Option Investor

Daily Newsletter, Tuesday, 8/5/2014

Table of Contents

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

Market Wrap

Russian Worries Return

by Jim Brown

Click here to email Jim Brown

Growing indications Russia is building up troops on the Ukraine border suggests Putin is preparing to invade.

Market Statistics

Just when traders thought it was safe to go back into the market the bottom fell out again. Earlier in the day Ukraine warned that Russia had restored its combat readiness by moving more than a dozen battalion sized combat groups to the Ukraine border. A Ukrainian military spokesman said Russia has moved 192 warplanes, 137 helicopters, 160 tanks, 1,360 armored vehicles and 45,000 soldiers to the border. Russia began a five-day exercise involving more than 100 planes on Monday and some of those briefly crossed into Ukrainian airspace. In the past seven days more than 6,200 people escaped their homes with another 117,000 already displaced inside Ukraine. According to Russian data about 730,000 people fled to Russia when the separatist conflict began. Originally there were only 300 separatist rebels and that number has swelled to 15,000 in recent weeks.

More than 65 towns have been retaken by the Ukraine military and the rebels hold less than half the territory they controlled just four weeks ago. The continuing advances by the Ukrainian military apparently have aggravated Putin and put him in fear of losing the war. His rapid mobilization of troops and equipment are either to invade Ukraine on a "peacekeeping or humanitarian mission" or to threaten and intimidate Ukraine into some kind of settlement. I believe Russia will invade and call it a humanitarian mission to restore peace in the area. Russia's foreign ministry said eastern Ukraine was nearing a "humanitarian catastrophe" and requires immediate international assistance. This appears to be a telegraphed message of what is to come.

Putin has ordered the government to prepare a response to the U.S. and European sanctions. One such response reportedly being considered is to restrict Siberian airspace for Western airlines. This would significantly lengthen their routes and send fuel costs much higher. Some routes would have to be changed dramatically and possibly cancelled. Reports from Moscow claim they are going to prohibit bourbon from Kentucky because of quality control standards. I warned about this last week. Putin frames his restrictions in a public safety format rather than saying it is a rebuttal to sanctions. Welcome to the new cold war.

The Dow dropped more than -100 points at 1:30 when Poland and Estonia both warned a Russian invasion of Ukraine was imminent. Polish Foreign Minister Radoslaw Sikorski told TVN24 TV "That is a lot of equipment. This is the sort of thing one does to exert pressure or to invade."

The Dow declined -198 at the lows but rebounded slightly at the close for a loss of -140. The S&P came within a point of retesting the 100-day average at 1912 and the Nasdaq barely managed to close above 4350. It was not a fun day.

The biggest economic report of the day was the ISM Nonmanufacturing commonly referred to as ISM Services. The headline number came in at 58.7 and the highest reading since the 59.7 in February 2011. New orders rose from 61.2 to 64.9 and the third consecutive month above 60. This is a proxy for what to expect in future months from the rest of the internal components.

The business activity component rose sharply from 57.5 to 62.4. However, backorders were flat at 53.0 and inventories declined from 53.5 to 51. Employment rose from 54.4 to 56. The services index has been improving steadily since January and suggests the economy is improving.

One exception to the good news was a drop in export orders from 55.0 to 53.0 and probably a sign the sharply rising dollar has already started to slow purchases from overseas.

This report will be negative for the Fed's policy. The continued strong growth in services will bring the inflation hawks front and center and the potential appears to be growing for rate hikes sooner rather than later.

Factory Orders for June rose +1.1% and a three month high compared to a -0.5% decline in May. The expectations were for a gain of +0.6%. Durable goods orders were revised up from +0.7% to +1.7% for June. Defense orders rose +6.9% after a -24% decline in May. This report will have a positive impact on Q2 GDP revisions.

The calendar for the rest of the week is light with no reports that could rock the market. This is the lightest three day schedule I can remember.

The earnings calendar is also weak. The biggest names for Wednesday are Green Mountain, Time Warner and Dish Networks. Once this week is over there will be very few companies left to report.

After the bell today Disney (DIS) reported earnings of $1.28 compared to estimates of $1.16. Disney earnings were powered by two major films, Captain America and Maleficent. They were still reaping profits from the largest animated film ever with Frozen. At the same time Guardians of the Galaxy opened last weekend with the largest August box office ever at $94.3 million.

The acquisition of Marvel in 2009 and Lucasfilm in 2012 has given Disney a huge content production force and with Marvel there are dozens of characters that will be given new life on the screen.

Disney saw profits at the theme parks increase +23% to $848 million. They raised the entry price to the Magic Kingdom twice in the past year.

Shares of Disney were unchanged in afterhours trading. Shares have been stuck at the recent highs for the last month after many months of gains.

MGM Resorts (MGM) reported earnings of 21 cents compared to estimates of 10 cents. The company bragged about progress on the new casino in Cotai that will have three times as many rooms as the MGM Macau. The company said it is on budget and will open on schedule in 2016. They also have a $375 million arena under construction on the strip in Las Vegas. They are also renovating the Mandalay Bay in Vegas and it will reopen as the Delano Las Vegas and will cater to a higher paying customer. Shares declined slightly after the report.

