Option Investor

Daily Newsletter, Saturday, 6/13/2015

Table of Contents

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

Market Wrap

Headlines Tank Market Again

by Jim Brown

Click here to email Jim Brown

On Wednesday a rumor that Germany might be ready to offer Greece a way out of its troubles caused a major short squeeze. News on Friday that the IMF had broken off talks and left the country caused exactly the opposite reaction with the Dow falling -182 at the open as EU officials began to prepare for the worst-case scenario for Greece.

Market Statistics

Add in the worry over the Fed meeting next week and investors did not have a good reason to hold stocks over the weekend. Those that rode the short squeeze higher took profits and moved to the sidelines.

Economic reports continued to surprise to the upside ahead of next week's FOMC meeting. While nobody expects a rate hike next week the possibility was back on the table. A hike in September appears to be almost assured assuming the economy doesn't fall off a cliff over the next two months.

The Producer Price Index (PPI) for May rose +0.5% and slightly over consensus of +0.4% but much better than the -0.4% decline in April. This was only the second monthly increase in 2015. However, the major driver was a +5.9% increase in energy goods. Core prices only rose +0.2%. The PPI on a trailing 12 month rate of -1.0% is still very weak but improving. Food prices rose +0.8% and the largest increase in two years.

Consumer Sentiment for June rose sharply from 90.7 to 94.6. The +3.9 point gain failed to erase May's -5.2% decline but it was a good start. The present conditions component rose from 100.8 to 106.8 and the expectations component rose slightly from 84.2 to 86.8. The increase in sentiment came mostly from 44% of respondents claiming they were better off today than the same period in 2014. That was up from 41% in May. At the same time only 23% said they were worse off, down from 30% in May.

It would be hard to draw any conclusions from the volatility in the sentiment numbers but on the surface it appears the arrival of summer has lifted spirits.

Next week we get the housing numbers for May. You may remember that housing starts for April hit a seven-year high at 1.135 million. Analysts are expecting that rate to decline. They feel the April numbers were post winter recovery and May will fall back to a more reasonable pace. As long as the results are in the vicinity of the 1.1 million estimate it should not bother the market. If they fall under 1.0 million it would be very negative. Residential construction is on Tuesday.

The Fed meeting on Tue/Wed and the Yellen press conference on Wednesday afternoon is going to be the major market hurdle. While the Fed is not expected to hike rates at this meeting anything is always possible. What analysts will be looking for is guidance that targets the September meeting as the liftoff date.

The Philly Fed Manufacturing Survey on Thursday is expected to rise from 6.7 to 8.0. This is for the June period. The range of estimates are from 7.5 to 10.0 so everyone is expecting an improvement in conditions. Should the headline number decline it would be market negative.

Netflix (NFLX) shareholders approved the addition of 5 billion new shares over the existing 60 million. This paved the way for the company to split its stock. The announcement was expected after the shareholder vote but the CEO said he would pursue the matter with the board in "due course." This disappointed many shareholders and the share price fell -$33 from the Wednesday high to close at $661 on Friday. I expect the company to announce a 10:1 split in hopes of getting the share price down enough to be considered as a new Dow stock.

Netflix earnings are July 15th so a split announcement could come at any time before earnings or with the earnings release. The company already said it was going to split once the additional shares were approved so now it is just a matter of timing and split ratio.

Unless you live in a cave you probably heard that Twitter's embattled CEO Dick Costolo finally said he was stepping down. Starting on July 1st co-founder Jack Dorsey will take over as CEO on an interim basis. Analysts claim this could be the opening round in what could be a takeover battle for Twitter. Google and Facebook had previously made offers for the company but Costolo was seen as a roadblock. With Dorsey also the CEO of Square he will have his hands full managing both entities. Twitter said they would be looking both internally and externally for the next CEO.

A major Twitter investor, Chris Saca, posted an 8,500 word rant last week on how to improve Twitter. He said Google and Twitter would be an "instant fit" since Google has flopped on the social network stage. Back in April Google agreed to help Twitter sell and measure promoted tweets paid for by advertisers. In May Google began showing tweets in their search results.

In a conference call on Thursday the board said it would "carefully evaluate" any offer while they were searching for a new CEO. However, Dorsey said they believe they can "maximize value" best as an independent company. Of course he had to say that to have any hope of getting a fair price for the company if someone made an offer.

Others claim the CEO transition would not have happened if they actually had any active interest in someone buying the company. The acquisition would have happened in lieu of Costolo leaving up front and his exit would have been planned once the takeover was complete.

Investors must not have had much faith in a white knight appearing soon because shares gained only six cents on Friday. That is hardly a surge in buying on expectations for a sale.

Personally the January $40 call is looking attractive. After all how much worse can a new CEO do and there is always the chance for a buyer to appear.

LeapFrog (LF) shares fell -26% on an earnings miss. Ok, it was only -53 cents but to investors that still own the shares it was painful. Sales fell -40% to $33.9 million and the company posted a 56 cent loss. Analysts were expecting a 21 cent loss. The company said shrinking demand for tablets and related content impacted sales. Retailers were still working through leftover inventory from the holiday season and were not reordering. A planned release of the LeapTV video game platform was also delayed. This company may have just leaped into disaster. Very few come back from a setback this severe.

Alibaba (BABA) was finding no love last week as four companies downgraded the stock. Deutsche Bank cut its target price to $102. HSBC cuts its price from $136 to $124. Macquarie Research cut its target from $105 to $92 and RBC Capital lowered the target from $110 to $105. The brokers slashed their targets after the Alibaba investor meeting downplayed some aspects of its business.

The average price target from all brokers is $107 but BABA shares are headed in the other direction. HSBC cut expectations for profits by -9% and revenue by -3%. RBC Capital also cut estimates. One factor is that Alibaba halted online lottery sales in February thanks to a crackdown by the Chinese government. Alibaba also reduced its advertising fees and commissions on the group-buying website Juhasuan. That suggests business is not doing well on that site.

Brokers were concerned about how easily the business can be impacted by government policy decisions and the ongoing worries over the sale of counterfeit merchandise. MyBank, an online bank backed by Alibaba is getting off to a shaky start because of constraints by risk-averse government regulators. The bank is launching without U.S. technology because the Chinese government wants to purge U.S. tech from the domestic financial system. The Chinese government instructs companies to avoid IBM, Oracle, EMC Corp and others and recommends Chinese technology instead. China has dubbed the financial sector as IOE out or "de-IOE" with IOE the first letter of each company's name.

