Option Investor

Daily Newsletter, Monday, 7/27/2015

Table of Contents

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

Market Wrap

Monday Blahs Hit Market

by Thomas Hughes

Click here to email Thomas Hughes
The market opened with the Monday blahs as global woes weigh on stocks.


US markets had a rough day today as global woes, earnings and another FOMC meeting weigh on sentiment. Today's blame is mostly focused on China where mainland indices fell more than -8%. The drop, fueled by massive amounts of speculation and ongoing government action to stabilize markets, helped to subdue trading around the world as fears of slow-down and hard-landing for China are renewed.

The Japanese Nikkei fell nearly -1% on the China sell-off while indices in Europe closed with a loss near -2%, aided by Greece. A new round of negotiations has begun amid the usual theatrics I have come to expect from this arena. According to reports Greek officials remain stand-offish toward troika representatives as the next payment deadline bears down on them. Negotiators are reportedly in Greece and preparing for talks later this week.

Market Statistics

Futures trading indicated a sharply lower opening in the early portion of the pre-opening session. This held steady for the morning and was not aided by a better than expected read on Durable Goods orders. At the open indices fell hard to hit potential support levels by 9:45AM. The market bounced at that point but was not able to regain all of the initial losses. From then on the market trend sideways within a relatively narrow range up to and through the lunch time hour.

Afternoon trading was much the same. The indices drifted sideways in the middle of the days range until about 2:30, at which time they began to drift lower. By 3:30 they had retreated to hit a an afternoon low just above the morning low. The last half hour of trading saw the indices hover just above the afternoon low before a small bounce into the close of the day.

Economic Calendar

The Economy

Only one economic report today, Durable Goods. The headline number of 3.4% was better than expected but comes with a grain of salt. The previous month was revised lower to -2.2% from -1.8%. Analysts had been predicting durables to rise in the range of 3%. This month's gains are driven primarily by robust demand for passenger planes but other areas are expanding as well. Ex-transportation orders rose by 0.8% and on the core level capital goods rose by 0.9% although overall shipments remains flat. On a year-to-date basis core capital goods are down -3.4% compared to this same time last year.

The week is light in terms of number of reports if not so much in terms of weight. Tomorrow is the Case-Shiller real estate market report along with Consumer Confidence. Wednesday is dominated by the FOMC meeting but also includes Pending Home Sales. Thursday is weekly jobless claims along with the first read on 2nd quarter GDP.

Friday wraps it up with Chicago PMI, Employment Cost Index and Michigan Sentiment. Next week is the beginning of a new month which means a new round of monthly macro-economic data including ADP, Challenger, NFP and Unemployment reports along with auto/truck sales, construction spending and a handful of other significant data points.

Moody's Survey Of Business Confidence remains strong. The diffusion index gained 0.1% to hit 41.0%, the second week of increase after hitting a low three weeks ago. According to Moody's economist Mark Zandi the survey shows that sentiment is positive around the world, most notable in the US where sales, pricing, business investment and hiring are all strong.

According to FactSet 187 or 37% of S&P 500 companies have reported earnings so far this season. Of those who have reported 76% have beaten EPS estimates and 54% have beaten sales/revenue estimates. The blended rate of EPS growth has improved to -2.2%, up from the -4.8% predicted at the beginning of the reporting season. 9 of 10 sectors, led by telecom and energy, are reporting better than expected with Exxon and Chevron scheduled to report on Friday.

The current earnings surprise rate is +4.5% better than expected, slightly ahead of the 1 year average and slightly below the 4 year average. At this rate we can expect earnings growth to be very near to 0% by the end of the reporting season.

Energy remains the weakest link in the earnings chain. Ex-energy the blended rate moves up to +4.1% for the quarter. Looking out to the third quarter S&P 500 earnings growth is expected to remain negative, -2.2%, with an ex-energy projection of 3.8%. The energy sector is expected to decline near -50% for the quarter and the year. 2016 estimates remain robust but have moderated from +11.9% to +11.3% for the broad market and near +30% for the energy sector.

As always, forward outlook and guidance will be very important for the market moving forward. At this time 27 companies have issued guidance, 20 negative and 7 positive. There are 174 or 25% scheduled to report earnings this week.

The Oil Index

Oil prices fell another -2% as supply outweighs demand. WTI fell -2.4% to a 5.5 month low in today's session, led by a -2.7% drop in Brent. News reports are only adding to over-supply worries so I do not anticipate a bounce at this time. US rig counts have started to rise after hitting their low a month or so ago, Russia and Saudi Arabia are pumping as much as they can get out of the ground and Iran is gearing up to start selling its stockpiles. Also, poor growth expectations in China are not helping to support prices as fears of slowdown in that region persist. Oil prices could be moving down to retest long term lows seen earlier this year, near $43 for WTI.

