Option Investor

Daily Newsletter, Saturday, 7/4/2015

Table of Contents

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

Market Wrap

Nothing but Old News

by Jim Brown

Click here to email Jim Brown

Thursday was a lackluster day in the markets as old news was rehashed repeatedly and a lackluster employment report caused some investors to rethink the economic outlook. Greece is getting ready for their historic vote on Sunday and Europe is waiting to see what they choose.

Market Statistics

Greek PM Alexis Tsipras may be having a change of heart because it looks like the referendum is not going to turn out the way he hoped. With Greece in chaos with the banks closed and credit cards cut off he is not very popular today. The vote is being seen as a vote to stay or leave the eurozone and polling suggests more than 70% of Greek citizens want to remain in the euro. However, the polling for the Sunday referendum is too close to call with the "yes" side only slightly ahead. A poll on Saturday showed 41.7% would vote yes and 41.1% will vote no. As we all know polling of likely voters and the actual vote can produce dramatically different outcomes.

The fear over Greece had subsided on Thursday and trading was mostly just squaring up positions ahead of the weekend. A majority of analysts believe the market will rise next week if the yes side wins. However, that is not the end of the story. The PM will still have to meet with the EU Finance Ministers and work out a resolution to the bailout conditions. Even with a yes mandate behind him analysts expect him to still be obstinate when it comes to hammering out the conditions. The EU still has the upper hand as long as the ECB is not funding Greek banks. That will keep the pressure on at home and make Tsipras a more willing participant.

Let us hope for a vote to stay in the euro and a quick resolution to the bailout conditions so the market can get back to basics as Q2 earnings begin to flow.

Unfortunately late Friday news broke in the Financial Times that Greek banks were planning for the possibility of a "bail-in" by raiding the accounts of depositors. In 2013 Cyprus seized customer funds with a haircut imposed on uninsured deposits over 100,000 euros. With Greek banks closed for a week and on the verge of a financial collapse the plans call for a haircut of "at least" 30% on deposits over 8,000 euros. That means if you had an account with 100,000 euros when the banks closed a week ago, when they finally reopen you will have 70,000 euros. The bail-in would take place as a recapitalization program for the banks once Greece has agreed to a new bailout program with the EU, ECB and IMF. This is not something that is going to happen immediately but obviously it would have to happen before the banks reopened or everyone would attempt to withdraw their funds. Unfortunately, the capital controls are going to prevent that by continuing to restrict transfers and withdrawals for a long time. The Bank of Greece said the country only had enough cash to keep ATMs supplied until Monday and that allows for withdrawals of only 50 euros per day. Banks are down to their last 500 million euros and essential food and medicine will run out within days because of the lack of imports.

On Saturday Greek Finance Minister Yanis Varoufakis called the bail-in report in the Financial Times a "malicious rumor" with a tweet on his account. Twitter is hardly a channel for official news and it is difficult to believe anything Varoufakis or Tsipras say. Varoufakis said he would resign if Greeks voted yes on Sunday. He said, "I will not sign another extend and pretend agreement." Also, "I would rather cut off my own arm than sign an agreement without debt restructuring."

In the U.S. the Nonfarm Payrolls for June showed a gain of +223,000 jobs compared to estimates for 230,000. As estimates and actual go that was very close. However, it was a significant decline from the +280,000 initially reported in May. Also, the May number was revised down -26,000 to 254,000 and the April reading was revised down from 221,000 to 187,000 for a net loss to revisions of -60,000.

The adjusted U3 unemployment rate fell from 5.5% to 5.3% but not because more people were working. The labor force participation rate declined sharply from 62.9% to 62.6% and a post recession low because 432,000 people left the workforce. The more accurate reading of unemployment called the U6 rate rose from +10.4% to 10.8%.

All of the job gains were in the service sector with goods producing sectors adding only 1,000 jobs for the month, down from only 4,000 in May and 16,000 in April.

The average hourly earnings were flat at zero compared to a +0.2% average gain over the last four months and +0.6% n January. Rising wage growth is something the Fed wants to see before they raise rates.

Nearly every analyst said the expected rate hike in September is now off the table thanks to the payroll numbers and some other weak economics. However, there is an 80% chance of a December hike as evidenced by the Fed Funds Futures. The turmoil in Europe over the Greek disaster and the declining economics in China would be accentuated by rates hikes that spiked the dollar.

The Greek disaster is probably the excuse Yellen will use for pushing rate hikes off until 2016. The economy is not strong enough but she will not want to say that. Blaming Greece gives them another 3-6 months.

Factory Orders for May declined -1.0% after a -0.4% decline the prior month. Orders for durable goods were revised down from -1.8% to a -2.2% decline. Nondefense capital goods declined -7.3%. Defense orders showed the only strength at +8.0% but that was a rebound from a steep drop in April.

The economic calendar for next week is really light with only the ISM Nonmanufacturing and FOMC Minutes as highlights. The Wholesale Trade is never a market mover. The minutes will be the high point as analysts search for clues about a possible rate hike date.

The only material stock news on Thursday was mergers and acquisitions in the managed-care space. Centene (CNC) bid $6.3 billion for Health Net (HNT). The Affordable Care Act is expanding state and federally funded Medicaid by the millions as well as Medicare Advantage. That program has seen enrollment triple over the past decade. About 16.8 million people are enrolled in that program, up 1 million over the last year. Centene said Health Net would strengthen its presence in California, the nation's largest Medicaid market, and create a company with more than six million Medicaid members. HNT shares spiked +10% on the news.

On Friday, Aetna (AET) said it was buying Humana (HUM) for $37 billion to create the second largest managed-care company. The merger of the 3rd and 5th largest will put them right behind first place United Health (UNH). The Aetna deal has the same benefits as the CNC/HNT deal. It will greatly enhance Aetna's position in the Medicare Advantage and Medicaid programs. Aetna will pay the equivalent of $230 per share in cash and stock for Humana. The stock of Humana closed at $188 on Thursday before the news on Friday. Aetna shares will also react on Monday.

There has been no resolution in the Anthem offer for Cigna. Anthem offered $47 billion for Cigna (CI) but was rejected. With these offers being concluded for Humana and Health Net I would expect another bid for Cigna soon. Nothing prevents United Health from making a play for one of these companies so it is in their best interest to partner up quick before United comes calling.

Tesla (TSLA) shares jumped +$11 to a ten-month high at $280 after the company reported it delivered 11,507 vehicles in Q2, up 52% from the year ago quarter. That came after breaking the 10,000-car mark in Q1. The company plans to deliver 55,000 cars in 2015. They began the year with 20,000 reservations for the Model X SUV. Tesla plans on beginning deliveries of the Modal X late in Q3 or early in Q4. The prototype of the Model 3 sedan is expected to be released in March with deliveries planned for 2017. The car will have a starting price in the $35,000 range.

The problem Tesla is facing later this year is the actual sales of the Model X. This SUV model has gull wing doors that lift up. While that may have been a cool idea on the drawing board, it does not really work in real life. Most SUVs have a luggage rack on top for extra "stuff" when the family goes on trips/outings. Bikes, snowboards, surf boards, luggage, etc. With gull wing doors that does not work. There is no place to carry extra stuff because the trunk in the front is relatively small and there is no storage in the back. Also, the doors leak in the rain and when covered with heavy snow they cannot be opened. Several analysts believe this is going to lead to a slowdown in sales once these problems become well known. Once the first 10,000 or so hit the streets and complaints start pouring in from people that have not thought about those problem areas, we could see a dry spell between the Model S and the Model 3. With Tesla burning cash at the rate of about $500 million a quarter and $1.9 billion in the bank that means by the end of Q2 2016 they could be out of money. This will be especially true if the Model X falls flat after the first quarter of novelty sales.

