Option Investor

Daily Newsletter, Tuesday, 7/28/2015

Table of Contents

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

Market Wrap

Fed Short Squeeze

by Jim Brown

Click here to email Jim Brown

After five consecutive days of declines, the sellers finally relented and began to cover ahead of the FOMC announcement on Wednesday. Recent history has seen the market rally around a Yellen controlled Fed meeting and the market was very oversold. That was a recipe for a short squeeze.

Market Statistics

The pace of buying was gradual and it was not a typical "gap and flat" where the Dow opens up 150 points and then holds that level the rest of the day. I think there were quite a few traders that were not convinced there would be a pre Fed rally this time. However, once the initial bounce was sold at 10:AM and there was not a big decline the buying accelerated gradually until about 2:30 when the bids began to evaporate.

The market also breathed a sigh of relief when several companies had positive earnings before the open. UPS reported earnings of $1.35 that beat estimates for $1.26. However, revenue of $14.1 billion did miss estimates for $14.5 billion. Investors gave UPS a pass since revenue took a -6.4% hit due to the strong dollar. In constant currency terms that meant revenue was closer to $15 billion. International revenue growth rose +17.2% and supply chain and freight revenue rose +17.6%.

The company reiterated full year guidance in the range of $5.05-$5.30 with EPS growth at the higher end of the range. Operating income in the U.S. for the first half is up +6.3% while revenue rose only +2.7%. This was due to a change in the pricing structure that eliminated some of the excessively large packages and charged more for those that were shipped. Shares spiked 5% on the news.

The positive earnings from UPS and others helped fuel the positive sentiment at the open. Unexpectedly decent economics also lifted spirits. The Richmond Fed Manufacturing Survey for July rose from the previously reported 6.0 to 12.6 and the highest level since August and the biggest monthly gain in more than a year. June was revised higher from 6.0 to 7.5. As you can see in the graphic below, the individual components have been steadily improving. The exception is the employment component which is slowly declining.

The separate Services survey rose from 19 to a very strong 32. That is the highest level since my data capture began in September 2012. However, the retail component fell from -4 to -22. The six-month outlook for retail fell from -9 to -36. Shopper traffic fell from +15 to -25 and the big-ticket sales component fell from +27 to -25. Those are some seriously negative numbers in the outlook. Let us hope they do not come to pass.

The Texas Service Sector Outlook Survey rose slightly from 4.1 to 7.9. The internal components were mixed and I will not bore you with the details. This survey is normally ignored.

On the negative side, the Consumer Confidence for July imploded. Confidence declined from 101.4 to 90.9 compared to analyst estimates for 100.5. That is a ten-month low. The present conditions component declined from 110.3 to 107.4 but the big damage came in the expectations component. That dropped from 92.8 to a 17-month low of 79.9. Respondents saw a worsening job market and expectations for pay raises declined.

Those planning on buying a vehicle fell from 13.1% to a ten-month low of 10.8%. Potential appliance purchasers rose from 47.4% to 52.2% and homebuyers rose slightly from 5.6% to 5.9%.

It is not a good sign for the economy for consumer confidence to be falling so dramatically. Worried consumers do not spend money.

The big hurdle on Wednesday is of course the FOMC announcement at 2:PM. Two-thirds of analysts polled still believe the first rate hike will be in September with one-third expecting December. There are a few stragglers looking for October and January but the bulk are Sept/Dec.

The slowdown in China will be a concern but it will be offset by the fact that Greece is not being allowed to sink into the ocean. The crisis in Europe is being resolved by the Troika but long term they are just kicking the can down the road again. It is the short term the Fed is worried about and they can check Greece off their list of problem areas.

With earnings coming in mixed for Q2 and economics improving slightly the Fed will probably continue to say a future rate hike in 2015 will be appropriate. Since the September meeting on the 16th is only six-weeks away, investors are likely to begin worrying as soon as the July meeting is over. Couple that with August/September being the worst months for the market the July announcement may be the starter's gun for portfolio rebalancing.

The last update on the Q2 GDP on Thursday should not be a problem as long as the number is close to the 2.6% growth expectations. This is the last revision and sometimes they are volatile.

