Option Investor

Daily Newsletter, Monday, 6/8/2015

Table of Contents

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

Market Wrap

The Correction Deepens

by Thomas Hughes

Click here to email Thomas Hughes
The market continues to retreat while we wait on data, next week's FOMC meeting and the next earnings reporting season.


Strong NFP numbers and positive outlook were not enough to support the market today. Weak outlook for 2nd quarter earnings and global woe are weighing down the market while we wait on even more data, an FOMC meeting, the next round of earnings and a triple witching options expiration at the end of next week. Except for a few earnings and economic reports most of this anticipation will not be satisfied until next week or later, leaving this week relatively light on market moving events. There was no official US economic data released today and only a handful of earnings reports.

Early trading was influenced by data from China and Japan. Chinese import data shows a -17% decline, not a good sign of growth in that country but one that raised hopes of stimulus once again. In Japan GDP estimates for the 1st quarter were revised higher, to 3.9%, in evidence of the success of ongoing stimulus measures there. Indices in the region closed mostly mixed although the mainland Chinese Shang Hai index gained over 2%.

Markets closed lower in Europe as well. The close of the G7 meeting leaves Greece in focus as well as sanctions against Russia. The general consensus is that Greece is running out of time very quickly so expect news to come from that arena at any time. The G7 leaders also reaffirm current sanctions against Russia and threatened more if Putin didn't get back in line.

Market Statistics

Futures were negative for most of the morning but indicating a flat open. The trade weakened going into the opening bell but only slightly with most of the major indices posting initial losses of less than -0.1%. The first 15 minutes of trading were a little volatile with some up and down action testing resistance at last week's closing prices. This didn't last long and left the indices trending lower into the early afternoon. The market hit today's bottom a little after 1:30 and after an hour or so of sideways action moved up to recapture about half of today's losses. The bounce did not find traction however ad the market moved back down to set a new intra-day low by the close of today's trading.

Economic Calendar

The Economy

No data today and not whole lot for the week but it will be important nonetheless. Tomorrow is Wholesale Inventories and JOLTs job openings. Inventories are expected to rise, look for job openings and quits to remain steady or strengthen. Wednesday is Treasury Budget. Thursday Initial Claims, Retail Sales, Import/Export Prices and Business Inventories. Friday is PPI and Michigan Sentiment. I'm looking for PPI to be the big move of the week. Last month it was weaker than expected and precipitated a bottom in the dollar and a top in gold. This month it is expected to grow by at least 0.4% so could spark the opposite move.

Moody's Survey Of Business Confidence remains near record high levels. The index reading jumped by 0.8 points to hit 44.1, just shy of the all-time high set in April. According to Moody's chief economist Mark Zandi global businesses remain positive about current conditions and future expectations. He takes note of a surge in expectations for the second half that runs counter to recent weakness and declining estimates for 2nd quarter quarter growth.

The Oil Index

Oil prices fell more than -1.5% today as OPEC's decision to keep pumping was underscored by a report today China's month to month imports of oil declined by -26%. The combination is evidence of the ongoing supply/demand imbalance that could keep oil prices under pressure. At the same time there are plenty of hot spots in the middle east to help keep prices supported, as well as the upcoming Iranian Nuclear deal deadline.

The Oil Index fell by only a half percent in today's action but continues to exhibit signs the near term decline is reaching bottom. Momentum in the downward movement is in decline and diverging from the current low, an indication of a potential trough if not actual support along the long term trend line. Stochastic is still weak and below the upper signal line but is oversold in relation of the long term trend line. The index could continue to drift lower with a target near the range of 1,250 to 1,300.

The Gold Index

Gold prices got a little lift today as the dollar weakened. Gold gained about a half percent to trade above $1170. Prices have tested support due to the dollars recent rebound but appear to remain range bound ahead of the FOMC meeting and PPI data later this week. Looking back to last month and the PPI data, surprising low producer level inflation helped the dollar to bottom and gold to top so I will be looking for some kind of similar move on Friday. PPI is expected to rise by roughly .4%, up from last month's decline of -0.4%. Even if it only comes as expected it will raise expectations for the Fed rate hike and could strengthen the dollar, but will also put inflation firmly back on the table and could support gold prices at the same time.

