Option Investor

Daily Newsletter, Thursday, 8/7/2014

Table of Contents

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

Market Wrap

Fundamentals Or Politics

by Thomas Hughes

Click here to email Thomas Hughes
Once again the market tried to stage a rebound but geopolitics persist in keeping them down.


Earnings and economic data had the equities market up this morning in an attempt, once again, at rebounding from recent lows. However, once again, the geopolitical scene stepped in the way and sent the market seeking cover. The as yet unresolved Russia/Ukraine situation continues to deteriorate with Russian troops massed on the border, massive sanctions from the west and new retaliatory sanctions from Russia against the west. New developments include a ban against imports of poultry into Russia and an end to a recent cease fire upheld by the Ukraine government. Adding to the geopolitical scene and tension is the ISIS uprising in Iraq which has reached the point in which our own government is contemplating military support for those displaced by the violence. Needless to say, the market was focused on these issues today.

Market Statistics

Equities were depressed on a global level today. In Asia equities finished mostly lower on uncertain economics and geopolitics. In Europe the feeling was much the same, with the added disappointment of no change to ECB rate policy. The ECB released it's monthly monetary policy decision today and, though largely expected to do nothing, still managed to let some steam out of the market. In his statements following the release bank leader Mario Draghi said that the bank, while not ready to act now, had “intensified preparations” and was “ready to act” on asset purchase plans if the inflationary data warranted it. So far this year EU expansion and inflation have been very tame, well below the 2.0% target rate and Draghi has been saying much the same thing all along.

Here at home early futures trading indicated a strong opening and held that lead following the release of the weekly jobless claims numbers. Claims came in much lower than expected but were not strong enough to overcome near term concerns. After the open the SPX and other major indices held onto some gains for most of the morning before dipping into the red. This was blamed on comments from the NATO chief pledging support for Ukraine in the face of Russian aggression. Following the comments the SPX shed about 10 points, followed by a 70 point drop in the Dow. The market then churned between the daily low and yesterday's closing price after hitting intraday bottom around 12:40. The indices tried to rebound in the mid afternoon but were not able to sustain the move and by 3:00 the market was back down near the low of the day. Late afternoon saw the markets set a new intraday low before the close of trading.

Economic Calendar

The Economy

Today's jobless claims numbers were better than expected, dropping back below 300,000 for the second time. In this week's report claims fell by -14,000 to 289,000. Last week's number was revised higher by 1,000 for a net drop of -13,000 from last week. The four week moving average also moved lower, dropping -4,000 to 293,000. This is the second week the average has been below 300,000 and the lowest it has been since 2/25/2006, on an adjusted, revised and recalibrated basis. Claims also fell on an unadjusted basis, by -10,492 or -4.1%, to 247,133. The states with the biggest gains in claims were Washington State with +426 and New Jersey with 346. The states with the biggest declines in claims were Michigan at -3773 and Ohio with -2,701.

Today's data is a sign, providing the number stands through revision, that job loss is decelerating. I also take it as a sign that turnover in the market, on a short term basis, is slowing and could be a sign of increased job availability. Looking at the table of claims provided by the DLS, from a chartist perspective, it appears as if adjusted claims has dropped below previous support and may be confirming resistance at that level, 300,000. Looking at the table of unadjusted claims, which is presented with last years data as a dotted line, it appears as if the drop in claims is accelerating faster than the seasonal trend of last year.

Continuing claims also fell this week, by -24,000 to 2.518 million. Last week's number was revised higher by 3,000 for a net drop of -21,000. The four week moving average also fell, dropping by -17,000 to the lowest level since 2007. This is just off the low set early last month and a continuation of the long term down trend in unemployment. This number is not an awe inspiring piece of data but is one more incremental improvement in the overall picture. Since March of this year continuing claims has declined by roughly 15%. Total claims also fell in this weeks data, dropping -41,623 from last week. Total claims are not revised but also continue to decline over the long term and are sitting just off the long term low.

The Oil Index

Oil prices spiked by 0.75% today on renewed Iraq fear. The new fear is that we will get involved in some way but as yet the oil infrastructure has not been damaged. However, Kurdish and ISIS forces are fighting in the north and could soon become a problem. WTI gained $0.75 while Brent gained more than a dollar. The Oil Index did not fare so well, dropping by more than one percent on an intraday basis. The index fell below my long term trend line at 1625 but did not drop below the intraday low of last Friday. The indicators are bearish at this time with momentum increasing and stochastic pointing the way lower. There is support at the current level, but more just below along the long term trend line which is my target on a full breach of support. The long term trend is still up so I remain bullish but have caution going into tomorrow and the weekend. There are no major economic or earnings releases but lots of chances for geopolitics to impact oil and equity prices.

