Option Investor

Daily Newsletter, Tuesday, 7/7/2015

Table of Contents

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

Market Wrap

Miraculous Recovery

by Jim Brown

Click here to email Jim Brown

Greek PM Alexis Tsipras showed up at the meeting of the EU Ministers with what Art Cashin said was an empty briefcase. Tsipras promised the Greek voters he would have a signed deal in 48 hours but he apparently forgot to bring the details with him to Brussels. EU ministers were very upset by the lack of urgency but the market rallied anyway.

Market Statistics

The overnight events in Greece and China caused the U.S. equity markets to dive to four-month lows at the open with the Dow falling -218 points by 11:30. The S&P declined -25 and the Nasdaq fell -90 before a monster buy program hit and caused a major short squeeze. The Dow rebounded to +93, S&P +12 and Nasdaq +5.

It was very easy to tell it was a short squeeze because only the stocks that had the most bearish charts and highest short interest actually rebounded materially. For instance SM Energy (SM) rallied +5.5% after dropping to a five-month low at the open. Stocks with a positive trend over the last two weeks failed to post significant gains because the short interest was low.

Greece did make a short oral presentation to the EU ministers but it contained only generalities about the need for more money in the future. After Tsipras met with Angela Merkel she said Greece would present a new proposal by Thursday evening. However, she said "I am not exaggeratedly optimistic." It was reported later in the day that Tsipras requested an interim loan package to get through the rest of July while the terms of a longer-term loan program were debated. That 48-hour agreement promise just keeps slipping farther into the future.

Multiple EU heads including Merkel reiterated that there could not be any debt restructuring or reduction in the future because it would be illegal under EU treaties. Tsipras has said he would not agree to anything that did not reduce the debt owed by Greece while at the same time he is asking for more money.

EU ministers are scheduled to meet again on Saturday and review a Greek proposal assuming they have actually presented one by then. Multiple EU heads said if there is no "satisfactory" proposal and agreement with Greece by Sunday the EU will proceed to Plan B. While that has not been defined in the press it is widely assumed to be a Greek exit from the eurozone. EU Commission President, Jean-Claude Juncker said, "I am strongly against a Grexit but I cannot prevent it if the Greek government does not do what is asked of it."

Greece voted, Tsipras remains antagonistic, nothing has changed and the outlook for the future of Greece remains grim. Greek banks will probably remain closed for the rest of the week and possibly next week.

Fortunately, the U.S .equity markets may have finally shrugged off the constant drone of negative headlines surrounding the disaster.

European indexes all finished with steep losses because the future of Greece is important for the future of Europe.

The Shanghai Composite lost another -4.74% to close at 3,727 after China said it was ok to margin your home to buy stocks and asked money managers to invest nearly $20 billion in equities to support the market. Chinese demand for oil, copper and iron continue to slide suggesting the economy is slipping fast. The SSEC is now down -28% from its highs in June.

Newbie investors in China were margined to the max as the market rallied +150% over the last nine months. The rapid decline is crushing the wealth out of these investors. Making it worse the government has suspended trading in 745 companies or 26% of the listed firms. More than 200 were halted on Monday alone. The value of the shares is $1.4 trillion or 21% of China's market cap. The stocks are halted to prevent selling in an attempt to slow the market crash. However, by halting some shares and not others it means traders on margin have to sell what they have rather than what they want to sell. It may have made the sell off even worse. The decline in Chinese equities has erased $3.2 trillion in value since the June 12th peak. That is twice the size of the entire Indian stock market.

In the U.S. there was little in the way of economic reports to move the market. The Job Openings and Labor Turnover Survey showed job openings declined slightly in May to 3.6%, down from 3.7%. The number of openings at 5.363 million was still up +16.4% from the same period in 2014. Hires declined from 5.034 million to 5.0 million and separations declined from 4.895 million to 4.743 million. Quits also declined from 2.709 million to 2.699 million. Layoffs fell from 1.784 million to 1.653 million. This is a lagging report for May and it was ignored.

The California Manufacturing Survey for Q3 declined from 61.2 to 59.4 and the lowest level since Q3-2014. Nearly all of the subcomponents declined. The manufacturing sector is still being depressed by the strong dollar and the inability to sell products overseas. Meanwhile the commodity price component rose from 58.2 to 61.0 suggesting profits were getting squeezed. This report was also ignored.

The only material report for Wednesday is the FOMC minutes from the June meeting. Analysts are expecting to see that participants were questioning the wisdom of hiking rates in September without accelerated growth in the economy. The U.S. economy is still limping along and the Fed is expected to use the Greek crisis as an excuse for not hiking rates in September.

The chip sector was knocked for another loss after Advanced Micro Devices (AMD) said sales of personal computers were weaker than expected in Q2 and revenue was down -8% from Q1 levels. Quarterly revenue is expected to be $947.6 million and the first quarter of less than $1 billion in more than a decade. AMD shares declined -15% to $2.08.

Shake Shack (SHAK) lost its last friend in the brokerage community after Morgan Stanley (MS) cut the company to "underweight" from neutral. Not a single analyst currently rates SHAK with a buy rating. Morgan Stanley said the stock is overpriced and put a $38 price target on the stock. SHAK closed at $54.74. The broker said the price was "brand related euphoria" and not supported by market fundamentals.