Vertex Pharmaceuticals (VRTX) shares were halted most of the day on Thursday. The FDA approved the blockbuster drug for the treatment of cystic fibrosis called Orkambi. This is a drug combination that expands the patient base by about 400% and will generate $5 billion in revenue by 2018. This one drug is expected to turn Vertex profitable within the next three years. Orkambi was priced at $259,000 per year of treatment. That is going to give insurers a nightmare headache.

Biogen (BIIB) and AGTC (AGTC) announced a collaboration agreement to develop gene based therapies for ophthalmic diseases. The partnership will focus on developing a portfolio of therapeutic programs that will prevent blindness in children and adults. AGTC is eligible to receive upfront and milestone payments exceeding $1 billion starting with $472.5 million for the two lead programs and a royalty of up to mid tens percentages on the sales of the drugs. AGTC spiked +17% on the news.

Paypal acquired Xoom Corp for $890 million. This is a digital money transfer company and will complement Paypal's person to person money transfer business. The purchase price was thought to be a bargain and XOOM shares rose +21%.

Western Union (WU) shares fell -7% after Citigroup said the XOOM acquisition was bad news for Western Union.

Yelp (YELP) called off its hunt for a buyer and shares declined -10%. There were multiple bidders but nobody could agree on a price. With Yelp reporting a slowdown in visitor growth from 39% to 13% in Q4 with unique visitors declining for the first time ever the outlook for Yelp is not that positive. The company also lowered guidance so no surprise there were no big offers for Yelp.

Crude oil declined another -1.41 after dropping -2.50 on Wednesday. The unexpected build in crude inventories pushed prices down on Wednesday. Imports also rose to a two-month high of 7.51 million barrels per day. On Thursday, Baker Hughes said the overall active rig count rose +3 but active oil rigs rose +12. That was really unexpected and sent oil sharply lower.

U.S. production was 9.595 mbpd and only 15,000 bpd below the 40-year high set three weeks ago at 9.610 mbpd. Production is not declining and crude prices are falling. This could turn ugly over the next several months as fuel demand declines as summer driving fades.

If Iran and the P5+1 nations were to agree to a deal this week that included the lifting of sanctions it would be very bearish for oil prices. The Iranian Foreign Minister Mohammad Javad Zarif released a YouTube video in English saying negotiators were closer than ever but getting a deal would require "the courage to compromise, the self confidence to be flexible, the maturity to be reasonable and the wisdom to set aside illusions and the audacity to break old habits." Later in the statement he used the word hope in a clear reference to President Obama's book "the Audacity of Hope." The YouTube video was clearly an attempt to pressure the 6-nation team and especially the U.S. negotiators and President Obama. Some analysts perceived the video as a hardening of Iran's position as they tried to portray America as unreasonable and stuck in the past. The odds of a deal are slim and the odds of a deal that instantly remove the sanctions are almost zero.

The International Atomic Energy Agency (IAEA) released a report last week showing that Iran had failed to live up to the requirements of the most recent prior agreement by enriching more uranium than allowed and by failing to convert it into a form that could not be used in a bomb. This report of Iran's continued failure to live up to the terms of any prior agreement is just an example of how they would fail to live up to any future agreement.


The markets collapsed on Monday with the biggest losses of the year on fears over what would happen in Greece. That downdraft priced in those fears and the indexes drifted higher as the week progressed. The major indexes still ended the week with about a -1.5% decline with the exception of the Russell 2000 with a -2.5% decline. This is understandable since the Russell had the best rally over the prior month.

The S&P declined to within 3 points of its 200-day average at 2054 on Tuesday. The rebound found resistance at the 150-day average at 2078, which had been prior support. The S&P closed at 2076 and right under that resistance in preparation for a positive vote out of Greece over the weekend. The market was expecting Greece to vote to stay in the eurozone and investors were planning on a move higher next week.

The rumors about a bail-in haircut for Greek depositors could be overcome by a yes vote or made worse by a no vote. The point to remember is that regardless of the vote there are still days and weeks of uncertainty surrounding the Greek problem.

Investors and analysts alike do not know how this Greek tragedy is going to play out. As long as there is uncertainty, the markets will be volatile.

The market internals are still negative despite the minor rebound from Monday's crash. The percentage of S&P stocks trading under their 200-day average fell to 53.6%. The shorter term reading saw the percentage trading under their 50-day average fall to 27% early in the week but recover slightly to 35% by Thursday. That is still the lowest levels for the year.

The worst chart remains the S&P Bullish Percent Index. The percentage of S&P stocks with a buy signal on the Point and Figure charts declined to 57.6% and the second lowest level in more than 2 years. This chart is telling us the broader market is turning weaker.

Obviously, market conditions brought on by geopolitical headlines can reverse in an instant. In the U.S., we are headed into the Q2 earnings cycle with Alcoa officially kicking off the party on Wednesday. While there are only a few reports this week the pace will pick up significantly the following week. Unfortunately Q2 earnings are expected to see earnings decline -4.3%.

Goldman Sachs (GS) lowered their 2015 S&P earnings estimates from $122 to $112 with the consensus estimate at $119. The trend for earnings is declining and Goldman blamed it on declining revenues. In other words, sales at S&P companies are slowing despite decent job growth. This is one more reason why the Fed is unlikely to hike rates in September.

Analysts tend to go overboard with their earnings and price target corrections. With the consensus for earnings to decline -4.3% there is a good chance they over compensated and actual earnings could surprise to the upside. It will be several weeks before we will know if that is a real possibility.

For next week, the market will depend on the events in Greece but the declining internals will still be an overall drag. For the last three days the number of new 52-week lows have outpaced the number of new highs by about 3:1. That was significantly better than the 7:1 on Monday but still shows a negative trend.

For Monday, initial resistance on the S&P is roughly 2078-2081 followed by 2100. Initial support is around 2070 followed by the 200-day average at 2054.

The Dow is also struggling between recent support and resistance with two attempts to move back over 17,800. Both failed. With the earnings cycle upon us, the early weeks have a lot of Dow components reporting. If there are some positive earnings surprises then the Dow could gain some bullish sentiment. Conversely if there are some earnings misses then the existing weakness in about half of the components could spread.

Support is clearly 17,00 and resistance just below 17,800.

The Nasdaq is still being supported almost entirely by the biotechs. There is a battle being waged around the 4885-5000 level, which returned as support over the last two days. With the semiconductor stocks in decline and anything PC related also weak the Nasdaq is depending on healthcare, pharma and biotechs for support.

Resistance appears to be firm at 5040 but Thursday was a lower high at 5027. Because of the light volume and the Greek vote over the long weekend we really cannot attach too much importance to Thursdays trading.

The Russell 2000 is a point of concern for me. While the other indexes tried to rebound on Thursday the Russell had a definite negative bias and set a new four-week low. This is not a good sign since the Russell should have had a positive bias for the week after the rebalance the prior Friday. The 100-day average is still holding as support but only barely.

