Option Investor

Daily Newsletter, Tuesday, 8/4/2015

Table of Contents

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

Market Wrap

Lockhart Slams Market

by Jim Brown

Click here to email Jim Brown

Atlanta Fed president Dennis Lockhart said the Fed is more than likely to hike rates in September. "The economy is ready and it is an appropriate time to make a change."

Market Statistics

The markets were trying to recover from an early swoon but the Lockhart comments at 1:30 knocked the indexes back to session lows with the Dow closing in on support at 17,500 once again. However, traders bought the dip after about 30 minutes and losses were reduced.

Lockhart said it would take a "significant deterioration" in the U.S. economy for him to not support a rate hike in September. Also, "I think there is a high bar to not acting" in September. "My priors going into the September meeting as of today are that the economy is ready and it is an appropriate time to make a change." Lockhart is considered a centrist on the Fed committee and is one of the five Fed presidents with a vote this year.

When the July FOMC announcement was being debated in the press the conventional wisdom was that a September hike was a coin toss. Analysts did agree that we would see a sharp increase of Fed heads talking up a rate hike ahead of the September meeting if that was their planned date for a hike. The Lockhart comments may have been the first shot fired into the market in an effort to prepare investors for that hike.

The morning economic reports were positive but this is just the warm up for events later this week. The Factory Orders for June rose +1.8% after declining -1.1% in May and -0.7% in April. Orders for durable goods increased +3.4% after declining -2.3% in May and -1.7% in April. Core capital goods orders rose +0.7% and also their first gain since March. New orders in the transportation sector rose +9.3% thanks to a sharp rise in civilian aircraft orders.

The second quarter was not kind to the manufacturing sector and the recovery in June offset what was shaping up to be a serious decline. Even with the June gains, orders are still down -6% below 2014 levels. This report was seen as confirmation the manufacturing sector was starting to recover.

The NY ISM for July rose nearly 6 points to 68.8 from 63.1. The headline number was the high for the year and the third highest since 2011. However, the majority of the components declined. The quantity of purchase component declined from 62.5 to 52.8, regional prices declined from 56.3 to 50.0 and the six-month outlook fell sharply from 78.0 to 69.2. The employment component improved only slightly from 63.4 to 64.8. Anything over 50 represents expansion and a couple of those components declined very close to that threshold. This report was ignored.

The Intuit Small Business Employment Index posted a +0.05% gain, which equates to the addition of about 10,000 jobs. That is a decline from the 25,000 small business jobs created in both May and June. Compensation rose +0.1% and hours worked rose +0.08%.

Employment in New England declined -0.22% with a -0.12% decline in East North Central. The other regions posted gains with the West North Central growing +0.33% and the Mountain region up +0.18%.

Small business employment, the sector that creates the most new jobs, is weakening. The Small Business Optimism Index declined to its lowest level of the year in June. Respondents said they were slowing down on hiring with fewer job openings available. This could have a negative impact on the larger payroll reports later this week.

The ISM Nonmanufacturing for July is due out on Wednesday. Expectations are for a flat report with no gain. However, the ISM Manufacturing on Monday declined from 53.5 to 52.7. The employment component declined from 55.5 to 52.7, which further suggests we could see a miss in the nonfarm payrolls on Friday. The trend in the ISM is not positive and analysts blame this on the stronger dollar.

The forecast for the ADP Employment report on Wednesday is for a gain of +215,000 jobs, down from +237,000 in June. The Nonfarm forecast for Friday has been revised upward from +217,500 last week to +222,000 this week. That is flat with last month's gain of +223,000 jobs. I am expecting the actual number to be less than the consensus.

Apple (AAPL) shares declined another -$3.80 on Tuesday to trade below $114 intraday and close at $114.63. Apple is clearly in a severe technical decline with the stock now $7 below the 200-day average. Apple is in correction territory with a -14% decline from its $133 closing high back in February. The decline has reduced Apple's market cap by more than $113 billion. That is more than the total market cap of companies like Nike (NKE) and McDonalds (MCD) at roughly $96 billion each. Shares have declined -7% in just the last three days.

Analysts claim the decline is due to the soft watch sales and the increased competition for phones in China. New Chinese competitors are making inroads into Apple's market share with cheaper phones. Apple's average phone price is $600. Add in the slowing economy in China and analysts worry sales goals may not be reached.

