Option Investor

Daily Newsletter, Tuesday, 8/11/2015

Table of Contents

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

Market Wrap

Currency War

by Jim Brown

Click here to email Jim Brown

China fired the first shot in what could be a global currency war by devaluing their currency -1.9% overnight. That was the biggest drop in more than 20 years. Now the rest of the emerging markets will be pressed to devalue in order to remain competitive.

Market Statistics

This was the biggest one-day drop in the yuan since China ended the dual-currency system in January 1994. The PBOC said this was a one-time adjustment and future changes would be more aligned with supply and demand. They said the yuan exchange rate will now be quoted by market-makers "who will have to consider the prior day's closing spot rate, foreign-exchange demand and supply, as well as changes in major currency rates." This is a major change from the official government fix in a very narrow band. It effectively will allow the value of the yuan to trade on a market value basis.

China is currently suffering from the deepest economic decline since 1990. The government is struggling to maintain a grip on the financial system as the economy crumbles. The recent efforts to shore up the stock market showed they really had no grasp of the magnitude of the problem. Now that ineptitude is on display in the broader market. The yuan declined -1.8% to close at 6.3231 to the dollar in Shanghai.

Over the weekend, China said July exports fell -8.9% and imports declined -8.6%. China maintains the economy is still growing at a 7.0% GDP but the drop in commodity demand as well as those trade numbers above suggests reality is a lot worse.

By reducing the value of their currency, it will make their exports cheaper and increase demand. It also makes imports more expensive and will slow demand. This is the real problem. The emerging markets are very intertwined in the import/export arena. By devaluing the yuan it means South Korea, Taiwan, Singapore, Malaysia, etc will be forced to devalue their currencies to compete with China. Basically China fired the first shot in a currency war and now we could see a race to the bottom as other countries try to remain competitive by weakening their own currencies.

There is a serious worry that Japan will further weaken the yen in order to compete by increasing the $640 billion in annual QE.

Bloomberg Chart Source

In the bigger picture, this will increase deflationary pressures all around the world. This one move will probably not keep the Federal Reserve from hiking rates in September but future rate hikes will depend on the intensity of the currency war at that time and the strength of the dollar.

In addition to the drop in the yuan the Chinese government is expected to lower interest rates again this quarter, which will be the fifth cut over the last year, and lower lender reserve requirements to put more money into circulation.

One factor not getting much play today is the future of the yuan as a global reserve currency. China has been trying to get the yuan accepted by the IMF as a reserve currency equal to the dollar, euro, mark, franc and pound. Getting the yuan accepted by the IMF would be a major gain for China and a blow to the other currencies. Since a large portion of global trade is in goods flowing to and from China it would immediately make the yuan a more accepted currency and reduce the dependence on the dollar and others in world trade.

In order to be accepted by the IMF as a reserve currency the yuan must be "freely usable" and the exchange rate cannot be fixed. The IMF recently told China the yuan had to be more flexible in order to be considered. Apparently, China is moving in that direction with this daily market oriented fixing process. Mohamed El-Erian believes this is a play on getting the yuan accepted as a reserve currency with Special Drawing Rights (SDR with the IMF. Analysts believe the acceptance of the yuan as a SDR reserve currency could see more than $1 trillion flow into yuan denominated assets. That is a huge move since it means $1 trillion would flow out of other reserve currencies like the dollar.

"IF" the yuan is actually going to be allowed to float the direction of that initial float is not likely to be higher. China has kept the yuan artificially high for years. That means a sudden change to a floated currency could see that artificial support eroded over the next few months. It is like a stock that had a major buyer building a position at some specific dollar amount. As long as that buyer continues to buy at that level the stock will remain flat. Once that buyer completes his position the market will take over and shares will be able to seek their own level. China is stepping away from supporting the yuan but it is not likely to be a one-day event. They will probably continue to manage the price by intervening in the currency markets by purchasing the yuan if the market value begins to slip. They cannot keep this up forever but it may prevent any sudden swings over the next few weeks.

However, according to Mark Chandler from Brown Brothers, in the offshore markets the yuan continued to decline overnight by another -2%. Depending on how they fix the price at the open on Wednesday (9:PM tonight) there could be another big decline in the yuan and another ripple effect in emerging market currencies. This yuan news may linger for the rest of the week as the price finds its level in the market.

