Option Investor

Daily Newsletter, Saturday, 7/11/2015

Table of Contents

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

Market Wrap

China Roars Back

by Jim Brown

Click here to email Jim Brown

Hope for Greece and a do or die rebound in the Chinese markets prompted a +211 rally in the Dow but unfortunately it only brought it back to neutral for the week. On the positive side, the morning short squeeze did not fade as the day progressed.

Market Statistics

The Shanghai Composite spiked to a +4.5% gain on Friday after a +5.8% gain on Thursday. This was the biggest two-day gain since 2008. Unfortunately, it came after a -30% decline over the prior three weeks that wiped out more than $3.9 trillion in market cap. More than 1,300 stocks were still halted and trading was limited to only 53% of the market. Of those shares that did trade, about 90% were higher and limited out at the 10% per day maximum gain. Only 7 stocks closed in negative territory. (Hat tip to Art Cashin)

China instituted a ban on major stockholders and executives from selling shares for six months. The government ordered investment firms to buy nearly $42 billion in shares and they launched an investigation into short-selling, suggesting the practice had better stop. There are now more than 90 million individual retail investors and nearly 50 million of those are new to investing. The average investor account in China contains less than $15,000. Only 7% of the population has a brokerage account. The average PE of a Chinese stock has fallen from 108 at the height of the rally to "only" 57 today.

Bank of America (BAC) said the selling pressure would be relentless and there was a decent chance for another leg down once the government begins to withdraw liquidity and allows those 1,300 halted stocks to trade. Margin balances have fallen for 14 consecutive days after a 500% rise over the prior 15 months. Margin debt declined -$132.6 billion from the peak to $232.6 billion on July 8th. The government was trying to create a wealth effect from getting citizens to invest in the rising stock market but now it is losing face. Long term the government cannot manipulate the market and the retail investors will learn a hard investing lesson.

If you really want to know why the Chinese market rebounded consider this. "In an extraordinary statement on Thursday morning before the market opened, the People's Bank of China said it would lend an unspecified amount to the state-owned China Securities Finance Corp., which would use the money to support the stock market. This marks a departure from the CSFC's original mission, which was to finance margin lending by brokers. Already, the CSFC has lent 260 billion yuan ($42 billion) to 21 domestic brokers for the purpose of buying shares, and also bought an unknown amount of stock itself directly." WSJ.com

Basically China has invented a new form of QE where it buys stock instead of bonds in an effort to rescue the market. They are effectively printing new money to buy stock. Obviously, this will eventually end badly for the market since even China cannot print money forever. The goal is to increase the wealth effect for retail investors (consumers). If you are feeling prosperous because you made money in the market then you will spend some of that money on buying consumer goods.

The rally in Chinese stocks helped lift the market but Greek headlines were also in play. Some finance ministers were positive on the "turnaround" in Tsipras. Two weeks ago the Troika presented Tsipras with a list of reforms they needed to see before they would give Greece more money. Tsipras called it criminal coercion. He called a snap referendum to let the people vote on whether or not they were willing to accept the austerity terms offered by the Troika. More than 61% voted no and Tsipras promised to have a better deal with no austerity signed within 48 hours.

Fast forward to Thursday and Tsipras gave the Troika a proposal that was almost exactly the same as what the Troika had given him in the ultimatum two weeks ago. It was exactly the same austerity conditions that 61% of Greeks had voted against one week ago. Their solid vote of NO turned into an audible gasp of OH NO! It has been 140 hours and no signed deal and the deal he proposed could get him lynched when he returns to Greece. The only real change is that Tsipras is no longer asking for 15 billion euros in aid for 6 months but now he is asking for 54 to 80 billion and a three-year deal.

The Greek parliament as well as the parliaments of most of the eurozone nations have to vote on accepting a new deal. Despite huge crowds protesting outside the Greek parliament on Friday night, the lawmakers approved the "criminal coercion" terms that Tsipras has now decided to accept. Remember, he also vowed not to accept any proposal that does not include a write down of the debt, lower interest rates and a longer term. He will not get the write-down because it is prohibited by treaty but the Troika will probably extend the loan terms and pretend they expect the money to eventually be repaid.

Apparently having the banks closed for two weeks has made him a convert because another week of closures would produce rioting in the streets and serious civilian unrest.

On Saturday opposition to the third bailout began to appear among the EU finance Ministers. Many were opposed because they said Greece could not be trusted. Greece lied about their financial condition to get into the eurozone and then lied repeatedly on their periodic financial statements to the EU economic committee. Everything fell apart about six years ago when Greece ran out of money and could not pay their bills. They confessed to the EU and begged for money. When the EU investigated their finances, they found they were still lying and it took two years to find out exactly how much money they actually owed. In bailout 1 and 2, they were given money after they promised to make specific reforms. They said they were making them but they never made any real changes and the Troika implemented a check system to monitor them on a monthly basis.