The Gold Index

Gold was under pressure in the early part of the day as economic data pointed to the longer term economic uptrend. Later in the day the geopolitical situation helped put a bid back into the metal and drove it up about $6 or $7 to near the $1315 level. Once again gold prices have become a safe haven to run to but once again it appears as if $1315-$1320 is going to provide some resistance. My long term view of the economy is bearish for gold but it may be possible that my view has been priced in. Price action over the past few months has been hard to judge due to clashing economics trends and market fears but basically sideways and around $1300 with no real sign of longer term decline.

I am about to hang up my bearish stance on gold for a more firmly neutral one but not quite yet. This is also true for the Gold Index, providing it can maintain its position above the 150 day moving average. The index traded down today and is sitting just above support, in the middle of a short term consolidation range. This support is consistent with the short term and long term moving averages as well as a previously marked support area. The index is still within a longer term bear market but has created a potential long term bottom this year with a base at $85. Currently the index is within the short term consolidation band, but also near the mid point of the potential double bottom reversal pattern. The indicator are consistent with support along these levels and could be leading the index to move up and test resistance at the $105 level in the short term and possibly the $110 level in the near term. In the end though I think it will come down to gold prices and at this time those seem tied to fear inspired by Putin, Russia and to some extent ISIS and Iraq.

Randgold Resources, one of the top gold producers in Africa, reported earnings that were below expectations. The company posted EPS of $0.53 versus the expected $0.79 and last quarters $0.79. Production for the quarter was down from the first quarter marginally but up from last year. Improvements to operating mines helped to boost production while increasing costs hurt bottom line results. Shares of the stock lost over 1% in today's session, breaking the short term moving average but coming to rest on a long term support. I have two support/resistance lines marked on this chart, forming a zone of potential support coincident with the long and short term moving averages. A break below the upper boundary along the $85 level could see the stock fall down to the lower end and longer term support along the 150 day EMA. Gold prices will have a lot to do with any move in this stock, as they d do with the index so the risk at this time is geopolitics vs fundamental economic improvement and how that plays out in the gold pits.

Royal Gold also reported earnings today, beating the estimates. The company reported $0.96 per share, down 12% from the same quarter last year, but well ahead of the expected $0.29. The gains were made on improvements across the mining portfolio but were centered on the Mt Milligan project. The company reported average price for gold last year was down 19% from the previous year at $1296 per ounce. This is below the $1300 level I mentioned above and perhaps the tipping point for gold stocks. If we can assume the average price for gold sales across the industry is in the $1300 region we can expect gold company profits to rise when gold prices are above and for gold company profits to fall when gold prices are below$1300. Shares of Royal Gold gained 1.63% in today's session, climbing above a long term resistance and Fibonacci retracement level. The indicators are weak but show support is growing at this level along the short term moving average.


The VIX gapped lower today as the open of trading was strong. The VIX opened near the bottom of the one week range, above 15, and traded higher from there as fear crept its way into the market. The fear was capped at the 17.50 line and seems to be capped there for now as the indicators are consistent with resistance and range bound trading. Without a major catalyst to move the market one way or another I see volatility remaining elevated. Geopolitical concerns, where they will lead and how they will hurt the global recovery are in control right now leaving the market susceptible to sharp movements in either direction.

The Indices

The Dow Jones Transportation Average was today's leader, more or less. It lost the least, only shedding -0.22%. The index, today and yesterday, is now sitting on the long term trend line and below some technical resistance. The trend is up and I see no reason for that to change but there are some things to consider. First and foremost is that near term fears are piling up and have been weighing the market down. With that in mind the index now faces resistance and the longer it lasts the stronger it will get. At this time there is no reason to think that Putin/Russia will go away and leave the Ukraine alone any time soon so that is going to be an ongoing problem. Now, long term bull that I am, the longer term picture is still pretty good in my opinion. The data is not too hot and not too cool, just right for slow and steady growth. When that picture comes back into the market focus the long term trend should continue. The index may find further support along the current trend line or on a break below that at the long term moving average around 7,750. The indicators are bearish but at extreme peaks, peaks that usually result in trend following snap backs. The MACD is making an extreme not seen for nearly 3 years while stochastic is overbought in the near term and very close in the short term.

The Dow Industrial Average fell -0.46% in today's session. The blue chips fell from the 150 day moving average to make a new low well inside a strong support zone based on a consolidation pattern earlier this year. The indicators are bearish but momentum is rolling over and stochastic is overbought. The index may go down and touch the bottom of the support range around 16,250 or news could turn overnight and send it up to the upper end of the range. Longer term the trend is up so I am waiting to see what happens tomorrow and next week.

