Option Investor

Daily Newsletter, Wednesday, 7/22/2015

Table of Contents

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

Market Wrap

Apple Hangover

by Jim Brown

Click here to email Jim Brown

Apple's earnings were yesterday but the resulting market decline was a serious hangover. Not only did Apple decline but also all of the stocks that feed into the Apple ecosystem tanked knocking nearly -3% off the semiconductor index.

Market Statistics

Apple shares recovered quickly from their $122 opening low and traded in the $125 range the rest of the day. It is amazing that a company with $202 billion in cash that sold a record number of iPhones could decline so strongly and impact the entire tech sector.

Analysts were flooding the wires today with their forecasts and while most were still bullish on Apple they were not recommending investors buy the dip. The weak watch sales as implied by the small gain in the "other" revenue category was causing analysts to rethink full year revenue. The strong iPhone sales in Q1/Q2 were also causing analysts to wonder if the 6s refresh cycle in September would be as strong as in prior years. Apparently, the iPhone 6 is so good and so popular that sales may have been pulled forward from later quarters. Apple's performance in the current quarter is being questioned despite full year earnings estimates remaining in place. When a stock outperforms every quarter everyone begins to speculate on when the outperformance will end.

Apple shares lost -$6 in regular trading but remain well above the 200-day average at $120. That appears to be the level where everyone would like to be a buyer.

On the economic front existing home sales hit a post recession high at 5.49 million homes on an annualized basis. This was a +3.2% rise from the revised May totals and +9.6% higher than June 2014. All four regions showed good gains with the Midwest rising _4.7%, Northeast +4.3%, West +2.5% and South +2.3%. Single-family home sales rose +2.8% from May and multifamily sales rose +6.6%. There are 2.3 million homes on the market, which equates to about a five-month supply. Sales are still well below the June 2005 peak of 7.35 million. This report did not move the market.

There are two Fed reports due out on Thursday and neither is expected to move the market. The FOMC meeting next week is the next market hurdle.

It was another big day for earnings and a lot of big moves. Illumina (ILMN) reported earnings of 80 cents that beat estimates for 78 cents. However, revenue of $539.4 million missed estimates of $542.6 million. This was the first time in nearly 6 years that Illumina failed to beat the consensus estimates. It was also the third consecutive quarter that sales growth declined. Shares fell -8% on the news.

Boeing (BA) reported adjusted earnings of $1.62 that beat estimates for $1.37. The company took a charge of 77 cents per share ($536 million) on a military tanker contract. This caused them to lower full year estimates by 50 cents to $7.70-$7.90 per share. Revenue rose +11% to $24.54 billion as it delivered a record 197 planes. Boeing shares rose slightly on the news.

American Express (AXP) reported earnings that declined -5% to $1.52 per share. This beat estimates for $1.33 but revenue of $8.28 billion missed forecasts. The strong dollar caused about a 5% decline in overseas revenues. U.S. card holders spent $181.6 billion, up +5% while international spending fell -5% to $80.4 billion. Shares declined -$2 to $77.40 in the extended session. That will impact the Dow at the open on Thursday.

Qualcomm (QCOM) reported earnings of 99 cents that beat estimates for 95 cents. Revenue of $5.8 billion declined by -14% and missed estimates for $5.84 billion. The bad news came from the guidance. The company projected current quarter earnings of 75-95 cents on revenue of $4.7-5.7 billion. Analysts were expecting $1.08 on revenue of $6.13 billion. Qualcomm said they were going to cut annual costs by $1.1 billion and reduce the workforce by 15% from the 31,300 currently employed. Shares declined -$2 in afterhours.

The company said it had signed a standstill agreement with Jana Partners while it evaluates Jana's proposed split of the company into two components. Qualcomm recently announced a $10 billion buyback.

Sandisk (SNDK) shares rallied +$7 in the extended session after reporting earnings of 66 cents that blew away estimates for 34 cents. Revenue of $1.24 billion also beat estimates for $1.2 billion. The company recently announced some new products or datacenters that improve performance and reduce the need for additional servers. The company also announced a 30-cent dividend. They had $1.76 billion in cash at the end of the quarter.

Las Vegas Sands (LVS) reported earnings of 60 cents that declined -30% and missed estimates by a penny. Revenue of $2.92 billion missed estimates for $2.96 billion. Shares rose +$2 in afterhours trading on hopes for a rebound in Macau activity. Revenue at the Sands China fell -26% to $1.77 billion. However, China just relaxed the rules for visas to let gamblers visit more often. Macau is also relaxing the no smoking rules that have also limited time at the tables for heavy smokers.