First Solar (FSLR) reported earnings of 4 cents compared to estimates for 37 cents and comparisons of 37 cents in the year ago quarter. Revenue rose +4.7% to $544.4 million. They raised the expectations for expenses for the full year from a median of $375 million to $387.5 million. They also cut their production guidance from 1.9-2.0 gigawatts to 1.8-1.9 GW. The blamed the earnings shortfall on some project delays in Q2 that resulted in deferment of some earnings until later in 2014.

That big of an earnings miss would normally crater the stock. Today FSLR shares declined -$3 in afterhours and that was a minor drop compared to what I would have expected.

Zillow (Z) reported a loss of 5 cents compared to estimates for a 4 cent loss. This compares to a 30 cent loss in the year ago quarter. Revenue rose +68% to $78.7 million and beat estimates of $76.5 million. The raised full year guidance for revenues in the range of $322 million compared to analyst expectations of $311 million. Revenue in Q3 is expected to be $87.5 million and 5% over analyst estimates. Shares declined about $2 after the report.

Expeditors International (EXPD) reported earnings of 46 cents compared to estimates for 47 cents. Revenue rose +6% to $1.6 billion and in line with estimates. Gross margins declined from 31.4% to 30.3%. Shares of EXPD declined -5% on the news.

Late today Twenty-First Century Fox pulled its $80 billion offer to buy Time Warner (TWX). The surprise announcement caught investors off guard. Rupert Murdoch cited Time Warner's management and its board's refusal to come to the table to discuss a takeover as one reason for the sudden cancellation of the deal.

Murdoch said the proposal had significant strategic merit and compelling financial rationale and our approach had always been friendly. He said management and the board refused to engage with us to explore the offer. Several analysts said this cancellation would put pressure on Time Warner management to justify why they would not discuss the offer and they speculated this was a negotiating ploy by Murdoch to force Time Warner management to negotiate.

FOXA shares rallied +$3 after the announcement to close the afterhours at $34. Shares had collapsed from $36 after the original offer was made. Time Warner shares fell -$9 in afterhours to close just under $77.

Bloomin Brands (BLMN) collapsed -23% after reporting earnings of 27 cents that missed estimates of 29 cents. Revenue rose +9% to $1.11 billion to beat estimates slightly. The company cut its outlook for the full year from $1.21 to $1.05-$1.10 compared to analyst estimates for $1.22.

The market was trending lower before the Ukrainian news hit the wires. Everyone blamed it on the Polish foreign Minister's remarks but the news had been out for several hours. I read the first draft on Bloomberg about 11:30 ET. Art Cashin was on CNBC warning to watch out for a drop below the morning lows at 1926 and that of course happened at the same time as the Polish comments. There was a mixture of technical weakness and headline weakness that hit about the same time. The S&P had declined to trade in the 1928-1930 range just before the Polish headline broke.

The problem we have tonight is a new intraday low at 1913 that was below Friday's low at 1916. The rebound from that loss was lackluster to close at 1920. The 100-day average is 1912 and uptrend support is around 1900. If the S&P makes a lower low on Wednesday it would be a technical breakdown that could take us to 1900 or even 1885.

If Putin really wanted to cause problems for the U.S. he could produce a headline in the middle of the trading day 2-3 times over the next week and we would be significantly lower. It would not cost him a thing but the effort to make up the headlines. However, I believe he is going to invade the Ukraine and that is going to be market negative. The U.S. won't respond militarily but it means the sanctions are going to worsen and the impact to Europe is going to be ugly with a new recession likely.

The market still has a lot of bulls hoping to buy the dips thanks to the strong earnings and surprising economics. However, the multiple headlines from geopolitical events are probably going to continue to weigh on stocks. This is the perfect month for ugly headlines since it is typically the worst month of the year for the markets.

The Dow was down nearly -200 points at the lows and recovered to end down "only" -139. I doubt anyone is actually cheering for that rebound from the lows. The close at 16,427 is a two-month low and there is serious risk for a continued plunge. The Dow found interim support at 16,400 but any further decline would target something in the 16,000 range. The 200-day average at 16,333 is not expected to be meaningful support because the 30 stock index can be pushed around by any 2-3 stocks at any time.

The Dow is seen as "the market" and I am afraid we are looking at lower lows in the days ahead.

The Nasdaq Composite managed to hold at 4350 again despite a couple intraday dips to the mid 4330s. The Nasdaq lost -31 points but it was not dramatic. It was a general weakness rather than panic in a specific group of stocks. If the 4350 level does break the net support is in the 4250 range with the 100-day at 4258.

If the Nasdaq does break below 4350-4344 it could be a dramatic drop since that support level is so clearly defined.