Tesla (TSLA) shares declined -4% after Deutsche Bank cut the automaker from buy to hold. However, they did raise the price target from $245 to $285, which is about where Tesla was trading on Monday. DB said there was insufficient "risk/reward" to maintain the buy rating at this level. "We believe Tesla could become a dominant player but the shares already reflect that outcome."

Horizon Pharma (HZNP) went hostile in its bid for Depomed (DEPO) with an offer of $29.25. That was a 42% premium to Monday's closing price of $20.63. Shares rallied +39% on the news. Horizon said they had been conversing with Depomed since March but had been rebuffed repeatedly. Both companies have revenue of about $350 million each and Horizon said there would be significant synergies after a merger. Horizon specializes in orphan drugs while Depomed specializes in pain medicine. Depomed recently acquired Nucynta from J&J for $1.05 billion. The company raised the price of the drug by 44% after the acquisition.

Disney (DIS) was upgraded from neutral to overweight by Atlantic Equities with a price target of $150. Shares closed at $117. The company said the Disney franchise strength creates long-term visibility and earnings growth. Disney has so many projects on the calendar that it will be looking for a place to store its excess cash in the years to come. Scrooge McDuck better watch out or Disney will be using his vaults for storage. The movie schedule alone should bring in billions in free cash flow.

Disney Movie Schedule

July 17, 2015 - "Ant-Man"
Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
April 29, 2016 - "Captain America: Civil War"
June 17, 2016 - "Finding Dory"
Dec. 16, 2016 - "Star Wars Anthology: Rogue One"
May 26, 2017 - "Star Wars: Episode VIII"
June 16, 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 4, 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 3, 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

After the bell VMWare (VMW) reiterated its forecast for revenue for the June quarter. The company expects to report $1.58-$1.60 billion in revenue and 90-92 cents in earnings. The cash flow will be reduced by a $75.5 million settlement with the Dept of Justice. Shares rallied about $2 on the news in afterhours trading.

FBR downgraded VMW on Monday on "questionable growth potential."

The Container Store (TCS) reported a loss of 11 cents that was less than the 13 cents loss analysts expected. Sales declined -2.1% to $169.8 million because of the West Coast port delays. Same store sales declined -0.9%. That was better than the -3%-4% the company had predicted. TCS guided to full year earnings of 30-38 cents and analysts were expecting 32 cents. Shares rose $1 in afterhours trading.

Jared may have lost 200 pounds eating healthy at Subway but he lost more than that this week. Jared Fogel was taken into custody in a child pornography investigation and Subway quickly ended their relationship at least temporarily with their long time advertising spokesman. The FBI raided his home in Indiana on Tuesday and his computers and electronic gadgets were seized. Back in April the former executive director of the Jared Foundation, an organization that aimed to combat childhood obesity, was arrested on child pornography charges. Jared said he was cooperating with authorities and expects no actions to be forthcoming. Subway is not publicly traded. Jared had been the spokesman for 15 years and Subway said one-third to one-half of their growth over that period was due to Jared's commercials.

Jared's home was raided on Tuesday

Oil prices collapsed over the last several days to an intraday low of $50.58 today. The $2 rebound that followed put crude back into positive territory for the day but the damage was already done.

Crude prices were declining on an unexpected build in inventories last Wednesday, price cuts to Europe by Saudi Arabia, record OPEC production over 32 million barrels per day, a rising rig count in the U.S. and falling demand in China and Europe. While some of those items may be insignificant the total proved to be too much of a weight for prices.

Analysts are now predicting a dip into the high $40s because the July 4th weekend is typically the peak in demand in the USA. Inventories could continue to increase as refiners slow production to match demand.

The strong dollar is also a problem. The dollar index jumped a full point intraday on the Greek headlines and that depresses commodity prices.

Iranian nuclear talks continue as the parties extended their deadline for the fifth time. Friday the 10th is now the deadline for an agreement but participants said they would extend it again as long as progress was being made.

Without a deadline, even one that moves every week, it would be impossible to get anything accomplished with Iran. The six nations said sanctions relief could be delayed another month if a deal is not concluded by Friday. Apparently that is the warning they are giving Iran but there is also an implied carrot. The implications are that sanctions could be lifted early if an agreement is reached. Russian Foreign Minister Sergei Lavrov said there were still about 10 issues separating the sides but an agreement is close. "We are not observing artificial deadlines." Iran will get about $100 billion in funds that had been seized once sanctions are lifted.

One of the serious problems still facing the group is the lifting of the arms embargo against Iran. In 2007 and 2010 the UN imposed an embargo against missile technology sent to Iran that could be used in intercontinental missiles. China and Russia want to lift the embargo so they can sell components to Iran. The western nations do not want to lift the embargo because that just gives Iran a delivery vehicle for their eventual nuclear weapons. It also gives Iran missile technology it can use in the various proxy wars it is currently fighting. When all six nations resolved their differences and presented a united front on the issue the Iranian representatives became very heated and it was a "stormy meeting" according to a state department spokesman.

The current agreement being discussed is about 20 pages but also contains 5 annexes that are secret. Those are the documents that concern me the most. Why does there need to be secret documents covering the most hotly contested sections of the deal?


