Option Investor

Daily Newsletter, Saturday, 6/13/2015

Table of Contents

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

Market Wrap

Headlines Tank Market Again

by Jim Brown

Click here to email Jim Brown

On Wednesday a rumor that Germany might be ready to offer Greece a way out of its troubles caused a major short squeeze. News on Friday that the IMF had broken off talks and left the country caused exactly the opposite reaction with the Dow falling -182 at the open as EU officials began to prepare for the worst-case scenario for Greece.

Market Statistics

Add in the worry over the Fed meeting next week and investors did not have a good reason to hold stocks over the weekend. Those that rode the short squeeze higher took profits and moved to the sidelines.

Economic reports continued to surprise to the upside ahead of next week's FOMC meeting. While nobody expects a rate hike next week the possibility was back on the table. A hike in September appears to be almost assured assuming the economy doesn't fall off a cliff over the next two months.

The Producer Price Index (PPI) for May rose +0.5% and slightly over consensus of +0.4% but much better than the -0.4% decline in April. This was only the second monthly increase in 2015. However, the major driver was a +5.9% increase in energy goods. Core prices only rose +0.2%. The PPI on a trailing 12 month rate of -1.0% is still very weak but improving. Food prices rose +0.8% and the largest increase in two years.

Consumer Sentiment for June rose sharply from 90.7 to 94.6. The +3.9 point gain failed to erase May's -5.2% decline but it was a good start. The present conditions component rose from 100.8 to 106.8 and the expectations component rose slightly from 84.2 to 86.8. The increase in sentiment came mostly from 44% of respondents claiming they were better off today than the same period in 2014. That was up from 41% in May. At the same time only 23% said they were worse off, down from 30% in May.

It would be hard to draw any conclusions from the volatility in the sentiment numbers but on the surface it appears the arrival of summer has lifted spirits.

Next week we get the housing numbers for May. You may remember that housing starts for April hit a seven-year high at 1.135 million. Analysts are expecting that rate to decline. They feel the April numbers were post winter recovery and May will fall back to a more reasonable pace. As long as the results are in the vicinity of the 1.1 million estimate it should not bother the market. If they fall under 1.0 million it would be very negative. Residential construction is on Tuesday.

The Fed meeting on Tue/Wed and the Yellen press conference on Wednesday afternoon is going to be the major market hurdle. While the Fed is not expected to hike rates at this meeting anything is always possible. What analysts will be looking for is guidance that targets the September meeting as the liftoff date.

The Philly Fed Manufacturing Survey on Thursday is expected to rise from 6.7 to 8.0. This is for the June period. The range of estimates are from 7.5 to 10.0 so everyone is expecting an improvement in conditions. Should the headline number decline it would be market negative.

Netflix (NFLX) shareholders approved the addition of 5 billion new shares over the existing 60 million. This paved the way for the company to split its stock. The announcement was expected after the shareholder vote but the CEO said he would pursue the matter with the board in "due course." This disappointed many shareholders and the share price fell -$33 from the Wednesday high to close at $661 on Friday. I expect the company to announce a 10:1 split in hopes of getting the share price down enough to be considered as a new Dow stock.

Netflix earnings are July 15th so a split announcement could come at any time before earnings or with the earnings release. The company already said it was going to split once the additional shares were approved so now it is just a matter of timing and split ratio.

Unless you live in a cave you probably heard that Twitter's embattled CEO Dick Costolo finally said he was stepping down. Starting on July 1st co-founder Jack Dorsey will take over as CEO on an interim basis. Analysts claim this could be the opening round in what could be a takeover battle for Twitter. Google and Facebook had previously made offers for the company but Costolo was seen as a roadblock. With Dorsey also the CEO of Square he will have his hands full managing both entities. Twitter said they would be looking both internally and externally for the next CEO.

A major Twitter investor, Chris Saca, posted an 8,500 word rant last week on how to improve Twitter. He said Google and Twitter would be an "instant fit" since Google has flopped on the social network stage. Back in April Google agreed to help Twitter sell and measure promoted tweets paid for by advertisers. In May Google began showing tweets in their search results.

In a conference call on Thursday the board said it would "carefully evaluate" any offer while they were searching for a new CEO. However, Dorsey said they believe they can "maximize value" best as an independent company. Of course he had to say that to have any hope of getting a fair price for the company if someone made an offer.

Others claim the CEO transition would not have happened if they actually had any active interest in someone buying the company. The acquisition would have happened in lieu of Costolo leaving up front and his exit would have been planned once the takeover was complete.

Investors must not have had much faith in a white knight appearing soon because shares gained only six cents on Friday. That is hardly a surge in buying on expectations for a sale.

Personally the January $40 call is looking attractive. After all how much worse can a new CEO do and there is always the chance for a buyer to appear.

LeapFrog (LF) shares fell -26% on an earnings miss. Ok, it was only -53 cents but to investors that still own the shares it was painful. Sales fell -40% to $33.9 million and the company posted a 56 cent loss. Analysts were expecting a 21 cent loss. The company said shrinking demand for tablets and related content impacted sales. Retailers were still working through leftover inventory from the holiday season and were not reordering. A planned release of the LeapTV video game platform was also delayed. This company may have just leaped into disaster. Very few come back from a setback this severe.

Alibaba (BABA) was finding no love last week as four companies downgraded the stock. Deutsche Bank cut its target price to $102. HSBC cuts its price from $136 to $124. Macquarie Research cut its target from $105 to $92 and RBC Capital lowered the target from $110 to $105. The brokers slashed their targets after the Alibaba investor meeting downplayed some aspects of its business.