Dow component Caterpillar (CAT) declined -$2.50 after posting an 8K that said global sales fell -14% in Q2 after a -12% decline in Q1. Earnings are due out on Thursday and analysts are expecting earnings of $1.26 on revenue of $12.67 billion. With commodities falling like a rock I would not expect that sales of earth moving equipment are moving higher in the near future.

Earnings highlights for Thursday include Dow components CAT, MMM, MCD, V and GM. Amazon will be the big news after the bell.

LifeLock (LOCK) was crushed for a 50% loss on Tuesday on an FTC headline about false advertising. In 2010 the company paid a $12 million fine for false advertising. The FTC is now back on the case claiming the company is violating their 2010 settlement agreement for the exact same reasons. According to the FTC the company failed to "protect its users sensitive and personal data, including credit card, social security and bank account numbers." Shares rebounded +9% but that was only 75 cents after the big haircut on Tuesday. The company said it disagreed with the FTC claims and would fight them in court.

Crude oil declined to $49.04 intraday and closed at $49.20 after inventories rose +2.5 million barrels when analysts were expecting a -1.8 million barrel decline. U.S production at 9.558 million barrels per day (Mbpd) remains very close to the 40-year high at 9.61 mbpd set on June 5th. Production is not declining as analysts expected. On the positive side gasoline prices are going to continue to decline.

Crude imports averaged 7.941 mbpd and a three-month high. That suggests the glut is increasing.

Baker Hughes (BHI) dropped nearly $10 intraday after Bloomberg broke a story saying there were antitrust concerns with the BHI/Halliburton merger. Reportedly, Justice Dept officials are worried that the combination of the 2nd and 3rd largest companies would reduce competition and raise prices in the space. Halliburton has proposed selling some assets to reduce concerns but government officials do not seem to be convinced the plan would work. The companies are expecting a cost savings of $2 billion after the merger. If the merger fails, Halliburton will have to pay 10% of the $34.6 billion transaction value as a breakup fee. That is a significant incentive to make it work.

Caesars Entertainment (CZR) may be forced into bankruptcy after a judge said the company must face lawsuits over handling of debts over the last several years. The operating company is already in bankruptcy but the public parent is not. Creditors are claiming that Caesars put too much debt and too few assets into the operating company in an effort to avoid bankruptcy of the parent. By not adequately funding the operating company and allowing it to go through bankruptcy Caesars hoped to extinguish a large portion of the $31 billion in debt it took on just prior to the recession in a monster leveraged buyout. Caesar's shares fell -59% intraday.


The markets performed about like you would have expected given the Apple and Microsoft earnings on Tuesday. The Dow lost 68 points after being down triple digits intraday. The S&P found rock solid support at 2110 with two intraday tests at the open and the close.

This is very encouraging. This suggests the decline may be over unless some new headline appears to knock the markets lower. If that were the case, the -20 point decline in the S&P would only be about a -1% drop. That is hardly material for two days of losses on some serious post earnings declines.

Volume was higher at 6.83 billion shares and declining volume was 2:1 over advancing volume. Actual declining stocks were 4:3 over advancers.

Resistance remains 2130 and support is 2110, 2100, 2080 and 2040.

The Dow was the major beneficiary of the negative earnings news. Apple was the biggest decliner but the news on Caterpillar as well as some continued weakness from previously reported stocks combined to knock the Dow for a 68 point loss to 17,851. The intraday low at just over support at 17,800 was bought and that suggests the buyers are looking for an entry point. Resistance is still 18,100 or 250 points above the close.

Assuming one of the Dow components reporting on Thursday does not announce a major earnings miss that causes a $5 drop or more it would appear the worst is over. As long as the Dow can hold above 17,750-17,800 the bulls should gain some conviction.

The Nasdaq only lost -35 points after being down -60 intraday. Support at 5150 held on the opening drop and buyers nibbled at tech stocks all day. I view this as a win since the bad earnings news could have turned sentiment negative. That did not occur and there were a lot more big winners than sinners on the top 25 list below.

If the Nasdaq can continue to hold over 5150 it could build a base at that level that could lead to new highs as long as the earnings parade does not take a wrong turn. It would be hard to look at the Nasdaq chart and create a bearish bias.

Resistance remains 5230 with support 5150-5160.

In a surprising change of events, the Russell 2000 actually posted a gain today. At +4 points, it was not big but given the declines in the other indexes, it was remarkable. This suggests investors are starting to rotate out of the big caps and back into small caps. However, when markets tank the stocks that had been out of favor tend to be bought first. With the Russell out of favor for the last week those stocks may have simply looked like bargains.

