Option Investor

Daily Newsletter, Tuesday, 5/19/2015

Table of Contents

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

Market Wrap

Internals Fading

by Jim Brown

Click here to email Jim Brown

The Dow may have set another new high by +13 points but the market internals are fading along with the volume as we head towards a long holiday weekend. There is a lot of red on the graphic below and not what you would expect at new market highs.

Market Statistics

The Dow battled to overcome the loss in Walmart and Home Depot after both components reported earnings. Fortunately McDonalds and DuPont helped offset those losses and allow the Dow to close positive. Now all we need is for a new catalyst to appear tomorrow to duplicate the Dow's miniscule gains.

On the economic front the New Residential Construction report for April showed new home starts increased from an annualized pace of 944,000 to 1,135,000. That is +20.2% above the March numbers and +9.2% above year ago levels. It was a blowout report that may have put the Fed rate hike back on the table for earlier this year.

Housing permits increased from 1.038 million to 1.143 million. Housing permits rose +10.1% compared to a decline of -5.5% in March. Permits are seen as a preview of housing starts for the month ahead. Single family permits rose +3.7% while multi-family permits soared +20.5% after a -16.1% decline in March.

Housing completions also spiked from 819,000 to 986,000. Clearly the severe winter weather than lingered in March finally improved and builders took advantage of it by accelerating their activity.

Before anyone gets too excited about the data you need to realize that the numbers are simply back to where they would have been had there not been a sharp weather related drop in March. The weekly mortgage application index is still holding near its post recession lows. More than 50.9% of applications last week were for refinancing instead of new purchases.

The strong rebound in the housing numbers caused the dollar index to spike along with yields on treasuries. Dollar denominated commodities like gold and oil imploded with huge declines. Gold declined -$20 to $1,207 and oil fell -$2.15 to $57.26. This was also futures expiration for the June contract in oil so there was a double impact there.

After the Housing Starts and the Industrial Production report from Friday the Atlanta Fed GDPnow forecast for Q2 GDP is predicting only +0.7% growth. As of May 1st the consensus forecast of 20 Blue Chip economists was for +3.2% growth.

In Q1 the GDPnow ended the quarter predicting Q1 GDP at +0.2% and that is exactly what the BEA reported on the first estimate for Q1.

This suggests the Q2 consensus will rapidly fall to mirror the GDPnow but today's consensus has only fallen to +2.8% growth and that is a significant difference from the +0.7% in the GDPnow. If we get another flurry of economic reports with missed estimates we could easily see a contraction in Q2 GDP instead of growth. That would really mess up the Fed's rate hike desires and I am sure they are seeing the same thing we are today. The strong housing numbers were a rebound from an ugly, weather related March and not indicative of future improvement along the same lines.

The calendar for Wednesday has the FOMC minutes and given the spike in residential housing starts this will be even more critical for Fed forecasting. The Philly Fed Manufacturing Survey on Thursday is the last major report for the week. A decline there would kill the Fed's rate hike hopes.

The Dow suffered a blow this morning from Walmart (WMT) after the company reported earnings. The -$3.50 drop in Walmart shares knocked about 27 points off the Dow and kept the index in negative territory early in the day. The company reported a 7% decline in Q1 profits as a result of the strong dollar, increased spending on its online business and higher worker wages. Same store sales rose only +1.1% but it was the third consecutive quarter of gains after a long dry spell. Analysts had expected slightly more at +1.5%. Walmart raised the minimum wage for its hourly workers to $9 in April and will increase that to $10 by February 2016.

The company is spending $1.2-$1.5 billion this year to upgrade its online operations ahead of the launch of a preferred customer program for $50 a year to receive free shipping on anything they sell. This is to compete with Amazon's $99 prime membership.

Earnings of $1.03 missed estimates by a penny. Revenue of $114.83 billion missed estimates for $116.27 billion.

Dow component Home Depot (HD) started the day off with a bang and a spike to $116.50 after reporting earnings of $1.16 that beat estimates by a penny. Revenue of $20.891 billion beat estimates for $20.812 billion. Same store sales rose +7.1% and better than the +6.6% analysts expected. The company also raised full year guidance from $5.11-$5.17 to $5.24-$5.27 per share. Analysts were expecting $5.23. They raised revenue estimates from +3.5-4.7% to 4.2-4.8%.

The store said heavy late winter snow in March depressed sales but they rebounded in April. The items in demand in Q1 were tools, decor, lighting, plumbing and accessories. The company said the housing sector is alive and well and people are spending to upgrade/repair their homes.

Shares declined -$4 from the opening spike as sellers appeared all across the retail sector.

The retail sector was hurt after the Walmart earnings and the even bigger disappointment from Urban Outfitters (URBN). Shares of URBN fell -15% after the company reported earnings of 25 cents that missed estimates for 30 cents. Revenue of $739 million also missed estimates for $757.6 million. The biggest challenge came from the Anthropologies brand where sales rose only +1% and analysts were expecting +4.7%.

Another problem is the price point. Urban's prices are higher than some competing chains like H&M or Forever 21, which sell for about 50% of the price at Urban. Consumers can browse Urban and then buy the similar style at other retailers for less. Urban is seen as a style leader but in the fashion world that only buys you a couple months before everyone else has copied your fashions. The 18-28 year-old demographic that shops at Urban is also broke. They have less disposable cash today than in years past and that means they are looking for the stores with the best bargains rather than the trendy high priced clothes.