Reynolds American (RAI) announced a 2:1 split with earnings. The split date is a long way off on August 31st. UnderArmor has not yet announced their split date. We are waiting for board approval.

Honeywell (HON) agreed to buy the Elster unit from Melrose Industries for $5.1 billion. Elster is a maker of gas, electric and water meters. The Honeywell CEO, Dave Cote, had said his goal was $10 billion in acquisitions by 2018. He is now halfway there.

Cote said he wanted to spend the company's cash hoard on acquisitions to expand the company's business rather than on dividends and buybacks. The company reaffirmed their 2015 forecasts and said the deal will close in Q1-2016. Elster employs 6,800 people. The transaction is the largest since Honeywell was acquired by Allied Signal in 1999 for $16.1 billion. Shares rose +2.50 on the news.

Anadarko (APC) continued the recent trend of energy companies beating drastically lower estimates. Anadarko posted adjusted profits of a penny but that was well above analyst estimates for a loss of 53 cents. Revenue of $2.64 billion also beat estimates for $2.57 billion. Production volumes of 846,000 Boepd were flat with the comparison quarter but 18,000 Boepd higher than guidance because operating improvements boosted margins and allowed the company to drill more than 100 new wells so far in 2015.

BP Plc (BP) reported adjusted earnings of 43 cents compared to estimates for 49 cents. Revenue of $61.8 billion easily beat estimates for $54 billion but was drastically lower than the $94 billion in the comparison quarter. The CEO said oil prices could fall even further based on their view of the market. He said "I am confident that positioning BP for a period of weaker oil prices is the right course to take."

Events in Libya forced a $600 million write down. Also included was a previously reported $6.1 billion charge for the Gulf oil spill. Total charges for that spill are up to $54 billion. BP has finally settled with all the state, local and federal governments relating to fines and penalties for that spill. Capex spending declined -20% to $4.7 billion in Q2. The company is forecasting $20 billion for all of 2015, down from $24 billion in 2014.

Merck (MRK) reported earnings of 86 cents that beat estimates for 81 cents. Revenue of $9.79 billion declined -11% and was only slightly below estimates for $9.81 billion. Currency issues deducted 7% from the revenue numbers. The company raised its full year guidance from $3.35-$3.48 to $3.45-$3.55. Shares initially declined but rebounded slightly on the raised guidance.

Pfizer (PFE) reported adjusted earnings of 56 cents and beat estimates by 4 cents. Revenue of $11.85 billion beat estimates for $11.42 billion even after a $1 billion hit because of the strong dollar. Pfizer raised full year guidance from $1.95-$2.05 to $2.01-$2.07. Sales of cancer drugs rose +25% for the quarter to $713 million. Sales of Lipitor still totaled $509 million for the quarter to put it at a run rate of about $2 billion for the year. At its peak Lipitor sales reached $13 billion in annual sales.

After the bell the fireworks began to fly. Twitter (TWTR) posted earnings of 7 cents that beat estimates for 4 cents. Revenue of $502 million beat estimates of $481 million. Monthly active users (MAU) rose from 302 million to 316 million. The company raised full year revenue guidance from $2.17-$2.27 billion to $2.20-$2.27 billion. Life was good and after rising +1.84 in the regular session to close at $36.50 shares spiked to $41 in afterhours.

Unfortunately, fame is fleeting. Shares crashed back to close at $33 after the conference call. Apparently, the MAU number contained 12 million of SMS Fast Followers and the real MAU only rose +2 million to 304 million. A SMS Fast Follower is just a receiver of tweets in their SMS texting application. They do not have to have a Twitter account to follow specific twitter users. SMS followers do not have the image rich (advertising) screens that actual Twitter users have.

Interim CEO Jack Dorsey said the growth rate was unacceptable since it was the slowest growth since Twitter went public in 2013. The CFO said we do not see "sustained meaningful growth in active users until we start to reach the mass market."

Investors were not happy with the call and shares crashed to $33 in afterhours.