The gold miners ETF GDX gained over a full percent in today's session. Today's candle is little more than a spinning top and represents sideways movement from Friday's candle. The indicators remain bearish but with MACD forming only very weak peaks the strength of this break of this dip is questionable. Stochastic is also weak and below and lower signal line but like could be seen as oversold in light of recent price action. Gold prices are the biggest driver of this index so Friday could be a big day for it as well. If gold prices are unable to hold support then the ETF could retreat to it's long term low near $17.50.

In The News, Story Stocks and Earnings

There was no report from Factset this week. Earnings season begins in exactly one month with Alcoa on July 8th. The aluminum giant is expected report earnings of $0.25, a 10% decline from last quarter's $0.28. The company has been faced with currency headwinds and sluggish demand with the added twist of plunging bauxite prices. I say twist because it means lower prices for finished alumina but may also lower input prices for since close to 1/3 of Alcoa's bauxite comes from outside sources. Another factor thatmay affect the bottom line is potential savings in fuel costs. The stock has been trending lower since February and made a new low today. Share prices are now near the middle of the 5 year trading range and a new 15 month low.

McDonald's released global comp store sales this morning and surprised with a better than expected decline. The company reported global comps down by -0.3%, consensus was closer to -1.0%. This was led by decline in Asia/Pacific/Africa of -3.2% but offset by gains in Europe, 2.2%. US comps fell by -2.2%, less than expected. MCD next reports earnings at the end of July and is expected to show an increase over the last quarter. Today the stock lost -0.15%.

Sears reported earnings today. The company reported a loss of -$2.85 per share, much better than expected. Sales for Sears stores declined by -7% in the quarter, in the Kmart line of stores sales declined by -14%. The company also reported the planned spin-off of a large number of stores into a REIT. Management says the company is making progress on its turnaround plans and well positioned to continue doing so. Shares of the stock lost -4.27% in today's session.

Apple held its annual developers conference today. Tim Cook revealed a number of new advancements including updates to iOS 9, a new operating system called el Capitan, updates to Siri and how it interfaces with users, new native apps for the watch and some new functionality for the iPad. Shares of the stock waffled during the conference but ended the day with a loss of -0.74%.

The Indices

The market moved lower today, not so much in a full rout of the bulls but more like a measured retreat. After an initial battle just after the open today's decline was steady and only interrupted by a single bounce. This bounce did not find much traction and soon led to additional selling and new intra-day low.

Today's move was led by the Dow Jones Transportation Average and a loss of over -2.0%. Today's action created a long black candle and confirms resistance at once was support. This move is ominous for the bulls as it could lead to a much deeper correction/reversal for the index but I am still not quite ready to go full bear just yet. The 8,250 level could well prove to provide support. The indicators are still consistent with support on the long term weekly charts and the 2.5 year uptrend. In that light cuurrent action could be swinging into a trend following entry. Until then the index looks set to test 8,250 and is likely to remain weak until earnings expectations in the sector get sorted out.

The NASDAQ Composite made the next largest decline, -0.95, less than half that of the transports. The techs have broken back below support at the 1999 all-time high and the short term moving average with rapidly weakening indicators. Both MACD and stochastic are moving lower and gaining momentum with potential support at 5,000 and a target if that fails near the long term trend line. A dip to the trend line would be a near 5% correction. The long term trend remains up so any dips remain potential buying opportunities.

The S&P 500 comes in third today with a loss of -0.65%. The broad market created a black candle of medium size extending its drop from the 2,093 support line. Although there was a bounce from support in mid-day action the index closed at the low of today's session. The move has taken it down to 2,080 with next possible support near 2,060. The indicators are bearish and gaining momentum so it looks like a deeper correction is on the way. The index has already broken one trend line and is aimed at another, a correction to this line would be just over 7% from the current all-time high, near the 2,000. Between now and that eventuality are potential support at 2060,2050 and 2020.

The Dow Jones Industrial Average made the smallest decline today, only -0.46%. Today's action created a black candle with no lower shadow in extension of the drop from 18,000. The indicators are bearish and gaining strength with a potential support target near 17,600. The index remains well above the long term trend line so any signs of support are potential buying opportunities. A break below 17,600 has a target near the long term trend line around 17,400.

