Option Investor

Daily Newsletter, Tuesday, 8/4/2015

Table of Contents

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

Market Wrap

Lockhart Slams Market

by Jim Brown

Click here to email Jim Brown

Atlanta Fed president Dennis Lockhart said the Fed is more than likely to hike rates in September. "The economy is ready and it is an appropriate time to make a change."

Market Statistics

The markets were trying to recover from an early swoon but the Lockhart comments at 1:30 knocked the indexes back to session lows with the Dow closing in on support at 17,500 once again. However, traders bought the dip after about 30 minutes and losses were reduced.

Lockhart said it would take a "significant deterioration" in the U.S. economy for him to not support a rate hike in September. Also, "I think there is a high bar to not acting" in September. "My priors going into the September meeting as of today are that the economy is ready and it is an appropriate time to make a change." Lockhart is considered a centrist on the Fed committee and is one of the five Fed presidents with a vote this year.

When the July FOMC announcement was being debated in the press the conventional wisdom was that a September hike was a coin toss. Analysts did agree that we would see a sharp increase of Fed heads talking up a rate hike ahead of the September meeting if that was their planned date for a hike. The Lockhart comments may have been the first shot fired into the market in an effort to prepare investors for that hike.

The morning economic reports were positive but this is just the warm up for events later this week. The Factory Orders for June rose +1.8% after declining -1.1% in May and -0.7% in April. Orders for durable goods increased +3.4% after declining -2.3% in May and -1.7% in April. Core capital goods orders rose +0.7% and also their first gain since March. New orders in the transportation sector rose +9.3% thanks to a sharp rise in civilian aircraft orders.

The second quarter was not kind to the manufacturing sector and the recovery in June offset what was shaping up to be a serious decline. Even with the June gains, orders are still down -6% below 2014 levels. This report was seen as confirmation the manufacturing sector was starting to recover.

The NY ISM for July rose nearly 6 points to 68.8 from 63.1. The headline number was the high for the year and the third highest since 2011. However, the majority of the components declined. The quantity of purchase component declined from 62.5 to 52.8, regional prices declined from 56.3 to 50.0 and the six-month outlook fell sharply from 78.0 to 69.2. The employment component improved only slightly from 63.4 to 64.8. Anything over 50 represents expansion and a couple of those components declined very close to that threshold. This report was ignored.

The Intuit Small Business Employment Index posted a +0.05% gain, which equates to the addition of about 10,000 jobs. That is a decline from the 25,000 small business jobs created in both May and June. Compensation rose +0.1% and hours worked rose +0.08%.

Employment in New England declined -0.22% with a -0.12% decline in East North Central. The other regions posted gains with the West North Central growing +0.33% and the Mountain region up +0.18%.

Small business employment, the sector that creates the most new jobs, is weakening. The Small Business Optimism Index declined to its lowest level of the year in June. Respondents said they were slowing down on hiring with fewer job openings available. This could have a negative impact on the larger payroll reports later this week.

The ISM Nonmanufacturing for July is due out on Wednesday. Expectations are for a flat report with no gain. However, the ISM Manufacturing on Monday declined from 53.5 to 52.7. The employment component declined from 55.5 to 52.7, which further suggests we could see a miss in the nonfarm payrolls on Friday. The trend in the ISM is not positive and analysts blame this on the stronger dollar.

The forecast for the ADP Employment report on Wednesday is for a gain of +215,000 jobs, down from +237,000 in June. The Nonfarm forecast for Friday has been revised upward from +217,500 last week to +222,000 this week. That is flat with last month's gain of +223,000 jobs. I am expecting the actual number to be less than the consensus.

Apple (AAPL) shares declined another -$3.80 on Tuesday to trade below $114 intraday and close at $114.63. Apple is clearly in a severe technical decline with the stock now $7 below the 200-day average. Apple is in correction territory with a -14% decline from its $133 closing high back in February. The decline has reduced Apple's market cap by more than $113 billion. That is more than the total market cap of companies like Nike (NKE) and McDonalds (MCD) at roughly $96 billion each. Shares have declined -7% in just the last three days.