Gilead Sciences (GILD) reported adjusted earnings of $3.15 that rose +23%% compared to estimates for $2.71. Revenue of $8.24 billion rose +26% and was well above estimates for $7.61 billion. Hep-C drugs sales totaled $4.9 billion, which was also above estimates for $4.31 billion. Harvoni has only been on the market for ten months and brought in $3.61 billion. The company said they are preparing to launch the Hep-C drugs in Japan and several other countries. Roughly 2.7 million Americans have Hep-C and that rises to more than 150 million worldwide and Harvoni cures it 90% of the time. Gilead raised its full year revenue guidance from $26-$27 billion to $29-$30 billion. This company can do no wrong and they are building up a pile of cash to acquire additional drug pipelines. Shares rose about $4 to $117 on the news.

Yelp (YELP) posted adjusted earnings of 2 cents compared to estimates for a 1-cent loss. Revenue of $134 million barely beat estimates for $133 million. However, the company lowered guidance and the Chairman, Max Levchin, is stepping down. The CEO, Jeremy Stoppelman, said he was confident Yelp would be producing $1 billion in annual revenue by 2017. That is more than double the projected $545-$550 million for 2015. Shares were crushed in the afterhours with a decline from $33.50 to $27.85.

Express Scripts (ESRX) posted adjusted earnings of $1.44 compared to estimates for $1.40. Revenue of $25.45 billion was well under estimates for $26.15 billion. The company guided for earnings in a range of $1.41-$1.45 for the current quarter and analysts were expecting $1.43. Shares gained $1.60 in afterhours.

Reynolds American (RAI) reported adjusted earnings of $1.02 that beat estimates by 8 cents. Revenue rose +11% to $2.4 billion. They raised guidance from $1.83-$1.90 to $1.90-$2.00 for the full year. They also announced a 2:1 stock split to occur on August 31st. They raised the dividend by 7.5% to $1.44 annually on a post split basis. Shares spiked $5 on the news.

Earnings in the spotlight for Wednesday include Anthem, Facebook, Humana, MasterCard, Marriot and Solar City to name a few. Facebook is of course the report everyone will be watching.

Crude prices rose 75 cents but you would have thought it was $7. Oversold and heavily shorted energy stocks exploded higher and helped power the market rally. Dow components Chevron (CVX) gained $3.85 and Exxon (XOM) +$3.22 and together added more than 50 points to the Dow. More than one analyst immediately said this was a perfect selling opportunity.

In the WTI chart below, the days gain does not even register on the far right. It is lost in a sea of red candles from the last three weeks. It would be a huge stretch of the imagination to claim a crude rebound had begun.


Short S-q-u-e-e-z-e. Today was simply an oversold bounce/squeeze ahead of the Fed announcement. The early earnings news was not that exciting and there was only a dribble of market news. With recent Fed days positive, there was a good reason to exit shorts and maybe nibble at some longs ahead of the event.

Volume was decent at 7.4 billion shares and advancers were 5:2 over decliners. It was a good day in the market regardless of the reason for the rebound. It was driven in part by the grossly oversold energy sector and a huge rebound in biotechs. Biogen (BIIB) was actually positive with a $10 gain and that took the pressure off the sector and the NYSE Biotech Index ($BTK) rallied +2.2%.

The rebound on the S&P stalled at 2095 after closing at 2068 on Monday. This +25 point gain was very nice but it was a dead stop at the 100-day at that 2095 level. The rebound did not change the overall negativity in the S&P with the Bullish Percent Index rising only 0.4% to 50.6%.

Resistance remains 2095-2100 and getting back to the highs at 2130 could be a challenge.

The Dow rebounded from a six-month low at 17,440 with a +189 point gain. That only brought it back above prior support at 17,585. While it was a big day, the index was down -650 points since the highs the prior week. It has a long way to go. Other than short covering, there is not a lot to move the Dow on Wednesday with no Dow components reporting. If you look at the Dow chart below is that a chart you would want to rush to buy? I doubt it. One day does not make a trend.

Resistance is 17,750 and 17,800. Support is yesterday's lows at 17,400.

The Nasdaq rebounded thanks to the biotechs with help from TSLA, PNRA and PCLN. It was a challenge because Baidu (BIDU) missed on earnings and took a -30 point header into the cheap seats and a new 52-week low.

Amazon, Google and Netflix were no help on Tuesday. Shares in those big caps were flat to down suggesting the big caps leaders are not going to lead us higher.

