortinet (FTNT) +4%, Cyberark (CYBR) +7.4% and Proofpoint (PFPT) +6%. The new Purefunds Cyber Security ETF (HACK) gained +3.3%. The fund includes 20 of the top security stocks.

Chinese Internet stocks were soaring on the spike in the Shanghai Composite to a seven-year high. QIHU +7.5%, SINA +7.8% and WBAI +9.9%. Sina and Weibo (WB) gained +39% and +22% respectively after the Sina CEO said on Monday he was investing $456 million in Sina.

Under Armor (UA) spiked +5% on an upgrade from DA Davidson. The broker upgraded the active wear company on strong earnings growth potential, digital health investments and sponsorship of athletes. The company upgraded shares from neutral to buy with a $91 price target. UA has had a 30% compound annual revenue growth since 2010 and "should be able to support 20-25% growth for years to come."

All the stock moves were not bullish. Zumiez (ZUMZ) shares fell -19% after the company guided for Q2 for earnings in a range of 13-16 cents on revenue of $179-183 million. Analysts were expecting 30 cents and $192.8 million. Roth Capital Partners said the forecast missed because weakness in April accelerated in May. Janney Capital said it was due to weak traffic and soft demand for men's seasonal products. Shares fell to a 52-week low.

OPEC met and agreed to do nothing. They maintained their production quota at 30 million barrels per day for the next six months but there is no penalty for pumping over the quota. OPEC produced nearly 31.58 Mbpd in May. That was the 12th consecutive month of over production. Officials expect Iran to bring another 500,000 bpd to market within 90 days of the sanctions being lifted and raise that to 1 million barrels within 6 months.

OPEC is moving to a capacity model rather than a price model. Previously they attempted to restrict production to maintain prices. That model failed as the U.S. shale fields began pouring out millions of barrels of high priced oil. With 1.5 mbpd of excess global production OPEC had the capability of supporting prices as long as Saudi Arabia was willing to be the swing producer that made the biggest cuts. As U.S. production rose from 3.8 mbpd in September 2009 to 9.6 mbpd last week the supply and demand balance was lost.

The U.S. was producing high cost oil with some shale fields as high as $70 and deepwater Gulf of Mexico as much as $100 a barrel. Multiple efforts were underway to explore the Arctic where costs would be well over $100. With the cost for Saudi Arabia at roughly $29 a barrel they decided to ramp up production and sell it for less than everyone else. Their desire today is to make up for lost revenue from lower oil prices by pumping even more oil to increase sales. In May Saudi Arabia pumped 10.38 mbpd and they claim to have the capacity for 12.5 mbpd.

After the OPEC meeting Goldman's chief commodity analyst reiterated their forecast for $45 oil by October, $50 in December and $55 in 12 months. If Libya, Iran and Iraq all increase production as expected we will be floating in oil 12 months from now. Many shale producers will either be out of business, acquired or in a holding pattern waiting for prices to increase.

The rising shale fraclog of wells drilled but not completed is thought to now be as high as 425,000 bpd of new production waiting to be turned on when prices recover. Baker Hughes said active rigs declined another -7 last week to 868, only 2 rigs above the 2009 low at 866. Oil rigs declined -4 to 642, -60% off their highs. Gas rigs declined -3 to 222 and only 5 above a 17 year low. Offshore rigs declined -2 to 27 and well below the recent peak at 60. There has been a serious decline in new offshore projects because of the high cost.

Crude prices declined slightly when the OPEC decision was announced. Apparently there were some hopeful investors wishing for a production cut. When prices did not crash the short covering began and WTI closed at $59.13 in the regular session.

Prices are expected to rise slightly into the July 4th weekend because of higher gasoline prices during the holiday period but once past that weekend I would expect a new decline to begin as demand for fuel declines and inventories begin to build again.


On the surface the markets showed a confusing picture with the Dow, S&P and Nasdaq 100 declining but the Nasdaq Composite, Russell 2000, S&P-600 and S&P-400 Midcap indexes rising. The biggest gainer was the Russell Microcap ($RUMIC) with a +1.1% gain and closing less than 1 point from a new high.

Traders looking at that mixed picture were likely confused. However, the stocks with the biggest gains were small biotechs and the Chinese Internet stocks. There were dozens upon dozens of small biotechs that exploded higher last week. The cancer conference and all the talk about M&A in the sector has built a fire under those small cap biotechs.

This powered the small cap indexes while the blue chips were still fighting problems over rising interest rates and the stronger dollar.

The Russell Microcaps have an ETF (IWC) but volume is very low at only 67,000 shares on Friday. If you want to play those stocks that is your only choice. The ETF has options but the bid ask spreads are pretty wide because of the low volume.

I mentioned over the last two weeks that I expected fund managers to put their spare cash to work before the end of June in order to window dress their midyear portfolios and corresponding statements. The best way for a manager to increase their beta to the market is with the small caps and apparently that is what they are doing. This is risky but so far it has worked out. If they happen to have a couple of those small biotechs acquired along the way that is just a bonus.

On the big cap indexes the picture is very different. On the S&P-500 the percentage of stocks under their 200-day average fell to 59.4% and the lowest level since October. This is hardly a bullish event. The advance/decline line on the S&P is at two-month lows.

The problem with the big caps is the declining earnings, the strong dollar and the potential for rising interest rates. In theory the small caps would be hurt the most by rising rates since they require more financing against a smaller asset base. A company like Apple or Boeing would not suffer the same spike in rates because they can command the best deals.

The S&P came very close to touching the 100-day average at 2083 with a low of 2085. In early May and April the 100-day served as support. I think the more likely support this time around is 2080 and the combination of that level and the 100-day could be the bottom we are looking for. However, if that level breaks we could be looking at a dip to 2040. Friday's close at a three-week low is a danger signal. Some of that was probably a negative reaction to the payroll report and expectations for the Fed but there could have been some Greek fear mixed in there as well.

The S&P is now 37 points off its high of 2129. That is less than -2% and definitely nothing to be worried about. However, that reduced its gain for the year to only 1.3%. It has been a really slow first half for the bulls even with the new highs.

We need to be concerned about the declining internals on the S&P. The chart below does not tell the entire story. The two above are the more telling and they are telling us support for individual stocks is weakening.

The Dow is in similar shape to the S&P only the Dow is up only 0.15% for the year. It will only take a few points to put it in the red and that is also a sell signal. However, there is strong support at 17,800 and 17,600 so it will take some concentrated selling to produce a major decline from here. The 100-day was broken on Thursday but the Dow is not really reactive to moving averages because of its limited 30 stock composition.

