Option Investor

Daily Newsletter, Monday, 8/4/2014

Table of Contents

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

Market Wrap

Market Rebound

by Thomas Hughes

Click here to email Thomas Hughes
The US markets rebound from last weeks lows as global fears retreat.


The US equity market rebound today as global fears retreat in favor of underlying trends. The round of fear experienced last Thursday, not unlike the wave of fear experienced last month, sent the indices to long term support. Today those fears were mostly absent from the market as traders began to scoop up lower priced stocks. The rebound started in the EU, having bypassed Asian markets in the early hours, and carried into the open of trading here at home. Futures trading was indicated higher from the earliest part of the session and led into a positive opening. Trading was hesitant during the first half of the day but gained strength going into the afternoon. During the first half of the trading day stocks held steady but tested support on a number of occasions. The DJI and SPX both dipped into the red at one point but were soon projected back into the green. After lunch the inices were able to break early resistance, 1930 on the SPX, and move to new intraday highs.

What happened, or didn't happen, to make the market rebound? To recap from last week there were 5 or 6 factors blamed for the drop in stocks on Thursday. These were fear of higher interest rates, bank default and financial meltdown fear for Portugal, weaker than expected economic data, Russia/Ukraine, and Argentina. Of these not one was present in a serious way come the start of trading today. The fear of higher interest rates was overblown last week and has now returned to its previous place of importance as a mere brick in the wall of worry. We, the market, have been concerned about higher rates for a long time but higher rates means the economy is doing OK and it will be a long long time, years, before rates are so high as to actually be a threat and not a fear. Portugal solved its banking crisis as surely it would. The bank in question has been bailed out and split into two separate entities. There is some fall out but it is localized and contained. The economic data was not as hot as some expected but when has it been so far this year? Except of course for the GDP number this past quarter. To date, data has in general not been as hot as expected but remains steady; no one sector is booming but all combine to create GDP of near 4%. Russia and the Ukraine were not even mentioned in the news this morning, an absence shared by the Argentine bond default.

Market Statistics

Now, assuming the near term fear factors are out of the way, what happened today? Earnings. Earnings keep rolling in. Today there were about 85 reports with another 700-800 due this week. So far the stats according to Factset are about 75% of S&P 500 companies showing earnings growth with an average gain of roughly 7.5%. In addition, 8 of the 10 S&P 500 sectors have beaten earnings projections, causing growth rate above the previous estimates. So far 75% of companies have reported and on average are above the historical growth rate for earnings.

Economic Calendar

The Economy

There was no economic data released today but we still get to see the weekly survey of business confidence prepared by Moody's and Mark Zandi. This week's summary is much like that in past weeks. The only notable change is that the statement showing concern with overseas business conditions has been removed. The summary is still in line with underlying economic trends and supports the idea of continued growth in jobs and the economy through the end of the year. One other change mentions that the current positive outlook carries into the first part of next year at least.

The full summary: “Businesses remain very upbeat, especially in the U.S. Sentiment has been strong all year, consistent with an economy that is expanding well above its potential. Responses to the survey questions are strong across the board. Expectations regarding prospects into next year remain very positive, and hiring intentions are robust as more than half of respondents to the survey are hiring. There are no indications that price pressures are building”

The rest of the week is pretty light on data as well. The month just started and there just isn't much data to be had. There will still be weekly natural gas and oil inventory reports as well as jobless claims. Other than that Factory Orders and ISM tomorrow along with Wholesale inventories dominate the list.

Even without economic data there is risk of fundamental change this week because there are two major central bank meetings. The ECB and the BOJ. I have not heard of any speculations for policy changes from either bank but that does not rule out a change in speak that could move the market. The ECB is facing stagnation and deflation while at the same time the BOJ is fighting its way out of the same. The ECB is expected to release its statement on Thursday with the BOJ slated for Friday. The ECB usually sticks to their time table while the BOJ is only loosely bound by theirs.

The Oil Index

Oil prices firmed today after dropping below $98 last week. Prices gained 0.45% in a move possibly aided by short covering and profit taking. There is some risk in the current week for geopolitical events to drive prices back up. The ISIS incursion in Iraq has taken a few new towns with at least one in control of a dam and regional water, while two more, located in the Kurdish north, are centered in oil fields. In Libya fighting continues as does a fire at a fuel plant.