I am encouraged by the lack of a material decline today. However, while earnings started out better than expected they are rapidly deteriorating. The earnings per share metric is holding its own with some decent beats but almost every company has missed on revenue. The strong dollar and weak economies are causing some substantial revenue misses.

The beats on earnings could be a result of the large share buybacks in 2015. S&P reported that more than 25% of the S&P has reduced their outstanding shares by more than 4% in 2015. Fewer outstanding shares means higher earnings per share.

After the earnings reports on Thursday we will know how the cycle should turn out. The biggest blue chip companies will have reported and those to follow will have smaller businesses but they will not have as much strong dollar impact.

When the tracking companies report the earnings breakdown on Friday it may not be in glowing terms but it should still be positive. The market acts like it wants to go higher. There was a huge opportunity to really tank over the last couple of days and it did not happen. We did see declines but they were muted. This could be a signal that investors are ready to buy the dip again.

The FOMC meeting next week is the next major hurdle. Nobody expects a rate hike but we can never say never. What the Fed says about September will be the key.

Keene will be back on Thursday.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Not For The Faint Of Heart

by James Brown

Click here to email James Brown


21Vianet Group, Inc. - VNET - close: 20.48 change: +0.16

Stop Loss: 18.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 22, 2015
Time Frame: Exit PRIOR to earnings on August 25th
Average Daily Volume = 996 thousand
New Positions: Yes, see below

Company Description

Trade Description:
Buckle your seatbelt. We are adding a fast-moving Chinese Internet stock to the play list tonight. This trade is not for the faint of heart. The Chinese market has been very volatile in recent weeks. This has been exacerbated by merger and acquisition news.

VNET is in the technology sector. According to the company, "21Vianet Group, Inc. is a leading carrier-neutral internet data center services provider in China. 21Vianet provides hosting and related services, managed network services, cloud services, content delivery network services, last-mile wired broadband services and business VPN services, improving the reliability, security and speed of its customers' internet infrastructure. Customers may locate their servers and networking equipment in 21Vianet's data centers and connect to China's internet backbone through 21Vianet's extensive fiber optic network. In addition, 21Vianet's proprietary smart routing technology enables customers' data to be delivered across the internet in a faster and more reliable manner. 21Vianet operates in more than 30 cities throughout China, servicing a diversified and loyal base of more than 2,000 customers that span numerous industries ranging from internet companies to government entities and blue-chip enterprises to small- to mid-sized enterprises."

The Wall Street Journal recently noted in June that seven U.S.-listed Chinese companies had been approached with offers to go private. That's a big spike in buyout offers. From January through May this year there had only been five such offers. One of the companies recently approached is VNET.

On June 10th VNET was approached with a preliminary non-binding proposal by Kingsoft Corp. and Tsinghua Unigroup International to go private for $23.00 per American depositary share ("ADSs"). That's the stock we can trade on the NASDAQ. Naturally the stock surged on this announcement. On June 16th VNET announced they had formed a special committee to review this proposal.

Unfortunately for shares of VNET and most Chinese stocks the Shanghai market in China had peaked in mid June and began to crash. The next three weeks saw a -30% plunge in the Shanghai market. The sell-off really accelerated in the first week of July. We can see the impact this market plunge was having on VNET with the big declines in early July.

Shares of VNET produced a huge bounce on July 9th when they announced the company had hired financial advisors and legal counsel to help them review the proposal to go private. In their press release they warned investors that "no decision has been made" nor is there any assurance that any "definitive offer will be made". This warning didn't stop the rally in VNET's stock which has continued to rise.

The Chinese government has thrown billions of dollars at their market to stop the crash and it seems to be working. The fever seems to have broken and this should provide a less dangerous environment for shares of VNET to trade in. We suspect VNET will continue to rally as the M&A talk heats up. However, this is an aggressive, higher-risk trade. There is no guarantee of a deal. Shares of VNET are clearly very volatile. I suggest small positions to limit risk.

NOTE: VNET does have options but the spreads are too wide to trade them.

Trigger @ $20.75 *small positions to limit risk*

- Suggested Positions -

Buy VNET stock @ $20.75

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.

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

No Follow Through Lower

by James Brown

Click here to email James Brown

Editor's Note:
The stock market looked poised for big declines this morning. Most of the market gapped down at the open but there wasn't much follow through. Traders started buying the dip.