Not that anyone was watching but there were some positive economics this morning. The Wholesale Trade report for June showed a gain of +0.9% in wholesale inventories. This was well over the estimates for +0.4% and the +0.6% in the May report. Nondurable inventories rose +2.3% while durable goods rose only +0.1%. Durable goods sales declined -1.1% while nondurable sales rose +1.2%. This report could influence a small bump in the Q2 GDP.

The Productivity and Costs report for Q2 showed a rise in hourly output for nonfarm businesses of +1.35% after two quarters of declines. Q1 was revised higher from -3.1% to -1.1% and Q4 declined -2.2%. Compensation per hour rose +1.8%. Manufacturing output per hour rose +2.5% with compensation per hours up only +0.2%.

The NFIB Small Business Survey showed that the optimism index rose from 94.1 to 95.4 for July. Seven of the ten components advanced. This small gain only recovered a minor part of the -4.2 point decline in June. The earnings trends component declined from -17 to -19 and a four-month low. Those expecting the economy to improve rose from -9 to -4 and a slight improvement although still negative. That means a net -4% expect the economy to decline. Hypothetically that would look like 52% expected a decline and 48% expected it to improve. Only the net number is shown.

There are no economic reports of note for Wednesday. The retail sales report for July on Thursday morning is the most important report for the week followed by the PPI on Friday.

The Chinese devaluation crushed dozens of stocks that derive a large portion of their revenue from China. Leading the list with a -$6.20 decline was Dow component Apple (AAPL). That erased 48 points from the Dow and completely obliterated the +$4.25 gain from Monday. YUM Brands (YUM) lost -5% because they derive a majority of their income from stores in China. I think that is overdone since they source their food from inside China to sell in China. The only impact will be repatriating the profits in dollars.

BHP Billiton (BHP) gets 35% of its income from China and shares fell -5%. Rio Tinto (RIO) get 38% of its revenue from China and shares declined -4%. Micron (MU) gets 20% of its revenue there and declined -5%. Wynn Resorts (WYNN) gets 70% of its revenue from China and declined -4.3%.

GoPro (GPRO) was crushed with a -9% loss. I do not know their percentage of Chinese revenue but China is a big market for their high dollar cameras. This will raise the price of those cameras and slow sales.

One stock that did not decline was Google (GOOGL). Late Monday Google announced it was restructuring into a holding company format with the main company called Alphabet. Google shares will still be publicly traded and earnings will be broken out from the other Alphabet companies. Under the Google umbrella will be Google Search, Google Play, YouTube, Google Maps, Android and Google AdSense. Those are the components that make money.

Under the Alphabet banner will be Google Capital, Google X, Google Fiber, Google Nest, Google Ventures and Calico among other things like self driving cars and moonshots. These are the companies that don't make any money.

Google has been criticized a lot in the past for lumping all the "toy" projects in with the revenue generators like Google search. It is hard to know how much Google is really worth since a lot of the expenses were coming from the toys.

Starting in Q4 the Google companies related to search and Android will be broken out from the rest of the Alphabet operations. This will allow Google to be valued based on the market metrics rather than a guess at what the entire bag of tricks was worth.

Shares are still going to trade under the GOOG and GOOGL symbols. All shares of Google will automatically convert into an equal number of shares of Alphabet and retain the same rights. The ticker symbols do not change.

Analysts believe this will enable Alphabet to acquire new businesses and spin off existing ones as needed. They also believe this will increase spending for "revolutionary" ideas while Google itself pays the bills.

Analysts were quick to upgrade the company and provide new price targets.

Cowen & Co, outperform rating, raised target from $775 to $840.

Susquehanna, initiated with a "positive" rating, price target $800.

William Blair, outperform, no target mentioned.

Cantor Fizgerald, buy rating, price target $720.

Deutsche Bank, buy rating, target raised from $780 to $840.

Goldman Sachs, kept at neutral, price target $660.

Morgan Stanley, neutral, target $650.

Pivotal research, hold, target $620.

Pacific Crest, overweight, price target $745.

Stifel, upgrade to buy, increased target to $850.

Earnings were muted today with only a couple high profile companies. Symantec (SYMC) reported earnings of 40 cents on $1.5 billion in revenue. Analysts were expecting 43 cents and $1.52 billion. The company also announced it was selling the Veritas information management business to The Carlyle Group for $8 billion in cash. They expect to receive about $6.3 billion in net proceeds that will be put back to work in their core businesses. Symantec has previously announced plans to split into two companies later this year. The company also announced a $1.5 billion increase in its share buyback program. Those shares are 7% cheaper today after the post earnings sell off.