Since the Greek government has a history of untruthfulness and saying one thing and doing another there are numerous EU countries that do not want to give Greece the money this time around. They are afraid Greece will say anything to get the money so the banks can reopen and then never follow through on the reforms they are proposing. Remember, Tsipras has said repeatedly that "the size of the debt to the Troika is not a Greek problem. They knew we could not pay but gave us the money anyway." The bottom line is that Greece is an economy where the government is still spending more than they take in on taxes and fees. Very few people pay taxes and most consumers pay cash for goods and services and that cash is not reported.

The markets celebrated the rebound in the Chinese markets and the potential for a deal for Greece. Both of those events could fade again next week.

The only economic report in the U.S. was the Wholesale Trade numbers for May. Inventories rose +0.8% compared to +0.4% in April and expectations for a +0.3% rise. While inventories rose the sales in May rose only +0.3% after a +1.7% rise in April. However, sales of petroleum products made up the bulk of sales in May. This is a lagging report for the May period and was ignored.

The calendar for next week has several hurdles. The Fed Beige Book on Wednesday is the Fed's report card on the state of the economy on a region by region basis. If the report is strong we can expect a rate hike in September. If it continues to contain soft spots then forecasts for September could slip.

The Philly Fed Manufacturing Survey on Thursday is the most important regional manufacturing report for the month. Expectations are for a decline from 15.2 to 12.5. The spike from 6.7 to 15.2 last month was the first gain since September and analysts are expecting that gain to fade.

Janet Yellen will give her semi-annual testimony to Congress on Wednesday and Thursday. What we heard on Friday from the Cleveland speech is probably what we are going to hear in her prepared remarks to Congress. Historically, her press conferences and testimony have resulted in a bullish bounce. Her "queen of the doves" role has been good for the market but there was some concern on Friday she may be turning a little more hawkish as the clock ticks down on a rate hike in 2015.

There are plenty of filler reports in green with the Retail Sales for June the most important. Estimates are for a decline from +1.2% to +0.4%. The Housing Market Index on Thursday is also expected to decline since home selling season has passed.

The most important event on the calendar is the Netflix 7:1 split on Tuesday after the close. On Wednesday, investors will finally be able to add Netflix to their portfolio for under $100 per share. I expect significant interest from retail investors. However, using Friday's closing price of $680 the post split price will be $97.14. Buying a 100-share lot will set you back $9,714 and you will have the equivalent of 14.28 shares at Friday's prices. Netflix will report earnings on Wednesday so be prepared for some volatility.

Morgan Stanley (MS) raised the price target from $620 to $750 on Friday because of a hike in earnings estimates. Their price target if the bull case plays out is $940. Other recent target hikes came from Nomura at $750, Oppenheimer at $775 and BTIG at $950.

Kroger (KR) will also split their stock 2:1 after the close on Monday. They had a nice pre-split run of about $3.50 over the last week.

Friday was a busy day for the airline sector. American Airlines said it was cutting capacity growth to only +1%, down from prior forecasts of +2%. Domestic capacity is expected to rise 1% to 2%, down from prior guidance of 2% to 3%. Shares of all airlines rallied on the news. This suggests American is not going to fight with Southwest (LUV) for market share after that company said it was increasing capacity in the coming months. American said total revenue passenger miles in June were 20.4 billion, up +2.8% from June 2014. Total available seat miles were 23.9 billion, up +2.4%. The total passenger load factor was 85.4%, up +0.4%. There are still available seats if you can find them.

American also said it was deferring delivery of five Boeing 787 aircraft and 35 Airbus A320neo planes. Under the new agreement, four of the 787s would be delivered in 2017 instead of 2016 and one will slip from 2016 to 2018. Ten of the A320s due in 2017 and 25 due in 2018 will all be deferred to 2021-2023. American is expecting to take delivery in 2015 of 75 new aircraft and retire 104. Shares were up slightly on the news.

After the close on Thursday United (UAL) lowered its guidance for Q2 saying earnings would be at the lower end of the range because of the strong dollar. United said pre-tax margin would be 12-13% compared to prior guidance of 12-14%. Also, capacity rose +2.3% for the quarter and slightly lower than the forecast range of 2.25% to 3.25%.

United suffered a 10-hour outage with all domestic flights grounded from late Tuesday until 10:AM Wednesday morning. The reason given was a "network connectivity" issue resulting from a router outage. Grounding 3,500 flights is going to cost them in Q3. The airline had an identical grounding on June 2nd that should have impacted Q2 earnings.

UAL shares still rallied on Friday from the American capacity news.

Franklin Electric (FELE) fell more than -30% intraday after they warned that Q2 earnings would be in the range of 35 cents compared to prior guidance of 54-48 cents per share. Shares fell from $31 to $22.71 before rebounding. The company blamed it on record rainfall in May and June in North America. This caused lower than expected shipments of the Pioneer branded water handling equipment. They also blamed the strong dollar for declines in Brazil and developing economies. Shares rebounded to close at $30 and the loss of only $1. Somebody bought the dip.