It was generally a good day. Most of our bullish trades went up and most of our bearish trades went down.

Current Portfolio:

BULLISH Play Updates

Benefitfocus, Inc. - BNFT - close: 44.15 change: -1.25

Stop Loss: 42.85
Target(s): To Be Determined
Current Gain/Loss: +1.1%
Entry on July 14 at $43.65
Listed on July 13, 2015
Time Frame: Exit PRIOR to earnings on August 3rd
Average Daily Volume = 173 thousand
New Positions: see below

07/22/15: Ouch! BNFT underperformed the broader market today. The stock fell to $42.96 at is worst levels but bounced midday to close with a -2.75% decline.

No new positions at this time.

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: 56.75 change: +1.55

Stop Loss: 53.65
Target(s): To Be Determined
Current Gain/Loss: +1.2%
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

07/22/15: BURL ignored the market's widespread declines. Shares rallied instead and erased the last three day's worth of losses with a +2.8% gain today.

More conservative traders may want to raise their stop loss.

I am not suggesting new positions at this time.

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

Coherus Biosciences - CHRS - close: 37.46 change: +0.38

Stop Loss: 34.40
Target(s): To Be Determined
Current Gain/Loss: -0.1%
Entry on July 21 at $37.50
Listed on July 20, 2015
Time Frame: Exit PRIOR to earnings in early August
Average Daily Volume = 327 thousand
New Positions: see below

07/22/15: CHRS also displayed some relative strength today with a +1.0% gain. The stock tagged new all-time highs midday. I would consider new positions at current levels.

Trade Description: July 20, 2015:
Biotech stocks remain some of the best performers this year. The IBB biotech ETF is up +31% year to date. That compares to +10% for the NASDAQ composite and +3.4% for the S&P 500 index. CHRS is outperforming these indices and ETF by a wide margin with a +127.8% gain year to date.

CHRS is in the healthcare sector. According to the company, "Coherus is a pure-play biosimilar platform company that develops and commercializes high-quality therapeutics for major regulated markets. Biosimilars are intended for use in place of existing, branded biologics to treat a range of chronic and often life-threatening diseases, with the potential to reduce costs and expand patient access. Composed of a team of proven industry veterans with world-class expertise in process science, analytical characterization, protein production and clinical-regulatory development, Coherus is positioned as a leader in the global biosimilar marketplace. Coherus is advancing three late-stage clinical products towards commercialization, CHS-1701 (pegfilgrastim biosimilar), CHS-0214 (etanercept biosimilar) and CHS-1420 (adalimumab biosimilar), as well as developing a robust pipeline of future products."

I see this as a simple momentum play in one of the market's best-performing industries. CHRS is up seven weeks in a row and is not showing any signs of slowing down. The $35.00 level was briefly overhead resistance but now it seems to be support. Traders were quick to buy the dip this morning near CHRS' rising 5-dma.

I consider this an aggressive, higher-risk trade. We're suggesting a trigger to launch bullish positions at $37.50. We'll try and limit our risk with a stop at $34.40. More conservative traders may want to use a higher stop loss. Just remember that biotech stocks carry an added risk. We never know when the wrong headline could send shares gapping lower. Of course the right headline could send it soaring.

FYI: Earnings should be coming up in early August and we'll plan on exiting prior to the announcement. CHRS does have options but the spreads were a little wide. If you're an option trader you may want to use them to limit your risk.

- Suggested Positions -

Long CHRS stock @ $37.50

07/21/15 triggered @ $37.50

Guidewire Software, Inc. - GWRE - close: 57.48 change: +0.07

Stop Loss: 54.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 21, 2015
Time Frame: Exit PRIOR to earnings on Sept. 1st
Average Daily Volume = 368 thousand
New Positions: Yes, see below

07/22/15: GWRE's afternoon rally failed to breakout past its recent highs. There is no change from last night's new play description. Our suggested entry point is $58.25.

Trade Description: July 21, 2015:
The NASDAQ composite is up +10% year to date. GWRE is outperforming with a +13.3% gain. Shares spent three months, March-May, consolidating lower after the rally failed at resistance near $55.00. GWRE's direction changed after its latest earnings report.

GWRE is in the technology sector. According to the company, "Guidewire builds software products that help Property/Casualty insurers replace their legacy core systems and transform their business. Designed to be flexible and scalable, Guidewire products enable insurers to deliver excellent service, increase market share and lower operating costs. Guidewire InsuranceSuite provides the core systems used by insurers as operational systems of record. Additional products provide support for data management, business intelligence, anytime/anywhere access and guidance and monitoring. More than 180 Property/Casualty insurers around the world have selected Guidewire."