The average price target from all brokers is $107 but BABA shares are headed in the other direction. HSBC cut expectations for profits by -9% and revenue by -3%. RBC Capital also cut estimates. One factor is that Alibaba halted online lottery sales in February thanks to a crackdown by the Chinese government. Alibaba also reduced its advertising fees and commissions on the group-buying website Juhasuan. That suggests business is not doing well on that site.

Brokers were concerned about how easily the business can be impacted by government policy decisions and the ongoing worries over the sale of counterfeit merchandise. MyBank, an online bank backed by Alibaba is getting off to a shaky start because of constraints by risk-averse government regulators. The bank is launching without U.S. technology because the Chinese government wants to purge U.S. tech from the domestic financial system. The Chinese government instructs companies to avoid IBM, Oracle, EMC Corp and others and recommends Chinese technology instead. China has dubbed the financial sector as IOE out or "de-IOE" with IOE the first letter of each company's name.

In a speech last week in the U.S. CEO Jack Ma said in "another life" I would never have taken Alibaba public. He said the challenges of running the company were hard enough but now that it was public it was extremely hard to run. This suggests he is struggling with having to be open about Alibaba's challenges with authorities and regulators and with investors pointing fingers at every crack in the business. It is much easier to run a company without millions of investors providing oversight and second guessing every decision you make.

Alibaba also has 1.2 billion shares still to expire from lockup in September. That could be a significant weight on prices in the months ahead.

Eli Lilly (LLY) declined -3% after expected data from the Alzheimer's Association may not be made public as expected. The group was expected to post abstracts of detailed trial findings on its website ahead of the conference planned for July. However, data in the abstracts would have been subject to an embargo preventing the public release until the conference. Only those registered for the conference would have had access. However, that raised questions on whether their access would have allowed and influenced stock market trading. The group said on Friday it was reconsidering the plan.

Lilly shares had risen +7% earlier in the week on expectations the data to be presented was going to be positive. The drug in question was solanezumab and Lilly had previously said the abstracts would have all the clinical data on the trials rather than just limited information. Normally they would only do that if there was a positive result to brag about.

Lumber Liquidators (LL) spiked +12% to $23.20 intraday on double the average volume on rumors there was a potential acquisition of the troubled company in the works. The company gave the standard answer of "we don't comments on rumors or speculation." Shares declined to +4% at the close. With more than 10,000 complaints that could turn into suits there is plenty of trouble ahead for anyone making an acquisition offer. It would be better to have them file bankruptcy and then buy the company out of bankruptcy.

Radio Shack filed the final plan in bankruptcy court for liquidation of its remaining assets. The plan follows the sale of 1,700 stores and the brand name and customer information to Standard General LP. The hedge fund plans to run the stores under a co-branding deal with Sprint.

The remaining assets will be placed into a liquidation trust and the proceeds will be distributed to creditors on a prorate basis depending on the type of claim they filed. Gift card holders have 60 days to make a claim or lose their credits.

Over the weekend Greece and EU Commission president Jean-Claude Juncker are locked in last ditch talks with a goal of reaching a deal before the market opens on Monday. While the odds are slim they are at least talking. Prime Minister Alexis Tsipras set a delegation to Brussels on Saturday with a new set of proposals in hopes of closing differences on problem areas including pensions, taxes and surplus targets.

An EU official said this was the last attempt by the EU to form a compromise. The IMF and ECB are supposedly waiting in the wings for a signal to rejoin the discussions if progress is made by Juncker. The Greek stock market declined -5.9% on Friday alone and yields on the Greek 2017 bonds rose +137 basis points to 20.03%.

Since some EU parliaments have to ratify any deal before funds can be dispersed and before the entire bailout program currently in place expires on June 30th there is little time left for negotiations. If something is not agreed by early next week the entire bailout process will collapse on June 30th and a new full fledged agreement will have to be negotiated and Greece will default on numerous payments before that can happen. Greece has 1.5 billion euros due June 30th and another 7 billion due in July and August. They have no money left so without a deal early this week there will likely be a debt disaster in Europe.

German Finance Minister Wolfgang Schaeuble has asked his staff to conceive a mechanism where a euro state could default on its debt in an orderly way that would ensure the continuity of the currency union. Basically they are planning for the worst case scenario.

A couple years ago we gave away trillion dollar Zimbabwe bucks with the end of year special. The country suffered rampant hyperinflation in 2008-2009. It got so bad shoppers would have to carry shopping bags of currency to the store just to buy bread and milk. The country eventually ended up using the U.S. dollar as its currency but the Zimbabwe bucks still traded. That is coming to an end. The country is going to buy back all the outstanding currency and officially end the reserve bank notes.

You can now exchange 175 quadrillion Zimbabwe bucks for $5 in U.S. currency. That equates to 35,000,000,000,000,000 Zimbabwe dollars for $1 U.S. dollar. Buybacks end on September 30th. Inflation in the country hit an unbelievable rate of 231,000,000% in October 2008. The currency was devalued about twice a day. At the height of the crisis the country was printing 20 trillion and 50 trillion dollar notes. The last notes printed were 100 trillion dollar notes. At that time 100 trillion was not enough to ride the bus back and forth to work for a week.

Crude prices rallied mid-week after crude inventories declined -6.8 million barrels as refiners boosted utilization to 94.6% and the high of the year as they produce gasoline ahead of the July 4th weekend. By mid July prices could begin to fall again as demand declines.