The S&P declined -25 points intraday to a low of 2044. That is just 4 points over the low of 2040 set back in March. This is a significant support point and it appears traders jumped the gun in their eagerness to buy the dip. The 200-day average at 2055 was broken severely intraday, which should have been a sell signal, but the dip was bought and the rebound put the index back +26 points above that critical level.

The challenge here is now the 2081-2085 level where resistance was firm over the last week. The S&P closed at 2081 after the rebound came to a screeching halt at that level at 2:30. Once that level was reached there was no further upward progress.

I really do believe the rebound was mostly short covering. The S&P futures are down -4.50 at 8:PM ET. That could be erased before morning or it could double. We never know and the geopolitical headlines will be our curse overnight.

If we do move over the 2085 level I would be a buyer for a trade. If the S&P weakens tomorrow I would eventually expect a retest of the 2040 level in the days ahead. I do not think the Greek disaster is going to be a continued cloud over the market but we have to assume it will be trouble for the rest of the week. Once into next week we will be back to the heated negotiations in Brussels but maybe the ECB will let Greek banks reopen.

Resistance 2081-2085 with support 2055 and 2040.

The Bullish percent Index continues to deteriorate with only 54.6% of the S&P 500 stocks still showing a buy signal on the P&F charts. Internals are still declining despite the strong rebound.

The Dow also rebounded to prior resistance and stalled. There were far more Dow components in positive territory at day's end but quite a few of those were really ugly charts as of Monday. The shorts were forced to cover and a rebound was born.

Given the number of Dow stocks that were strongly positive, I would have expected an even bigger gain for the index. There were 8 stocks with gains of more than $1 and only one with a loss of more than $1. The Dow chart is not bullish despite the rebound and there are plenty of places for a failed rally including the level at the close.

I would be hesitant to use the Dow as my market guide for Wednesday because there is sure to be volatility.

The Nasdaq Composite was down -90 points intraday and returned to positive territory. That is a remarkable accomplishment even though the total gain was only +5 points. The Nasdaq reversed instantly at the support of the 150-day average at 4902.49 with the low of the day 4902.21. You do not get much better correlation than that. The index failed to close back above 5000 despite 90 minutes of trying at the close. This makes the 5000 level initial resistance on Wednesday and 4950 is initial support. If a real move does appear the 5040 level is resistance and the 4900 level is support.

The problem child on Tuesday was the Russell 2000. The support at 1240 broke and the RUT declined to 1225 with the 150-day at 1227. The rebound took it only back to prior support at the 100-day, which is now resistance at 1249.59.

The Russell is no longer leading. It was the weakest link on Tuesday and could easily return to 1230 with a minimal amount of selling. The 100-day was support since December and is now resistance. That is troubling. Until the Russell moves over 1260 I would be careful about adding to longs in this market.

I would be cautious of this market. I do not think the volatility is over and we are sure the Greek headlines will continue for the rest of the week. The FOMC minutes on Wednesday could provide some support if they are dovish but could also be a weight if the Fed was seen as wanting to hike rates no matter what it takes.

Alcoa reports earnings on Wednesday and then the quarter kicks into high gear next week. The earnings could push the Greek news out of the headlines but we need to wait and see how the earnings develop. We are still a long way from a correction and given the market swings over the last several days the uncertainty is strong and conviction weak.



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New Plays

Driver Assistance On The Rise

by James Brown

Click here to email James Brown


Mobileye N.V. - MBLY - close: 55.91 change: +0.28

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 07, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 3.8 million
New Positions: Yes, see below

Company Description

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

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

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

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

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

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

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

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

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

Most of Wall Street analysts seem bullish. Industry experts forecast the camera-based ADAS market to grow +37% CAGR from 2014 to 2020. Goldman Sachs Recently upgraded the stock to a buy. They believe MBLY will see a 34% CAGR in sales through 2020 and will have 65% of the market by then. MBLY also garnered positive comments from a Morgan Stanley analyst who raised their price target to $68. They believe the street's 2015 estimates for MBLY are too low after the company delivered super strong growth in the last couple of quarters. A couple of weeks ago another analyst firm raised their price target on MBLY to $67.00.

The stock has displayed significant strength with a big bounce from its March 2015 lows near $32. The rally accelerated in mid June with a breakout past resistance in the $48.00 area. Traders quickly bought the dip last week on the market's big selloff (June 29th). Bulls bought the dip again today and MBLY looks poised to hit new multi-month highs tomorrow. Tonight we're suggesting a trigger to launch bullish positions at $56.40.

Trigger @ $56.40

- Suggested Positions -

Buy MBLY stock @ $56.40

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

Buy the AUG $60 CALL (MBLY150821C60) current ask $1.60
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Reverse Higher Midday

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 index had pierced technical support at its 200-dma and was looking ugly by lunchtime. Then midday the market bounced. The rebound picked up speed and all the major U.S. indices closed in positive territory.

Our ONDK trade was stopped out.