The cash strapped consumer is becoming a problem for all retailers and not just Urban. This is our new sign of the times.

After the bell Etsy Inc (ETSY) reported a loss of -84 cents compared to expectations for a profit of 3 cents. Revenue of $58 million matched estimates. Gross sales rose +28% to $531.9 million. Etsy only gets a fee off the merchandise it sells rather than counting its sales as revenue. Active sellers increased +26% and active buyers rose +36%. Unfortunately operating expenses rose +73% to $42.7 million. The company said it was going to increase the pace of spending in Q2. Shares fell -20% in afterhours trading.

Red Robin Gourmet Burgers (RRGB) reported earnings that rose +34% to $1.10 and well over estimates for 88 cents. Revenue rose +16% to $394.9 million compared to estimates for $395.5 million. The chain has 517 locations and same store sales rose +3.1% while the average guest check increased +2%. Shares rose +15% on the news.

Social network company Momo (MOMO) certainly gained some momentum after it reported a +383% increase in revenue to $26.3 million. Earnings jumped to $6.7 million, up from a $1.2 million loss in the year ago quarter and a $10.5 million loss in the December quarter. They predicted revenues in Q2 of $32 million, which would be a +275% rise. Monthly active users hit 78.1 million in March, up +83%. Shares rallied +27% on the news. This officially makes them acquisition bait.

Earnings for tomorrow are headlined by Salesforce.com and Low's with Staples and Target filling up the calendar.

Yahoo (YHOO) shares fell -8% just before the close on worries the IRS could be changing the tax consequences of tax-free spinoffs. The proposed change would affect small businesses spinning off larger businesses. Yahoo owns 15% of Alibaba worth about $35 billion. That represents about 92% of Yahoo's market cap of $38 billion. Yahoo is planning to spin off its remaining 384 million Alibaba (BABA) shares later this year in a tax-free deal. If that tax-free status changes it would be a major blow for Yahoo. Starting today the IRS said it was putting any tax-free requests on hold until the issue is studied and a determination is made.

This could also impact Ebay's spinoff of PayPal later this year.

Computer Sciences Corp (CSC) said it was going to split into two companies. One will serve commercial and government clients globally and one to serve public sector clients in the USA. Existing shareholders will own both companies. They also said they declared a $10.50 special dividend as part of the split. The breakup will be completed by the end of October.

They also reported earnings of $1.26 compared to estimates for $1.20. Revenue of $2.91 billion was short of estimates for $2.96 billion as a result of the strong dollar. Shares rallied about $4.50 in afterhours.

Goldman Sachs (GS) has turned into a party pooper. In a note posted on Saturday they predicted the average price for 2015 for Brent crude would be $58, up from $52 and WTI would average $52, up from $48. While they did raise their forecast you probably noticed that it is about $10 below where crude was trading last week.

Goldman said WTI would remain pressured by excess production and Brent would decline over time to reach $55 by 2020. The "lower for longer" oil forecast was a serious drag on energy stocks and they downgraded the sector from neutral to cautious. Last week they said the rebound in oil prices was premature but nobody really paid any attention. This time everyone listened.

Goldman said the U.S. oil shale production would meet global demand needs for the next decade. I don't know what these analysts were smoking but I want some of it. This is probably the worst call Goldman has ever made. While U.S. shale production can continue to grow over the next two years the long term viability is very poor. Initial decline rates are in the 75% range in the first year and then 35% per year after that. We would have to drill wells at the early 2014 rate of about 9,000 per quarter forever to maintain production much less increase it past 2017. Unfortunately there are not enough prospective well locations to maintain that pace. Most shale drillers will have drilled their core locations by the end of 2016 and be forced to move to the fringe areas that produce less and deplete even faster.

I hope Goldman covers their shorts soon because I doubt any serious investor is going to believe this forecast. It will be interesting to see what OPEC does at its June 5th meeting.

Crude did decline -$2 today but the June futures also expired today and that normally produces a spike in volatility. The dollar also spiked on the housing starts and that means it takes less dollars to buy a barrel of oil.


This is not the way new market highs are normally formed. The Dow and S&P closed at new highs on Monday but just barely. Today the Dow barely squeezed out a gain of +13 points to close at a new high while the S&P lost a point. Typically new highs drag cautious fence sitting investors off the sidelines as the indexes surge higher. This is even more common when the old high was weeks in the past and clearly defined resistance.

Volume on Monday was only 5.38 billion shares and the second lightest day of the year. That is hardly a rousing burst of conviction on a day when the Dow and S&P are making new highs. Volume on Tuesday was slightly higher at 6.1 billion but it was roughly 2:1 declining over advancing volume. You want the higher volume on up days and lower volume on down days. That is not what we are seeing today and volume is only going to decline as the week progresses towards the long Memorial Day weekend.

While I would like to be bullish at the new highs the market internals are not confirming a bullish trend. On the S&P only 73.6% of the stocks are trading above their long-term 200-day average. That is hardly bullish. Only 63% of the stocks have a bullish Point and Figure chart.