The Oil Index fell 2.2% in today's session as the underlying commodity hit a new low. The index is now trading at a near 3 year low and below the 50% retracement of the 2009-2014 bull market in oil. The drop is driven in part by the fall in oil prices but also due to poor earnings results/expectations for this quarter and year. The sector is reporting better than expected but still down around -40% from last year which could keep selling pressure on until near-to-short term outlook improves. The indicators are pointing lower although stochastic has yet to fall below the lower signal line with target for support near 1,120 and the 61.8% retracement level. Long term outlook remains positive so this could be setting up the buying opportunity I have been waiting for. We'll get important earnings reports from Exxon and Chevron later this week.

The Gold Index

Gold prices gained about 1% in today's session but remain below $1100. Prices are being hurt by weakness in China as well as Fed speculation and interest rate time-line. A rise in rates is expected to lift the dollar, which lost about -0.8% today, and could pressure gold lower in the near to short term. Meanwhile inflation expectations remain tepid, leaving gold at a 5 year low, despite my views to the contrary.

The gold miners lost ground today as well. The drop in gold to new 5 year lows has blown earnings expectations going forward right out of the water. The Gold Miners ETF GDX tried to bounce back from Friday's low but ending up closing with a loss near -2% from last week's close. The ETF is trading below the 100% retracement level of the 2008-2011 bull market in gold and in danger of moving lower. Indications on both the weekly and daily charts are weak and moving lower suggesting prices will continue to move lower as well. Price action and increased volume also support the idea of capitulation in the market and could be presenting the entry point I have been watching for. The FOMC and earnings will tell the tale. Goldcorp reports earnings on Friday, Barrick Gold, Anglo Gold Ashanti, Randgold and Royal Gold all report next week.

In The News, Story Stocks and Earnings

Restaurant Brands International reported earnings before the bell. The results, better than expected, lifted the stock making it one of the few to trade positive in today's session. EPS of $0.30 was 10% better than projected driven on strong comp store sales and new store growth. The two primary brands, TM Hortons and Burger King, saw comp store sales growth of 5.5% and 6.7% respectively with new store growth of 52 and 141. Total sales gains were 8.4% for TM Horton and 11.6% for BK. Company exec Daniel Schwartz says company positioning should continue to provide value to stakeholders through the end of the year. The stock gained more than 3% in intraday trading and closed with a gain near 3%. Today's action created a pin-bar candle and closed beneath the$42.50 resistance line. QSR has been trading since mid-December 2014 after the merger of TM Horton and Burger King.

Rail carrier Norfolk Southern reported earnings of $1.41 per share this morning. The results are -23% lower than last year in the 2nd quarter and due mostly to fuel-surcharge (lack of) and coal headwinds, according to company CEO. If you remember, many of the rail carriers reported record earnings in 2014 driven by surcharges covering high fuel costs as well as high volumes of coal and natural gas. Despite the miss he also says that the company is positioned for growth citing trends in intermodal shipping, consumer spending and housing. Shares of the stock opened at a new 1.5 year low but were able to move higher from there. Price moved into positive territory briefly but closed with a loss of -0.2%.

Fiat Chrysler was fined a record $105 million dollars for its actions concerning recalls affecting millions of its vehicles. The Transportation Secretary says the company has made multiple blunders in its handling of recalls. He is putting the entire industry on notice that he will act if they do not take safety recalls seriously. This is only the latest of several developments that have put Fiat Chrysler in the spot light over safety concerns, the most notable before this the Takata air-bag recall. Shares of the stock lost about -4.25% in today's session. The company is expected to report earnings Thursday.

Baidu released earnings after the bell. The Chinese language search engine beat on the top and bottom lines but gave weak guidance and sent shares plunging 12% in after hours trading. Total revenue for the period increased over 38% with half of that coming from mobile. The company says it is positioned to grow but the weak guidance was not well received in light of recent market activity in China. Current projections call for another 34.7%-37.4% year-over-year increase.

The Indices

The market was weak today but it did not fall completely apart. Today's action is within recent ranges and largely precipitated by the fall in China, and anticipation of the FOMC meeting. Believe it or not we are waiting on the July policy meeting, a meeting fully on the table as a possibility for rate hike but largely expected to be another pass. What is expected from the statement is talk about the economy and indications of when the hike will or may come. Janet Yellen has said she is in favor of a 2015 hike so we can be sure it will be soon.

