Option Investor

Daily Newsletter, Thursday, 7/30/2015

Table of Contents

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

Market Wrap

GDP And Earnings Lend Support

by Thomas Hughes

Click here to email Thomas Hughes
Earnings and GDP are giving a mixed picture of the economy, but one with positive outlook.


Earnings and GDP data are painting a bit of a mixed picture but it is one with positive outlook. Earnings growth for the broad market is weak but steady and generally better than expected; GDP growth is positive, with some negative revisions to prior years, and expected to continue expanding.

Today's read on GDP, the first for the 2nd quarter, came in at 2.3%. This is a little below consensus but within the range from which consensus is drawn and comes with a positive revision to the first quarter. First quarter GDP rose to +0.8% from the previous -0.2% and is a pretty decent number considering the negative sentiment and first estimates we saw. The down side to these numbers is negative revisions to the past three years, -0.3% to an average 2.1% for the years 2012-2014. The revision is due to a change in the way GDP is calculated, fixing an error.

Market Statistics

Asian indices closed well before the GDP data was released and ended their day mixed. China indices fell -2%, the Japanese Nikkei rose 1%. Chinese markets are still being roiled by government actions to support the market while the Nikkei was driven higher on strong earnings. In Europe things were much the same. A mixed day of trading left most of the indices in positive territory supported by strong earnings. Greece has retreated from the spotlight but is waiting quietly in the wings to step back into the markets attention.

Despite the rush of positive international earnings our indices were indicated to open lower up to and into the opening bell. After the bell the indices declined to hit their low for the day at 9:50AM. From there a bounce ensued that took them back up to break even levels with the NASDAQ Comp and Russell 2000 pushing into the green by noon. By 3PM the Dow Jones and S&P 500 had reached positive territory as well. Highs were hit mid-afternoon and these levels almost held into the close of trading. The NASDAQ and SPX held some of their gains, the transports closed exactly flat and the industrials posted a slight loss. After hours action was on the heavy side as a slew of earnings reports were released.

Economic Calendar

The Economy

2nd quarter GDP was 2.3%, up form the first quarters 0.8% and slightly below expectations. Positive revision to the previous quarter reflect underlying momentum in the economy, if sluggish, that we have seen over the last year or two. The negative revisions to previous years of data is something to take note of but not that big a deal; it happened a long time ago, where we are and where we are going is much more important. What was perhaps the most notable bit of information within the report is the PCE deflator which rose by a stronger than expected 1.8%. This is still a bit below the Fed's target rate but shows a pick up in quarter to quarter inflation that could push them into a rate hike. On a year over year basis PCE is still running at a tepid 1.3% but this would begin to rise if the quarter to quarter numbers keep rising.

Initial claims rose slightly from a new 15 year low it set last week. Claims gained 12,000 to hit 267,000 and remain at long term lows and consistent with labor market improvement. Last week's figure was unrevised, the four week moving average fell -3,750. On a not adjusted basis claims fell -12.4% versus an expected -16.6%. On a year-over-year basis not adjusted claims are down -10%. California and Rhode Island led with increases of +1,948 and +382, NY led with a decline of -21,082.

Continuing claims rose by 46,000 from an upward revision of 9,000. This metric did not set a new low in recent weeks but is hovering just above the long term 15 year low. Total claims also rose in this weeks data gaining 21,802 to hit 2.300 million. This is -11.5% below last year at this time but also the 6th week of gains since hitting a low last month. All in all claims remain at low levels and recent activity suggests that jobs creation remains strong. We'll get the next round of NFP, ADP and unemployment next week, expectations are good for a decent number at least, upwards of 200,000. A really good number could help cement the idea of a 2015 rate hike.

Tomorrow's data includes the Employment Cost Index, Chicago PMI and Michigain Sentiment. Employment costs are expected to rise about 0.7%, in line with last month's gain. PMI and sentiment are both expected to rise slightly, from 49.4 to 50 for PMI and from 93.3 to 93.5 for sentiment.

The US Senate approved a long term version of a highway funding bill just after lunch. The vote went 65-34 and is not expected to pass the House and brings into focus what will perhaps be the next big hurdle for the market to bear... government spending. The next potential government shut down is scheduled for October 1st and could create a lot of day to day volatility as it approaches.