Obviously these things can change for the better. What we are lacking is a catalyst that makes investors want to buy stocks ahead of the summer doldrums. I don't see what that catalyst will be. We already got news from Europe that they were going to front load their QE purchases so we can mark that off the list. EU officials have given Greece until May 29th to agree to a plan or else. I don't know what that "else" will be but there is an implied threat. Clearing up the Greek issue would be market positive to some extent but I think most U.S. investors have already discounted it and just wish it would go away.

MatlinPatterson's chief risk officer Ashwin Bulchandani said in a note on Monday, "Regardless of how the Greek impasse resolves itself, the global financial markets' ability to blissfully ignore Greece suggests that it expects one of two outcomes: (i) that a Greek default/exit is nowhere in the realm of possibility, or that (ii) even if Greece were to exit the Euro, the authorities have appropriately 'foamed down the runway' to curtail any contagion and the world will emerge largely unscathed from Grexit."

The earnings cycle is basically over. There are a couple of blue chips left to report but there is more downside risk than potential upside surprise. If Hewlett Packard surprised to the upside on Thursday would it really move the market?

The Nasdaq is lagging the other indexes even though the biotechs continue to surge. The tech excitement has left the building. The old tech giants like Microsoft, Intel, Qualcomm, Oracle, barely have a pulse. If it were not for the biotech rally the Nasdaq direction would significantly lower. One sector can't continue to pull the index higher forever. Eventually it will need help.

The S&P has traded above its March high of 2117.69 for three days now and only managed a 10 point gain over that level. This is positively lethargic as new high breakouts go. There were 249 decliners and 209 advancers on the S&P on Tuesday.

Initial support is now that 2117 level followed by 2100. Resistance is 2130 and 2150.

Remember the periods of volatility where the Dow was moving 200-300 points every day and in opposite directions. Just look at all the tall candles on the chart below and it will bring back those memories. Now look at the three tiny candles on the upper right where the Dow limped to a new high. That is hardly encouraging.

On Thursday the Dow closed at 18,246 and it closed at 18,313 today. That is a gain of +67 points and two of those days were new highs. The Dow is barely clinging to that 18,300 level. Of course we can blame Walmart for -27 points on the Dow today. Tomorrow it will be somebody else.

The Dow was also helped by McDonalds and DuPont and that rarely happens. McDonalds was up on falling bacon prices, down -45% at the wholesale level. Expect even more bacon burgers to be sold. They also sold 2 billion in bonds denominated in euros and launched another $2 billion sale in dollars in order to return cash to shareholders. OK, now that is old news. What is going to spike McDonalds tomorrow?

Initial support is 18,225 and then 18,050. Resistance is anything over today's high of 18,350.

The Nasdaq is struggling to move higher. As volume shrinks for the rest of the week it could find gains even more elusive. Stocks with problems are blowing up and the earnings reports that have produced some gains are disappearing. If the biotechs decide to take another rest it could be ugly.

Resistance is 5080 and 5110 with initial support at 5040 and 5000.

The small cap Russell 2000 has begun to inch its way higher but at a snail's pace. There is strong resistance at 1267 and 1272 with the historic high at 1275. The Russell has a tough path to a new high but it is not impossible. Investors simply have to come off the sidelines and start buying stock ahead of the summer doldrums. With investor sentiment 47% neutral something would have to change to make that happen. What would be the catalyst?

Last but not least the Dow Transports slipped again. They lost -66 points on a day when crude oil was down over $2 and Goldman is forecasting a return to $45. In theory they should have been surging higher on cheap fuel and the hope that the housing start rebound was the first sign of an economic rebound. Unfortunately that surge did not happen.

The transports are critical to Dow Theory and should be confirming the new high in the Dow Industrials with a new high of their own. While Dow Theory has been around forever the actual linkage between the two indexes has seemed to weaken in recent years. However, if the transports break below that support at 8600 I think we would immediately see that linkage return and the Dow Industrials decline as well.

While I am not bearish I am becoming concerned. Weak volume at new high breakouts is sending a lack of conviction signal that tells other investors they may be better off waiting on the sidelines a while longer.

Quite a few analysts believe at least a minor correction is imminent. Others are praying for a real correction of 10% to clear out all the uncertainty and produce a significant buying opportunity. Since the market exists to make the most fools possible at any given time I am still cautiously long until proven wrong. As we all know the market conditions can reverse in a heartbeat in either direction.

There is always the potential for the FOMC minutes on Wednesday afternoon to show that the Fed was easing off its "ready to hike" status because of the mixed signals coming from the economy. Whether a more dovish stance by the Fed would lift the markets ahead of the holiday weekend is unknown. However, with the weak volume any increase in buying activity could produce a decent spike. I can't say for sure but I would bet a bacon burger that there are plenty of investors loading up on short positions because of the lackluster gains in the market. Weak highs are bear bait. They always see the glass half full and are ready to pounce on weakness at any resistance. That also means there is a good potential for a short squeeze.

I would keep some powder dry, that is cash in your account for you northerners, just in case we get a buying opportunity in the days ahead.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Revenues Plunged 50 Percent

by James Brown

Click here to email James Brown


First Solar, Inc. - FSLR - close: 55.28 change: -0.90

Stop Loss: 57.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 19, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: Yes, see below

Company Description

Why We Like It:
Investors may not have the patience for FSLR's plans to form a yieldco. The last several months have delivered some rocky moves in FSLR's stock with a swing from the low $70s down to $40 and then back to $65. Now shares are breaking down again.