Shares of Cablevision (CVC) rose after French billionaire Patrick Drahi said he was interested in acquiring U.S. cable companies. He said he was interested in companies like Cablevision and Cox Communications during an interview with the WSJ. Cox is not a public company. Previously he had pursued Time Warner before they agreed to merge with Charter Communications. Shares of CVC rallied +7% on the news.

Barracuda Networks (CUDA) declined -19% after the company reported earnings of 9 cents that beat estimates by a penny but lowered guidance. For the current quarter they projected revenue of $78-$79 million that missed analyst estimates of $80.4 million. Earnings guidance of 9 cents was in line with estimates. Existing subscribers rose +18% to 252,000. Advance billing projections were also weak and that prompted the big selloff.

Zillow (Z) shares collapsed -8% after CFO Chad Cohen said he was resigning effective August 7th. He had been with the company since 2006 and was named CFO in 2011. Whenever a CFO resigns unexpectedly there are always worries over potential accounting problems. In the case of Zillow none of the analysts seem to view that as a possibility but you never know. Zillow is integrating the Trulia acquisition and this quarter and next will see a lot of charges and accounting irregularities in the earnings reports. Maybe Cohen was simply pushed to his limit trying to merge two different sets of books.

Late Friday news broke that Lockheed Martin (LMT) was in advanced talks with United Technology (UTX) to buy Sikorsky helicopter unit in a deal that could be worth more than $8 billion. This would be the largest since Lockheed bought Martin Marietta for $10 billion 20 years ago. Shares did not trade after the news broke.

Costco (COST) was upgraded by Oppenheimer from perform to outperform with a price target of $160. The analyst called it a "rare opportunity" with +15% upside potential. The analyst expects Costco to raise the membership fees and increase prices. Earnings estimates for 2015 are $5.15 to $5.20 and 2016 stretches to $5.70 per share.

The earnings calendar heats up next week with a flood of financial stocks led by JPM, WFC, BAC, C and PNC. Yum Brands reports on Tuesday with their update on the recovery in China. Tech giants Intel and Netflix report on Wednesday. Ebay and Google highlight on Thursday. A total of 39 S&P companies will report.

Crude prices took a tumble over the last week with the low at $50.58 on Tuesday. There are worries about a deal with Iran and the lack of declines in U.S. production. Production rebounded to 9.604 million barrels per day last week and that is only 6,000 bpd below the 40-year peak set the week of June 5th. More than 1,000 rigs have been taken offline but production continues to rise. Active rigs have risen for the last two weeks after 28 consecutive weeks of declines and that has spooked energy investors.

Active oil rigs rose by +12 the prior week and +5 this week to a total of 645. That is down from the peak of 1,609 in December. Gas rigs declined -2 to match their 18-year low at 217 that was set on April 17th.

Janet Yellen spoke on Friday and said it will still "be appropriate to hike rates at some point later this year." Here is the qualification. "However, the course of the economy and inflation remains highly uncertain, and unanticipated events could delay or accelerate this first step." She did not mention Greece in her speech other than to say the Greek debt crisis was one cause of uncertainty. Analysts thought she might have turned slightly more hawkish in her tone since the minimal mention of Greece suggested conditions in the U.S. mattered much more to the Fed.

In a July survey by Bloomberg 76% of analysts expect a rate hike in September and only 10% expect a hike in December. However, she spent a large portion of her 14-page speech explaining why labor markets still have not met the Fed's criteria for full employment. "A significant number of individuals still are not seeking work because they perceive a lack of good job opportunities." She also warned the low price of oil and strong dollar remained a major drag on the economy. She also reiterated that the Fed would not raise rates until it was reasonably confident that inflation would move back toward 2% over the medium term.

The flight to quality in the U.S. Treasuries ended quickly once the Greek government submitted the surrender plan and China's markets rebounded. The yield on the ten-year fell to 2.18% on Tuesday but rebounded to close at 2.417% on Friday as treasuries were sold.


The markets rebounded from three-month lows but they still closed the week with zero gains. The S&P 500 declined only -0.16 point but it was still a loss for the week and the third consecutive weekly loss. At the risk of boring readers with the facts, the S&P Bullish Percent Index has not budged off its nine-month lows at 54.8%. Only about half of the S&P stocks still have a buy signal. More than 45% of the S&P stocks are in a bear market with declines of more than 20%. The short squeezes on Thr/Fri helped pull the markets back to even for the week but the trend is still lower.

On the much broader NYSE Composite, only 45% of the stocks are trading over their long-term 200-day average after a dip to 39% early last week. That shows the broader market is very weak.