The Russell appears to be breaking down and while it was the leader on the way up it can also be the leader on the way back down. Summer is typically a weak period for small cap stocks and we could be seeing the beginning of that trend. I confess I expected it not to start for another couple of weeks.

Support is about 1243 with resistance 1260. The Russell closed right on the 100-day at 1248.

The Dow Transports just keep moving lower with multiple support levels broken and the October low at 7700 the obvious target. As long as the transports continue to weaken it is unlikely the Dow Industrials will mount any credible rally to new highs. This is an anchor for the Dow and the broader markets.

If we had a wish for next week it would look something like this. The Greeks vote yes to remain in the eurozone and accept the austerity demand from the troika. Tsipras would fly to Brussels and sign a new bailout agreement within 48 hours that reopened the ECB support for Greek banks. Greece would disappear from the headlines in time for the market to focus on better than expected Q2 earnings. Unfortunately, we have an almost zero chance of that wish coming true.

Regardless of the vote outcome, Tsipras will continue to be a stumbling block and the EU finance ministers will have to force him into the proverbial corner so tightly that he is forced to agree to their terms. While this is happening the market will remain volatile but not as bad as last Monday unless some new headlines erupt.

I would be cautiously long on any S&P move over 2080 and flat or short under 2050.



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Random Thoughts

Greece is on the verge of a disaster. As of late Saturday night ATMs are now limited to 50 euros instead of 60 because 20 euro notes have disappeared. Only 10-euro notes remain. Gas stations and small businesses have stopped accepting credit cards. With the banks down to 500 million euros any reopening of the banks would see them run out of cash within hours. Prior to the closing Greeks were withdrawing more than 1 billion euros per day. Restaurants are closing because they cannot import food. Manufacturing businesses are closing because they cannot import raw materials. Other businesses are closing because they cannot pay employees because of banking restrictions. This is a real disaster in the making. Greece Economy Shutting Down

This is a really good flow chart on the future for Greece depending on the outcome of the referendum and whether Tsipras remains in power. There is no easy solution. Barclays Big Picture for Greece

Greece owes the ECB roughly 160 billion euros. The ECB only has paid in capital of 8 billion. If Greece were to refuse payment all the eurozone nations would have to put up additional capital to keep the ECB solvent. Despite the fact that each nation has already been forced to contribute billions to the ECB to be transferred to Greece, they would be forced to contribute even more if Greece defaulted. That has got to be a bitter pill to swallow.

Last week the IMF released a document showing a gloomy analysis of Greek finances. The IMF said Greek finances, regardless of the vote, are unsustainable without substantial debt relief. The IMF said Greece would need a minimum of 50 billion euros in aid over the next three years just to keep it afloat and out of default. The IMF said Greece's debt burden of 185% of GDP can only be sustainable if the troika provides considerable extra financing through a mixture of new loans and debt restructuring. Some analysts believe the Greek debt would have to be cut by 75% in order for Greece to be able to continue functioning. The eurozone countries tried to pressure the IMF not to release the report ahead of the vote because it clearly spells out that the troika will have to give Greece more money. Greece Going Further into Debt

June is normally a month when millions of people enter the workforce. School is out and millions of students look for summer work. College graduates flood the market place looking for that first big job. Unfortunately, that did not happen in June. Over 432,000 people left the workforce in June and that was the largest drop in a single month in more than a year. That brought the work force participation rate down to 62.6% and the lowest level since October 1977.

Over the last decade, an average of 1.35 million workers entered the workforce in June. (Not seasonally adjusted)

Bloomberg on Drop in Workforce

China's Shanghai market declined -5.7% on Friday to cap the steepest three-week decline since 1992. The index is now -29% off the peak on June 12th. Chinese shares have lost more than $2.8 trillion in market cap in only three weeks. That is more than ten times the GDP of Greece. Only 39 of the 1,106 stocks in the index were positive on Friday. Regulators have pledged to investigate alleged market manipulation but in reality this is just an example of what happens when new investors leverage themselves as much as possible using margin. Chinese investors have been opening brokerage accounts at the rate of 3 million a week and then going "all in" on the market." Margin lending had risen 500% and that powered the 150% spike in the market.

Sentiment completely reversed its gains from the prior week and went even further into bearish territory. The prior week bullish sentiment spiked +10.1% to 35.6%. Last week it declined -12.9% to only 22.6%. That was the largest one-week decline since May 2013. The prior week bearish sentiment declined -12.6% to 21.7%. Last week bearish sentiment spiked +13.4% to 35.1% for the largest one-week spike since August 2013. Neutral sentiment was almost unchanged with a -0.5% decline to 42.3%.

This is the 14th consecutive week that bullish sentiment has been below its historical average of 38.8%.

The U.S. Intelligence Agency has gone back to the past. Instead of online forms and databases they are going old school and new applicants have to fill out forms on paper instead of computers. This is due to that monster cyber attack on the government database that saw personal information stolen on up to 14 million people.

The hard copies will be sent to the relevant agencies to review. The Office of Personnel Management (OPM) suspended the online system saying it will be offline for 4-6 weeks for "security enhancements." They are also going to hire a cybersecurity advisor to help prevent future intrusions. This is likely to be FireEye (FEYE). Government Going Back to Paper

China's Foreign Ministry expressed anger at the Pentagon on Friday after the updated National Military Strategy update slammed Chinese claims in the South China Sea as "aggressive and inconsistent with international law."

China is building artificial islands in areas where the Philippines, Vietnam, Malaysia, Brunei and Taiwan have conflicting territorial claims. They are building landing strips on the artificial islands as well as gun emplacements. China said the U.S. should abandon its Cold War mentality. The military strategy update was the first since 2011. China Angry about Military Report

Here is a slide show from the Washington Post showing the upgrades to many of the islands from water covered reef to become major harbors and military facilities. Reef Evolution

China passed a major security law last week to make networks and systems "controllable." As a core component all systems must be secure, which nobody really objects to the concept. However, the law would require anyone selling hardware in China to provide the source technical diagrams and flowcharts plus the software source code to prove there were no hidden security bugs in the equipment. Of course this would let China have access to every cutting edge piece of hardware and all the intellectual property associated and within months they could build their own identical equipment. With all the source code they could also create cyber attacks to create intrusions on the original equipment anywhere in the world. China Legislates Intellectual Property Theft


Enter passively and exit aggressively!

Jim Brown

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"The challenge for all investors is to consume the news without being consumed by it. Probably the single most important step you can take is to filter it wisely, taking in the news through intermediaries whose judgment you can trust."

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Index Wrap

Greece Still 'Rules' the Waves

by Leigh Stevens

Click here to email Leigh Stevens

Chart patterns will often if not usually suggest which way a next move is going to unfold but in this case one interpretation suggests a bottom is in place but another (i.e., a possible bear 'flag') suggests risk of another downswing ahead. We're in the Greek/EU casino!

I used to say to people that said that trading stocks is 'gambling' that, no we can forecast stock prices much of the time. However, the EU situation looks quite unpredictable.

If there's another downswing ahead, this may set up a bottom. But how soon a next rally might unfold may be hard to predict. When the Market is held hostage to political situations it's often a crap shoot; especially so with crisis situations and political/economic 'muddling' through. We thought the USA could be fractured! Happy Independence Day nevertheless even if stock market participants don't feel very 'independent' at the moment!