Apple watch sales were less than half of what analysts expected based on the rise in revenue in the "other" category. Apple did not share any numbers on the watch.

The next material support level is in the $105-$107 range. I would be a buyer there on any rebound.

Netflix (NFLX) broke out to a new high today with a huge $9 intraday gain after Guggenheim analyst Michael Norris initiated coverage with a buy rating and a $160 price target.

That put Guggenheim as the leader with the highest target price but you can bet there will be more upgrades in the near future. The analyst echoed views by others that Netflix will have more than 100 million international subscribers by 2020. They are rapidly building out the network and international growth is now the key.

There are ten times as many broadband accounts internationally than currently exist in the USA and that number is rapidly accelerating. As those broadband accounts increase the lure of video streaming will quickly take hold. The majority of other countries do not have the video infrastructure prevalent in the USA. In any major U.S. community, there are large numbers of multiplex theaters with dozens of films showing at any given time. While some exist outside the U.S., their numbers are not as plentiful. There are also more than 41,000 Redbox DVD kiosks and that do not exist in quantity outside the USA.

New broadband users can skip all the hassle of going to the theater and spending large sums for ticket prices and concessions by subscribing to Netflix.

With Netflix on a content generation binge they are adding to their appeal. House of Cards, Orange is the New Black and other programs are just the start of dozens of new movies and series programs underway at Netflix.

The barrier to entry in this market is growing daily. The faster Netflix grows the bigger the moat that surrounds it and the less likely someone will become a major competitor.

They are also building in a large potential for price hikes in the future. Once they get subscribers hooked on the product, they can raise the price and it will be all profit.

The earnings parade continued with Disney (DIS) the highlight after the bell. The company reported earnings of $1.45 that rose +13% and beat estimates for $1.42. Revenue rose +5% to $13.1 billion and just barely under the $13.2 billion estimate. Disney said the strong dollar hurt revenue at Disneyland Paris. Studio revenue rose +13% thanks in part to the Avengers film, which grossed $1.4 billion since its release.

Media networks revenue rose +5% and Cable Networks revenue rose +5% with Broadcasting up +4%. The CEO said Disney would be selling ESPN content directly to viewers in the future but it would not happen for at least five years. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4.

Disney shares declined -2% in afterhours but any post earnings decline should be limited and seen as a buying opportunity. The Star Wars movie in December is expected to gross $2.2 billion and be the highest opening movie ever. There is also a Frozen sequel in the works.

Disney was recently upgraded with a new price target of $150. The $2 drop in afterhours is not going to last.

Zillow (Z) rallied nearly $7 in afterhours after posting a loss of a penny compared to estimates for a loss of 21 cents. Revenue rose +20% to $171.3 million compared to estimates for $168.7 million. The CEO said they had made great progress with the Trulia acquisition and will have successfully combined all the advertising products by the end of Q3. The company did say that advertisers had spent lower than expected for the quarter. The confusion surrounding the merger of the two companies may have caused the uncertainty. The company expects to save more than $100 million on the synergies from the merger. Zillow now controls 72% of all online real estate listing business with the brands Zillow, Trulia, StreetEasy and Hotpads.

MGM Resorts (MGM) reported earnings of 17 cents that beat estimates for 11 cents. Revenue of $2.39 billion squeezed by estimates for $2.37 billion. Revenue per room in Vegas rose from $135 to $144 with a 96% occupancy rate. That is pretty good in my opinion in this economy. However, Macau gaming revenue declined -34.5% in July. That was only slightly better than the -36% in June. Companies with casinos in Macau are going to be struggling. MGM revenue from China declined -33% to $557 million. MGM shares rallied +10% on the earnings news.

First Solar (FSLR) reported blowout earnings of 93 cents compared to estimates for 36 cents. Revenue of $896 million also blew away estimates for $752 million. The company raised full year estimates to $3.55 billion and $3.30-$3.60 per share. Analysts were expecting $3.4 billion and $2.36 per share. That was a huge uplift in guidance on the earnings portion. They are now planning on shipping 2.9 gigawatts (GW) this year, up from prior estimates of 2.7 Gw. Potential bookings rose from 14 Gw to 16.7 Gw. They are nearly sold out of capacity with only "a few hundred megawatts" of panels available towards the end of 2016. This was a major earnings win and shares rose about 10% to $48.69 in afterhours.