Analysts claim the decline is due to the soft watch sales and the increased competition for phones in China. New Chinese competitors are making inroads into Apple's market share with cheaper phones. Apple's average phone price is $600. Add in the slowing economy in China and analysts worry sales goals may not be reached.

Apple watch sales were less than half of what analysts expected based on the rise in revenue in the "other" category. Apple did not share any numbers on the watch.

The next material support level is in the $105-$107 range. I would be a buyer there on any rebound.

Netflix (NFLX) broke out to a new high today with a huge $9 intraday gain after Guggenheim analyst Michael Norris initiated coverage with a buy rating and a $160 price target.

That put Guggenheim as the leader with the highest target price but you can bet there will be more upgrades in the near future. The analyst echoed views by others that Netflix will have more than 100 million international subscribers by 2020. They are rapidly building out the network and international growth is now the key.

There are ten times as many broadband accounts internationally than currently exist in the USA and that number is rapidly accelerating. As those broadband accounts increase the lure of video streaming will quickly take hold. The majority of other countries do not have the video infrastructure prevalent in the USA. In any major U.S. community, there are large numbers of multiplex theaters with dozens of films showing at any given time. While some exist outside the U.S., their numbers are not as plentiful. There are also more than 41,000 Redbox DVD kiosks and that do not exist in quantity outside the USA.

New broadband users can skip all the hassle of going to the theater and spending large sums for ticket prices and concessions by subscribing to Netflix.

With Netflix on a content generation binge they are adding to their appeal. House of Cards, Orange is the New Black and other programs are just the start of dozens of new movies and series programs underway at Netflix.

The barrier to entry in this market is growing daily. The faster Netflix grows the bigger the moat that surrounds it and the less likely someone will become a major competitor.

They are also building in a large potential for price hikes in the future. Once they get subscribers hooked on the product, they can raise the price and it will be all profit.

The earnings parade continued with Disney (DIS) the highlight after the bell. The company reported earnings of $1.45 that rose +13% and beat estimates for $1.42. Revenue rose +5% to $13.1 billion and just barely under the $13.2 billion estimate. Disney said the strong dollar hurt revenue at Disneyland Paris. Studio revenue rose +13% thanks in part to the Avengers film, which grossed $1.4 billion since its release.

Media networks revenue rose +5% and Cable Networks revenue rose +5% with Broadcasting up +4%. The CEO said Disney would be selling ESPN content directly to viewers in the future but it would not happen for at least five years. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4.

Disney shares declined -2% in afterhours but any post earnings decline should be limited and seen as a buying opportunity. The Star Wars movie in December is expected to gross $2.2 billion and be the highest opening movie ever. There is also a Frozen sequel in the works.

Disney was recently upgraded with a new price target of $150. The $2 drop in afterhours is not going to last.

Zillow (Z) rallied nearly $7 in afterhours after posting a loss of a penny compared to estimates for a loss of 21 cents. Revenue rose +20% to $171.3 million compared to estimates for $168.7 million. The CEO said they had made great progress with the Trulia acquisition and will have successfully combined all the advertising products by the end of Q3. The company did say that advertisers had spent lower than expected for the quarter. The confusion surrounding the merger of the two companies may have caused the uncertainty. The company expects to save more than $100 million on the synergies from the merger. Zillow now controls 72% of all online real estate listing business with the brands Zillow, Trulia, StreetEasy and Hotpads.

MGM Resorts (MGM) reported earnings of 17 cents that beat estimates for 11 cents. Revenue of $2.39 billion squeezed by estimates for $2.37 billion. Revenue per room in Vegas rose from $135 to $144 with a 96% occupancy rate. That is pretty good in my opinion in this economy. However, Macau gaming revenue declined -34.5% in July. That was only slightly better than the -36% in June. Companies with casinos in Macau are going to be struggling. MGM revenue from China declined -33% to $557 million. MGM shares rallied +10% on the earnings news.