A couple weeks ago I said it was sometimes helpful to go through the charts for each of the Dow 30 stocks to see which are in an uptrend and which are in a downtrend in order to get some idea which way the Dow is headed. Unfortunately I did that exercise again this weekend and it was not pretty. Only TWO Dow stocks were in an uptrend on a 30 min chart. The majority were in a confirmed downtrend that was not hopeful. The two stocks with a positive chart were Goldman Sachs and JP Morgan. I encourage you to try this exercise at home on the 30 min chart.

This does not bode well for our chances of avoiding a continued decline early next week. Of course there is always the potential for a short squeeze Monday but we would need some major headline to provide a catalyst.

The Nasdaq Composite benefitted from the biotech rally with nearly half of the gainers in the list below from that sector. Add in the security stocks and Chinese Internets and that was the majority of the gains.

Can that continue next week? Anything is possible but any continuation in the security sector will probably be muted after the big gains on Friday. The Chinese Internets are a wild card since a new high on the Shanghai Index could easily continue producing new highs. The biotech sector had been somewhat subdued over the last week with the $BTK fading for several days before the spike on Friday. The Nasdaq Biotechnology Index (IBB) rebounded to within .64 of a point of a new closing high. The old high was 367.68. This index could breakout on Monday and that could force some more short covering and price chasing. That would be the best hope for the Nasdaq.

The overhead resistance for the Nasdaq Composite is solid at 5100. It has been solid for three weeks and odds are good that has not changed. The support at 5000 was tested on May 14th and again on the 26th. Friday's early dip did not come close at 5025. Without several sectors providing unexpected lift next week I would expect the Nasdaq to drift lower with the 5000 level again providing material support.

The Russell 2000 had a strong day on Friday and quickly recovered from Thursday's market drop. The Russell closed slightly over resistance at 1260 and the internals were strong. The rebalance trade will pick up late next week when the first official list of additions and deletions is released on Friday. Historically once the list is released it weighs on the Russell. The reason is that the stocks being deleted are still in the Russell and traders will be selling them ahead of the rebalance. The stocks being added, and therefore bought, are not yet in the Russell indexes so gains in those stocks have no impact on the index.

On the positive side the stocks are normally being dropped because they have declined to the point where they no longer qualify. That means it takes a lot of selling in a low dollar stock to make a negative impact on the index. Stocks that are being acquired and no longer qualify for inclusion are probably being acquired by another company already in the index. The selling in one and buying in the other because the weighting increased will offset each other. Confused yet?

I would not worry about the rebalance trades this week. The final list is not published until the 19th and that is when the real selling will increase. Of course a positive market can easily offset the rebalance trading. If funds are trying to window dress with Russell stocks it would have an offsetting positive impact.

Several analysts were trying to claim the rebound in the Transports was positive for the overall market. That is true to some extent but the rebound was lackluster and failed at 8525. It will take a lot more buying here to really influence the broader market. The airline sector is still out of favor because of the increased competition even though another decline in oil prices would be helpful. The railroad sector is going to take another hit if it looks like oil prices will remain low because trainloads of sand and drill pipe will slow even further. The biggest worry on the Transports would be a new decline that takes the index below 8300. A lower low would trigger additional sell signals.

I am no longer in the "cautiously long until proven wrong" camp. The research on the individual Dow stocks has poisoned my mind and until there is some improvement there I am neutral on the market. At this point I would start looking for a capitulation dip to buy. Ideally on the S&P that would be 2040 but we could get a bounce at 2080. While I really don't want to drop to the 2040 level it would clear the weak holders and give us a -4% dip to buy. Over the last year those 3-5% dips have all been bought.

Remember, June is historically the worst month for the Dow in recent years. It has been down 8 of the last 10 years. That does not mean this June will be down as well but defined trends like that tend to be traded.

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Random Thoughts

The Fed's biggest nightmare according to Citigroup is not the date of its first rate hike. The biggest nightmare is what would happen if the economic recovery dies of old age without the Fed having done anything to tighten. "If this were to occur, the dollar would probably fall faster than it rose from July to March." This could be a precursor to a loss of faith in the dollar's reserve currency status.

Normal recession recoveries last 5-7 years. This one is already 6 years old.

The second biggest nightmare is an economic rebound that rises so fast that the Fed's entire carefully planned normalization schedule collapses. "Based on current trends we will be at zero unemployment before we are at 2% inflation." Good article here

Despite the spike in the jobs numbers the Fed is not likely to raise rates until September and maybe not until 2016. Fed head Daniel Tarullo said on Thursday "the economy, moreover, appeared to lose momentum" and "our data dependent orientation is going to be particularly important." Tarullo is a Fed governor and offices in the same building as Yellen. That suggests he is more in tune with what Yellen is thinking.

Fed governor Lael Brainard said on Tuesday, "I think there is value to watchful waiting while additional data help clarify the economy's underlying momentum in the face of headwinds from abroad." James Bullard said, "I think it's very difficult to say that you are trying to normalize interest rates just at the moment where the economy looks a little bit weaker." Source

The nation's debt is roughly $18 trillion. The Fed owns $4.5 trillion or 25%. What is wrong with this picture? If it were not for the Fed's QE purchases the interest on the government debt would 2-3 times what it is today. The concept of normalization of interest rates has got to be a scary thing for the administration because normalization will cause major budget deficits.

Greece postponed its first June payment to the IMF until June 30th and said all 1.5 billion euros of debt will be paid in a lump sum. Since the don't have the money a default on June 30th is guaranteed unless the EU Finance Ministers cave in to Greek demands and release the 18 billion euros of bailout cash that is already in the bank and ready to be released. That is also not likely to happen.

Greece is likely to default because its impact on Europe has declined to almost zero. The GDP of Greece is only about 1.5% of Europe's. The equity markets in Europe have about 10 trillion euros of market cap. The capitalization of the Greek stocks is about 19.7 billion euros or about two one-thousandths of Europe. The vast majority of Greek debt is now held by the ECB or the IMF and a default will be an isolated event. There are some privately held bonds but very few and those investors knew the risk when they bought them.

A Greek default does not mean an exit from the eurozone. It may lead to that but 75% of Greek citizens don't want to leave the eurozone and the rest of the eurozone members don't want them to leave because it would set a bad precedent. Source

Bank of America warned that bond flows were likely to turn negative after the serious whipsaw in yields last week. The expectation for the Fed to hike rates is increasing and bond holders stand to lose enormous amounts of money over the next 6-9 months. BofA said "We expect high-grade fund flows to turn generally negative in line with the initial experience during the Taper Tantrum in 2013." Investors pulled nearly $70 billion from bond funds during the Taper Tantrum selling according to TrimTabs.com. BofA analysts warned that if ten-year yields rose to 2.6% over the next two weeks the outflows from bond funds could rival the bloodbath during the Taper Tantrum. Yields on the ten-year closed at 2.4% on Friday. Source

Gross Says Bond Rout Scary as Hell

As of Friday the U.S. markets have gone 1,340 calendar days without a 10% correction on the S&P. That is the third longest streak on record since 1929. It is only the fifth time that the streaks have exceeded 1,000 days. The longest streak on record was a 7 year rally from October 1990 through October 1997. The second longest was a 4.5 year rally between March 2003 and October 2007. The average market rally without a correction is 357 days so we are long overdue.

