Option Investor

Daily Newsletter, Monday, 7/6/2015

Table of Contents

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

Market Wrap

Global Markets Slip On Greece

by Thomas Hughes

Click here to email Thomas Hughes
Global markets slip on the results of Greece' no-vote to austerity measures.


Somewhat surprisingly Greece voted no in the referendum on Sunday and sent global markets into a nosedive. The nosedive wasn't unexpected, it was the no vote that was a little surprising to me. I think others felt the same, Indices from Asia to the Americas fell on the news, with one notable exception. The mainland Chinese Shang Hai index gained 2.5% following announcements from the government they would be taking measures to help support the local market and long term investors.

Here's a quick recap of Greek developments today. Following the vote Greek finance minister Varoufakis resigned, apparently from pressure from PM Tsipras in order to help smooth out the next step he plans to take. The Greek banks remain closed and the limit for withdrawal has been lowered to 50 euros, the ECB says no change to its help with liquidity, and there no sign of when they may reopen. PM Tsipras has announced he will be coming to the the negotiating table with a new proposal tomorrow. Angela Merkel says any new offer must be on the table this week and seems willing to talk. The IMF says they stand ready to aid Greece, but hands are tied until they get current with loan obligations. Tomorrow a summit of creditors is scheduled that may also be reviewing a Greek proposal.

Market Statistics

US index futures took a big hit in overnight trading. The Dow was indicated down by as much as 200 points at one time but that moderated into the morning hours. The early pre-market session saw declines of -153 for the Dow Jones Industrials, -17 for the S&P 500 and -35 for the NASDAQ. These levels held into the opening bell and precipitated a -20 point drop for the SPX in the first few minutes of open trading.

The initial sell-off did not move quite as low as the futures indicated. Support came into the market within the first 5 minutes of trading and drove the indices back to break even and then into positive territory by 11AM. The push into positive territory brought the bears back into the action. They were able to drive the indices back below break-even and eventually down near the early low. These lows turned out to be support and sparked another bounce that lasted into the close of trading. The market was able to recover most of the daily loss but not all, closing with losses in the range of -0.50%.

Economic Calendar

The Economy

Only one economic release today, ISM non-manufacturing index. The index rose, as expected, to 56 from a previous 55.7. All segments within the report are expansionary although labor market expansion has slowed. The business index gained 2% to 61.5, new orders rose 0.4% to 58.3 and employment fell -2.6% to 52.7. Prices paid also remain above the expansionary 50 mark but have moderated their rate of pace.

Moody's Survey of Business Confidence slipped -1.5 points to 40.8. This is the fifth week of decline but the index remains near recent all time highs and above levels seen during the 2008 housing bubble. This week's decline may be explained away by the holiday shortened week but we will have to wait until next week to know for sure. According to Moody's chief economist Mark Zandi business confidence remains strong with "robust" employment and business spending in the US.

According to FactSet the expected blended rate for S&P 500 2nd quarter earnings growth is -4.5%. This is slightly higher than -4.6% last week but still well below the -2.1% predicted at the beginning of the quarter. So far 21 companies have reported with 14 beating estimates for EPS and 10 beating estimates for earnings. There are 3 companies reporting this week, including Alcoa. Looking at the expectations ex-energy the expected growth rate is +1.9% and could go as high as +6% if the four year averages hold true. Third quarter earnings are also still expected to show mild decline but I am looking for that to change over the next few weeks as 2nd quarter earnings are released. The full year 2015 is expected to see growth of 1.5%, 2016 is expected to be near 11.9%, both of these estimates have fallen in the last week.

The Oil Index

Oil prices finally succumbed to the pressures of over supply and under demand. WTI and Brent both fell, WTI nearly -7.5%, Brent just over -6%, as the summer driving season peaks, rig counts increase and Iran supply hovers on the edge of the market. The Greece referendum and surprise moves in China may have been the triggers and helped to extend the drop but the Iran nuclear deal has the biggest impact on supply/demand issues driving prices, after counting in high storage production levels around the world. The Iran deal could add a million barrels of supply to an already well supplied market so tomorrow's deadline is being watched closely. Latest reports say no deal is at hand and the deadline may be extended.

The oil sector took a hit but not near as bad as you might think, given a 6% drop in the underlying commodity. The Oil Index lost only about -1.25% after a much lower opening and in the face of the late day route in the oil pits. Today's action opened below the long term trend line and created a white candle that moved up, counter to the day long slide in oil. The indicators are pointing lower in the near term suggesting that support will be tested further with a possible fall below the trend line. Looking out over the short to long term the indicators remain consistent with uptrend and potential support along the trend line. Falling oil prices and 2nd quarter earnings outlook, along with global headlines, may continue to put pressure on gold as we get into earnings season. Outlook into the end of this year and next remains positive so I think the trend will remain up making today's drop below trend an attractive entry point. JPMorgan may agree, they upgraded BP from neutral to overweight.