The number of active rigs in the U.S. declined -9 to 859 and now the lowest level in more than ten years. The low in July 2009 during the financial crisis was 866. Oil rigs have fallen from 1,609 to only 635 in the last 7 months. Gas rigs have stabilized in the 220-225 range and only lost -1 rig last week.

Since OPEC said they were going to continue pumping at full production the active rigs counts could continue lower. Nobody is going to want to fight the lower price expectations for Q3 and beyond.

The Chinese markets continue to rally into the sky and we know from past experience this is not going to end well. When this bubble finally bursts it could contaminate the planet with a virus of market declines. World's Worst Bubble will Soon Burst


The short squeeze on Wednesday triggered by rumors of a deal with Greece had limited follow through on Thursday. News on Friday that the IMF had broken off talks took the air out of the bubble and the indexes slipped back below resistance. The 2110 level on the S&P and 18,100 level on the Dow proved to be solid and sellers piled on when the indexes rolled over.

The S&P managed to remain above its 100-day average at 2087 but only barely. The key level for next week is the 150-day average at 2073 and horizontal support at 2080. Should those levels break we could be targeting 2040.

This is quadruple expiration week and the first half of the week is typically volatile with declines normal. In theory the drop to 2080 last week was a test of obvious support and traders bought the dip thanks to the short squeeze. A successful retest of 2080 could setup a month end rally.

The percentage of S&P stocks over their 50-day average improved with the short squeeze but quickly deteriorated on Friday. Only 41.8% of S&P stocks are over the 50-day. More than 20% of the S&P stocks are already in a bear market with declines of -20% or more. A year ago only 4% were in a bear trend. Full story, lots of detail

Only 59.4% of S&P stocks are over their 200-day average despite a minor bounce last week.

Despite the mid-week rebound the health of the market is not good.

The Dow also made a new lower high for the week with a solid stop at resistance at 18,100. The Tuesday drop saw a close under support at 17,800 so that level could be weaker on another test. The critical support for this week would be 17,600 and the lows from March.

With energy stocks weak, Apple shares weak after the WWDC and continued weakness from some of the industrials any stocks in rally mode will have a huge burden to lift to turn the Dow positive. The conditions have not changed much since last week with the majority of the individual Dow stocks still in a confirmed down trend.

Resistance 18,100 and support 17,600.

There was no material change on the Nasdaq but the tech indexes did finish negative for the week when the Dow and S&P were fractionally positive. The Nasdaq Composite closed right in the middle of its recent support (5000) and resistance (5100) with a close at 5051. The Nasdaq is holding closer to the highs than the other indexes but the excitement appears to have faded. The tech index has been trading in that range since May 14th with Tuesday's intraday dip the only violation. It is truly range bound. Eventually it is going to break out of this pattern and we can expect an explosive move in whatever direction it picks.

The Russell 2000 small caps posted a gain for the week and closed at 1265 and right below its highs for the week at 1270. This is resistance from March. The index is trading surprisingly well ahead of the rebalance in two weeks. Russell released the first list of proposed additions and deletions on Friday afternoon. Russell 3000 changes

This means the game is officially in progress. Additions will be bought and deletions sold. The list will be refined next Friday but this is 98% correct at this point. Since those being deleted are the only ones that can impact the indexes until the change on the 26th there is always a negative bias over the next two weeks. It may be slight and can be overruled by headlines like a resolution in Greece.

I am surprised by the strength of the Russell for this time of year and in this market. We should continue to watch the Russell for clues on market direction. A breakout here could be powerful.

Even more confusing is the breakout to a new high by the Russell Microcap Index ($RUMIC). These are the smallest stocks in the Russell universe and they are outperforming everything else. No signs of a pending correction here.

The Dow Transports rebounded from the late May lows at 8,265 in a weak attempt to avoid an even bigger decline. The rebound made another lower high and the chart is still suggesting there are lower lows ahead.

I think we are at the mercy of headline risk this week. With Greece dangling by a thread over the default cliff, the Fed meeting on Wednesday and quadruple expiration we could see the market move strongly at any time. I would not be a risk investor this week. Either direction is possible and it is a coin toss as to which direction wins.

The Fed is going to reconfirm its plans to hike rates soon. Greece is going to live or die by whatever decision it makes this week. The final hours are finally here. Investors have made their bets on both of those headline events and whatever happens will play out for all to see. I prefer to watch from the sidelines. There is always another trade as long as you have capital to invest. You can recover from lost opportunity but it is very hard to recover from lost capital.

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Random Thoughts

The government now admits there were two cyber attacks against the government database and records covering more than 14 million people were stolen. The most critical data came from Standard Form 86 that people fill out when they are applying for a government job with any type of security clearance. This is the results of a deeply personal investigation into their past including mental illness, drug and alcohol use, past arrests, bankruptcies, listing of personal contacts, friends and relatives both domestic and foreign, current and past addresses, employment as well as social security numbers, personal information of both the applicant and their "cohabitants." They also got military records, veterans status information, birth dates, gender and race data, pay histories, health insurance, life insurance and pension information.

With this information Chinese agents can not only blackmail current government employees but they can also assume the identities of anyone they desire since they have 100% of their personal data. China can recruit spies as well as build accurate personnel lists of current employees in each government agency. The holders of this data can mount the "mother of all spear-fishing attacks" according to Mike Rogers, Chairman of the House Intelligence Committee.

Despite the rebound in the housing market more than 8 million homeowners are still underwater on their mortgages. That equates to 15.4% of homeowners with mortgages. More than 4 million owe at least 20% more than their home is worth. This is retarding the growth in the housing market because these people can't sell and move up and this means a large chunk of the homes in the U.S. are not turning over.