In a speech last week in the U.S. CEO Jack Ma said in "another life" I would never have taken Alibaba public. He said the challenges of running the company were hard enough but now that it was public it was extremely hard to run. This suggests he is struggling with having to be open about Alibaba's challenges with authorities and regulators and with investors pointing fingers at every crack in the business. It is much easier to run a company without millions of investors providing oversight and second guessing every decision you make.

Alibaba also has 1.2 billion shares still to expire from lockup in September. That could be a significant weight on prices in the months ahead.

Eli Lilly (LLY) declined -3% after expected data from the Alzheimer's Association may not be made public as expected. The group was expected to post abstracts of detailed trial findings on its website ahead of the conference planned for July. However, data in the abstracts would have been subject to an embargo preventing the public release until the conference. Only those registered for the conference would have had access. However, that raised questions on whether their access would have allowed and influenced stock market trading. The group said on Friday it was reconsidering the plan.

Lilly shares had risen +7% earlier in the week on expectations the data to be presented was going to be positive. The drug in question was solanezumab and Lilly had previously said the abstracts would have all the clinical data on the trials rather than just limited information. Normally they would only do that if there was a positive result to brag about.

Lumber Liquidators (LL) spiked +12% to $23.20 intraday on double the average volume on rumors there was a potential acquisition of the troubled company in the works. The company gave the standard answer of "we don't comments on rumors or speculation." Shares declined to +4% at the close. With more than 10,000 complaints that could turn into suits there is plenty of trouble ahead for anyone making an acquisition offer. It would be better to have them file bankruptcy and then buy the company out of bankruptcy.

Radio Shack filed the final plan in bankruptcy court for liquidation of its remaining assets. The plan follows the sale of 1,700 stores and the brand name and customer information to Standard General LP. The hedge fund plans to run the stores under a co-branding deal with Sprint.

The remaining assets will be placed into a liquidation trust and the proceeds will be distributed to creditors on a prorate basis depending on the type of claim they filed. Gift card holders have 60 days to make a claim or lose their credits.

Over the weekend Greece and EU Commission president Jean-Claude Juncker are locked in last ditch talks with a goal of reaching a deal before the market opens on Monday. While the odds are slim they are at least talking. Prime Minister Alexis Tsipras set a delegation to Brussels on Saturday with a new set of proposals in hopes of closing differences on problem areas including pensions, taxes and surplus targets.

An EU official said this was the last attempt by the EU to form a compromise. The IMF and ECB are supposedly waiting in the wings for a signal to rejoin the discussions if progress is made by Juncker. The Greek stock market declined -5.9% on Friday alone and yields on the Greek 2017 bonds rose +137 basis points to 20.03%.

Since some EU parliaments have to ratify any deal before funds can be dispersed and before the entire bailout program currently in place expires on June 30th there is little time left for negotiations. If something is not agreed by early next week the entire bailout process will collapse on June 30th and a new full fledged agreement will have to be negotiated and Greece will default on numerous payments before that can happen. Greece has 1.5 billion euros due June 30th and another 7 billion due in July and August. They have no money left so without a deal early this week there will likely be a debt disaster in Europe.

German Finance Minister Wolfgang Schaeuble has asked his staff to conceive a mechanism where a euro state could default on its debt in an orderly way that would ensure the continuity of the currency union. Basically they are planning for the worst case scenario.

A couple years ago we gave away trillion dollar Zimbabwe bucks with the end of year special. The country suffered rampant hyperinflation in 2008-2009. It got so bad shoppers would have to carry shopping bags of currency to the store just to buy bread and milk. The country eventually ended up using the U.S. dollar as its currency but the Zimbabwe bucks still traded. That is coming to an end. The country is going to buy back all the outstanding currency and officially end the reserve bank notes.

You can now exchange 175 quadrillion Zimbabwe bucks for $5 in U.S. currency. That equates to 35,000,000,000,000,000 Zimbabwe dollars for $1 U.S. dollar. Buybacks end on September 30th. Inflation in the country hit an unbelievable rate of 231,000,000% in October 2008. The currency was devalued about twice a day. At the height of the crisis the country was printing 20 trillion and 50 trillion dollar notes. The last notes printed were 100 trillion dollar notes. At that time 100 trillion was not enough to ride the bus back and forth to work for a week.

Crude prices rallied mid-week after crude inventories declined -6.8 million barrels as refiners boosted utilization to 94.6% and the high of the year as they produce gasoline ahead of the July 4th weekend. By mid July prices could begin to fall again as demand declines.

The number of active rigs in the U.S. declined -9 to 859 and now the lowest level in more than ten years. The low in July 2009 during the financial crisis was 866. Oil rigs have fallen from 1,609 to only 635 in the last 7 months. Gas rigs have stabilized in the 220-225 range and only lost -1 rig last week.

Since OPEC said they were going to continue pumping at full production the active rigs counts could continue lower. Nobody is going to want to fight the lower price expectations for Q3 and beyond.

The Chinese markets continue to rally into the sky and we know from past experience this is not going to end well. When this bubble finally bursts it could contaminate the planet with a virus of market declines. World's Worst Bubble will Soon Burst


The short squeeze on Wednesday triggered by rumors of a deal with Greece had limited follow through on Thursday. News on Friday that the IMF had broken off talks took the air out of the bubble and the indexes slipped back below resistance. The 2110 level on the S&P and 18,100 level on the Dow proved to be solid and sellers piled on when the indexes rolled over.

The S&P managed to remain above its 100-day average at 2087 but only barely. The key level for next week is the 150-day average at 2073 and horizontal support at 2080. Should those levels break we could be targeting 2040.

This is quadruple expiration week and the first half of the week is typically volatile with declines normal. In theory the drop to 2080 last week was a test of obvious support and traders bought the dip thanks to the short squeeze. A successful retest of 2080 could setup a month end rally.

The percentage of S&P stocks over their 50-day average improved with the short squeeze but quickly deteriorated on Friday. Only 41.8% of S&P stocks are over the 50-day. More than 20% of the S&P stocks are already in a bear market with declines of -20% or more. A year ago only 4% were in a bear trend. Full story, lots of detail

Only 59.4% of S&P stocks are over their 200-day average despite a minor bounce last week.

Despite the mid-week rebound the health of the market is not good.

The Dow also made a new lower high for the week with a solid stop at resistance at 18,100. The Tuesday drop saw a close under support at 17,800 so that level could be weaker on another test. The critical support for this week would be 17,600 and the lows from March.

With energy stocks weak, Apple shares weak after the WWDC and continued weakness from some of the industrials any stocks in rally mode will have a huge burden to lift to turn the Dow positive. The conditions have not changed much since last week with the majority of the individual Dow stocks still in a confirmed down trend.

