Option Investor

Daily Newsletter, Saturday, 7/18/2015

Table of Contents

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

Market Wrap

Tech Blowout

by Jim Brown

Click here to email Jim Brown

The mother of all short squeezes appeared in the tech sector last week after Netflix and Google beat overly bearish earnings expectations and shorts in those stocks were crushed. The severity of the squeeze in those stocks caused shorts in other tech stocks to run for cover and the Nasdaq soared to a new high.

Market Statistics

It was not a case of irrational exuberance that sent certain tech stocks sharply higher but a major short squeeze in those stocks. Google (GOOGL) spiked +16% or +$98 dollars to a new high but not because earnings were so good that investors just had to buy shares regardless of the price. The spike came after shorts were forced to cover because of the margin calls and rapidly escalating losses. If you were short 500 shares that was a $50,000 loss. That will put a dent in your account really quick. Anybody short calls was forced to either buy them back at a huge premium or buy shares in the market to cover those short calls. Shares were $540 just a week ago and they closed today at $700 and it was not because everyone just had to own Google this week.

Google added $65 billion in market cap on Friday alone and +$100 billion for the last 8 days. Google added twice the total market cap of Hewlett Packard at $50 billion. There are more than 400 companies in the S&P with a market cap less than $65 billion. This was the first quarter since 2013 that Google has beaten on earnings. Expectations were for another earnings miss and more whining about advertising click rates. They knocked the ball out of the park despite a $1.1 billion decline in revenue because of the strong dollar.

I looked at options on Google because we know this spike it not going to last. I looked at selling a call spread or buying a put spread but the premiums were crazy. If you are willing to take a $20 risk you could make about $5 using either method in the September strikes. That does not fit my risk profile.

For a change, the market concentrated on stocks rather than headlines. Yellen's testimony is over and the Greek bailout has begun. China's monster bailout of the equity market has halted the decline but more than 50% of the stocks are still halted for trading and there has been only a moderate rebound. China's GDP miraculously came in at 7% to nobody's surprise since everyone on this side of the pond is convinced it is a phony number manufactured by the government. Still, the 7% GDP soothed some market worries and China slipped from the headlines.

In the U.S. the Consumer Price Index rose sharply at +0.3% for June after a +4.0% rise in May. On a trailing 12-month basis it is now positive at +0.2%. While that may be the weakest sign of inflation you could imagine it is probably enough for the Fed to hike rates in September. Yellen reminded everyone last week that the Fed would not wait for 2% inflation as long as they were convinced inflation is rising.

With oil prices falling again the CPI for July and August is likely to cool off again. Food prices rose +0.3%, energy prices +1.7% and gasoline +3.4%. Gasoline always rises in June ahead of the July 4th holiday. That should also decline in July. Food prices are up because of an 18% rise in egg prices due to the bird flu. That is the biggest monthly gain since the 1970s. Rents accelerated because of the difficulty of financing a home is putting more families into rentals.

The core CPI, excluding food and energy, rose +0.2%, which put it up +1.8% on a year over year basis. This is what the Fed is watching rather than the headline number.

Consumer sentiment for July declined with a drop from 96.1 to 93.3. The present conditions component declined from 108.9 to 106.0 and the expectations component fell from 87.8 to 85.2. Analysts said consumers were worried about the Greek, Chinese and Iranian headlines and the potential impact to the U.S. economy. Sixty percent of respondents said the economy had improved and 27% said conditions had declined. That is up from 23% declines in the prior month.

New residential construction starts surged from a revised 1.069 million to 1.174 million because of a spike in multifamily housing starts. Single-family starts declined from 691,000 to 685,000. Multifamily rose sharply from 378,000 to 489,000. The Northeast saw the largest spurt in multifamily starts with a rise of +14.7%.

The economic calendar for next week is positively boring with nothing that should move the market. We are in that part of the cycle where the new home and existing home sales numbers decline because everyone has already moved before the back to school cycle begins. The Chicago and Kansas Fed surveys are not followed closely and rarely have any market impact.

The big event is the following week with the July FOMC meeting. Yellen moved even closer to a September rate hike with her comments during the testimony to Congress. The announcement from the July meeting will be critical for analysts since there is no August meeting. The equity market could begin to price in a rate hike once we get past the July FOMC meeting.

There were no new splits announced last week. AstraZeneca is the next to split with the ex-date on July 27th. The stock splits after the close on Friday July 24th.

There are quite a few stocks that could announce splits in the near future such as Amazon, Chipolte, Google and many others. The big post split spike in Netflix shares last week should have stimulated some of those high dollar companies to try some financial engineering of their own and announce a stock split. Full Calendar

On Monday Paypal (PYPL) and Ebay (EBAY) will trade independently. The spinoff of Paypal was effective at the close on Friday. You can tell approximately where the stocks will trade on Monday by looking at their "when issued" charts. Paypal when issued (PYPLV) closed just over $38 on Friday and Ebay (EBAYV) closed at $28. The regular shares of Ebay closed just over $66 before the split. Paypal shares are expected to do well as an independent company again and there are still rumors that Google is waiting for the spinoff to make an offer. Paypal has more than 10% of the online payment market and growing. Susquehanna started PYPL with a $75 price target.

