Option Investor

Daily Newsletter, Monday, 6/15/2015

Table of Contents

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

Market Wrap

Greek Drama, Data And The FOMC

by Thomas Hughes

Click here to email Thomas Hughes
Greek drama pushed the indices down to test recent lows while the world waits on the FOMC.


It's here again, FOMC week. This one, like each one over the past few years, has the market wound up in expectation as we approach the first interest rate hike since before the financial crisis. Global news had an impact but the focus was on the economic data, the Fed and what they are going to do Wednesday.

Asian markets ended their day flat, although Chinese indices fell sharply. Regulators there have enacted new laws outlining requirements and restrictions to margin lending and fueled fear the liquidity driven rally is coming to an end. In Europe markets were roiled by Greece and its failure to come to terms with its lenders. Greece is now closer than ever to defaulting so I am expecting new headlines just about every day. The surprising thing is that some analysts are now looking past a default to potential positive outcomes, for Greece and the EU, if such a case were to arise.

Market Statistics

Our markets were negative from the earliest. The S&P 500 was indicated to open close to -0.5% lower than last week's closing price for most of the morning and that did not change going into the 9:30 time frame. We got some economic data this morning, mixed as usual, but there was little obvious affect to the indices. The market fell sharply once the opening bell sounded, exceeding early indications. Bottom was found within the first 30 minutes, near last week's low, and the market bounced back to regain more than half of the early morning loss. These levels held throughout the remainder of the day and into the close of trading.

Economic Calendar

The Economy

Empire Manufacturing was released at 8:30AM. The consensus expectation was for a slight rise from last month's 3.1 to 6 but instead retreated by to -2.0. This is the second negative reading in the past three months and counter to ongoing labor trends. Within the report new orders and shipments both declined, new order falling below 0, while the employment index showed a slight gain in hiring and hours worked. The prices indices both held steady near last month's readings indicating that input costs and selling prices remain flat. The future expectation index retreated as well falling -4 to 25.8. The future inventory index fell sharply, to -17, indicating an expectation for inventories to decline.

Industrial Production and Capacity Utilization were released at 9:15AM. The report is consistent with the Empire survey showing a -0.2% decline in production for May. This is following a -0.5% decline in April on top of a downward revision to April. The silver lining is that revisions to February and March lifted the overall reading high enough to leave April's number higher than first reported even with the revised decline. On a year-over-year basis production is 1.4% higher at this time than it was last year. This month's decline is due largely to decreasing production in the mining sector, specifically oil. Capacity Utilization fell -0.2% to 78.1% and is 2% below the long term average.

Positive data came from the housing sector. The NAHB Home Builders Sentiment Index showed a surprising jump of 5 points to hit 59, the highest level since September of last year. This is more than double the expected gain of 2. According to the release this month's gain is due to “serious and committed buyers”. Data within the report reveals current sales rose by 7 to 65 and future sales jumped 6 to 69, underscoring the overall surge in sentiment. The only component to remain below 50 is traffic, which rose 5 points to 44.

Moody's Survey Of Business Confidence retreated by -1.1 points but does not reflect the negative sentiment shown in the Empire report. The index reading of 43.0 is near the all-time high, as it has been all year, and indicating healthy confidence among US and global businesses. Judging by this gauge, and Moody's economist Mark Zandi's summary, US business confidence is strong and steady followed by improving sentiment in the rest of the world. He noted yet again strength in business investment and hiring, as well as a recent surge in year-end growth expectations, that are contrary to weak 1st and 2nd quarter growth.

There is a lot of data due out this week aside from the FOMC meeting. Tomorrow is housing starts and building permits, both expected to hold steady from last month. Looking at the NAHB report, and the last round of existing and new home sales, these figures could be above expectations. Wednesday is the FOMC policy announcement. Thursday is jobless claims and CPI, Philly Fed and Leading Indicators. Friday is data free.