The current streak has confused investors into waiting on the sidelines for a correction rather than putting money to work in the market. However, just because a streak is getting old it does not mean it will end soon. If you had exited at this point in the 1990s market you would have missed out on a further +105% gain.

Deutsche Bank warned, "We believe the probability of a 5%+ dip is high this summer." David Bianco, chief U.S. equity strategist said there are three possible sell-off triggers. "The Federal Reserve botching the timing of the first rate hike, the U.S. dollar getting too strong and the bond market -- especially the U.S. 10-year yield -- rising too fast." Source

The AAII Investor Sentiment Survey for last week still has 48% of investors neutral on the market. Bearish sentiment declined slightly to 24.6% and bullish sentiment rose slightly to 27.3% but the undecided group is by far the largest.

I know a lot of our readers don't get out much and when you do it is probably with the family. I doubt many readers have had a chance to pick up the 2015 Hooters calendar. No problem here is a link to the calendar and you can enjoy it on the privacy of your own PC. 2015 Hooters Calendar

Are you a prepper? Email me.


Enter passively and exit aggressively!

Jim Brown

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"In any moment of decision, the best thing you can do is the right thing. The next best thing is the wrong thing, and the worst thing you can do is nothing."

Theodore Roosevelt


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Index Wrap

S&P and Dow Correct and the Nasdaq Mostly Holds It's Own

by Leigh Stevens

Click here to email Leigh Stevens

It was two steps 'back' with the S&P and Dow and just one back with the tech heavy Nasdaq. I have few over-arching comments this week except to say that the S&P and Dow looked top-heavy and vulnerable to a deeper pullback than the Nasdaq and as the charts suggested, so it went this past week.

The S&P 500 (SPX) has retraced a key 66 percent of its last upswing, which may establish a low for SPX's current pullback. The big cap S&P 100 (OEX) as of Friday fell to potential trendline support. The Dow 30 (INDU) is near the lower (support) end of its broad uptrend channel and nearing an 'oversold' reading in terms of the 13-day Relative Strength Index/RSI.

The Nasdaq doesn't look capable of mounting a sustained rally currently but also doesn't look likely to have more than a continued sideways to slightly lower trend. There is a more bearish scenario where COMP and NDX test the low end of their uptrend channels which would mean deeper corrections. See the charts.

A noteworthy indicator reading was seen in a 1-day jump to an 'overbought' bullish extreme in my bullish/bearish Trader sentiment indicator (CPRATIO) just prior to Thursday-Friday weakness; CPRATIO indicator accompanies the SPX and COMP daily charts.

The S&P 500 Volatility Index (VIX):

I liked buying the S&P 500 (VIX) volatility index at 12 and under either for a speculative play OR as a portfolio hedge due to the tendency for VIX to move inversely to SPX. My upside VIX target is modest currently, to 15.5 - 16. Intraday, the Index already traded at 15.5 but briefly, near week's end.

The trading range market of the past 3-4 months has not generated VIX readings above 16, at least not for long.



The S&P 500 (SPX) has retraced a key 2/3rds of its prior upswing. Potential support at this key retracement, plus the intraday rebound Friday, suggest that the lows for the current move may be in. Maybe not also. A more bearish outlook would be for a re-test of intraday lows in the 2067-2070 area.

In any case, no bullish sparks should fly until there's an upside breakout above SPX's down trendline, currently intersecting just over 2100. Next resistance is at 2120. Support is highlighted (green up arrow) at 2090, extending to 2080, with next support suggested at 2067-2070.

I noted the 1-day spike in my trader sentiment indicator (CPRATIO) that occurred just ahead of Thursday-Friday weakness. Even 1-day jumps like this, after a steady rise in bullishness, can be quite significant. The trouble traders might have in 'using' this indicator to help with (trade) timing is that peaks or troughs tend to be seen from 1-5 days BEFORE trend reversals.

Trader sentiment readings continue in mostly bullish territory. I noted last week that: "The bulls don't see the bears as able to 'break' the Market and tend to think it's only a matter of time before higher levels are seen across the board. But bullish fever is NOT raging due to Euroland and Fed uncertainties; amid other worries!" I hate to REPEAT myself but I don't have more to ADD to the foregoing a week on!


The S&P 100 (OEX) is being challenged at trendline support around 918, at what would be technical support if the bullish OEX chart pattern extends to current circumstances. If implied support at the trendline, 920-918, is pierced, look for next support/buying interest around 910. 900 is fairly major support.

Near resistance in OEX is highlighted at 930, extending to 937.

I didn't have time to add the long-term weekly OEX chart, so not shown here, but can say that MAJOR resistance isn't seen until around 965 in the OEX, with major support coming in around 860. The OEX remains in a major or primary bull market.


The Dow 30 (INDU) ended up seeing more than a 2/3rds retracement of its prior upswing and instead made a round-turn back to early-May lows. Those prior lows stopped at that time at INDU's support trendline and a repeat of this pattern is my expectation again if INDU falls to its up trendline.

Along with nearness to possible technical support at 17800-17700, INDU is the first of the major indices to be near to an oversold 'extreme' in terms of the 13-day RSI. There's upside reversal potential seen in an 'oversold' market, coupled with support showing up at prior lows or up trendlines along with high bullish sentiment or strong bullish expectations.

Near resistance is highlighted at 18000, extending to 18100 and the 21-day moving average.

A dip into the 177-178 range in the Dow Index (DJX) would be a tempting call buy, risking to 176, with upside potential back to 181-182 or higher such as to the top end of INDU's broad uptrend channel. Last week I made the bold (kidding!) prediction that a pullback to 17800 was a 'worst-case' scenario for INDU. Stay tuned on that!


The Nasdaq Composite (COMP) continues 'mixed' in its pattern. More so than the prior week as the one past saw a breakdown to below pivotal near support at 5050 although with a strong rebound back above 5050 and its 21-day moving average.

I primarily see this current stall and sideways trend as a 'consolidation' for a later up leg above 5100, possibly next to 5200. That may be weeks off or closer.

A dip to the 5000-4975 area in COMP would offer a test of buying interest. A rebound from the COMP's up trendline, especially coupled with an oversold (low) reading in the 13-day RSI would attract my attention to a possible bullish play in Nasdaq. My type of buy side trade: at technical support, oversold and with spikes in bullish sentiment per the chart below!

I wrote LAST week and it's still my view this week of "no strong conviction of the Composite getting and holding, above 5100 in the coming week on out to 2-3 weeks. COMP has major resistance showing on weekly charts (not shown) at 5160, not far above the line of recent highs. The Nasdaq Market may have reached at least an interim limit to how high for tech stocks for now."