Amazon (AMZN) said "Prime Day" was here to stay after a very successful promotion. Same day sales rose +266% and they sold 34.3 million units. Amazon also said it signed up "hundreds of thousands" of new Prime customers. If those customers do not cancel before the end of their trial period they will be billed the $99 annual subscription fee. Amazon said a Prime customer spends an average of $1,565 per year compared to the non-prime customer at around $600 per year. Amazon shares did really good last week with better than a $50 gain to a new high. The big short squeezes in Google and Netflix had Amazon shorts running for the exits ahead of earnings next week.

Slice Intelligence said Walmart won the retailer war. They also offered online specials to combat the Amazon Prime Day promotion. Slice said Walmart sales increased +268% on Wednesday to slightly edge out Amazon. However, Amazon's prices were just for the one day and Walmart's are good for 90 days. Walmart will be the big winner for the overall promotion.

There were also come complaints about the quality of the merchandise in the Amazon promotion. Other than a few high dollar deals that were sold out relatively quickly the majority of the deals were low dollar "junk" items that you would expect to see in a garage sale according to lots of comments on Twitter and Facebook. Walmart actually beat Amazon by a mile in the quality department with hundreds of deals on electronics and stuff people actually wanted. I would bet Amazon is better prepared next year and it will be a huge sale rather than only clearance items.

Etsy Inc (ETSY) shares gained +30% after Google mentioned in its earnings that the new Google search algorithm was really benefitting marketers like Etsy and they had seen a significant improvement in their search results.

Hertz (HTZ) shares rallied +12% after the company said it had finished restating earnings for the last two years and expects to realize $300 million in cost savings by year-end. That is $100 million more than their goal. The company found $207 million in additional pretax misstatements from 2011 through 2013. The errors reduced pretax income by as much as 23% and net income by 26%.

Hertz blamed the errors on the prior CEO who created a "pressurized operating environment" that produced "inconsistent and sometimes inappropriate" directives." CEO Mark Frissora resigned for "personal reasons" but investors had been pushing for his ouster. He is now CEO of Caesar's Entertainment (CZR).

Hertz reaffirmed its $1 billion buyback and the company is preparing to close the sale of its leasing unit, which was announced in March 2014.

Tesla (TSLA) shares gained +$8 after CEO Elon Musk said on a conference call they were making changes to the Model S with price cuts on some models and increases on others. Musk said they were adding the "Ludicrous Mode" as an option to the Model S for $10,000 more. This is the super fast upgrade that will take you from 0-60 mph in 2.8 seconds and represents a 10% improvement in acceleration. This is an extension of "Insane Mode." Musk said it would also be offered on the Model X SUV with an estimated 0-60 of 3.3 seconds. Tesla also offered an improved battery pack option with 15 additional miles of range.

The cheapest Model S will see prices decline by -$5,000 to $70,000 and the high-end version will rise by $10,000. Musk will hold another conference call on Monday at noon on the Space X rocket.

General Electric (GE) reported adjusted earnings on Friday that declined -14% to 31 cents on revenue of $32.8 billion. The earnings matched estimates. The company increased the lower end of guidance from $1.10-$1.20 to $1.13-$1.20. Jeffery Immelt was upbeat and optimistic about the company as he works to sell off all the financial divisions. He also has two major deals in the pipeline. The $17 billion purchase of France's Alstrom's energy assets with French regulators demanding concessions. In the U.S., regulators are trying to block the sale of the appliance division to Stockholm-based Electrolux. Immelt was adamant that both deals would close this year. Shares rose fractionally on the news. GE shares rarely move higher on earnings because there is no excitement. They always match the estimates. Q1 was the exception with news of the sale of some financial assets.

Honeywell (HON) reported earnings of $1.51 that rose +9 and beat estimates for $1.49. Revenue declined -5% to $9.77 billion due to the strong dollar but still beat estimates for $9.74 billion. Excluding the impact of the dollar revenue was up +3%. The company raised the low end of guidance from $6.00-$6.15 to $6.05-$6.20.

Comerica (CMA) reported earnings of 73 cents compared to estimates for 75 cents. The big news was the warning over energy loans. With 7% of its loan portfolio tied to energy and 20% of its deposits based in Texas the falling oil prices are causing trouble. Comerica said "at-risk" energy loans rose by $329 million in Q2 with past due accounts rising +$100 million. About 14% or $578 million of its energy loans have been classified as in trouble. Comerica has made loans to shale drillers for years and some of those drillers are struggling. Halcon Resources (HK, $1.03), Laredo Petroleum (LPI, $10.78) and Sanchez Energy (SN, $7.93) have loans with Comerica and could be in the problem portfolio.

Progressive Corp (PGR) reported earnings of 54 cents, up +24%, that matched estimates but revenue of $5.21 billion beat estimates for $5.05 billion. Premiums rose +11% to $4.51 billion. Catastrophe losses totaled $154 million for Q2 on hail and flooding in Texas and Colorado. Progressive is set to increase profits because their competitors have recently increased rates and that generates new business for Progressive. Progressive shares soared to a new high on the news.

More than 450 companies report earnings next week. The most watched will be Apple on Tuesday. There is a significant amount of chatter about what they will report. Over the last 10 years, Apple has beaten on earnings 37 times and missed 3 times. Nobody expects them to miss estimates this time but they are worried about the quality of earnings. The watch is the wildcard but nobody really expects a blowout quarter on watch sales. There were delivery problems early in the quarter and this is the first version. Most buyers are going to wait until version 2 or 3 before spending several hundred dollars on an electronic accessory.