Resistance 18,100 and support 17,600.

There was no material change on the Nasdaq but the tech indexes did finish negative for the week when the Dow and S&P were fractionally positive. The Nasdaq Composite closed right in the middle of its recent support (5000) and resistance (5100) with a close at 5051. The Nasdaq is holding closer to the highs than the other indexes but the excitement appears to have faded. The tech index has been trading in that range since May 14th with Tuesday's intraday dip the only violation. It is truly range bound. Eventually it is going to break out of this pattern and we can expect an explosive move in whatever direction it picks.

The Russell 2000 small caps posted a gain for the week and closed at 1265 and right below its highs for the week at 1270. This is resistance from March. The index is trading surprisingly well ahead of the rebalance in two weeks. Russell released the first list of proposed additions and deletions on Friday afternoon. Russell 3000 changes

This means the game is officially in progress. Additions will be bought and deletions sold. The list will be refined next Friday but this is 98% correct at this point. Since those being deleted are the only ones that can impact the indexes until the change on the 26th there is always a negative bias over the next two weeks. It may be slight and can be overruled by headlines like a resolution in Greece.

I am surprised by the strength of the Russell for this time of year and in this market. We should continue to watch the Russell for clues on market direction. A breakout here could be powerful.

Even more confusing is the breakout to a new high by the Russell Microcap Index ($RUMIC). These are the smallest stocks in the Russell universe and they are outperforming everything else. No signs of a pending correction here.

The Dow Transports rebounded from the late May lows at 8,265 in a weak attempt to avoid an even bigger decline. The rebound made another lower high and the chart is still suggesting there are lower lows ahead.

I think we are at the mercy of headline risk this week. With Greece dangling by a thread over the default cliff, the Fed meeting on Wednesday and quadruple expiration we could see the market move strongly at any time. I would not be a risk investor this week. Either direction is possible and it is a coin toss as to which direction wins.

The Fed is going to reconfirm its plans to hike rates soon. Greece is going to live or die by whatever decision it makes this week. The final hours are finally here. Investors have made their bets on both of those headline events and whatever happens will play out for all to see. I prefer to watch from the sidelines. There is always another trade as long as you have capital to invest. You can recover from lost opportunity but it is very hard to recover from lost capital.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

Random Thoughts

The government now admits there were two cyber attacks against the government database and records covering more than 14 million people were stolen. The most critical data came from Standard Form 86 that people fill out when they are applying for a government job with any type of security clearance. This is the results of a deeply personal investigation into their past including mental illness, drug and alcohol use, past arrests, bankruptcies, listing of personal contacts, friends and relatives both domestic and foreign, current and past addresses, employment as well as social security numbers, personal information of both the applicant and their "cohabitants." They also got military records, veterans status information, birth dates, gender and race data, pay histories, health insurance, life insurance and pension information.

With this information Chinese agents can not only blackmail current government employees but they can also assume the identities of anyone they desire since they have 100% of their personal data. China can recruit spies as well as build accurate personnel lists of current employees in each government agency. The holders of this data can mount the "mother of all spear-fishing attacks" according to Mike Rogers, Chairman of the House Intelligence Committee.

Despite the rebound in the housing market more than 8 million homeowners are still underwater on their mortgages. That equates to 15.4% of homeowners with mortgages. More than 4 million owe at least 20% more than their home is worth. This is retarding the growth in the housing market because these people can't sell and move up and this means a large chunk of the homes in the U.S. are not turning over.

The Pentagon is poised to move significant heavy weapons and up to 5,000 American troops to several Baltic and Eastern European countries. The proposal would move main battle tanks, artillery and supplies into the newer NATO nations in Eastern Europe that was once part of the Soviet sphere of influence. Putin's takeover of Crimea and continued aggression in Ukraine is stimulating significant changes in the defensive posture of NATO nations. The idea is to send a clear message to Putin that he cannot continue his aggression into other satellite nations because the U.S. and NATO will defend those nations.

NATO was expanded in 2004 to include the Baltic nations but a decision was made at the time not to stockpile weapons that close to Russia in order to avoid creating hostilities with Russia. Now that those hostilities exist there is no reason not to bulk up the defensive posture. The equipment would be stored at U.S. and NATO bases pending decisions by the White House and NATO. The nations involved would be Lithuania, Latvia, Estonia, Poland, Romania, Bulgaria and possibly Hungary.

The initial "European Activity Set" would include 250 M1-A2 tanks, 1,200 vehicles, Bradley fighting vehicles and armored howitzers.

We talk about the Dow Transports a lot but most readers probably don't know what stocks are actually in the index. Here is a great chart showing all the components and their gain/loss for the year. This explains in one picture why the transports are falling. What is Driving the Dow Transports?

The retail sales for May came in better than expected but you have to dig down to get the real story. The data is "seasonally adjusted" by applying several factors judged appropriate by the Dept of Commerce. The Fed really needed a strong retail sales number for May to support their plans for a future rate hike. Over the last ten years the seasonal adjustment has ranged from 73.4% to 114.6% with all the normal factors considered. However, the seasonal adjustment for May was a whopping 275.5%. Apparently if you really need a positive number just ask your friends over at the Dept of Commerce and they will "adjust" it for you. Source

Since the Great Recession the manufacturing sector is down -3.2%, has 15,000 fewer production facilities and since 2007 has lost more than 2 million jobs. So why is the U.S. economy doing so well? The sector accounts for 12% of GDP and supports an estimates 17.6 million jobs. Full story

The AAII Investor Sentiment Survey changed significantly last week. Bullish sentiment declined -7.3% to 20.0% and bearish sentiment shot up +8% to 32.6%. Bullish sentiment is now the lowest since April 2013. AAII wrote that unusually low levels of bullish sentiment are typically followed by better than average returns over a 6 and 12 month period. They did not say what followed in the 2-4 weeks after significantly lower levels of bullish sentiment.

The week after Quadruple Witching in June is typically abysmal according to Jeff Hirsch and the Stock Trader's Almanac. The Dow has lost ground in that week 22 of the last 25 years with an average loss of -1.1%. Source

Options on the Volatility Index are exploding higher. Open interest in call options, expecting market volatility to spike significantly, are at levels not seen in eight months. The most active call options are those expecting a significant spike in volatility over the next six days. Five of the ten most owned calls are for the VIX to spike to 23 by June 17th. The VIX closed at 13.78 on Friday. There are about 3.8 calls for every put on the VIX. Full story

Despite all the attempts by the current administration to legislate stricter gun control the effort seems to be lost on most of the public. A new Rasmussen poll found that only 22% of "likely U.S. voters" would feel safer in a neighborhood where nobody was allowed to have a gun. Sixty-eight percent said they would feel safer in a neighborhood where guns were allowed, while 10% said they were not sure.