The NASDAQ Composite led today's decline with a fall of -0.96%. Price action created a small bodied candle, at a support line, with a small amount of upper wick. The candle is also below the short term moving average with declining indicators consistent with a bearish swing within the prevailing long term uptrend. The 5039 level could provide support tomorrow but the long term trend line, just below 5000, looks like a more likely target. The trend is still up and I believe we are bottoming/exiting an earnings trough so a dip to the trend line should present another buying opportunity provided. Stochastic and MACD are both showing strength but retreating in the near term. These need to be watched for signs of support as the index retreats to the trend line.

The Dow Jones Industrial Average lost -0.73% and has retreated to its trend line. It has also set a new 6 month low but remains within the 2015 trading range. The indicators are pointing lower but largely support range bound trading at this time. The trend line could be broken in the next day or two of trading with 17,250 and the bottom of the 2015 range as target for support.

The S&P 500 made the next largest decline, -0.58%. The broad market index closed near the low of the day but bounced off the 2061 support line twice in intraday action. It is also still well within its 2015 trading range and indicated lower in the near term. In the short term upside momentum has been growing over the past few moves up to test resistance and has left stochastic showing strength. This set-up could lead to a strong upward movement when momentum shifts back to the upside. Until then 2050 to 2060 looks like active support, if broken the index could fall to the long term trend line near 2000.

The Dow Jones Transportation Average made the smallest loss today, only -0.16%. This is perhaps because of positive forward outlook given by rail carriers and truckers. Today's action created a very small bodied candle that may otherwise just be spinning top except for where it is occurring. The index is testing for support at the 20% correction level hit earlier this month. The indicators are rolling over into a bearish crossover that could lead to lower prices so this level needs to be watched carefully.

The indices are trading within their ranges wrestling, still, with near term woes and ongoing economic recovery. The woes are largely overseas and affecting only a small portion of US business, the ongoing economic activity still slow but gaining ground all the time. In between are earnings and expectations; the near term reality not so good but so far better than expected, the longer term expectations is for improvement to point of being robust. In the end a combination that could keep the indices in their ranges until something changes.

At least one possibility for change occurs this week, the FOMC meeting on Wednesday afternoon. Another is the 25% of S&P 500 and 30% of Dow Industrials scheduled to report earnings this week. Another is economic data in the form of GDP, which is expect to swing from -0.2% to 2.6%. The FOMC statement could be the same as has been but I think we might see at least a little new verbiage. Earnings trends are unfolding as expected, so far, and I don't see much chance of this changing. Exxon and Chevron may be the most important of the week although there are numerous important names on the list. As for GDP, economic data has been steady and positive at least so should come in close to expectations. A big miss would not be good and could send the market testing support levels. And set us up for revisions in the future. Basically, this week could see a lot of activity.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Beating Estimates & Raising Guidance

by James Brown

Click here to email James Brown


Under Armour, Inc. - UA - close: 96.43 change: +0.38

Stop Loss: 93.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.3 million
Entry on July -- at $---.--
Listed on July 27, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: Yes, see below

Company Description

Trade Description:
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 Fitness platform 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's 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 they saw growth of +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. 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 company delivered a repeat performance when they did it again with their Q2 earnings on July 23rd. Analysts were expecting a profit of $0.05 per share on revenues of $761.7 million. UA beat both estimates with a profit of $0.07 per share. Revenues were up +28.5% to $783.5 million. Management raised their 2015 revenue guidance from $3.78 billion to $3.84 billion. That's above analysts' estimates of $3.83 billion.

Wall Street reacted to UA's Q2 report with a wave of price target upgrades. Several firms upped their target on UA into the $105-114 range. Naturally the stock rallied on this bullish earnings report and the analyst outlook. The stock soared past resistance near $90.00. More importantly UA has managed to maintain these gains in the face of a widespread market sell-off. We like that kind of relative strength.

Tonight we are suggesting a trigger to buy calls at $97.55. We'll try and limit our risk with an initial stop loss at $93.65.

Trigger @ $97.55

- Suggested Positions -

Buy the SEP $100 CALL (UA150918C100) current ask $2.35
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

China Sparks Another Sell-off

by James Brown

Click here to email James Brown

Editor's Note:

The Chinese market collapsed (again) with a -8.48% plunge. This undermined equity markets around the world. Major European markets were down about -2.3% or worse. U.S. markets fared better but still produced widespread declines.

Our plan was to exit the CXO trade today at the closing bell.

ADBE, COST, DIS, and INSY all hit our new stop losses.