The Wall Street Journal reported last week that Apple had placed an order for 89 million iPhone S models for Q4 delivery. They were all giddy because their initial estimate was for 70 million. However, the analyst community was expecting 100 million and if the 89 million number is correct it would be the first time Apple ordered less on a model S upgrade. That could be for multiple reasons. They have sold so many model 6 versions that Apple may not believe the upgrade market is going to be that strong. They blew away estimates for iPhone sales in Q1 and said sales were still strong in Q2. However, after such a strong Q1 there could be worries they may have overpromised and will under deliver in Q2.

There is also the unknown over the Apple Music product. Hopefully they will give us some numbers on subscribers and many analysts expect that number to be large. This is a new revenue source for Apple and it could be huge since it is a monthly subscription product. The unknown is how many Apple fans actually loaded the application and are using it. We also do not know about fees on Apple Pay. We know they do not get much per transaction but there could be billions of transactions.

All of this uncertainty is causing Apple shares to lag the market. Nothing would please me more than to see Apple explode to a new high on Tuesday after the close. However, while other stocks were surging on Friday as shorts covered, shares of Apple were only modestly higher. In one way that is good. It means investors are somewhat bearish on Apple earnings. I would rather them be too bearish than too bullish because bearish means they are short and another squeeze is possible.

Analyst Ananya Bhattacharya said Apple was setting up to post a record profit in 2015 of $52.5 billion. That would be the largest annual profit ever generated from a company's operations. Exxon holds the record at $45 billion in 2008. Earnings for Q2 (Apple's Q3) are expected to be $10.4 billion after $18 billion in Q4 and $13.6 billion in Q1. The current quarter is expected to be $10.5 billion. Q2 and Q3 earnings are always low because of the sales cycle. Iphone sales were 61 million in Q1 and expected to be 47 million in Q2. Global PC sales declined -11.8% in Q1 according to IDC. However, Apple's MacBook sales rose +16.1%. The biggest risk to Apple is China. They received 29% of their revenue last quarter from China. If consumer sales declined because of the economy or the volatility in the stock market then Apple's earnings could be at risk. Since the market was up until the last couple weeks of June, I do not think that is a big risk for Q2.

Apple Watch 2015 sales are estimated to be between 10.5 million and 40 million depending on which analyst you read. Apple's Record Profits

There are some big names reporting next week including IBM, GoPro, Microsoft and a bunch of Dow components. By the time the week is over, we will have a very good idea how the Q2 cycle will end. Currently S&P Capital IQ expects a -4% decline in S&P earnings. If you remove energy that rises to a +8% gain. However, Q3 is expected to see a -1.5% decline and Q4 only a +2.4% gain. That means guidance in this cycle will be very important for Q3 estimates. So far the cycle has been good with a 75% beat rate and numerous guidance raises despite the strong dollar. If this continues we could see Q3 revised up sharply and the market would celebrate.

S&P said more than 20% of the S&P-500 companies reduced their outstanding shares by 4% or more in Q1. That means less stock in the market and a better chance of beating on earnings per share since there are fewer shares.

The fading uncertainty in Greece, Iran and the Chinese markets and the expectations for the Fed to hike rates sent the dollar to a three-month high. This is only going to get worse as we move closer to a September rate hike. The dollar strength is crushing commodities and especially metals.

Gold closed at a four-year low and silver at a five-year low. Oil prices flirted with $50 intraday and copper was only 5 cents off its post financial crisis low.

The low in copper suggests China is not telling the truth about their economic growth. They are the biggest user and copper producers claim demand is falling. Doctor Copper is a very widely used indicator for economic growth and copper demand is telling us that growth is slowing. The dollar is having an impact but demand is also a key factor.

Crude prices declined on the strong dollar but also on worries over rising production in OPEC. Production in the U.S. has not declined despite a 50% drop in active rigs. Now that the July 4th holiday is behind us the demand for gasoline will decline and with it the demand for oil.

The energy sector is imploding again on expectations for oil to decline into the $40s. We came close on Friday with the intraday low at $50.14. Baker Hughes said the active rig count declined -6 to 857 with oil rigs declining -7 to 638. Total rigs rose for the prior three weeks but only by a total of +6 rigs. That gain was wiped out and the 857 active rigs today is a 10-year low. Oil rigs at 638 are now 10 above their low at 628.

Schlumberger (SLB) reported earnings last week and they said they expect exploration and production spending in North America to decline another 35% over the rest of the year. They are expecting a 15% decline internationally.


The S&P moved to within 4 points of the closing high at 2130.82 set back on May 21st. With Google, Priceline and a bunch of big cap tech stocks all surging on short covering I am surprised the S&P did not close higher. Unfortunately, a lot of other sectors including industrials and healthcare were losers for the day. The tech sector was the only S&P sector positive at 3:PM with the other 9 in the red.

We cannot kid ourselves about the Nasdaq sprint to a new high. Netflix split 7:1 on Tuesday and traded down to $97.50. On Friday, the intraday high was just under $118 or $826 in presplit terms. That is a major impact on the Nasdaq. Add in Google's $98 gain to $700, Amazon +7, Tesla +8 and a huge list of big biotech gainers and the Nasdaq had nowhere to go but up.

