Option Investor

Daily Newsletter, Tuesday, 5/26/2015

Table of Contents

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

Market Wrap

Sudden Reversal

by Jim Brown

Click here to email Jim Brown

The markets rolled over hard and some analysts blamed economic reports for being stronger than expected. In theory this put the Fed back in the headlines. However, the futures were already down well before the reports so they were probably just a convenient excuse for low information investors.

Market Statistics

Fed vice chair Stanley Fischer spoke on Monday and basically said the Fed is going to raise rates. You can expect some "spillover" in the global markets and the Fed is not the central bank for the world. That means the Fed is not going to delay raising rates just because some emerging market economies may decline when they do. The spillover means equity and treasury markets are going to react negatively. Lastly, anyone that does not already know the Fed is going to raise rates has not been paying attention.

Fischer did change his comments slightly from prior speeches. His terminology changed from "the Fed is going to raise rates this year" to "the Fed is going to raise rates based on the data." While that could be seen as a softening of his view Janet Yellen said last week the Fed is going to raise rates this year but she did add the data dependent qualifier.

The market sold off late Friday afternoon. Fischer spoke on Monday. The S&P futures were down -4.50 at 8:PM on Monday. The economic reports came out this morning and a minor rebound in the futures was erased. I guess you could blame both events equally.

The first economic report of the morning was the Durable Goods for April. The headline number declined -0.5% and that was just slightly below consensus of -0.4%. That was still much worse than the +5.1% rise in February that was driven by civilian aircraft orders. The internals were better. Excluding transportation, orders rose +0.5%. Nondefense capital goods ex-aircraft rose +1.0%. Shipments of nondefense capital goods rose +1.6%.

Total backorders were flat at zero and excluding transportation goods down -0.2%. Nondefense capital goods backorders rose +1.6%. Transportation orders fell -2.5% and are now -5.8% below year ago levels with the majority of that decline in civilian aircraft orders.

Calling the durable goods orders positive would be a stretch but analysts were happy that it was not worse. What does that say for us when a "less bad" report generates good feelings?

New home sales for April rose +6.8% to an annualized rate of 517,000 up from 484,000 in March. Analysts were claiming consumers came out of hibernation once the snow melted and they bought homes. Sales in the Midwest rose +36.8% and South +5.8%. Sales in the Northeast declined -5.6% and the West fell -2.3%. Home prices rose +5.3% to an average of $296,500.

I don't understand why analysts were so excited about the April rebound to 517K and talking about the end of winter rebound. February, right in the middle of the severe winter weather saw a sales pace of 538,000. April failed to return to the February levels.

I have my own theory on this. I believe February sales were lifted by consumers applying their yearend bonuses as down payments. They got a big chunk of money and they had it earmarked for a new home. The spike in April could be for the same reason only the money came from tax refunds to help with the down payment. There was probably a better weather factor in April as well. I just don't see a one month bounce in new home sales as being a green shoot showing the economy is rebounding. Let it continue for several months and then I will be convinced.

The Richmond Fed Manufacturing Survey for May rose from -3.0 to +1.0. While it was the first number above zero in four months we can hardly call it a robust rebound. New orders improved from -6 to +2 for the first reading in positive territory in four months. Backorders declined even further into contraction from -8 to -10. That was the seventh consecutive month in contraction.

The employment component declined from +7 to +3 while the average workweek component rose from +4 to +6.

About all we can say for the report is that it was positive and just barely positive. After four months in the tank a reading of +1 is hardly cheerleader material.

The separate services survey rose from 2 to 13 and a three month high. The employment index rose from 9 to 11 and the six-month outlook rose from 18 to 20. Clearly the services sector is rebounding now that warmer weather is here. Services typically see more activity in the spring and summer months when outdoor activities are being held. In the winter months services decline because the activities are limited to indoors.

In the chart below you can see the highly random nature of the Richmond manufacturing survey. There is no trend either up or down and nothing to get excited about on a single month's improvement.