The NASDAQ Composite also fell by -0.46% today, dropping from recently broken support. The indicators are bearish and growing in strength, and added to today's action, look like the index is set to run for the long term moving average about 100 points lower. Longer term the index is still trending up and that will take over sooner or later. In the near term geopolitics are going to be a hurdle that may persist.

The S&P 500 was today's big loser. The broad market lost -0.56%, breaking near term support set earlier this week and falling to a new 2 ½ month low. The correction that began last week has reached the 3.5% mark and could be gaining momentum. The peak on MACD is large here and on the rise but not extreme, yet. Support is indicated just below the current level along the 1900 line with the long term moving average and a long term trend line just below. Tomorrow's action could easily bring the index down to that level at which point I would expect to start seeing some more bullish activity begin. The long term trend is still up and this still looks like a near term correction.

Geopolitics remain in control of the market. Today we saw the expected gain in the early trading due a good piece of data like the jobless claims number but had that gain wiped out by the rising tide of global concerns. While the concerns are still mostly near term in nature the picture has started to change. The weakness that the EU has already been experiencing is likely to be exacerbated by the growing sanction battle between Russia and the West. If this keeps up it could have a longer lasting impact on the market than just a correction. In the meantime our own data is still chugging along, leading us up the path of slow and steady growth. For now I remain a long term bull, with caution in the near term and an eye on the short term. The fundamentals still support a bull market, when that changes so will I. Tomorrow be on the look for productivity numbers, labor costs and whole sale inventories.

Until then, remember the trend!

Thomas Hughes

New Plays

Doesn't Bode Well For Friday

by James Brown

Click here to email James Brown

Editor's Note:

The stock market continues to worry over Russia. Investors are looking for safe havens due to the uncertainty overseas. This is driving money into U.S. bonds with the yield on the 10-year bond down to 2.4% and nearing a new low for 2014. At the same time the volatility index (VIX), also known as the fear index, close near four-month highs.

Traders fret over a potential invasion as Russia sends more troops to the Ukraine border. At the same time things are heating up in Iraq again. There were rumors that the U.S. had launched military airstrikes against the ISIS (a.k.a. Islamic State) Sunni terrorists in Iraq. The Pentagon denied they were airstrikes. Instead the U.S. was airdropping humanitarian supplies to trapped Iraqi minorities in ISIS controlled territory. At least that is the official story.

Traders were selling into the rally this morning. That doesn't bode well for Friday. The S&P 500 still has what should be support at 1900 but the path of least resistance seems to be down (on a short-term basis).

We are not adding any new trades tonight.

In Play Updates and Reviews

Do Traders Fear The Weekend?

by James Brown

Click here to email James Brown

Editor's Note:
There was no follow through on yesterday's market bounce. Are traders afraid of the weekend and what geopolitical headlines it might bring?

SCHW has been removed. SWKS hit our entry trigger.

Current Portfolio:

BULLISH Play Updates

Hewlett-Packard Co. - HPQ - close: 34.82 change: -0.22

Stop Loss: 33.20
Target(s): To Be Determined
Current Option Gain/Loss: -1.5%
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

08/07/14: The early morning pop in HPQ failed at its simple 10-dma and shares rolled over into a -0.6% decline.

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

Skyworks Solutions - SWKS - close: 52.15 change: +0.26

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
Entry on August 07 at $52.65
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.3 million
New Positions: see below

08/07/14: The market's widespread rally this morning was enough to lift SWKS above short-term resistance at $52.50. Our suggested entry point to launch bullish positions was hit at $52.65. Unfortunately the rally didn't last. Like most of the market today shares of SWKS reversed from its morning highs. SWKS actually underperformed with a -1.9% decline to settle on potential technical support at its 20-dma.

I am not suggesting new positions at current levels.

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.

- Suggested Positions -

Long SWKS stock @ $52.65

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

Long Nov $55 call (SWKS141122C55) entry $2.86

08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Aaron's Inc. - AAN - close: 25.05 change: -0.72

Stop Loss: 27.10
Target(s): To Be Determined
Current Option Gain/Loss: +9.7%
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

08/07/14: The underperformance in AAN continues with another -2.79% plunge on Thursday. Shares look headed for the next level of support in the $24.60 area although it's worth noting the $25.00 level was providing some support most of the session today.

AAN is oversold and due for a bounce. More conservative traders may want to take some money off the table now. Tonight I am moving the stop loss down to $27.10.