FSLR is in the technology sector. According to the company, "First Solar is a leading global provider of comprehensive photovoltaic (PV) solar systems which use its advanced module and system technology. The Company's integrated power plant solutions deliver an economically attractive alternative to fossil-fuel electricity generation today. From raw material sourcing through end-of-life module recycling, First Solar's renewable energy systems protect and enhance the environment."

FSLR's most recent earnings report was on April 30th. Their Q1 results were a disaster. A year ago FSLR earned $1.89 per share for Q1 2014. This year analysts were expecting a loss of ($0.28) per share. FSLR delivered a loss of ($0.62). Revenues plunged -50% from a year ago to $469 million. Wall Street had been expecting $600-636 million in revenues.

Back in February, when FSLR reported its Q4 results, the company had already warned that future revenues would be weak (for multiple quarters) as they prepare to form a yieldco with another solar firm, SunPower (SPWR). At the time, the market didn't seem to care. Shares of FSLR soared on its earnings report back in February.

Three months later and investor sentiment appears to have changed. FSLR commented on their revenue declines in their Q1 report. Here's an excerpt from their earnings report, "The sequential decrease in net sales resulted from retaining projects which would otherwise have generated revenue in anticipation of the Company's announced plans to pursue a YieldCo. In addition, delays on multiple projects in the current quarter, a higher mix of module only sales and the sale of the SolarGen 2 project in the prior quarter contributed to the lower revenue."

A yieldco is similar to a real estate investment trust (REIT) which is designed to produce dividends for investors. Back in February FSLR had announced plans to partner with rival SPWR and form a new company, 8Point3 Energy Partners, as a new yieldco company. FSLR believes that long-term the yieldco will deliver for investors but traders may not have the patience to wait around at current valuations.

Technically shares of FSLR look weak. They are down sharply from their late April, pre-earnings, high near $65.00. There has been very little oversold bounce as shares churned sideways in the $55-57 zone these last several days. The point & figure chart is bearish and forecasting at $45.00 target. Odds are good that FSLR could try and fill the gap from February and that would mean a drop toward round-number support near $50.00. Tonight we are suggesting a trigger to open bearish positions at $54.40.

Trigger @ $54.40

- Suggested Positions -

Short FSLR stock @ $54.40

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

Buy the JUL $50 PUT (FSLR150717P50) current ask $1.08
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

The Afternoon Rally Fades

by James Brown

Click here to email James Brown

Editor's Note:
Selling resumed in the bond market, which drove yields higher. Last week bond market weakness was making stock investors nervous. Market participants might be feeling a little cautious ahead of the FOMC minutes tomorrow.

The U.S. market's attempt at a rally this afternoon faded.

Current Portfolio:

BULLISH Play Updates

Altisource Portfolio Solutions - ASPS - close: 29.53 chg: -0.84

Stop Loss: 28.45
Target(s): To Be Determined
Current Gain/Loss: -5.0%
Entry on May 11 at $31.10
Listed on May 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 777 thousand
New Positions: see below

05/19/15: I'm growing worried about our ASPS trade. Shares underperformed the market today with a -2.76% decline. We're going to try and reduce our risk by moving the stop loss up to $28.45. I am not suggesting new positions at this time.

Don't forget that this is a higher-risk, more aggressive trade.

Trade Description: May 9, 2015:
Shares of ASPS have been crushed from its highs near $170 a share back in late 2013 to almost $12 a share in March this year. That is thanks to the incestuous relationship that ASPS has with a handful of companies all founded by one man - William Erbey. One such company, Ocwen (OCN), is in danger of going out of business as authorities investigate the company on charges of misconduct. There is a risk to ASPS since a large chunk of ASPS revenues come from a relationship it has with OCN. It's not a surprise to see the slide in ASPS shares. However, the sell-off appears to be overdone and the stock may have found a bottom.

ASPS is in the services sector. According to the company, "Altisource Portfolio Solutions S.A. is a premier marketplace and transaction solutions provider for the real estate, mortgage and consumer debt industries offering both distribution and content. Altisource leverages proprietary business process, vendor and electronic payment management software and behavioral science based analytics to improve outcomes for marketplace participants. Altisource has been named to Fortune’s fastest growing global companies two years in a row."

Their most recent earnings report was April 23rd. Earnings soared +72% from a year ago to $0.56 a share even as revenues fell -1.0% to $207.8 million, which was significantly below estimates.

One of the most alluring features for traders to be short-term bullish on ASPS is the opportunity for a short squeeze. The most recent data listed short interest at 41% of the very small 9.6 million share float. That's very high and provides plenty of fuel for a short-covering fueled rally. Of course there is a risk. If OCN loses its legal battle with authorities it could go out of business and that will crush ASPS but that seems unlikely in the short-term. Meanwhile the broader market is pushing higher and poised to breakout, which could help fuel more short covering in ASPS.

The stock is pushing against resistance near $30-31. We are suggesting a trigger to launch small bullish positions at $31.10. I'm suggesting small positions to limit risk because ASPS can be volatile.