The Oil Index

Oil was volatile today but basically held steady around $48.75. Today's action was focused on yesterday's unexpectedly large draw on US stockpiles that have raised speculation the recent slide in oil prices is nearing an end. Despite the draw production and supply remain high while global demand is weak. Adding to today's activity is expiration in gasoline and diesel contracts tomorrow as well as strengthening dollar value.

The Oil Index lost about a half percent in today's action, falling from the 50% retracement level mentioned previously. Today's action is a confirmation that resistance is present at the retracement that could result in a retest of the recent low. The indicators are mixed and weak in the near term but remain consistent with support in the short to long term. A break above the retracement, near 1,230, would find the next target for resistance at the bottom of my up trend line near 1,300. Earning and outlook will have an impact on this index over the next day or two specifically. Connoco Phillips reported earnings and revenue above expectations, raised their dividend and raised full year guidance. Royal Dutch Shell was also able to produce better than expected results and sent shares of its stock up by by more than 5%. Shares of Connoco fell -1.57% but remain above the recently set low. Look out for Exxon-Mobil and Chevron tomorrow before the bell. Chevron is expected to post $1.15 per share, Exxon-Mobil $1.06.

The Gold Index

Gold prices fell about -0.5% in today's session. Positive GDP as well as the hint of rising inflation has upped the chances for a September/December rate hike and put the pressure back on gold. The metal is now trading just above the +5 year low and indicated lower in both the short and long term. Strengthening dollar due to FOMC rate hike expectations is going to be negative for gold moving forward. Prices could continue to fall until inflation and/or dollar expectations change.

The gold miners did not fare well today, led by earnings and earnings expectations. The GDX Gold Miners ETF fell close to -3.5% as the senior and junior miners begin to report en masse. The sector has been beaten up over the last two months and is now trading at an all time low. The sector is oversold in the long and short term but bearish momentum is on the rise so it looks like it could go lower. Gold prices will lead, if they continue to decline the sector will as well. One factor that may be helping to depress gold prices is production. Production levels have been on the rise over the past few quarters at least and could keep rising based on today's report from GoldCorp.

In The News, Story Stocks and Earnings

GoldCorp reported before the bell and beat expectations for $0.07 by a penny. The company reported record 2nd quarter production, up 40% form 2Q 2014, and reaffirmed production guidance at the high end of the range. The report, save for the low realized prices for gold, is pretty good. The company is increasing production, getting higher than expected realized quality, reducing costs and expanding into new mines. The bad news is that the fall in gold prices has resulted in a 60% decline in comparable quarter earnings despite the 40% increase in production. With prices now hovering near new long term lows that issue could persist or worsen in coming quarters. Shares of the stock fell over -2% in today's session and are now trading at the long term low and below the full retracement of the 2008-2011 bull market I gold. Indicators are weak and pointing lower although momentum is waning and the stock is oversold. Downside targets exist near $10, another 20% below today's levels.

Insurer Cigna reported before the bell, beating on the top and bottom lines. The company reported $2.55 adjusted, a 23% increase over the same quarter last year. The company also raised guidance for the full year to a range of $8.30 to $8.60 per share. Cigna will be merging Anthem into the fold later this year to create one of the largest health care insurers in the country. The stock lost -1% in today's session and is trading at a one month low, below the short term moving average. The indicators are showing weakness which could carry it as $140 - $137.50.

Mondelez, an international diversified food company, reported top and bottom line beats in its release this morning. The company is parent to brands like Kraft, Oreo and Nabisco. Adjusted EPS is $0.47, 20% above estimates but net revenues fell -9.2% due to currency conversion. Organic net revenue grew 4.3%. Margins also narrowed due to rising input prices. The company raised its full year guidance and increased its share repurchase program by $6 billion. Shares of the stock jumped a little more than 5% to hit a new all time high.

LinkedIn reported a major beat on earnings and sparked a round of volatile after hours trading. The company reported $0.55 per share versus expectations of $0.30 and ahead of this same quarter last year. Revenue also beat. User numbers are on the rise and also came in ahead of expectations. Shares of the stock shot higher in after hours trading gaining more than 11% immediately following the announcement. 30 minutes later price had retreat back to today's low greater than -1% below yesterday's close. 30 minutes after that share price was down more than -8%.