Retailer Etsy (ETSY) reported a loss of 7 cents compared to estimates for a loss of 8 cents. Revenue of $61 million beat estimates for $60 million. However, shares plunged -13% after the report. The company said it was planning to spend more on marketing and hire additional employees. Raising expenses rarely goes over well with investors especially when sales growth is slowing. Revenue rose +44% but that was the slowest the company had ever reported. The new Amazon Handmade store is stealing not only customers but sellers as well. Amazon Handmade

Lending Tree (TREE) spiked +42% after reporting earnings of 63 cents, which beat estimates and the company raised full year guidance for the third time.

Earnings highlights for Wednesday include GoDaddy, Fit Bit, Transocean Offshore, Sodastream, Priceline and Time Warner.

Shire Plc (SHPG) launched a hostile bid for Baxalta (BXLT) of roughly $30 billion. Shire said it made the proposal public after its initial offer was rebuffed. The offer is all stock and after the acquisition Baxalta shareholders would own 37% of the combined company. Shire said it would create a global leader in rare disease drugs with annual sales of more than $20 billion. The offer worked out to $45.23 per Baxalta share. BXLT just went public on July 1st and immediately rebuffed the second offer saying we are just in the initial stages of implementing our growth strategy as a standalone company. Our current stock price does not yet reflect the company's value and prospects.

Crude oil rose +65 cents to $45.82 on an early drop in the dollar. However, the early gains did not last as the dollar spiked sharply in the afternoon. The API inventory numbers out after the close showed a minor decline in crude and gasoline inventories and a slight rise in distillates. The API numbers are normally ignored in favor of the EIA inventories every Wednesday. The two sets of inventories rarely match.

The rise in the dollar in late trading erased some WTI gains. The Dollar Index hit 98 shortly after the close and only 15 cents from a three-month high. The reason for the late day spike was the Lockhart comments about a September rate hike.


S&P 3,200. That is the forecast by Laszlo Birinyi for the next two years. Laszlo is recognized as a fundamental analyst but he does have a long-term buy and hold bias. He said concerns about earnings, revenues, Europe, China, commodities and interest rates are all noise. "If we continue to grow by 11 basis points per day, the S&P will be at 3,200 within 2 years." He said you can ignore 40% of the S&P because the index is pushed higher only about 50% of stocks.

Hopefully he is more accurate this time than he was in 2013. His forecast for year-end 2013 at 2,800 only missed the target by 1,100 points. In December 2007 he predicted Dow 15,000 by the end of 2008. Unfortunately, the noise of the financial crisis killed that forecast with a 6,500 point miss.

He was asked today if he was worried about a correction. He said the market appears to be correcting over time by moving sideways for an extended period rather than one big drop in price. Apple is his biggest position and while he is worried about why the stock is declining he is not running for the exits. He bought Apple when it was in the single digits back in the 1990s. He recommended the stock on TV in December 1997 when it was trading at the split-adjusted price of 47 cents. Where is that time machine when you really need it?

Today's market decline was noise. The S&P returned nearly to Monday's lows on the Lockhart comments but buyers appeared. Monday's low was 2087 and today's low was 2088. This was the third consecutive decline and a break under that 2087 level would probably take us back to 2064 from the prior week. Any material decline would face support at 2075 first but we blew through that last week without even a pause.

What we did see today was a solid stop at resistance at 2100. That level is going to continue to haunt us until this sideways motion eventually ends.

The Dow remains the weakest index with another retest of 17,500 and a very negative chart. The Dow looks destined to retest the support from January at 17,150. The resistance at 17,775 is solid. The majority of the individual stocks in the Dow are in decline. Disney. Microsoft, Home Depot, Pfizer, Travelers, Visa and Nike are the exception. Those are offset by the dozen or so that are not just in a decline but in a crash. Mobile, Exxon, PG, etc, would be examples. Apple erased nearly 30 points from the Dow on Tuesday.

Until the individual Dow stocks begin to trend higher rather than lower the path of least resistance is down.

The Nasdaq is stumbling. With Apple in crash mode it takes a lot of small gainers to support the index. Fortunately, the biotech sector is still alive and Priceline and Netflix are struggling to provide lift. Solar stocks should provide an assist on Wednesday and after five days of declines Apple could find some support. Maybe it will not rebound just yet but hopefully another $4 drop can be avoided.