Fossil (FOSL) slumped -4% in the regular session before reporting earnings after the bell. Shares declined another -6% in afterhours after reporting an earnings beat but a revenue miss. The company also lowered guidance for full year revenue to a range of -1% to +3% growth.

ICU Medical (ICUI) reported an earnings beat after the bell on Monday. Earnings of 97 cents beat estimates of 69 cents. The company raised full year guidance to a range of $3.49-$3.69 with revenue at $327.5 million. Shares spiked +18% on the news.

Zebra Technologies (ZBRA) was mauled by the bears after reporting earnings that missed estimates. Zebra posted earnings of $1.05 compared to estimates for $1.18. Revenue of $890 million beat estimates for $885 million. The company guided for Q3 earnings of $1.23 and analysts were expecting $1.41. Shares fell -24% on the news.

There are two high profile earnings events for Wednesday. Alibaba (BABA) will report before the open and options volatility suggests a $6 post earnings move. The consensus estimate is for earnings of 57 cents. Alibaba still has a 1.2 billion-share lockup expiring on September 20th. I would short any big post earnings rally.

Cisco Systems (CSCO) will report after the bell. The consensus estimate is for earnings of 56 cents.

Crude prices declined -4% on the China headlines and news from OPEC. The cartel said they produced 31.5 million barrels per day in July, up +100,700 bpd from June. This is the highest level since the Iranian sanctions were tightened in 2012. Saudi Arabia said it cut production in July but third party sources show they produced 10.352 mbpd. Iraq raised production by 46,700 bpd to 4.074 mbpd. Angola raised production 39,700 bpd to 1.777 mbpd. Iran, a country that is theoretically constrained on exports increased production 32,300 bpd to 2.861 mbpd.

Going the other direction was Libya declining -37,800 bpd to 373,000 bpd. They have the capability to produce 1.3 million bpd if they could end the civil war.

OPEC increased its demand outlook for 2016 by 100,000 bpd to 94 mbpd. They expect 2016 demand to grow by 1.3 mbpd compared to an increase of 1.5 mbpd in 2015. OPEC said rising demand in the coming months should gradually reduce the imbalance in supply and demand. The cartel said supplies from outside OPEC are expected to rise 90,000 bpd in 2015 and then decline -40,000 bpd in 2016. Non-OPEC suppliers are expected to raise output by 960,000 bpd in 2015 to 57.46 mbpd.


Ignore today. This was a headline generated panic that has no real bearing on the overall market. While the yuan cloud will hang over the global economy for several weeks the net impact to the U.S. economy will be minimal. Some companies will see lower earnings in future quarters because of the currency translation issue but life will go on.

In the weekend newsletter, I suggested a short squeeze was imminent. We saw that on Monday and the rebound on the major indexes was right to resistance. Today's decline ended at 1:PM with the Dow down -263 points. The reversal was not strong but it was broad. I looked at hundreds of individual charts and the vast majority had decent rebounds in the afternoon.

Today was the perfect opportunity for the bears to take control and they could not push the S&P below Friday's close. Intraday the Monday gains were erased but the rebound from 2077 showed me that buyers were ready and sellers lacked enough conviction to press to a new low.

This was a headline day and nothing more. If the S&P can push back over 2100 and maybe even test 2110 in the coming days then the seller onslaught has been broken. However, as we have seen numerous times over the last several months the markets cannot seem to mount a credible rally other than a one-day short squeeze.

Assuming there are no new headlines overnight I would expect another short squeeze at the open on Wednesday. Obviously, that can be halted by numerous factors but none are visible as I write this commentary.

Resistance is 2100 and 2110 with support at 2077.

The Dow was dragged lower to a -263 point intraday loss by Apple, Goldman, Disney, Caterpillar and 3M. I do not know why Goldman was in that mix of Chinese casualties but it did contribute to the losses.

The Dow declined to 17,350 before managing a +55 point rebound. The Dow remains the weakest index and should continue that performance because nearly all the components are international and will be further hurt by the rising dollar and decline in emerging market currencies. More than half of the Dow components are in correction territory.

Resistance remains 17,600-17,775 and support at 17,300.

The 50-day average crossed below the 200-day on Tuesday. That is called the "death cross" and it an age old sell signal. Time will tell.

The Nasdaq nearly retraced to Friday's low of 5,006 with a low today of 5,013. The afternoon rebound recovered 25 points to end with a -65 point loss. As long as the support at 5,000 remains unbroken the market will eventually recover. A break below that level could trigger a new wave of selling.