The Indices

The market opened lower and appeared to be heading back to support but an early bounce recovered initial losses and propelled the indices back to break even levels. All were able to poke their head into positive territory but not all were able to hold the gains into the close of trading. Today's action was led by the NASDAQ Composite which traded up over a half percent on an intraday basis and closed with a gain of 0.33%. The index tested support at the short term moving average and confirmed with a close above it. The indicators remain mixed but are set up for a trend following bullish crossover that could take it up to test the recent high near 5,250. The high could provide resistance in the near to shot term as earnings projections for the next quarter remain weak.

The S&P 500 made the next biggest gain, 0.01%, and is set up similarly to the tech heavy NASDAQ Composite. The broad market index tested support at the short term 30 day moving average and confirmed with today's bounce from and close above said level. The indicators are mixed but set up for a trend following bullish crossover supported by economic and earnings trends. The index may find resistance at 2,120 and just above that at the current all time high. It may remain range bound in the near to short term while we move past earnings season but I remain bullish long term.

The Dow Jones Transportation Average closed exactly flat from yesterday's action creating a small bodied spinning top with lower shadow. The index is in a bounce originating from the long term low with bullish indicators. It appears to be reversing from the four month downtrend and 13.5% correction we saw this spring and summer. MACD is strong relative to the past 8 months and gaining strengthe while stochastic is confirming the move with a weak bullish crossover. Upside target is the bottom of the November/May trading range near 8,600 with additional targets near the middle of that range should 8,600 be broken.

The Dow Jones Industrials are the only index to close with a loss today, -0.03%. The blue chips made it into positive territory but had a hard time holding the levels. Afternoon action saw it bob above and below break even several times. The indicators are mixed but consistent with a developing trend line bounce. The trend remains up but there is significant resistance at and just above the current levels that needs to be broken before more upside can happen. A break above the 17,750 support/resistance line and then the short term moving average which is just above it could lead to a test of the all time high near 18,350.

The market seems to be focusing on earnings and economics again even though issues in China and Greece remain. These issues may poke their heads back into the spot light at any time but are likely to be near to short term events as they have been all year. US economic trends remain positive and earnings as a whole are better than expected with positive outlook for both so I remain bullish.

The FOMC is still a wild card but it looks more and more certain a rate hike will come in the Sept/December time frame. This may cause some volatility but in the end will be an affirmation of economic health and bullish in my view. A quarter point rise in rates will only be the first of dozens of incremental increases, not the one that breaks the markets back.

In the near term the indices may remain range bound due to 3rd quarter earnings expectations but the bull market is intact so any dips to support remain buying opportunities.

Until then, remember the trend!

Thomas Hughes

New Plays

Activist News Fuels Big Rally

by James Brown

Click here to email James Brown


ConAgra Foods, Inc. - CAG - close: 44.44 change: +0.31

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 29, 2015
Time Frame: Exit PRIOR to earnings on September 22nd,
Average Daily Volume = 3.3 million
New Positions: Yes, see below

Company Description

Trade Description:
Two years ago CAG spent $5 billion to buy private-label food maker Ralcorp. At the time, CAG called it a "transformational" deal. Unfortunately their private-label business has been nothing but a money pit.

CAG is in the consumer goods sector. According to the company, "ConAgra Foods, Inc., (CAG), is one of North America's leading food companies, with brands in 99 percent of America’s households. Consumers find Banquet, Chef Boyardee, Egg Beaters, Hebrew National, Hunt's, Marie Callender's, Orville Redenbacher's, PAM, Peter Pan, Reddi-wip, Slim Jim, Snack Pack and many other ConAgra Foods brands in grocery, convenience, mass merchandise and club stores. ConAgra Foods also has a strong business-to-business presence, supplying frozen potato and sweet potato products as well as other vegetable, spice and grain products to a variety of well-known restaurants, foodservice operators and commercial customers."

In spite of CAG's troubles with its private-label business the stock was trading at multi-year highs in mid June this year. Then on June 19th the stock soared more than +10%. Shares were already flirting with its all-time highs from the late 1990s in the $38-39 area. They vaulted higher when activist hedge fund JANA Partners announced they had amassed a 7.2% stake in CAG. JANA argued that CAG was undervalued and not doing enough to build shareholder value.