Resistance at 5100 was almost touched with the high at 5097.69. That 5100 level is the number to watch on Wednesday. A move over 5100 will find additional resistance at 5150 and again at 5200. There are not a lot of high profile Nasdaq stocks reporting on Wednesday so headlines will be scarce until Facebook reports after the close.

The small cap Russell 2000 rebounded +10 points and was the smallest gain of all the major indexes. The rebound failed to recover the 1230 resistance level with a high of 1226. This appears to be simply a dead cat bounce because of the very oversold conditions and the short covering ahead of the Fed. The Russell has a long way to go to prove itself and help rebuild investor sentiment.

At the risk of repeating myself too many times I don't believe today's rebound was material. I view it as an oversold short squeeze ahead of an event that has produced market gains for the last several meetings.

I warned in the weekend newsletter that a short squeeze was imminent and what happened after the rebound was the key. If we continue higher after the fed announcement then I am positioned to enjoy those gains. If the market rolls over after the Fed then we could be looking at significantly lower declines.

Depending on what the Fed says the market is going to be positioning itself going into the August/September doldrums and the potential for a September rate hike. We all know a rate hike will have no real impact on the market but it is the perceived impact that shakes up investors. Once past the first hike we could have a decent Q4 rally if the global economy does not tank. The average analyst estimate for the end of December is 2,231 on the S&P. I would love to see that come to pass.

Enter passively, exit aggressively!

Jim Brown

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New Plays

King Of Same-Store Sales

by James Brown

Click here to email James Brown


The Kroger Co. - KR - close: 38.72 change: +0.52

Stop Loss: 36.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 28, 2015
Time Frame: Exit PRIOR to earnings on Sept. 11th
Average Daily Volume = 3.9 million
New Positions: Yes, see below

Company Description

Trade Description:
If you're looking for a company with consistent growth then look no further. KR appears to be the king of same-store sales and recently announced 46 quarters of consecutive same-store sales growth.

KR is in the services sector. According to the company, "Kroger, one of the world's largest retailers, employs nearly 400,000 associates who serve customers in 2,626 supermarkets and multi-department stores in 34 states and the District of Columbia under two dozen local banner names including Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry's, Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith's. The company also operates 780 convenience stores, 327 fine jewelry stores, 1,342 supermarket fuel centers and 37 food processing plants in the U.S."

BusinessInsider ran an interesting article on KR that suggested the grocery chain is shaping up to be growing competition for the fast-food industry. A recent poll showed that 1 out of 4 consumers would choose Kroger instead of McDonald's. KR has become more attractive because they have been expanding their prepared-food selection.

Another interesting tidbit came from CNBC Mad Money's Jim Cramer who said KR has twice the growth of rival Whole Foods Market (WFM). KR's most recent quarterly results showed same-store sales growth of +5.7%, which easily outpaces its rivals.

Speaking of Whole Foods, KR is quickly catching up. WFM built its brand on organic and natural foods, which also happen to have better margins than traditional grocery items. Rivals took notice and KR jumped into organics with both feet. According to JPMorgan, KR is on track to surpass WFM as the biggest seller of organic foods within the next two years. (FYI: Costco actually sells more organic food than anyone else in the U.S. but they are not a traditional grocery story).

KR's most recent earnings report was June 18th. It was their 2016 Q1 report with earnings of $1.25 per share. That beat estimates of $1.22. Revenues were $33.05 billion, which actually missed estimates. The stock rallied anyway. KR management reaffirmed their fiscal year 2016 earnings forecast for $3.80-3.90 per share (essentially +10% growth).

Traders should like this stock since KR is very shareholder friendly. According to a company press release they have returned more than $1.1 billion to shareholders through share buybacks and dividends in the last four quarters. Management recently announced a new $500 million stock buy back program to replace their previous repurchase program, which had been exhausted. They also raised their dividend. On a post-split basis will pay 10.5 cents on per share on September 1st, 2015. KR should begin trading ex-dividend August 12th Speaking of splits, the stock just split 2-for-1 on July 13th. It was their fifth stock split since 1979.