The big cap Nasdaq 100 (NDX) slipped lower this past week as buyers couldn't take the Index above 4540 for the most part. By week's end NDX closed at 4477 and below key near support at 4500 which also took the Friday Close below the 21-day moving average which had been acting as support.

Assuming that NDX remains within its broad uptrend channel which is my best guess also, key technical support lies in the 4400 area, just below near support assumed at 4450.

Near resistance is at the recent 'breakdown' point of 4500. Next resistance is in the 4550 area which made for tops in late-April and again late-May. The longer the time duration between the same/similar highs the more potent they seem to be. The current 'double top' hasn't yet spanned a long enough duration to suggest more than a possible interim top. Stay tuned on that!

On a risk to reward basis, bullish plays in NDX between 4400-4350 are favorable, given a Close below 4330 as the trade exit point and assuming an upside target to the 4600 area.


The Nasdaq 100 tracking stock (QQQ) remains barely within its current uptrend price channel so needs to find support at its up trendline to maintain its bullish chart and pattern of gains dating from mid-March. A bearish aspect is the Friday Close below the 21-day moving average. I watch for a further slide below it OR it wouldn't surprise to see Monday's Close back above this key trading average; especially given the Friday intraday bounce from QQQ's up trendline.

I noted last week that "...some further downside for the Q's looks more likely than a decisive (and sustained) upside breakout above 111.'Some' downside potential is potentially to the 109-108 zone." Also from last time, I continue liking buying dips toward the 108 area if seen, risking to 107, looking for a rebound back to 111.

Highlighted support is at 108.6, extending to 108, with next projected support in the 107 area. Near resistance is at 110, extending to the 111.2 area. Long-term resistance is 115, long-term support, 106.

The On Balance Volume (OBV) line is pointed down/bearish as was the case last week and a tip off to the relative weakness of this past week in the Nas 100.


The Russell 2000 (RUT) is in a bullish longer-uptrend and mixed in the short term as resistance noted last week at 1260 is keeping a partial lid on the recovery bounce from 1240.

I've noted key near resistance at 1265, extending to the 1275 area. Near support is highlighted at 1240, extending to 1233.

RUT seems to 'want' to go higher but is struggling to gain much traction as is the case with Nasdaq; i.e., also in a strong long-term uptrend but may have reached some equilibrium for now. A couple of back-to-back Closes above 1260 (with support on subsequent pullbacks to this area) would set up a possible retest of the prior top. Longer-term charts suggest substantial resistance lies in the 1276-1280 area.

I continue to favor bullish plays in the 1220 area if seen, bearish plays around 1280.


New Option Plays

Seven Quarters Of Double-Digit Growth

by James Brown

Click here to email James Brown


Zebra Tech. - ZBRA - close: 114.29 change: +0.82

Stop Loss: 110.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 475 thousand
Entry on June -- at $---.--
Listed on June 06, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Trade Description:
Traditionally known for bar code scanning and RFID technology, ZBRA has changed. They have grown into a company that management says puts them right in the middle of three major tech trends: the Internet of Things, mobility, and cloud computing. Today the company has thousands of customers in more than 100 countries, including more than 95 percent of all Fortune 500 companies.

ZBRA is in the industrial goods sector. In April 2014 they announced a $3.45 billion deal to buy the Motorola Solutions enterprise unit. According to the company, "Zebra Technologies is a global leader in enterprise asset intelligence, designing and marketing specialty printers, mobile computing, data capture, radio frequency identification products and real-time locating systems. Incorporated in 1969, the company has over 7,000 employees worldwide and provides visibility into valued assets, transactions and people The company's extensive portfolio of marking and printing technologies, including RFID and real-time location solutions, illuminates mission-critical information to help customers take smarter business actions."

The company has been consistently delivering on the earnings front. ZBRA has reported seven quarters in a row of double-digit earnings growth. The numbers have boomed since the addition of the enterprise unit in October last year.

Looking at the last few quarterly reports ZBRA has been beating Wall Street estimates on both the top and bottom line . Their most recent report was May 13th where ZBRA announced its 2015 Q1 results of $1.39 per share. That was a +53% improvement from the prior year and 28 cents above estimates. Revenues surged +210% to $893 million, which was above estimates. That was thanks to $561 million in sales from the Motorola solutions business. Even ZBRA's legacy business saw a +15% improvement in sales.

Anders Gustafsson, ZBRA's CEO, commented on his company's report, saying, "We started the year with strong, positive momentum, as business activity remained high specifically in North America and Europe. Our partners and customers are responding enthusiastically to our greatly expanded portfolio of solutions and capabilities, and our enhanced focus on giving them improved visibility into their assets, transactions and people for better enterprise asset intelligence. During the quarter we also made material progress on achieving our cost-synergy targets, pursuing growth initiatives and integrating Zebra with the Enterprise business acquired from Motorola Solutions in October. The favorable business trends are continuing into the second quarter, as Zebra is well positioned to benefit over the long term from the convergence of technology trends in the Internet of Things, mobility and cloud computing."

ZBRA guided in-line with analysts' estimates. Wall Street expects full year 2015 earnings growth of +50% and +24% growth in 2016. This bullish earnings picture has fueled big gains for ZBRA's stock price. The S&P 500 is up +1.6% year to date versus the NASDAQ composite's +6.6% gain. Currently ZBRA is up +47% this year. The stock has almost doubled from its October 2014 lows near $60.

ZBRA produced huge gains after its earnings report in May. After consolidating several days near $110 the stock broke out again on June 2nd. We like how traders bought the dip on Friday morning and expect ZBRA to hit new highs soon. Tonight we are suggesting a trigger to buy calls at $115.15.

Trigger @ $115.15

- Suggested Positions -

Buy the AUG $120 CALL (ZBRA150821C120) current ask $3.60
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:

Intraday Chart:

In Play Updates and Reviews

Stocks End Mixed On Friday After Jobs Number

by James Brown

Click here to email James Brown

Editor's Note:

The major U.S. indices couldn't make up their minds on Friday. The NASDAQ composite and small cap Russell 2000 both closed higher while the S&P 500 closed in the red. Traders were digesting a lot of headlines including the OPEC meeting and the better than expected May jobs number.

FDS hit our stop loss.
CRTO hit our bullish entry point on Friday. KSS hit our bearish entry point.

We want to exit our SPW trade on Monday morning.