Internals were positive on Friday despite mediocre volume of 5.9 billion shares. Unfortunately, that was the lightest volume of the week. Advancers were nearly 5:1 over decliners. This was a short squeeze so any stock with any material short interest saw an excellent bounce.

Despite the apparent negativity Lipper said for the week ended Wednesday more than $14.1 billion flowed into U.S. equity funds. Another $3.1 billion flowed into bond funds. Investors are buying the dips. How long that will last is of course the mystery.

The S&P rebounded right to resistance at the 2078-2081 level and stalled as it has almost every day since July 1st. This resistance has been rock solid. However, the dip buyers at 2050 have also been very active. Every time the index closes in on that level, the rebounds have been very strong.

The 200-day average at 2056 has been broken multiple times but it remains in play. The 2078 level is the 150-day average and that remains resistance. The index appears trapped between those two averages and waiting for an all clear from Greece and China to break out. The Tue/Wed lows were three-month lows so the uptrend has been broken.

Now the test will be the 2040 level. If that level breaks, we could easily dip back under the support at 2000 from January. I have no reason to expect a further decline ahead of earnings but the charts are still negative.

We are at the mercy of the headlines from overseas until the flow of earnings picks up enough to drown them out. Greece has a good chance of a rescue next week but it is not certain. I fear China's markets could see lower lows because even a -30% dip is not enough to erase a +150% decline. There are a lot of profits to be captured and those 1,300 stocks can only remain halted for 30 days.

There is still a lot of uncertainty and that breeds volatility. There was not enough conviction to push through that 2080 level over the last 7 days and without positive news from overseas, I doubt that will happen on Monday.

The Dow got a lot of help from Apple (AAPL) with a gain of +$3.21 and IBM with a gain of +$3.10. United Health +2.81 and Goldman +2.38 were also big supporters. Apple broke multiple levels of support to decline as low as $119 on Thursday. Volume was nearly three times normal. This suggests somebody with a big position wanted out before earnings. The decline has been persistent since late May at the $133 high. The dip to the 200-day average at about $119 on Thursday was a key buying signal and volume on Friday was nearly twice normal.

Many of the stocks in the Dow, which had been in a downtrend, saw a significant bounce on Friday. I attribute this to short covering rather than a sudden urge to own those stocks. For instance, IBM had been in a downtrend since early May with resistance at $165. The stock exploded higher on Friday. Either sellers ran out of stock or the prospect of a Greek resolution scared the shorts to cover ahead of the weekend.

There were quite a few of the Dow charts that looked like IBM. There was too many to suggest there was a sudden urge to buy one or two stocks ahead of earnings.

The Dow dipped below critical support at 17,600 several times but each time the short squeeze the following day rescued it from any negative follow through. Unfortunately, with the exception of Friday every morning rally was followed by afternoon selling or an outright decline the following day. The volatility has been high with the VIX touching 20 on Thursday.

With multiple Dow components reporting earnings next week, that volatility is likely to stay with us. The expectations for the banks are not strong so there is the potential for an upside surprise. The expectations for Intel are weak so there is a potential for a surprise there also. GE will not surprise anyone but they report on Friday so they will not impact the Dow.

The 17,760-17,800 level has proven to be tough resistance and 17,500 was support on Wednesday and 17,550 on Thursday. Those are the levels to watch for next week.

Like the other indexes, the Nasdaq rallied right to resistance and stalled. That resistance is the 5000 level and despite a +85 point intraday gain it would not hold that 5000 level. Support on both Tuesday and Wednesday was 4900 with the 150-day average at 4906. The tech stocks have not been as weak as the other indexes but the resistance at 5000 could be formidable unless Greece is rescued over the weekend and we gap substantially higher on Monday.

The semiconductor sector ($SOX) is on the verge of breaking critical support at 650 and taking the Nasdaq even lower. With Intel reporting earnings next week, this will be a make or break report.

The Russell 2000 had a decent week and posted the largest gain of the major indexes. It was only .3% but it was a gain. The drop to support at 1230 on Tuesday saw that level hold and the 150-day average came through as support once again. The +18 point rebound on Friday appeared to be actual buying from equity funds but it could have been just short covering like the other indexes. The 1260 level is now resistance.

The Dow Transports closed at a two-week high at 8201 but I am not cheering. Given the weak oil prices and the rally in the airline sector, the transports should have been a lot stronger. This was a heavily shorted index so the 1.8% gain on Friday is no surprise.

I believe Friday's rally was simply short covering ahead of the decision on Greece on Sunday. Traders with short profits were taking them off the table and those with existing short positions were trying to decide what a Greek rescue over the weekend would do to the markets. If the EU agrees to the Greek plan in some form the banks could reopen in a matter of days and the markets should rebound strongly on the hope the Greek disaster has ended.