The Oil Index climbed today, in line with equities, gaining over 1.8% and coming just shy of resistance at the short term moving average and previous all time high. This level has been broken before and looks likely to break again. Support is indicated along the current level by stochastic and MACD with first target on a break up near 1,700.

The Gold Index

There was not much to impact gold trading today. The fears of last week seem to have been left behind or are at least on the back burner in terms of market focus. Gold prices fell in today's action, dropping below $1290 on what I believe to be the underlying fundamentals of slow steady growth in the economy, an end to taper and the onset of higher interest rates sometime in what is generally accepted as the next 12 months (at the latest).

The Gold Index fell today as well, dropping -1.5% from the short term moving average and coming to rest just above the long term moving average. The index is indicated lower in the near and short terms, in line with the underlying bear trend in the index. However, there is some signs of bottoming in the index over the past 12 months along the $85-$90 level so any drop below the long term average could find support/strong support around these levels. As always gold prices will have a big affect on Gold Index prices, a sustained drop below $1290 would be bearish for index prices.

In The News, Story Stocks and Earnings

Michael Kors made headlines this morning, beating the expectations. The name brand retailer reported results that beat on the top and bottom line, driven by a 24% increase in comp store sales. However, the report also revealed that the sales came on top of heavy mark downs and that those same discounts would impact future performance. The stock climbed initially, in the pre market, but fell before the opening. At the open share prices gapped lower and then fell more than 5% from last week's closing prices. The stock is now sitting on long term support and has fully retraced the gap up/open window created two earnings releases ago in February. Although not good for KORS earnings, the numbers reveal that shoppers are out and buying.

There are a few other big name retailers slated to release earnings this week including Coach with the rest of the group spread out over the next 2 to 3 weeks. The Retail Sector Spyder, XRT, gained over 1.25% today, moving above the long term 150 day moving average. Today's action is a continuation of a bounce indicated by a long legged doji formed Friday. The doji formed while testing my support line, at or near the center of a long term range for the ETF. The indicators are consistent with support at this level and could lead the ETF to the upper end of the range provided a break above the short term moving average can be sustained. Upper targets on a break are $87.50 and $89 with support just below along the $83 level.

AIG reported after the bell. Expectations were high for the insurance giant and it soundly beat them. The company also announced a $2 billion buy back and sent the stock soaring 2.75% in the after hours session. This is a continuation of a long term moving average bounce begun today and takes the stock back over the short term moving average.

The Indices

The VIX fell by over 12% today. Dropping below/into a support a potential support zone. The fear gauge looks good to continue down through this small range just below 15 and down to the 12.50 area. What it does there could be indicative of the future of the rally. I would consider a drop below and back to the “new normal” bullish whereas a hold above may mean longer term fear is moving back into the market but that does not necessarily mean reversal, or even correction, is on the way.

The S&P 500 tied with the NASDAQ Composite for lead today. The broad market and the tech sector both gained 0.72%. The broad S&P 500 index climbed back above the long term trend line in a price action confirmation of the long term trend. This is in line with previous trend line bounces over the past two years, 7 times not counting the initial point from which the line is drawn. The indicators are bearish but indicate an oversold extreme in the near term, also in line with previous trend line bounces. There may be some more action around or below the trend line but providing fear remains at bay I expect to see the index continue on with the trend. There is some technical resistance ahead around 1960 and 1980 but it is near term in nature. Economic data will be the key, we need to see it in the Goldilocks range of slow steady growth, not too hot and not too cold.

The tech heavy NASDAQ Composite also gained 0.72% today regaining an important long term support above the March long term high. The index fell short of the round number 4,400 and the short term moving average which may provide near term resistance. The indicators are bearish but in line with a test of support. There may be some sideways action and/or retest but the longer term trend is intact and seems to be taking back control from near term fear.

The Dow Jones Industrials climbed by 0.46% or or 75 points. The blue chips moved up today from the long term moving average and the 16,500 level in a confirmation of the strong support zone I highlighted in earlier wraps. This zone formed in the early part of the year between 16,250 and 16,500 as the index was moving up to, testing and breaking out to new highs. The indicators are bearish and pointing lower at this time but also consistent with a near term extreme and potential long term bullish entry point. There is some resistance ahead, namely the previous all time high which is just a hair above the current level. This level was broken down by earlier action so may not be that strong now. A break above this level could take the index back up to 17,000 pretty quick while a drop below would find additional support within the zone down to 16,250.