My individual index charts will provide my input as to wide-ranging support and resistance points. I've focused especially on potential support areas. I thought we might have seen a bottom already but there remains an alternative interpretation of another shoe to drop ahead. The current uncertainties will get sorted out over time and we'll get back more to our own Market fundamentals. Meanwhile, risk little to no money on gambling!

The S&P 500 Volatility Index (VIX):

The VIX Volatility Index broke out of its prior trading range by its decisive upside penetration of 15.7. VIX 'resistance' now looks like 20. Support now looks to lie in the 15.7 area, or what was previous VIX resistance. I wrote last week that an "eventual breakout above 16 in a volatility 'spike' is a possibility but not soon." However, SOON came very fast!



The S&P 500 (SPX) daily chart seen next suggests that SPX has either made a bottom in the 2060-2056 area (possibly to be re-tested) or, alternatively, the last sharp decline and subsequent rebound has formed a possible bear flag suggesting another down leg ahead that could carry to 2015 or so. The 2000 area shows up as longer-term support on weekly charts (not shown here).

Near resistance comes in at 2100, extending to 2110. Near support as noted, suggested by the prior recent intraday low is at 2056, with support extending to 2046. A next lower support or downside target suggested by the aforementioned bear 'flag' pattern is highlighted at 2015 in SPX.

In terms of the Relative Strength Index (RSI), SPX has reached an oversold extreme already. Bearish sentiment also got to a level at the last downswing that might 'signal' a bottom also. However, bearishness would likely get more extreme or increase again on another decline.


Within the S&P 100 (OEX) chart is bearish now on both a short-term and intermediate-term basis. I've kept in the place the prior up trendline as indicating a near-term resistance at 918, extending to 922. Next resistance is highlighted at 930.

Support is suggested at the prior intraday low in OEX at 905, but major support in the 900 area could get retested in the event of a next sell off which is quite possible with this 'mixed' chart pattern.

OEX did reach an oversold extreme at the last low but in this Market, with the indecision pattern that's been traced out, a single oversold RSI reading doesn't mean as much as the last time RSI got to a 'fully' oversold extreme in March.

A favorable risk to reward on owning calls in the 900 area if reached, would be seen if exit was made at 895, as upside potential would look to be back up to 925, at the recent 'breakdown' point.


The Dow 30 (INDU) may have reached a bottom at the recent 17600 low. INDU has the most favorable chart for the bulls in that it has reached the low end of the trading range seen on the daily chart shown here. Although, if I were to predict based on the longer-term trading range seen on weekly charts (not shown), it would suggest that potential support comes in around 17560.

We could call support or buying interest as likely in the 17600 to 17500 zone. Near resistance is at 179000, extending to 18000.

If I was going to take a flyer on either the S&P or the Dow, INDU probably is the lower risk play at the highlighted support seen here with the daily chart. An upside rebound may be slower to come however. I also should note that major support seen on the very long-term monthly chart looks to come in at 17200-17125. See my most recent Trader's Corner month-end review.


The Nasdaq Composite (COMP) chart remains above its current up trendline, as highlighted on the chart which is potentially bullish but this trendline could yet get pierced of course. I've noted current trendline support in the 4965 area.

In the event that COMP's up trendline is pierced, next support is seen in the 4900 area, extending to 4850. If COMP is seen to have the same 'bear flag' pattern as SPX, downside potential is to 4850.

Near resistance is highlighted at 5050, extending to 5100.

The 13-day Relative Strength Index (RSI) AND my trader sentiment indicator have both reached 'oversold' extremes once already. There's nothing to say that they won't see oversold readings occur again; another instance of which would probably be an opportunity for bullish plays but this can't be forecast yet given that our Market is caught up in this EU drama. Stay tuned!


The big cap Nasdaq 100 (NDX) has the same basic chart pattern as the broad Nas Composite seen above in that the Index appears to have 'held' an up trendline, although one that's been re-drawn on the last decline. If one trendline is pierced, I look to see if there's a lower trendline that might be 'valid' as a next lower support. Potential trendline support is highlighted at 4386 currently.

The COMP chart pattern is also now such that technical 'support' has to also be seen as coming in at prior lows from late-March in the 4320-4300 area.

Resistance is suggested in the 4470 area, extending to 4500 as seen on the chart, with a next strong line of resistance at 4550.

If I was going to look at a speculative buy if there is a further move lower, it would be in the 4300-4320 area if reached. Longer-term weekly charts (not shown) suggest support at 4300-4275. If NDX fell to this area, risk to 4250, with an objective to 4500.


The Nasdaq 100 tracking stock (QQQ) as usual saw a significant spike in volume when technical support gave way at 108. This is the typical pattern of closing the barn door after the horse is out or could be seen as the tendency to have CLUSTERS of sell-stop orders in the same or similar areas.

Near support as suggested by my re-drawn up trendline is seen at 106.8 currently. Support extends to 106. If support at the prior lows for the period seen on the chart was to be retested, buying interest would likely surface around 104.50-104.3. I'd buy the stock in the 104 area if reached, risking to 103.5 with expectations of rebound potential to 108, perhaps to the 110 area again.

Major support comes in at 100, although I think the Q's are unlikely to see 'par' again to borrow a bond term.

Near resistance is highlighted at 108.3, extending to 109. 110, extending to 111 looks to be fairly major resistance currently.


The Russell 2000 (RUT) which was in a steep uptrend has broken below its support up trendline, now highlighted as resistance at 1270-1275. Near support is seen at 1240, extending to 1230, then at 1220.

When RUT has reached an oversold RSI extreme it's often marked a buy point. Since no technical pattern is repeated ad infinitum, we may see a lower price low ahead and just ONE 'fully' oversold Relative Strength Index extreme may not be a place to 'mechanically' buy into.

Stay tuned on RUT as the Index charged ahead of the pack and may not be an immediate candidate to jump back into. The move to my upper trading 'envelope' line near 1300 was a good speculative short as it turned out especially when it was coupled with an overbought RSI extreme. The two indicators generated a good technical sell 'signal' in this instance.


New Option Plays

Buying The Dip

by James Brown

Click here to email James Brown


Facebook, Inc. - FB - close: 87.29 change: +0.38

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 24.5 million
Entry on July -- at $---.--
Listed on July 04, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: Yes, see below

Company Description

Trade Description:
Facebook probably needs no introduction. It's the largest social media platform on the planet. As of March 31st, 2015 the company reported 1.44 billion monthly active users and 936 million daily active users. If FB were a country that makes them the most populous country on the planet. China has 1.35 billion while India has 1.25 billion people.

Earlier this year (March) the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

Meanwhile business at FB is great. According to IBD, FB's Q4 earnings were up +69% from a year ago. Revenues were up +49%. Q1 results were out on April 22nd. Earnings were up +20% to $0.42 per share, which beat estimates. Revenues were up +41.6% to $3.54 billion in the first quarter. Wall Street is expecting FB's profit to rise +12% in 2015 and +32% in 2016.

FB continues to see growth among its niche properties. The company bought Instragram for $1 billion in 2012. Last late year Instragram surpassed Twitter with more than 300 million active users. FB is also a dominate player in the messenger industry with more than 600 million users on WhatsApp and 145 million users on Facebook Messenger. FB has not yet started to truly monetize its WhatsApp and Messenger properties. It's just now starting to include ads in Instagram. Eventually, with audiences this big, FB will be able to generate a lot of cash through additional advertising.