In a Gallup poll last year the percentage of Americans that felt safer with a gun in the house nearly doubled to 63% today compared to 33% in 2000.


The Fed may shake things up next week when they restate their target for full employment. In March they suggested the "natural rate" of unemployment would be something in the range of 5.0-5.2%. Unemployment in May was 5.5%. A new paper by the Fed staff suggests the target number for full employment may be lowered to 4.3%. They speculated that raising rates in a world of 5.5% unemployment could be too soon. Full story

Q2 GDP estimates are rapidly improving. The Atlanta Fed real time GDPNow forecast has risen from +0.7% growth to +1.9% growth just over the last two weeks. Positive economic numbers have dramatically stimulated the model. Atlanta Fed

The Iranian nuclear talks have "virtually stalled" according to news reports. The three conditions Iran claims it will never agree to are the snap inspections, the inspections of military bases and the timing of the release of sanctions. The P5+1 nations insist on monitoring Iranian activities to prevent a clandestine nuclear weapons program. President Hassan Rouhani said "Iran would never allow its secrets to be disclosed through the implementation of the protocols." Iran is now saying an agreement can be reached but it will likely take a "number of months" and that assumes the six countries make no "excessive demands." Those would be snap inspections and inspections of military installations. Iran has put off any agreement now for more than a decade while they continue to research and produce enriched uranium from secret nuclear installations. Claiming it could take a few more months to come to an agreement is no surprise. There will never be an agreement as long as the six nations continue to attempt pacification rather than enforcement.

Pragmatic Capitalism (PragCap.com) issued a set of tongue in cheek guidelines for financial journalism. I am reprinting them here. I think you will find a lot of them appropriate. Source

"The following rules are set forth as a general guideline for the financial journalism industry. Although the rules will not be strictly enforced any breach of the stated rules could result in substantial subtweeting, private email trash talking and substantial LOLing."

I. The Stop Scaring People Rule. Scaremongering is not to be tolerated except during the middle of a financial crisis or nuclear war. Writing scary articles for the sake of conjuring emotionally driven page views is not a legitimate business model and is generally counterproductive.

II. The Event Porn Rule. That big sports or entertainment event you’re thinking of writing about probably has no correlation with the financial markets. Please refrain from using this event as a reason to write about the markets.

III. The Crash Call Rule. That pundit who comes on TV predicting financial Armageddon every week is not a "guru" and is directly contributing to poor financial decisions. Please refrain from interviewing him regularly. Also, see Rule I.

IV. The Permabull Restriction. Interviews with permanently bullish Professors from the Wharton School are not informational, educational or useful in any way. Everyone knows the stock market is very likely to rise over the very long-term. This message does not need to be repeated every single week.

V. The Political Obfuscation Rule. Political commentaries that contradict empirical evidence will not be tolerated. If you must make a political argument please refrain from trying to square this with a financial market position.

VI. The No Warren Buffett Rule. That article about Warren Buffett is almost certainly useless. You are not the first person to write it and it is not providing anyone with anything useful.

VII. Stop The Seasonality Rule. That article about seasonality (Sell in May, the Santa Claus Rally, etc) is data mining. We do not tolerate data mining in finance and we hope you will refrain from using seasonal events to write the same article year after year.

VIII. The Taleb Rule. We know that Nassim Taleb is smarter than the rest of us, but none of us really understands anything he is saying so please stop trying to explain his views on the financial markets and economics.

IX. The Bubble in Bubbles Rule. If you feel the need to use the word "bubble" please reconsider. This word is only allowed to be used by a select few financial experts (Robert Shiller, Robert Shiller & Robert Shiller). If you are not one of the names listed in the previous sentence please do not use this terminology.

X. The Crayola Crayons Rule. Drawing lines on charts or referring to things such as "inverted hammer candlesticks" is not financial analysis. It is an adult version of drawing. It should also be noted that "head and shoulders" is a type of shampoo, not a useful market indicator. In addition, mentions of the Hindenburg Omen could result in public shaming. As much as we all have fond memories of crayola crayons and drawing this should not be mistaken as a legitimate form of journalism.

XI. The Gold Huckster Rule. That guy who tells us to buy gold every week is not providing objective financial advice. He is selling gold from his company in exchange for the things he is likely telling you to avoid (US Dollars). Please refrain from citing him as a legitimate source of financial news.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Markets tend to return to the mean over time. Excesses in one direction will lead to an opposite excess in the other direction."

Bob Farrell


subscribe now


New Plays

Summer Blockbuster

by James Brown

Click here to email James Brown


IMAX Corp. - IMAX - close: 42.47 change: +0.93

Stop Loss: 39.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 13, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 732 thousand
New Positions: Yes, see below

Company Description

Trade Description:
It's shaping up to be a blockbuster summer for IMAX. First there was the second Avenger movie in May. Now Jurassic World is stomping its way to box office success while IMAX gets to ride its coattails.

The "Avengers: Age of Ultron" delivered the second biggest opening day with $84.4 million in U.S. sales. That's just below the last Harry Potter movie, which brought in $91 million on its first day. The new Jurassic World movie, the fourth Jurassic Park dinosaur flick, notched the third biggest opening day with $82.8 million. The new dinosaur-themed juggernaut is poised to do $200 million over the weekend.

As of early May, this Avengers 2 movie has already raked in $425 million overseas and is poised to do more than $200 million this weekend. Estimates suggest it could hit $600 million in the U.S. It had already crossed the $1 billion mark for worldwide sales by the middle of May. This movie is produced by Marvel Studios, a division of Disney (DIS), but it also means big business for IMAX. The Ultron movie delivered the biggest opening night sales for any IMAX film ever.

IMAX is part of the services sector. They're considered part of the entertainment industry. According to the company, "IMAX, an innovator in entertainment technology, combines proprietary software, architecture and equipment to create experiences that take you beyond the edge of your seat to a world you've never imagined. Top filmmakers and studios are utilizing IMAX theatres to connect with audiences in extraordinary ways, and, as such, IMAX's network is among the most important and successful theatrical distribution platforms for major event films around the globe. IMAX is headquartered in New York, Toronto and Los Angeles, with offices in London, Tokyo, Shanghai and Beijing. As of March 31, 2015, there were 943 IMAX theatres (820 commercial multiplexes, 18 commercial destinations and 105 institutions) in 63 countries."