First Solar (FSLR) reported blowout earnings of 93 cents compared to estimates for 36 cents. Revenue of $896 million also blew away estimates for $752 million. The company raised full year estimates to $3.55 billion and $3.30-$3.60 per share. Analysts were expecting $3.4 billion and $2.36 per share. That was a huge uplift in guidance on the earnings portion. They are now planning on shipping 2.9 gigawatts (GW) this year, up from prior estimates of 2.7 Gw. Potential bookings rose from 14 Gw to 16.7 Gw. They are nearly sold out of capacity with only "a few hundred megawatts" of panels available towards the end of 2016. This was a major earnings win and shares rose about 10% to $48.69 in afterhours.

Retailer Etsy (ETSY) reported a loss of 7 cents compared to estimates for a loss of 8 cents. Revenue of $61 million beat estimates for $60 million. However, shares plunged -13% after the report. The company said it was planning to spend more on marketing and hire additional employees. Raising expenses rarely goes over well with investors especially when sales growth is slowing. Revenue rose +44% but that was the slowest the company had ever reported. The new Amazon Handmade store is stealing not only customers but sellers as well. Amazon Handmade

Lending Tree (TREE) spiked +42% after reporting earnings of 63 cents, which beat estimates and the company raised full year guidance for the third time.

Earnings highlights for Wednesday include GoDaddy, Fit Bit, Transocean Offshore, Sodastream, Priceline and Time Warner.

Shire Plc (SHPG) launched a hostile bid for Baxalta (BXLT) of roughly $30 billion. Shire said it made the proposal public after its initial offer was rebuffed. The offer is all stock and after the acquisition Baxalta shareholders would own 37% of the combined company. Shire said it would create a global leader in rare disease drugs with annual sales of more than $20 billion. The offer worked out to $45.23 per Baxalta share. BXLT just went public on July 1st and immediately rebuffed the second offer saying we are just in the initial stages of implementing our growth strategy as a standalone company. Our current stock price does not yet reflect the company's value and prospects.

Crude oil rose +65 cents to $45.82 on an early drop in the dollar. However, the early gains did not last as the dollar spiked sharply in the afternoon. The API inventory numbers out after the close showed a minor decline in crude and gasoline inventories and a slight rise in distillates. The API numbers are normally ignored in favor of the EIA inventories every Wednesday. The two sets of inventories rarely match.

The rise in the dollar in late trading erased some WTI gains. The Dollar Index hit 98 shortly after the close and only 15 cents from a three-month high. The reason for the late day spike was the Lockhart comments about a September rate hike.


S&P 3,200. That is the forecast by Laszlo Birinyi for the next two years. Laszlo is recognized as a fundamental analyst but he does have a long-term buy and hold bias. He said concerns about earnings, revenues, Europe, China, commodities and interest rates are all noise. "If we continue to grow by 11 basis points per day, the S&P will be at 3,200 within 2 years." He said you can ignore 40% of the S&P because the index is pushed higher only about 50% of stocks.

Hopefully he is more accurate this time than he was in 2013. His forecast for year-end 2013 at 2,800 only missed the target by 1,100 points. In December 2007 he predicted Dow 15,000 by the end of 2008. Unfortunately, the noise of the financial crisis killed that forecast with a 6,500 point miss.

He was asked today if he was worried about a correction. He said the market appears to be correcting over time by moving sideways for an extended period rather than one big drop in price. Apple is his biggest position and while he is worried about why the stock is declining he is not running for the exits. He bought Apple when it was in the single digits back in the 1990s. He recommended the stock on TV in December 1997 when it was trading at the split-adjusted price of 47 cents. Where is that time machine when you really need it?