Speaking of advertising, FB has jumped into the video ad game with both feet and it's off to a strong start. FB claims that it's already up to four billion video views a day. They had 315 billion video views in Q1 2015. That's pretty significant. YouTube had 756 billion video views in Q1 but YouTube has been around for ten years (FYI: YouTube is owned by Google). FB has only recently focused on video.

Wall Street is growing more optimistic as FB develops its blooming video ad business and its Instagram and messaging properties. In the last few weeks the stock has seen a number of price target upgrades. Bank of America upped their FB price target from $95 to $105. Cantor Fitzergerald upped theirs to $100. Brean Capital raised theirs to $108. Piper Jaffray upgraded their FB target to $120. Currently the point & figure chart is bullish with a $113.00 target.

Technically FB was stuck in a trading range for months while still working on a long-term, slow moving up trend of higher lows. That changed a couple of weeks ago with a bullish breakout to new highs. The recent pullback is an opportunity. If traders continue to buy this dip we want to jump on board. Tonight we are listing an entry point to buy calls at $88.15.

Trigger @ $88.15

- Suggested Positions -

Buy the AUG $90 CALL (FB150821C90) current ask $2.60
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

In Play Updates and Reviews

Market Flatlines Ahead Of Referendum

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market closed relatively flat on Thursday ahead of the long holiday weekend and the Greek referendum (on July 5th). Everyone is waiting to see what the Greek people will choose and the fallout that follows.

Not everything flatlined on Thursday. AET, SIRO, and ETR all hit our stop losses.

Current Portfolio:

CALL Play Updates

Cracker Barrel Old Country Store - CBRL - close: 150.89 change: -0.68

Stop Loss: 144.75
Target(s): To Be Determined
Current Option Gain/Loss: -5.0%
Average Daily Volume = 332 thousand
Entry on July 01 at $150.25
Listed on June 20, 2015
Time Frame: Plan on exiting prior to August 5th
New Positions: see below

07/04/15: CBRL flirted with three-month highs on Thursday. Shares eventually settled with a -0.4% decline. Broken resistance in the $149-150 zone should be new support. Traders can wait for a dip or wait for a bounce in this area as a new entry point to buy calls.

Trade Description: June 20, 2015:
It's summertime and that means vacations and road trips for a lot of Americans. That's good news for a company like CBRL because most of their 634 restaurants are located along major highways.

CBRL is in the services sector. According to the company, "Cracker Barrel Old Country Store, Inc. provides a friendly home-away-from-home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping that’s surprisingly unique, genuinely fun and reminiscent of America's country heritage…all at a fair price. Cracker Barrel Old Country Store, Inc. (CBRL) was established in 1969 in Lebanon, Tenn. and operates 634 company-owned locations in 42 states."

Wall Street loves earnings growth and CBRL continues to deliver. Back in February the company beat earnings and revenue estimates and raised their 2015 guidance. Their most recent report was June 2nd. CBRL reported their fiscal third quarter. Analysts were expecting a profit of $1.37 per share on revenues of $680 million. CBRL beat estimates with a profit of $1.49 per share. This is a +21% rise from a year ago and marks the fifth quarter in a row of double-digit earnings growth. Revenues also beat estimates with a +6.3% rise to $683.7 million. CBRL said their comparable store sales were up +5.2%. Their comparable retail store sales were up +4.5%.

Management raised their normal quarterly dividend +10% to $1.10. They also announced a special one-time dividend of $3.00 per share. Both are payable on August 5th, 2015 to shareholders on record as of July 17th. CBRL offered a bullish outlook for both their fourth quarter and 2015. Management raised their 2015 earnings guidance from $6.40-6.50 to $6.60-6.70 per share. Wall Street was only expecting $6.55.

Technically the stock looks bullish. Shares have been consolidating their post-earnings gains the last couple of weeks but traders are buying the dip. Today CBRL is poised for a breakout past short-term resistance near $148.50. If the stock does breakout it could see some short covering. The latest data listed short interest at 17% of its small 18.9 million share float. Meanwhile the point & figure chart is very bullish and forecasting a long-term target at $231.00.

Tonight we are suggesting a trigger to buy calls at $150.25. More aggressive traders may want to jump in early on a rally past $148.75.

- Suggested Positions -

Long SEP $155 CALL (CBRL150918C155) entry $4.00

07/01/15 triggered @ $150.25
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co. - DIS - close: 114.97 change: -0.16

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +32.6%
Average Daily Volume = 5.7 million
Entry on June 18 at $112.25
Listed on June 17, 2015
Time Frame: Exit PRIOR to earnings in August
New Positions: see below

07/04/15: DIS briefly hit a new record high on Thursday morning. The stock settled near unchanged. Shares still look poised to break higher. Looking at the intraday chart, I'd prefer to see another rally past $115.35 before initiating new bullish positions.

Trade Description: June 17, 2015:
Disney is an American icon. The company is over 90 years old. They have grown into a massive content generating giant. Today DIS runs five business segments. Their media networks include broadcast, cable, radio, publishing, and digital businesses headlined by their Disney/ABC television group and ESPN Inc. DIS' parks and resort business includes Disneyland, Disneyworld, plus theme parks in Tokyo, Paris, Hong Kong, Shanghai, and a cruise line.

The company's products division licenses the company's horde of names, characters, and intellectual property to a wide range of products. They've also jumped into the online world with their Disney Interactive division. Last but not least is the Walt Disney Studios segment. Disney started making movies 90 years ago. Today their studio business includes Disney animation, Pixar Animation, Disneynature, Disney Studios Motion Pictures, Disney music group, Touchstone Pictures, and Marvel Studios.

Their movie business has been a money maker over the years with huge hits like the Pirates of the Caribbean franchise, Tangled, Wreck-it Ralph. In 2013 they released the animated film "Frozen", which has turned into the largest grossing animated movie of all time. Pixar has a stable of successful movies that have grossed almost $9 billion. DIS is also mining gold in Marvel Entertainment's library of over 8,000 characters of comic book history. Marvel had two big hits in 2014 Captain America: Winter Soldier and Guardians of the Galaxy. Their 2015 Avengers: Age of Ultron was also a big winner at the box office grossing more than $1.3 billion worldwide. Of course not every Disney movie crushes it. Their recent Tomorrowland was a big disappointment and they could lose more than $100 million on the film.

Back in 2012 Disney purchased Lucasfilm and all the Star Wars properties from George Lucas for $4 billion. The company is busy filming the next three episodes of the Star Wars franchise. The next Star Wars film it titled "The Force Awakens." It will be episode seven in the franchise. The movie doesn't hit theaters until December 2015 but analysts are already predicting that "The Force Awakens" will generate $1.2 billion at the global box office.

DIS management loves movie franchises because they can fuel years of sequels, park rides, and merchandise. The approach seems to be working. Revenues and net income have hit all-time highs for five consecutive quarters. Their 2015 Q1 results saw earnings per share up +23% to $1.27. Their Q2 results saw earnings grow +14% to $1.23 per share. Their domestic theme parks showed a strong surge in both attendance and in customer spending. Analysts are forecasting DIS earnings to grow +17% this year.

The stock surged to new all-time highs back in early May after its Q2 earnings report. Shares have since spent the last six weeks digesting gains in a sideways consolidation that has ignored much of the broader market's volatility. More recently DIS has started to rebound and is now at the top of its trading range. A breakout here could signal the next leg higher.