Today there is a battle for consumer's viewing habits. People consume their content on all sorts of devices from their smartphones, tablets, laptops, desktops, and their big screen TVs at home. Netflix and other streaming services have changed viewer habits and expectations. When consumers choose to go to the movies they want something different. According to IMAX's CEO that's why IMAX tickets are doing so well. It's an experience that can't be replicated at home.

The company had a lot of momentum going into 2015 thanks to huge hits like "American Sniper". IMAX has managed to beat Wall Street's earnings and revenue estimates for the last four quarters in a row. Their most recent earnings report was April 30th. Income surged +50% from a year ago. Analysts were expecting $0.05 a share. IMAX delivered $0.07. Revenues rose +29% to $62.2 million, significantly above estimates for $55.4 million.

IMAX CEO Richard Gelfond commented on their results, "This is a very exciting time for IMAX. Our continued progress in expanding our theatre network globally, along with our strong film performance during the first quarter, resulted in robust financial results with almost 30% revenue growth and over 50% adjusted earnings growth compared to the same period last year. With record results from Furious 7 in April and a great start to the Avenger's sequel internationally, the momentum has continued into the second quarter."

2015 is expected to be a huge year. The "Fast & Furious 7" film kept the momentum going. IMAX will also benefit from high-profile movies like "Avengers: Age of Ultron", Jurassic World, Terminator Genisys, Hunger Games: Mockingjay Part 2, the new James Bond movie, another Mission Impossible film (#5), and the next episode of Star War (#7) this December.

IMAX is rolling out new laser systems and they've signed long-term film deals with Disney and Warner Brothers. IMAX is currently growing at about 120 theaters a year. They're doing well in China. The Chinese movie box office is expected to eclipse the U.S. market by 2020.

Shares of IMAX popped to new all-time highs on May 28th after announcing its majority owned subsidiary, IMAX China Holding Inc., had filed for an IPO in Hong Kong. According to Reuters, IMAX is "looking to benefit from booming entertainment demand in the world's second largest economy." IMAX owns 80% of IMAX China. Shares of IMAX have spent the last couple of weeks churning sideways in the $40-42 zone but with a bullish trend of higher lows.

Friday's breakout past resistance near $42.00 could spark some short covering. The most recent data listed short interest at 18.4% of the 53.7 million share float. We are suggesting a trigger to launch bullish positions at $42.75

Trigger @ $42.75

- Suggested Positions -

Buy IMAX stock @ $42.75

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

Buy the SEP $45 CALL (IMAX150918C45) current ask $1.50
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

Small Caps Are Holding Up

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market suffered widespread declines on Friday. The small cap stocks are holding up better than their large cap rivals. Concerns over Greece continue to plague investor sentiment.

We closed the GPRO trade on Friday morning.

Current Portfolio:

BULLISH Play Updates

Hanesbrands Inc. - HBI - close: 32.68 change: +0.18

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

06/13/15: HBI is not the fastest stock but shares have continued to push higher. The stock outperformed the broader market with a +0.5% gain on Friday and another close above its 50-dma.

I would be tempted to launch new positions here. However, traders may want to avoid new bullish positions if the major market indices continue to sink.

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


LDR Holding - LDRH - close: 44.44 change: -0.13

Stop Loss: 41.85
Target(s): To Be Determined
Current Gain/Loss: +5.4%
Entry on June 03 at $42.15
Listed on June 02, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 231 thousand
New Positions: see below

06/13/15: LDRH's 13-cent drop on Friday was its second decline in a row. The stock hasn't seen back-to-back down days since May 22nd.

I don't see any changes from my recent comments. You could argue that LDRH is short-term overbought here . More conservative traders may want to use a higher stop loss.

No new positions at this time.

Trade Description: June 2, 2015:
The worldwide market for nonfusion spinal devices is expected to triple by in the next seven years. That's according to Millennium Research Group (MRG), who said, "the global market for spinal nonfusion devices will almost triple in size through 2022, surpassing $1.6 billion. This market will be driven largely by emerging products and approvals, as well as high growth in emerging regions, such as Asia Pacific and Brazil, India and China (BIC)." (

One company leading the charge in this industry is LDRH. They are in the healthcare sector. According to the company, "LDR Holding Corporation is a global medical device company focused on designing and commercializing novel and proprietary surgical technologies for the treatment of patients suffering from spine disorders. LDR's primary products are based on its exclusive VerteBRIDGE(R) fusion and Mobi non-fusion technology platforms and are designed for applications in the cervical and lumbar spine. These technologies are designed to enable products that are less invasive, provide greater intra-operative flexibility, offer simplified surgical techniques and promote improved clinical outcomes for patients as compared to existing alternatives. In August 2013, LDR received approval from the U.S. Food and Drug Administration (FDA) for the Mobi-C cervical disc replacement device, the first and only cervical disc replacement device to receive FDA approval to treat both one-level and two-level cervical disc disease."

The recent earnings history for LDRH has been very bullish. They have beaten Wall Street's earnings and revenue estimates the last four quarters in a row. Plus, the company has raised its guidance the last four quarters in a row. Revenues have been surging in the +25% to +30% range the last year.

The company's most recent earnings report was May 6th. They reported their Q1 results after the closing bell. Analysts were expecting a loss of ($0.20) per share. LDRH reported a loss of ($0.12). Revenues were up +25.7% to $39.1 million, above the $36.6 million estimate. Gross margins improved from 83.1% to 83.5%.

LDRH management said that foreign exchange rates would hurt revenues by 5% to 6% in 2015. Yet they still raised their 2015 revenue guidance into the $166.7-168.1 million range, above analysts' estimates of $160.5 million.

The stock shot higher on its May 6th earnings report and bullish guidance. Shares recently peaked near $42.00 and spent the last several days consolidating sideways in the $40-42 zone. This sideways consolidation has alleviated some of LDRH's overbought conditions. The point & figure chart is very bullish and forecasting at $64.00 target.

We like how shares were showing relative strength today. The stock is poised to breakout past short-term resistance at $42.00. Tonight we are suggesting a trigger to launch bullish positions at $42.15. The stock does not trade a lot of volume and it has been somewhat volatile in the past. I would consider this a slightly more aggressive, higher-risk trade.

NOTE: Options are available but the spreads are a little too wide to trade comfortably.

- Suggested Positions -

Long LDRH stock @ $42.15

06/10/15 new stop @ 41.85
06/03/15 triggered @ $42.15


Starbucks Corp. - SBUX - close: 52.63 change: +0.14

Stop Loss: 49.95
Target(s): To Be Determined
Current Gain/Loss: +3.1%
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

06/13/15: Traders bought the dip in SBUX on Friday morning near its 10-dma. Shares managed to rebound to a +0.26% gain, outperforming the broader market.