According to FactSet the earnings growth expectation for 2nd quarter 2015 S&P 500 is -4.6%. This is down from the March 31st estimate of -2.3% and up from the low estimate of 4.8% we saw a few weeks ago. Since the start of the quarter 7 sectors have lower growth estimates than first thought and 76 companies have issued negative guidance. Healthcare still has the highest expected growth rate, +7.7%, and if last quarter is any indication could go much higher. Healthcare started the first quarter with an expected earnings growth rate near 11% and doubled that to near 22%, most likely driven by Obamacare. The energy sector is expected to have the worst growth rate, -61%.

Earnings trends over the past 4 years leads me to think the 2nd quarter won't be as bad as expected, just like the 1st quarter wasn't. We can expect the the blended rate for earnings growth to improve roughly 4% by the end of the reporting season which could leave it flat to negative. At the same time, looking at earnings ex-energy, S&P 500 earnings could grow by as much as 2-6% (1st quarter ended with a 0.8% gain, one company left to report, and a 6.3% gain ex-energy).

Earnings are expected to be aided by improving margins into the end of the year. 2nd quarter margins are expected to rise to 10.2 and then 10.5 and 10.6 in the 3rd and 4th quarters, all above the 5 year average of 9.6%. Full year 2015 earnings growth is projected to be 1.6% with a jump to over 12% next year and if trends hold true these estimates will rise.

The Oil Index

The big headline in oil today is Yemen. Peace talks began today at the UN and while it is unlikely a peace will be found soon the talks helped to send oil prices lower. WTI moved down below $60 and Brent below $63. When you look at the players involved it is unlikely the Yemen situation will get resolved anytime soon, on one hand are the Arab/gulf states, on the other is Iran and its allies and in between is the Iranian nuclear issue. With this in mind it is a little surprising the conflict is as small as it is. Regardless the outcome I expect to see new headlines in the coming days that could send oil prices swinging either direction.

The Oil Index opened with a loss of about -0.75% and held that level into the close. Today's action created a tiny spinning top just above the recent low and long term support. The index continues to drift lower on bearish momentum but signs persist that support exists along the long term trend line. MACD momentum has declined to near zero and has diverged from prices while stochastic has made a bullish crossover of the lower signal line, consistent with a trend following entry. The signal is still weak but in line with the trend and forward expectations. The index may continue to retreat to and test support but any such would be a potential entry for long term positions.

The Gold Index

Gold prices got a boost from Greek fall-out and today's data: the Greek news sparked a small flight to safety and the manufacturing data weakened the dollar. The news combined to send gold down to test support at $1175, bounce and move up to the $1190 level. This range is tied to dollar value and Fed expectations, focused on the Wednesday policy release. Gold will no doubt be impacted by the FOMC Wednesday afternoon but appears to be settled into a range in the $1175-$1190 region, what happens then is depends on the statement. Iln my view dovish talk weakens dollar, lifts gold while hawkish talk strengthens the dollar, helps confirm inflation presences and at least supports gold. The CPI data is out later this week and could further affect long term outlook for gold. Last week the PPI showed producer level inflation was higher than expected and helped support prices. CPI is already expected to rise by 0.5%, I think it could go higher if the higher cost of eggs is getting passed through to consumers.

The gold miners got a small boost from today's rise in gold. The gold miners ETF GDX gained just over 0.40% after setting a new 8 week low. Today's action is just above a possible support level near $18. Momentum remains bullish but is very weak and slowly retreating to zero while stochastic shows an asset that is oversold within a four month trading range. It still looks like the sector is at a bottom, whether or not it the previous down trend has reversed comes down to the Fed statement and gold prices. Support is possible near $18 and likely near $17.50, resistance is the underside of my recently broken up trend line near $20 and then above that near $21.

In The News, Story Stocks and Earnings

CVS and Target announced a deal in which the former would buy the latter's pharmacy business and then operate them as a business-within-a-business. The deal is worth about $1.9 billion before taxes and could fund share buy backs, according to company CEO. Target expects the move to help them improve their wellness offering and improve customer experience. Shares of both companies moved higher but gains were capped.