The Texas Manufacturing Outlook Survey for May declined from -16.0 to -20.8 and the fifth consecutive month in contraction. This was also the lowest level since the financial crisis. The production component declined from -4.7 to -13.5. New orders declined slightly from -14.0 to -14.1. Backorders improved slightly from -15.1 to -10.6 but that is still the sixth month in contraction. The average workweek fell from -5.0 to -11.6 and employment declined from +1.8 to -8.2.

There was nothing positive about the Texas report. The continued decline is directly related to the decline in the energy sector so despite the seriously negative numbers there is a qualification. It is not the entire manufacturing sector but simply everything related to energy. It is still bad news for employment in Texas.

Consumer confidence for May improved slightly from the initial reading with a rise from 95.2 to 95.4. Analysts were just glad it did not fall back into the 94s from the prior month. The present conditions component rose from 105.1 to 108.1 and the expectations component declined from 87.1 to 86.9. This revision was ignored.

Personally I don't believe the markets declined on worries over the Fed. The economic reports were too weak to give the Fed any reason to accelerate their rate hike decision. The market decline was more likely due to the weak data rather than the sudden appearance of economic green shoots. The data was mediocre at best.

Contradicting that view was the spike in the dollar to five week highs. Why the dollar spiked so strongly on bad data is a mystery. However, there are a growing number of geopolitical issues that could be giving it a boost. A deal in Greece seems to be slipping away and Greece can't pay the IMF the 16 billion euros due in June. A default is imminent.

Britain is about to vote on leaving the eurozone. While the impact of that vote is unclear it would be a monumental change in the EU.

President Obama and NATO appear to be stepping up warnings over Russia's activities and sabers are starting to rattle.

Yields on the ten-year closed at a two-week low at 2.137% indicating treasuries are being bought. Investor don't buy bonds on good economic news so this is a market tell that suggests those cheerleaders claiming the economic numbers were better than expected should read the reports again.

There is nothing material on the economic calendar for Wednesday. The pending home sales on Thursday should be positive since new home sales rebounded. The big event is on Friday with the GDP revision. The current consensus is for a -0.9% contraction compared to the initial estimate with a +0.25% gain. The Q2 GDPNow forecast from the Atlanta Fed rose one tenth of a point to +0.8% growth. That is hardly an excuse for the Fed to raise rates in the near future.

If the Q1 revision comes in a -0.9% as expected and the Q2 closes at todays +0.8% growth then the first half of the year would have contracted -0.1%. If that ends up being the case then the Fed will be well into 2016 before they hike rates. This makes Friday's revision a critical number.

Stock news was pretty muted today with the Charter (CHTR), Time Warner Cable (TWC) deal the main topic of conversation. Charter agreed to pay $195.71 or roughly $55 billion for Time Warner. The price rose after a last minute attempt to steal TWC by French billionaire Patrick Drahi and Altice SA.

Another Charter acquisition, Bright House Networks, which it is acquiring for $10.4 billion, will be merged into the combined entity.

Previously Charter's $132.50 bid in 2014 was rejected as a "low ball offer" and Comcast jumped in with a higher offer. The regulators would not approve the Comcast/Time Warner deal and that gave Charter a second chance. Including the assumed debt the Time Warner deal is valued at roughly $78.7 billion. Charter will nearly quadruple the number of its subscribers to 17 million. That compares to Comcast at 22 million.

Time Warner shareholders will have two options. They can accept $100 in cash and 0.5409 Charter shares or they can accept $115 in cash and 0.4562 in Charter shares. The deal is expected to close in the fourth quarter and the FCC is not expected to protest. There is a $2 billion breakup fee. Liberty Broadband Corp, headed by John Malone will buy $5 billion in new Charter shares to help fund the deal.