Unfortunately this will not last. The best bet in the house was probably on QQQ puts at the close on Friday. For confirmation, this was a Nasdaq only rally you need to look at the Russell 2000. The index was lethargic for the last three days and on Friday it closed down -6 points. This was a short squeeze on big cap techs and nothing more.

I wrote on Tuesday that Russell 1275 was going to be a critical test for the small caps after a four day rebound from the 150-day average at 1228. That resistance test failed. The Russell rallied right to that level on Tuesday and could not penetrate.

We all know how market cycles work. When big caps are running you sell small caps to raise cash. When small caps are running you sell big caps to raise cash. When you are caught in a short squeeze you sell anything you can to raise cash. Friday was an "anything you can" day.

Volume over the last five days averaged only 6.0 billion shares with Friday the highest at 6.2 billion. For an option expiration week those numbers were really low.

The candle formation on the S&P is a spinning top and can signal a change in direction. It means the buyers and sellers were both active in the session and there was indecision by both. Neither could press their advantage.

When a spinning top comes after a long string of gains it typically suggests a top has formed. Coming at resistance as it did on Friday is doubly problematic.

Over the last few weeks I have been showing the Bullish Percent Index chart for the S&P. You would think after a major rebound of +62 points on the S&P that the BPI chart would have improved significantly. Unfortunately, it has not. The percentage of bullish stocks with buy signals rose only 2% from 54% to 56%.

The percentage of S&P stocks over their short-term 50-day average did improve significantly from 27% to 52%. Stocks did move higher at least temporarily.

I am not pointing these facts out to be bearish. The market was entering a bearish phase the prior week and the tech rebound rescued it from disaster. The -4% correction turned out to be just one more buying opportunity generated by headlines from Greece, Iran and China. Now that those events are behind us, investors are free to focus on earnings and make intelligent buying decisions rather than act on emotion.

The Dow has failed for three-days at 18,100. The narrow index of 30 stocks can be pushed around by 1-2 advancers/decliners on any given day. The drop in crude oil has weighed on Chevron and Exxon and anything non-tech has been lagging. This kept the Dow from posting any material gains although it did close well off its Friday lows.

Next week will be no different. There are plenty of Dow components reporting earnings and each will be either the hero or zero for the day. Clump a couple of those together and we could move in either direction. However, as more components report there will be less excitement left in the index. Typically, after a component reports, traders will move on to some other stock and the previously reported stocks will weaken. That means the farther we get into the cycle the more heroes we need to keep the index moving higher.

The 18,100 and 18,165 levels remain strong resistance and I would not be surprised if we don't move over those levels by next Friday unless one of those reporting components posts a major surprise and adds a lot of points.

The Nasdaq exploded into new high territory and there is no near-term resistance until 5250. In my opinion, the Nasdaq chart is showing a significantly unsupported short squeeze that is begging for a retracement.

The biotechs were major support as they also broke out to a new high and never looked back. Google is in an unsupported breakout. Call me crazy but I cannot conceive of Google shares holding this level for very long. There may be some additional short covering at the open on Monday but gravity will eventually return.

The Nasdaq could easily return to the prior high at 5160 as support. The index is up +309 points (+6.3%) since the July 8th low at 4901. In what fairy tale world does that rally continue without a decent bout of profit taking? Granted there are a lot of tech stocks reporting earnings next week and there could be some more upside surprises but adding significantly to the existing gains is only a remote possibility. I hope I am wrong but historically the trend is for a pause after a giant gain.

The NYSE Composite is not a tech index. It has stocks of all flavors and sizes. The NYSE is well below the 2015 highs and was down -37 points on Friday.

The Russell 1000 ($RUI) is the 1,000 largest stocks in the market and it did post a fractional gain on Friday but stopped right at strong resistance. The gain was caused by those big cap techs that are included in the index.

At the beginning of the week, more than 500 of the stocks in this index were down more than 10% off their recent highs.

The Vangard Total Stock Market Index ETF (VTI) also posted only a fractional gain of 3 cents and remains well under strong resistance. The index declined -4% the prior week in conjunction with the S&P decline of the same amount and rebounded +4% this week to stop right at resistance at $110. There are 3,814 stocks in the VTI. Vangard VTI

The point I am trying to make here is that the Nasdaq rally was out of character with the rest of the market. Several big cap tech stocks posted outsized gains on monster short squeezes. These gains are unlikely to continue. This suggests the market could experience some volatility this week and more than likely early in the week.

Option expiration is over and earnings are in full swing. Once we get past the FOMC meeting the week after next there is the potential for fade in August as we approach the September FOMC meeting and the first rate hike. While a minor hike will have zero real impact on the economy or equities there is the perceived notion that rate hikes hurt and the equity markets tend to decline immediately before and after. However, once the initial dip is over the equity markets tend to rally on the theory that rates are rising because the economy is improving. We should plan accordingly for the next six weeks.

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Random Thoughts

Janet Yellen continues to press for a rate hike later this year despite some members of the FOMC in strong disagreement. In her speeches last week she both warned that a hike is coming but also qualified it so much that analysts were confused. Bold notes from Scott Krisiloff.

Appropriate to normalize at some point this year

"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy."

But this is not a statement of intent

"But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time."

This is a sign of progress

"A decision by the Committee to raise its target range for the federal funds rate will signal how much progress the economy has made in healing from the trauma of the financial crisis. That said, the importance of the initial step to raise the federal funds rate target should not be overemphasized."