Boeing announced several new order for jets today at the Paris Airshow. The company also announced several new technologies that are expected to improve the flying experience, cost of production and efficiency. This news comes just days after the company raised its 20 year demand estimate by 3.5%. Shares of the stock were not supported by the news but may be presenting a buying opportunity. Prices are down near the $140 support level with indicators in line with a trend following entry.

Cigna turned down another offer from Anthem today, the second in only a week. The deal upped the stakes to $175 per share but was rebuffed due to control of the combined company. The news was first reported early this morning and sent shares soaring by nearly 20%. After the deal was turned down share prices moderated but retained much of the days gains. Today's activity sparked activity throughout the sector as many analysts are expecting more consolidations.

Gap gained 1.35% in after hours trading when they announced store closures. The company is planning to close 26%, 175, of its stores over the next few years in a move designed to get the "fleet... to the right size". At the same time the company reaffirmed full year guidance in the range of $2.75-$2.80.

The Indices

The market was not thrilled by the Greece news but at the same time did not use it to start a wild sell-off. The indices fell, sharply, down to recent lows and near term support only to hit bottom and bounce right back. They did not regain all of today's losses but did manage to reclaim at least half in most cases.

Today's drop was led by the Dow Jones Industrial Average which lost -0.60%. Today's drop took the index down to support at the 2 month low, near 17,900. The index has bounced from this level five times now so it appears strong in the near term at least. The indicators are mixed but consistent with support at this level or just below near 17,600. MACD is bearish and ticking stronger but divergent from today's new low; stochastic is pointing lower in the near term and higher in the long term, consistent with a retest of support. This could happen over the next two days as we get more Greek news, economic data and wait for the FOMC announcement.

The transports were the next largest decliner in today's session. The Dow Jones Transportation average losing -0.49% in a move that did not even reach the recent lows before bouncing. Today's candle resembles those of the other indices but is much shorter relative to recent price action and met support well above the recent low. The indicators remain consistent with a bullish trend following entry, MACD is steady to the upside and stochastic %D is trending higher following a bullish crossover of the lower signal line. Current set up is bullish and in line with the underlying trend so I am optimistically bullish, but with caveats.

The index is still below the long term trend line, the FOMC meeting is onl days away and we are still a few weeks out from earnings season, which is not expected to be good... all reasons for caution without the addition of Greece, Iran and Yemen. The index is now in the middle of the near term range with support near 8,250 and resistance near 8,500, a break beyond either could lead to a move of 250-500 points in the near to short term.

The S&P 500 made the third largest decline, -0.46%, in a move that reversed within 1 point of the low set last Tuesday. Today's candle is not overly large but significant in terms of its lower shadow, which reveals support at levels where we have seen a lot of price action over the past few months. The indicators are consistent with emerging support and setting up for a potential trend following entry. MACD is diverging from price and stochastic is flat, possibly rolling over, and still well above the lower signal line. The breach of the long term trend line is a red flag, as is the upcoming Fed announcement, but the overall trend is up so I remain cautiously bullish, waiting on the next rally. Today's support was found near 2,070 and last week's low, resistance is just above the current level in the range of 2,080-2,100.

The NASDAQ Composite made the smallest decline in today's session, only -0.42%, and created a green candle despite the fall. Price action fell below the short term moving average with declining indicators but like the other indices support appears to be present. For one, the longish lower shadow on the candle crosses the 5,000 level, a level which has provided resistance as well as support in recent months. Another is the indicators, they are moving lower in the near term but both MACD and stochastic are consistent with support in a longer term uptrend.

The market looks like it has support, but also that support is timid, cautious and intensely focused on news. Not too surprising considering the impending FOMC meeting and the power it has over the market. Regardless of the speculation anything is possible at this meeting. They, the Fed and Janet Yellen, have given a time line that includes June as a possibility for raising interest rates. Based on the, I think it was the February statement, the hike could come as soon as two meetings after changing the statement, which means now. I'm not trying to say it's going to happen now, just that the window is open and anything is possible. The way the labor and housing data has been going I will be surprised if there is no change to statement.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Losing Altitude

by James Brown

Click here to email James Brown


Southwest Airlines Co. - LUV - close: 34.19 change: -0.81

Stop Loss: 36.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 7.9 million
Entry on June -- at $---.--
Listed on June 13, 2015
Time Frame: Exit prior to earnings in late July
New Positions: Yes, see below

Company Description

Trade Description:
Last year LUV was one of the best performing stocks in the S&P 500 with a +124% gain. Shares are not seeing a repeat this year. In fact the stock is down -19% year to date. Most of the major airline stocks have been suffering as investors fear overcapacity will kill profits.