Today's market decline was noise. The S&P returned nearly to Monday's lows on the Lockhart comments but buyers appeared. Monday's low was 2087 and today's low was 2088. This was the third consecutive decline and a break under that 2087 level would probably take us back to 2064 from the prior week. Any material decline would face support at 2075 first but we blew through that last week without even a pause.

What we did see today was a solid stop at resistance at 2100. That level is going to continue to haunt us until this sideways motion eventually ends.

The Dow remains the weakest index with another retest of 17,500 and a very negative chart. The Dow looks destined to retest the support from January at 17,150. The resistance at 17,775 is solid. The majority of the individual stocks in the Dow are in decline. Disney. Microsoft, Home Depot, Pfizer, Travelers, Visa and Nike are the exception. Those are offset by the dozen or so that are not just in a decline but in a crash. Mobile, Exxon, PG, etc, would be examples. Apple erased nearly 30 points from the Dow on Tuesday.

Until the individual Dow stocks begin to trend higher rather than lower the path of least resistance is down.

The Nasdaq is stumbling. With Apple in crash mode it takes a lot of small gainers to support the index. Fortunately, the biotech sector is still alive and Priceline and Netflix are struggling to provide lift. Solar stocks should provide an assist on Wednesday and after five days of declines Apple could find some support. Maybe it will not rebound just yet but hopefully another $4 drop can be avoided.

Support for the Nasdaq is 5075 and 5025. The 100-day average is 5031 but that did not slow it on the July drop.

The Russell 2000 is not showing any life either. The 1240 resistance is still firm and the index closed under support at 1230 today. It was just a minor -2 point break but it counts. The Russell is not giving any clues as to when it will take the lead either up or down. The current market weakness is in the big caps so we just need to wait for a market event to change the malaise we are currently experiencing.

If you only look at one chart, it should be the Dow. The industrials are showing the most weakness and unfortunately the Dow is seen as the health of the broader market. When people say the market was up 65 points today they are obviously talking about the Dow. That is the primary market indicator.

The Dow is in a downtrend and there is nothing to really pull it out until the dozen or so plunging Dow stocks find a bottom. Until they find support it will be tough for the broader market to move higher.

August is historically the worst month of the year for the market and so far it has started off as expected. With Fed heads likely to continue talking up a September rate hike and the dollar about to break out to new four-month highs the outlook for earnings and the market is likely to be lower. Get out your shopping list and start adding to it. Apple at $105, GoPro at $55, Starbucks at $55, Disney at $118, etc. Pick out a few stocks you would like to own at a cheaper price and that makes waiting through the market declines a lot more fun.

Remember, the average analyst target for the S&P at the end of December is 2,231. They may all be wrong but at least that is something to think about.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

No Bottom Yet

by James Brown

Click here to email James Brown


WESCO Intl. - WCC - close: 58.70 change: -1.29

Stop Loss: 61.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 592 thousand
Entry on August -- at $---.--
Listed on August 04, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Company Description

Trade Description:
The combination of currency headwinds and a slowing global economy has created a rough environment for WCC's business. Revenues are falling and the strong dollar only makes it worse.

WCC is in the services sector. According to the company, WESCO International, Inc. (WCC), a publicly traded Fortune 500 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating ("MRO") and original equipment manufacturers ("OEM") products, construction materials, and advanced supply chain management and logistic services. 2014 annual sales were approximately $7.9 billion. The Company employs approximately 9,400 people, maintains relationships with over 25,000 suppliers, and serves over 75,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers and utilities. WESCO operates nine fully automated distribution centers and approximately 485 full-service branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.

Looking at some recent earnings reports from WCC the company has missed Wall Street's bottom line estimate three times in a row. Prior to their Q4 earnings report (January 29th), the company issued an earnings warning for their fiscal 2015 on December 17th.