Current Portfolio:

BULLISH Play Updates

Chimerix, Inc. - CMRX - close: 46.85 change: -0.17

Stop Loss: 42.95
Target(s): To Be Determined
Current Gain/Loss: +1.5%
Entry on June 26 at $46.15
Listed on June 25, 2015
Time Frame: exit PRIOR to earnings in August
Average Daily Volume = 428 thousand
New Positions: see below

07/07/15: CMRX actually delivered a relatively quiet session. The stock did not see that much of a sell-off this morning but neither did it rally when the market bounced. I would consider new positions on a rally past $47.50.

Trade Description: June 25, 2015:
Biotech stocks have been outperforming the broader market for the last couple of years. That outperformance continues in 2015. The IBB biotech ETF is up +23% in 2015 versus a +8% gain in the NASDAQ and a +2% gain in the S&P 500. CMRX has been lagging its peers with a +13.9% gain this year but that could be about to change as the stock looks poised to run.

According to the company, "Chimerix is a biopharmaceutical company dedicated to discovering, developing and commercializing novel, oral antivirals in areas of high unmet medical need. Chimerix's proprietary technology has produced brincidofovir (CMX001), a clinical-stage nucleotide analog lipid-conjugate, which has potent in vitro antiviral activity against many clinically relevant dsDNA viruses and a favorable safety profile in clinical studies conducted to date. Chimerix has completed enrollment of SUPPRESS, a Phase 3 study of brincidofovir for the prevention of cytomegalovirus (CMV) in adult hematopoietic cell transplant (HCT) recipients. In addition, Chimerix is enrolling the Phase 3 AdVise trial of brincidofovir for treatment of adenovirus (AdV) infection. Chimerix is working with BARDA to develop brincidofovir as a potential medical countermeasure to treat smallpox due to a threat of bioterror or accidental release."

In April this year CMRX was award an exclusive contract from the U.S. government to build a new smallpox vaccine. The Biomedical Advanced Research and Development Authority (BARDA) wants another treatment available just in case enemies of the U.S. try to use smallpox as a weapon or if there is some sort of accidental breakout from a lab. The 60-month contract is valued at $100 million but if all the options are awarded it could be worth up to $435 million in revenue to CMRX. The company's revenues for the trailing twelve months are only $4.5 million.

Earlier this month (June) CMRX announced they were going to raise $150 million in capital by selling 3,775,000 shares of stock. That was later bumped up to 4.3 million shares. These priced at $39.75. You can see how CMRX stock briefly dipped toward $39.00 on June 10th and investors immediately bought the dip. It's impressive to see CMRX increase its shares outstanding by 10% and the impact only lasted a few days as buyers gobble up the stock.

Technically CMRX appears to be in breakout mode. The stock consolidated sideways in the $35.00-43.50 range for five and a half months before finally breaking out a few days ago. The stock encountered some profit taking yesterday but traders bought the dip today. The point & figure chart is bullish and forecasting at $61.00 target.

Tonight we are suggesting a trigger to launch bullish positions at $46.15. Plan on exiting prior to CMRX's earnings report in August.

- Suggested Positions -

Long CMRX stock @ $46.15

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

Long AUG $50 CALL (CMRX150821C50) entry $2.10

06/26/15 triggered @ $46.15
Option Format: symbol-year-month-day-call-strike

Neurocrine Biosciences Inc. - NBIX - close: 48.44 change: +0.12

Stop Loss: 44.85
Target(s): To Be Determined
Current Gain/Loss: +0.4%
Entry on July 01 at $48.27
Listed on June 30, 2015
Time Frame: Exit PRIOR to earnings in August
Average Daily Volume = 1.0 million
New Positions: see below

07/07/15: Somehow shares of NBIX also avoided most of the market's volatility on Tuesday. Instead shares just consolidated sideways in a relatively narrow range.

NBIX has failed twice at $49.50 in the last three weeks. I'd wait for a rally past $49.50 or better yet a rally past $50.00 before considering new positions.

Trade Description: June 30, 2015:
Biotech stocks remain one of the best performing groups in the market this year. Year to date the IBB is up +21% versus a +0.2% gain in the S&P 500 and a +5.3% gain in the NASDAQ composite. NBIX is outpacing its peers with a +113% gain in the first half of 2015.

NBIX is in the healthcare sector. According to the company, "Neurocrine Biosciences, Inc. discovers and develops innovative and life-changing pharmaceuticals, in diseases with high unmet medical needs, through its novel R&D platform, focused on neurological and endocrine based diseases and disorders. The Company's two lead late-stage clinical programs are elagolix, a gonadotropin-releasing hormone antagonist for women's health that is partnered with AbbVie Inc., and NBI-98854, a vesicular monoamine transporter 2 inhibitor for the treatment of movement disorders. Neurocrine intends to maintain certain commercial rights to its VMAT2 inhibitor for evolution into a fully-integrated pharmaceutical company."

I like to remind readers that biotech stocks can be tough to trade. Normally they are volatile with lots of headline risk. The right headline about a successful test or clinical trial or FDA approval can send shares soaring. The wrong headline could see a biotech stock crash or even gap down several points. Due to the nature of biotech work and how many smaller companies get paid with milestone payments as they develop treatments tends to make their earnings are very lumpy.