Current Portfolio:

CALL Play Updates

Criteo SA - CRTO - close: 50.95 change: +1.26

Stop Loss: 47.45
Target(s): To Be Determined
Current Option Gain/Loss: -7.1%
Average Daily Volume = 628 thousand
Entry on June 05 at $50.25
Listed on June 04, 2015
Time Frame: Exit PRIOR to July option expiration
New Positions: , see below

06/06/15: Our new bullish play on CRTO is off to a decent start. Shares broke through round-number resistance at $50.00 and hit our suggested entry point at $50.25. I would consider new positions at current levels or, if you're nimble, you could try and buy calls on a dip near $50.00.

Trade Description: June 4, 2015:
Do you know what re-targeting is in the online ad business? It is the strategy of serving an ad to someone who has already been to your website or seen your product. Apparently it works pretty well for CRTO who helped drive $19 billion in post-click sales for its clients in the twelve months preceding March 31, 2015. The company's earnings have boomed with net income up about +2,500% in the last two years.

CRTO is in the technology sector. According to the company, "At Criteo, personalized performance advertising is what we do. And it's what we do best. Measuring return on post-click sales, Criteo makes ROI transparent and easy to measure. Criteo has 1,500+ employees in 23 offices across the Americas, Europe and Asia-Pacific, serving 7,800+ advertisers worldwide with direct relationships with 10,000+ publishers."

The earnings momentum has been impressive. The company has beaten Wall Street's revenue estimates for the last four quarters in a row. They beat the bottom line earnings estimate the last three quarters in a row. CRTO's management has also raised their guidance the last four quarters in a row.

CRTO's most recent report was May 5th where they announced their 2015 Q1 results. Analysts were expecting €0.18 per share. CRTO reported that their net income had jumped +200% from a year ago to €0.28. Revenues surged +59% to €262 million. Adjusted EBITDA results were up +89%. Management raised their guidance again and guided Q2 and 2015 results above Wall Street estimates on both the top and bottom line.

This bullish earnings picture has helped shares of CRTO recover from recent weakness in both the U.S. and European markets. Please note I said "recover" from recent weakness and not avoid. Shares of CRTO can be volatile. Shares surged from just above $40 to almost $50 in about two weeks in the first half of May. They spent the last two weeks of May correcting lower and now CRTO is back in rally mode. The point & figure chart is bullish and forecasting at $68.00 target.

There has been some speculation that CRTO is a takeover target by high-profile names like Amazon.com, Facebook or Google. These rumors have been out for months. Given our short-term time frame the idea of CRTO as a target may not help.

Currently shares of CRTO are hovering just below round-number resistance at the $50.00 level. Tonight we are suggesting a trigger to buy calls at $50.25.

- Suggested Positions -

Long JUL $50 CALL (CRTO150717C50) entry $2.80

06/05/15 triggered @ $50.25
Option Format: symbol-year-month-day-call-strike


Cognizant Technology - CTSH - close: 64.60 change: +0.13

Stop Loss: 63.45
Target(s): To Be Determined
Current Option Gain/Loss: -27.6%
Average Daily Volume = 3.6 million
Entry on June 02 at $65.65
Listed on May 28, 2015
Time Frame: Exit PRIOR to July option expiration
New Positions: see below

06/06/15: CTSH stumbled lower on Friday morning but traders bought the dip at $63.64, near the prior week's lows (around $63.60). CTSH managed a rebound and closed in positive territory on the day.

I am suggesting we wait for some follow through higher before considering new positions.

Trade Description: May 28, 2015:
Shares of CTSH are pushing toward new all-time highs as the company continues to deliver better than expected earnings and revenue numbers. The company is in the technology sector. They provide business and technology services.

According to the company, "Cognizant (CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world's leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 100 development and delivery centers worldwide and approximately 217,700 employees as of March 31, 2015, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world."

CTSH popped to new highs back in February after reporting their Q4 results, which beat estimates on both the top and bottom line. Revenues were up +16%. Management raised their Q1 and 2015 estimates.

The stock rallied again when they reported their 2015 Q1 results on May 4th. Earnings rose +14.5% to $0.71 per share, which was a penny above estimates. Revenues soared +23.5% to $2.99 billion, above estimates.

Management raised their 2015 earnings and revenue guidance. They expect earnings growth of +9% and revenues to rise +19% above 2014 levels. Multiple analyst firms raised their price target on CTSH stock into the $70-76 range. Coincidentally the point & figure chart for CTSH is bullish and forecasting at $76.00 target.

At the moment CTSH is hovering just below resistance in the $65.50 area. We are suggesting a trigger to buy calls at $65.65.

- Suggested Positions -

Long JUL $65 CALL (CTSH150717C65) entry $2.28

06/02/15 triggered @ $65.65
Option Format: symbol-year-month-day-call-strike


Tableau Software, Inc. - DATA - close: 115.60 change: +2.09

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: -11.0%
Average Daily Volume = 1.0 million
Entry on May 28 at $115.25
Listed on May 27, 2015
Time Frame: Exit prior to July option expiration
New Positions: see below

06/06/15: DATA displayed relative strength on Friday with a +1.84% gain. Shares bounced near the $113.00 level multiple times on Friday morning and then rallied to a new all-time high. DATA eventually pared its gains but still set a closing high on Friday.

If you're looking for a new entry point then consider using a new rise above $116.00.

Trade Description: May 27, 2015:
The market for analyzing big business data is growing fast. DATA is leading the charge. According to the company, "Tableau Software (NYSE: DATA) helps people see and understand data. Tableau helps anyone quickly analyze, visualize and share information. More than 26,000 customer accounts get rapid results with Tableau in the office and on-the-go. And tens of thousands of people use Tableau Public to share data in their blogs and websites."

The last few earnings reports have been very impressive. DATA released their Q3 results on November 5, 2014. Results were 12 cents above estimates with revenues up +71% to $104.5 million, also above estimates.

Their Q4 results came out in early February. Analysts were expecting a profit of $0.11 a share on revenues of $122.58 million. DATA delivered $0.42 a share with revenues up +75% to $142.9 million. In the fourth quarter they added 2,600 new customers. They closed 304 transactions worth more than $100,000, a +70% improvement from a year ago.

Christian Chabot, Chief Executive Officer of Tableau. "In 2014, we experienced the strongest demand we've seen in our history, as the move to agile analytics grows faster than ever."

DATA reported their 2015 Q1 results on May 7th. Analysts were looking for a loss of $0.03 per share on revenues of $115.29 million. The company blew away these numbers with a profit of $0.08 per share (11 cents above estimates). The pattern of big revenue growth continued with Q1 revenues up +74.4% to $130.1 million. They added 2,600 new customers putting their total above 29,000. The number of deals above $100,000 hit 249 in the first quarter.

Management provided bullish guidance with estimates for Q2 revenues in the $135-140 million range. That's above Wall Street's estimate of $130.9 million. They also upped their fiscal year 2015 earnings picture and see $600-615 million, which is better than analysts' estimates of $587 million.