It would appear that CAG's management has embraced JANA's involvement and direction. They have already appointed two of JANA's nominees to the Board of Directors. When CAG reported its Q4 earnings on June 30th they announced they would exit the private-label business.

The private-label business, Ralcorp, makes stuff like cereal, pasta, crackers, jams, jellies, syrups, and frozen waffles. They currently account for about 25% of CAG's sales but they're also the only business segment that lost money last quarter.

Multiple companies, including TreeHouse Foods (THS) and Post Holdings (POST), are said to be bidding for the private-label business. Estimates suggest it could sell for $3.5 billion. That's a big drop from the $5 billion price tag CAG paid.

Shares of CAG saw a two-week correction from its early July highs but traders have started to buy the stock again and recently broke the short-term trend of lower highs. We suspect this activist-investor fueled rally in CAG has further to run. Often activist investors urge companies to break up to unlock shareholder value or push for a company to sell itself. We'll have to see what the next move is. Today's high was $44.51. We are suggesting a trigger to launch bullish positions at $45.25.

Trigger @ $45.25

- Suggested Positions -

Buy CAG stock @ $45.25

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

Buy the SEP $45 CALL (CAG150918C45) current ask $1.00
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

Both Stocks And Commodities See Rally Stall

by James Brown

Click here to email James Brown

Editor's Note:
The oversold bounce in commodities stalled on Thursday. This may have undermined the rally in stocks, which also saw their upward momentum stall.

Don't forget that we want to exit our TSRA trade tomorrow.

Current Portfolio:

BULLISH Play Updates

Guidewire Software, Inc. - GWRE - close: 59.29 change: -0.02

Stop Loss: 56.90
Target(s): To Be Determined
Current Gain/Loss: +1.8%
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

07/30/15: GWRE has been locked in a trading range the last four days. Traders have been buying the dips near $58.20 but shares can't seem to breakout past $59.65.

I would be tempted to launch new positions on a rally above $59.85 or better yet above $60.00.

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

The Kroger Co. - KR - close: 39.00 change: +0.20

Stop Loss: 36.95
Target(s): To Be Determined
Current Gain/Loss: -0.1%
Entry on July 30 at $39.05
Listed on July 28, 2015
Time Frame: Exit PRIOR to earnings on Sept. 11th
Average Daily Volume = 3.9 million
New Positions: see below

07/30/15: Our new play on KR is open. Most of the market spiked lower this morning. KR was no exception. Yet traders bought the dip in KR near its rising 20-dma. The stock rebounded and rallied to a +0.5% gain. Our trigger to open bullish positions was hit at $39.05.

I would consider new positions now or you could wait for a rally above today's high ($39.07).

Trade Description: July 28, 2015:
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.

- Suggested Positions -

Long KR stock @ $39.05

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

Long SEP $40 CALL (KR150918C40) entry $0.74

07/30/15 triggered @ $39.05
Option Format: symbol-year-month-day-call-strike

21Vianet Group, Inc. - VNET - close: 20.51 change: +0.39

Stop Loss: 18.85
Target(s): To Be Determined
Current Gain/Loss: -1.2%
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

07/30/15: VNET delivered a decent performance on Thursday with a +1.9% gain. That's in spite of a -2% drop in the Shanghai index on Thursday. The rally in VNET did stall at the $21.00 level, which is where it failed last week. Traders may want to wait for a breakout past $21.00 before considering new bullish positions.

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

Autodesk, Inc. - ADSK - close: 50.60 change: +0.51

Stop Loss: 52.55
Target(s): To Be Determined
Current Gain/Loss: -1.7%
Entry on July 30 at $49.75
Listed on July 29, 2015
Time Frame: Exit PRIOR to earnings on August 27th (unconfirmed)
Average Daily Volume = 2.3 million
New Positions: see below

07/30/15: Most of the market spiked lower this morning. ADSK was no exception and shares hit new 2015 lows with a dip to $49.50. Our trigger to launch bearish positions was hit at $49.75. Unfortunately ADSK bounced and the stock outperformed the broader market with a +1.0% gain.