The strongest index was the Russell 2000. Who knew the small caps would be nearly immune to a potential invasion in Ukraine. The index was positive early in the day and only lost -3 points at the close. The 1120 level has become a price magnet despite stronger support at 1096. I am happy to see the strength in the small caps because that means fund managers are not hiding under their desks. They are actually holding their positions and apparently putting some of that new month end retirement cash to work.

Remember the Russell 3000 I pointed out over the last two weeks? The $RUA actually held on the 100-day average for the last three days. While I have little hope this support will hold it does mean the broader market is not as weak as the Dow would indicate.

I am worried the events overseas along with our normal post earnings depression in August is going to weigh on our markets for the next several weeks. I would be hesitant to add new long positions until a tradable bottom appears. Putin is a wildcard and as evidenced by the comments from Moscow today he is not going to take the sanctions against Russia quietly. We can expect additional events from Russia just so Putin can prove he is not afraid of the West.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

Click the advertisement below for a free trial to the Ultimate Investor newsletter.


New Plays

Breaking Major Support

by James Brown

Click here to email James Brown


Fifth Third Bancorp - FITB - close: 19.66 change: -0.31

Stop Loss: 20.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 10.2 million
New Positions: Yes, see below

Company Description

Why We Like It:
Fifth Third Bancorp started as the Bank of the Ohio Valley in Cincinnati back in 1858. According to the company's press release FITB is now "a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $133 billion in assets and operates 15 affiliates with 1,309 full-service Banking Centers, including 102 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,619 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third also has a 22.8% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest

The stock market's recent dip has reduced the S&P 500 index's 2014 gains to +4.9%. Yet the financial sector has been underperforming. The XLF financial ETF is only up +2.4%. Many of the banking stocks are weighing on the group. The regional banks have performed even worse with the KRE regional bank ETF down -6.9%. If you look at weekly chart of the KRE you'll notice a big bearish head-and-shoulders pattern that has formed over the last several months. This doesn't bode well for the group.

Banks have been struggling with little to no growth. Most are willing to lend but only to customers with the best credit ratings. Even if they do lend money the interest rates today are so low it's tough to make a profit. Housing prices continue to rise but the number of mortgages is shrinking.

FITB reported earnings on July 17th. Last quarter their mortgage banking revenues collapsed -67% from a year ago. FITB's profits plunged fro $591 million Q2 2013 to $439 million Q2 2014. The company did manage to beat Wall Street's estimates by 4 cents a share. Unfortunately FITB management lowered their revenue guidance.

Technically shares of FITB are bearish. They have broken the long-term bullish trend of higher lows (see the weekly chart). They have also recently broken below key support near $20.00.

Tonight we're suggesting bearish positions at current levels (no trigger). We'll try and limit our risk with a stop loss at $20.65.

- Suggested Positions -

Short FITB stock @ (current levels)

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

Buy the Nov $20 PUT (FITB141122P20) current ask $1.17

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

No Follow Through Higher

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. stock market did not see any follow through higher on yesterday's bounce.

Current Portfolio:

BULLISH Play Updates

Hewlett-Packard Co. - HPQ - close: 35.07 change: -0.26

Stop Loss: 33.20
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
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

08/05/14: HPQ spent most of Tuesday's session hovering near the $35.00 level. A rally past yesterday's high ($35.45) could be used as a new entry point.

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: 27.42 change: -0.27

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

08/05/14: SCHW kept pace with the S&P 500 as both fell just under 1% in Tuesday's session. 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: 51.89 change: -0.12

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

08/05/14: SWKS spent the day churning sideways just below its simple 10-dma. 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)

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

BEARISH Play Updates

Aaron's Inc. - AAN - close: 25.82 change: +0.84

Stop Loss: 28.05
Target(s): To Be Determined
Current Option Gain/Loss: +7.0%
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

08/05/14: AAN continues to underperform the broader market and lost -3.1% in today's session. Today's drop is significant since it is a breakdown under the long-term support in the $26.25-26.00 area.

We will lower the stop loss to $28.05.

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

08/05/14 new stop @ 28.05
07/31/14 new stop @ 28.55
07/30/14 triggered @ 27.75

Cepheid - CPHD - close: 39.23 change: -0.11

Stop Loss: 40.51
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
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

08/05/14: CPHD hovered under its 10-dma all day long. Only falling -0.2% while the rest of the market was down -0.9% is a show of relative strength and a potential warning signal. Investors may want to lower their stop closer to $40.00.

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: 32.82 change: -0.97

Stop Loss: 36.05
Target(s): To Be Determined
Current Option Gain/Loss: +1.9%
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

08/05/14: The German stock market index the DAX finally bounced after a multi-day decline. Yet that did not stop the sell-off in shares of DB, which plunged another -2.8%.

Investors may want to start adjusting their stop loss lower.

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

Six Flags Entertainment - SIX - close: 37.27 change: -1.01

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

08/05/14: The sell-off in shares of SIX accelerated today with a -2.6% drop. Yet shares managed to hold on to support in the $37.00 area. Our suggested entry point for bearish positions is $36.90.

Earlier Comments: August 4, 2014:
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