Support for the Nasdaq is 5075 and 5025. The 100-day average is 5031 but that did not slow it on the July drop.

The Russell 2000 is not showing any life either. The 1240 resistance is still firm and the index closed under support at 1230 today. It was just a minor -2 point break but it counts. The Russell is not giving any clues as to when it will take the lead either up or down. The current market weakness is in the big caps so we just need to wait for a market event to change the malaise we are currently experiencing.

If you only look at one chart, it should be the Dow. The industrials are showing the most weakness and unfortunately the Dow is seen as the health of the broader market. When people say the market was up 65 points today they are obviously talking about the Dow. That is the primary market indicator.

The Dow is in a downtrend and there is nothing to really pull it out until the dozen or so plunging Dow stocks find a bottom. Until they find support it will be tough for the broader market to move higher.

August is historically the worst month of the year for the market and so far it has started off as expected. With Fed heads likely to continue talking up a September rate hike and the dollar about to break out to new four-month highs the outlook for earnings and the market is likely to be lower. Get out your shopping list and start adding to it. Apple at $105, GoPro at $55, Starbucks at $55, Disney at $118, etc. Pick out a few stocks you would like to own at a cheaper price and that makes waiting through the market declines a lot more fun.

Remember, the average analyst target for the S&P at the end of December is 2,231. They may all be wrong but at least that is something to think about.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Weak Q2 Demand

by James Brown

Click here to email James Brown


Allegheny Technologies - ATI - close: 20.57 change: -0.21

Stop Loss: 22.10
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 03, 2015
Time Frame: Exit PRIOR to September option expiration
Average Daily Volume = 1.5 million
New Positions: Yes, see below

Company Description

Trade Description:
Weak demand and cheaper competition from China has steamrolled shares of ATI down to five-year lows.

ATI is part of the industrial goods sector. According to the company, "Allegheny Technologies Incorporated is one of the largest and most diversified specialty materials and components producers in the world with revenues of approximately $4.3 billion for the twelve months ended June 30, 2015. ATI has approximately 9,600 full-time employees world-wide who use innovative technologies to offer global markets a wide range of specialty materials solutions. Our major markets are aerospace and defense, oil and gas/chemical process industry, electrical energy, medical, automotive, food equipment and appliance, and construction and mining."

ATI was already underperforming the broader market when the company issued an earnings warning on July 14th. Wall Street was estimating a profit of $0.17 per share for ATI's Q2 results. Management said they would post a loss and adjusted their Q2 guidance for a loss of (0.15) to (0.17) per share.

A few days later, on July 21st, ATI reported a Q2 loss of ($0.15) per share and the stock crashed again. Revenues fell -8.6% to $1.02 billion, which was below estimates.

ATI has two main business segments - their High Performance Materials and Components business and their Flat-rolled products business. The company said demand in Q2 was lower for both business segments with sales declines almost across the board. A slowdown in demand from the U.S. oil and gas industry hurt their high-performance unit. Meanwhile a flood of cheap imported steel from China hurt their flat-rolled product business.

Rich Harshman, Chairman, President and CEO of ATI, commented on their quarter, "This was a challenging quarter due to business conditions in the Flat Rolled Products segment and further weakening in demand from the oil & gas market in the High Performance Materials and Components segment."

These results have sparked some downgrades for ATI. The point & figure chart is very bearish and forecasting a $5.00 target. The stock's P/E has soared to 171 so it's not cheap even after a $17 drop in the last three months.

Currently ATI is hovering above major round-number support at $20.00. A breakdown here would be bad news and could signal a drop toward $15.00. Tonight we are suggesting a trigger to launch bearish positions at $19.85. I am suggesting we keep our position size small to limit risk.

Trigger @ $19.85 *small positions to limit risk*

- Suggested Positions -

Short ATI stock @ $19.85

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

Buy the SEP $20 PUT (ATI150918P20) current ask $1.05
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

Stocks Sink For A Third Day

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 index declined for a third day in a row. A rally in the U.S. dollar failed to stop an oversold bounce in commodities. Yet a bounce in oil was little help to the oil stocks, which saw their early gains fade.