While we normally don't focus on earnings for the smaller biotech companies, I will point out that NBIX's most recent earnings report was much better than expected. Their 2014 Q1 results were a loss of ($0.17) per share. Analysts were expecting 2015 Q1 results to be a loss of ($0.30). NBIX reported a loss of ($0.01) per share. Revenues were $19.76 million for the first quarter. Management held a successful secondary offering last quarter and raised $270 million. This increased the company's cash and cash equivalents to $518 million. Hopefully investors won't have to worry about NBIX needing to raise capital any time soon.

After NBIX's Q1 results the stock was upgraded by two analysts. One raised their price target to $64. The other raised their price target to $69. Currently the point & figure chart is forecasting at $66 target.

Technically NBIX looks bullish following its breakout past resistance near $45.00. The recent pullback among the biotech stocks saw NBIX dip back toward this area, which is now support. Today's bounce looks like a potential entry point. Tonight we're suggesting a trigger to open bullish positions at $48.15.

- Suggested Positions -

Long NBIX stock @ $48.15

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

Long AUG $50 CALL (NBIX150821C50) entry $3.60

07/01/15 triggered on gap open at $48.27
Option Format: symbol-year-month-day-call-strike

Spirit AeroSystems - SPR - close: 54.82 change: -0.34

Stop Loss: 53.75
Target(s): To Be Determined
Current Gain/Loss: -2.9%
Entry on June 22 at $56.44
Listed on June 18, 2015
Time Frame: 6 to 8 weeks, exit prior to earnings in very late July
Average Daily Volume = 1.2 million
New Positions: see below

07/07/15: I have been warning readers for days that SPR might drop toward support near $54.00. Today, with the market's plunge this morning, SPR pierced its 50-dma and dipped to $53.97 before bouncing. Unfortunately shares failed to close in positive territory. SPR still has a one-week trend of lower highs.

If SPR produces some follow through on this bounce then we might consider new positions.

Trade Description: June 18, 2015:
Airline stocks have gotten crushed lately as investors worry about the airliner industry overbuilding capacity. It's a different story for the airplane makers. Shares of SPR just closed near all-time highs. The Dow Industrial Average is up +1.6% year to date. The S&P 500 is up +3.0%. SPR is outpacing them both with a +30% gain this year.

SPR is in the industrial goods sector. According to the company, "Spirit AeroSystems, with headquarters in Wichita, Kan., USA, is one of the world's largest non-OEM designers and manufacturers of aerostructures for commercial aircraft. In addition to its Wichita and Chanute facilities in Kansas, Spirit has locations in Tulsa and McAlester, Okla.; Kinston, N.C.; Prestwick, Scotland; Preston, England; Subang, Malaysia; and Saint-Nazaire, France.

In the U.S., Spirit's core products include fuselages, pylons, nacelles and wing components. Additionally, Spirit provides aftermarket customer support services, including spare parts, maintenance/repair/overhaul, and fleet support services in North America, Europe and Asia. Spirit Europe produces wing components for a host of customers, including Airbus."

On their website SPR notes that they "have long-term agreements in place with our largest customers, Boeing and Airbus. Other major customers include Bombardier, Rolls-Royce, Mitsubishi, Sikorsky and Bell Helicopter." SPR does so much business with Boeing (BA) that buying SPR is almost a stealth trade on BA's backlog. Looking at BA's most recent earnings report their backlog hit a record high of $495 billion. That's about 5,700 new planes. BA plans to significantly increase production in 2017 and again in 2018, which should mean an increase in revenues for SPR.

Earnings from SPR have been somewhat mixed. On February 3rd they reported their 2014 Q4 results with earnings at $0.87 per share. That was 10 cents better than expected. Yet revenues were only up +5% to $1.57 billion, which missed expectations.

Results improved in the first quarter. On April 29th SPR said earnings were up +18% from a year ago. Their $1.00 per share beat expectations. Revenues were almost flat at $1.74 billion but that still came in better than analysts were expecting. SPR management issued somewhat bullish guidance on 2015 earnings but their revenue estimate was soft.

The stock initially sold off on its Q1 report but traders bought the dip the very next day. SPR continues to build on its bullish pattern of higher lows. Today the stock is poised to breakout past short-term resistance at $56.20. We are suggesting a trigger to launch bullish positions at $56.35. Plan on exiting prior to SPR's Q2 earnings report in very late July or early August.

- Suggested Positions -

Long SPR stock @ $56.35

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

Long OCT $60 CALL (SPR151016C60) entry $1.60

06/22/15 triggered on gap open at $56.44
Option Format: symbol-year-month-day-call-strike

Tempur Sealy Intl. - TPX - close: 67.95 change: +0.09

Stop Loss: 64.95
Target(s): To Be Determined
Current Gain/Loss: +7.6%
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

07/07/15: TPX weathered the market volatility today relatively well. Shares dipped to technical support at the rising 10-dma and bounced. TPX remains inside its narrow, bullish channel.

No new positions at this time.

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

06/27/15 new stop @ 64.40
06/22/15 new stop @ 61.90
06/10/15 triggered @ $63.15
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Continental Resources, Inc. - CLR - close: 39.46 change: +2.06

Stop Loss: 40.65
Target(s): To Be Determined
Current Gain/Loss: +9.8%
Entry on June 22 at $43.75
Listed on June 20, 2015
Time Frame: Exit prior to earnings on August 5th
Average Daily Volume = 8.8 thousand
New Positions: see below

07/07/15: Oil and energy stocks produced some of the biggest oversold bounces today. CLR dipped to $36.18 by midday only to surge +9% off its low to close just below round-number resistance near $40.00.