Shares of DATA surged on its results and optimistic guidance. Since then traders have been buying the dips pretty quickly. Today's display of relative strength (+1.99%) is also a new all-time closing high for DATA. It's also worth noting that DATA has been talked about as a potential takeover target.

The $115.00 level looks like short-term resistance. We will use a trigger at $115.25 as our entry point to buy calls.

- Suggested Positions -

Long JUL $120 CALL (DATA150717C120) entry $3.82

05/28/15 triggered @ $115.25
Option Format: symbol-year-month-day-call-strike


Electronic Arts - EA - close: 62.90 change: +0.27

Stop Loss: 61.45
Target(s): To Be Determined
Current Option Gain/Loss: -17.5%
Average Daily Volume = 3.5 million
Entry on May 27 at $63.65
Listed on May 18, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/06/15: EA tagged a new low for the week on Friday morning. Fortunately shares bounced near $62 and rallied back into positive territory for the session. I'm a little concerned with the short-term trend of lower highs that has developed over the last few days.

I am not suggesting new positions at this time.

Trade Description: May 18, 2015:
Video game stocks are hitting high scores this year. The two biggest players in this industry are ATVI and EA. Shares of ATVI are at all-time highs while EA is nearing a new 10-year high.

EA is considered part of the technology sector. According to the company, "Electronic Arts ( EA ) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. In fiscal year 2015, EA posted GAAP net revenue of $4.5 billion. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS FIFA, Battlefield, Dragon Age and Plants vs. Zombies."

Shares of EA popped above major resistance near the $60.00 level earlier this month after reporting better than expected Q4 2015 results. Wall Street was looking for EA to deliver a profit of $0.26 a share on revenues of $852.9 million. EA announced a profit of $0.39 a share. Revenues were down -2.0% from a year ago but came in at $896 million, well above estimates.

Their full year results were impressive. EA's net revenues were up almost $1 billion to $4.5 billion. The company's net income soared from $8 million in 2014 to $875 million in 2015. Shares of EA have benefitted from the company's turnaround. The stock is up more than +100% in the last 12 months.

EA's guidance was mixed. They issued bearish guidance for their Q1 2016 (current quarter) and see EPS about flat ($0.00) when Wall Street was expecting $0.19 per share. EA is forecasting Q1 revenues significantly below expectations. However, they raised their fiscal year 2016 profit estimate to $2.75 per share when analysts were only expecting $2.63.

Last quarter EA spent $95 million buying back 1.8 million shares of their stock. When they reported earnings on May 5th they also announced a new $1 billion stock buyback program that expires on May 31, 2017.

EA management sounds pretty optimistic. Here's an excerpt from their earnings press release:

With a clear focus on putting our players first, FY15 was an exceptional year for Electronic Arts. We introduced award-winning games, delivered enduring entertainment in our live services, and forged deeper relationships with a growing global audience across consoles, mobile devices and PC, said Chief Executive Officer Andrew Wilson. EA continues to sharpen our focus and speed, and in the year ahead we will engage more players on more platforms with new experiences like Star Wars Battlefront, FIFA 16, Minions Paradise and more.

Two years ago, we discussed a three-year plan to double non-GAAP operating margins to 20%, said Chief Financial Officer Blake Jorgensen. Today, Im happy to announce that we exceeded our goal a full year ahead of schedule. Looking forward, we anticipate continued earnings growth driven by our strong portfolio, investment in new IP, the market shift to digital, and on-going cost discipline.

Wall Street's analyst community seems bullish on EA as well. Several firms reiterated their bullish ratings and raised price targets.

Shares of EA have been building on a bullish trend of higher lows. The current rally has produced a buy signal on the point & figure chart that is forecasting a long-term target of $110.00. On a short-term basis EA seems to be coiling for a breakout past resistance near $63.50. Tonight we're suggesting a trigger to buy calls at $63.65.

- Suggested Positions -

Long SEP $70 CALL (EA150918C70) entry $1.66

06/04/15 new stop @ 61.45
05/27/15 triggered @ 63.65
Option Format: symbol-year-month-day-call-strike


PowerShares QQQ ETF - QQQ - close: 109.30 change: -0.26

Stop Loss: 109.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 27.4 million
Entry on June -- at $---.--
Listed on June 03, 2015
Time Frame: Exit PRIOR to July expiration
New Positions: Yes, see below

06/06/15: The big cap NASDAQ stocks actually underperformed the broader NASDAQ composite. Yet the QQQs is still only a couple of points away from new all-time highs.

We are on the sidelines waiting for a breakout higher. Our suggested entry point for bullish positions is $111.25.

Trade Description: June 3, 2015:
June does not have a great history for market performance. Stocks tend to move lower. Fortunately that is not a rule set in concrete. The sell in May trade did not show up this year. There's no guarantee that June is going to be a down month either.

As a matter of fact, the path of least resistance remains higher. The NASDAQ 100 index has been consolidating near its recent highs and looks poised to breakout. One way to play it is the QQQ ETF.

The QQQ is one of the largest and most liquid exchange traded funds. This particular ETF tracks the NASDAQ-100 index, which includes 100 of the largest non-financial stocks on the NASDAQ (lots of technology stocks). AAPL, MSFT, AMZN, GOOG, GOOGL, FB, GILD, INTC, CMCSA, CSCO and AMGN are its top holdings. You can see a list of the top twenty five holdings here.

If the market does breakout higher the QQQs could lead the charge. We want to be ready. The April 27th intraday high was $111.16. Tonight we are suggesting a trigger to buy calls at $111.25. We'll try and limit our risk with a relatively tight stop loss at $109.40. This is a short-term trade. We want to be out before the normal July option expiration.

Trigger @ $111.25

- Suggested Positions -

Buy the JUL $112 CALL (QQQ150717C112)

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


PUT Play Updates

Cerner Corp. - CERN - close: 66.24 change: -0.82

Stop Loss: 69.05
Target(s): To Be Determined
Current Option Gain/Loss: +6.1%
Average Daily Volume = 1.7 million
Entry on June 04 at $66.75
Listed on June 02, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/06/15: Our CERN trade is on the right track. Shares underperformed the market on Friday with a -1.2% decline and a breakdown to new three-month lows. The next potential challenge for the bears is the 200-dma near $65.75, since this moving average is possible technical support.

Trade Description: June 2, 2015:
CERN was having a pretty good year. Then the stock started to top out in March and April. Suddenly shares crashed lower in May due to disappointing guidance.

CERN is in the technology sector. According to the company, "Cerner's health information technologies connect people, information and systems at more than 18,000 facilities worldwide. Recognized for innovation, Cerner solutions assist clinicians in making care decisions and enable organizations to manage the health of populations. The company also offers an integrated clinical and financial system to help health care organizations manage revenue, as well as a wide range of services to support clients' clinical, financial and operational needs. Cerner's mission is to contribute to the systemic improvement of health care delivery and the health of communities."