The Pentagon is poised to move significant heavy weapons and up to 5,000 American troops to several Baltic and Eastern European countries. The proposal would move main battle tanks, artillery and supplies into the newer NATO nations in Eastern Europe that was once part of the Soviet sphere of influence. Putin's takeover of Crimea and continued aggression in Ukraine is stimulating significant changes in the defensive posture of NATO nations. The idea is to send a clear message to Putin that he cannot continue his aggression into other satellite nations because the U.S. and NATO will defend those nations.

NATO was expanded in 2004 to include the Baltic nations but a decision was made at the time not to stockpile weapons that close to Russia in order to avoid creating hostilities with Russia. Now that those hostilities exist there is no reason not to bulk up the defensive posture. The equipment would be stored at U.S. and NATO bases pending decisions by the White House and NATO. The nations involved would be Lithuania, Latvia, Estonia, Poland, Romania, Bulgaria and possibly Hungary.

The initial "European Activity Set" would include 250 M1-A2 tanks, 1,200 vehicles, Bradley fighting vehicles and armored howitzers.

We talk about the Dow Transports a lot but most readers probably don't know what stocks are actually in the index. Here is a great chart showing all the components and their gain/loss for the year. This explains in one picture why the transports are falling. What is Driving the Dow Transports?

The retail sales for May came in better than expected but you have to dig down to get the real story. The data is "seasonally adjusted" by applying several factors judged appropriate by the Dept of Commerce. The Fed really needed a strong retail sales number for May to support their plans for a future rate hike. Over the last ten years the seasonal adjustment has ranged from 73.4% to 114.6% with all the normal factors considered. However, the seasonal adjustment for May was a whopping 275.5%. Apparently if you really need a positive number just ask your friends over at the Dept of Commerce and they will "adjust" it for you. Source

Since the Great Recession the manufacturing sector is down -3.2%, has 15,000 fewer production facilities and since 2007 has lost more than 2 million jobs. So why is the U.S. economy doing so well? The sector accounts for 12% of GDP and supports an estimates 17.6 million jobs. Full story

The AAII Investor Sentiment Survey changed significantly last week. Bullish sentiment declined -7.3% to 20.0% and bearish sentiment shot up +8% to 32.6%. Bullish sentiment is now the lowest since April 2013. AAII wrote that unusually low levels of bullish sentiment are typically followed by better than average returns over a 6 and 12 month period. They did not say what followed in the 2-4 weeks after significantly lower levels of bullish sentiment.

The week after Quadruple Witching in June is typically abysmal according to Jeff Hirsch and the Stock Trader's Almanac. The Dow has lost ground in that week 22 of the last 25 years with an average loss of -1.1%. Source

Options on the Volatility Index are exploding higher. Open interest in call options, expecting market volatility to spike significantly, are at levels not seen in eight months. The most active call options are those expecting a significant spike in volatility over the next six days. Five of the ten most owned calls are for the VIX to spike to 23 by June 17th. The VIX closed at 13.78 on Friday. There are about 3.8 calls for every put on the VIX. Full story

Despite all the attempts by the current administration to legislate stricter gun control the effort seems to be lost on most of the public. A new Rasmussen poll found that only 22% of "likely U.S. voters" would feel safer in a neighborhood where nobody was allowed to have a gun. Sixty-eight percent said they would feel safer in a neighborhood where guns were allowed, while 10% said they were not sure.

In a Gallup poll last year the percentage of Americans that felt safer with a gun in the house nearly doubled to 63% today compared to 33% in 2000.


The Fed may shake things up next week when they restate their target for full employment. In March they suggested the "natural rate" of unemployment would be something in the range of 5.0-5.2%. Unemployment in May was 5.5%. A new paper by the Fed staff suggests the target number for full employment may be lowered to 4.3%. They speculated that raising rates in a world of 5.5% unemployment could be too soon. Full story

Q2 GDP estimates are rapidly improving. The Atlanta Fed real time GDPNow forecast has risen from +0.7% growth to +1.9% growth just over the last two weeks. Positive economic numbers have dramatically stimulated the model. Atlanta Fed

The Iranian nuclear talks have "virtually stalled" according to news reports. The three conditions Iran claims it will never agree to are the snap inspections, the inspections of military bases and the timing of the release of sanctions. The P5+1 nations insist on monitoring Iranian activities to prevent a clandestine nuclear weapons program. President Hassan Rouhani said "Iran would never allow its secrets to be disclosed through the implementation of the protocols." Iran is now saying an agreement can be reached but it will likely take a "number of months" and that assumes the six countries make no "excessive demands." Those would be snap inspections and inspections of military installations. Iran has put off any agreement now for more than a decade while they continue to research and produce enriched uranium from secret nuclear installations. Claiming it could take a few more months to come to an agreement is no surprise. There will never be an agreement as long as the six nations continue to attempt pacification rather than enforcement.

Pragmatic Capitalism (PragCap.com) issued a set of tongue in cheek guidelines for financial journalism. I am reprinting them here. I think you will find a lot of them appropriate. Source

"The following rules are set forth as a general guideline for the financial journalism industry. Although the rules will not be strictly enforced any breach of the stated rules could result in substantial subtweeting, private email trash talking and substantial LOLing."

I. The Stop Scaring People Rule. Scaremongering is not to be tolerated except during the middle of a financial crisis or nuclear war. Writing scary articles for the sake of conjuring emotionally driven page views is not a legitimate business model and is generally counterproductive.