Current Portfolio:

CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 168.34 change: +0.03

Stop Loss: 165.85
Target(s): To Be Determined
Current Option Gain/Loss: -27.1%
Average Daily Volume = 1.0 million
Entry on July 23 at $170.25
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 13th
New Positions: see below

07/27/15: Most of the market spiked lower at the opening bell. AAP was no exception except shares bounced near the bottom of its recent trading range. Shares managed to close virtually unchanged while the rest of the market was sinking.

I am not suggesting new positions at current levels. Wait for another rally past $170.25.

Trade Description: July 18, 2015:
If you listen to financial media long enough you will eventually hear pundits talk about "bulletproof stocks". AAP just might be a bulletproof stock. The company has lowered its earnings guidance three quarters in a row and yet traders continue to buy the stock. Today AAP is hovering at all-time, record highs.

AAP is part of the services sector. According to the company, "Headquartered in Roanoke, Va., Advance Auto Parts, Inc., the largest automotive aftermarket parts provider in North America, serves both the professional installer and do-it-yourself customers. As of January 3, 2015, Advance operated 5,261 stores and 111 Worldpac branches and served approximately 1,325 independently owned Carquest branded stores in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. Advance employs approximately 73,000 Team Members."

There seems to be a divergence in the U.S. We are half way through 2015 and new car sales are surging. Dealers have already sold more than 8.5 million vehicles and the industry is on pace to challenge the all-time record of 17.4 million autos in one year. Yet the age of the average car on the road continues to climb. Next time you're stuck in traffic and all you see is a river of cars, bear in mind that the average car is now 11.4 years old. It's forecasted to 11.7 years old by 2019. Americans are keeping their car longer and longer (because most can't afford a new car). That's really good news for car part sales.

I mentioned AAP's earnings guidance earlier. AAP has actually missed Wall Street's bottom line estimates the last two quarters in a row. They have lowered their guidance three quarters in a row. On May 21st AAP reported its Q1 results of $2.39 per share. Revenues were up +2.3% to $3.04 billion. They lowered their fiscal year 2015 earnings guidance from $8.35-8.55 per shares down to $8.10-8.30. Analysts were expecting $8.51. AAP seems to be having a few issues digesting its acquisition of General Parts International, which took place in 2014.

Normally when a company lowers guidance the stock gets crushed. Yet traders keep buying the dips in AAP. Looking at the AAP's recent announcements there is an knee-jerk reaction gap down in their stock price and then shares of AAP immediately rebound. It's happened multiple times. You have to like that kind of resilience. You could say AAP is almost bulletproof.

The stock has been trading off technical support as it climbed from its May 2015 lows. Last week's breakout past resistance near $165.00 is very bullish. The point & figure chart is forecasting at $193.00 target. Odds are AAP will rally up to its earnings report on August 13th. We want to exit prior to the announcement.

- Suggested Positions -

Long AUG $175 CALL (AAP150821C175) entry $3.50

07/25/15 new stop @ 165.85
07/23/15 triggered @ $170.25
Option Format: symbol-year-month-day-call-strike

GoPro, Inc. - GPRO - close: 61.27 change: -0.90

Stop Loss: 58.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 6.1 million
Entry on July -- at $---.--
Listed on July 25, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

07/27/15: GPRO dipped toward short-term technical support at its simple 10-dma and bounced. Even with the intraday rebound GPRO settled with a -1.4% decline.

We are on the sidelines waiting for a new relative high.

Trade Description: July 25, 2015:
The U.S. stock market delivered one of its worst weekly performances all year long as investors reacted to disappointing earnings results. GPRO managed to buck the trend and shares rallied to new six-month highs thanks to significantly better than expected earnings results.

Here's the company's rather self-confident description, "GoPro, Inc. is transforming the way consumers capture, manage, share and enjoy meaningful life experiences. We do this by enabling people to self-capture engaging, immersive photo and video content of themselves participating in their favorite activities. Our customers include some of the world's most active and passionate people. The quality and volume of their shared GoPro content, coupled with their enthusiasm for our brand, virally drives awareness and demand for our products.

What began as an idea to help athletes document themselves engaged in their sport has become a widely adopted solution for people to document themselves engaged in their interests, whatever they may be. From extreme to mainstream, professional to consumer, GoPro has enabled the world to capture and share its passions. And in doing so the world, in turn, is helping GoPro become one of the most exciting and aspirational companies of our time."

GPRO came to market with its IPO in June 2014. The stock opened for trading at $28.65 and by October 2014 shares were nearing $100 per share. That proved to be the peak. GPRO spent the next six months correcting lower and finally bottomed near $37 in March 2015.