The point & figure chart is bullish and forecasting at long-term target of $154.00. I personally suspect that DIS could rally toward $120-125 before its next earnings report in August. Credit Suisse recently upped their price target to $130. Tonight we are suggesting a trigger at $112.25 to buy calls.

- Suggested Positions -

Long AUG $115 CALL (DIS150821C115) entry $2.30

06/27/15 new stop @ 112.25
06/18/15 triggered @ $112.25
Option Format: symbol-year-month-day-call-strike


Demandware, Inc. - DWRE - close: 71.15 change: +0.45

Stop Loss: 67.75
Target(s): To Be Determined
Current Option Gain/Loss: -20.5%
Average Daily Volume = 417 thousand
Entry on June 22 at $72.35
Listed on June 20, 2015
Time Frame: 6 to 8 weeks, exit prior to earnings in August
New Positions: see below

07/04/15: Thursday's session was a very quiet one for DWRE. Shares briefly traded below $70.00 in the morning but quickly recovered. DWRE spent the rest of the day in a tight range.

The $73.50 level remains overhead resistance.

No new positions at this time.

Trade Description: June 20, 2015:
2015 is shaping up to be a lot better than 2014 for DWRE investors. The stock delivered a rocky performance last year and spent much of it churning sideways in a huge consolidation pattern (see the weekly chart below). The stock's momentum has turned bullish this year thanks in part to consistently strong revenue growth. The NASDAQ is up +8.0% year to date. DWRE is currently up +23.9%.

DWRE is in the technology sector. According to the company, "Demandware, the category defining leader of enterprise cloud commerce solutions, empowers the world's leading retailers to continuously innovate in our complex, consumer-driven world. Demandware's open cloud platform provides unique benefits including seamless innovation, the LINK ecosystem of integrated best-of-breed partners, and community insight to optimize customer experiences. These advantages enable Demandware customers to lead their markets and grow faster."

With the exception of its Q4 report on February 19th DWRE has beaten Wall Street's earnings estimates on both the top and bottom line the last four quarters in a row. Revenue growth has been +55.6%, +55.9%, +43.4%, and +54.3% for the last four quarters. The only miss was DWRE's bottom line number for the fourth quarter where it missed by a penny.

DWRE's most recent results were May 7th. The company said their Q2 profit was $0.16 per share. That is a big improvement from a ($0.05) loss a year ago and it was 27 cents better than the ($0.11) loss analysts were expecting. Revenues were $50.27 million compared to estimates for $49.5 million. DWRE said their live customers were up +30% from a year ago to 279. The number of live sites surged 42% to 1,241.

Tim Adams, DWRE's CFO, commented on their quarterly results, "During the first quarter, we continued to invest in growth and innovation. We expanded our operations deeper into Europe and Asia. Our R&D team also made considerable progress on their key initiatives – extending our platform deeper into the store, delivering our intelligence solutions and enriching our core commerce capabilities. As we move through 2015, we remain focused on scaling our organization to support the fast pace of our growth."

Back in April Goldman Sachs added DWRE to their conviction buy list. Yet shares didn't start moving until June. A couple of weeks ago shares broke out from a three-month consolidation pattern. The current rally could be getting a boost from short covering. The most recent data listed short interest at 12% of the relatively small 33.48 million share float. Currently the point & figure chart is bullish and forecasting an $85 target. Tonight we're suggesting a trigger to buy calls at $72.35.

- Suggested Positions -

Long OCT $75 CALL (DWRE151016C75) entry $5.28

06/22/15 triggered @ $72.35
Option Format: symbol-year-month-day-call-strike


Cyber Security ETF - HACK - close: 31.21 change: -0.31

Stop Loss: 29.85
Target(s): To Be Determined
Current Option Gain/Loss: -44.4%
Average Daily Volume = 769 thousand
Entry on June 30 at $31.55
Listed on June 29, 2015
Time Frame: Exit PRIOR to August expiration
New Positions: see below

07/04/15: HACK underperformed the broader market on Thursday with a -0.98% decline. Shares dipped back toward support near $31.00, its 50-dma, and its five-month trend line of higher lows (see chart).

I am suggesting readers wait for a new bounce past $31.60 before initiating new positions. More conservative traders might want to raise their stop loss.

Trade Description: June 29, 2015:
Cyber security is a huge business because the threat is so large. Criminals and unfriendly foreign countries can wreak havoc and damage anyone. Victims include individuals, small businesses, large businesses, schools, organizations, and governments. The FBI Internet Crimes Complaint Center registered almost 270,000 complaints in 2014. McAfee reported that cyber crime cost the global economy $400 billion last year. Another report, by KPMG, suggests damages by online criminal activity could reach $560 billion in 2015.

We constantly hear about successful hacking attacks against large U.S. companies like Target, Home Depot, and JPMorgan Chase. Just recently there was a massive scandal where Chinese hackers allegedly stole extremely confidential information on tens of millions of U.S. government employees. Cyber crime is a constant threat. It's no surprise that investors have flocked to a relatively new ETF focused on cyber security.

Here's a description of HACK and why it was created:

The World's first Cyber Security ETF, the PureFunds ISE Cyber Security ETF (HACK) was created to provide the market with a transparent vehicle to invest in the increasingly important Cyber Security industry. Anyone that has fallen victim to a cyber attack understands that the fear, consequences and helplessness associated are real. Hundreds of millions of people around the world have suffered from some form of cyber attack. Although a personal cyber attack can seem overwhelming and significant, those that happen on a corporate or government level can be disastrous. In addition to financial losses, cyber attacks have the ability to shut down or manipulate energy infrastructure, weapons defense systems, medical devices, financial markets, transportation networks/vehicles, or harvest highly personal or secret information and a constantly growing amount of other potential threats.

Given the devastating effects cyber attacks can present, it is no coincidence that both corporations and governments around the globe have committed billions of dollars annually in hopes of preventing future attacks. This ongoing digital arms and defense race has vastly grown the size and importance of the Cyber Security industry. This constantly evolving battle will force efforts and capital to focus on this essential space. An increased spending and demand for cyber security solutions may benefit the always morphing Cyber Security Industry.

The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE Cyber Security Index.

HACK currently has 32 components. The top ten stocks are: IL, PFPT, SAIC, IMPV, SPLK, VDSI, FTNT, BLOX, AVG, and PANW. You can see all the components
here, scroll to the bottom and select "show all".

This ETF already has more than $1 billion in assets, which is shocking since it just debuted about eight months ago.

The ETF was a strong performer from early May until mid June. Last week shares began to see some profit taking. Today's market-wide sell-off has pushed HACK toward support at its trend line of higher lows (support) and technical support at the 50-dma. After a -8% correction the pullback may be over. We want to be ready if HACK rebounds from here. Tonight we're suggesting a trigger to buy calls at $31.55.

Please note this should be considered a higher-risk trade. The option spreads on HACK's options are wide. The spreads have probably been exaggerated today due to the surge in volatility. We are suggesting the August $33 calls. You may want to use a different strike.

*small positions to limit risk* - Suggested Positions -

Long AUG $33 CALL (HACK150821C33) entry $0.90

06/30/15 triggered @ $31.55
Option Format: symbol-year-month-day-call-strike


INSYS Therapeutics - INSY - close: 35.50 change: -0.01

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: -55.9%
Average Daily Volume = 607 thousand
Entry on July 01 at $36.30
Listed on June 30, 2015
Time Frame: Exit PRIOR to earnings in August
New Positions: see below

07/04/15: INSY traded in a $1.25 range on Thursday morning but 30 minutes into the session shares had settled into a narrow range. By the closing bell INSY was virtually unchanged on the day. I would prefer to see a rally above $36.40 before initiating new positions again.