No new positions at this time although nimble traders could try and time an entry on a dip near SBUX's bullish trend of higher lows (see the dotted line on the chart).

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

06/04/15 new stop @ 49.95
05/18/15 triggered @ $51.05
Option Format: symbol-year-month-day-call-strike


Seattle Geneitcs, Inc. - SGEN - close: 46.91 change: -0.04

Stop Loss: 43.75
Target(s): To Be Determined
Current Gain/Loss: -0.5%
Entry on June 08 at $47.15
Listed on June 06, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.1 million
New Positions: see below

06/13/15: SGEN didn't make much progress for the week but if you look closely shares have a bullish trend of higher lows. SGEN looks poised to rally from here. A new rise past $47.15 could be used as a bullish entry point.

Trade Description: June 6, 2015:
It has been a very bumpy ride for biotech investors this year. Yet the biotech space continues to outperform the broader market. The IBB biotech ETF is up +20% in 2015 versus the NASDAQ composite's +6.6% gain. SGEN is faring even better with a +45.8% gain this year.

SGEN has been working on its antibody-drug conjugate (ADC) technology for years but it still sounds like science fiction. They can create ADCs that target a specific type of tumor cell in the body. It links up with a cancer cell and then delivers a cytotoxin, which is a cell-killing agent.

According to the company, "Seattle Genetics is a biotechnology company focused on the development and commercialization of innovative antibody-based therapies for the treatment of cancer. Seattle Genetics is leading the field in developing antibody-drug conjugates (ADCs), a technology designed to harness the targeting ability of antibodies to deliver cell-killing agents directly to cancer cells.

The company's lead product, ADCETRIS® (brentuximab vedotin), is a CD30-targeted ADC that, in collaboration with Takeda Pharmaceutical Company Limited, is commercially available for two indications in more than 55 countries, including the U.S., Canada, Japan and members of the European Union.

Additionally, ADCETRIS is being evaluated broadly in more than 30 ongoing clinical trials in CD30-expressing malignancies. Seattle Genetics is also advancing a robust pipeline of clinical-stage programs, including SGN-CD19A, SGN-CD33A, SGN-LIV1A, SGN-CD70A, ASG-22ME, ASG-15ME and SEA-CD40. Seattle Genetics has collaborations for its ADC technology with a number of leading biotechnology and pharmaceutical companies, including AbbVie, Agensys (an affiliate of Astellas), Bayer, Genentech, GlaxoSmithKline and Pfizer."

SGEN has a pretty robust pipeline with multiple therapies in phase 1 to phase 3 trials. That probably makes them a buyout target in this merger happy market. Yet that is just speculation on my part. Here's a list of SGEN's current pipeline (SGEN's pipeline).

I hesitate to mention earnings because most smaller biotech firms don't have any. The earnings they do have tend to be lumpy due to milestone payments from partners. SGEN actually has revenue from sales of its FDA approved therapy (listed above). Yet they continue to run losses every quarter. That's because running so many clinical trials is expensive.

Looking at the last couple of quarters SGEN has reported results that were above Wall Street estimates on both the top and bottom line. Revenues in the fourth quarter were up +10% from a year ago while revenues in the first quarter were up +20% from a year ago.

Recently SGEN has seen some bullish headlines regarding insider buying. The company's largest shareholder, Baker Brothers Advisors, bought more than one million shares of the company. This raised their stake in SGEN from 23.4% to 24.25%. Traditionally insider buying is seen as a big bullish vote of confidence on the company's future.

The stock has been soaring the last few weeks with a run from an intraday low of $33.68 on April 30th to a new 52-week high near $47.00 this Friday. You could definitely argue that SGEN is overbought. I'm sure a big portion of that move could have been short interest. It could be short covering that drives the next move higher. The most recent data listed short interest at 29% of the 92.9 million share float. That's enough for a potential short squeeze. Bears may be panicked with SGEN above resistance near $45.00.

SGEN looks pretty bullish right here. I'd be tempted to buy the stock now. However, tonight we are suggesting bullish positions on SGEN if shares trade at $47.15. Just keep in mind that trading biotech stocks is a higher-risk proposition. Not only do biotech stocks tend to be more volatile but you never know when the right or wrong headline (usually regarding some clinical trial) could send shares of your trade crashing or soaring overnight. Right now the IBB biotech ETF is poised to break through major resistance. That could spark short covering across the biotech space.

- Suggested Positions -

Long SGEN stock @ $47.15

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

Long SEP $55 CALL (SGEN150918C55) entry $2.45

06/08/15 triggered @ $47.15
Option Format: symbol-year-month-day-call-strike


Silicon Laboratories Inc. - SLAB - close: 56.08 change: -0.40

Stop Loss: 53.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 311 thousand
New Positions: Yes, see below

06/13/15: SLAB's dip on Friday erased most of its gains for the week. We are on the sidelines waiting for a breakout to new highs. Our suggested entry point is $57.05.

Trade Description: June 10, 2015:
The Internet of Things (IoT) is poised to surge and SLAB plans to capture its chunk of the IoT pie.

Here's an excerpt from SLAB's explanation on the Iot:

The Internet has come a long way over the last 30 years. Old-fashioned IPv4 is giving way to IPv6 so that every device on the Internet can have its own IP address. Machine-to-machine (M2M) communication is on the rise, enabling devices to exchange and act upon information without a person ever being involved. The scope and scale of the Internet have changed as well: industry leaders predict that the number of connected devices will surpass 15 billion nodes by 2015 and reach over 50 billion by 2020. The challenge for the embedded industry is to unlock the value of this growing interconnected web of devices, often referred to as the Internet of Things (IoT). (You can read more about it here.)

SLAB is part of the semiconductor industry. According to the company, "Silicon Labs (SLAB) is a leading provider of silicon, software and system solutions for the Internet of Things, Internet infrastructure, industrial automation, consumer and automotive markets. We solve the electronics industry's toughest problems, providing customers with significant advantages in performance, energy savings, connectivity and design simplicity. Backed by our world-class engineering teams with unsurpassed software and mixed-signal design expertise, Silicon Labs empowers developers with the tools and technologies they need to advance quickly and easily from initial idea to final product."

SLAB has been beating Wall Street's estimates on both the top and bottom line. Revenues were up +10.8% in the fourth quarter and up +12.4% in the first quarter this year.

The company has recently been considered a takeover target. This speculation helped push SLAB through resistance near the $54.00 level. Shares have been able to maintain these gains. Now SLAB is starting to breakout from its recent sideways consolidation. The point & figure chart is bullish and forecasting at long-term target of $70.00. Today's intraday high was $56.75. We are suggesting a trigger to launch bullish positions at $57.05.