CERN reported its Q1 earnings on May 7th. Just looking at the numbers it appeared to be a pretty good quarter. Earnings were up +22% from a year ago to $0.45 per share. That was only in-line with analysts' expectations. Revenues rose what look like a healthy +27% from a year ago to $996 million. Unfortunately that missed analysts' estimates for $1,084 million.

CERN's management said, "Revenue was below guidance provided by the Company due to a combination of lower than expected revenue from the recently closed acquisition of Siemens Health Services (Health Services) and lower revenue in our existing business." Earlier this year, in February, Cerner Corporation acquired substantially all of the assets, and assumed certain liabilities, of the Siemens Health Services business from Siemens AG.

CERN said their gross margins fell -40 basis points in the first quarter. They expect margins to slide another 100 to 150 basis points by yearend. Management provided Q2 and 2015 guidance that was below Wall Street estimates. This sparked the sell-off. The company is in a highly competitive industry and could definitely see more pricing pressures.

Technically the stock's oversold bounce didn't make it very far. Shares have been consolidating sideways in the $67-69 range for the last three weeks. The point & figure chart is bearish and forecasting at $59.00 target. Currently the stock looks poised to breakdown from this trading range. There is a chance it bounces at its simple 200-dma but we suspect it would be a temporary bounce. Tonight we are suggesting a trigger to buy puts at $66.75.

- Suggested Positions -

Long SEP $65 PUT (CERN150918P65) entry $2.45

06/04/15 triggered @ $66.75
Option Format: symbol-year-month-day-call-strike


Kohl's Corp. - KSS - close: 63.42 change: -1.42

Stop Loss: 66.55
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 3.3 million
Entry on June 05 at $63.90
Listed on June 01, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/06/15: It looks like our patience with KSS might pay off. Shares displayed relative weakness on Friday with a breakdown below support near $64.00 and its simple 200-dma. Our trigger to buy puts was hit at $63.90.

Trade Description: June 1, 2015:
Most of the big retail names have been disappointing on the sales front. Macy's (M) most recent earnings report saw the company miss analysts' expectations on both the top and bottom line and Macy's lowered their guidance.

J.C. Panney Co (JCP) beat estimates but their same-store sales disappointed and traders sold the stock. Retail titan Wal-Mart (WMT) missed estimates on both the top and bottom line and issued soft guidance. Kohl's (KSS) is suffering from similar results.

Wall Street is somewhat surprised by the retailer's lackluster results. The U.S. consumer is benefitting from significantly lower gas prices from a year ago. We have one of the healthiest job markets in years. Yet consumers are not spending. The U.S. Commerce department said April retail sales were flat (+0%) after a +1.1% rise in March. Today (June 1st), the Commerce Department reported that consumer spending was flat in April. According to Marketwatch.com, the pace of consumer spending has fallen to the lowest level in several years. After another harsh winter many were expecting pent up demand by consumers to produce a surge in spending when the weather warmed up. Thus far consumers are keeping their wallets closed.

KSS is in the services sector. According to the company, "Kohl's (KSS) is a leading specialty department store with 1,164 stores in 49 states. With a commitment to inspiring and empowering families to lead fulfilled lives, the company offers amazing national and exclusive brands, incredible savings and inspiring shopping experiences in-store, online at Kohls.com and via mobile devices."

The first quarter of 2015 was pretty good for KSS' stock. Shares rallied big on its Q4 results announced in early February. Earnings were better than expected. Revenues were just a little bit above expectations. Management raised their fiscal year 2016 guidance and raised their dividend.

Then KSS' upward momentum stalled in April. The stock started to reverse lower. Shares got crushed on May 14th with its biggest ever one-day drop that shaved off $2 billion in market cap. The drop was a reaction to KSS' Q1 results. Earnings were up +5% from a year ago and beat estimates. Yet revenues missed with $4.12 billion in sales versus analysts' estimates of $4.19 billion. Another warning signal was KSS' Q1 comparable store sales were up +1.4% versus expectations for +2.5%.

The disappointing news sparked some analyst downgrades and lower price targets. The point & figure chart is bearish and forecasting at $55.00 target. Technically shares of KSS look weak. The oversold bounce lasted about three days and KSS rolled over again with a steady pattern of lower highs.

Today KSS is poised to breakdown below its trend of higher lows and technical support at its simple 200-dma. We are suggesting a trigger to buy puts at $63.90. I will point out that prior resistance near $62.00 could be support but momentum clearly favors the bears here. We suspect shares could fall into the $56-60 zone.

- Suggested Positions -

Long OCT $60 PUT (KSS151016P60) entry $2.40

06/05/15 triggered @ $63.90
Option Format: symbol-year-month-day-call-strike


Norfolk Southern Corp. - NSC - close: 92.51 change: +0.55

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +17.0%
Average Daily Volume = 2.2 million
Entry on May 26 at $94.85
Listed on May 23, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/06/15: NSC managed a bounce on Friday. Yet overall the stock has been ignoring the rally in the transportation stocks. The simple 10-dma near $93.30 should be overhead resistance. Plus the bearish trend of lower highs would suggest this bounce should rollover soon.

No new positions at this time.

Trade Description: May 23, 2015:
The combination of weak fuel prices, lower global demand for fuel, and rising exports from other countries has been hurting U.S. coal exports. The U.S. Energy Information Administration expects U.S. coal exports to fall throughout 2015 before leveling off in 2016. Less exports means less coal that needs to be moved by railroad.

NSC is in the services sector. They're a major player in the railroad industry. According to the company, "Norfolk Southern Corporation (NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 20,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products."

Falling coal shipments is not the only problem for the railroads. Crude oil's decline from last year's highs and the massive slowdown in the amount of fracking in the U.S. has also hurt the railroad business. Less drilling means fewer rail cars of oil pipe and drilling equipment to be shipped. Less fracking means less fracking sand and other proppants to be shipped. Less drilling also means less oil produced and thus less oil to be transported by rails.

It's not just NSC that's suffering. In March 2015 railroad company Kansas City Southern (KSU) dramatically reduced their guidance. Two months later (about May 14th) KSU actually revoked its guidance altogether. Management sees no visibility due to so much uncertainty surrounding the energy market. KSU's energy-related business is down -50% from a year ago and carloads are down -38% in Q2 2015. Their utility coal shipments are down -68%.

Another company, Union Pacific (UNP), painted a similar picture of lower shipments and falling demand. The industry is facing difficult year over year comparisons. They have seen 11 weeks of negative rail volume. Industry wide coal shipments are down -15% from a year ago (UNP's was down -25%). Shipments of crude oil are down. Shipments of agriculture products are down.

It could be months before the oil industry in the U.S. recovers. Coal isn't expected to recover this year. That doesn't paint a very rosy picture for the railroads.