The indices continue to fall through shorter term support levels with longer term support levels in sight. The long term trends remain up, in the indices and the economy but near term expectations for earnings remain poor so a deeper correction appears to be in the offing. It is very possible this correction will take all the indices, not just the transports, back to their trend lines before earnings season even starts unless something happens to change the outlook.

There is not a lot on the schedule to support prices this week but there are some key reports to keep an eye on. Business Inventories, Wholesale inventories, Retail Sales and PPI could all affect expectations for 2nd quarter GDP and they will assuredly affect FOMC rate hike speculation what the FOMC does at their meeting next week.

In the near term it looks like we're in correction with targets near long term support levels. It's unclear just how deep the correction will be but unless the outlook for the end of the year and next year changes I will be buying on the dip.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Facing Serious Headwinds

by James Brown

Click here to email James Brown


3M Company - MMM - close: 156.59 change: -0.49

Stop Loss: 160.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.2 million
Entry on June -- at $---.--
Listed on June 08, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Trade Description:
3M, the maker of Post-it notes and thousands of other products, has been a darling on Wall Street the last couple of years. It's not hard to see why. Shares have rallied from the low $90s in early 2013 to $170 per share this spring. That's a +88% gain. That is not counting the company's healthy dividend yield. Unfortunately for the bulls it looks like the rally is in trouble as MMM's business faces some serious headwinds.

MMM is in the industrial goods sector. According to the company, "3M is fundamentally a science-based company. We produce thousands of imaginative products, and we're a leader in scores of markets - from health care and highway safety to office products and abrasives and adhesives. Our success begins with our ability to apply our technologies - often in combination - to an endless array of real-world customer needs. Of course, all of this is made possible by the people of 3M and their singular commitment to make life easier and better for people around the world. We leverage these competencies to create innovative solutions for our customers and to also provide investors with attractive long-term returns." Their annual sales are about $32 billion with 90,000 employees.

MMM's most recent earnings report was April 23rd when the company announced its 2015 Q1 results. Analysts were expecting a profit of $1.93 per share on revenues of $7.83 billion. MMM missed estimates with a profit of $1.85 per share as revenues fell -3.2% to $7.58 billion. A big challenge for MMM was the strong U.S. dollar, which shaved off about $0.10 per share in pre-tax earnings. Management warned that the impact of currency headwinds would be worse than previously thought. They expect 2015 results to fall $0.35-0.40 per share due to currency translation versus prior guidance of -$0.20.

The bad news for MMM is that the U.S. dollar is likely headed for a long-term bull run higher. A weaker euro and yen will accelerate the move higher. Another factor that will drive the dollar higher is the Federal Reserve which will likely raise rates in September. If not September then 2016. Higher rates will boost the dollar. They will also impact MMM's attractiveness as a dividend play.

Right now MMM has an annual yield of 2.6%. As the U.S. bond market sinks the yields on bonds are rising. Today the yield on a 10-year bond is about 2.4%. As this rises it will make MMM less attractive as an income trade.

Shares of MMM broke support when the stock gapped down on its disappointing earnings results in April. Shares bounced back just high enough to fill the gap and then roll over again. This is a very bearish move. On Friday MMM closed below technical support at its simple 200-dma. Now shares are poised to breakdown under support at the $156.00 level. We are suggesting a trigger to buy puts at $155.75. The nearest support appears to be the $146 region.

Trigger @ $155.75

- Suggested Positions -

Buy the OCT $150 PUT (MMM151016P150) current ask $4.30
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Transports Lead The Decline

by James Brown

Click here to email James Brown

Editor's Note:

Last week's market decline continued into Monday. Transports led the way lower with a -2.0% drop in the transportation average. European stock markets continued to sink as well with all the major markets down more than -1%. Germany has hit correction territory now down -10% from its highs. Meanwhile the U.S. bond market didn't move much after big declines last week.

QQQ has been removed. We closed the SPW trade this morning.