Trade Description: June 30, 2015:
INSY is probably best known for its synthetic cannabinoid drugs that use THC, the same ingredient in marijuana. Yet it is the company's Subsys treatment, a painkiller several times stronger than morphine, that generates the most revenues for INSY. The marketing practices behind Subsys have generated some scandal-worthy headlines but nothing seems to be slowing down the stock's long-term rally.

INSY is in the healthcare sector, more specifically the biotech industry. According to the company, "Insys Therapeutics is a specialty pharmaceutical company that develops and commercializes innovative drugs and novel drug delivery systems of therapeutic molecules that improve the quality of life of patients. Using our proprietary sublingual spray technology and our capability to develop pharmaceutical cannabinoids, Insys addresses the clinical shortcomings of existing commercial products. Insys currently markets two products: Subsys, which is sublingual Fentanyl spray for breakthrough cancer pain, and a generic version of Dronabinol (THC) capsules. The Company's lead product candidate is Dronabinol Oral Solution, a proprietary, orally administered liquid formulation of dronabinol that Insys believes has distinct advantages over the current formulation of dronabinol in soft gel capsule. Insys is developing a pipeline of sublingual sprays, as well as pharmaceutical cannabidiol."

The company's earnings growth has been impressive. They have consistently beaten Wall Street's bottom line earnings estimates the last six quarters in a row. They normally beat the revenue estimate as well. Looking at the last three quarters INSY has seen its revenues jump +99.7%, +65.4%, and +70.2%. Most of that has been on strong Subsys sales, which were up +69% in the fourth quarter and up +74% in the first quarter.

INSY management is very optimistic and expects to complete four Phase III clinical trials in 2015. If successful it will significantly broaden their product line. The company just recently announced a New Drug Application (NDA) for its "proprietary Dronabinol Oral Solution for anorexia associated with weight loss in patients with AIDS; and nausea and vomiting associated with cancer chemotherapy in patients who have failed to respond adequately to conventional antiemetic treatments. Dronabinol Oral Solution is an orally administered liquid formulation of the pharmaceutical cannabinoid dronabinol, a synthetic version of tetrahydrocannabinol (THC)."

INSY's stock has been a strong performer since the company's IPO in 2013. Shares saw a 3-for-2 split in 2014. They just completed a 2-for-1 split on June 5th.

Before I continue I want to remind traders that biotech stocks can be tough to trade. Normally stocks in this group can be volatile with lots of headline risk. The right headline about a successful test or clinical trial or FDA approval can send shares soaring. The wrong headline could see a biotech stock crash or even gap down several points.

It is important to note that not all the news is good for INSY. In late 2014 the Wall Street Journal (WSJ) ran a story about some shady marketing practices for INSY's Subsys painkiller. This is an under-the-tongue spray version of the painkiller fentanyl. Subsys has a very high risk of dependency and is currently only approved for cancer patients. Yet strangely enough only 1% of prescriptions last year were written by oncologists. Several doctors with the biggest number of Subsys prescriptions have also been under review or disciplined. The WSJ noted that the Office of the Inspector General of the U.S. Department of Health and Human Services and the U.S. Attorneys in the Central District of California and Massachusetts are all looking into the matter. This is significant because Subsys accounts for the vast majority of INSY's revenues.

Thus far the stock market has managed to ignore the shadow cast by Subsys and how the drug is prescribed and INSY's financial relationship with the doctors who prescribe it.

Last week saw biotech stocks retreat. The IBB biotech ETF had broken out in mid June and rallied to new record highs. The group reversed lower last week with a sharp correction. INSY followed its peers lower with a painful drop from $42 to $34 in about three days. Currently the $34.00 level is holding up as support. If INSY can bounce from current levels the move could be big.

A rally from here could spark a short squeeze. The most recent data listed short interest at 68% of the small 23.6 million share float. Tonight we are suggesting a trigger to buy calls at $36.30.

*Small positions to limit risk* - Suggested Positions -

Long AUG $40 CALL (INSY150821C40) entry $3.40

07/01/15 triggered @ $36.30
Option Format: symbol-year-month-day-call-strike


Under Armour, Inc. - UA - close: 84.59 change: +0.33

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: -30.4%
Average Daily Volume = 2.0 million
Entry on June 26 at $86.05
Listed on June 23, 2015
Time Frame: Exit prior to August expiration
New Positions: see below

07/04/15: UA continued to bounce from Monday's sell-off. The stock managed to outperform the major indices with a +0.39% gain on Thursday. I am suggesting readers wait for a rally past $85.00 before considering new positions.

Trade Description: June 23, 2015:
UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitnessplatform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it is actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but UA grew +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance.

UA reported their 2014 Q4 results on February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

There was a steady stream of analysts raising their price targets on UA after its February earnings report. Many of these new price targets were in the low $90s ($91-94).

The company's most recent earnings report was April 21st when UA announced Q1 results. After raising guidance back in February the company reported earnings of $0.05 per share, which was in-line with Wall Street's new estimates. Revenues were up +25.4% to $804.9 million, which beat expectations. UA management raised their outlook again. They expect 2015 operating income to improve +13-to-15%. UA expects 2015 revenues to rise +23% to $3.78 billion.

The stock has rallied sharply into its earnings report and shares suffered some post-earnings depression with a -$12.00 drop (-13.6%) in the following two weeks. The price target upgrades continued but UA spent most of May consolidating sideways inside a narrow range. Finally on June 5th shares of UA broke out past multiple layers of resistance on another upgrade. The stock was upgraded to a "buy" with a $91 price target.

UA spent about a week digesting its bullish breakout and then took off. The company recently announced a 2-for-1 stock split. However, instead of a normal split the company is creating a new Class C stock which will have no voting rights.

Why a new class of shares? That's because the company's founder and current CEO Kevin Plank does not want to lose control. This way he can maintain control by keeping his voting shares while still selling the new Class C shares. Just in case you were curious, Class A UA stock has one vote per share. Class B stock has ten votes per share, which Plank owns the majority of.

This stock "split" will be disbursed as a dividend. There's no word yet on the new ticker symbol for the class C shares. There is a special meeting of UA shareholders on August 26, 2015 to approve the necessary changes so they can proceed with this stock split. Google did a similar stock split back in 2014 so the founders could maintain control. Both GOOG's and UA's decision has rankled some shareholders. However, normally stock splits tend to be viewed as a bullish move since stocks don't split if they're not rising. Stocks that split tend to outperform the broader market.

Tonight we are suggesting a trigger to buy calls at $86.05. More conservative traders may want to consider waiting for a dip instead. The nearest support is $82.00. We'll start with a stop loss at $81.75.

- Suggested Positions -

Long AUG $90 CALL (UA150821C90) entry $2.30

06/26/15 triggered @ $86.05
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

iShares Transportation - IYT - close: 145.50 change: +0.25

Stop Loss: 150.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 397 thousand
Entry on June 29 at $146.90
Listed on June 27, 2015
Time Frame: exit PRIOR to August expiration
New Positions: see below

07/04/15: Declines in crude oil prices over the last couple of trading days should have been bullish for the transports. Yet the IYT is struggling to bounce. The ETF has been churning sideways in the $144.50-146.50 range the last few days.