II. The Event Porn Rule. That big sports or entertainment event you’re thinking of writing about probably has no correlation with the financial markets. Please refrain from using this event as a reason to write about the markets.

III. The Crash Call Rule. That pundit who comes on TV predicting financial Armageddon every week is not a "guru" and is directly contributing to poor financial decisions. Please refrain from interviewing him regularly. Also, see Rule I.

IV. The Permabull Restriction. Interviews with permanently bullish Professors from the Wharton School are not informational, educational or useful in any way. Everyone knows the stock market is very likely to rise over the very long-term. This message does not need to be repeated every single week.

V. The Political Obfuscation Rule. Political commentaries that contradict empirical evidence will not be tolerated. If you must make a political argument please refrain from trying to square this with a financial market position.

VI. The No Warren Buffett Rule. That article about Warren Buffett is almost certainly useless. You are not the first person to write it and it is not providing anyone with anything useful.

VII. Stop The Seasonality Rule. That article about seasonality (Sell in May, the Santa Claus Rally, etc) is data mining. We do not tolerate data mining in finance and we hope you will refrain from using seasonal events to write the same article year after year.

VIII. The Taleb Rule. We know that Nassim Taleb is smarter than the rest of us, but none of us really understands anything he is saying so please stop trying to explain his views on the financial markets and economics.

IX. The Bubble in Bubbles Rule. If you feel the need to use the word "bubble" please reconsider. This word is only allowed to be used by a select few financial experts (Robert Shiller, Robert Shiller & Robert Shiller). If you are not one of the names listed in the previous sentence please do not use this terminology.

X. The Crayola Crayons Rule. Drawing lines on charts or referring to things such as "inverted hammer candlesticks" is not financial analysis. It is an adult version of drawing. It should also be noted that "head and shoulders" is a type of shampoo, not a useful market indicator. In addition, mentions of the Hindenburg Omen could result in public shaming. As much as we all have fond memories of crayola crayons and drawing this should not be mistaken as a legitimate form of journalism.

XI. The Gold Huckster Rule. That guy who tells us to buy gold every week is not providing objective financial advice. He is selling gold from his company in exchange for the things he is likely telling you to avoid (US Dollars). Please refrain from citing him as a legitimate source of financial news.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Markets tend to return to the mean over time. Excesses in one direction will lead to an opposite excess in the other direction."

Bob Farrell


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Index Wrap

The 'Greek Market', AKA Nasdaq and NYSE markets

by Leigh Stevens

Click here to email Leigh Stevens

It's tough to figure out trend targets when the 'trend' is held hostage by something so external to earnings and the current economic direction in the U.S. Tempting to hibernate until Europe sorts out things and the U.S. reacts to a FINAL outcome or resolution.

Everything I have to say on the major indexes is individualized below.

The S&P 500 Volatility Index (VIX):

Buy the VIX index in the 12 area, exit at 15.5-16 is still my guidelines for speculative or hedging. 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) trend momentum is down as the Index continues to trade below its 21-day moving average. Near resistance is in the 2110 area, extending to 2120. A move above 2120-2125 that continues or holds up suggests a possible retest of the prior recent top. 2160 is major resistance, extending to 2200 over time.

Near technical support, in the area of SPX's up trendline is highlighted in the 2080 area, extending to 2070-2067. Next support is 2060, with major support at 2040.

For bullish potential to continue to be seen, best if 2080 isn't pierced.

The last 'oversold' RSI reading did lead to a good-sized rebound but there was not sustained follow through above SPX's down trendline. Bullish sentiment, absent a Greek/EU crackup, registered a bullish 1-day 'extreme' this past week on the mid-week rally. Sure enough, traders were TOO optimistic.

I have fond memories of Greece and my Greek friends but they are between a rock and hard place. I won't bet on Index swings that are so hostage to the outcome of the tough situation they're in.


The S&P 100 (OEX) is similar to SPX in that piercing its bullish support trendline would be bearish if sustained. Near trendline support comes in at 915; next support is then anticipated around 910. 900-895 continues to be major technical support.

As usual, trade above or below the 21-day moving average is one technical measure of the near-term trend. A Close above 930 is bullish with next resistance at 935, then at the prior highs in the 938 area. Major resistance in OEX comes in around 950.

I would consider OEX call purchases in the 900 area if seen, such as on a worst-case Euro outcome. Such a panic sell off could be short-lived in my estimation. You have to be 'ready' in such situations to buy into likely support, with an exit point of 893 or a Close below 895.


The Dow 30 (INDU) chart looks like the S&P in the lack of upside follow through on this past week's strong mid-week rebound, etc. Dow stocks are few that are in CURRENT strong bullish trends; e.g., CSCO, DIS, GS, JPM, NKE, AAPL, UNH and V.

Resistance that must be overcome to continue some bullish momentum is seen at 18100, then (next) at 18200.

INDU trendline support comes in around 17770, extending to 17715, with next lower support highlighted at 17650.

On a risk to reward basis buying Dow Index calls in the 177.5-176.5 zone looks to have a favorable risk to reward outlook, assuming a stop or exit at 176.


The Nasdaq Composite (COMP) is bullish to mixed in its pattern. Bullish in that buying recently developed AT trendline support; 'mixed' in that COMP remains in a sideways trend plus or minus 50 points above/below 5050.

Immediate/near support is highlighted at 5050, then at 5000, extending to the 4950 area.