WCC's Q1 report was April 23rd. They missed the EPS number by 10 cents. Revenues were only up +0.3% to $1.82 billion but that missed estimates. Mr. John J. Engel, WESCO's Chairman and Chief Executive Officer, stated, "We had a challenging start to the year where reduced demand in the industrial market, winter weather impacts, and foreign exchange headwinds weighed heavily on our results in the first quarter. While organic sales per workday grew 3%, sales momentum decelerated through the quarter. Gross margin was down versus prior year but was flat sequentially."

Following their Q1 report WCC management lowered their 2015 guidance again from $5.20-5.60 a share down to $5.00-5.40 per share.

The situation worsened in the second quarter. WCC reported its Q2 numbers on July 23rd. Analysts were expecting a profit of $1.15 per share on revenues of $1.97 billion. WCC only delivered $1.00 per share (a -15 cent miss) and revenues plunged -4.4% to $1.92 billion. The company said their normalized organic sales fell -3.0% and foreign exchange hit them for another -3.0%. They also suffered from falling margins while expenses rose. That's not a good recipe.

Following the Q2 numbers, Mr. Engel, stated, "Our second quarter sales declined 4% reflecting continued foreign exchange headwinds and weakness in the industrial market as well as a slow seasonal start in the non-residential construction market." Management lowered their 2015 forecast yet again. This time from $5.00-5.40 down to $4.50-4.90.

The forecast for WCC is bearish and the stock is getting hammered. Shares are trading at two-year lows. It's hard to say where the next support level is. The point & figure chart is forecasting at $44.00 target. Tonight we are suggesting a trigger to buy puts at $58.40.

Trigger @ $58.40

- Suggested Positions -

Buy the SEP $55 PUT (WCC150918P55) current ask $0.90
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Markets Drift Lower, Apple Underperforms

by James Brown

Click here to email James Brown

Editor's Note:

The biggest of the big caps, Apple (AAPL), was a big story today as shares continued to underperform on Tuesday. Meanwhile the rest of the market slowly drifted lower.

Our new play on TEVA was triggered.

Current Portfolio:

CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 175.10 change: +1.29

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: +40.0%
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

08/04/15: AAP displayed relative strength today with a +0.74% gain and another new high. Let's hope this momentum continues. We only have about a week left on this trade. AAP reports earnings on August 13th and we will exit prior to their announcement.

I am not suggesting new positions at this time.

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

08/01/15 new stop @ 169.75
07/25/15 new stop @ 165.85
07/23/15 triggered @ $170.25
Option Format: symbol-year-month-day-call-strike

Accenture plc. - ACN - close: 103.42 change: +0.21

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -3.1%
Average Daily Volume = 2.3 million
Entry on July 31 at $103.35
Listed on July 30, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/04/15: Shares of ACN seem to be fighting for every inch of ground it gains. Lately traders have been selling the rallies and they did so again today but shares managed to eke out a +0.2% gain. ACN tagged a new high on an intraday basis.

Earlier today ACN announced they had acquired FusionX, a Washington, DC-based cyber security company. Financial details were not disclosed.

Trade Description: July 30, 2015:
Sometimes slow and steady wins the race. Patient investors have been rewarded in ACN. The stock is up +290% from its 2009 lows. Sales and earnings have also improved. From 2010 to 2014 ACN has seen revenues rise +38% and net income soar +54%. Year to date ACN is up +14%. The S&P 500 index is only up +2.4%.

ACN is in the technology sector. They're considered part of the information technology services industry. According to the company, "Accenture is a global management consulting, technology services and outsourcing company, with more than 336,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world's most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014."

A recent article on Investopedia.com noted that ACN is on a buying spree. "Since the beginning of 2015, Accenture has acquired nine other companies: smart grid company Structure, supply chain analytics company Gaspo, strategy consulting companies Axia and Javelin, Salesforce consulting services provider Tquila UK, digital design company Reactive Media, and digital solutions companies Agilex, Brightstep, and PacificLink Group. All of these acquisitions should strengthen Accenture's position in IT services against rivals like IBM and Infosys."