GPRO reported their 2015 Q1 results on April 28th. Wall Street was expecting a profit of $0.18 per share on revenues of $341.7 million. GPRO beat estimates with a profit of $0.24 a share. Revenues were up +54% from a year ago to $363 million.

Management said it was their second highest revenue quarter in history. Their GAAP results saw gross margins improve from 40.9% in Q1 2014 to 45.1% today. Their net income attributable to common stockholders increased 98.2% compared to the first quarter of 2014. International sales surged +66% and accounted for just over half of total sales in Q1 2015. GPRO shipped 1.3 million devices in the first quarter. This was the third quarter in a row of more than one million units.

GPRO management raised their guidance. They now expect 2015 Q2 revenues in the $380-400 million range with earnings in the $0.24-0.26 region. Analysts were only forecasting $335 million with earnings at $0.16 a share.

The better than expected Q1 results and the upgraded Q2 guidance sparked several upgrades. Multiple analysts raised their price target on GPRO. New targets include: $56, $65, $66, $70, and $76.

GPRO reported its Q2 report on July 21st. Results were way above expectations. Analysts were expecting earnings of $0.26 per shares on revenues of $396 million. GPRO said Q2 earnings came in at $0.35 per shares. That's a +337% improvement from a year ago. Revenues were up +71.7% to $419.9 million, significantly above the estimate. Gross margins improved from 42.2% to 46.4%.

Naturally GPRO management was enthusiastic. GoPro Founder and CEO, Nicholas Woodman, commented on their quarterly results saying, "I couldn't be more proud of our aggressive pace of innovation. With the introduction of HERO4 Session and HERO+ LCD, we've launched five new cameras in the past 10 months, exciting both new and existing customers and contributing to strong second quarter results. Our core business is enjoying terrific momentum as we charge forward into attractive adjacent markets."

This better than expected Q2 result sparked another round of upgrades. Piper Jaffray raised their GPRO target to $72. Barclays bumped theirs to $71. Another firmed raised theirs to $70. Shares of GPRO saw a bit of a short squeeze this past week. There are plenty of traders who think GPRO is overpriced and too rich with a P/E above 42, especially when you consider the company is facing rising competition.

The biggest argument against GPRO is competition from a Chinese rival Xiaomi who has produced a competitive action camera that they're selling for less than half of GPRO's similar model. GPRO critics are worried this could kill GPRO's growth in China and the rest of Asia. It's too early to tell who will be right but momentum is currently favoring the bulls. The point & figure chart is forecasting a long-term target at $95.00.

The stock experienced some profit taking on Friday with a -2.7% decline. Shares failed at the $65.00 level on Thursday and Friday. We want to be ready if GPRO reverses higher again. Tonight we're suggesting a trigger to buy calls at $65.05. We'll start with a wide stop loss at $58.65, making this a more aggressive, higher-risk trade. It might take GPRO a couple of days to get back to $65.00. I don't expect a new relative high on Monday.

Trigger @ $65.05

- Suggested Positions -

Buy the SEP $67.50 CALL (GPRO150918C67.5)

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

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

PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 65.09 change: -0.71

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: +25.5%
Average Daily Volume = 2.0 million
Entry on July 24 at $66.80
Listed on July 23, 2015
Time Frame: Exit PRIOR to earnings in late September
New Positions: see below

07/27/15: The sell-off in BBBY continues and shares dipped to potential round-number support at $65.00. I am not suggesting new positions at this time.

Broken support at $67.00 should be new resistance.

Trade Description: July 23, 2015:
This year is not shaping up very well for bullish investors in BBBY. The stock is down -11.6% year to date. The trouble started with its earnings report back in January.

If you are not familiar with BBBY they are in the services sector. According to the company, "Bed Bath & Beyond Inc. and subsidiaries (the "Company") is a retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in store, online or through a mobile device.

The Company has the developing ability to have customer purchases picked up in store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, food service, healthcare and other industries.

Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. Shares of Bed Bath & Beyond Inc. are traded on NASDAQ under the symbol "BBBY" and are included in the Standard and Poor's 500 and Global 1200 Indices and the NASDAQ-100 Index. The Company is counted among the Fortune 500 and the Forbes 2000."

On January 8th BBBY reported its 2014 Q3 results. Earnings were in-line with estimates but revenues missed. Management lowered their same-store sales guidance. The stock plunged the next day. A few weeks later BBBY had managed to recover but the rally failed producing a bearish double top.

The trouble continued in April. BBBY had rallied up into its earnings report and then disappointed. Their 2014 Q4 results were in-line with estimates at $1.80 a share. Yet revenues missed estimates again. They lowered their Q1 guidance. The stock plunged the next day.