No new positions at this time.

Trade Description: June 20, 2015:
There are a lot of currents moving the oil industry these days. Currency moves, OPEC production, access to capital, falling rig counts, and potential bankruptcies. The stock performance for U.S. shale oil drillers have been suffering. CLR is one such stock.

CLR is in the basic materials sector. According to the company, "Continental Resources (CLR) is a Top 10 independent oil producer in the United States and a leader in America's energy renaissance. Based in Oklahoma City, Continental is the largest leaseholder and one of the largest producers in the nation's premier oil field, the Bakken play of North Dakota and Montana. The Company also has significant positions in Oklahoma, including its SCOOP Woodford and SCOOP Springer discoveries and the Northwest Cana play."

Earnings have taken a hit. CLR reported their Q1 results on May 6th. They reported a net loss of $186 million or 36 cents a share. That's a big drop from a 61-cent profit a year ago. After adjusting for writedowns and one-time items CLR said their quarterly earnings were a loss of ($0.09) per share. That was actually four cents better than analysts' estimates for a ($0.13) loss. Revenues plunged -41% to $592.89 million even though CLR's production surged +36% from a year ago.

Bullish investors could argue that crude oil put in a bottom earlier this year and the commodity should rally toward year end. Bulls can also point to falling production costs as a tailwind for the industry. CLR said their completion costs for wells dropped -15% from the end of 2014. Obviously this makes the company more profitable (or at least cuts their losses). Optimistically CLR expects their cost reductions to hit 20% by mid-year. There are some on Wall Street who think the industry has seen a bottom. Shares of CLR were upgraded by Goldman Sachs to a "buy" in May.

Bulls also note that the plunge in active rigs should be bullish for oil and thus oil companies. Weekly rig count, compiled by Baker Hughes, showed that the number of active oil and gas rigs fell again last week. This is the 28th week in a row that the number of rigs has declined. We're now down to 857 active oil and gas rigs, which hasn't been this low since early 2003.

Naturally you might think that a plunge to 12-year lows for active rigs means that U.S. oil production would shrink as well. That hasn't happened yet. While costs are going down oil producers are actually more efficient at pumping per well so production is going up. The low rig count is a leading indictor that production will eventually decline but it could be months from now. The U.S. EIA doesn't expect U.S. production to fall until early next year.

A bigger problem for the oil industry is competition. The recent OPEC meeting showed that the Saudis are willing to pump as much oil as they can to maintain their market share regardless of the price of oil. These are state-run oil companies and don't have to report to shareholders like American drillers. Plus the average cost per barrel of oil is a lot lower in Saudi than the U.S.

Another challenge for many drillers is capital. Drilling shale oil wells and fracking costs a lot of money. The drop in crude oil prices has made lenders less likely to loan money to drillers. To compensate for the lack of capital the oil drillers might be forced to sell more stock to raise capital and this would dilute current shareholders and drive stock prices lower. This past week the Cowen research company said, ""We expect ... E&Ps to issue additional equity in 2H2015 to fund 2016 capex as borrowing bases will be declining and debt metrics deteriorating."

The issue of debt and access to capital could be a fatal one. There are growing predictions that we will see up to a dozen publicly traded oil and gas companies file for bankruptcy between July 2015 and June 2016. Now CLR is not on the list but if we see smaller rivals start to go bankrupt it is going to put pressure on all the oil-industry stocks.

Oil stocks are also going to react to currency moves. The Federal Reserve wants to raise rates and that will lift the dollar. Even if the Fed doesn't raise rates the QE programs in Japan and Europe could drive the yen and euro lower, which boosts the dollar. A rising dollar pressures commodity prices lower.

A lot of investors are already betting on CLR to decline. The most recent data listed short interest at 17.9% of the 84.8 million share float. We think the bears are right. CLR has been underperforming the broader market. The point & figure chart is bearish and forecasting at $35.00 target. I suspect the 2015 lows near $42.00 could be support. Tonight we are suggesting a trigger to open bearish positions at $43.75.

- Suggested Positions -

Short CLR stock @ $43.75

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

Long SEP $40 PUT (CLR150918P40) entry $2.00

07/06/15 new stop @ 40.65
07/04/15 new stop @ 43.55
06/27/15 new stop @ 44.85
06/25/15 new stop @ 48.35
06/22/15 triggered @ $43.75
Option Format: symbol-year-month-day-call-strike

Murphy Oil - MUR - close: 41.00 change: +0.22

Stop Loss: 42.35
Target(s): To Be Determined
Current Gain/Loss: +0.4%
Entry on July 01 at $41.15
Listed on June 29, 2015
Time Frame: Exit PRIOR to MUR earnings on July 29th
Average Daily Volume = 1.9 million
New Positions: see below

07/07/15: MUR followed the market lower this morning and followed it higher this afternoon. However, the movement in MUR was a lot more subdued.

I am not suggesting new positions at this time.

Trade Description: June 29, 2015:
The crash in crude oil prices in the second half of 2014 was pivotal turning point for the U.S. energy industry. Suddenly the booming oil and gas sector had its future being question with the price of oil now unprofitable for many drillers. Oil has managed a bounce from its 2015 lows while many of the oil and gas producers are still seeing their stocks decline.