Highly accommodative for quite some time

"What matters for financial conditions and the broader economy is the entire expected path of interest rates, not any particular move, including the initial increase, in the federal funds rate. Indeed, the stance of monetary policy will likely remain highly accommodative for quite some time after the first increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2 percent inflation."

The Volatility Index ($VIX) hit a 10 month low at 11.77 on Friday and closed at 11.95. This suggests investors have lost all fear of a summer decline and are not buying put options as insurance against an unexpected drop. After trading at 20 the prior week, this was a dramatic decline. Remember the market adage, "When the VIX is high it is time to buy, when the VIX is low it is time to go."

The Bank of Canada admitted on Wednesday that Canada was in a recession. A recession is defined as two consecutive quarters of negative GDP. However, BoC governor Stephen Poloz was afraid to say the "R" word. Instead he said, "Real GDP is now projected to have contracted modestly in the first half of the year." He was pressed by reporters to say "recession" but he said the "R-word is unhelpful." Also, "I just find the discussion quite unhelpful. It's especially unhelpful when what has happened to the economy is very narrowly defined." I guess if you do not like the R-word you can just change your definition. Bank of Canada Admits Recession

The real discussion now is whether the U.S. is going to follow Canada down that recession path. Currently analysts are predicting 2.4% to as much as 4.0% GDP growth in Q3/Q4 so something drastic would have to occur to drop back into negative territory.

The most important regional Fed manufacturing survey is the Philly Fed report that was out last week for the July period. The headline number declined from 15.2 to 5.7 and just a couple tenths of a point above the low for the year. Analysts were expecting 12.0. This is not a signal that the U.S. economy is accelerating.

So many analysts are complaining about China's "bogus" GDP numbers that China actually pushed back against the claims and did so quite strongly in multiple venues. Maybe China "protests too much?" China GDP Not Overestimated

China GDP actually 2% lower than reported

After a big week in the market you would expect bullish sentiment to be surging. However, neutral sentiment rose +3.0% compared to a bullish gain of +2.9%. Bearish sentiment saw the biggest move with a -5.9% decline.

Apparently, a bunch of new highs was not enough to sway investors back into the bullish camp ahead of the summer doldrums.

This is the 16th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.

A mini ice age may be on the way according to European scientists. You would not know it now with record high temperatures all around the world in 2015. They claim their models are predicting a decade of very cold winters that have not been seen in 370 years. The last time this happened was between 1645 and 1715. The reason for this is the solar cycle and scientists claim there is 97% accuracy in the prediction. They are predicting this decade of winter to appear before 2030. A former NASA consultant and space shuttle engineer John Casey wrote a book called Dark Winter predicting the same scenario. Maybe the Game of Thrones series has it right. Winter really is coming. Winter is Coming


Enter passively and exit aggressively!

Jim Brown

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"Every morning when I wake up I say, I will never be as young as I am today. Today is the youngest day of the rest of my life. Get up and do something fun."

Rochelle Ford, 78-year-old Metal Sculptor


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New Plays

Revenue Slowdown Is Accelerating

by James Brown

Click here to email James Brown


Cabot Corp. - CBT - close: 36.67 change: -0.86

Stop Loss: 38.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 4th
Average Daily Volume = 457 thousand
New Positions: Yes, see below

Company Description

Trade Description:
The last couple of years have been rough for CBT investors. The stock peaked near $60.00 a share back in 2014. Today CBT is down -38% from its high and down -16% year to date.

CBT is in the basic materials sector. According to the company, "Cabot Corporation is a global specialty chemicals and performance materials company, headquartered in Boston, Massachusetts. The company is a leading provider of rubber and specialty carbons, activated carbon, inkjet colorants, cesium formate drilling fluids, fumed silica, and aerogel."

CBT's business seems to be slowing down. That's the picture I get looking at their last four earnings reports. 2014 Q3 revenues were up +4.3%. That slowed down to just +1.7% in 2014 Q4. Revenues fell -9.6% in Q1 2015. The slowdown accelerated in the second quarter. CBT reported its Q2 earnings on April 29th and revenues fell -22.7% to $694 million, significantly below analysts' estimates for $824 million. Q2 earnings were $0.53 a share, which missed estimates by 10 cents.

Three of CBT's four business segments saw declining sales. Reinforcement materials saw the biggest drop in the second quarter. Performance chemicals and specialty fluids also saw sales declines. Their purification solutions reported a small rise in sales.

Cabot President and CEO Patrick Prevost commented on his company's results, "We experienced a challenging quarter as the macroeconomic and competitive environment negatively affected our Reinforcement Materials and Specialty Fluids segments. Our volumes held up relatively well on a global basis, but we experienced margin pressure in Reinforcement Materials from lower contract pricing and feedstock-related effects. Purification Solutions results improved as customer orders rose for our mercury removal products in anticipation of the Mercury and Air Toxics Standards (MATS) implementation."

The MATS regulation did not work out well for CBT. That big drop in the stock price on June 29th was a reaction to the U.S. Supreme Court ruling on the EPA's attempt to regulate coal-fired power plant emissions. The market is interpreting the court's decision to mean less demand for CBT's chemicals that help power plants curb mercury emissions.

Technically CBT is in a bear market. The oversold bounce from the late June sell-off just failed. Now CBT is breaking down to new multi-year lows. We want to hop on board since the next support level looks like it could be $32 or lower. Tonight we're suggesting a trigger to launch bearish positions at $36.40. We will plan on exiting prior to CBT's earnings report on August 4th.