On June 24th BBBY reported earnings of $0.93 per share. That was down -1% from a year ago and a penny worse than expected. Revenues were only up +3% to $2.74 billion, which met expectations. Yet comparable store sales were +2.2% when Wall Street was expecting +2.5%. Management lowered their Q2 guidance. Guess what happened the next day? Yup, the stock dropped. Traders immediately sold the bounce and BBBY now has a clearly defined bearish trend of lower highs and lower lows. One has to wonder how bad would BBBY's Q1 results have been had the company not spent $385 million buying back stock last quarter?

In summary, BBBY has been missing Wall Street's revenue or earnings estimates the last three quarters in a row. They have warned twice and same-store sales are disappointing. Technically shares have broken down below multiple layers of support. The company is more of a home furnishing store so back to school season may not give them much of a boost. The point & figure chart is bearish and forecasting at $60.00 target. The last few days have seen some support near $67.00. We are suggesting a trigger to buy puts at $66.80.

- Suggested Positions -

Long NOV $65 PUT (BBBY151120P65) entry $2.55

07/25/15 new stop @ 67.65
07/24/15 triggered @ $66.80
Option Format: symbol-year-month-day-call-strike

PowerShares QQQ ETF - QQQ - close: 110.18 change: -0.92

Stop Loss: 111.65
Target(s): To Be Determined
Current Option Gain/Loss: +88.3%
Average Daily Volume = 27.5 million
Entry on July 21 at $114.02
Listed on July 20, 2015
Time Frame: 4 to 6 weeks
New Positions: see below

07/27/15: The market's widespread decline helped push the QQQ to a -0.8% loss. Shares are testing potential round-number support at $110 and its 50-dma near $109.75. No new positions at this time.

We will adjust the stop loss down to $111.65.

Trade Description: July 20, 2015:
Big cap technology stocks have been strong performers this year and that has boosted the NASDAQ-100 index ($NDX) to new all-time highs. The $NDX is also outperforming the broader market with a +10% gain year to date versus a +3.4% gain in the S&P 500 index. The long-term up trend for the $NDX is still intact and yet we are short-term bearish on the $NDX. It's move too far, too fast, and on very, very narrow leadership. One way for us to play the $NDX is options on the QQQ ETF that tracks the index.

The QQQ is one of the largest and most liquid exchange traded funds. This particular ETF tracks the NASDAQ-100 index, which includes 100 of the largest non-financial stocks on the NASDAQ (lots of technology stocks). AAPL, MSFT, AMZN, GOOG, GOOGL, FB, GILD, INTC, CMCSA, CSCO and AMGN are its top holdings. You can see a list of the top twenty five holdings here.

The lack of leadership in the NASDAQ-100 (and QQQ) has been exceptionally narrow. That's a bearish sign.

On Friday the QQQ surged to new highs even though three stocks declined for every two advancing stocks in the QQQ. Today there were two declining stocks for every one stock that advanced (on the NASDAQ composite). More than 50% of the NASDAQ-100 components are actually negative for the year. So how is the index (and the Qs) at a new record high? The answer is because the $NDX is a market-cap weighed index.

The rally in the QQQ has been fueled by just four stocks with huge market caps. Here are the four stocks driving the QQQ (and their July gains):

Google (GOOG/GOOGL) +29%
Amazon.com (AMZN) +11%
Facebook (FB) +10%
Apple (AAPL) +3%
Those are some impressive numbers in just the last three weeks.

Now consider their market cap and their impact on the QQQ. AAPL's weighting in the QQQs is 13.9%. GOOG is 4.3% while GOOGL is 3.75%. AMZN is 4.19% and FB is 3.9%. For the record Microsoft (MSFT) is 7.0% of the QQQ.

The NASDAQ-100 index has a market cap of $5.4 trillion. If we combine the market cap of AAPL, AMZN, FB, and GOOG they are worth $1.7 trillion. These four stocks are almost 31% of the $NDX market cap. So what happens to the QQQ when these four stocks start to see some profit taking after those big July gains?

Cable television business and stock market channel CNBC noted the above observations on air today. They also posted an article regarding this interesting situation on their website. You can read the CNBC article here.

CNBC also noted that the NASDAQ-100 index is more than three standard deviations above its simple 50-dma. That almost never happens. It's so rare it's only happened nine times in the last 35 years. While that is not a big sample size the $NDX was down the following week 8 out of 9 times.

There are no guarantees in the market. However, odds are good that the QQQ is due for a pullback that should happen soon. The lack of leadership driving the $NDX higher makes the rally very fragile.