*small positions to limit risk* - Suggested Positions -

Long ASPS stock @ $31.10

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

Long JUN $30 CALL (ASPS150619C30) entry $3.00

05/19/15 new stop @ 28.45
05/11/15 triggered @ 31.10
Option Format: symbol-year-month-day-call-strike

Allegheny Technologies - ATI - close: 35.70 change: -1.34

Stop Loss: 34.75
Target(s): To Be Determined
Current Gain/Loss: -1.0%
Entry on May 11 at $36.05
Listed on May 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

05/19/15: Ouch! ATI has completely erased last week's gains. I cautioned readers last night that the $35-36 area was the nearest support but I wasn't expecting ATI to get there so fast. The stock fell -5.0% and tagged its 20-dma before paring its losses and settling with a -3.6% decline today.

I am not suggesting new positions at this time.

Trade Description: May 5, 2015:
It looks like shares of ATI have put in a bottom.

The company is in the industrial goods sector. According to ATI, "Allegheny Technologies Incorporated is one of the largest and most diversified specialty materials and components producers in the world with revenues of approximately $4.4 billion for the last twelve months. ATI has approximately 9,600 full-time employees world-wide who use innovative technologies to offer global markets a wide range of specialty materials solutions. Our major markets are aerospace and defense, oil and gas/chemical process industry, electrical energy, medical, automotive, food equipment and appliance, and construction and mining."

ATI's most recent earnings report was April 21st. Management said their Q1 2015 earnings were $0.09 a share. Depending on who you polled ATI's nine cent profit was either one cent above or one cent below analysts' estimates. Whatever the case their $0.09 profit was a big improvement from the $0.19 loss a year ago. Revenues for Q1 2015 were up +14% from a year ago to $1.13 billion, which was above analysts' estimates.

ATI saw a big improvement from their Q4 with sales up +7% sequentially. This helped drive a +25% improvement in operating profits.

ATI President and CEO Rich Harshman commented on their results, "Aerospace market sales increased 14% in the first quarter 2015 compared to the fourth quarter 2014. We saw double-digit demand growth from both jet engine and airframe customers of 14% and 22%, respectively. First quarter aerospace demand was led by organic growth of our mill products. Sales of our nickel-based alloys and specialty alloys increased 15% and sales of our titanium alloys grew 16% with a good mix of value-added mill products. We expect sales growth of our precision forgings, castings, and components to begin later this year supported by the build ramp of next-generation jet engines."

Looking ahead ATI expects demand from the oil and gas market to remain soft. However, demand from the airframe and jet engine makers should be strong throughout 2015.

The stock broke out from a consolidation pattern on its better than expected Q1 earnings. This helped generate a buy signal on the point & figure chart, which is currently forecasting at $47.00 target. Shares of ATI spent a few days struggling with technical resistance at its 200-dma but they have broken out past this level as well. The past seven months looks like a massive bottoming process for the stock. Now shares are on the verge of breaking out past key resistance in the $35-36 area. We want to use a trigger at $36.05 to launch bullish positions.

FYI: ATI's next dividend ($0.18) is this month. The ex-dividend date is May 22nd. The shareholder record date is May 27th.

- Suggested Positions -

Long ATI stock @ $36.05

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

Long JUL $37.50 CALL (ATI150717C37.50) entry $1.25

05/14/15 new stop @ 34.75
05/11/15 triggered $ 36.05
Option Format: symbol-year-month-day-call-strike

GoPro, Inc. - GPRO - close: 51.85 change: +0.72

Stop Loss: 47.45
Target(s): To Be Determined
Current Gain/Loss: +2.2%
Entry on May 14 at $50.75
Listed on May 13, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.5 million
New Positions: see below

05/19/15: Bullish analyst comments about GPRO on CNBC today helped boost the stock to a +1.4% gain. Piper Jaffray analyst Erinn Murphy said GPRO was undervalued. She has an overweight on the stock with a $66 price target.

More conservative traders may want to move their stop loss higher.

Trade Description: May 13, 2015:
GPRO looks like a short squeeze waiting to happen. This company is the premier brand for wearable "action" cameras.

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

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

GPRO came to market with its IPO in June 2014. The stock opened for trading at $28.65 and by October 2014 shares were nearing $100 per share. That proved to be the peak. GPRO spent the next six months correcting lower and finally bottomed near $37 in March this year. Now the stock is building on a steady trend of higher lows as investors digest the company's massive growth.

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

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

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

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

There are plenty of bears who think GPRO is overpriced with P/E above 47 and rising competition. The biggest argument against GPRO is competition from a Chinese rival Xiaomi who has produced a competitive action camera that they're selling for less than half of GPRO's similar model. GPRO critics are worried this could kill GPRO's growth in China and the rest of Asia. It's too early to tell who will be right but momentum is currently favoring the bulls.

The most recent data listed short interest at 24% of the 55.5 million share float. That's plenty of fuel to send GPRO soaring. Right now the stock is hovering around the psychological resistance level at $50.00. We are suggesting a trigger to launch bullish positions at $50.75.

- Suggested Positions -

Long GPRO stock @ $50.75

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

Long JUL $55 CALL (GPRO150717C55) entry $2.00

05/14/15 triggered @ $50.75
Option Format: symbol-year-month-day-call-strike

Mobileye N.V. - MBLY - close: 47.58 change: -0.22

Stop Loss: 44.95
Target(s): To Be Determined
Current Gain/Loss: -2.2%
Entry on May 15 at $48.65
Listed on May 14, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.2 million
New Positions: see below

05/19/15: MBLY did not see much progress today. Shares have been churning sideways in the $47-49 zone for the last four days in a row. I am adjusting yesterday's session and would wait for a rally past $49.00 before considering new positions.