With the Chinese markets also in rebound mode there was too much risk for a combined Greek/China headline barrage and a monster gap open on Monday. Now that the market imbalances have been corrected, we will have to wait and see what headlines appear. There could also be a sell the good news event but I doubt it. Whatever happens on Monday will be our market tell for the rest of the week. If we gap open to the upside and fail to sell off in the afternoon then I would look for a positive week. If the headlines are mixed and resistance holds then I would expect some weakness until the headlines turn positive.

The best thing working for us next week is the beginning of the Q2 earnings cycle. Hopefully this will take investors focus off the geopolitical headlines and onto the earnings news. The strong dollar is still going to be a problem for international companies so expect that excuse to continue.

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Random Thoughts

I hope everyone has seen the new warnings on the pain relievers Ibuprofen, Advil and Motrin. The FDA has determined that they cause strokes and heart attacks and the risk begins in the first few days of consumption and increases with each day thereafter.

FDA Strengthens Heart Attack Warning on Painkillers

If Greece does not get a deal completed by Monday that allows the ECB to reopen credit lines for banks, many of them could close permanently on Monday. With banks bleeding cash at $100 million a day there is not enough left to open even at the 50 euro per day withdrawal limit. Customers are now lining up starting at midnight to make sure they are first in line because the ATMs run out of cash by late morning. A Greek banker said the banks would collapse if there is no ECB rescue on Monday. Greek Bank Failures Loom

The USA Today disclosed that President Obama had issued 30 Presidential Policy Directives and 11 of them are classified secret. The White House has not even disclosed the subject of the directives. They have the same force and effect as an Executive Order. The White House will not even admit the orders exist but the official numbering scheme was corrected last week to rename PPD29 to PPD30 because PPD29 had already been used. 11 Secret Presidential Directives

Hackers took over a German Patriot Missile battery on the Syrian border on Tuesday. According to officials, the missile system carried out "unexplained" orders. Officials believe the Sensor-Shooter Interoperability function was taken over and possibly the computer chip that controls the weapons guidance. Patriot Missile Battery Hacked

Complete text of the Greek surrender letter to the Troika. What happened to the obstinate and hostile attitude and "criminal coercion" claims?

Dear President and Managing Director,

The attached proposal for a comprehensive and specific reform agenda by the Minister of Finance of Greece - aimed at complementing the request for a loan facility from the ESM of July 8 2015 - is conveyed to you following the Euro Summit decision of July 7 2015.

In this context, it will be assessed by the three institutions to be presented to the Euro Group. It constitutes the result of many months of formal and informal negotiations that the Greek government undertook with the institutions at all levels, aiming at reaching a program that will be economically viable and socially just.

With this proposal, the Greek people and the Greek government, confirm their commitment to, fulfilling reforms that will ensure Greece remains a member of the Eurozone, and ending the economic crisis. The Greek government is committed to fully implementing this reform agenda - starting with immediate actions - as well as to engaging constructively on the basis of this agenda, in the negotiations for the ESM Loan.

This reform agenda constitutes part of the wider effort of the Greek Government, towards reforming the Greek economy and public administration, through fighting corruption, clientilism and inefficiency, promoting social justice and creating a positive environment for sustainable economic growth. Thanking you for our cooperation,

Yours sincerely,

Alexis Tsipras

The bulls and bears continue to change sides with a 5% switch from bearish to bullish last week. This is relatively tame compared to the huge swings over the last several weeks.

This is the 15th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.

An ex-CIA analyst currently working for Goldman Sachs said "We are in an extraordinarily dangerous time right now." He is referring to the deterioration of U.S. and Russian relations and the increasing likelihood of a strategic conflict. Extraordinarily Dangerous Time

PC makers just had their worst quarter in almost two years according to Gartner. Global PC shipments declined -9.5% in Q2. Vendors are struggling to keep the hardware from stacking up ahead of the Windows 10 release later this year. Vendors are trying to liquidate inventory ahead of the Windows 10 shipments later in 2015 but nobody is buying. Prices of computers are rising as a result of their complexity and prices for tablets are falling thanks to carrier subsidies. The strong dollar is hurting sales overseas and both Asus and Acer each posted double-digit declines in sales. Lenovo remains the top supplier but they also had their first quarterly decline since Q2-2013. Hewlett Packard saw sales decline -9.5% and Dell sales fell -4.9%. PC Sales Falling

Morgan Stanley analysts are drinking the hopium Kool Aid. On Thursday they predicted global growth would accelerate to +4.0% in the second half of 2015 compared to +2.9% in the first six-months. Morgan Stanley says monetary stimulus is taking hold and will even be extended by 18 central banks this year. "Domestic demand in developed economies will be the key engine of growth." The analysts believe Greece will provide little contagion regardless of the outcome. Growth to Accelerate 4.0%.