Current Portfolio:

CALL Play Updates

Criteo SA - CRTO - close: 49.56 change: -1.39

Stop Loss: 47.45
Target(s): To Be Determined
Current Option Gain/Loss: -23.2%
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

06/08/15: Monday was a rough day for the bulls. All the major indices turned lower. CRTO raced past them to the downside and erased Friday's rally with a -2.7% loss. However, it's worth noting that while today's move was big it is an inside day. That still suggest the prior trend is intact (for now).

I would not launch new positions at this time. More conservative traders may want to raise their stop loss.

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: 63.59 change: -1.01

Stop Loss: 63.45
Target(s): To Be Determined
Current Option Gain/Loss: -49.6%
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

06/08/15: Our CTSH trade is in trouble. There was no follow through on Friday's intraday bounce. Shares reversed lower with a -1.5% decline. If there is any follow through lower tomorrow we should see CTSH hit our stop at $63.45.

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: 113.64 change: -1.96

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: -31.9%
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

06/08/15: DATA erased most of Friday's rally with a -1.69% decline Today's move has produced an "inside day", which suggest indecision on the part of traders.

No new positions at this time. If DATA continues lower there is potential support at $111.30 and $110.00.

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: 61.66 change: -1.24

Stop Loss: 61.45
Target(s): To Be Determined
Current Option Gain/Loss: -36.7%
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

06/08/15: Hmm... it's not looking good for EA. Today's display of relative weakness (-1.9%) also left shares below short-term support near $62.00. If there is any follow through lower tomorrow we'll see EA hit our stop loss at $61.45.

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

Zebra Tech. - ZBRA - close: 112.95 change: -1.34

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

06/08/15: ZBRA tried to rally this morning but was having trouble making it past the $114.75 level. The stock eventually followed the market lower and settled with a -1.1% decline.

Currently our suggested entry point to buy calls is at $115.15. More nimble traders may want to consider buying a dip near short-term support around $111.00.

Trade Description: June 6, 2015:
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)

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: 66.09 change: -0.15

Stop Loss: 69.05
Target(s): To Be Determined
Current Option Gain/Loss: +8.2%
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

06/08/15: CERN continued to sink but its move today was disappointing if you're bearish. Shares only fell -0.22% versus a -0.9% drop in the NASDAQ. CERN is still finding support at the $66.00 level. Below this is potential technical support at the 200-dma near $65.75.

No new positions at this time.

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: 62.71 change: -0.26

Stop Loss: 66.55
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
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

06/08/15: KSS continued to sink with the stock gapping open lower this morning. Shares closed near their lows for the session with a -0.4% decline.

I am not suggesting new positions at this time. Broken support near $64.00 should be new resistance so more conservative traders may want to start lowering their stop loss.

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: 91.06 change: -1.45

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +39.6%
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

06/08/15: The Dow Jones Transportation Average ($TRAN) was a big underperformer today with a -2.0% decline. It looks like the recent oversold bounce in the transports is over and the group is poised to hit new lows for the year. This weighed on the railroad stocks and NSC fell -1.5% to close at a new 52-week low.

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

Zillow Group - Z - close: 88.34 change: -1.72

Stop Loss: 93.55
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
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

06/08/15: Shares of Z continue to see volatile moves. This time it was in our favor with the stock pretty much erasing Friday's bounce. Z fell -1.9% and looks poised to breakdown under short-term support at $88.00 now.

If you're looking for a new entry point then a drop below $88.00 could be your trigger.

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


PowerShares QQQ ETF - QQQ - close: 108.19 change: -1.11

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: see below

06/08/15: The QQQ has continued to sink. The ETF is down three days in a row and under its 50-dma. The next support level may be $107 and its 100-dma. Our trade has not opened yet and we are removing the QQQ as an active candidate.

Trade did not open.

06/08/15 removed from the newsletter, suggested entry was $111.25



SPX Corp. - SPW - close: 73.43 change: -0.77

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -41.9%
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

06/08/15: In the weekend newsletter we decided to close our SPW trade this morning because the stock wasn't cooperating. Naturally shares failed at their 10-dma today and set a new two-year closing low.

Our trade was closed this morning. More aggressive traders may want to use a drop under $73.25 as a new bearish entry point.

- Suggested Positions -

JUL $70 PUT (SPW150717P70) entry $1.55 exit $0.90 (-41.9%)

06/08/15 planned exit
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