Trigger @ $57.05

- Suggested Positions -

Buy SLAB stock @ $57.05

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

Buy the OCT $60 CALL (SLAB151016C60)

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


Super Micro Computer - SMCI - close: 33.93 change: -0.81

Stop Loss: 32.45
Target(s): To Be Determined
Current Gain/Loss: +0.8%
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

06/13/15: The recent action in SMCI is not inspiring a lot of confidence. Thursday's rally attempt failed at its 100-dma (again). It is arguably a lower high. SMCI underperformed the market on Friday with a -2.3% drop toward short-term technical support at the 20-dma. If the market continues to sink this week we could see SMCI retesting its 50-dma near $33.00 soon.

I am not suggesting 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

06/04/15 new stop @ 32.45
05/22/15 triggered @ 33.65
Option Format: symbol-year-month-day-call-strike


Sarepta Therapeutics - SRPT - close: 27.69 change: -0.61

Stop Loss: 24.85
Target(s): To Be Determined
Current Gain/Loss: +0.1%
Entry on June 10 at $27.65
Listed on June 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: see below

06/13/15: SRPT ended a three-day winning streak with some profit taking on Friday. That's not too surprising after SRPT had rallied to new 2015 highs. While SRPT underperformed with a -2.1% decline it did bounce near short-term support near $27.00.

If SRPT's bounce continues on Monday I would be tempted to launch new positions although you may want to make sure the broader market is positive as well.

Trade Description: June 9, 2015:
Often biotech stocks can turn into a binary trade. You win big or lose big based on the company's clinical trials and success or failure with the FDA. SRPT is one such stock. Shares have seen some tremendous, gut-wrenching moves, both up and down, over the last couple of years.

If you're not familiar with SRPT they are a biotech stock (part of the healthcare sector). According to the company, "Sarepta Therapeutics is a biopharmaceutical company focused on the discovery and development of unique RNA-targeted therapeutics for the treatment of rare, infectious and other diseases. The Company is primarily focused on rapidly advancing the development of its potentially disease-modifying DMD drug candidates, including its lead DMD product candidate, eteplirsen, designed to skip exon 51. Sarepta is also developing therapeutics for the treatment of drug-resistant bacteria and infectious, rare and other human diseases."

SRPT does not have any products on the market, which is another reason they might be viewed as a binary trade. If they don't succeed with their Eteplirsen treatment for Duchenne Muscular Dystrophy (DMD) then its stock could collapse. DMD is a very rare disease. Only about 20,000 people a year are diagnosed with it in the U.S. It can be fatal by age 30.

SRPT made headlines on May 20th and the stock surged almost $10 with a +60% move to new eight-month highs. The reason behind the pop in the stock was the company's plan to submit a rolling New Drug Application (NDA) with the FDA for its Eteplirsen. This is a big deal. SRPT tried to get FDA approval to file an NDA back in 2013 but the regulators rejected their application saying they needed more data.

Now that SRPT can start the NDA process they should be able to meet with an advisory committee in the fourth quarter of this year, which could really generate a lot of volatility based on the committee's decision.

It's important to note that SRPT is facing competition from larger biotech firm BioMarin Pharmaceuticals (BMRN) who is working on a treatment for the same disease. If BMRN's treatment gets approved first it could send SRPT shares crashing.

Canaccord Genuity's analyst, Adam Walsh, issued an opinion on this SRPT news and multiple news outlets quoted him. According to Walsh,

"Looking forward, we see two potential catalysts to drive shares higher: 1) FDA acceptance of the NDA filing (60 days post-filing — est. late third quarter 2015); and 2) FDA announcement of Adcom to review the eteplirsen NDA. On the first, we fully expect FDA to accept the filing for review, given its blessing to submit the NDA. On the second, we believe an Adcom would allow for powerful testimony from DMD patients, parents, and advocacy groups in support of eteplirsen, which could sway committee members toward recommending approval. Thus, while we acknowledge that significant approval risks still remain, we would expect Sarepta shares to trend higher into an expected fourth quarter of 2015 Adcom."
The advisory panel is a major event for SRPT. One analyst suggested that if SRPT won approval their stock could shoot into the $40s. A different analysts said approval could launch SRPT's stock toward $100. Both said that another FDA rejection could send SRPT shares toward $10.

Part of the reason behind SRPT's big move in May was short covering. The most recent data listed short interest at 33% of the relatively small 35.8 million share float. Currently shares of SRPT are consolidating in a bullish pattern with resistance near $27.00-27.50. A breakout here could spark another wave of short covering.

There has been some speculation that SRPT is a buyout target although I did not see a lot of discussion about any potential suitors.

We are suggesting a trigger to launch small bullish positions at $27.65. We want to limit our position size because SRPT can be very volatile. I would consider this a higher-risk, more aggressive trade.

*small positions to limit risk* - Suggested Positions -

Long SRPT stock @ $27.65

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

Long AUG $30 CALL (SRPT150821C30) entry $3.00

06/10/15 triggered @ $27.65
Option Format: symbol-year-month-day-call-strike


Tempur Sealy Intl. - TPX - close: 64.38 change: +0.77

Stop Loss: 59.25
Target(s): To Be Determined
Current Gain/Loss: +1.9%
Entry on June 10 at $63.15
Listed on June 08, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 890 thousand
New Positions: see below

06/13/15: TPX looks healthy with a show of relative strength on Friday. Traders bought the dip near $63.00 on Friday morning and TPX rebounded to a +1.2% gain. If you're looking for a new entry point then consider a rally past $64.55 since $64.50 is short-term resistance.

Trade Description: June 8, 2015:
Activist investors seek to influence management to incorporate major changes in a company with the expectation of unlocking shareholder value. Sometimes the mere mention of an activist investor buying a stock can get shares to move. In TPX's case the activists have won a major battle with management.

TPX is in the consumer goods sector. According to the company, "Tempur Sealy International, Inc. (NYSE: TPX) is the world's largest bedding provider. Tempur Sealy International develops, manufactures and markets mattresses, foundations, pillows and other products. The Company's brand portfolio includes many of the most highly recognized brands in the industry, including Tempur, Tempur-Pedic, Sealy, Sealy Posturepedic, OptimumTM and Stearns & Foster. World headquarters for Tempur Sealy International is in Lexington, KY."

TPX's most recent earnings report was April 28th. They announced their 2015 Q1 results with earnings of $0.55 per share. That was seven cents above estimates. Revenues were up +5.4% to $739.5 million. This was also above expectations. Management raised their 2015 forecast for both earnings and sales. The stock popped to new multi-year highs on this news. Yet the real story is probably the activist investors involved.