MUR is in the basic materials sector. According to the company, "Murphy Oil Corporation is an independent exploration and production company with a strong, oil-weighted portfolio of global offshore and onshore assets. Exploration activities are focused in four main regions: Deepwater Gulf of Mexico, the Atlantic Margin, Southeast Asia and Australia."

The company reduced its 2015 capex outlook by -33% when they reported their 2014 Q4 results back in January. MUR's Q1 results came out in May. Profits evaporated with MUR delivering a loss of ($1.11) per shares versus a profit of $0.96 a year ago.

Management is trying to prop up their floundering stock price. On May 20th the company announced an accelerated stock buyback program of $250 million. This is part of a previously announced $500 million repurchase program from August 2014. The buyback doesn't seem to be working.

Goldman Sachs downgraded MUR to a "sell" in late May. Nearly a month later UBS has also downgraded MUR to a "sell". The UBS analyst expressed concern that MUR's production would likely decline in 2015 and 2016 since the company has cut back on investment.

The stock's attempt at an oversold bounce failed near $44 a couple of weeks ago and now shares are breaking down to new multi-year lows. The point & figure chart is bearish and forecasting at $34.00 target. Tonight we are suggesting a trigger to open bearish positions at $41.15.

- Suggested Positions -

Short MUR stock @ $41.15

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

Long AUG $40 PUT (MUR150821P40) entry $1.30

07/06/15 new stop @ 42.35
07/01/15 triggered @ $41.15
Option Format: symbol-year-month-day-call-strike

Symantec Corp. - SYMC - close: 22.79 change: +0.12

Stop Loss: 23.55
Target(s): To Be Determined
Current Gain/Loss: -1.5%
Entry on July 07 at $22.45
Listed on July 06, 2015
Time Frame: exit PRIOR to earnings on August 11
Average Daily Volume = 4.3 million
New Positions: see below

07/07/15: Caution! Our SYMC trade is already in trouble!

The market's big drop this morning pushed SYMC to new lows and shares hit our suggested entry point at $22.45. The stock fell to $22.26 before bouncing. The widespread market reversal higher lifted SYMC to a +0.5% gain.

An oversold bounce isn't that surprising. SYMC still has broken support near $23.00, which should be overhead resistance. Our problem could be headlines out after the closing bell tonight. Bloomberg reported that SYMC is getting close to a deal on selling its Veritas data-storage division to Carlyle Group for $7-to-$8 billion.

It was widely known that SYMC had tried selling their Veritas business before but couldn't find any buyers. This news tonight comes as a surprise and could spark another rally tomorrow. SYMC is already trading around $23.40 after hours tonight. Our stop loss is at $23.55.

No new positions at this time.

Trade Description: July 6, 2015:
Cyber security is big business. Research firm Gartner Inc. recently forecasted sales for cyber security to grow more than +8% in 2015 to $78 billion. Yet analysts are forecasting SYMC's sales to decline. Falling sales of desktop and laptop computers along with tougher competition is hurting sales of SYMC's Norton anti-virus business.

If you're not familiar with SYMC they are part of the technology sector. According to the company, "Symantec Corporation (SYMC) is an information protection expert that helps people, businesses and governments seeking the freedom to unlock the opportunities technology brings -- anytime, anywhere. Founded in April 1982, Symantec, a Fortune 500 company, operating one of the largest global data-intelligence networks, has provided leading security, backup and availability solutions for where vital information is stored, accessed and shared. The company's more than 19,000 employees reside in more than 50 countries. Ninety-nine percent of Fortune 500 companies are Symantec customers. In fiscal 2015, it recorded revenues of $6.5 billion."

The company spent $13.5 billion to buy data-storage company Veritas back in 2004. That investment has not paid off. Veritas is currently valued between $5-to-$8 billion. It was widely rumored that SYMC had been shopping around to sell its Veritas business but couldn't find any buyers. Today SYMC is planning to split Veritas back into its own standalone company. Currently the spinoff is forecasted to take place on January 2, 2016.

Earnings for SYMC have been struggling. They reported their Q3 results back in February. Revenues missed estimates and management guided lower. On May 14th SYMC announced its Q4 results. Earnings missed estimates by a penny with a profit of $0.43 per share. Revenues fell -6.2% to $1.55 billion. SYMC management lowered their Q1 guidance and their fiscal year 2016 guidance on both the top and bottom line.

Since its earnings warning in May the stock has been struggling with traders selling the rallies. UBS recently downgraded the stock to a "sell". Technically shares have now broken down below key support near $23.00. Tonight we are suggesting a trigger to launch bearish positions at $22.45.

- Suggested Positions -

Short SYMC stock @ $22.45

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

Long AUG $22 PUT (SYMC150821P22) entry $0.69

07/07/15 Caution! After hours, Bloomberg reported that SYMC could be close to selling its Veritas business. Shares of SYMC are trading higher after hours
07/07/15 Triggered @ $22.45
Option Format: symbol-year-month-day-call-strike

Whole Foods Market, Inc. - WFM - close: 39.89 change: +0.62

Stop Loss: 40.51
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 04, 2015
Time Frame: Exit PRIOR to earnings on July 29th
Average Daily Volume = 4.0 million
New Positions: Yes, see below

07/07/15: We may have to drop WFM as a candidate. Shares are not cooperating. The stock bounced near $39 again today. Most of the market plunged to new relative lows this morning. WFM did not hit new relative lows. When the market bounced, WFM surged toward resistance near $40.00.