Current Portfolio:

BULLISH Play Updates

ConAgra Foods, Inc. - CAG - close: 44.17 change: +0.10

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 30, 2015
Time Frame: Exit PRIOR to earnings on September 22nd,
Average Daily Volume = 3.3 million
New Positions: Yes, see below

08/04/15: CAG eked out a small gain today. We are still waiting for a new relative high. Our suggested entry point is $45.25.

Trade Description: July 30, 2015:
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)

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

Guidewire Software, Inc. - GWRE - close: 58.32 change: -0.17

Stop Loss: 57.75
Target(s): To Be Determined
Current Gain/Loss: +0.1%
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

08/04/15: More conservative traders may want to abandon ship and just exit GWRE early. The stock remains inside the $58.00-60.00 trading range but it's coiling along the bottom and that suggests the next move will be a breakdown lower.

No new positions at this time!

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

08/04/15 Readers may want to exit early now
08/01/15 new stop @ 57.75
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 Hartford Financial Services Group - HIG - close: 47.77 chg: -0.46

Stop Loss: 46.40
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 03, 2015
Time Frame: Exit PRIOR to September option expiration
Average Daily Volume = 3.0 million
New Positions: Yes, see below

08/04/15: HIG managed to tag a new high this morning right before shares reversed lower. HIG ended the day with a -0.9% decline, underperforming the broader market. Technically today's move has generated a bearish engulfing candlestick reversal pattern. Fortunately HIG missed our suggested entry point at $48.35 this morning.

Let's see what HIG does tomorrow. At the moment our plan is unchanged.

Trade Description: August 3, 2015:
HIG had been hovering near multi-year highs from March through June this year. Then in July the stock began to accelerate higher. The catalyst was merger and acquisition news in its industry.

On July 1st ACE Limited (ACE) announced it would buy Chubb Corp. (CB) for $28.3 billion. This lit a fire under the property and casualty insurance stocks and HIG surged to new highs for the year.

If you're familiar with HIG they are in the financial sector. According to the company, "With more than 200 years of expertise, The Hartford (HIG) is a leader in property and casualty insurance, group benefits and mutual funds. The company is widely recognized for its service excellence, sustainability practices, trust and integrity."

The last couple of earnings reports for HIG have been mixed. They have been beating Wall Street's bottom line estimate but have missed the revenue numbers. Their most recent report was July 27th. Analysts were expecting a profit of $0.77 per share. HIG crushed the number with a profit of $0.91 per share. That is a +193% improvement from the $0.31 profit a year ago. Revenues were up +1.5% to $4.68 billion.

In addition to beating the estimate HIG raised its dividend and boosted its stock buyback program by an additional $1.6 billion. The current repurchase program stands at $2 billion through December 31, 2016.

Shares have garnered a couple of price target upgrades since its earnings report. The new targets are $53 and $55. There has been more chatter and speculation that HIG is a potential takeover target, which is probably why shares are outperforming its peers. The S&P SPDR Insurance ETF is up +7.8% year to date while HIG is up +15.6%.

Tonight we are suggesting small bullish positions if HIG can trade at $48.35 or higher.

Trigger @ $48.35 *small positions to limit risk*

- Suggested Positions -

Buy HIG stock @ $48.35

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

Buy the SEP $50 CALL (HIG150918C50)

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

The Kroger Co. - KR - close: 38.56 change: -0.84

Stop Loss: 36.95
Target(s): To Be Determined
Current Gain/Loss: -1.3%
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

08/04/15: Ouch! What happened to KR today? Shares erased the last four and a half days worth of gains with a -2.1% drop. I don't see any company-specific news to explain today's relative weakness.

I am not suggesting new positions at this time.

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: 20.27 change: +0.23

Stop Loss: 19.20
Target(s): To Be Determined
Current Gain/Loss: -2.3%
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

08/04/15: VNET bounced near yesterday's intraday low and managed to erase yesterday's loss by the closing bell.

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

08/01/15 new stop @ 19.20
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: 31.96 change: -0.01

Stop Loss: 33.05
Target(s): To Be Determined
Current Gain/Loss: +0.4%
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

08/04/15: Sadly BBY did not see any follow through on yesterday's reversal lower. Shares pared their intraday loss to close virtually unchanged on Tuesday. Traders may want to wait for a breakdown to a new low under $31.65 before considering new positions.