The Dow Transports were the lagging index in today's mix. The trannies only climbed by 0.35% but did confirm short term support along the down sloping top of the previously broken flag pattern. The long term trend is still up but there is some risk the index will continue to bob along this down trending support until it reaches the long term trend line. The indicators are bearish, and like the other indices, consistent with a near term bearish extreme during a bull market. The question is, was today the peak, a peak or merely a stopping off point as the index consolidates over the next week or more? It is possible that there is some rotation out of the transport and into other areas which could keep it moving sideways.

Today was a day in which the indices, the SPX specifically, were at a major technical level and a point in which the long term trend could start to take over or begin to break down. Today's action was a little wishy washy at first and I have to admit I was a little nervous this morning. The open was positive and stayed that way for a while, there was a dip into the red and test of support but buyers were active. The S&P 500 found support and was lifted back in line with the long term trend. Now that the near term fears have subsided the long term fundamentals can shine again. Earnings growth is good, the economy is trending higher and the expectations are still positive. Tomorrow be on the look out for more earnings and economic data in the form of Factory Orders and ISM Services. Both are expected to rise from last month.

Until then, remember the trend!

Thomas Hughes

New Plays

Not Growing Fast Enough

by James Brown

Click here to email James Brown


Six Flags Entertainment - SIX - close: 38.28 change: -0.01

Stop Loss: 39.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 909 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Everyone loves to have fun. The trend of stay-cations that started during the financial crisis of 2008-2009 has probably driven a lot of traffic toward domestic amusement parks. Shares of SIX have definitely performed well these last few years with a rally from its 2010 lows near $8.00 to 2014 highs near $43.00. Unfortunately the momentum may be slowing down.

According to the company website, "Six Flags Entertainment Corporation is the world's largest regional theme park company with $1.1 billion in revenue and 18 parks across North America. The company operates 16 parks in the United States, one in Mexico City and one in Montreal, Canada. For more than 50 years, Six Flags has entertained millions of families with world-class coasters, themed rides, thrilling water parks and unique attractions including up-close animal encounters, Fright Fest® and Holiday in the Park®."

The last earnings report was July 21st. SIX managed to beat bottom line estimates but revenues were a miss. Wall Street expected Q2 revenues of $396 million. SIX only reported $376.5 million. On the plus side SIX said that their amusement park guests were spending more once they got into the park. SIX also reported +9% growth in their season pass business. Unfortunately, attendance was down -8% in the second quarter. Oddly enough SIX blamed the harsh winter on slower Q2 attendance and some analysts were questioning that excuse. Goldman Sachs recently removed SIX from their buy list following the revenue miss. SIX is growing but it is not growing fast enough to justify its current valuations. The stock is trading with a P/E ratio near 32 compared to the S&P 500's P/E closer to 16.

Technically shares of SIX appear to have formed a bearish double top with the peaks in March and June. Now SIX is on the verge of breaking a long-term trend line of support (see weekly chart below).

The post-earnings reaction low was $37.12 on July 21st. We are suggesting a trigger to open bearish positions at $36.90.

FYI: SIX does have options but the spreads are so wide they are untradeable.

Trigger @ $36.90

- Suggested Positions -

Short SIX stock @ $36.90

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

Market Snaps 4-Day Losing Streak

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 index ended a four-day losing streak with bounce on Monday.

SFTBY was stopped out. DB was triggered. DSW was closed this morning.

Current Portfolio:

BULLISH Play Updates

Hewlett-Packard Co. - HPQ - close: 35.33 change: +0.14

Stop Loss: 33.20
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
Listed on July 19, 2014
Entry on July 23 at $35.35
Time Frame: 8 to 12 weeks
Average Daily Volume = 8.9 million
New Positions: see below

08/04/14: Monday was a relatively quiet session for HPQ. The stock hovered just below short-term technical resistance at its 10-dma.

Conservative traders might want to move their stop closer to $34.00.

Earlier Comments: July 22, 2014:
Hewlett-Packard was famously started by two Stanford University students back in 1939 in a rented garage. The business that started inside a one-car garage has grown into a massive $65 billion company. Today the company makes printers, personal computers, software, IT services and infrastructure.

It has been a good year for old school technology companies. Microsoft (MSFT) is up +19.8% this year. Intel (INTC) is up +31.2%. HPQ is currently up +23.3%. All three of them are outperforming the major U.S. indices. What's also noteworthy is that all three appear to be benefitting from MSFT's decision to discontinue technical support for its Windows XP operating system.