Last week the U.S. stock market was plunging. KR managed to evade most of the damage and essentially traded down from $39.30 to $38.30. Shares did see a spike down on Monday this week but traders bought the dip . We think KR is poised to breakout to new all-time highs soon. Tonight we're suggesting a trigger to open bullish positions at $39.05. More conservative investors might want to actually wait for a new high and use a trigger at $39.40 instead.

Trigger @ $39.05

- Suggested Positions -

Buy KR stock @ $39.05

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

Buy the SEP $40 CALL (KR150918C40) 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

Energy Stocks Deliver Oversold Bounce

by James Brown

Click here to email James Brown

Editor's Note:
Energy stocks led the rebound today. The group's bounce triggered a couple of stop losses, which locked in big moves for our bearish trades CLR and NBL.

Among our bullish candidates BURL hit our stop loss.
MIK hit our entry point for bearish positions.

Current Portfolio:

BULLISH Play Updates

Guidewire Software, Inc. - GWRE - close: 59.54 change: +0.51

Stop Loss: 56.90
Target(s): To Be Determined
Current Gain/Loss: +2.2%
Entry on July 23 at $58.25
Listed on July 21, 2015
Time Frame: Exit PRIOR to earnings on Sept. 1st
Average Daily Volume = 368 thousand
New Positions: see below

07/28/15: GWRE rebounded near yesterday's lows and rallied to a +0.8% gain. I would consider new positions on a rally past $59.80 or $60.00. More conservative traders might want to raise their stop closer to the 10-dma near $58.00.

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.

- Suggested Positions -

Long GWRE stock @ $58.25

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

Long OCT $60 CALL (GWRE151016C60) $2.80

07/25/15 new stop @ 56.90
07/23/15 new stop @ 56.40
07/23/15 triggered @ $58.25
Option Format: symbol-year-month-day-call-strike

21Vianet Group, Inc. - VNET - close: 19.97 change: +0.08

Stop Loss: 18.85
Target(s): To Be Determined
Current Gain/Loss: -3.8%
Entry on July 23 at $20.75
Listed on July 22, 2015
Time Frame: Exit PRIOR to earnings on August 25th
Average Daily Volume = 996 thousand
New Positions: see below

07/28/15: Tuesday was a relatively quiet session for VNET. Shares consolidated sideways between short-term technical support at its 20 and 100-dma and short-term resistance at $20.00.

No new positions at this time.

Trade Description: July 22, 2015:
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.

*small positions to limit risk* - Suggested Positions -

Long VNET stock @ $20.75

07/27/15 The Chinese Shanghai index plunged -8.48%
07/23/15 triggered @ $20.75

BEARISH Play Updates

Best Buy Co., Inc. - BBY - close: 32.13 change: +0.07

Stop Loss: 33.80
Target(s): To Be Determined
Current Gain/Loss: -0.1%
Entry on July 27 at $32.10
Listed on July 25, 2015
Time Frame: Exit PRIOR to earnings in late August
Average Daily Volume = 4.3 million
New Positions: see below

07/28/15: BBY tagged another new relative this morning. Yet the market's widespread bounce was too much to overcome and BBY drifted higher. Shares did underperform and only posted a minor gain on the day.

Trade Description: July 25, 2015:
Tonight's candidate is almost 50 years old. They were founded under the name "Sound of Music" but changed their name to "Best Buy" in 1983. Today they have over 1,400 locations, employ more than 125,000 people, and generate more than $40 billion in sales annually.

BBY is part of the services sector. According to the company, "Best Buy is a leading provider of technology products, services and solutions. The company offers expert service at an unbeatable price more than 1.5 billion times a year to the consumers, small business owners and educators who visit our stores, engage with Geek Squad Agents or use BestBuy.com or the Best Buy app. The company has operations in the U.S. where more than 70 percent of the population lives within 15 minutes of a Best Buy store, as well as in Canada and Mexico, where Best Buy has a physical and online presence."

The company launched a massive turnaround campaign almost three years ago as they struggled with extremely tough competition from companies like Amazon.com. The biggest problem for BBY is something called "showrooming". This is when customers come into a Best Buy store, they look around at products, ask questions from Best Buy staff, and they compare quality and price. Then they go home and buy what they want online for a cheaper price and have it delivered to their door.