Hedge fund H Partners has been urging change with TPX management for months. TPX executives choose to fight. It came down to a proxy fight and shareholders voted to oust the CEO. Two more directors, who were under fire by H Partners have also left the board. H Partners built a website to inform shareholders their opinion on the company (www.fixtempursealy.com). There they posted their 90 page slideshow on why TPX needed a management change. You can see their presentation at this webpage.

The stock has been oscillating sideways in the $58-63 zone the last few weeks. It's starting to look like the consolidation may be over. TPX displayed relative strength last week and it held up today as well while the rest of the market was sinking. If TPX can trade over $63.00 it will generate a new quadruple top breakout buy signal on the P&F chart. We are suggesting a trigger to launch bullish positions at $63.15.

- Suggested Positions -

Long TPX stock @ $63.15

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

Long SEP $65 CALL (TPX150918C65) entry $3.50

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

06/10/15 triggered @ $63.15
Option Format: symbol-year-month-day-call-strike


Zoetis Inc. - ZTS - close: 49.08 change: -0.79

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 11, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.3 million
New Positions: Yes, see below

06/13/15: I'd like to say that ZTS followed the market lower on Friday but shares actually underperformed with a -1.5% decline.

If this weakness continues the nearest support should be $48.00. A bounce from $48.00 could be used as an alternative entry point. Currently our suggested entry trigger is $50.50.

Trade Description: June 11, 2015:
ZTS is in the healthcare sector but they are not your average healthcare stock. The company is the world's biggest manufacturer of medicine and vaccinations for livestock and pets. They were spun off from pharmaceutical giant Pfizer (PFE) back in 2013. Last year ZTS' stock was a big performer with a gain of more than +50%. That outperformance continues this year with ZTS up +15.9% in 2015.

According to the company, "Zoetis is the leading animal health company, dedicated to supporting its customers and their businesses. Building on more than 60 years of experience in animal health, Zoetis discovers, develops, manufactures and markets veterinary vaccines and medicines, complemented by diagnostic products and genetic tests and supported by a range of services. In 2014, the company generated annual revenue of $4.8 billion. With approximately 10,000 employees worldwide at the beginning of 2015, Zoetis has a local presence in approximately 70 countries, including 27 manufacturing facilities in 10 countries. Its products serve veterinarians, livestock producers and people who raise and care for farm and companion animals in 120 countries."

ZTS CEO Juan Ramon Alaix recently spoke at an investor conference. He said the domestic pet and livestock market has hit $100 billion. While the market for animal health is currently at $24 billion and is expected to reach $33 billion by 2020. Alaix told investors that the animal health industry is extremely resilient and has continued to grow regardless of global economic conditions.

While Alaix has a bullish long-term outlook for his industry they company's sales growth seemed to stall last quarter. ZTS reported earnings on May 5th. 2015 Q1 results were $0.41 per share, which beat analysts' estimates. Yet revenues were flat at $1.10 billion. Guidance was in-line with Wall Street estimates.

What is noteworthy is that within their earnings press release the company discussed plans to cut costs and boost profits. ZTS will cut up to 25% of its workforce. They will exit several of its manufacturing plants. Plus they plan to discontinue several underperforming products. This is expected to generate $300 million in cost saves by 2017 and boost their adjusted operating margins from 25% in 2014 to 34% in 2017.

Why is ZTS launching its first major restructuring? Odds are Bill Ackman had an influence here. Mr. Ackman is the founder and CEO of Pershing Square Capital Management, an activist hedge fund. Late last year Pershing bought a big stake in ZTS. They currently own about 8% of the company or 41.8 million shares, valued around $2 billion. Since the hedge fund has jumped into ZTS they now have two board seats.

Looking at the bullish trajectory on ZTS' stock it appears that the rest of Wall Street is along for the ride and they expect Ackman to unlock more shareholder value out of ZTS. There has been some speculation that ZTS is actually a takeover target. Both Bayer and Sanofi have been rumored to be possible suitors.

The rally in ZTS stalled at round-number resistance near $50.00. Now after consolidating sideways in the $48-50 zone for the last several days ZTS looks poised to breakout. We are suggesting a trigger to open bullish positions at $50.50.

Trigger @ $50.50

- Suggested Positions -

Buy ZTS stock @ $50.50

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

Buy the Oct $55 CALL (ZTS151016C55)

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


BEARISH Play Updates

CenturyLink, Inc. - CTL - close: 32.56 change: -0.17

Stop Loss: 33.65
Target(s): To Be Determined
Current Gain/Loss: +3.2%
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

06/13/15: After a six-week decline CTL finally bounced. It looks like the oversold bounce in CTL has failed near short-term resistance around $33.00. More conservative traders may want to adjust their stop closer to Friday's high ($33.05).

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

06/04/15 new stop @ 33.65
05/26/15 triggered @ $33.65
Option Format: symbol-year-month-day-call-strike


On Deck Capital - ONDK - close: 13.66 change: +0.11

Stop Loss: 15.15
Target(s): To Be Determined
Current Gain/Loss: +4.8%
Entry on June 02 at $14.35
Listed on June 01, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 431 thousand
New Positions: see below

06/13/15: ONDK saw a bit of an oversold bounce on Friday. Luckily the $14.00 level acted as resistance all day long.

Traders may want to adjust their stop loss lower. I am not suggesting new positions at this time.

Trade Description: June 1, 2015:
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.

- Suggested Positions -

Short ONDK stock @ $14.35

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

Long AUG $14 PUT (ONDK150821P14) entry $1.80

06/10/15 new stop @ 15.15
06/02/15 triggered @ $14.35
Option Format: symbol-year-month-day-call-strike



GoPro, Inc. - GPRO - close: 57.45 change: +1.46

Stop Loss: 54.65
Target(s): To Be Determined
Current Gain/Loss: +9.2%
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

06/13/15: GPRO was looking ugly on Thursday with a failed rally at short-term resistance. In the Thursday newsletter we decided to exit this trade on Friday morning. GPRO gapped open lower at $55.43 and naturally surged +2.6% (back to resistance).

The three-month trend for GPRO is higher but last week snapped a three-week winning streak.

- Suggested Positions -

Long GPRO stock @ $50.75 exit $55.43 (+9.2%)

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

JUL $55 CALL (GPRO150717C55) entry $2.00 exit $3.20 (+60.0%)

06/12/15 planned exit 06/10/15 The action today is bearish. Traders may want to exit early now to lock in potential gains
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