Trigger @ $36.40

- Suggested Positions -

Short CBT stock @ $36.40

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

Buy the AUG $35 PUT (CBT150821P35) current ask $0.70
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

Closing TPX After Five-Week Run

by James Brown

Click here to email James Brown

Editor's Note:
Our bullish Tempur Sealy (TPX) trade is closed. After a five-week rally shares hit our new stop loss, locking in potential gains. The rest of the Premier Investor play list had a pretty good week.

Current Portfolio:

BULLISH Play Updates

Benefitfocus, Inc. - BNFT - close: 45.05 change: -0.57

Stop Loss: 42.85
Target(s): To Be Determined
Current Gain/Loss: +3.2%
Entry on July 14 at $43.65
Listed on July 13, 2015
Time Frame: Exit PRIOR to earnings in August
Average Daily Volume = 173 thousand
New Positions: see below

07/18/15: BNFT saw some profit taking on Friday but still ended the week with a gain. The MACD indicator on its daily chart has recently produced a new buy signal.

If the market dips on Monday I wouldn't be surprised to see BNFT slip towards the $43.50-44.00 area.

Trade Description: July 13, 2015:
BNFT was founded 15 years ago with a dream to simplify understanding your healthcare benefits. They went public in 2013. Now they're the #1 cloud-based benefits management platform.

The company is considered part of the technology sector, specifically the application software industry. According to the company, "Benefitfocus, Inc. (BNFT) is a leading provider of cloud-based benefits software solutions for consumers, employers, insurance carriers and brokers. Benefitfocus has served more than 25 million consumers on its platform that consists of an integrated portfolio of products and services enabling clients to more efficiently shop, enroll, manage and exchange benefits information. With a user-friendly interface and consumer-centric design, the Benefitfocus Platform provides one place for consumers to access all their benefits. Benefitfocus solutions support the administration of all types of benefits including core medical, dental and other voluntary benefits plans as well as wellness programs."

Revenue growth has been pretty strong. BNFT reported its Q4 results back on February 24th. Earnings were a loss of ($0.39) per share. That was 23 cents better than expected. Revenues were up +32.7% to $40.2 million, which was above estimates. Management raised their Q1 guidance.

On May 6th the company announced its Q1 results, which were a loss of ($0.48) per share. That beat estimates by four cents. Revenues were up +39% from a year ago to $42.7 million, again this was above expectations. This time guidance was a little soft for Q2 and in-line with estimates for 2015.

Shares started to rally in June. That rally accelerated mid June thanks to an analyst upgrade. Now after a -18% correction from its June highs shares of BNFT look poised to run again. A rally from here could spark some short covering. The most recent data listed short interest at 32% of the very small 18.37 million share float. Tonight we are suggesting a trigger to open bullish positions at $43.65. More conservative traders may want to use a trigger at $44.05 instead. Our short-term target is the $50.00 area but we will plan on exiting prior to BNFT's earnings report in mid August (no firm date yet).

- Suggested Positions -

Long BNFT stock @ $43.65

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

Long AUG $45 CALL (BNFT150821C45) entry $2.85

07/16/15 new stop @ 42.85
07/14/15 triggered @ $43.65
Option Format: symbol-year-month-day-call-strike


Burlington Stores, Inc. - BURL - close: 55.81 change: -0.54

Stop Loss: 53.65
Target(s): To Be Determined
Current Gain/Loss: -0.4%
Entry on July 16 at $56.05
Listed on July 15, 2015
Time Frame: Exit PRIOR to earnings in September
Average Daily Volume = 1.6 million
New Positions: see below

07/18/15: BURL delivered a disappointing performance on Friday. The early gains faded and shares settled with a -0.9% decline. Furthermore, Friday's move has created a bearish engulfing candlestick reversal pattern but this needs to see confirmation as a reversal first.

I am not suggesting new positions at the moment.

Trade Description: July 15, 2015:
Investors seem to be in a forgiving mood with BURL. The company's most recent earnings report was a disappointment but the stock has recovered. Now it looks like the longer-term bullish trend is poised to resume.

BURL is in the services sector. According to the company, "The Company, through its wholly-owned subsidiaries, operates a national chain of off-price retail stores offering ladies’, men’s and children’s apparel and accessories, home goods, baby products and coats, principally under the name Burlington Stores."

BURL's Q4 results were pretty good. The company announced these on March 17th. Earnings of $1.43 per share beat estimates and revenues were up +12% to $1.5 billion, also above estimates. Q4 comparable store sales surged +6.7% while gross margins improved 50 basis points. Management did warn that Q1 results would not be so hot but the stock didn't react to the negative guidance.

Shares did react when their chief merchandising officer resigned. This news hit on March 24th and shares of BURL peaked the next day. Shares fell more than 15% with a drop toward round-number support near $50 over the next few weeks. Then BURL reported its Q1 earnings on June 9th. Their bottom line results of $0.41 per share met estimates. Revenues were up +4.9% to $1.18 billion but that missed expectations.

The biggest miss was comps. BURL said their comparable store sales were only +0.8% versus the company's previous guidance of +2-3% and below analysts' estimates of +4%. Management issued mixed guidance for the second quarter and soft guidance for fiscal year 2016. They tried to soften the blow of bad news by announcing a $200 million stock buyback program to be completed over the next 24 months.