Trade Description: May 14, 2015:
The future of hands free driving is a lot closer tha you might think. MBLY is leading the charge. Its technology is already in more than three million cars made by companies like BMW, General Motors, and Tesla.

What exactly does this technology due? DAS stands for driver assistance systems. Sometimes you might see it called ADAS for advanced driver assistance systems. This new technology helps drivers avoid collisions with other vehicles, pedestrians, bicyclists, and more while also alerting the driver to road signs and traffic lights.

The company website describes Mobileye as "a technological leader in the area of software algorithms, system-on-chips and customer applications that are based on processing visual information for the market of driver assistance systems (DAS). Mobileye's technology keeps passengers safer on the roads, reduces the risks of traffic accidents, saves lives and has the potential to revolutionize the driving experience by enabling autonomous driving."

MBLY said their technology will be available in 160 car models from 18 car manufacturers (OEMs). Further, Mobileye's technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016.

The company is already developing a system for autonomous driving or hands free driving. They currently plan to launch an autonomous system in 2016 that will work at highway speeds and in congested traffic situations.

MBLY stock came to market in August 2014. Demand was strong enough that they upped the number of shares available from around 27 million to 35.6 million shares. They raised the IPO price from the $22 range to $25. This valued MBLY at $5.3 billion. The first day of trading saw MBLY opened at $36.00. Two months later MBLY traded at $60.00.

The IPO excitement has faded but MBLY's valuation has grown. There are now 216.6 million shares outstanding and the company's market cap is now more than $10 billion.

It's easy to see why investors are optimistic on MBLY. Annual revenues have soared from $19.2 million in 2011 to $143.6 million in 2014. Their revenues last year rose +77% from 2013. Currently a poll of analysts by Thomson Reuters is forecasting sales to rise +50% in 2015 to $218.3 million. Earnings are forecasted to surge +95%.

MBLY's most recent earnings report was May 11th. They reported their Q1 results of $0.08 per share, which was a penny above estimates. Revenues were up +28% to $45.6 million, also above estimates.

Last year the New York Post recently ran an article discussing how the White House might generate a bullish tailwind for MBLY. The National Highway Traffic Safety Administration issued a research report that estimated ADAS type of technology could eliminate almost 600,000 left-turn and intersection crashes a year. They report also suggested that adding FCAM and lane departure technology on big vehicles like over the road trucks could reduce accidents with these huge vehicles by up to 25%. Following this report the White House said they would draft new rules that required this sort of tech in new vehicles.

Most of Wall Street analysts seem bullish. Industry experts forecast the camera-based ADAS market to grow +37% CAGR from 2014 to 2020. Goldman Sachs Recently upgraded the stock to a buy. They believe MBLY will see a 34% CAGR in sales through 2020 and will have 65% of the market by then. MBLY also garnered positive comments from a Morgan Stanley analyst who raised their price target to $68. They believe the street's 2015 estimates for MBLY are too low after the company delivered super strong growth in the last couple of quarters.

Technically shares of MBLY look attractive with a bullish trend of higher lows. The point & figure chart is bullish and forecasting at $69.00 target. Currently MBLY is hovering just below its late April highs in the $48.00-48.50 zone. We want to launch positions on a breakout past this region. Tonight we're suggesting a trigger at $48.65.

- Suggested Positions -

Long MBLY stock @ $48.65

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

Long JUL $50 CALL (MBLY150717C50) entry $2.10

05/15/15 triggered @ $48.65
Option Format: symbol-year-month-day-call-strike

Starbucks Corp. - SBUX - close: 51.42 change: +0.24

Stop Loss: 48.40
Target(s): To Be Determined
Current Gain/Loss: +0.7%
Entry on May 18 at $51.05
Listed on May 15, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.8 million
New Positions: see below

05/19/15: The rally continues for SBUX. Shares added +0.4% and posted its fourth gain in a row. The stock is nearing its late April high near $52.00, which could be short-term resistance for the stock. I would not be surprised to see SBUX tag $52.00 and then retreat a bit.

Trade Description: May 16, 2015:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +23%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pops. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates.

It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week. Investors applauded the news in spite of the in-line results and sent SBUX soaring to new all-time highs the next day.

This earnings scenario, where SBUX delivers results in-line with estimates and rallies anyway, just happened again in late April. Of course it's worth noting that even in-line results still represent exceptional growth.

SBUX reported its Q2 (2015) on April 23rd. Earnings of $0.33 a share were in-line with estimates. Revenues were up +17.8% to $4.56 billion, slightly above expectations. It was their strongest growth in four years. Customers are responding well to new drink options and an updated food menu. They're also developing new delivery options, mobile pay options, and alcoholic drinks available at select locations.

Worldwide same-store sales grew +7%. This was significantly above estimates. It also marked the 21st consecutive quarter where SBUX's comparable store sales were +5% or more.