Last year ACN's earnings progress seemed to slow. Last September they reported their Q4 results that missed estimates by two cents. They beat the revenue number but guided lower. In December they beat analysts' estimates on both the top and bottom line but guided lower again. Guidance improved somewhat with ACN's 2015 Q2 report in March where the company beat estimates and guided in-line.

Their most recent report was June 25th when the company announced its 2015 Q3 results. Earnings were $1.30 per share, which was seven cents above estimates. Revenues were relatively flat (+0.4%) at $7.77 billion but that was significantly above expectations. New bookings last quarter were $8.5 billion. North American sales rose +12% on a local currency basis. Europe sales were up +7% while the rest of the world saw sales rise +13%. Management reaffirmed their fiscal year 2015 guidance and expect new bookings to be $33-to-$35 billion for the year.

The stock has been popping on its recent earnings reports. Then shares fade lower until they hit the long-term up trend and investors buy the dip. The up trend seems to be getting stronger. ACN recently broke out past round-number resistance at $100.00 and managed to hold this level during last week's market sell-off. Now ACN is poised to hit new highs. Tonight we're suggesting a trigger to buy calls at $103.35.

- Suggested Positions -

Long SEP $105 CALL (ACN150918C105) entry $1.60

07/31/15 triggered @ $103.35
Option Format: symbol-year-month-day-call-strike

Stryker Corp. - SYK - close: 101.48 change: -0.03

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -29.2%
Average Daily Volume = 1.1 million
Entry on July 29 at $102.15
Listed on July 28, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/04/15: The early morning rally attempt in SYK failed. Shares settled virtually unchanged on the session. There appears to be short-term support at $101.00 and $100.00 and short-term resistance in the $102.50-102.75 region.

On the plus side today's move does not confirm yesterday's potential bearish reversal pattern.

No new positions at this time.

Trade Description: July 28, 2015:
The healthcare sector has consistently delivered a strong bullish performance for the last three years in a row. When you think of healthcare you might think health insurance providers. They are not the only healthcare stocks in rally mode. Tonight's candidate is in the medical equipment and supplies industry.

According to the company, "Stryker is one of the world's leading medical technology companies and together with our customers, we are driven to make healthcare better. The Company offers a diverse array of innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine, which help improve patient and hospital outcomes. Stryker is active in over 100 countries around the world."

Late last year the company's earnings growth was lackluster at best but the company has turned things around the last couple of quarters. SYK reported their Q1 results on April 21st. They beat the bottom line estimate. Revenues were only in-line with estimates. Yet management raised the low-end of their 2015 sales and earnings guidance. You can see the reaction to the stock price in April.

Their most recent earnings report was July 23rd. Wall Street was expecting Q2 earnings of $1.17 per share on revenues of $2.41 billion. SYK beat both estimates with earnings growth of +11% to $1.20 per share. Revenues were up +2.9% to $2.43 billion. On a constant currency basis their sales were up +7.6%.

SYK management raised their organic growth forecast to +5.5% to +6.5%. They raised both their Q3 and 2015 earnings forecast above analysts' estimates. SYK now expects full year earnings in the $5.06-5.12 range versus consensus estimates at $5.03 per share. Analyst reaction has been positive with several price target upgrades into the $107-110 range. The point & figure chart is bullish and currently forecasting at $111.00 target.

We like how SYK displayed relative strength last week and resisted most of the market's sell-off (prior to their earnings report). The better than expected Q2 results launched SYK to new all-time highs. Traders bought the dip this morning and today is a new all-time closing high for SYK. Tonight we are suggesting a trigger to buy calls at $102.15.