The 5100 level appears as a multiweek line of resistance that has been keeping a lid on COMP. Call it 5100-5120 resistance. A Close above 5100 that led to a sustained rally, or at least where 5100 'becomes' sustained support, would be a bullish development. Next resistance then would be suggested at 5150 with fairly major resistance in the 5200 area.

It appears that whenever traders go on call buying sprees suggested by a spike higher in my bullish sentiment indicator, it's followed by dashed hopes for higher prices. The poor techno bulls, they are so ready to see the bull market resume only to get their hopes dashed by those crazy Europeans! Kidding, but sort of true too!


The big cap Nasdaq 100 (NDX) is mixed in its pattern. The bullish aspect is that NDX continues in an overall uptrend. The pattern is mixed in that there's also been a sideways drift also seen in the broad Composite. 4400 looks like must-hold support for the bulls, although intraday dips might be seen to 4350 and that could offer bottoming potential.

Near support is highlighted at 4450, with next support in the 4400 area as already noted. A sustained move above the 21-day moving average would be a bullish development.

Near resistance is seen at 4500, extending to 4550; 4550-4560 is pivotal technical resistance. If there was a breakout to new highs, next resistance looks like 4600, extending to 4650 over time.


The Nasdaq 100 tracking stock (QQQ) remains in an uptrend but this ETF keeps getting knocked down to its up trendline. Except for an intraday dip here and there, QQQ remains in a pattern of mostly higher (downswing) lows.

There is NOT yet a converse pattern of higher rally highs as there has been a lid on the stock or a buyers retreat on QQQ rallies to the 111 area.

To suggest renewed upside momentum, look for a sustained move above the 21-day moving average or above 110. Next up for the bulls would be to push QQQ above 111 without much retreat from there; resistance, once overcome, 'becoming a next support. Stay tuned on that!

It seems prudent to stay away from new positions until Greece is bailed out or not. It's a situation where the 2015 earnings trend isn't exactly clear yet in U.S. stocks and this EU/Greece conundrum 'rules' the Market in the meantime. I'm not keen to be ruled by such circumstances. I favor the long side on a good-sized dip but how much of a dip is the question on a further panic related to overseas events.


The Russell 2000 (RUT) looks ready to challenge or re-test its prior top in the 1275-1278 area. I've noted near resistance at 1270, then at 1278-1280 which likely extends to 1287-1290 in the coming 1-2 weeks.

RUT is following Nasdaq pretty closely so it seems RUT goes to new highs if Nasdaq does the same, especially the Composite.

Near support looks like 1255-1250, then at 1240. A Close below the 21-day moving average is mildly bearish. Major bearish is a Close below 1240, not reversed (back to the upside) the next day.


New Option Plays

Path Of Least Resistance

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

Bearish ideas: JNJ, EXP, ZMH, PXD,

Bullish ideas: RYAAY, M, MAN, UA, MHK, MA, SOHU, NTES


SM Energy Company - SM - close: 46.20 change: -0.82

Stop Loss: 50.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.6 million
Entry on June -- at $---.--
Listed on June 13, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Trade Description:
SM has been around a long time. They were founded back in 1908. The company was formerly known as St. Mary Land & Exploration Company but they changed their name to SM Energy Company about five years ago.

SM is in the basic materials sector. According to the company, "SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in onshore North America."

SM operates in the Rocky Mountain region including the Bakken and Three Forks formations. Further south, they drill in the Haynesville and Woodford shales of Texas and Oklahoma. SM also operates in the Permian region of Texas and New Mexico. Even further south SM drills in the South Texas area with the Eagle Ford shale formation.

Crude oil's plunge in late 2014 crushed the oil sector and shares of SM followed it lower. Yet SM appeared to be having trouble before the big drop in oil prices. The company has missed Wall Street's earnings estimates the last four quarters in a row.

The huge drop in oil sparked significant cutbacks across the oil and gas industry with most major exploration companies reducing their capital spending plans. When SM reported their Q4 earnings in February 2015 they missed the EPS number by five cents and revenues were down -6.4% from a year ago. Management also slashed their 2015 investment plans by -44% from $1.9 billion to $1.0 billion.

SM reported its 2015 Q1 numbers on May 5th. Analysts were expecting a profit of $0.29 per share on revenues of $543.1 million. SM delivered a profit of $0.21 as revenues plunged -42% to $365.9 million.

Citigroup issued a research report last month that suggested U.S. oil producers will still be able to profit with oil at depressed prices. Here's a quote from a Bloomberg article, "belt-tightening across the industry and more strategic drilling in prolific areas would deliver ample profits even at $50 crude. The improvement is driven by costs that are expected to fall by 20 to 30 percent and techniques that allow rigs to wring 30 percent more oil or natural gas from each well compared with a year ago." That definitely seems like ammunition for the bulls to be buying some of the oil producers. Yet the group continues to lag. They are facing some stiff headwinds.

Crude oil has produced a +25% bounce off its March 2015 lows. Yet the rally in oil has stalled the last few weeks with the commodity churning sideways. The recent OPEC meeting showed that the Middle East shows no signs of slowing down their production. The world is temporarily facing a small oil glut.

Meanwhile currencies could play an issue here. It is widely accepted that the long-term trend for the U.S. dollar is now higher. The Federal Reserve will eventually raise rates, either later this year or early next year. When they start raising rates it should boost the dollar. At the same time central banks around the world (like Japan and Europe) are in the middle of huge QE programs that will drive their currencies lower. Naturally this will lift the dollar even higher. A rising dollar pushes commodities lower.