The company issued mixed guidance. The stronger dollar is having an impact. They see fiscal 2015 results in the $1.55-1.57 range. That compares to Wall Street estimates for $1.57 per share. However, the company's revenue estimates are more optimistic. They're forecasting +16-18% sales growth into the $19.1-19.4 billion zone compares to analysts' estimates of $19.1 billion.

SBUX popped to new highs following its results and then spent the next week consolidating lower. Investors started buying the dips again at its bullish trend of higher lows. It looks like the consolidation is over and SBUX is pushing higher. We want to hop on board. Tonight we are suggesting a trigger to open bullish positions at $51.05.

- Suggested Positions -

Long SBUX stock @ $51.05

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

Long JUL $50 CALL (SBUX150717C50) entry $2.07

05/18/15 triggered @ $51.05
Option Format: symbol-year-month-day-call-strike

Super Micro Computer - SMCI - close: 32.88 change: -0.60

Stop Loss: 31.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 622 thousand
New Positions: Yes, see below

05/19/15: SMCI did not see any follow through on yesterday's rally. Shares actually erased yesterday's gains with a -1.79% decline today. At the moment I don't see any changes from last night's new play description. Our suggested entry point is $33.65.

Trade Description: May 18, 2015:
Sometimes the market's expectations get too high. When a company fails to meet these rising expectations the stock can get punished.

SMCI is in the technology sector. According to the company, "Supermicro® (SMCI), the leading innovator in high-performance, high-efficiency server technology is a premier provider of advanced server Building Block Solutions® for Data Center, Cloud Computing, Enterprise IT, Hadoop/Big Data, HPC and Embedded Systems worldwide. Supermicro is committed to protecting the environment through its 'We Keep IT Green' initiative and provides customers with the most energy-efficient, environmentally-friendly solutions available on the market."

It's easy to see why investors might have big expectations for SMCI. Looking at three of their last four earnings reports SMCI has beaten Wall Street estimates on both the top and bottom line and raised guidance three quarters in a row. It was their most recent report where results seemed to stumble.

SMCI report its fiscal Q3 results on April 21st, after the closing bell. Earnings were up 25% from a year ago to $0.47 a share. Yet analysts were expecting SMCI to report earnings in the $0.49-0.50 range. Revenues were up +26% from a year ago to $471.2 million, but this also missed expectations.

Guidance was also a little soft. Traders were used to SMCI raising their guidance. This time guidance for the current quarter (their Q4) was generally below consensus estimates.

The market overreacted to the disappointment. Shares crashed from $35 to almost $28 following its earnings news. Then traders started buying SMCI in the $29-30 region a couple of weeks ago. The rebound has lifted SMCI back above technical resistance at its 200-dma and back above price resistance near $32.00. We are betting this rebound continues. Tonight we're suggesting a trigger to open bullish positions at $33.65.

Trigger @ $33.65

- Suggested Positions -

Buy SMCI stock @ $33.65

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

Buy the JUL $35 CALL (SMCI150717C35) current ask $1.50

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

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

Synchronoss Technologies - SNCR - close: 46.89 change: +0.14

Stop Loss: 43.85
Target(s): To Be Determined
Current Gain/Loss: +1.7%
Entry on May 11 at $46.10
Listed on May 09, 2015
Time Frame: Exit prior to June option expiration
Average Daily Volume = 527 thousand
New Positions: see below

05/19/15: SNCR started the day on a strong note. Shares managed to rally past technical resistance at its 20-dma and 50-dma. Unfortunately the rally ran out of steam before lunchtime. SNCR saw its gains fade back to just +0.29%. I am not suggesting new positions at this time.

Trade Description: May 9, 2015:
This trade is not for the faint of heart. Shares of SNCR have produced some rollercoaster like moves in the last six months. We want to use that volatility to our advantage.

SNCR is part of the technology sector. According to the company, "Synchronoss Technologies, Inc. (SNCR), is the mobile innovation leader that provides cloud solutions and software-based activation for connected devices across the globe. The company's proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world."

Earnings and revenue growth has been impressive. SNCR has beaten Wall Street's earnings estimate the last four quarters in a row. Meanwhile sales have been growing at a strong double-digit pace. Looking at the last four quarters SNCR reported sales growth of +23.6%, +39.6%, +34.7%, and most recently +34.9%.

SNCR's 2015 Q1 report was announced on April 29th. Earnings rose +26% from a year ago. SNCR's Founder and CEO Stephen Waldis commented on his company's results, "Synchronoss delivered a strong start to 2015, highlighted by first quarter results that were at or above the high end of expectations. During the quarter, both sides of our business contributed to the strong performance, particularly our Cloud Services, which grew by 63% year-over-year. Mobile Operators around the world are capitalizing on the success of how personal cloud can drive important benefits to their valuable subscribers. We are pleased with our successful formula for helping our customers gain adoption and success with our personal cloud platform."

The stock was crushed from $52 to $44 (-15%) during the market's most recent swoon in the last several days of April. The sell-off was also a reaction to SNCR's earnings results. It looks like the sell-off was overdone and investors have started buying the stock near technical support at its rising 200-dma.

Tonight we are suggesting a trigger to launch small bullish positions at $46.10. More conservative traders may want to wait for a rally past the 10-dma instead (above 46.33). We'll try and limit our risk with a stop at $43.85. Keep in mind this is an aggressive play due to SNCR's volatility.