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

08/07/14 new stop @ 27.10
investors may want to take some money off the table now.
08/05/14 new stop @ 28.05
07/31/14 new stop @ 28.55
07/30/14 triggered @ 27.75

Cepheid - CPHD - close: 38.64 change: -0.17

Stop Loss: 40.51
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
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

08/07/14: CPHD spiked past its 10-dma but reversed lower before lunchtime. Investors may want to tighten their stop closer to $40.00.

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: 32.60 change: -0.22

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
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

08/07/14: The sell-off in Europe continues as investors fret over a slowing European economy and growing worries that Russia is poised to invade the mainland of Ukraine.

Shares of DB gapped open higher at $33.38 but quickly reversed. Tonight we'll move our stop loss down to $35.55.

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*

08/07/14 new stop @ 35.55
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

Fifth Third Bancorp - FITB - close: 19.52 change: -0.16

Stop Loss: 20.65
Target(s): To Be Determined
Current Option Gain/Loss: + 0.2%
Entry on August 06 at $19.55
Listed on August 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 10.2 million
New Positions: see below

08/07/14: FITB's early gains faded and the stock drifted back to short-term support near $19.50. After the closing bell news hit that FITB will pay a $1.52 million fine to the U.S. government to settle charges in a mortgage loan bias case. I don't see any after hours movement in FITB following this news. The company has an annual profit of $1.5 billion so this fine is more like a slap on the wrist.

Earlier Comments: August 5, 2014:
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 @ $19.55

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

Long Nov $20 PUT (FITB141122P20) entry $1.20*

08/06/14 trade begins. FITB gaps down at $19.55
*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: 36.32 change: -0.24

Stop Loss: 39.15
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
Entry on August 06 at $36.90
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 909 thousand
New Positions: see below

08/07/14: Thursday marked another down day for SIX. The stock is on track for its sixth weekly loss in a row. Investors may want to start adjusting their stop loss lower.

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.

- Suggested Positions -

Short SIX stock @ $36.90

08/06/14 triggered @ 36.90

Yandex N.V. - YNDX - close: 28.44 change: -0.44

Stop Loss: 31.10
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
Entry on August 07 at $28.88
Listed on August 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

08/07/14: Our new play in YNDX is off to a good start. Shares opened at $28.88 and fell to a new two-month low.

There is growing concern that sanctions against Russia will crush what was already a struggling Russian economy in addition to pushing the European economy lower. This could eventually effect YNDX's ad sales.

Earlier Comments: August 6, 2014:
Officially registered in Amsterdam, YNDX is actually headquartered in Moscow. They are one of the largest internet companies in Europe. They're also the dominant search engine in Russia with almost 62% of all search traffic.

The company's latest earnings report on July 29th looks bullish. Earnings were 30 cents a share versus the estimate of 29 cents. Revenues soared +32% to 12.2 billion Russian rubles ($361.5 million). That was above estimates for revenues in the $340-358 million range. Their Q2 search queries were up +21% from a year ago. Plus, YNDX reported their number of advertisers was up +25% from a year ago and up +6% from the prior quarter.

In spite of all the bullish numbers investors used the post-earnings rally to sell. The stock action is bearish. The trend of lower highs has now turned into a new pattern of lower lows. Today's drop of -2.3% not only underperformed the market but it broke recent support in the $29.50 area.

The current geopolitical risks between Ukraine and Russia could be pressuring YNDX. The U.S. and Europe have launched multiple sanctions against Russia and Russian companies as a penalty for Russia's support of Ukraine separatists. Yesterday stocks sank sharply on news that Russia was building up troops on the Ukraine border again. It would appear that Russian President Putin will not back down. There is speculation that instead of an actual "invasion" that Russia will send troops across the border as a "humanitarian effort" to protect people. If that does happen the global equity markets are not going to react well and Russian stocks could be hurt the worst.

Tonight we're suggesting bearish positions now at current levels. We will start with a stop loss at $31.10, above the 20-dma and 100-dma.

- Suggested Positions -

Short YNDX stock @ $28.88

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

Long NOV $28 PUT (YNDX141122P28) entry $2.40*

08/07/14 trade begins. YNDX opens at $28.88
*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: 27.14 change: -0.41

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: see below

08/07/14: SCHW underperformed the market with a -1.48% decline. The stock remains inside the $27.00-28.00 trading range. Unfortunately, today's session has produced a bearish engulfing candlestick reversal pattern. It seems unlikely that SCHW is going to hit our suggested entry point at $28.75 soon so we're removing it as a bullish candidate.

Trade did not open.

08/07/14 removed from the newsletter. suggested entry point was $28.75