BBY is acutely aware of the showrooming phenomenon. It's hard to compete with someone like Amazon who doesn't have the big overhead for large retail locations. BBY has been trying to compete on service plus they have redesigned their own online e-commerce offerings and they are seeing growth in their own online sales. BBY management has also been slashing expenses.

The turnaround has worked to a point. BBY's focus on cutting expenses is obviously good for profits. Yet sales remain slow. Looking at BBY's last couple of earnings reports their bottom line results have beaten Wall Street estimates (thanks to slashing costs) but revenues have been disappointing.

BBY reported their Q4 results on March 3rd, 2015 and revenues were only up +1.3% to $14.2 billion, which missed expectations. Comparable store sales were only up +1.3%.

BBY's Q1 result was worse. This report was announced on May 21st. They beat the bottom line EPS estimate again but revenues fell -0.9% to $8.56 billion. On the plus side their comparable store sales improved from -1.3% a year ago to +0.6% but this too was disappointing.

Shares of BBY have been in a down trend since they peaked near $42.00 in March this year. The stock has been in a bearish pattern of lower highs and lower lows. It looked like BBY might break this trend and then the stock was downgraded on July 17th.

Bank of America analyst Denise Chai reduced her rating on BBY to the equivalent of a "sell". She believes the company will see a tough second half to 2015. There is no must have product or upgrade cycle to drive customers into the store later this year. Chai expects BBY's sales to turn negative (-1%) in the second half.

BBY's stock collapsed on this downgrade and has been unable to recover. Today shares are poised to breakdown to new 2015 lows. Tonight we are suggesting a trigger to launch bearish positions at $32.15.

FYI: I am listing the October put options. BBY does have September options but the option strikes are at odd prices thanks to a $0.51 special dividend BBY paid in March and the option markets haven't caught up with new (normal) strikes yet.

I also want to point out that the point & figure chart is currently bullish for BBY. If shares traded below $32.00 it should generate a new sell signal.

- Suggested Positions -

Short BBY stock @ $32.15

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

Long OCT $30 PUT (BBY151016P30) entry $1.28

07/27/15 triggered on gap down at $32.10, trigger was $32.15
Option Format: symbol-year-month-day-call-strike

Cabot Corp. - CBT - close: 35.05 change: +0.70

Stop Loss: 35.65
Target(s): To Be Determined
Current Gain/Loss: +3.7%
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

07/28/15: After a multi-day plunge commodities finally bounced. This sparked a sharp oversold rebound in energy stocks. CBT surged +2.0%. If this bounce continues tomorrow we could see CBT hit our stop at $35.65.

No new positions at this time.

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

07/27/15 new stop @ 35.65
07/25/15 new stop @ 36.15
07/22/15 new stop @ 36.85
07/20/15 triggered @ $36.40
Option Format: symbol-year-month-day-call-strike

The Michaels Companies, Inc. - MIK - close: 24.74 change: -0.31

Stop Loss: 26.55
Target(s): To Be Determined
Current Gain/Loss: +0.0%
Entry on July 28 at $24.75
Listed on July 27, 2015
Time Frame: Exit PRIOR to earnings in late August
Average Daily Volume = 729 thousand
New Positions: see below

07/28/15: Our brand new bearish trade on MIK is open. Shares broke down below round-number support at $25.00 and below technical support at its 200-dma. The stock hit our suggested entry point at $24.75. I would still consider new positions now at current levels.

Trade Description: July 27, 2015:
It looks like investor sentiment on MIK has turned bearish. The stock produced big gains from its post-IPO lows near $15 in August 2014. The rally peaked in March this year near $30.00 after the company reported earnings.

If you're not familiar with MIK they are in the services sector. They're considered part of the specialty retail industry. According to the company, "The Michaels Companies, Inc. is North America's largest specialty retailer of arts and crafts (based on store count). As of May 2, 2015, the Company owns and operates 1,177 Michaels stores in 49 states and Canada and 118 Aaron Brothers stores, and produces 12 exclusive private brands including Recollections(R), Studio Decor(R), Bead Landing(R), Creatology(R), Ashland(R), Celebrate It(R), ArtMinds(R), Artist's Loft(R), Craft Smart(R), Loops & Threads(R), Imagin8(R) and Make Market(tm)."