LUV is in the services sector. They're part of the regional airline industry. According to the company, "In its 44th year of service, Dallas-based Southwest Airlines (LUV) continues to differentiate itself from other air carriers with exemplary Customer Service delivered by more than 46,000 Employees to more than 100 million Customers annually. Southwest operates more than 3,400 flights a day, serving 93 destinations across the United States and five additional countries."

There are plenty of bullish investors rooting for LUV. After years of belt tightening with high oil prices the airline industry finally found some discipline and profits boomed. LUV has been a great example and many consider it the "best-in-breed" among the major airliners. LUV's earnings have surged from $0.43 a share in 2011 to $1.64 per share in 2014.

The big drop in crude oil last year was a major boon for most of the airline companies. Fuel is a huge expense and while oil has bounced off its 2015 lows it is still a lot cheaper than last year's prices. So why are airline stocks getting crushed? The biggest worry is the industry will build into much capacity (over supply) and this will lead to price wars, which could slash profitability.

On May 20th airline stocks were crushed, shares of LUV included, after the American Airlines CEO said they would aggressively compete on price. This is after AAL had already warned that their margins would shrink in 2016 versus 2015. News that LUV was planning to boost capacity by +8% in 2015 also helped spark the plunge lower.

The sell-off in airline stocks has continued as more companies downgrade their outlook. United Airlines (UAL) recently reported that their capacity had outpaced traffic growth. Delta (DAL) warned that their Q2 revenues would decline. Even LUV warned that their May passenger revenue per available seat mile (PRASM) was down -6% from a year ago. They adjusted their 2015 Q2 PRASM estimate to be down -4% to -5% from a year ago.

In spite of all the negativity there are a ton of analysts who are still bullish on the group. If you do any research you'll see a lot of voices shouting that the airline stocks are a buy. You'll hear how the airlines will avoid the mistakes of the past. There are plenty of analysts suggesting the airlines are a buy because their valuations are so cheap. Even the International Air Transport Association (IATA) recently raised their 2015 global estimate on airline profits from $25 billion to 29.3 billion thanks to lower oil prices and record high load factors (near 80%).

On one hand the bullish view point on airline stocks is true. Traffic is still growing. Oil prices remain depressed compared to the last few years. Valuations do look cheap. Eventually this group will get so cheap that they will find a bottom. Unfortunately that could be another -10% to -20% from current levels.

Technically LUV is a sell. The stock produced a bearish double top with its peaks in January and March. It has sliced through multiple layers of support and broken the longer-term up trend. The $34.00 level looks like short-term support. We are suggesting a trigger to launch short-term bearish positions at $33.85. Earnings are coming up in late July and we'll likely exit before LUV reports.

Trigger @ $33.85

- Suggested Positions -

Buy the SEP $33 PUT (LUV150918P33) current ask $1.75
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

Traders Are Nervous

by James Brown

Click here to email James Brown

Editor's Note:

A breakdown in negotiations with Greece, a general uneasiness ahead of the FOMC meeting, and disappointing economic data all played a part in today's widespread market decline.

Nearly everyone expects the Federal Reserve to raise rates in September. Some are speculating that Fed Chairman Yellen could take a more hawkish tone in this week's meeting.

Meanwhile the New York Empire State manufacturing survey fell to two-year lows.

Looking at our play list we saw AET and SIRO both hit our bullish entry triggers.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 121.01 change: +5.14

Stop Loss: 114.85
Target(s): To Be Determined
Current Option Gain/Loss: +27.9%
Average Daily Volume = 2.0 million
Entry on June 15 at $118.75
Listed on June 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/15/15: Healthcare stocks were a big story today. There was a new story that ANTM had approached Cigna (CI) for a potential merger. Supposedly ANTM has made two different takeover bids for Cigna in the past ten days and CI has rejected them. Plus there were new rumors that UnitedHealth (UNH) might make a bid to buy AET.