Technically shares of SM have been very weak. The broke down from a bullish channel a couple of weeks ago. The stock has also sliced through some psychological support levels. The point & figure chart is currently forecasting at $40.00 target. You could argue that SM is already oversold. However, the path of least resistance is lower. Tonight we are suggesting a trigger to buy puts at $44.90 with a wide stop loss at $50.25 just in case SM does see a little oversold bounce.

Trigger @ $44.90

- Suggested Positions -

Buy the AUG $40 PUT (SM150821P40) current ask $1.40
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

Lack of Confidence

by James Brown

Click here to email James Brown

Editor's Note:

Investors do not have any confidence in the market. Considering the lack of progress with Greece it appears that traders sold ahead of the weekend, curbing the market's midweek bounce.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 115.87 change: -2.08

Stop Loss: 114.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on June -- at $---.--
Listed on June 10, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

06/13/15: AET definitely suffered some profit taking on Friday with a -1.76% decline. Shares settled near technical support at its rising 20-dma. Nimble traders may want to consider buying a dip or buying a bounce near the $115.00 mark and use a relatively tight stop loss. Officially our suggested entry point is still $118.75 (for now).

Trade Description: June 10, 2015:
Healthcare was big business before Obamacare. Now it's even bigger. AET is the third largest health insurer in the U.S. They added over 950,000 clients thanks to the Affordable Care Act. Naturally it doesn't hurt the healthcare business when the ACA forces you to buy health insurance or pay a tax penalty. Big insurers like AET are also benefitting from an expanding Medicaid program.

If you are not familiar with AET the company describes itself this way: "Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 46 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services, workers' compensation administrative services and health information technology products and services. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates."

Earnings have been steadily improving for AET. They have a habit of beating estimates. Management has raised their guidance the last three quarters in a row. AET's most recent report was April 28th. The company reported its 2015 Q1 earnings were up +17% from a year ago. Analysts were expecting a profit of $1.94 per share on revenues of $15.5 billion. AET delivered $2.39 per share. Revenues were up +8% to $15.09 billion. The number of medical enrollment members rose +4% to 23.7 million.

AET's management raised their 2015 guidance for the second time in a row. They now expect fiscal 2015 earnings in the $7.20-7.40 range compared to analysts' estimates at $7.17. The stock has been steadily rising thanks to its bullish outlook.

The big insurance stocks surged in late May on M&A rumors. Then on May 29th Humana (HUM) announced they were putting the company up for sale. HUM surged +20% on that one session. AET, Cigna (CI), and Anthem (ANTM) have all been rumored as potential suitors for HUM. Lately Wall Street has been rewarding the acquirer's stock with a rally on any merger news. AET could rally if they turn out to be the buyer.

Shares of AET just recently saw a $5.00 correction from $120 to $115 and bounced. This rebound looks like a potential entry point. Today's intraday high was $118.53. We are suggesting a trigger to buy calls at $118.75.

Trigger @ $118.75

- Suggested Positions -

Buy the OCT $125 CALL (AET151016C125)

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


Tableau Software, Inc. - DATA - close: 119.08 change: +0.08

Stop Loss: 111.75
Target(s): To Be Determined
Current Option Gain/Loss: +12.6%
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

06/13/15: DATA gapped down at the open on Friday but traders bought the dip. Shares rallied midday and almost tagged $120.00 before paring its gains.

The $115-116 area should offer some short-term support if the market continues lower on Monday. No new positions at this time.

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

06/10/15 new stop @ 111.75
05/28/15 triggered @ $115.25
Option Format: symbol-year-month-day-call-strike


Sirona Dental Systems - SIRO - close: 100.41 change: -0.38

Stop Loss: 97.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 316 thousand
Entry on June -- at $---.--
Listed on June 11, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

06/13/15: SIRO held up reasonably well during Friday's market decline. Shares did not violate the $100.00 level and managed to pare its losses by the close. Our suggested entry point to buy calls is at $101.05.

Trade Description: June 11, 2015:
Revenue growth in SIRO's business has been disappointing due to foreign currency headwinds thanks to the strong dollar. Yet investors seem to be ignoring this issue. Shares of SIRO have outperformed the broader market with a +15.3% gain this year.

SIRO is in the healthcare sector. They sell dental equipment. According to the company, "Sirona, the dental technology leader, has served dealers and dentists worldwide for more than 130 years. Sirona develops, manufactures, and markets a complete line of dental products, including CAD/CAM restoration systems (CEREC), digital intra-oral, panoramic and 3D imaging systems, dental treatment centers and handpieces."

The last couple of earnings reports for SIRO have only been mediocre. The company has been meeting analysts estimates on the bottom line (earnings). Unfortunately revenues have been seeing declines in U.S. dollar terms. On a local currency basis their sales have grown. One positive that helps the bullish picture for SIRO is margin growth. The company has seen margin growth improve the last two quarters in a row.

Shares of SIRO spiked down on May 8th, it's most recent earnings report, but traders immediately bought the dip at technical support on its 50-dma. The stock seems to be stair stepping higher with a rally, then a week or two of consolidation that breaks out into another rally. Shares just broke through major round-number resistance at the $100.00 mark today. Tonight we are suggesting a trigger to buy calls at $101.05. Volume on SIRO's stock and its options is a little light. I would start this trade with small positions to limit risk.