If this rebound continues tomorrow we'll likely remove WFM as a candidate. Currently our suggested entry point for bearish positions is $38.85.

Trade Description:
The natural foods market (i.e. organic foods) has bloomed from $6 billion annually in 1998 to $48 billion in 2012. Whole Foods Market (WFM) is probably the best known brand for organic groceries. The company has ridden that tidal wave of growth over the years. Unfortunately its rivals have caught on and now WFM is facing every increasing competition.

The grocery business is not a very high-margin game. Organic foods tend to be more expensive and allowed for better margins. A few years ago traditional grocery stores caught on and started expanding their selection of organic foods. Today traditional retail groceries control more than half of the total natural foods market. According to BMO Capital Markets, Costco (COST) actually sells more organic food than WFM.

Just in case you're not familiar with WFM, here's a brief description, "Founded in 1978 in Austin, Texas, Whole Foods Market (wholefoodsmarket.com) is the leading retailer of natural and organic foods, the first national "Certified Organic" grocer, and uniquely positioned as America's Healthiest Grocery Store. In fiscal year 2014, the Company had sales of approximately $14 billion and currently has 422 stores in the United States, Canada, and the United Kingdom."

All this competition has started to hurt WFM's growth but the company is still growing. Q1 results were announced on February 11th. WFM delivered earnings of $0.46 per share while revenues grew +10.2% to $4.67 billion. The EPS number was one cent above estimates while revenues matched estimates.

WFM's Q2 results came out on May 6th. Earnings were only in-line with estimates at $0.43 per share. Revenues were up +9.8% to $3.65 billion, which actually missed estimates. Investors were not happy with WFM's comparable store sales growth, which was below estimates at +3.6% for the quarter. Plus, WFM management lowered their fiscal year 2015 revenue estimate to $15.47 billion compared to Wall Street's estimate at $15.74 billion.

Shares of WFM collapsed the next morning (May 7th) with a plunge from about $47.75 to $41.00 before settling near $43.00. WFM has slowly withered since that earnings report. Management's estimate for +9% sales growth in 2015 doesn't seem to be enough to please investors. Analysts are forecasting earnings growth of +11% in 2015.

Investors seem doubtful about WFM's new store concept too. The company has suffered the "whole paycheck" nickname for years due to their high-price selection. Management has acknowledged that they are more of a luxury retailer. They've decided to try and target younger millennials with a "value" idea. This new value proposition will be smaller stores, cheaper prices, and somehow maintain WFM's reputation for quality products. Critics are worried that this new concept, due to launch in 2016, is a good recipe to cannibalize WFM's higher-margin business.

This past week WFM was snagged by a pricing scandal in New York. The New York Department of Consumer Affairs found that WFM was consistently overcharging consumers. The department tested 80 product categories and found WFM overcharging on several prepackaged items. The differences ranged from 80 cents to $15. Management confessed that they made some mistakes and would do a better job training their staff to fix the issue. WFM promised that if a consumer found they were being overcharged then WFM would give them the product for free. This negative story is probably just a temporary black cloud for WFM. The larger problem for the company is tougher competition.

Before I continue it's worth mentioning that WFM is a popular company for rumors. There have been rumors that WFM might buy some of its smaller competitors, like Sprouts (SFM). There have also been rumors that activist hedge funds or investors might get involved to try and improve the stock's performance. Occasionally these rumors might spark a bump in WFM but the overall trend is down.

WFM has broken down below round-number support near $40.00 and below its early June lows. Thursday's intraday low was $39.10. We're suggesting a trigger to launch bearish positions at $38.85. Plan on exiting prior to WFM's earnings on July 29th.

Trigger @ $38.85

- Suggested Positions -

Short WFM stock @ $38.85

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

Buy the AUG $37 PUT (WFM150821P37)

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


On Deck Capital - ONDK - close: 11.87 change: +0.03

Stop Loss: 12.16
Target(s): To Be Determined
Current Gain/Loss: +15.3%
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

07/07/15: Our aggressive trade on ONDK has come to a close. The stock spiked higher at the opening bell. Shares pierced overhead resistance in the $12.00-12.10 zone and traded above technical resistance at its 10-dma. Our stop was hit at $12.16.

- Suggested Positions -

Short ONDK stock @ $14.35 exit $12.16 (+15.3%)

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

AUG $14 PUT (ONDK150821P14) entry $1.80 exit $1.95 (+8.3%)

07/07/15 stopped out
07/06/15 new stop @ 12.16
07/04/15 new stop @ 12.25
06/29/15 new stop @ $12.45
06/20/15 Caution! ONDK may have formed a bullish double bottom
06/16/15 new stop @ 13.25
06/15/15 new stop @ 14.25
06/10/15 new stop @ 15.15
06/02/15 triggered @ $14.35
Option Format: symbol-year-month-day-call-strike