Broken support near $148.00 should be new resistance. More conservative traders may want to use that as a guide to adjust their stop loss. Tonight I am suggesting readers hesitate before launching new positions. Let's see what happens on Monday.

Trade Description: June 27, 2015:
The transportation stocks have been a sore spot for the wider bull market. Year to date the Dow Industrials are up +0.7% while the S&P 500 index is up +2.0%. Yet the IYT transportation ETF is down -10% in 2015 and down -12% from its all-time highs set in November 2014.

The IYT is the ETF that tracks the Dow Jones Transportation Average. Both have 20 stocks in them. The biggest components are railroad and trucking companies. Here's the full list of components: FDX, UPS, UNP, KSU, NSC, R, LSTR, JBHT, ALK, CHRW, KEX, UAL, EXPD, CAR, DAL, CNW, MATX, LUV, CSX, and JBLU.

Airlines grabbed a lot of headlines in the last several weeks as their stocks fell sharply. Investors are worried that the airlines will build up too much capacity and oversupply the market forcing them to lower fares and slash their profitability.

Railroad stocks are suffering on multiple fronts. The plunge in crude oil has wiped out demand for drilling new wells. That means less demand to move equipment and less demand for proppants (like fracking sand). Plus coal demand is falling.

Delivery stocks have struggled as well. FedEx (FDX) recently reported earnings that missed expectations on both the top and bottom line. Their previous earnings report the company lowered their 2015 guidance. Back in January UPS lowered their 2015 guidance and their most recent report saw revenues below estimates. The big railroad companies have been missing earnings and lowering estimates as well.

There has been a lot of attention given to the bearish divergence between the transportation stocks and the Dow Industrials. Thus far the broader market has ignored this weakness in transports. Traditionally investors viewed the transports as a thermometer of the market's health. If transports were seeing a healthy business then the economy was healthy. If transports were struggling then the economy was or would struggle. For decades there was a pretty good correlation between the two. These days there has been some doubt over how much this relationship still exists, especially since so much business takes place online.

Tonight we're not arguing if the transports are signaling a decline for the market or the economy. Instead we're looking at the transports themselves and focusing on the IYT. The ETF is clearly underperforming. It looked like it might bottom with support near $148.00. Unfortunately for the bulls the IYT just broke down under this support level. The next support could be down near its October 2014 lows in the $137-138 area. The point & figure chart is suggesting a target of $139.00.

We want to take advantage of this breakdown. Tonight we're suggesting a trigger to buy puts at $146.90. Plan on exiting prior to the August option expiration.

- Suggested Positions -

Long AUG $145 PUT (IYT150821P145) entry $3.50

06/29/15 triggered @ $146.90
Option Format: symbol-year-month-day-call-strike


Southwest Airlines Co. - LUV - close: 32.51 change: -0.11

Stop Loss: 35.45
Target(s): To Be Determined
Current Option Gain/Loss: +17.6%
Average Daily Volume = 7.9 million
Entry on June 16 at $33.85
Listed on June 15, 2015
Time Frame: Exit prior to earnings in late July
New Positions: see below

07/04/15: The market is still reacting to Wednesday's news about a U.S. government investigation into potential collusion among the major airlines. However, LUV didn't see a lot of movement on Thursday.

On Thursday night LUV announced it had reached a tentative agreement with the flight attendants union that would last until May 2019. Details were not disclosed but the company has been negotiating with the union for more than two years. This is a potentially bullish headline but we'll see if it can overpower the collusion story in the week ahead.

Don't forget that this week we'll hear June traffic numbers from most of the industry.

Trade Description: June 15, 2015:
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.

- Suggested Positions -

Long SEP $33 PUT (LUV150918P33) entry $1.87

06/22/15 new stop @ $35.45
06/16/15 triggered @ $33.85
Option Format: symbol-year-month-day-call-strike


SM Energy Company - SM - close: 43.53 change: -0.19

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: -9.1%
Average Daily Volume = 1.6 million
Entry on June 19 at $44.49
Listed on June 13, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

07/04/15: SM looks like a bearish candidate again. The prior week shares produced an oversold bounce but the rally failed at its 20-dma. Shares of SM have retreated back to its June lows. The stock is down seven out of the last eight weeks.

Wednesday's low was $43.44. I am suggesting a trigger to buy puts at $43.35.

More conservative traders may want to lower their stop closer to the $47.00 level.

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.

- Suggested Positions -

Long AUG $40 PUT (SM150821P40) entry $1.65

06/23/15 new stop @ 48.75
06/19/15 triggered on gap down at $44.49, suggested entry was $44.90
Option Format: symbol-year-month-day-call-strike



Aetna Inc. - AET - close: 125.51 change: -3.39

Stop Loss: 125.85
Target(s): To Be Determined
Current Option Gain/Loss: +84.8%
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

07/04/15: AET succumbed to profit taking on Thursday and shares fell -2.6%, hitting our stop loss at $125.85 in the process.

Over the weekend AET and HUM finally agreed to a deal. AET is buying Humana (HUM) for $37 billion in cash and stock. Headlines about a potential deal have been swirling for days. This announcement marks the largest deal in the insurance industry ever. The merger does need to be approved by government authorities who will examine it for antitrust issues.

- Suggested Positions -

OCT $125 CALL (AET151016C125) entry $4.34 exit $8.02 (+84.8%)

07/02/15 stopped out
06/25/15 new stop @ 125.85, healthcare stocks rally on SCOTUS decision
06/20/15 WSJ reporting that AET has made a bid for HUM 06/16/15 new stop @ 119.85
06/15/15 triggered @ $118.75 thanks to M&A speculation
Option Format: symbol-year-month-day-call-strike


Sirona Dental Systems - SIRO - close: 99.96 change: -0.76

Stop Loss: 99.65
Target(s): To Be Determined
Current Option Gain/Loss: -51.7%
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

07/04/15: SIRO displayed relative weakness on Thursday. Shares failed near the $101.00 level early in the session and then reversed lower. The stock broke support near $100 and hit our stop loss at $99.65 midday.

*small positions to limit risk* - Suggested Positions -

SEP $105 CALL (SIRO150918C105) entry $2.90 exit $1.40 (-51.7%)

07/02/15 stopped out
06/23/15 new stop @ 99.65
06/15/15 triggered @ $101.05
Option Format: symbol-year-month-day-call-strike



Entergy Corp. - ETR - close: 71.88 change: +0.43

Stop Loss: 72.55
Target(s): To Be Determined
Current Option Gain/Loss: -64.7%
Average Daily Volume = 1.2 million
Entry on June 26 at $69.25
Listed on June 25, 2015
Time Frame: Exit PRIOR to earnings on August 4th
New Positions: Yes, see below

07/04/15: ETR has not cooperated. After breaking down under support near $70.00 a few days ago the stock has reversed higher. Shares are up four of the last five days. Thursday's rally broke through short-term resistance near $72 and hit our stop loss at $72.55.

- Suggested Positions -

AUG $67.50 PUT (ETR150821P67.5) entry $1.70 exit $0.60 (-64.7%)

07/02/15 stopped out @ $72.55
06/30/15 ETR saw a surge in volume today
06/26/15 triggered @ $69.25
Option Format: symbol-year-month-day-call-strike