In April this year Microsoft announced they would stop providing support for XP after 13 years. Instead of upgrading their software the data suggests that many consumers and business have chosen to upgrade their entire computer. Why is that significant? As of April over 25% of computers connected to the Internet were still using XP.

This upgrade cycle was definitely a boon for Intel (INTC). INTC recently reported significantly better than expected earnings and a lot of that was due to stronger PC sales, especially from business clients. This same story will probably be bullish for HPQ as well.

Shares of HPQ have been slowly marching higher and currently sit at two and a half year highs. The stock looks poised to breakout past its mid-June peak. Today's high was $35.29. We are suggesting a trigger to open bullish positions at $35.35.

The Point & Figure chart is forecasting a long-term target of $47.00. We probably won't hold on to HPQ that long since the company is scheduled to report earnings on August 20th.

- Suggested Positions -

Long HPQ stock @ $35.35

- or -

Long Sep $35 call (HPQ140920C35) entry $1.49*

07/23/14 triggered @ 35.35
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

The Charles Schwab Corp. - SCHW - close: 27.69 change: +0.24

Stop Loss: 26.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 30, 2014
Time Frame: 9 to 12 weeks
Average Daily Volume = 5.2 million
New Positions: Yes, see below

08/04/14: SCHW displayed relative strength with a +0.87% gain compared to the S&P 500's +0.7% rise today. Currently we are still on the sidelines waiting for a new relative high. Our suggested entry point is $28.75.

Earlier Comments: July 30, 2014:
The S&P 500 index is hovering at record highs and currently up +6.5% this year. Yet trading volumes have fallen. Trading was down in the first quarter this year and slowed again in the second quarter. The drop in trading activity is pressuring brokers like E*Trade and TD Ameritrade. Yet SCHW seems to be having a great year. Instead of focusing on trading activity SCHW has been focused on wealth management services and it's working.

According to SCHW's press release, "The Charles Schwab Corporation is a leading provider of financial services, with more than 325 offices and 9.3 million active brokerage accounts, 1.3 million corporate retirement plan participants, 950,000 banking accounts. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors."

SCHW reported earnings on July 16th and earnings rose +27%. They added $22.7 billion in assets in the second quarter. They're up $351 billion in assets from a year ago. That's a +17% jump from June 2013 and the company ended the second quarter with a record-setting total of $2.40 trillion in client assets. SCHW's quarterly revenues were up +10.5% to $1.48 billion, just enough to beat Wall Street's estimates.

SCHW is not a fast-moving stock but the company is executing on its plan to focus on services instead of trading and it has been a winning formula for them. Today saw SCHW outperform the major indices with a +2.0% gain. This happens to be a multi-year closing high. Tonight we're suggesting a trigger to open bullish positions at $28.75. We're not setting an exit target tonight but our time frame is 9-12 weeks.

Trigger @ $28.75

- Suggested Positions -

buy SCHW stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the 2015 Jan $30 call (SCHW150117C30)

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

Skyworks Solutions - SWKS - close: 52.12 change: +0.05

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.3 million
New Positions: Yes, see below

08/04/14: SWKS saw an afternoon rally today but it wasn't enough to hit our suggested entry point at $52.65. I do not see any changes from the weekend newsletter's new play description.

Earlier Comments: August 2, 2014:
The semiconductor stocks have led the market higher most of the year but the SOX semiconductor index has reversed sharply in the last couple of weeks. This correction in the SOX has shaved its year to date gains to +13.9%. Shares of SWKS have not seen the same pullback and this semiconductor stock is up +82% this year and looks poised to keep the rally going.

Who is SWKS? According to the company website, " Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

SWKS is probably best known for being a component supplier for Apple's iPhones. SWKS is also supplying components to Amazon.com for that company's new Fire Phone.

SWKS soared in mid July following a better than expected earnings report. Wall Street was looking for a profit of 80 cents after SWKS guided higher to 80 cents in June. They still managed to surprise with a bottom line profit of 83 cents a share. Revenues soared almost 35% to $587 million, which was better than the $570 million estimate, up from $535 before SWKS's June guidance. SWKS management also raised their guidance going forward.

Following SWKS's much better than expected report there was a wave of bullish analyst comments. Several firms raised their SWKS price targets into the $60-65 zone. SWKS's bullish guidance is probably due to Apple's new iPhone 6, which is expected to be unveiled in September. Odds are good that SWKS will rally into Apple's product launch in September.