This bounce should rollover at resistance near $51.00 and near the $52.00 levels. However, I would wait for a new decline under $50.00 before considering new positions.

Trade Description: July 29, 2015:
ADSK is in the midst of a business transition and analysts believe the process is going to be painful for the company's financials.

ADSK is in the technology sector. According to the company, "Autodesk helps people imagine, design and create a better world. Everyone-from design professionals, engineers and architects to digital artists, students and hobbyists-uses Autodesk software to unlock their creativity and solve important challenges." Unfortunately the corporate description doesn't tell you much. ADSK sells software. The biggest part of their income is selling 3D CAD (computer aided design) software.

The trend in the company's earnings guidance is not that encouraging. ADSK reported their Q3 2015 results on November 20th. The beat estimates on both the top and bottom line but they guided lower for Q4. The company did it again on February 26th with their Q4 results, which beat estimates on both the top and bottom line but management lowered guidance for Q1.

ADSK reported their 2016 Q1 results on May 19th. Earnings were $0.30 per share as revenues rose +9% to $646.5 million. These results beat estimates. Unfortunately, you guessed it, management lowered guidance. This time ADSK significantly lowered their Q2 earnings and sales guidance. They also lowered their full year 2016 earnings and revenue guidance.

There seems to be a growing number of analysts on Wall Street that feel this trend of earnings trouble will continue. It sounds like ADSK is trying to copy Adobe Systems' move from up-front license fees (or perpetual licenses) where the consumer pays one lump sum up front to a monthly subscription model.

One of the challenges for ADSK is that the company depends on resellers for a lot of its sales. This relationship could suffer if ADSK decides to do away with the middleman when they switch to the subscription model. This transition is expected to take a couple of years. Shares have recently received a couple of downgrades as analysts worry the next couple of years will see slowing growth and falling margins.

This concern and the fact that ADSK keeps lowering their earnings and revenue guidance has killed the long-term up trend in the stock. Shares have recently fallen into a bear market (-20% from its highs). Now ADSK is hovering just above major support at $50.00. A breakdown here would be bad news. The intraday low on June 30th was $49.84. I'm suggesting a trigger to launch bearish positions at $49.75. Please note this is a shorter-term trade. ADSK will likely report earnings at the end of August or early September. We will plan on exiting prior to the announcement but thus far the earnings date has not been confirmed.

- Suggested Positions -

Short ADSK stock @ $49.75

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

Long SEP $45 PUT (ADSK150918P45) entry $0.80

07/30/15 triggered @ $49.75
Option Format: symbol-year-month-day-call-strike

Best Buy Co., Inc. - BBY - close: 32.12 change: +0.00

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

07/30/15: BBY has closed virtually unchanged the last three days in a row. Lack of participation in the market's rally is great but its bearish momentum has also stalled.

No new positions at this time.

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: 35.39 change: +0.00

Stop Loss: 35.65
Target(s): To Be Determined
Current Gain/Loss: +2.8%
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

07/30/15: CBT also ended Thursday's session unchanged. The oversold bounce appears to have stalled beneath short-term technical resistance at its 10-dma.

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: 24.99 change: +0.22

Stop Loss: 26.55
Target(s): To Be Determined
Current Gain/Loss: -1.0%
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

07/30/15: Shares of MIK tagged a new low and reversed higher. Shares managed to outperform the broader market with a +0.88% gain. Yet the bounce stalled at round-number resistance at the $25.00 level.

Considering today's move I'd wait for a new relative low before initiating new positions.

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: 35.17 change: +0.92

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +0.6%
Entry on July 16 at $35.40
Listed on July 09, 2015
Time Frame: Exit PRIOR to earnings on August 3rd
Average Daily Volume = 518 thousand
New Positions: see below

07/30/15: Hmm... it is starting to look like TSRA may have found a bottom. Traders have bought the dip in TSRA near $34.00 the last four days in a row. Today the dip-buying turned into a rally and shares surged +2.6% to close above short-term resistance at $35.00 and its 10-dma. The intraday high was $35.52. Our stop loss is at $35.55. If there is any follow through tomorrow we could get stopped out.

Remember, our plan is to exit this trade tomorrow at the closing bell, assuming we don't get stopped out first.

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

07/29/15 Prepare to exit on Friday, July 31st, at the close
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