On April 13, 2015 NSC issued an earnings warning. They guided their Q1 results to $1.00 per share on revenues of $2.6 billion. That's a -15% drop in earnings from a year ago. Wall Street was expecting $1.29 per share on revenues of $2.68 billion. Shares of NSC crashed on this news and then rebounded but the bounce failed at technical resistance and shares have accelerated lower. NSC has broke down under major support near the $100 level.

Technical traders could argue that NSC has created a giant head-and-shoulders pattern (with two right shoulders) over the last nine months. This H&S pattern would suggest a downside target in the $80-85 region. Tonight we are suggesting a trigger to buy puts at $94.85. We will start this trade with a stop loss at $100.25. More conservative traders may want to use a stop around $98.30 as an alternative.

- Suggested Positions -

Long SEP $90 PUT (NSC150918P90) entry $2.65

05/30/15 new stop @ 95.65
05/26/15 triggered @ $94.85
Option Format: symbol-year-month-day-call-strike


SPX Corp. - SPW - close: 74.20 change: -0.19

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -32.3%
Average Daily Volume = 500 thousand
Entry on May 28 at $73.45
Listed on May 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/06/15: We've decided to pull the plug on this SPW trade. Prepare to exit on Monday morning.

More patient traders may want to keep the trade alive. SPW's overall pattern is still bearish. Shares failed at short-term resistance near $76.00 this past week. Yet the $73.50 area has been support for two weeks in a row now. We'd rather exit.

- Suggested Positions -

Long JUL $70 PUT (SPW150717P70) entry $1.55

06/06/15 prepare to exit on Monday at the opening bell
05/28/15 triggered @ $73.45
Option Format: symbol-year-month-day-call-strike


Zillow Group - Z - close: 90.06 change: +1.71

Stop Loss: 93.55
Target(s): To Be Determined
Current Option Gain/Loss: -19.2%
Average Daily Volume = 2.0 million
Entry on June 01 at $89.85
Listed on May 30, 2015
Time Frame: exit prior to July expiration
New Positions: see below

06/06/15: Z produced a big bounce on Friday (+1.9%) that erased most of Thursday's losses. Yet in spite of Friday's bounce Z still posted a loss for the week. Shares are down three weeks in a row and down five of the last six weeks. The simple 10-dma near $91.90 should be short-term resistance.

No new positions at this time.

Trade Description: May 30, 2015:
The National Association of Realtors just announced on May 28th that pending home sales surged to nine-year highs in April. The U.S. real estate market is booming and yet shares of Z are down -31% from their 2015 closing highs. What's wrong with this picture?

Zillow is considered part of the financial sector. They are a free online service for consumers that provides home values, listings, and mortgages. According to the company, "Zillow Group (Nasdaq:Z) houses a portfolio of the largest real estate and home-related brands on mobile and Web. The company's brands focus on all stages of the home lifecycle: renting, buying, selling, financing and home improvement. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes, and connecting them with the right local professionals to help. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow(R), Trulia(R), StreetEasy(R) and HotPads(R). In addition, Zillow Group works with tens of thousands of real estate agents, lenders and rental professionals, helping maximize business opportunities and connect to millions of consumers. The company operates a number of business brands for real estate, rental and mortgage professionals, including Postlets(R), Mortech(R), Diverse Solutions(R), Market Leader(R) and Retsly(TM). The company is headquartered in Seattle."

The last year has been a rocky one for Zillow investors. The stock rallied from $130 to $160 in about three days back in July 2014 when the company announced a $2.5 billion stock for stock deal to buy its rival Trulia. By January 2015 the stock was bouncing along the $93.00 area.

Shares of Z did spike in February 2015 when they finally announced the completion of the merger. Shares surged more than 15% in one day on the news it had closed the acquisition. Zillow changed their name to Zillow Group. The combined company accounts for about 60% of the online real estate advertising market. It's the biggest U.S. real estate and home-related branding company on the Internet and mobile.

After the February spike higher shares of Zillow did nothing but fall. This culminated into a huge spike down on April 14th. The company issued an earnings warning. Z's management said that 2015 would be a "transition year", which on Wall Street means our quarterly results will stink. The company cut their 2015 revenue estimate down to $690 million. At the time Wall Street analysts were estimating $722-753 million in revenues. Z slashed their EBITDA estimate to $80 million when analysts were expecting $141 million. Zillow blamed the length review process by the FTC over potential anti-trust issues. Z's management was expecting a three-month review. It took nine months. No worries though, Z's management says that 2016 and 2017 will be awesome.

Z's most recent earnings report was May 12th. It was the first report with the combined company's results. Z posted a loss of $1.19 per share versus a 16-cent loss a year ago. Backing out their restructuring costs and stock option expenses their adjusted earnings was a profit of $0.05 per shares. That was 17 cents better than analysts were expecting. Revenues soared +92% to $127.3 million. Yet that wasn't good enough. Wall Street had been forecasting revenues in the $135-141 million range.

Shares of Z popped on its earnings news but they have done nothing but sink since then. Now the stock is poised to breakdown below round-number support at $90.00. The point & figure chart is bearish and forecasting an $86.00 target (which could get worse as Z continues to sink).

Bears point out that Zillow's valuation is very rich at more than 60 times forward earnings. The company also faces competition from the likes of Move.com and Realtor.com, both run by News Corp. My only concern is that there are a lot of bears shooting against this stock. The most recent data listed short interest at 37% of the 46.3 million share float. That's why Z can see huge one-day spikes as shorts panic. Yet overall they have been correct with Z underperforming the market.

Tonight I am suggesting a trigger to launch small bearish positions at $89.85. Odds are pretty good we could see Z retest its lows in the $80-81 area.

- Suggested Positions -

Long JUL $85 PUT (Z150717P85) entry $2.60

06/04/15 new stop @ 93.55
06/01/15 triggered @ $89.85
Option Format: symbol-year-month-day-call-strike



FactSet Research - FDS - close: 164.63 change: -0.53

Stop Loss: 163.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.6%
Average Daily Volume = 302 thousand
Entry on May 13 at $162.25
Listed on May 11, 2015
Time Frame: Exit PRIOR to earnings on June 16th.
New Positions: see below

06/06/15: FDS has been acting weak since Wednesday's intraday failed rally. Shares underperformed again on Friday. The stock gapped down at the open and spiked lower to new two-week lows before bouncing. FDS spent most of the day hovering just above $164.00 but it had already hit our stop loss at $163.85.

If this weakness continues the next level of support might be the rising 50-dma, currently near $161.50.

- Suggested Positions -

JUN $165 CALL (FDS150619C165) entry $3.80 exit $3.70 (-2.6%)

06/05/15 stopped out
05/19/15 new stop @ 163.85
05/13/15 triggered @ 162.25
Option Format: symbol-year-month-day-call-strike