The Iranian nuclear discussions just extended the deadline for the 7th time. It is now Monday evening. Kerry said they will not be rushed but they will not continue talking forever. The longer Iran talks the more they can get done in their research. The current president was a former nuclear negotiator and he has bragged that he kept the talks going for five-years while the research was accelerating. Stonewalling is an Iranian tactic. Cartoon from The Week.com

Apparently China stole the personal information of 21.5 million people when they hacked into the U.S. Office of Personnel Management (OPM). The information stolen included their social security numbers, residency and educational history, employment history, details on immediate family members, business relationships, health, criminal and financial history and other details including fingerprints. The initial hack stole info on 4.2 million current and former government employees. The second breach specifically targeted individuals that had undergone background investigations in order to get security clearances. Victims will receive a "suite" of security services including monitoring of their credit bureau files. Those services will be provided by a third party, private contracting firm for a period of three-years.

The Senate has introduced a bill called Reducing the Effects of the Cyberattack on OPM Victims Emergency Response (RECOVER) Act. The act will provide lifetime identity monitoring and up to $5 million in identity theft protection for the victims. The head of OPM, Katherine Archuleta, resigned on Friday. 21.5 Million Records Hacked

This is a link to a very interesting website run by Norse Corp. They track cyber attacks in real time. Most types of initial penetration attack attempts have an identifiable set of computer code. Since everything has to travel over the Internet. Norse can track when that identifiable code travels through the Internet backbone. They can tell where it came from and who is being attacked. This page is a real time track of those attacks. I have been watching it over the last week and there has been a concentrated attack against something in St Louis from multiple points in China and Russia. The longer you leave the page up the more history is collected. Map.NorseCorp.com


Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"There is no alternative to going in on the ground and pulling the [Islamic State group] up by the roots. If that scares you, don't vote for me."

GOP Hopeful SC Senator Lindsey Graham


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New Plays

Sliding To New Lows

by James Brown

Click here to email James Brown


Noble Energy, Inc. - NBL - close: 39.06 change: -0.25

Stop Loss: 41.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 11, 2015
Time Frame: Exit PRIOR to earnings on August 3rd
Average Daily Volume = 4.2 million
New Positions: Yes, see below

Company Description

Trade Description:
Crude oil prices are down sharply the last two weeks and its putting pressure on the oil stocks. NBL is an oil company who has seen its stock plunge to new multi-year lows.

According to the company, "Noble Energy is a leading independent energy company engaged in worldwide oil and gas exploration and production. The Company has core operations onshore in the U.S., primarily in the DJ Basin and Marcellus Shale, in the Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa."

There are several issues impacting the price of oil, which is pressuring oil stocks lower. Back in April we saw crude oil inventories in the U.S. hit 80-year highs. They stayed elevated for awhile before eventually fading. Summer time is driving season. A lot of people are on the road for vacation. The weather is more favorable. This time of year demand for oil rises as oil refiners boost their production of gasoline and other fuels.

Given the seasonality of U.S. oil demand normally rising in summer it was a surprise to see oil inventories rising instead of falling. The U.S. Energy Information Administration (EIA) has reported an inventory build the last two weeks in a row. Their most recent report was for the week ending July 3rd. Analysts were expecting oil inventories to drop 1 million barrels. Yet the EIA said inventories rose almost 300,000 barrels.

This EIA news was followed on Friday with a report from the International Energy Agency (IEA) who downgraded their global oil demand growth forecast from +1.4 million barrels per day in 2015 to +1.2 million barrels in 2016. That is still growth but the world is currently facing oversupply issues. If demand falls it's going to put pressure on oil prices.

Saudi Arabia, the biggest member of Organization of the Petroleum Exporting Countries (OPEC) made it clear that they are willing to sacrifice price to maintain their market share. At the June 4th meeting OPEC left their output quota unchanged at 30 million barrels a day.

Crude oil is off its 2015 lows but the weakness this year has wreaked havoc in the oil sector. NBL reports its Q4 results in February. They beat the bottom line by three cents but revenues were down -19.4% from a year ago to $1.07 billion. That missed estimates by $233 million.

The sales decline accelerated in the first quarter. NBL reported its Q1 results on May 5th. They beat the bottom line by a penny but revenues crashed -45% to $759 million. That was $140 million below estimates.

If the oversupply issue wasn't bad enough the industry now faces a potential deal with Iran and the P5+1 nations. These countries are currently negotiating over Iran's nuclear program. If they do get a deal done it will unlock sanctions on Iran, which would allow the country to bring millions of barrels of oil to a market that is already struggling. Of course the opposite could occur. If the quarrelsome talks breakdown, and they could since they're already on their umpteenth postponed deadline, then crude oil prices could rally. That's probably our biggest risk on a bearish play in the oil sector. If the Iran talks breakdown it could fuel a big spike in the price of oil.