- Suggested Positions -

Long SEP $105 CALL (SYK150918C105) entry $1.13

08/01/15 new stop @ 99.85
07/29/15 triggered @ $102.15
Option Format: symbol-year-month-day-call-strike

Teva Pharmaceuticals - TEVA - close: 70.69 change: +0.63

Stop Loss: 67.45
Target(s): To Be Determined
Current Option Gain/Loss: +10.9%
Average Daily Volume = 5.4 million
Entry on August 04 at $70.25
Listed on August 03, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/04/15: Our new TEVA trade is off to a decent start. Shares ignored the market's weakness and continued to rally. TEVA hit our suggested entry point at $70.25. I would still consider new positions now at current levels or you could wait for a rally past $71.00 as an alternative entry point.

Trade Description: August 3, 2015:
The combination of M&A news and improving earnings results has been a win-win for shares of TEVA. The stock recently soared to new all-time highs on some key headlines in the last several days.

TEVA is in the healthcare sector. They're part of the drug manufacturing industry. According to the company, "Teva Pharmaceutical Industries Ltd. is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions to millions of patients every day. Headquartered in Israel, Teva is the world's largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area. In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. Teva integrates its generics and specialty capabilities in its global research and development division to create new ways of addressing unmet patient needs by combining drug development capabilities with devices, services and technologies. Teva's net revenues in 2014 amounted to $20.3 billion."

TEVA's most recent earnings report was July 27th. Analysts were expecting a profit of $1.29 per shares for TEVA's Q2 results. The company delivered $1.43 per share. Revenues fell -1.5% to $4.97 billion but that was actually better than expected. TEVA's management then raised their 2015 guidance from $5.05-5.35 per share to $5.15-5.40 compared to Wall Street's estimate at $5.21.

If beating earnings and raising guidance wasn't enough to drive the stock higher TEVA also announced major acquisition news. TEVA had been trying to buy British drug firm Mylan (MYL) with an unsolicited bid. Meanwhile MYL is trying to buy Perrigo (PRGO). MYL didn't seem interested in being acquired by TEVA and actually adopted a poison pill strategy to make it less attractive to hostile takeovers.

On July 27th TEVA announced they had dropped their bid for MYL and instead announced a deal to buy Allergan's (AGN) generic drug business for $40.5 billion. TEVA will pay $33.75 billion in cash and $6.75 billion in stock, giving AGN a 10% stake in TEVA. They expect the deal to close in the first quarter of 2016.

According to a Reuters article, "Teva, which will gain a portfolio of more than 1,000 products, forecast a double-digit boost to adjusted earnings per share in 2016 and a more than 20 percent benefit in years two and three after closing the deal. It expects cost synergies and tax savings of $1.4 billion annually by the third anniversary from efficiencies in operations, manufacturing, and sales and marketing."

Wall Street applauded the deal with AGN and shares of TEVA soared from $62 to $72 in a single day.

TEVA has continued its M&A with another story out today. This morning, before the opening bell, TEVA announced it will purchase a 51% stake in a privately-held, genomic-analysis company, Immuneering Corporation. According to the press release "Immuneering uses advanced proprietary techniques to identify hidden signals and biological insights across an array of genetic, genomic, and proteomic data that can direct research for enhanced discovery, development and clinical success." The two companies have worked together before. Financial terms were not disclosed.

The AGN deal has gotten Wall Street's seal of approval. Several analyst firms have upgraded TEVA since then with multiple price target upgrades including: $82 from Deutsche Bank, $82 from Argus, $85 from RBC, $85 from Morgan Stanley, $86 from Citigroup. Just today J.P.Morgan restarted coverage on TEVA with an "overweight" and an $82 target. The point & figure chart is bullish and forecasting a long-term target of $98.00 for TEVA.

Shares of TEVA saw a $4.00 pullback but traders have started buying the dip. We want to hop on board if this bounce continues. Tonight we're suggesting a trigger to buy calls at $70.25.