Shares of SWKS were showing relative strength on Friday with a bounce from support near $50.00 and a bullish engulfing candlestick pattern. We are suggesting a trigger to launch bullish positions at $52.65.

Trigger @ $52.65

- Suggested Positions -

buy SWKS stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the Nov $55 call (SWKS141122C55) current ask $2.85

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

BEARISH Play Updates

Aaron's Inc. - AAN - close: 26.66 change: +0.26

Stop Loss: 28.55
Target(s): To Be Determined
Current Option Gain/Loss: +3.9%
Entry on July 30 at $27.75
Listed on July 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 809 thousand
New Positions: see below

08/04/14: The oversold bounce in AAN continued on Monday with shares adding about +1%.

We are not suggesting new positions at current levels.

Broken support near $28.00 should be resistance.

Earlier Comments: July 29, 2014:
Shares of AAN are down -3.7% for the year. Honestly, I'm surprised it's not down a lot more. The company is in the lease-to-own space for residential furniture, consumer electronics, home appliances and more. They have over 2,000 locations in the U.S. and Canada.

Back in February this year AAN reported earnings and guided lower. On April 15th AAN issued a new earnings warning and blamed it on the harsh winter weather. AAN reported earnings just a couple of weeks later and lowered guidance again. AAN issued yet another earnings warning on July 15th. Then when the company reported earnings on July 25th they lowered guidance yet again. With this many warnings I'm surprised investors have not left this stock like rats fleeing a sinking ship.

So why in the world were shares of AAN surging in May and June? Management has been battling with its second largest shareholder for months. In May they moved to declassify the board of directors. This means shareholders can remove all of the board members all at once if they choose to, on an annual basis. Naturally board members who want to keep their job tend to produce more shareholder friendly policies in a situation like this. I suspect this was the driving force behind the May-June rally.

Then the latest round of earnings warnings in July have completely erased all of their gains. Today shares of AAN are sitting near support at the $28.00 mark. The $27.85 level appears to be the level to watch. Tonight we're suggesting a trigger to launch bearish positions at $27.75.

I would consider this more aggressive trade. AAN is down significantly this month and could see another oversold bounce. Just because the path of least resistance is now down doesn't mean AAN can't ricochet higher once in a while.

NOTE: AAN does have options, which might be a way to limit your risk instead of shorting the stock. Unfortunately the option spreads look a bit too wide to actually trade them.

- Suggested Positions -

Short AAN @ $27.75

07/31/14 new stop @ 28.55
07/30/14 triggered @ 27.75

Cepheid - CPHD - close: 39.34 change: +0.57

Stop Loss: 40.51
Target(s): To Be Determined
Current Option Gain/Loss: -0.4%
Entry on July 28 at $39.20
Listed on July 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 680 thousand
New Positions: see below

08/04/14: The oversold bounce in CPHD continues with a +1.47% gain today. The stock is nearing what should be resistance at its 10-dma and the $40.00 level.

I am not suggesting new positions at this time.

Earlier Comments: July 26, 2014:
CPHD is in the technology sector. If you look deeper the company operates in the scientific and technical instruments industry. According to the company's website, "Cepheid is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests. By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer."

CPHD, like most of the U.S. stock market, had a great 2013. Unfortunately the rally peaked in February-March 2014. This stock set its all-time highs in the $55-56 zone. Market watchers already know that momentum and high-growth names were crushed during the March-April market pullback. CPHD was no exception. The stock corrected from $55 to $40. It looked like CPHD was on the path to recovery but then the stock collapsed again in the last two weeks.

The problem is CPHD's earnings. The company reported earnings on July 17th. Their adjusted results for the second quarter of 2014 was a loss of 10 cents a share. That was better than Wall Street's estimate for a loss of 13 cents a share. CPHD delivered pretty solid revenue growth. Sales in the second quarter surged +21.4% to $116.5 million. That came in better than analysts were expecting. Yet CPHD's net results were down -40% from a year ago.

Listening to the company's management paints an optimistic outlook. CPHD's CEO John Bishop said they sold a record-setting 1,084 of their GeneXpert systems last quarter. That's more than all of 2012. Gross margins improved as well with margins rising from 45% to 49%. So why did the stock fall?

Investors sold the stock on disappointing guidance. CPHD expects 2014 revenues in the 4452-461 million zone. That's relatively close to Wall Street's $459 million estimate. Yet CPHD is forecasting EPS of 10 cents to 13 cents. That is significantly lower than analysts' estimates of 20 cents. You can see the reaction in CPHD stock with the big drop on July 18th.