The last couple of earnings reports have not been that exciting. MIK reported its 2015 Q4 results on March 19th. They beat estimates by a penny while revenues rose +3.4% to $1.6 billion, which was in-line with estimates. Unfortunately, MIK management lowered their guidance for Q1 and fiscal year 2016.

Even after lowering guidance MIK still missed estimates when they reported their Q1 results on June 4th. Earnings of $0.32 a share missed by a penny. Revenues were up +2.9% to $1.08 billion, which was in-line with estimates. Comparable store sales were up only +0.3%.

Looking at MIK's daily chart you can see that traders have been selling the rallies. Now MIK has a bearish pattern of lower highs. It recently broke down under support in the $26.00 area. Now MIK is testing round-number psychological support at $25.00 and technical support at its simple 200-dma. A breakdown here would definitely look bearish. Tonight we are suggesting a trigger to launch bearish positions at $24.75.

- Suggested Positions -

Short MIK stock @ $24.75

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

Long SEP $25 PUT (MIK150918P25) entry $1.45

07/28/15 triggered @ $24.75
Option Format: symbol-year-month-day-call-strike

Tessera Technologies - TSRA - close: 34.58 change: +0.18

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +2.3%
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

07/28/15: The rally in TSRA failed at $35.00 this afternoon. Shares settled with a +0.5% gain versus a +0.98% rally in the NASDAQ. If this bounce continues tomorrow we could see TSRA hit our stop loss at $35.55. However, it would have to breakthrough its simple 10-dma first.

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

07/25/15 new stop @ 35.55
07/20/15 new stop @ $36.65
07/16/15 triggered @ $35.40
Option Format: symbol-year-month-day-call-strike


Burlington Stores, Inc. - BURL - close: 54.39 change: -0.04

Stop Loss: 53.65
Target(s): To Be Determined
Current Gain/Loss: -4.3%
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

07/28/15: Most of the market was in rally mode today. Unfortunately both small caps and mid caps saw a spike lower this morning before bouncing. BURL participated in the early morning drop and hit our stop loss at $53.65 before recovering.

- Suggested Positions -

Long BURL stock @ $56.05 exit $53.65 (-4.3%)

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

SEP $60 CALL (BURL150918C60) entry $1.30 exit $0.60 (-53.8%)

07/28/15 stopped out @ 53.65
07/25/15 Conservative investors may want to exit immediately!
07/24/15 BURL just confirmed the bearish reversal pattern.
07/23/15 Caution: BURL has produced a bearish engulfing candlestick reversal pattern
07/16/15 triggered @ $56.05
Option Format: symbol-year-month-day-call-strike



Continental Resources, Inc. - CLR - close: 33.35 change: +1.42

Stop Loss: 33.75
Target(s): To Be Determined
Current Gain/Loss: +22.9%
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

07/28/15: The U.S. market snapped a five-day losing streak today. The rally was led by a big oversold bounce among the energy stocks. CLR surged +4.4%. The stock was up +6.0% intraday and hit our stop loss at $33.75.

- Suggested Positions -

Short CLR stock @ $43.75 exit $33.75 (+22.9%)

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

SEP $40 PUT (CLR150918P40) entry $2.00 exit $6.70 (+235.0%)

07/28/15 stopped out
07/27/15 new stop @ 33.75
07/25/15 new stop @ 36.15
07/23/15 new stop @ 36.85
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


Noble Energy, Inc. - NBL - close: 35.50 change: +0.77

Stop Loss: 36.30
Target(s): To Be Determined
Current Gain/Loss: +6.0%
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

07/28/15: NBL is another energy stock that saw a big oversold bounce this morning. Shares hit our stop loss at $36.30 but eventually pared its gains to settle with a +2.2% bounce.

- Suggested Positions -

Short NBL stock @ $38.60 exit $36.30 (+6.0%)

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

AUG $37.50 PUT (NBL150821P37.5) entry $1.40 exit $2.85 (+103.6%)

07/28/15 stopped out
07/27/15 new stop @ 36.30
07/25/15 new stop @ 37.35
07/23/15 new stop @ 38.25
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