There is one big caveat here. Apple (AAPL), the biggest component in the $NDX, is scheduled to report earnings on Tuesday evening, after the closing bell. AAPL tends to beat Wall Street's earnings estimates 90% of the time. Thus expectations tend to be pretty bullish for AAPL's results. If they disappoint it could have a significant negative impact on the QQQ. Since expectations are already bullish for AAPL's quarter they probably need to really blow the doors off and crush the estimate to move the QQQ. It's possible but it seems unlikely that AAPL will singlehandedly lift the QQQ on Wednesday.

We suspect the market could start to see some profit taking tomorrow. Therefore we are suggesting traders buy QQQ puts at the opening bell tomorrow morning (Tuesday, July 21st). If you're worried about AAPL's earnings you could wait until Wednesday morning to buy puts. That way you could hear the results and see how the markets is reacting to AAPL's numbers after hours and pre-market on Wednesday.

Please note we are not setting a stop loss for this trade yet. We'll add a stop in the Wednesday evening newsletter.

- Suggested Positions -

Long SEP $112 PUT (QQQ150918P112) entry $1.88

07/27/15 new stop @ 111.65
07/25/15 new stop @ 113.25
07/23/15 expect the QQQ to gap higher tomorrow in reaction to AMZN's earnings report tonight
07/22/15 new stop @ $114.50
07/21/15 trade begins. QQQ opened @ $114.02
Option Format: symbol-year-month-day-call-strike

Energy SPDR ETF - XLE - close: 68.51 change: -1.00

Stop Loss: 70.25
Target(s): To Be Determined
Current Option Gain/Loss: +79.3%
Average Daily Volume = 13.3 million
Entry on July 22 at $71.22
Listed on July 21, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

07/27/15: Commodities continue to sink and crude oil fell to new relative lows. This helped push the XLE lower, which fell -1.4%.

Tonight we are moving the stop loss to $70.25. No new positions at this time.

Trade Description: July 21, 2015:
The 2015 bounce in crude oil appears to be over. The price of crude oil was cut in half with a plunge that started in the second quarter of 2014 and didn't stop until early 2015. Oil managed a multi-week bounce off its March 2015 lows but the rally stalled in May and oil prices churned sideways for almost two months. Now the commodity has resumed its decline.

Today WTI crude oil is hovering near $50.00 a barrel, which is a three-month low. Oil consumption is rising but it's not outpacing oil production. The big drop last year was the market realizing we (temporarily) have more supply than demand.

The Iran deal over the country's nuclear program, if it doesn't get derailed again, will remove sanctions on Iran and allow the oil-producing country to sell more oil on the global market. That's more supply to a market that doesn't need it. Iran denies it but sources say the country has more than 50 million barrels of oil just sitting in oil tankers ready for transport.

Another problem for the energy sector is natural gas supplies. Last month the U.S. Energy Information Administration said natural gas inventories rose 132 billion cubic feet to 2.2 trillion cubic feet. That's more than 50% above last year's inventory levels and the largest surplus in 12 years. The Natural Gas Supply Association expects industry production to hit a new all-time record this summer.

One way to play this bearish supply/demand issue on oil and natural gas is the XLE.

The XLE is an exchange traded fund (ETF) designed to track the Energy Select Sector Index. This is a great way for investors to play the energy sector of the S&P 500 index, which includes oil, gas & consumable fuels, and energy equipment and services companies.

Top 10 Holdings (61.54% of Total Assets)
Company Symbol % Assets
Exxon Mobil Corporation XOM 15.79
Chevron Corporation CVX 12.46
Schlumberger N.V. SLB 7.68
Kinder Morgan, Inc KMI 4.48
EOG Resources, Inc. EOG 3.94
ConocoPhillips COP 3.76
Williams Companies, Inc. (The) WMB 3.67
Occidental Petroleum Corporation OXY 3.51
Pioneer Natural Resources PXD 3.15
Anadarko Petroleum Corporation APC 3.10
The market is well aware of the supply issues facing the energy sector and the XLE has been falling 11 out of the last 12 weeks. We don't see any catalyst that would reverse this momentum.

Currently the XLE has broken down to new multi-year lows and the nearest support levels could be down near $66 or $60. The point & figure chart is bearish and forecasting at $61.00 target. Tonight we are suggesting a trigger to buy puts at $71.25.