The Gold Index

Gold prices rose today as flight to safety trades and long term outlook overpowered the affects of a stronger dollar. Gold rose nearly a full percent in today's action to move up from last week's low. Prices remain above the 4 month low and are currently bouncing higher within the range. The play by play with Greece will continue to affect day to day prices but the big catalyst for the week is likely to be the FOMC minutes on Wednesday. I still see a win-win scenario for bulls in that a hint of later rate hikes is likely to weaken the dollar and lift gold, and a hint of sooner rate hikes implies inflation and could wind up lifting gold.

The Gold Miners got a lift from today's rise in gold prices. The miners ETF GDX gained nearly 2% in a move that came up to challenge resistance at $18. This resistance is coincident with the bottom of both the support line drawn from the March 31st bottom and my rising trend line. Today's action created a strong white candle that formed a bullish piercing pattern swallowing up the prior three days of candles. The indicators are mixed. MACD is bearish, weak and nearing the zero line while stochastic is has just made a bullish crossover with %D pointing lower and extremely oversold. A break above $18 would help to confirm support and my longer term bullish stance on the sector. If so this move could take the index toward the to of the range near $20. A failure could take the it down to the long term low near $16. Randgold Resources received an upgrade from hold to buy which could help add lift to the sector.

In The News, Story Stocks and Earnings

Amazon made headlines early in the day as it tries to create its own holiday. The online retail behemoth is offering a host of deals, scheduled for July 15th, and targeted at its Prime customers. According to reports the company is expecting to "bury Black Friday" with more and expanded deals from the traditional shopping holiday. Non Prime members can sign up for a trial and get access to the deal. This move is not surprising, it follows in the footsteps of Ali Baba's highly successful Singles Day and just about every other mass market holiday in the US. I'm sure it will be a success, they will sell billions of dollars of merchandise, how it will impact business going forward is being debated. The news may have helped the stock in today's session, it only fell about a half percent and held above the short term moving average.

Alcoa reports earnings on Wednesday and kicks off the start of the earnings reporting season. The aluminum giant is not expected to produce stellar results as it has been facing strong headwinds. Number one is affect of strong dollar and currency conversions which is expected to be large. Along with this is tepid demand, down to +6% this year from +9% last year. The consensus estimate is EPS of $0.23, down from the previous quarter but up from the same quarter last year. Today the stock fell about -1% and set a new 15 month low.

Kuerig Green Mountain got another downgrade today, this time from Suntrust. Their target is in line with previous downgrades putting fair value in the rang of $70. The stock fell nearly -4% on the news hitting a new 18 month low. The indicators are weak and confirming further downside with a bearish stochastic crossover and strengthening bearish momentum. GMCR reports earnings in one month on August 5th.

PriceSmart is scheduled to report on Thursday. The membership discount retailer is scheduled to report $0.70, in line with the previous quarter. The last quarter report saw a +11% increase in sales that has been followed up by double digit increases in monthly sales each month since. The company has also announced the opening of a new club store in Nicaragua of all places that should help the bottom line. Shares of the stock lost a little over -0.60% in today's session, creating a small doji/spinning top about 2% below potential resistance.

The Indices

The bulls and bears were fighting it out until the end of the day but the bears were dominant. Today's move was led by the transports, which closed with a loss of -0.54%. The sector remains under pressure despite upgrades and low oil prices and set a new 9 month low. Today's action created a long-legged candle, not a doji but clearly a sign of mixed emotions concerning the market. There is some indication of support around the 8,050 level and just above 8,000 but the indicators are still pointing lower so those level could be easily reached and/or surpassed. Downside target should the index begin to move lower and break 8,000 is 7,750.

The S&P 500 was the next largest decliner in today's session. The broad market fell -0.39% in a move that tested support at last week's low and bounced back. The index created a hammer-like candle with small body and long lower shadow that at once highlights downside pressures carrying over from last week and support near 2,060 at the same time. The indicators are pointing lower at this time, suggesting that support levels could be tested again in the least. Momentum remains weak and stochastic %K is bouncing so support in the 2,050-2,060 range looks like it could be strong. A break below here could lead to correction to trend with a target near 2,000.