Technically NBL looks very weak. On the weekly chart below you can see the bear-flag consolidation pattern and the breakdown. On the daily chart there is what appears to be a bearish head-and-shoulders pattern. Plus, the simple fact that NBL continues to underperform, continues to sink, with the path of least resistance being lower. The point & figure chart is bearish and forecasting at $34.00 target.

The $38.70-38.80 area appears to be short-term support. Tonight we are suggesting a trigger to launch bearish positions at $38.60.

Trigger @ $38.60

- Suggested Positions -

Short NBL stock @ $38.60

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

Buy the AUG $37.50 PUT (NBL150821P37.5) current ask $1.25
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Energy Stocks Underperform On Friday

by James Brown

Click here to email James Brown

Editor's Note:
News out of the International Energy Agency (IEA) on Friday kept a lid on energy stocks and many underperformed the market with declines. Meanwhile the rest of the stock market was in rally mode.

Current Portfolio:

BULLISH Play Updates

Chimerix, Inc. - CMRX - close: 46.90 change: +1.08

Stop Loss: 43.75
Target(s): To Be Determined
Current Gain/Loss: +1.6%
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

07/11/15: The bounce in CMRX continued on Friday with shares outperforming the market in a +2.35% gain. The stock is once again challenging resistance in the $47.25-47.50 area. I would prefer to see a new high above $47.70 before considering new bullish positions.

Tonight we are raising the stop loss to $43.75.

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

07/11/15 new stop @ 43.75
06/26/15 triggered @ $46.15
Option Format: symbol-year-month-day-call-strike


Mobileye N.V. - MBLY - close: 57.35 change: +0.46

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: +1.5%
Entry on July 09 at $56.50
Listed on July 07, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 3.8 million
New Positions: see below

07/11/15: MBLY continued to drift higher on Friday but shares underperformed the broader market. Shares only gained +0.8% versus the NASDAQ's +1.5% rally on Friday.

MBLY did end the week with another gain, which stretches the current streak to five up weeks in a row. I am suggesting readers wait for a dip near $56.50 before considering new bullish positions.

Tonight we are adjusting the stop loss to $53.85.

Trade Description: July 7, 2015:
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.

- Suggested Positions -

Long MBLY stock @ $56.40

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

Long AUG $60 CALL (MBLY150821C60) entry $2.00

07/11/15 new stop @ 53.85
07/09/15 triggered on gap open at $56.50
Option Format: symbol-year-month-day-call-strike


Neurocrine Biosciences Inc. - NBIX - close: 48.16 change: +0.33

Stop Loss: 44.85
Target(s): To Be Determined
Current Gain/Loss: -0.2%
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

07/11/15: NBIX is still quietly consolidating sideways in the $47.00-49.50 zone. If you're an optimist then NBIX appears to be coiling for another breakout higher. If your glass is half empty then NBIX underperformed the market on Friday. I am suggesting investors hesitate before launching new positions. A breakout past $50.00 would reaffirm the larger up trend.

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: 55.13 change: +0.63

Stop Loss: 53.75
Target(s): To Be Determined
Current Gain/Loss: -2.3%
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

07/11/15: SPR almost kept pace with the S&P 500's rally on Friday. Unfortunately shares were struggling with short-term technical resistance at the 10-dma.

No new positions at this time.

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: 69.89 change: +1.30

Stop Loss: 66.40
Target(s): To Be Determined
Current Gain/Loss: +10.7%
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

07/11/15: TPX continues to show relative strength. The stock added another +1.89% on Friday and marked its sixth weekly gain in a row.

More conservative investors may want to take profits right here. That's because TPX is short-term overbought and it's testing round-number resistance at $70.00 and technical resistance at its trend of higher highs. We are not giving up yet but we are moving the stop loss up to $66.40.

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

07/11/15 new stop @ 66.40, readers may want to take profits now!
07/08/15 new stop @ 65.65
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: 37.36 change: -0.71

Stop Loss: 40.65
Target(s): To Be Determined
Current Gain/Loss: +14.6%
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

07/11/15: The International Energy Agency (IEA) delivered some sour news for the energy sector on Friday. The IEA downgraded their global growth demand forecast from 1.4 million barrels per day in 2015 down to 1.2 mmbpd in 2016. That is still growth but demand is expected to weaken while supply remains very strong. Their report suggested that crude oil prices could retreat again and oil may pierce its 2015 lows.

Most of the oil stocks reacted negatively to this news. CLR underperformed the broader market with a -1.8% decline.

More conservative traders may want to lower their stop loss again. 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


KLA-Tencor - KLAC - close: 55.11 change: +0.38

Stop Loss: 56.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 08, 2015
Time Frame: Exit PRIOR to earnings on July 30th
Average Daily Volume = 1.3 million
New Positions: Yes, see below

07/11/15: KLAC spent Friday's session churning sideways in the $54.50-56.00 trading range. On the plus side shares underperformed the market with a +0.69% gain versus the +1.5% rally in the NASDAQ composite. We are waiting for a new relative low. Our suggested entry point is $54.40.