Trigger @ 101.05 *small positions to limit risk*

- Suggested Positions -

Buy the SEP $105 CALL (SIRO150918C105)

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


Skyworks Solutions Inc. - SWKS - close: 104.95 change: -0.68

Stop Loss: 97.95
Target(s): To Be Determined
Current Option Gain/Loss: -2.0%
Average Daily Volume = 4.0 million
Entry on June 10 at $103.44
Listed on June 09, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/13/15: I am starting to worry about our SWKS trade. The stock has been struggling with its simple 10-dma as overhead resistance the last few days (since June 4th). While the $100 level should still be support I am not suggesting new positions at this time. If the market declines again on Monday we could definitely see SWKS slide into the $100-102 zone.

No new positions at this time.

Trade Description: June 9, 2015:
SWKS seems to be everywhere. They make semiconductor chips for just about every industry including aerospace, automotive, consumer electronics, wearables, and the Internet of Things. They have been called the leading wireless semiconductor company. They're probably best known for being a component supplier to Apple (AAPL) for the company's iPhones.

The stock has soared from its October 2014 lows near $45 a share to over $100 today (a +126% move). SWKS is up +39.7% year to date versus a +5.5% gain in the NASDAQ composite and a +3.6% gain in the SOX semiconductor index.

If you're not familiar with SWKS they're in the technology sector. According to the company website, "Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

The company is really cashing in on some major global trends including smart phones and smart(er) cars. Data suggests that over 90% of mobile phone users are still using 2G and 3G phones. That means SWKS should benefit as they upgrade to 4G phones. Meanwhile SWKS is also poised to benefit from the surging trend of interconnectivity in automobiles. One forecast estimates that 75% of automobiles in 2020 (about 70 million vehicles) will have Internet-connectivity. Today that number is only around 10 million cars.

The company's earnings growth has been phenomenal. They have beaten Wall Street's earnings and revenues estimates the last four quarters in a row. They have also raised their guidance the last four quarters in a row. Their 2014 Q4 report saw revenues up +50%. Their 2015 Q1 reported revenues were up +59% while earnings were up +88%. SWKS' Q2 report on April 30th delivered earnings growth of +85% on revenue growth of +58%.

Several analysts upgraded their price target on SWKS following the April results. Analysts are expecting strong year-over-year growth for the next several quarters. One reason is the Apple iPhone upgrade cycle. There are about 450 million iPhones in circulation. Thus far only about 20% have upgraded to the iPhone 6 or 6+. That leaves a lot more iPhone sales to come.

A fast-growing company like SWKS can be a buyout target. There have been rumors that QCOM is a potential suitor.

Shares of SWKS have seen an intraday correction from $111.60 on June 1st to $98.07 today. That's a -11% pullback and traders pounced on SWKS when it started to bounce. The $100 region and the 50-dma coincide with the bullish trend of higher lows. We want to hop on board the SWKS train if shares continue to rebound. Tonight we are suggesting a trigger to buy calls at $103.25. I should warn you that SWKS can be a volatile stock. You may want to consider this a higher-risk trade. We'll start this trade with a stop loss under today's low (just below $98.07).

- Suggested Positions -

Long AUG $110 CALL (SWKS150821C110) entry $4.90

06/10/15 triggered on gap open at $103.44, suggested entry was $103.25.
Option Format: symbol-year-month-day-call-strike


Zebra Tech. - ZBRA - close: 114.65 change: -0.92

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: -22.5%
Average Daily Volume = 475 thousand
Entry on June 10 at $113.54
Listed on June 06, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/13/15: ZBRA spiked lower at the open on Friday with a drop towards $114.00. Shares spent the rest of the day drifting sideways. If the $114 level fails the next stop could be short-term support near $111.00.

No new positions at this time.

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.

- Suggested Positions -

Long AUG $120 CALL (ZBRA150821C120) entry $4.00

06/10/15 triggered @ $113.54 (intraday gap higher)
06/09/15 Entry strategy adjustment: Move the entry trigger from $115.15 to $113.25. Adjust the stop loss from $110.85 to $109.85
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Cerner Corp. - CERN - close: 67.85 change: -0.02

Stop Loss: 68.15
Target(s): To Be Determined
Current Option Gain/Loss: -22.4%
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

06/13/15: Our CERN trade is not cooperating. The stock gapped down on Friday morning but traders bought the dip and CERN made another attempt to rally past the $68 level. CERN closed virtually unchanged on the session while the rest of the market was sinking. That's not a good sign if you're bearish.

I am not suggesting new positions.

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

06/11/15 CERN is not cooperating and traders may want to exit early now
06/10/15 new stop @ 68.15
06/04/15 triggered @ $66.75
Option Format: symbol-year-month-day-call-strike


Kohl's Corp. - KSS - close: 62.67 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

06/13/15: Hmm... Friday was the second time in three days that KSS had bounce near the $62.00 level. I warned readers that the $62.00 level was potential support so it shouldn't be too much of a surprise to see a little bit of an oversold bounce here. Meanwhile the $64 area with the 200-dma near $64.60 should be overhead resistance.

No new positions at this time.

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

06/09/15 Down 5 days in a row, testing support at $62.00
06/05/15 triggered @ $63.90
Option Format: symbol-year-month-day-call-strike


Zillow Group - Z - close: 86.08 change: -3.39

Stop Loss: 91.05
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

06/13/15: Right on cue shares of Z collapsed on Friday. The stock has bounced to resistance on Thursday's session. Traders immediately sold the rally on Friday morning and erased Thursday's gain. This is a new 2015 closing low for the stock.

More conservative investors may want to lower their stop loss closer to $90.00. Currently our stop is $91.05. No new trades 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

06/10/15 new stop @ 91.05
06/04/15 new stop @ 93.55
06/01/15 triggered @ $89.85
Option Format: symbol-year-month-day-call-strike