The post-earnings sell-off continues and now CPHD is breaking down under significant support at the $40.00 level. The next stop could be the $36-35 area or lower. Currently the point & figure chart is bearish and forecasting at $29.00 target.

I would consider this a more aggressive trade. The latest data listed short interest at 16.8% of the 68.9 million share float.

Friday's low was $39.26. We're suggesting a trigger to open bearish positions at $39.00.

- Suggested Positions -

Short CPHD stock @ $39.20

- (or for more adventurous traders, try this option) -

Long SEP $40 PUT (CPHD140920P40) entry $2.35

07/31/14 new stop @ 40.51
07/28/14 triggered @ 39.20
Option Format: symbol-year-month-day-call-strike

Deutsche Bank - DB - close: 33.79 change: -0.15

Stop Loss: 36.05
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
Entry on August 04 at $33.45
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.9 million
New Positions: see below

08/04/14: The German stock market was down again on Monday and that helped pressure DB to new 2014 lows. Our suggested entry point was hit at $33.45.

I do not see any changes from my prior comments.

Earlier Comments: August 2, 2014:
Banking scandals continue to plague the financials. Most of us are familiar with the mortgage loan scandal that has haunted the major U.S. banks for the last few years and finally seems to be fading away. Then some of the biggest international banks were hit with the Libor rate fixing scandal. Now some of the big banks are suffering with a dark pool trading scandal. Dark pools are essentially institutional trading that is concealed from the public markets.

If that wasn't bad enough Europe's economy is slowing down. The region was already struggling before the Ukraine-Russian conflict arose. Now with a growing list of sanctions against Russia the impact is starting to accelerate the economic slowdown in Europe. Plus the specter of financial stress in the European financial system has risen again with the recent collapse of Portugal's Banco Espirito Santo, which recently filed for creditor protection.

Add all of these factors together and you can see why shares of DB, one of Germany's biggest banks, might be struggling. The stock Broke down back in March this year and it's been sinking every since. The month of July saw shares consolidate sideways but DB has started to break out of this trading range. The Point & Figure chart is pretty ugly and suggesting a long-term $14 target.

Friday's intraday low was $33.69. I am suggesting a trigger to open bearish positions at $33.45.

- Suggested Positions -

Short DB stock @ $33.45

- (or for more adventurous traders, try this option) -

Long Oct $33 PUT (DB141018P33) entry $1.45*

08/04/14 triggered @ 33.45
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


SoftBank Corp. - SFTBY - close: 35.35 change: -1.08

Stop Loss: 35.75
Target(s): To Be Determined
Current Gain/Loss: -3.4%

Entry on June 17 at $36.68
Listed on June 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 499 thousand
New Positions: see below

08/04/14: SFTBY is the majority stake holder in Sprint (S). Concerns that Sprint could face a bidding war over its proposed merger with T-Mobile plagued shares of SFTBY today. The stock gapped down at $35.42. That was below our suggested stop loss at $35.75.

closed Position: Long SFTBY stock @ $36.68 exit $35.42 (-3.4%)

08/04/14 stopped out on gap down at $35.42
07/24/14 new stop @ 35.75
07/11/14 News hits that SFTBY might buy T-Mobile soon.
06/30/14 new stop $ 35.35
06/17/14 trade opens. SFTBY gapped down at $36.68
note: SFTBY does not have options.



DSW Inc. - DSW - close: 27.29 change: +0.81

Stop Loss: 27.35
Target(s): To Be Determined
Current Gain/Loss: - 0.4%

Entry on July 16 at $26.90
Listed on July 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

08/04/14: DSW outperformed the market with a +3.0% surge today. The rally stalled just under technical resistance at its simple 50-dma. Fortunately, it was our plan to exit this bearish DSW trade at the opening bell. The stock opened at $27.01.

closed Position: short DSW stock @ $26.90 exit $27.01 (-0.4%)

- (or for more adventurous traders, try this option) -

OCT $25 PUT (DSW141018P25) entry $1.05 exit $0.85* (-19.0%)

08/04/14 planned exit at the opening bell
*option exit price is an estimate since the option did not trade at the time our play was closed.
08/02/14 prepare to exit on Monday morning.
07/30/14 new stop @ 27.35
07/18/14 new stop @ 28.25
07/16/14 triggered @ 26.90
Option Format: symbol-year-month-day-call-strike