Altice could benefit from acquiring any customers and assets that regulators will require Charter/Time Warner to offload in order to get the deal done. Drahi said he plans to increase his U.S. footprint by acquiring a lot of the smaller operators. Altice has said it is aiming to generate 50% of its revenue from the USA.

The Shack was whacked. Shake Shack (SHAK) was knocked for a -8% loss thanks to the weak market and serious profit taking after a huge run. Late last week there was chatter that a single Shake Shack restaurant was worth about $50 million because of the volume of business and the cult following. Shares rocketed higher but saner minds returned on Tuesday to take profits.

Party City (PRTY) reached the point after its IPO where brokers can finally put ratings on the stock. It was a feeding frenzy. Bank of America and Deutsche Bank initiated with a buy rating. JP Morgan and Morgan Stanley initiated with an overweight rating. Credit Suisse started with an outperform. The party pooper was Goldman Sachs with a neutral rating.

Morgan Stanley said it was time to buy and they put on a $25 target. They expect significant upside in earnings as it adds to its manufacturing base. Party City is adding to its self produced items to lower costs. Goldman disagreed. Goldman said all the positive factors are already priced into the stock and it is already trading at a higher multiple than its peers.

Shares declined slightly on the news.

Workday (WDAY) reported a loss of 2 cents compared to estimates for a -8 cent loss and a -13 cent loss in the year ago quarter. Revenues rose +57% to $251 million. Analysts were expecting $245 million. The company guided to Q2 revenue of $270-$274 million and analysts were expecting $272.3 million. Shares declined $5 in afterhours.

TiVo (TIVO) reported earnings of 8 cents that beat estimates by a penny. Revenue rose +7.2% to $114.7 million and well over estimates for $81.5 million. Subscribers rose +27% to 5.8 million. The company also said it was going to acquire Poland based Cubiware. The acquisition will allow Tivo to expand into 25 countries. Cubiware provides software for pay-TV operators with customers in Latin America, Europe, the Middle East and Asia. Shares of TIVO spiked in afterhours trading to overcome the -2.5% decline in the regular session.

Apple (AAPL) is said to be considering a 200 billion yen bond offering in Japan. It would be the largest yen-denominated bond issued by a foreign company since a Citigroup sale in 2007. The value of a 200 billion yen offering is about $1.62 billion. Apple is currently shopping about $7 billion in bond offerings to see where they can get the best rates. Apple announced with earnings they were planning a $140 billion stock buyback program, up from $90 billion, through March of 2017. Apple can't bring its cash back from overseas without paying a major tax bill. They can borrow money overseas at ridiculously low rates.

Multiple feature leaks have made the news on the next version of iOS9 and two new iPhones that are expected to be announced in July according to multiple leaks from suppliers. One new feature will be "force touch" where the phone will be able to determine the amount of force in the touch and do different things depending on the amount of force. Apple and Samsung are both rumored to be moving forward the release of their next models.

Apple shares declined -$3 to knock about 23 points off the Dow. Technicians are worried the stock could form a top at the $133 closing high from February. The April closing high was $132.65 and Friday's close was $132.57. The say the third time is the charm but in this case does that mean a breakout or a real failure?

First Solar (FSLR) shares fell -7% after RBC Capital Markets cut the stock from sector perform to underperform. They cut the price target from $54 to $34. The analyst said they see flat earnings for 2015-2016 despite the company's guidance for 19% growth in 2015 and 2.5% growth in 2016. RBC expects the company to earn $1.37 compared to consensus estimates for $3.48 and company guidance for a range of $3.50 to $5.00. If RBC is right and actual earnings are less than half what the company is forecasting this would be a major blow for First Solar.

Crude oil dropped -$1.43 to $58 after Iraq said it planned to increase oil shipments by 26% or +800,000 bpd to 3.75 million bpd starting in June. The increase alone is more than Qatar produces. There is some debate on Iraq's ability to actually accomplish this feat. Some claim Iraq's export capacity is capped at 3.1 mbpd and they can't physically ship 3.75 mbpd even if they have it. This could be a stunt ahead of the June 5th OPEC production meeting in order to upgrade their status and give them a bigger seat at the table. In OPEC your standing is directly proportional to your production capability.