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

08/01/15 new stop @ 33.05
07/27/15 triggered on gap down at $32.10, trigger was $32.15
Option Format: symbol-year-month-day-call-strike

The Michaels Companies, Inc. - MIK - close: 25.05 change: +0.31

Stop Loss: 26.05
Target(s): To Be Determined
Current Gain/Loss: -1.2%
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

08/04/15: MIK can't make up its mind what direction it wants to go. There was no follow through on yesterday's bearish reversal. Shares outperformed the broader market today with a +1.25% gain.

Traders may want to look for a new decline under $24.60 as an entry point.

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

08/01/15 new stop @ 26.05
07/28/15 triggered @ $24.75
Option Format: symbol-year-month-day-call-strike

Whiting Petroleum - WLL - close: 18.98 change: -0.07

Stop Loss: 22.55
Target(s): To Be Determined
Current Gain/Loss: +4.4%
Entry on August 03 at $19.85
Listed on August 01, 2015
Time Frame: Exit PRIOR to earnings
Average Daily Volume = 7.1 million
New Positions: see below

08/04/15: WLL's performance today looks a lot like yesterday. The early morning rally failed near round-number resistance at $20.00. Shares spent the rest of the day fading lower.

Trade Description: August 1st, 2015:
The price of crude oil has fallen more than 50% in the last year. It's wreaking havoc on energy company earnings and revenues. Unfortunately the outlook is not very bullish. The global economy is stalling. China, the biggest buyer of commodities, is growing at multi-year lows. The U.S. is creeping along at +2% GDP growth while oil inventories in the U.S are near 80-year highs.

The Middle East OPEC cartel is pumping a high-volume of oil, regardless of price declines, to maintain market share. A recent report showed that OPEC boosted production by +140,000 barrels a day in July from its June production. OPEC is hoping to pressure the U.S. fracking industry out of business but it's not working. U.S. production remains resilient and near record highs.

If that wasn't enough the Federal Reserve is desperate to raise interest rates and would like to raise in September. Rising interest rates usually boost a country's currency. If the Fed does raise rates the U.S. dollar should rally even further. A rising dollar puts downward pressure on commodity prices. This paints a bearish picture for crude oil prices.

Given this outlook for crude we're adding a bearish play in the energy industry. Some view WLL as a barometer of the U.S. shale oil and gas industry. If that's the case the stock price is suggesting a dire forecast.

WLL is in the basic materials sector. According to the company, "Whiting Petroleum Corporation, a Delaware corporation, is an independent oil and gas company that explores for, develops, acquires and produces crude oil, natural gas and natural gas liquids primarily in the Rocky Mountain and Permian Basin regions of the United States. The Company’s largest projects are in the Bakken and Three Forks plays in North Dakota, the Niobrara play in northeast Colorado and its Enhanced Oil Recovery field in Texas."

WLL just reported its Q2 earnings on July 29th. Analysts were only expecting a profit of $0.02 per share. WLL delivered $0.04. However, that's a -97% drop from a year ago. Revenues plunged -29.4% to $590 million, which was significantly below analysts' estimates of $677 million.

We have to give the company credit for cutting costs dramatically during a tough time in the oil industry. Otherwise they would not have managed a profit for the quarter. WLL also managed to set a new company record for production of 170,000 barrels a day in the second quarter. Unfortunately, these positives are not enough to outweigh the overall bearish impact of plunging oil prices.

Plus, investors and analysts might shun WLL as the company is sending mixed messages. The company claimed that based on strong results during the second quarter they were raising their capex budget from $2 billion to $2.3 billion. That was two weeks ago. This past week WLL has already cut its capex budget. Now they're forecasting $2.15 billion. They only plan on running eight drilling rigs in the second half of 2015 instead of their previous guidance of 11 rigs.

Wall Street is turning more cautious on WLL. The stock has seen several downgrades and lowered price targets recently. The stock has been very weak. Momentum is bearish. The oversold bounce last week just failed under technical resistance at its simple 10-dma. Now WLL is testing round-number resistance at $20.00. We are suggesting a trigger to launch bearish positions at $19.85.

- Suggested Positions -

Short WLL stock @ $19.85

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

Long SEP $20 PUT (WLL150918P20) entry $2.05

08/03/15 triggered @ $19.85
Option Format: symbol-year-month-day-call-strike