- Suggested Positions -

Long SEP $70 CALL (TEVA150918C70) entry $2.02

08/04/15 triggered @ $70.25
Option Format: symbol-year-month-day-call-strike

Under Armour, Inc. - UA - close: 99.35 change: +1.09

Stop Loss: 94.65
Target(s): To Be Determined
Current Option Gain/Loss: +20.3%
Average Daily Volume = 2.3 million
Entry on July 28 at $97.55
Listed on July 27, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/04/15: Traders were in a buy-the-dip mood with UA today and shares erased yesterday's pullback. The stock is once again testing round-number resistance at $100.00 and could see a bullish breakout tomorrow.

No new positions at this time.

Trade Description: July 27, 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 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.

- Suggested Positions -

Long SEP $100 CALL (UA150918C100) entry $2.66

08/01/15 new stop @ 94.65
07/28/15 triggered @ $97.55
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 64.44 change: +0.07

Stop Loss: 66.25
Target(s): To Be Determined
Current Option Gain/Loss: +31.4%
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

08/04/15: BBBY closed in the green but the gain was so small I'd consider it flat for the session. The intraday bounce failed at the $65.00 level. This action is a small victory for the bears. If you're looking for a new entry point then a drop under $64.15 could work.

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

08/01/15 new stop @ 66.25
07/25/15 new stop @ 67.65
07/24/15 triggered @ $66.80
Option Format: symbol-year-month-day-call-strike

Hess Corp. - HES - close: 57.55 change: -0.15

Stop Loss: 62.05
Target(s): To Be Determined
Current Option Gain/Loss: +7.4%
Average Daily Volume = 2.8 million
Entry on August 03 at $58.21
Listed on August 01, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/04/15: HES' performance today is almost a carbon copy of yesterday. The early morning spike higher quickly failed and shares drifted lower throughout the rest of the session.

HES looks poised to breakdown below its July lows in the $57.20-57.50 area.

Trade Description: August 1, 2015:
The price of crude oil has fallen more than 50% in the last year. It's wreaking havoc on energy company earnings and revenues. Unfortunately the outlook is not very bullish. The global economy is stalling. China, the biggest buyer of commodities, is growing at multi-year lows. The U.S. is creeping along at +2% GDP growth while oil inventories in the U.S are near 80-year highs. The Middle East OPEC cartel is pumping a high-volume of oil, regardless of price declines, to maintain market share. OPEC is hoping to pressure the U.S. fracking industry out of business but it's not working. U.S. production remains resilient and near record highs.

If that wasn't enough the Federal Reserve is desperate to raise interest rates and would like to raise in September. Rising interest rates usually boost a country's currency. If the Fed does raise rates the U.S. dollar should rally even further. A rising dollar puts downward pressure on commodity prices. This paints a bearish picture for crude oil prices.

Given this outlook for crude we're adding a bearish play in the energy industry. HES is part of the basic materials sector. They explore and produce crude oil, NGL, and natural gas. The company operates in the United States, Denmark, Equatorial Guinea, Malaysia/Thailand, and Norway.

The plunge in oil prices has killed HES' revenues. They reported their 2014 Q4 results on January 28th this year and revenues were down -18.7%. Their Q1 report came out on April 29th and revenues fell -40%. On July 29th HES reported their Q2 results. Wall Street was expecting a loss of ($0.72) per share. HES came in better than expected with a loss of ($0.52) but that was a big drop from a profit of $1.38 a year ago. Revenues plunged -46% from $3.58 billion down to $1.93 billion.

The company is seeing strong production gains. Their Q2 production came in better than analysts expected at 391,000 barrels of oil equivalent per day. Yet this positive news couldn't outmatch the revenue declines. The oversold bounce in HES' stock failed pretty quickly. The long-term trend is down and the point & figure chart is forecasting at $52.00 target. We suspect HES is about to start on another leg lower. Tonight we're suggesting a trigger to buy puts at $58.65.

- Suggested Positions -

Long SEP $57.50 PUT (HES150918P57.50) entry $2.31

08/03/15 triggered on gap down at $58.21, trigger was $58.65
Option Format: symbol-year-month-day-call-strike