- Suggested Positions -

Long SEP $70 PUT (XLE150918P70) entry $1.84

07/27/15 new stop @ 70.25
07/25/15 new stop @ 72.25
07/22/15 triggered on gap down at $71.22, suggested entry was $71.25
Option Format: symbol-year-month-day-call-strike


Adobe Systems Inc. - ADBE - close: 79.93 change: -1.05

Stop Loss: 79.85
Target(s): To Be Determined
Current Option Gain/Loss: -38.9%
Average Daily Volume = 2.64 million
Entry on July 16 at $82.65
Listed on July 14, 2015
Time Frame: Exit PRIOR to earnings in September
New Positions: see below

07/27/15: Another rough day for the U.S. market was enough to push ADBE below support at its 50-dma and the $80.00 level. Shares hit our stop at $79.85.

- Suggested Positions -

OCT $85 CALL (ADBE151016C85) entry $2.80 exit $1.71 (-38.9%)

07/27/15 stopped out
07/25/15 new stop @ 79.85
07/22/15 new stop @ 79.65
07/16/15 triggered @ $82.65 (gap open)
Option Format: symbol-year-month-day-call-strike


Costco Wholesale - COST - close: 144.25 change: -0.74

Stop Loss: 143.85
Target(s): To Be Determined
Current Option Gain/Loss: -33.3%
Average Daily Volume = 2.0 million
Entry on July 23 at $146.85
Listed on July 22, 2015
Time Frame: Exit PRIOR to earnings on Sept. 30th
New Positions: see below

07/27/15: Monday's widespread market decline also pushed COST below short-term support. Shares hit our stop at $143.85.

- Suggested Positions -

OCT $150 CALL (COST151016C150) entry $3.00 exit $2.00 (-33.3%)

07/27/15 stopped out
07/25/15 new stop @ 143.85
07/23/15 triggered on gap open at $146.85, trigger was $146.75
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co. - DIS - close: 118.25 change: -0.66

Stop Loss: 117.85
Target(s): To Be Determined
Current Option Gain/Loss: +87.0%
Average Daily Volume = 5.7 million
Entry on June 18 at $112.25
Listed on June 17, 2015
Time Frame: Exit PRIOR to earnings on August 4th
New Positions: see below

07/27/15: DIS managed to resist the market's widespread sell-off last week. Unfortunately shares followed the market lower today. DIS hit our new stop loss at $117.85.

I would keep DIS on your watch list. A pullback after its earnings report on August 4th could be a new entry point.

- Suggested Positions -

AUG $115 CALL (DIS150821C115) entry $2.30 exit $4.30 (+87.0%)

07/27/15 stopped out
07/25/15 new stop @ 117.85
07/22/15 new stop @ 117.25
07/16/15 Our call option has more than doubled in value. Traders may want to take some money off the table here.
07/14/15 new stop @ 115.85
06/27/15 new stop @ 112.25
06/18/15 triggered @ $112.25
Option Format: symbol-year-month-day-call-strike


INSYS Therapeutics - INSY - close: 42.79 change: -0.55

Stop Loss: 41.85
Target(s): To Be Determined
Current Option Gain/Loss: +14.7%
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

07/27/15: Monday turned out to be a very volatile day for shares of INSY. There was a rush to sell the stock this morning. INSY fell more than -10% at its worst levels of the day. The stock bounced near its 20-dma and managed to pare its loss to just -1.26%. Our stop was hit at $41.85.

*Small positions to limit risk* - Suggested Positions -

AUG $40 CALL (INSY150821C40) entry $3.40 exit $3.90 (+14.7%)

07/27/15 stopped out
07/25/15 new stop @ 41.85
07/23/15 new stop @ 41.45
07/22/15 new stop @ 40.85
07/21/15 new stop @ 39.30
07/16/15 new stop @ 38.85
07/14/15 new stop @ 36.35
07/01/15 triggered @ $36.30
Option Format: symbol-year-month-day-call-strike



Concho Resources - CXO - close: 99.19 change: -3.82

Stop Loss: 107.05
Target(s): To Be Determined
Current Option Gain/Loss: +52.2%
Average Daily Volume = 1.4 million
Entry on July 07 at $106.90
Listed on July 06, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: see below

07/27/15: We have to be happy with CXO's performance today! Our plan was to exit at the closing bell on Monday. The continued weakness in crude oil is pressuring energy stocks lower. CXO underperformed the broader market with a -3.7% plunge.

Earnings are coming up on July 29th.

- Suggested Positions -

AUG $105 PUT (CXO150821P105) entry $4.60 exit $7.00 (+52.2%)

07/27/15 planned exit at the close
07/25/15 prepare to exit on Monday, July 27th at the closing bell
07/20/15 new stop @ 107.05
07/18/15 new stop @ 110.05
07/07/15 triggered @ $106.90
Option Format: symbol-year-month-day-call-strike