Wall Street was not happy over the terrible comps. Analysts are also concerned how a wage hike might impact margins. Wal-Mart, Target, the Gap, and TJX have all raised their minimum wage and other retailers are feeling pressure to raise theirs to retain employees. BURL announced they were raising their minimum wage to at least $9.00 an hour.

BURL's CEO Tom Kingsbury commented on their results, "We are pleased with our 64% increase in adjusted EPS which was driven by a robust gross margin expansion. While our comp sales were positive for the ninth consecutive quarter, we were negatively impacted by the timing of IRS tax refunds, lower markdown sales due to significantly less markdown inventory, increased store closures due to weather, and receipt flow issues in three key Easter businesses."

Naturally the market's reaction to bad news was to sell the stock. BURL plunged more than -8% posting its worst one-day loss since going public in 2013.

Fortunately for investors the sell-off was short-lived. BURL found support near $48.00 and its rising 200-dma. Now six weeks later the stock is above its pre-earnings highs and poised to breakout past potential resistance near $56.00. The long-term up trend looks poised to resume. Tonight we're suggesting a trigger to launch bullish positions at $56.05.

- Suggested Positions -

Long BURL stock @ $56.05

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

Long SEP $60 CALL (BURL150918C60) entry $1.30
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.

07/16/15 triggered @ $56.05
Option Format: symbol-year-month-day-call-strike


Chimerix, Inc. - CMRX - close: 53.20 change: +3.69

Stop Loss: 51.85
Target(s): To Be Determined
Current Gain/Loss: +15.3%
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

07/18/15: CMRX had been steadily marching higher last week. Then on Friday it surged +7.45% to new all-time highs. I don't see any specific news behind the rally but biotech stocks were showing some relative strength.

I would seriously consider taking some money off the table right here. However, CMRX closed near its highs for the day and we suspect the rally isn't over yet. We are raising the stop loss to $51.85. More conservative traders might want to just exit now.

No new positions at this time.

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

07/18/15 new stop @ 51.85
07/16/15 new stop @ 47.65
07/14/15 new stop @ 45.25
07/11/15 new stop @ 43.75
06/26/15 triggered @ $46.15
Option Format: symbol-year-month-day-call-strike


Luxoft Holding, Inc. - LXFT - close: 62.68 change: +0.68

Stop Loss: 59.75
Target(s): To Be Determined
Current Gain/Loss: +0.6%
Entry on July 17 at $62.31
Listed on July 16, 2015
Time Frame: Exit PRIOR to earnings on August 12th
Average Daily Volume = 215 thousand
New Positions: see below

07/18/15: Our new trade on LXFT is open. The stock continued to bounce on Friday and displayed relative strength with a +1.0% gain. Our trigger to launch positions would have been hit at $62.15 but shares actually gapped higher a couple of minutes after the opening bell. Our trade opened at $62.31.

I would still consider new positions now or more conservative traders may want to wait for a rally past last week's high at $63.00 before initiating positions.

Trade Description: July 16, 2015:
Software stocks, based on the big software ETFs, are outperforming the major indices. One stock in that group is LXFT. The NASDAQ is up +8.3% year to date while LXFT is up +60%.

LXFT is part of the application software industry. According to the company, "Luxoft Holding, Inc. is a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large multinational corporations. Luxoft's software development services consist of core and mission critical custom software development and support, product engineering and testing, and technology consulting. Luxoft's solutions are based on its proprietary products and platforms that directly impact its clients' business outcomes and efficiently deliver continuous innovation. The Company develops its solutions and delivers its services from 24 dedicated delivery centers worldwide. It has over 9,500 employees across 27 offices in 15 countries in North America, Mexico, Western and Eastern Europe, Asia Pacific, and South Africa."

Please note that LXFT is a subsidiary of IBS Group Holding Limited. IBS is a Russian information technology company. Thus far the sanctions from the U.S. and Europe do not seem to be impacting LXFT. However, should the situation get worse between Russia and its neighbors there is no guarantee that LXFT will continue to ignore it.

Earnings and sales growth have been impressive at LXFT. Looking at the last four quarterly reports, LXFT has beaten earnings estimates three out of the last four quarters. They did beat Wall Street revenues estimate four quarters in a row. Revenue growth has been consistently in the +30% range this past year.

LXFT's most recent report was May 13th. The company delivered their 2015 Q4 results with earnings up +27.7% from a year ago to $0.46 per share. This was the first earnings miss in a long time. Analysts were expecting $0.49. Revenues were up +29.2% to $137.3 million, above estimates. Management reported full year sales of $520.5 million in their fiscal 2015. They're forecasting 2016 sales to be $625 million. That's a +20% improvement (actually +26% on a constant currency basis).

The stock's recent breakout past $60.00 is bullish. Traders just bought the dip at $60.00 today and the bounce looks like an entry point. We want to see a little follow through higher before we hop on board. Tonight we're suggesting a trigger to buy the stock at $62.15.

NOTE: LXFT does not trade a lot of volume. Investors may want to limit their position size to reduce risk. Low volume stocks can be more volatile.