If Iraq is able to upgrade its export capability by 800,000 bpd it would be a real blow to crude prices. That would be far in excess of what the U.S. could see in production declines over the next year if drilling did not resume.


Tuesday's decline was a real shocker for some investors that only believe the market will move higher. In reality we are due for at least a minimal dip to give fund managers something to buy before the first half of the year ends in June. With the largest cash allocations since the financial crisis they should be thrilled to see a significant decline.

Today's decline may have been scary on the surface but a -200 point drop on the Dow after two weeks of gains is no big deal. If you remember back a few weeks we were having 200 point moves on the Dow on a frequent basis.

I have written multiple times about the lack of conviction at the highs and the low volume. We did see the volume pick up today to 6.27 billion shares but that is just over the 5.6 billion average for the last couple of weeks. This was not a market crash. It was just profit taking on mediocre volume. There was no conviction on the downside just like there was none on the upside. This was a blip on the radar.

However, real market declines sometimes start with a low volume hiccup. It causes people to rethink their positions and additional selling appears in the days that follow.

In theory the worst case should be a 3-5% dip with the best case a rebound from the 100-day average at 2080 or even higher. We closed at 2104 today.

The S&P struggled at its new high of 2130 for all five days last week with volume shrinking as the week progressed. Today was a reaction to the lack of a breakout. If we fail at resistance long enough the urge to sell begins to infect the bulls. After a day or two of declines they become more energized with all the "bargains" and a rebound appears. Let's hope that is the case this time around.

The Dow began its decline a couple days earlier but did not gain speed until today's dump. The close below 18,100 is slightly troubling but the real downside targets are the 100-day at 17,897 and recent support at 17,800. A dip to either area would not be troubling. A further dip to 18,600 would definitely increase the hysteria but unless that level failed it is just post earnings profit taking. We have been to the 17,800 level four times since early April and the world did not end.

Tech traders may have been whining and clenching their teeth in panic but the -56 point drop in the Nasdaq was barely a blip. Note in the chart that the drop did not even reach the 5000 level and support at 5008 was not even tested. This was a head fake and not a very good one.

Until support around 5000 fails and we start testing the 100-day at 4890 there is nothing to be worried about. The worst case is that we drop back to the levels from early May.

The small cap Russell 2000 is a carbon copy of the other indexes with the same -1% decline. If the Russell had lost significantly more than the other indexes then I would have been worried. A 1% drop is only one-third of the gains since the May 6th lows at 1211.

We did have a serious failure at resistance at 1260 but nothing any worse than the Dow and S&P. The small caps are not telling us anything other than what we see elsewhere.

The Dow Transports ($TRAN) were the biggest losers with a -1.55% drop. The 50-day is crossing over the 200-day in what is called the death cross. (not shown) The picture could not be any worse for the transports chart and we could easily see a retest of 8000 or even lower.

The biggest worry of the broader market is that the transports finally begin to drag the Dow Industrials lower. This deserves careful watching in the days ahead.

Last Tuesday I suggested keeping some cash on hand in case a buying opportunity appeared. This may be it. While I would not rush into the market to add longs at the open on Wednesday I would look for a bottoming process in the days ahead. Any visible sign of a bottom forming could be very fast. If those fund managers begin to throw that excess cash at the dip we could see a sharp rebound. You know the shorts have loaded up on this drop and any sudden rebound could prompt a serious short squeeze.

I remain cautiously long until proven wrong. Translated that means maintain a few long positions but retain some cash and keep your stop losses in place.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Missing Revenues By A Wide Margin

by James Brown

Click here to email James Brown


World Fuel Services - INT - close: 50.32 change: -0.70

Stop Loss: 51.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 23, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 468 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
The correction in shares of INT is not over yet. The stock saw a big run from its 2014 lows near $36 to all-time highs near $58 in March this year. That proved to be the peak.

INT is in the basic materials sector. According to the company, "Headquartered in Miami, Florida, World Fuel Services is a global fuel logistics, transaction management and payment processing company, principally engaged in the distribution of fuel and related products and services in the aviation, marine and land transportation industries. World Fuel Services sells fuel and delivers services to its clients at more than 8,000 locations in more than 200 countries and territories worldwide."

Their 2014 Q4 earnings were better than expected with a profit of $0.96 per share versus estimates for $0.77. Yet revenues fell -6.0% from a year ago to $9.78 billion. Analysts had been forecasting $11.36 billion. That's quite a miss.

We see the same pattern in INT's Q1 results. The company reported on April 30th. Analysts were expecting a profit of $0.82 a share on revenues of $9.2 billion. INT delivered $0.83 a share but revenues plunged -30% to $7.34 billion. This time investors took notice and shares of INT dropped sharply on its results.

The stock has been trying to find support near the $50.00 level but traders keep selling the bounces. Now the bearish trend of lower highs is about to push shares of INT through this critical support level at $50.00. Tonight we are suggesting a trigger to launch bearish positions at $49.75.

NOTE: The option spreads are a bit wide. INT does have July options but there's no volume and no open interest on the puts yet.

Trigger @ $49.75

- Suggested Positions -

Short INT stock @ $49.75

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

Buy the AUG $50 PUT (INT150821P50) current ask $2.55
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

Market Delivers Widespread Declines

by James Brown

Click here to email James Brown

Editor's Note:
All of the major indices both in the U.S. and Europe posted declines. American market watchers were pointing to the rising dollar as a reason for today's weakness. There were also new fears that the Fed might raise rates sooner than expected.

TSS hit our stop loss. FSLR and HCLP have been removed.

Current Portfolio:

BULLISH Play Updates

GoPro, Inc. - GPRO - close: 53.41 change: -1.03

Stop Loss: 49.25
Target(s): To Be Determined
Current Gain/Loss: +5.2%
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

05/26/15: After big gains last week GPRO was definitely a target for some profit taking. The widespread market sell-off today pushed GPRO to $52.22 (a -4% move) before shares started to pare their losses. The stock ended the session down -1.9%.

No new positions at this time.

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

05/20/15 new stop @ 49.25
05/14/15 triggered @ $50.75
Option Format: symbol-year-month-day-call-strike

Hanesbrands Inc. - HBI - close: 32.00 change: -0.35

Stop Loss: 29.95
Target(s): To Be Determined
Current Gain/Loss: -1.1%
Entry on May 21 at $32.35
Listed on May 20, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.74 million
New Positions: see below

05/26/15: HBI retreated towards prior resistance and what should be new support in the $32.00 area. The stock essentially followed the S&P 500 lower with a -1.0% decline.

No new positions at this time. Let's see if HBI can bounce from current levels.

Trade Description: May 20, 2015:
HBI was founded back in 1901. Today you will find Hanes products in more than 80 percent of U.S. homes.

HBI is in the consumer goods sector. According to the company, "HanesBrands, an S&P 500 company, is a socially responsible leading marketer of everyday basic apparel in the Americas, Europe and Asia under some of the world’s strongest apparel brands, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die/Nur Der, Lovable and Gear for Sports.

We sell bras, panties, shapewear, sheer hosiery, men's underwear, children's underwear, socks, T-shirts and other activewear in the United States, Canada, Mexico and other leading markets in the Americas, Asia and Europe. In the United States, we sell more units of intimate apparel, male underwear, socks, shapewear, hosiery and T-shirts than any other company."

What makes HBI different than most of its competitors is that HBI owns and operates its own manufacturing facilities. About 90% of their apparel comes from company-run plants. That helps them control costs throughout the production process.

This year the company has been very shareholder friendly. Back in January they raised their dividend 33% and announced a 4-for-1 split. The stock split took place in March this year.

HBI's most recent earnings report was April 23rd. HBI reported their Q1 earnings were up +16% from a year ago to $0.22 a share. That missed estimates of $0.23. Revenues were up +14% to $1.21 billion. This was just below expectations of $1.22 billion.

In the company press release HBI Chairman and CEO Richard Noll commented on their results, saying, "We are off to a great start in 2015, once again delivering a double-digit increase in EPS, while tracking to our full-year growth plans. Our acquisition strategy continues to create value with DBApparel, Maidenform and Gear for Sports all contributing substantially to our double-digit growth. In addition, we are raising our 2015 performance outlook to reflect the recent acquisition of Knights Apparel."

Management raised their earnings guidance for 2015 from $1.58-1.63 to $1.61-1.66 per share. Wall Street estimates were at $1.64. HBI also raised their 2015 revenue guidance from $5.78-5.83 billion to $5.90-5.95 billion. Consensus estimates were already at $5.95 billion.

The stock was hammered on the earning miss as investors ignored the improved earnings and revenue guidance. The stock corrected from about $34.60 to under $31.00 in four days (-10 correction).

Analysts' reaction to HBI's results have been positive. Some have noted that Q1 is normally a slower season for HBI. They see the pullback in HBI's stock as a buying opportunity. Multiple firms have raised their price target since the earnings report (new targets are $37, $38, and $40 per share).

Technically HBI has been consolidating sideways in the $30.50-32.00 zone the last several days and have just recently started to breakout from this trading range. We want to hop on board if this bounce continues. Tonight we're suggesting a trigger to open bullish positions at $32.35.

Long HBI stock @ $32.35

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

Long JUL $32.50 CALL (HBI150717C32.50) entry $1.05

05/21/15 triggered @ 32.35
Option Format: symbol-year-month-day-call-strike

Mobileye N.V. - MBLY - close: 47.48 change: +0.18

Stop Loss: 44.95
Target(s): To Be Determined
Current Gain/Loss: -2.4%
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

05/26/15: MBLY held up reasonably well. Shares outperformed the market with a +0.38% gain and marked its third gain in a row. While today's performance is encouraging I would hesitate to launch 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: 50.84 change: -0.64

Stop Loss: 48.40
Target(s): To Be Determined
Current Gain/Loss: -0.4%
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

05/26/15: SBUX spiked to a new three-week high and then immediately reversed this morning. That's normally a bearish move. Fortunately SBUX found support at its rising 10-dma. If the market continues to sink tomorrow we could see SBUX retest round-number support at the $50.00 mark.

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: 33.51 change: -0.09

Stop Loss: 31.65
Target(s): To Be Determined
Current Gain/Loss: -0.4%
Entry on May 22 at $33.65
Listed on May 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 622 thousand
New Positions: see below

05/26/15: SMCI held up reasonably well today. Traders bought the first dip this morning. The midday rally attempt eventually faded but SMCI closed virtually unchanged on the session.

I am not suggesting new positions at the moment. Let's see how SMCI performs tomorrow.

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.

- Suggested Positions -

Long SMCI stock @ $33.65

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

Long JUL $35 CALL (SMCI150717C35) entry $1.50

05/22/15 triggered @ 33.65
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

CenturyLink, Inc. - CTL - close: 33.60 change: -0.35

Stop Loss: 35.05
Target(s): To Be Determined
Current Gain/Loss: +0.1%
Entry on May 26 at $33.65
Listed on May 23, 2015
Time Frame: 8 to 12 weeks (less for option traders)
Average Daily Volume = 4.4 million
New Positions: see below

05/26/15: Our new bearish play on CTL is open. As expected the stock broke down to new 52-week lows. Shares hit our suggested entry point at $33.65. I would still consider new positions now at current levels.

Trade Description: May 23, 2015:
The earnings picture for CTL appears to be deteriorating and the stock has fallen as a result. CTL is in the technology sector.

They are part of the telecom services industry. According to the company, "CenturyLink (CTL) is a global communications, hosting, cloud and IT services company enabling millions of customers to transform their businesses and their lives through innovative technology solutions. CenturyLink offers network and data systems management, Big Data analytics and IT consulting, and operates more than 55 data centers in North America, Europe and Asia. The company provides broadband, voice, video, data and managed services over a robust 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network."

Looking at the last few earnings reports the guidance picture has been getting worse. Back in November 2014 they reported their Q3 results that beat the bottom line estimate by one cent but management lowered guidance. Then in February this year CTL reported their Q4 results that missed estimates. Revenues were also below estimates and managed lowered their guidance.

Their most recent earnings report was May 5th. CTL delivered their 2015 Q1 report with earnings of $0.67 per share. That was nine cents better than expected. Yet revenues fell -1.9% from a year ago to $4.45 billion and that was below Wall Street estimates. If that wasn't bad enough they also lowered guidance again (if you're counting, that's the third quarter in a row they lowered guidance).

The stock is nearing bear-market territory, down about 19% from its 2014 highs near $42.00 (not counting the spike in July). Bulls could argue that CTL is an income play. They do have a big dividend yield, currently about 6.3%, but their dividend has been this high for weeks and shares have not managed a sustainable rebound.

Technically CTL looks poised to breakdown below support in the $34.00 area and could drop toward the $30-28 region. We are suggesting a trigger to open bearish positions at $33.65.

- Suggested Positions -

Short CTL stock @ $33.65

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

Long JUL $32 PUT (CTL150717P32) entry $0.55

05/26/15 triggered @ $33.65
Option Format: symbol-year-month-day-call-strike


Total System Services, Inc. - TSS - close: 40.78 change: -0.72

Stop Loss: 40.75
Target(s): To Be Determined
Current Gain/Loss: -0.7%
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

05/26/15: The profit taking in TSS accelerated today with shares down another -1.7%. Today marks the fourth decline in a row. TSS hit our stop loss at $40.75.

- Suggested Positions -

Long TSS stock @ $41.02 exit $40.75 (-0.7%)

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

AUG $40 CALL (TSS150821C40) entry $2.50 exit $1.80 (-28.0%)

05/26/15 stopped out
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



First Solar, Inc. - FSLR - close: 51.06 change: -4.01

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: see below

05/26/15: It was an ugly day for shares of FSLR. The stock plunged -7.28% and marked its worst one-day loss in months thanks to an analyst downgrade. RBC Capital Markets cut their rating to the equivalent of a "sell" and reduced their price target from $54 to $34. The analyst believes that FSLR will not be able to meet its guidance for fiscal 2016.

We were expecting FSLR to breakdown. Unfortunately the way today's sell-off occurred aborted our trade. The plan was to launch bearish positions if FSLR traded at $54.40. The stock gapped open lower at $53.03. Our entry disclaimer said do not launch positions if FSLR gapped open more than $1.00 past our entry point.

Trade did not open.

05/26/15 trade did not open. FSLR gapped open more than one dollar from our entry point of $54.40


Hi-Crush Partners - HCLP - close: 29.81 change: -0.05

Stop Loss: 32.05
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 21, 2015
Time Frame: 8 to 12 weeks (stock traders)
Average Daily Volume = 384 thousand
New Positions: , see below

05/26/15: We are cutting HCLP loose. Shares are not cooperating. The stock market produced a very widespread decline today and HCLP bounced from its lows and almost closed in positive territory. HCLP was not cooperating last week either.

The outlook is bearish but the stock isn't working for us. Tonight we are removing HCLP as a candidate.

Trade did not open.

05/26/15 removed from the newsletter, suggested entry was $28.90