The NASDAQ Composite shed -0.34%, coming third in today's decline. The tech heavy index created a white bodied candle with a long white wick between my long term trend line and the previous all time high near 5,042. Today's action is the 5th since falling below the short term moving average and the described range. The index appears to be in a little consolidation that could go either way. A break below the trend line could go as low 4,750 in the near to short term with a break above resistance finding next resistance near 5,160. The indicators are pointing lower in the near term but remain consistent with the ongoing up trend over the short to long term. Tomorrow may also be affected by an after hours guidance revision, negative, made by AMD. The company now sees revenue down -8% rather than the previously expected -3%.

The Dow Jones Industrial Average fell only -0.25% after it tested support near 17,600. The blue chips created a black candle falling from previous support now resistance but were halted by last week's low. This low is coincident with the March lows and is looking like a possible bottom to the near term down draft in the market. The indicators remain bearish as with the other indicators but also show signs of possible support in declining bearish MACD and bouncing %K on stochastic. Support looks likely to be tested with a possible break through carrying a target near the long term trend line near 17,500.

The bulls tried to bounce back from today's drop but just couldn't do it. The catalyst was Greek referendum but I think that was more likely an excuse than a real scare. In other words, I think it no coincidence the market has been selling off over the past week with earnings season set to start two days from now. Greece, Iran and China are all geopolitical in nature, all have potential to affect the US economy but are also issues that have been plaguing us for years, if not longer. In that time none of them has caused a global melt-down and all the while we have been recovering and expanding. News may help to push the indices lower in the near term but long term outlook remains bullish and in line with the trends.

We won't get a lot of data or earnings this week but by the end of next week we should have a pretty good picture of how earnings season is going to be and whether or not the summer is seeing the expansion we have been looking for. This week the FOMC minutes is top on my list of known events, I say known eents because Greece and maybe Iran will be top headline makers but who knows when or what those will say. Earnings is dominated by Alcoa on Wednesday, followed up by Pricesmart, Walgreens and Pepsico on Thursday. Alcoa might not be that great but as always it will be the forward outlook that is more important. Next week the big banks report, along with quite a few big names in the industrial, consumer, technology and transportation sectors so it is bound to be active.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Crude Oil Continues To Slide

by James Brown

Click here to email James Brown


Concho Resources - CXO - close: 107.39 change: -4.98

Stop Loss: 112.50
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.4 million
Entry on July -- at $---.--
Listed on July 06, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: Yes, see below

Company Description

Trade Description:
It has been a bumpy ride for energy stock traders over the last year. That's especially true for CXO investors. The stock fell from $148 to $80 in less than five months last year. CXO bottomed in December 2014. The stock managed a big bounce from $80 to $130 in the next five months but that rally is over with a big reversal on the company's Q1 earnings report in early May.

CXO is in the basic materials sector. According to the company, "Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. The Company's operations are primarily focused in the Permian Basin of southeast New Mexico and west Texas."

The last couple of quarters have seen CXO's revenues decline. They reported their 2014 Q4 results on February 25th. Earnings were 88 cents a share, which was four cents above estimates. Yet revenues fell -6.0% to $594 million, way below estimates. Their 2015 Q1 results were announced on May 4th. Earnings per shares was $0.06. That was 17 cents worse than expected. CXO's revenues plunged -37.4% to $413.5 million, another big miss. The stock reacted to this news with a spike higher that quickly reversed.

Today the oil stocks are suffering as the commodity sinks due to over supply concerns. The weekly Baker Hughes active rig count just turned positive two weeks in a row after a 28-week decline. This would suggest the pullback in the industry is over and the market has found a temporary equilibrium that will allow domestic companies to start launching new oil and gas rigs again. This will continue to boost supply and pressure prices lower.

A bigger problem could be the Iran nuclear negotiations. If Iran does sign a deal with the West then sanctions could be lifted that would allow Iran to sell up to one million barrels of oil per day on the global market. Sources suggest Iran already has dozens of crude oil tankers filled up and ready to go if the sanctions are lifted. This is one reason crude oil has been plunging the last few days. The current deadline (and there have been many) is tomorrow, July 7th. If Iran signs a deal then oil will likely drop again. If they don't then oil could bounce. If talks are postponed again then I suspect the prevailing trend, which is down, will remain in effect for oil and the oil stocks.

CXO has technically broken down below support near $110 and its 200-dma. The point & figure chart looks very bearish and is currently forecasting an $89 target. Tonight we're suggesting a trigger to buy puts at $106.90.

Trigger @ $106.90

- Suggested Positions -

Buy the AUG $105 PUT (CXO150821P105) current ask $4.40
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

Point & Figure Chart:

In Play Updates and Reviews

Stocks Suffer Mild Losses

by James Brown

Click here to email James Brown

Editor's Note:

The reaction to the Greek's no vote on Sunday was limited. Stocks initially sold off this morning but traders quickly bought the dip. Unfortunately for the bulls the bounce didn't last long either and the major market indices rolled over into negative territory.