*small positions to limit risk* - Suggested Positions -

Long LXFT stock @ $62.31

07/17/15 triggered on an intraday gap higher at $62.31.
Option Format: symbol-year-month-day-call-strike


Mobileye N.V. - MBLY - close: 61.07 change: +0.69

Stop Loss: 57.75
Target(s): To Be Determined
Current Gain/Loss: +8.1%
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

07/18/15: It's not very often we see a stock rally seven days in a row but MBLY just managed it with Friday's +1.1% gain. The stock has also broken past potential resistance at $60.00 and past its 2014 highs. While this is a bullish move I do not think $60 will act as support yet.

MBLY is short-term overbought here and due for a dip. We can look for potential support at the 10-dma (currently near $57.85.).

More conservative traders may want to take profits now. MBLY is up six weeks in a row.

No new positions.

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

07/16/15 new stop @ 57.75, readers may want to take some money off the table right here.
07/14/15 new stop @ 55.85
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: 53.51 change: +0.19

Stop Loss: 50.85
Target(s): To Be Determined
Current Gain/Loss: +10.9%
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

07/18/15: NBIX has spent the last three days consolidating sideways in the $52-54 range. The stock looks poised to breakout higher. I'm not suggesting new positions here but more aggressive traders could use a rally past $54.00 as a new entry point.

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

07/16/15 new stop @ 50.85
07/14/15 new stop @ 47.40
07/01/15 triggered on gap open at $48.27
Option Format: symbol-year-month-day-call-strike


Spirit AeroSystems - SPR - close: 55.78 change: -0.16

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: -1.2%
Entry on June 22 at $56.44
Listed on June 18, 2015
Time Frame: Exit PRIOR to earnings on July 29th
Average Daily Volume = 1.2 million
New Positions: see below

07/18/15: The bounce in SPR seems to have stalled under the $56.00 level. We don't have much time left for this trade with SPR's earnings coming up on July 29th. More conservative traders may want to just abandon ship. SPR has not performed very well the last few weeks.

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

07/16/15 new stop @ 54.75
06/22/15 triggered on gap open at $56.44
Option Format: symbol-year-month-day-call-strike


BEARISH Play Updates

Continental Resources, Inc. - CLR - close: 36.83 change: -0.10

Stop Loss: 39.25
Target(s): To Be Determined
Current Gain/Loss: +15.8%
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

07/18/15: Friday was a quiet session for shares of CLR. The stock closed almost unchanged. The recent sideways consolidation has a bearish bias with a trend of lower highs following technical resistance at its 10-dma. This pattern should produce a bearish breakdown under short-term support in the $36.00-36.50 area soon.

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

07/16/15 new stop @ 39.25
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: 37.49 change: -1.24

Stop Loss: 40.85
Target(s): To Be Determined
Current Gain/Loss: +8.9%
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

07/18/15: Crude oil was weak again on Friday. This drug the energy stocks lower and MUR's decline accelerated.

I would not chase it at current levels. No 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

07/16/15 new stop @ 40.85
07/14/15 new stop @ 41.55
07/06/15 new stop @ 42.35
07/01/15 triggered @ $41.15
Option Format: symbol-year-month-day-call-strike


Noble Energy, Inc. - NBL - close: 38.34 change: -0.04

Stop Loss: 40.15
Target(s): To Be Determined
Current Gain/Loss: +0.7%
Entry on July 13 at $38.60
Listed on July 11, 2015
Time Frame: Exit PRIOR to earnings on August 3rd
Average Daily Volume = 4.2 million
New Positions: see below

07/18/15: NBL bounced off its Friday morning lows but the rebound failed twice in the $38.85 area. New decline under $38.00 could be used as a bearish entry point.

Trade Description: July 11, 2015:
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.

- Suggested Positions -

Short NBL stock @ $38.60

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

Long AUG $37.50 PUT (NBL150821P37.5) entry $1.40

07/16/15 new stop @ 40.15
07/13/15 triggered @ $38.60
Option Format: symbol-year-month-day-call-strike


Tessera Technologies - TSRA - close: 35.49 change: -0.03

Stop Loss: 37.65
Target(s): To Be Determined
Current Gain/Loss: -0.3%
Entry on July 16 at $35.40
Listed on July 09, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 518 thousand
New Positions: see below

07/18/15: I am suggesting caution on our TSRA trade. The downward momentum seems to be slowing the last couple of days with shares bouncing off their intraday lows. Let's give TSRA another day or two before considering new bearish positions.

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.

*small positions to limit risk* - Suggested Positions -

Short TSRA stock @ $35.40

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

Long Aug $35 PUT (TSRA150821P35) entry $1.20

07/16/15 triggered @ $35.40
Option Format: symbol-year-month-day-call-strike



Tempur Sealy Intl. - TPX - close: 69.97 change: -1.20

Stop Loss: 69.40
Target(s): To Be Determined
Current Gain/Loss: +9.9%
Entry on June 10 at $63.15
Listed on June 08, 2015
Time Frame: exit PRIOR to earnings on July 23rd
Average Daily Volume = 890 thousand
New Positions: see below

07/18/15: We knew TPX would see some profit taking eventually. That's why we kept raising the stop loss. Shares dipped to short-term technical support at its 10-dma before paring its losses. Our stop was hit at $69.40.

- Suggested Positions -

Long TPX stock @ $63.15 exit $69.40 (+9.9%)

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

SEP $65 CALL (TPX150918C65) entry $3.50 exit $6.30 (+80.0%)

07/17/15 stopped out
07/16/15 new stop @ 69.40
07/14/15 new stop @ 67.85
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