Trade Description: July 8, 2015:
Semiconductor stocks have been some of the market's worst performers in the last several weeks. The SOX index broke down under key support a few days ago and underperformed the market again today (-2.6%). While the semiconductor industry saw its stocks peak in early June, shares of KLAC peaked back in December 2014. The stock has been sinking under a bearish trend of lower highs and lower lows.

KLAC is part of the technology sector. According to the company, "KLA-Tencor Corporation, a leading provider of process control and yield management solutions, partners with customers around the world to develop state-of-the-art inspection and metrology technologies. These technologies serve the semiconductor, LED, and other related nanoelectronics industries. With a portfolio of industry standard products and a team of world-class engineers and scientists, the company has created superior solutions for its customers for nearly 40 years. Headquartered in Milpitas, Calif., KLA-Tencor has dedicated customer operations and service centers around the world."

The company reported its Q2 2015 results on January 22nd. They beat estimates on both the top and bottom line even though revenues were down -4.1% from a year ago. Management lowered their guidance below Wall Street estimates.

KLAC announced its Q3 results on April 23rd. Earnings and revenues beat estimates again. Unfortunately their weakness in sales accelerated with revenues down -11.3%. Management followed this up with another round of weaker than expected earnings and revenue guidance. They tried to soften the blow by announcing a -10% reduction in their workforce to be completed by Q1 2016.

There have been multiple downgrades and price target reductions since their earnings report and soft guidance in April. Shares have continued to breakdown. Today saw KLAC underperform with a -2.3% decline and a new 2015 closing low. We want to hop on board this bearish momentum. Tonight we're suggesting a trigger to launch bearish positions at $54.40.

Trigger @ $54.40

- Suggested Positions -

Short KLAC stock @ $54.40

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

Buy the AUG $52.50 PUT (KLAC150821P52.5)

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


Murphy Oil - MUR - close: 40.06 change: -0.61

Stop Loss: 42.35
Target(s): To Be Determined
Current Gain/Loss: +2.6%
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

07/11/15: The weakness in oil stocks led MUR to a -1.49% decline. The early morning rally attempt failed near its 10-dma and shares plunged toward round-number support at $40.00. Friday's intraday low was $39.85. I would be tempted to launch new positions on a drop below $39.80.

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: 23.32 change: +0.33

Stop Loss: 23.55
Target(s): To Be Determined
Current Gain/Loss: -3.9%
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

07/11/15: Our SYMC trade could be in trouble. The stock is not cooperating. The oversold bounce continued on Friday with shares up four days in a row. The close above its 10-dma and $23.25 is short-term bullish.

I am not suggesting 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


Tessera Technologies - TSRA - close: 35.93 change: +0.03

Stop Loss: 37.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 09, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 518 thousand
New Positions: Yes, see below

07/11/15: TSRA flirted with a bearish breakdown but managed to pare its losses on Friday. Shares did underperform the broader market and closed virtually unchanged on the day. Our suggested entry point to launch bearish positions is $35.40.

Trade Description: July 9th, 2015:
TSRA claims that their technology is in 100% of today's smartphones. The stock was a pretty big winner last year with a rally from $18 to almost $36 in 2014. Shares appear to have peaked in March this year.

TSRA is in the technology sector. They're considered part of the semiconductor industry. According to the company, "Tessera Technologies, Inc., including its Invensas and FotoNation subsidiaries, generates revenue from licensing our technologies and intellectual property to customers and others who implement it for use in areas such as mobile computing and communications, memory and data storage, and 3DIC technologies, among others. Our technologies include semiconductor packaging and interconnect solutions, and products and solutions for mobile and computational imaging, including our FaceTools, FacePower, FotoSavvy, DigitalAperture, LifeFocus, face beautification, red-eye removal, High Dynamic Range, autofocus, panorama, and image stabilization intellectual property."

TSRA is not a widely followed stock on Wall Street. Their most recent earnings report managed to beat the estimates for the few analysts that follow the stock. Revenues were above expectations at $79.85 million but sales fell -9.6% from a year ago. Management did guide higher for the second quarter but the market reaction to this news was muted.

Shares of TSRA had been stuck under resistance near $40 for weeks. Unfortunately for shareholders TSRA began to breakdown in the last few days, possibly due to weakness in the semiconductor stocks. The point & figure chart has turned bearish and is forecasting at $29.00 target.

Today TSRA is hovering above key support near $35.00 and its simple 200-dma. A breakdown here could signal a drop toward round-number support at $30.00. Tonight we're suggesting small bearish positions at $35.40. We want to limit our positions size because TSRA has seen some sharp one-day spikes in the past.

Trigger @ $35.40 *small positions to limit risk*

- Suggested Positions -

Short TSRA stock @ $35.40

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

Buy the Aug $35 PUT (TSRA150821P35)

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