There has already been a lot of speculation about potential M&A in this industry after HUM's late May announcement it was considering a potential sale.

Shares of AET surged on this speculation and the sock rallied from $114.75 this morning up to $124.20 this afternoon. Our trigger to buy calls was hit at $118.75.

I probably wouldn't chase it here. The option premiums are likely inflated due to the big move today.

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.

- Suggested Positions -

Long OCT $125 CALL (AET151016C125) entry $4.34

06/15/15 triggered @ $118.75 thanks to M&A speculation
Option Format: symbol-year-month-day-call-strike

Tableau Software, Inc. - DATA - close: 120.75 change: +1.67

Stop Loss: 111.75
Target(s): To Be Determined
Current Option Gain/Loss: +33.5%
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

06/15/15: The relative strength in DATA continues. The stock broke through round-number resistance at $120.00 and hit new all-time highs at $122.00 before paring its gains.

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: 99.42 change: -0.99

Stop Loss: 97.85
Target(s): To Be Determined
Current Option Gain/Loss: -50.0%
Average Daily Volume = 316 thousand
Entry on June 15 at $101.05
Listed on June 11, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/15/15: It was a volatile day for shares of SIRO. The stock opened at $100.01 and then spiked to $101.41 within the first minute of trading. The rally didn't last and shares were testing $98.60 before lunchtime. SIRO spent the rest of the session drifting sideways.

I didn't see any specific news behind the spike higher this morning. The spike was a surprise since most of the market actually plunged lower at the opening bell. SIRO did test support at its 20-dma again. Our trigger to buy calls was hit at $101.05 this morning but I would wait for a new rise above $100.25 before considering new positions.

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, its 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.

*small positions to limit risk* - Suggested Positions -

Long SEP $105 CALL (SIRO150918C105) entry $2.90

06/15/15 triggered @ $101.05
Option Format: symbol-year-month-day-call-strike

Skyworks Solutions Inc. - SWKS - close: 106.11 change: +1.16

Stop Loss: 97.95
Target(s): To Be Determined
Current Option Gain/Loss: +4.1%
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

06/15/15: SWKS, like most of the market today, spiked lower at the open. Traders bought the dip at $102.84 and shares rebounded to a +1.1% gain. The relative strength is encouraging.

Readers may want to move their stop loss closer to $100.00. 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: 114.26 change: -0.39

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: -28.8%
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

06/15/15: The widespread market weakness this morning pushed ZBRA down to $112.21. Shares bounced and almost made it back to unchanged before the closing bell.

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: 67.17 change: -0.68

Stop Loss: 68.15
Target(s): To Be Determined
Current Option Gain/Loss: -14.3%
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

06/15/15: Today was encouraging if you're bearish on CERN. The stock underperformed the market with a -1.0% decline. I'm still concerned about last week's bounce.

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: 62.60 change: -0.07

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

06/15/15: Monday turned out to be a quiet day for KSS. Shares closed almost unchanged on the day. The late morning rally attempt failed near $63.00. This is starting to look like a sideways consolidation and when KSS breaks out the previous trend (down) should resume.

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

SM Energy Company - SM - close: 47.18 change: +0.98

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

06/15/15: A nearly +5% bounce in natural gas prices on Monday helped fuel a rebound in SM. The trend for this stock remains lower. Nimble traders could try and time an entry point on a failed rally near its 10-dma approaching $48.60. Officially we are suggesting a trigger to buy puts at $44.90.

Trade Description: June 13, 2015:
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)

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

Zillow Group - Z - close: 86.33 change: +0.25

Stop Loss: 91.05
Target(s): To Be Determined
Current Option Gain/Loss: +15.4%
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

06/15/15: Z fell to new two-month lows and traded below $84.00 this morning. The stock bounced back and closed in positive territory I don't see any changes from my weekend comments.

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