*small positions to limit risk* - Suggested Positions -

Long SNCR stock @ $46.10

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

Long JUN $50 CALL (SNCR150619C50) entry $0.90

05/11/15 triggered @ 46.10
Option Format: symbol-year-month-day-call-strike

Total System Services, Inc. - TSS - close: 41.92 change: +0.01

Stop Loss: 40.75
Target(s): To Be Determined
Current Gain/Loss: +2.2%
Entry on May 08 at $41.02
Listed on May 07, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 843 thousand
New Positions: see below

05/19/15: Most of Tuesday was a relatively quiet session for TSS. Shares did see a mid-afternoon rally above $42.00 but gains faded. Shares closed virtually unchanged.

Tonight we are moving our stop loss up to $40.75. If TSS does see a dip the rising 10-dma should be our first line of defense and it's near $41.20.

Trade Description: May 8, 2015:
Consistently beating Wall Street's earnings estimates has driven shares of TSS to new all-time highs. The company is in the financial sector. The XLF financial ETF is down -1.2% for the year. TSS is up +19% for the year.

According to the company, "At TSYS® (TSS), we believe payments should revolve around people, not the other way around. We call this belief People-Centered Payments®. By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend®, A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions. TSYS' headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEA and Asia-Pacific."

This company has beaten analysts' estimates on both the top and bottom line the last four quarters in a row. Their most recent earnings report was April 28th. Earnings per share soared +41% to $0.54. That was eight cents above estimates. Revenues were up +11.7% to $662.2 million.

A few months ago (January 2015) TSS announced a new 20 million share stock buyback program to replace their old one. Last quarter they repurchased 1.45 million shares. When you include the company's dividend they paid out 73% of their available free cash flow to shareholders.

TSS' President and CEO, Mr. M. Troy Woods, commented on their recent results saying, "As a result of the great start to the year, we are revising our adjusted EPS guidance to grow between 12-14% from the previous range of 11-13%."

Shares of TSS surged to new highs on its earnings report. Since then traders have been buying the dips and the stock set a record closing high today. Tonight we're suggesting a trigger to launch bullish positions at $40.85.

FYI: TSS will hold an analyst day on May 20th.

- Suggested Positions -

Long TSS stock @ $41.02

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

Long AUG $40 CALL (TSS150821C40) entry $2.50

05/19/15 new stop @ 40.75
05/18/15 new stop @ 39.85
05/08/15 triggered on gap open at $41.02, suggested entry was $40.85
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Emerge Energy Services - EMES - close: 38.49 change: -0.70

Stop Loss: 40.35
Target(s): To Be Determined
Current Gain/Loss: -2.2%
Entry on May 07 at $37.65
Listed on May 06, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 413 thousand
New Positions: see below

05/19/15: We had a close call with our EMES trade today. Shares experienced some volatility this morning and briefly traded above round-number resistance at $40.00. The rally failed near its falling 20-dma and the intraday high was only $40.25. Our stop loss is currently at $40.35.

I am not suggesting new positions at this time.

Trade Description: May 6, 2015:
The bubble in fracking sand and proppant stocks popped in 2014. The top in the fracking sand producers was just a couple of months after crude oil peaked last year. The impact of crude oil's decline and the industry's reaction to the oversupply-pricing issue will still be felt for months to come. Just as the oil and gas producers are cutting expenses, mothballing rigs, and delaying new projects, the proppant companies are forced to do the same. EMES recently announced they were canceling plans to build a new silica sand processing facility.

EMES is in the basic materials sector. They're part of the oil services industry. According to the company, "Emerge Energy Services LP (EMES) is a growth-oriented limited partnership engaged in the businesses of mining, producing, and distributing silica sand, a key input for the hydraulic fracturing of oil and natural gas wells. Emerge Energy also processes transmix, distributes refined motor fuels, operates bulk motor fuel storage terminals, and provides complementary fuel services. Emerge Energy operates its sand segment through its subsidiary Superior Silica Sands LLC and its fuel segment through its subsidiaries Direct Fuels LLC and Allied Energy Company LLC."

The earnings picture has been damaged by a very rough pricing environment for EMES' sand. Their Q4 2014 earnings, announced on March 2nd, were $1.01 per share. That was 12 cents below expectations. Q4 revenues were down -1.4% to $242.6 million compared to analysts' estimates of $301 million. That's a huge revenue miss.

The weakness continued in the first quarter. Wall Street was expecting EMES to report Q1 2015 earnings of $0.83 a share on revenues of $264 million. The company only delivered $0.39 per share with revenues down -25.5% to $204 million. The rest of 2015 is expected to remain challenging.

The stock was hammered again on April 24th when EMES management reduced their dividend from $1.41 per share down to $1.00.

The $40.00 level has been support and now shares are breaking down. The most recent data listed short interest at 13% of the very small 14.6 million share float. This time the shorts are probably right but the high short interest could make this a volatile trade. EMES' recent attempt at a bounce has been failing. We want to catch the next leg lower. Tonight we are suggesting a trigger to launch bearish positions at $37.65.

- Suggested Positions -

Short EMES stock @ $37.65

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

Long JUN $35 PUT (EMES150619P35) entry $2.35

05/18/15 Goldman upgraded EMES this morning
05/16/15 new stop @ $40.35
05/07/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike