Option Investor

Daily Newsletter, Monday, 6/1/2015

Table of Contents

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

Market Wrap

The Bulls Hold Their Ground

by Thomas Hughes

Click here to email Thomas Hughes
The bulls were able to hold their ground as the market gears up for another big week of news.


Market wobble persists but the bulls were able to hold their ground today. There was quite a bit of international news to impact trading, and a fair amount of domestic news, as well as anticipation for a full week of potentially market moving events.

Starting at the beginning, indices in China and Japan extended Friday gains on Chinese PMI. The country's official manufacturing PMI rose to 50.2 from 50.1, showing a very mild expansion in the economy. Balancing this was a slight decline in the services sector PMI but it remains expansionary. The news helped to support indices in Europe while Eurozone PMI and Greece worries weighed them down.

Market Statistics

Futures were trading in the red at the start of the early electronic session. This changed dramatically around 8AM when rumors a Greek deal was at hand began to hit the market but nothing every materialized. Regardless, futures moved into the green and held those levels in to the open.

Today's trading churned within a fairly tight range. The market opened with a slight gain and moved higher in the first 15 minutes but the rally was short lived. By 10AM the indices had retreated to break-even and begun a bounce that failed to recapture the early high. Another test of support found its bottom at 10:15AM, at which time a slow and steady advance took the market back to test the early high. A new intra-day highs was set in early afternoon, but once again near term resistance kicked in to cap gains. Late afternoon trading was much like the morning, sideways drift, with most indices closing near the middle of their respective ranges.

Economic Calendar

The Economy

There was quite a bit of data released today, much more than we usually get on a Monday, and as a whole has economists revising their Q1 and Q2 GDP estimates to the upside. First up is new auto-loan data released by Experian. According to them auto loans reached a record high in the first quarter of this year. The average size of a loan grew to $28,711 with a 67 month term (5 year, 7 months).

Personal Income, released before the open, rose slightly more than expected, 0.4%, from last month's not revised figures. Spending remained unchanged from last month, but the previous month was revised up by 0.1% to 0.5%. This months data is consistent with recent trends in which spending rises one month, income the next, both slowly and in tandem with improving labor markets. On a core basis PCE declined by -0.1%. Within the report wages and salaries increased at a rate nearly double the preceding month.

The ISM PMI was released at 10AM. It showed growth in manufacturing ahead of expectations for this month and expanding from the previous. The current reading is 52.8 versus the expected 52 and last month's 51.5. All but two components of the index rose this month, led by new orders and employment. The prices paid component is the only one below the expansionary 50 level but showed a significant increase of 9 points to 49. Inventory of raw materials, which had been in contraction, is now above 50 at 51.5. Production and exports are the only two segments to show decline but are both still firmly above 50.

Construction Spending was the real gem in today's round of economic releases. It rose by 2.2%, well above expectations and the largest monthly increase since May 2012. Analysts had predicted a rise of only 0.7% from the previous month's decline of -0.6%. On a year over year basis spending is up 4.4% from May 2014 and the first four months of 2015 are up 4.1% versus the first four of 2014. This, along with other home sales data, is further sign the housing market rebound predicted for this summer has begun.

Moody's Survey Of Business Confidence continues to show high levels of positive sentiment. The index rose by a full point from last weeks figure and remains near the record high. According to Moody's Economist Mark Zandi global businesses are “supremely confident”, led by those in the US. He reports that more than 50% of US firms are hiring and expectations for the future are improving.

According to data from FactSet 494 S&P 500 companies have reported earnings for the 1st quarter of 2015. Of those 71% have beaten the mean estimate for earnings growth, 45% have beaten the estimate for revenue growth. 9 of the 10 S&P sectors have higher growth rates now than first predicted due to the amount and number of upside surprises.

The current blended rate for earnings growth in the 1st quarter is 0.7%, more than 5% above the -4.7% predicted at the start of the season. This represents an increase in the blended well above the 4% average we have seen on a quarter to quarter basis over the past 4 years. Stripping out the energy sector the rate for S&P 500 earnings growth is 6.3%, ahead of my own predictions in the range of 4-5%.

Looking to the next quarter, earnings growth expectations have deteriorated despite significant increases in EPS projections for the energy sector. FactSet is project a decline of -4.4% but I am not going to bet on that. Based on the averages, and performance in the 1st quarter, I would expect to see this moderate to something closer to 0% with a chance it will go positive. Stripping energy out of this projection puts 2nd quarter growth in the range of +2-6%. Looking out to the end of the year and next year we can still expect full year 2015 earnings growth in the range 1.5%, and 2016 growth in the range of 12%.

This going to be a big week for data. It's the first week of the month yet again which means monthly macro economic data such as ADP, Challenger, Jobless Claims, Unemployment, Auto Sales, ISM services index and labor costs. In addition to this there is also the Fed's Beige Book and a policy meeting of the ECB scheduled for Wednesday. The ECB is not expected to make any changes but it is likely we will hear something about their recently announced intentions to buy bonds over the summer.

The Oil Index

Oil prices were volatile today as global fears mesh with supply/demand fundamentals and economic data. WTI traded choppy between $59.50 and $60.50, closing with a slight loss near $60.20. Brent had a more pronounced decline, losing a little more than -1%. Fighting continues to be widespread throughout the middle east as the Iranian nuclear deal deadline draws closer. Coalition forces are fighting in Falujah as well in Yemen. At the same time global production remains high and at/near record levels. A weekend report put OPEC production at 31.22 million BPD, a 2.5 year high and above the 30 million BPD target currently set by the bloc. OPEC is meeting later this week and is not expected to cut production.

The Oil Index drifted lower again today. The index remains below 1,350 with bearish indicators but signs the near term bearish movement is losing steam persist. Bearish momentum is divergent from the near term low and in decline and stochastic is overbought and showing a bullish crossover. This combination could lead to further downside with a target along the long term trend line near 1,300. This combination, along with the underlying long term up trend, are also consistent with the early stages of a trend following bounce but not yet a tradable signal.

The index could remain range bound between support along the trend line and the 1400-1450 region until we get past the next round of earnings. Oil prices will affect nearer term direction but earnings I think will be the longer term driver. The energy sector is expected to post another huge decline for the 2nd quarter of 2015, in the range of -60%, but after that outlook improves with full year growth close to 45% in 2016.

The Gold Index

Gold prices were volatile as well. Prices spiked in early trading on data and the dollar only to fall later in the day. The initial reaction was to the income/spending data which put rate hike targets further out, the follow up reaction was to construction spending and ISM which brings rate hike targets closer to the present day. Regardless of when the rate hikes come, consensus targets are in the September-December range with some talk that June or July is still on the table. In any event gold prices surged more than $15 to cross above $1200 only to fall back to $1189. Today's action shows some resistance at the $1200 level, but also the presence of buyers/support below $1190 in the range.

The gold miners ETF GDX opened strong on the back of the early surge in gold prices. Then it sold off, closing with a loss near -0.50%. Today's action began at the short term 30 day moving average and moved down to my rising support line. The index is testing support, driven by the drop in gold prices we saw last week, and could continue to do so. In the near term the indicators are bearish, pointing further testing of support. Over the short to long term they are still consistent with that support, currently around $19.50 after 3 months of trading up along the trend line. If the trend line is broken the ETF could go as low as $17.50 but would be dependent on a similar drop below support in gold prices. This week could be a real exiting one for gold traders, what with all the data, the Beige Book, dollar value and the ECB.

In The News, Story Stocks and Earnings

Coca Cola (KO), not to be confused with Coca Cola Bottling Company (COKE), received an major upgrade this morning. The international beverage retailer is “prime for a turnaround” after years of lack luster results according to BMO Capital. The company sees as much as 20% upside based on case volumes, sales trends and cost savings measures. The stock responded by opening strong, and then selling off to close slightly below the short term moving average. The stock has been languishing near the bottom of its 12 month range and doesn't look ready to pop just yet.

Shares of Coca Cola Bottling Company popped, either on the KO upgrade or the idea that what's good for the goose is good for the gander. Regardless the reason the stock, which has been trending higher all year, jumped more than 9% in today's action. Share prices are now at an all time high with strong indicators.

Apparel and footwear retailer PVH announced earnings after the bell. The own of brands such as Calvin Klein beat on both the top and bottom lines, raised guidance and announced a $500 million share buy back. Revenues were only slightly ahead of estimates but earnings of $1.50 are nearly 9% better than predicted. Shares of the stock gained more than 3% on the news.

Guess, maker of jeans and other consumer apparel items, is scheduled to report tomorrow after the bell. The company is expected to report a loss of -$0.05, well below the $0.63 reported in the last quarter, and reaffirm full year expectations. Today the stock traded in a tight range just above $17.50 and created a candle suggestive of a very quiet market. The stock has been drifting lower over the past three months, since popping just after the last earnings report, and is set to make a move similar to the one in PVH, providing earnings/outlook is good.

The Indices

Market churn continues to drag the markets sideways. Today's action had most of the major indices moving up, if only marginally, from support levels reached during Friday's sell-off. For the most part today's action was light and held within narrow ranges, most indices closed with a gain of a quarter percent or less, except for the Dow Jones Transportation Average.

The transports more than quadrupled the gains made by the other averages. Today's action formed a long white candle with a gain of 1.14% and created a bullish engulfing pattern. The move is accompanied by indicators that aren't quite bullish but are consistent with a bounce from support. This bounce looks as though it may have some strength, at least enough to test resistance near 8,500. This could be an important move for the index, if it does not move back above the long term trend line, or at least support/resistance at 8,500, a deeper correction may ensue.

The NASDAQ Composite gained only 0.25% but was the next largest move of the day. Today's action, despite the gain, created a black candle with doji like qualities; it has a small body and long lower shadow created by a test of support. Price is still above the 5,000 level and the short term moving average but the indicators have rolled over so further testing is likely if not a break through. A break below 5,000 could lead the index lower, with a possible target near 4,800.

The S&P 500 closed with a gain of 0.21%. Today's action bounced off of support but failed to cross above the long term up trend line. The indicators continue to roll over and are now forming bearish crossovers. This could lead to deeper testing of support but does not yet constitute reversal. At this point the trend is still up so any dips are potential entry points for longer term positions.

The Dow Jones Industrial Average made the smallest gain in today's action, 0.14%. The blue chips moved up from support at 18,000 only to find resistance along the short term moving average. The index is now being squeezed between long term support and near term resistance with indicators consistent with a test of support. Both MACD and stochastic are moving lower following a bearish crossover and indicating further testing of support if not an actual break below it. Over the longer term the indicators are still consistent with support along 18,000 and the long term trend is up so any test or dip below this level is a buying opportunity in my view. That being said a dip below 18,000 could take the index all the way down to the long term trend line, about -4% below today's closing price, so I won't be too hasty on my entry.

The long term trend is up on all the indices. At the same time near term indications are bearish. Looking to what moves the market, earnings and economics, I see it like this. The long term economic and earnings trends are up and they are supporting the market. In the short term expectations for the coming earnings season are poor, not to mention numerous global events with market moving potential. It's likely that earnings won't be as bad as feared but it's very possible the expectation could lead the market lower until we start to get proof, unless the data is so good it trumps 2nd quarter earnings expectations.

Until then, remember the trend!

Thomas Hughes

New Plays

Lock Up Dead Ahead

by James Brown

Click here to email James Brown


On Deck Capital - ONDK - close: 14.46 change: -0.72

Stop Loss: 16.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 01, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 431 thousand
New Positions: Yes, see below

Company Description

Trade Description:
You know something is wrong when a stock is down -50% from its post-IPO peak in less than six months.

ONDK is part of the financial sector. Here's how the company describes itself:

"OnDeck (ONDK), a leading platform for small business loans, is committed to increasing Main Street's access to capital. OnDeck uses advanced lending technology and analytics to assess creditworthiness based on actual operating performance and not solely on personal credit. The OnDeck Score®, the company's proprietary small business credit scoring system, evaluates thousands of data points to deliver a credit decision rapidly and accurately. Small businesses can apply for a line of credit or term loan online in minutes, get a decision immediately and receive funds in as fast as the same day. OnDeck also partners with small business service providers, enabling them to connect their customers to OnDeck financing. OnDeck's diversified loan funding strategy enables the company to fund small business loans from various credit facilities, securitization and the OnDeck Marketplace®, a platform that enables institutional investors to purchase small business loans originated by OnDeck.

Since 2007, OnDeck has deployed more than $2 billion to more than 700 different industries in all 50 U.S. states, and also makes small business loans in Canada. The company has an A+ rating with the Better Business Bureau and operates the website BusinessLoans.com which provides credit education and information about small business financing. On December 17, 2014, OnDeck started trading on the New York Stock Exchange under the ticker ONDK."

The company charges outrageous interest rates on its short-term loans. According to the SEC filings these can range from 20% to 99% APRs. They get away with this by only loaning to businesses and not individual consumers. Rising defaults are an issue. The company expects about 7% of their loans to go into default but some of the latest numbers suggest reality is closer to 20%. There is a concern that companies like ONDK will face future regulations that will limit how much interest they can charge. Another bear argument is valuations.

The company was valued around $1.4 billion at its IPO. Even with the decline it's still valued near $1 billion today. That's for a company without any profits. They lost ($0.01) per share in the fourth quarter and that jumped to a loss of ($0.05) per share in the first quarter.

Another potential landmine for shareholders is ONDK's six-month lockup expiration. Currently there are about 13.2 million shares outstanding. On June 15th, 2015 another 56 million shares are unlocked.

The stock broke down on its earnings report in early May. Now it's breaking down below its 2015 lows in the $14.50-15.00 zone. The point & figure chart is bearish and forecasting at $7.00 target.

The stock has seen some volatile moves. I would consider this a more aggressive, higher-risk trade. Tonight I am suggesting a trigger to launch bearish positions at $14.35. Traders may want to use put options to limit their risk.

Trigger @ $14.35

- Suggested Positions -

Short ONDK stock @ $14.35

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

Buy the AUG $14 PUT (ONDK150821P14) current ask $1.55
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:

In Play Updates and Reviews

GPRO Hits Four-Month High On New Product Announcement

by James Brown

Click here to email James Brown

Editor's Note:
Shares of GoPro (GPRO) were strong performers today. Shares surged to new four-month highs after the company announced a new line of cameras with a touch screen.

Our plan was to close the MBLY trade this morning.

Current Portfolio:

BULLISH Play Updates

GoPro, Inc. - GPRO - close: 58.52 change: +3.06

Stop Loss: 54.65
Target(s): To Be Determined
Current Gain/Loss: +15.3%
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

06/01/15: GPRO was a strong performer today with a +5.5% gain. The stock rallied after the company announced a new action camera with a touch screen. GPRO almost hit $60 before closing near its 200-dma.

We are raising the stop loss to $54.65.

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

06/01/15 new stop @ 54.65
05/28/15 new stop @ 51.45
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: 32.02 change: +0.16

Stop Loss: 31.45
Target(s): To Be Determined
Current Gain/Loss: -1.0%
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

06/01/15: It was a relatively quiet day for HBI. Somehow shares managed to outperform the market with a +0.5% gain. Readers may want to consider a rally above $32.20 as a new entry point for bullish positions.

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

05/30/15 new stop @ 31.45
05/21/15 triggered @ 32.35
Option Format: symbol-year-month-day-call-strike

Paylocity Holding Corp. - PCTY - close: 32.56 change: -0.92

Stop Loss: 31.45
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 206 thousand
New Positions: Yes, see below

06/01/15: This morning shares of PCTY were downgraded from a strong buy to an outperform rating. The stock reacted by gapping open lower and then plunged to $31.79 (a -5% drop) before paring its losses.

We are still on the sidelines. Our suggested entry point is $34.15.

Trade Description: May 28, 2015:
PCTY is delivering strong double-digit revenue growth and has consistently been raising guidance. This has pushed shares to new highs this year.

PCTY is in the technology sector. According to the company, "Paylocity is a provider of cloud-based payroll and human capital management, or HCM, software solutions for medium-sized organizations. Paylocity's comprehensive and easy-to-use solutions enable its clients to manage their workforces more effectively. Paylocity's solutions help drive strategic human capital decision-making and improve employee engagement by enhancing the human resource, payroll and finance capabilities of its clients."

Back in November they reported their 2015 Q1 results that beat estimates on both the top and bottom line. Revenues were up +38.8% from a year ago. Management raised guidance.

PCTY delivered a similar performance in February. The company reported its Q2 results that beat Wall Street's estimates on both the top and bottom line. Revenues were up +54.9% and managed raised guidance.

Their most recent report was May 7th. You can see the stock's big reaction on the daily chart (likely a short squeeze). Analysts were expecting a profit of $0.05 on revenues of $44.5 million. PCTY delivered $0.11 per share with revenues up +40% to $47.3 million. This time management raised their Q4 revenue guidance above analysts' estimates.

Technically the stock has spent the last several days building a bull-flag consolidation pattern. Today's display of relative strength looks like a breakout from the flag. The point & figure chart is forecasting at $53.00 target. If this rally continues PCTY could see some short covering. The most recent data listed short interest at 12% of the 15.47 million share float.

Bears could argue that PCTY is near the top of its long-term bullish channel (see weekly chart). This would suggest that short-term upside would be limited to a couple of dollars.

NOTE: PCTY does have options but the spreads look too wide to trade them.

Trigger @ $34.15

- Suggested Positions -

Buy PCTY stock @ $34.15

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.

Relypsa, Inc. - RLYP - close: 35.41 change: -1.38

Stop Loss: 34.70
Target(s): To Be Determined
Current Gain/Loss: -5.1%
Entry on June 01 at $37.30
Listed on May 30, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 526 thousand
New Positions: see below

06/01/15: Moves like the one in RLYP today can really frustrate a trader. The stock opened higher. Shares rallied to a new six-week high and tagged our entry point at $37.30. This all happened in the first minute of trading. Just as quickly the stock reversed. RLYP plunged to a -3.75% decline on the session. Today's move has created a bearish engulfing candlestick reversal pattern.

If that wasn't bad enough the call option saw its ask explode higher. The option didn't trade today but if you did buy it when our trade was trigger the price was a couple of dollars higher than it should have been.

I am not suggesting new positions at this time.

Trade Description: May 30, 2015:
Biotech stocks showed relative strength in May. One biotech that might be worth looking at is RLYP. This is a small cap stock but it's in the upper range of small caps with a market capitalization around $1.5 billion.

According to the company, "Relypsa, Inc. is a biopharmaceutical company focused on the development and commercialization of non-absorbed polymeric drugs to treat disorders in the areas of renal, cardiovascular and metabolic diseases. The company's two-part pivotal Phase 3 trial of its lead product candidate, Patiromer for Oral Suspension, for the treatment of hyperkalemia, a potentially life-threatening condition defined as abnormally elevated levels of potassium in the blood, has been completed and the primary and secondary endpoints were met. A New Drug Application for Patiromer for Oral Suspension for the treatment of hyperkalemia was accepted by the U.S. Food and Drug Administration and is currently under review. Relypsa has global royalty-free commercialization rights to Patiromer for Oral Suspension, which has intellectual property protection in the United States until at least 2030."

Stocks like RLYP can be binary trades for long-term investors. You either win big or lose big depending on the company's pipeline. Right now RLYP's patiromer FOS is the main product in development. The FDA is expected to come out with a decision on RLYP's new drug application (NDA) by October this year. It's worth mentioning that RYLP does have competition from ZS Pharma who is working on a similar treatment. As RLYP doesn't have any significant sales yet the earnings news doesn't really help us as traders. Generally speaking biotech earnings for companies without any sales tend to be lumpy due to milestone payments from partners.

RLYP rallied on its recent earnings report even though they don't have sales. The net loss for 2015 Q1 was $0.78 per share versus $0.54 a year ago. Analysts were expecting a loss of $0.87. The news appeared to spark some short covering.

Shares of RLYP are trading technically. They bounced near the 38.2% Fibonacci retracement. They were showing relative strength on Friday with a +2.1% gain. You could also argue that RLYP has produced an inverse head-and-shoulders pattern, which is bullish. If the stock can rally above $38.00 it will produce a new triple-top breakout buy signal on its point & figure chart. We are suggesting a trigger to launch small bullish positions at $37.30. This should be considered a higher-risk, more aggressive trade.

*Small positions to limit risk* - Suggested Positions -

Long RLYP stock @ $37.30

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

Long SEP $40 CALL (RLYP150918C40) entry $5.30*

06/01/15 triggered @ $37.30
*06/01/15 option did not trade today. This price was the current ask at the time our stock trade was triggered.
Option Format: symbol-year-month-day-call-strike

Starbucks Corp. - SBUX - close: 52.22 change: +0.26

Stop Loss: 48.40
Target(s): To Be Determined
Current Gain/Loss: +2.3%
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

06/01/15: SBUX continues to push higher. Shares ended the day at new all-time highs after a +0.5% gain. The only real news on the stock was SBUX selling $850 million in new debt.

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: 35.21 change: +1.75

Stop Loss: 31.65
Target(s): To Be Determined
Current Gain/Loss: +4.6%
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

06/01/15: Great news! SMCI has broken through resistance. I was starting to worry last week with shares beginning to rollover beneath resistance. SMCI sprinted higher today and outpaced the market with a +5.2% gain.

The move today is bullish but I would not launch new positions at this time.

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

Thoratec Corp. - THOR - close: 45.75 change: +0.36

Stop Loss: 43.85
Target(s): To Be Determined
Current Gain/Loss: -0.9%
Entry on June 01 at $46.15
Listed on May 27, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 602 thousand
New Positions: see below

06/01/15: THOR displayed some volatility this morning. Traders bought the early morning drop and shares surged to a new high and traded above resistance at $46.00. Our trigger to launch positions was hit at $46.15. Unfortunately the rally faded into the closing bell.

I would wait for a rally past today's intraday high ($46.29) if you're looking for an entry point.

Trade Description: May 27, 2015:
Shares of THOR are trading at multi-year highs thanks to a bullish outlook for 2015 results. THOR is in the healthcare sector. They make medical instruments.

According to the company, "Thoratec is a world leader in therapies to address advanced-stage heart failure. The company's products include the HeartMate II® and HeartMate III™ LVAS (Left Ventricular Assist Systems) and Thoratec® VAD (Ventricular Assist Device) with more than 20,000 devices implanted in patients suffering from heart failure. Thoratec also manufactures and distributes the CentriMag®, PediMag®/PediVAS®, and HeartMate PHP™ product lines. HeartMate III and HeartMate PHP are investigational devices and are limited by US law to investigational use. HeartMate PHP is currently in development and not approved for sale. Thoratec is headquartered in Pleasanton, California."

The last couple of earnings results have come in better than expected. You can see the rally in THOR's chart back in February. This was a reaction to the company's 2014 Q4 results. Analysts were expecting a profit of $0.24 a share on revenues of $106.8 million. THOR's results came in significantly above estimates with a profit of $0.39 on revenues of $127.9 million. Gross margins were 70.5% versus 65.5% a year ago.

The stock popped again on May 8th following another better than expected earnings report. Wall Street was expecting a profit of $0.26 a share on revenues of $111 million. THOR managed to beat estimates with a profit of $0.38 on revenues of $121 million. More importantly management raised their 2015 revenue guidance above estimates. THOR now expects revenues of $465-475 million versus consensus estimates around $463 million.

Yesterday the company announced that the FDA had provided a conditional approval for an IDE clinical trial to "investigate use of the HeartMate PHP acute catheter-based heart pump in patients undergoing a high-risk percutaneous coronary intervention."

Aside from a two-week correction in the second half of April the up trend in THOR's stock price has been pretty steady. The point & figure chart is bullish with a long-term target of $86.00. Currently shares of THOR are hovering just below potential resistance near $46.00. We are suggesting a trigger to launch bullish positions at $46.15.

- Suggested Positions -

Long THOR stock @ $46.15

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

Long JUL $45 CALL (THOR150717C45) entry $2.40

06/01/15 triggered @ $46.15
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

CenturyLink, Inc. - CTL - close: 32.87 change: -0.37

Stop Loss: 35.05
Target(s): To Be Determined
Current Gain/Loss: +2.3%
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

06/01/15: It was nice to see CTL produce some follow through lower after Friday's drop to new lows. Shares underperformed the market with a -1.1% decline.

I am not suggesting new positions at this time.

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

Gulfport Energy Corp. - GPOR - close: 43.67 change: +0.51

Stop Loss: 45.35
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 30, 2015
Time Frame: 8 to 12 weeks (option traders should exit prior to expiration
Average Daily Volume = 1.5 million
New Positions: Yes, see below

06/01/15: GPOR rallied this morning thanks to an upgrade to an "outperform". The rally stalled near short-term overhead resistance near $44.00. That's good news if you're bearish. Our suggested entry point to launch bearish positions is $42.75.

Trade Description:
Normally a weaker dollar is bullish for commodities. Yet the U.S. dollar's decline from March into May did not help the price of natural gas very much. The price of natural gas did bounce for three weeks in May but it's already reversed much of these gains. Now the U.S. dollar is on the rise and expected to keep climbing thanks to weaker foreign currencies.

Another problem for oil and gas explorers like GPOR is falling demand for natural gas. Weather has been mild this spring and that has decreased demand for natural gas from utilities, who are big consumers. At the same time inventories for natgas in the U.S. are building.

The EIA, the U.S. Energy Information Administration, said that current natgas inventories is up +59% from the same time a year ago and it's up +1.7% from the five-year average. Right now natural gas futures are trading around $2.64 per MMBtu (British thermal units in millions) and they look like they're headed for the 2012 lows near $2.00.

GPOR is in the basic materials sector. According to the company, "Gulfport Energy Corporation is an Oklahoma City-based independent oil and natural gas exploration and production company with its principal producing properties located in the Utica Shale of Eastern Ohio and along the Louisiana Gulf Coast. In addition, Gulfport holds a sizeable acreage position in the Alberta Oil Sands in Canada through its 24.9% interest in Grizzly Oil Sands ULC."

Their exposure to Canada's oil sands isn't helping them at the moment. In their most recent earnings report GPOR said that their production in Canada is currently halted due to low commodity prices.

Speaking of earnings, the company has delivered some strong results in recent quarters. Back in November they reported Q3 results above expectations. Revenues soared +146% from the year ago quarter. They reported similar results in February (their Q4 report). This is because GPOR's production has surged. In the fourth quarter of 2014 their oil and gas production was up +282% from the year ago period.

GPOR's most recent earnings report was announced on May 5th. The company reported a loss of ($0.08) per share. Analysts were expecting a loss of ($0.09). Revenues did come in above expectations but traders sold the news. Shares plunged and broke their three-month bullish trend of higher lows.

GPOR's stock price has been unable to recover. Traders have been selling the rallies. Goldman Sachs didn't help when they downgraded GPOR from "neutral" to a "sell" rating on May 18th. The point & figure chart on GPOR is bearish and forecasting at $36.00 target.

This past week was technically bearish with GPOR's relative weakness and breakdown below support in the $44.00 area. Tonight I am suggesting a trigger to open bearish positions at $42.75.

Traders should note that OPEC does have a meeting coming up next Friday. Their decision on oil production could influence the price of natural gas. GPOR produces both oil and gas but most of its business is natural gas.

Trigger @ $42.75

- Suggested Positions -

Short GPOR stock @ $42.75

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

Buy the JUL $40 PUT (GPOR150717P40) current ask $1.25
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

World Fuel Services - INT - close: 49.79 change: -0.24

Stop Loss: 51.25
Target(s): To Be Determined
Current Gain/Loss: -0.1%
Entry on June 01 at $49.75
Listed on May 26, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 468 thousand
New Positions: see below

06/01/15: Our bearish play on INT is finally open. Shares underperformed the market with a -0.47% decline. The stock hit our suggested entry point at $49.75. I would consider new bearish positions at current levels. However, traders may want to wait and make sure INT is trading in the red tomorrow. After the bell tonight the company announced a new $100 million stock buyback program to replace it old repurchase program. I'm not seeing any reaction to this news in INT's stock after hours but we won't know the impact of this announcement until tomorrow morning.

Trade Description: May 26, 2015:
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.

- Suggested Positions -

Short INT stock @ $49.75

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

Long AUG $50 PUT (INT150821P50) entry $2.50

06/01/15 After the close, INT announces a $100 million stock buyback program
06/01/15 triggered @ $49.75
Option Format: symbol-year-month-day-call-strike


Mobileye N.V. - MBLY - close: 46.42 change: -0.66

Stop Loss: 44.95
Target(s): To Be Determined
Current Gain/Loss: -3.3%
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

06/01/15: MBLY was not performing well so we decided in the weekend newsletter to cut our losses. The plan was to exit this morning. MBLY opened at $47.04 and then plunged toward its 50-dma near $45.25.

- Suggested Positions -

Long MBLY stock @ $48.65 exit $47.04 (-3.3%)

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

JUL $50 CALL (MBLY150717C50) entry $2.10 exit $1.11 (-47.1%)

06/01/15 planned exit
05/30/15 prepare to exit on Monday morning
05/15/15 triggered @ $48.65
Option Format: symbol-year-month-day-call-strike