Last December GWRE reported its fiscal Q1 results that beat Wall Street estimates on both the top and bottom line. Management raised their Q2 guidance. On March 2nd GWRE reported earnings and revenues that beat analysts' estimates again. GWRE management then raised their fiscal year 2015 estimates. This earnings beat was not enough to lift the stock higher. Shares drifted lower for three months.

Shares of GWRE came alive again following its Q3 report on June 2nd. Earnings actually missed estimates by a penny with a profit of $0.04 per share. Revenues were only up +4% to $85.4 million, although that did beat expectations. The company provided lackluster Q4 guidance but guided for +20% revenue growth in fiscal 2016. The stock soared.

The rally off its June lows has pushed GWRE through multiple layers of resistance. Now the stock is setting new all-time closing highs. The point & figure chart is bullish and forecasting a long-term target of $80.00.

On a very short-term basis the $58.00 level appears to be resistance. We are suggesting a trigger to launch bullish positions at $58.25.

Trigger @ $58.25

- Suggested Positions -

Buy GWRE stock @ $58.25

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

Buy the OCT $60 CALL (GWRE151016C60)

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

Luxoft Holding, Inc. - LXFT - close: 62.00 change: -0.14

Stop Loss: 59.75
Target(s): To Be Determined
Current Gain/Loss: -0.5%
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

07/22/15: LXFT quietly consolidating sideways and traded within a $1.20 range for the day.

Depending on your trading style you could wait for a breakout past $63.00 or a dip near support at $60.00 as potential entry points.

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: 60.66 change: +0.09

Stop Loss: 59.45
Target(s): To Be Determined
Current Gain/Loss: +7.4%
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

07/22/15: Most of the market spiked lower this morning, especially technology stocks. MBLY almost hit our stop loss but managed to bounce at $59.55. Our stop is at $59.45.

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

07/21/15 new stop @ 59.45
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

BEARISH Play Updates

Cabot Corp. - CBT - close: 35.73 change: -0.39

Stop Loss: 36.85
Target(s): To Be Determined
Current Gain/Loss: +1.8%
Entry on July 20 at $36.40
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 4th
Average Daily Volume = 457 thousand
New Positions: see below

07/22/15: CBT continues to sink and lost another -1.0%. Tonight we are adjusting the stop loss down to $36.85. I would still consider new bearish positions at current levels.

Trade Description: July 18, 2015:
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.

- Suggested Positions -

Short CBT stock @ $36.40

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

Long AUG $35 PUT (CBT150821P35) entry $0.75

07/22/15 new stop @ 36.85
07/20/15 triggered @ $36.40
Option Format: symbol-year-month-day-call-strike

Continental Resources, Inc. - CLR - close: 35.13 change: -0.46

Stop Loss: 37.75
Target(s): To Be Determined
Current Gain/Loss: +19.7%
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

07/22/15: CLR fell -1.29% and closed at new six-month lows. More conservative traders may want to move their stop loss closer to technical resistance at its 10-dma (currently near $36.85).

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

07/20/15 new stop @ 37.75
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: 34.64 change: -0.82

Stop Loss: 36.85
Target(s): To Be Determined
Current Gain/Loss: +15.8%
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

07/22/15: MUR is the gift that keeps on giving with shares down another -2.3%. The stock was upgraded this morning to a "neutral" but that failed to stop the sell-off. MUR is now down six days in a row. Eventually the stock will bounce.

Tonight we are moving the stop loss down to $36.85. Our put option has surged more than +323% and I suggest option traders take some money off the table.

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

07/22/15 new stop @ 36.85
07/21/15 new stop @ 37.65
07/20/15 new stop @ 38.25
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: 36.90 change: +0.05

Stop Loss: 39.05
Target(s): To Be Determined
Current Gain/Loss: +4.4%
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

07/22/15: NBL slipped to new lows intraday but managed to recover by the closing bell. If NBL bounces the nearest resistance is probably the simple 10-dma near $38.30.

No new positions at this time.

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

07/20/15 new stop @ 39.05
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: 35.03 change: -0.32

Stop Loss: 36.65
Target(s): To Be Determined
Current Gain/Loss: +1.0%
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

07/22/15: TSRA also fell to new relative lows before bouncing midday. Shares settled with a -0.9% decline on the session. I am not suggesting new positions at this time.

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

07/20/15 new stop @ $36.65
07/16/15 triggered @ $35.40
Option Format: symbol-year-month-day-call-strike