FB hit our entry trigger.

Current Portfolio:

CALL Play Updates

Cracker Barrel Old Country Store - CBRL - close: 152.17 change: +1.28

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

07/06/15: CBRL quickly bounced off its morning lows in the $149.50-150.00 region. Shares managed to outperform the broader market with a +0.8% gain. The stock looks poised to rally tomorrow.

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: 115.70 change: +0.73

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +47.8%
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

07/06/15: Traders also jumped in to buy the dip in DIS this morning. Shares tagged technical support at the rising 10-dma and quickly rebounded to a new all-time high. DIS outperformed the broader market with a +0.6% gain. This move can be used as a new bullish entry point to buy calls.

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: 70.09 change: -1.06

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: -26.1%
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

07/06/15: Hmm... the action in DWRE today is worrisome. The stock bounced off its morning lows near $70 but the rally failed at $72. DWRE reversed lower and underperformed the market with a -1.48% decline.

Tonight we're moving our stop loss up to $68.65.

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

07/06/15 new stop @ 68.65
06/22/15 triggered @ $72.35
Option Format: symbol-year-month-day-call-strike

Facebook, Inc. - FB - close: 87.55 change: +0.27

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -9.5%
Average Daily Volume = 24.5 million
Entry on July 06 at $88.15
Listed on July 04, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: see below

07/06/15: Our brand new trade on FB is open. Shares bounced off its morning low near $86.50. FB briefly traded above short-term resistance near $88.00 and hit our suggested trigger at $88.15.

FB did retreat from its midday high but traders were buying the dip late this afternoon. I am suggesting readers wait for a new rally past $88.15 before initiating new positions.

Trade Description: July 4, 2015:
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.

- Suggested Positions -

Long AUG $90 CALL (FB150821C90) entry $2.84

07/06/15 triggered @ $88.15
Option Format: symbol-year-month-day-call-strike

Cyber Security ETF - HACK - close: 30.77 change: -0.44

Stop Loss: 30.45
Target(s): To Be Determined
Current Option Gain/Loss: -55.6%
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

07/06/15: Our HACK trade is in trouble. Shares have broken down below support at $31.00, support at its 50-dma, and support at its five-month trend line of higher lows.

More conservative traders may want to exit immediately. Tonight we're moving our stop loss up to $30.45. No new positions at this time.

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

07/06/15 new stop @ 30.45
06/30/15 triggered @ $31.55
Option Format: symbol-year-month-day-call-strike

INSYS Therapeutics - INSY - close: 36.50 change: +1.00

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: -48.5%
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

07/06/15: INSY displayed relative strength on Monday. Shares rallied off their morning lows near $35.00. INSY rose toward short-term resistance near its 10-dma (coincidentally near $37.00) before paring its gains. The stock settled up +2.8%.

I would consider new bullish positions here. More conservative traders may want to wait for a rally past $37.00 instead.

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: 84.58 change: -0.01

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

07/06/15: UA spent most of Monday churning sideways in the $84-85 range. The stock closed virtually unchanged on the session, which is a small victory for the bulls since the major indices trended lower today.

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: 144.68 change: -0.82

Stop Loss: 150.25
Target(s): To Be Determined
Current Option Gain/Loss: +8.6%
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

07/06/15: IYT tried to bounce this morning and made it as high as $146.38. Thankfully the rally reversed and IYT dipped to new relative lows before settling with a -0.5% loss.

I would consider new positions here. As an alternative readers could wait for a drop below $144.00 as an entry point.

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: 33.03 change: +0.52

Stop Loss: 34.05
Target(s): To Be Determined
Current Option Gain/Loss: +4.3%
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

07/06/15: Last week we started to hear some analysts defending the airline stocks, suggesting the correction from the 2015 highs was overdone. There were more bullish analyst comments on the airline stocks today. Plus another big drop in crude oil prices today is bullish for the airlines, since it should forecast lower jet fuel prices. The combination helped LUV rally +1.5%.

Tonight we are adjusting our stop loss down to $34.05.

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

07/06/15 new stop @ 34.05
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: 41.98 change: -1.55

Stop Loss: 45.25
Target(s): To Be Determined
Current Option Gain/Loss: +21.2%
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

07/06/15: Today's drop in crude oil pushed the oil stocks lower and SM fell -3.5% to new three-month lows. Tonight we are moving our stop loss down to $45.25.

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

07/06/15 new stop @ 45.25
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