Resistance remains 5,100.

The Russell 2000 was a duplicate of the other indexes. The lows of the day were equal to the close on Friday and the afternoon rebound recovered about one-third of the losses. As long as the 1,200 level holds on any further retests we should be fine. Should that level break the next support is 1,150.

The afternoon rebound suggests we could see additional bargain hunting on Wednesday. Should that occur the ranges from Friday and Monday should control our fate. Resistance is strong at 2100-2110 on the S&P and 17,600-17,775 on the Dow.

In the weekend commentary I suggested using any short squeeze as an entry point for short positions. The gap down open today would have been very profitable for anyone following that recommendation. If we return to those resistance levels and fail again I would repeat that strategy. There is no reason for the market to move significantly higher in the short-term.

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Enter passively, exit aggressively!

Jim Brown

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New Plays

New Order Demand Is Slowing

by James Brown

Click here to email James Brown


GATX Corp. - GMT - close: 49.70 change: -0.49

Stop Loss: 52.05
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 11, 2015
Time Frame: 4 to 6 weeks
Average Daily Volume = 334 thousand
New Positions: Yes, see below

Company Description

Trade Description:
Thus far 2015 has not been a good year for GMT stock. Shares are down -13% year to date and the stock looks poised to see its loss widen.

GMT is in the services sector. According to the company, "GATX Corporation (GMT) strives to be recognized as the finest railcar leasing company in the world by its customers, its shareholders, its employees and the communities where it operates. As the largest global railcar lessor, GATX has been providing quality railcars and services to its customers for more than 115 years. GATX has been headquartered in Chicago, Illinois, since its founding in 1898."

GMT started the year on a strong note with Q4 earnings results better than expected and revenues up +12.6%. Management raised their 2015 guidance following a healthy Q4 report. Unfortunately business has slowed down significantly in the last couple of quarters.

GMT's most recent report was July 23rd. The company delivered their Q2 results of $1.03 per share. That's a -10% drop from a year ago and 19 cents worse than expected. Revenues were down -0.14% to $365 million, which is significantly below Wall Street's estimate of $384 million. These results would have been even worse if GMT has not repurchased 727,000 shares last quarter.

The company claims they have strong demand for their rental fleet of rail cars. However, they're seeing new railcar orders slowing down. Their customers are delaying new orders due to the falling price of oil. Oil transport is a significant portion of their business.

According to the U.S. Energy Information Agency (EIA) 70% of U.S. production from the Bakken formation and 64% of Niobrara production is transported by rail. According to the American Association of Railroads, the U.S. rail system transported 11 times more crude oil in 2013 than all the oil moved by trains from 2005 to 2009 (source: CNBC). At the time that was about 815,000 barrels a day. It has most assuredly risen since then as U.S. production continued to climb through 2014 and into 2015.

Now that crude oil prices have crashed it has cut demand by producers to transport it. Technically shares of GMT are in a bear market. Investors have been selling the rallies for months. They just sold the oversold bounce a couple of weeks ago. Today GMT has closed below round-number support at $50.00 and is poised to hit new two-year lows.

The point & figure chart is forecasting a $45.00 target. I will point out that short interest is almost 15% of the 42.8 million share float. We should probably consider a slightly more aggressive trade due to some volatility. Tonight I am suggesting a trigger to open bearish positions at $49.35.

FYI: GMT has a $0.38 dividend coming up in September. The ex-dividend date should be in the September 11-15 time frame.

Trigger @ $49.35

- Suggested Positions -

Short GMT stock @ $49.35

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

Buy the SEP $50 PUT (GMT150918P50) current ask $2.05
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 Around The Globe

by James Brown

Click here to email James Brown

Editor's Note:
It was a down day for stocks around the globe as investors reacted to China's move in devaluing their currency. All of the major Asian, European, and American stock markets closed lower on fears of a global economic slowdown.

GRUB hit our bearish entry point.

Current Portfolio:

BULLISH Play Updates

AGCO Corp. - AGCO - close: 57.08 change: -0.79

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: +1.7%
Entry on August 06 at $56.15
Listed on August 05, 2015
Time Frame: Exit PRIOR to earnings
Average Daily Volume = 1.1 million
New Positions: Yes, see below

08/11/15: AGCO's dip today snapped a four-day winning streak. Shares essentially erased yesterday's rally. I don't see any changes from my recent comments. Broken resistance near $55.00 should be new support.

Trade Description: August 5, 2015:
Wall Street has been very forgiving when it comes to AGCO's sales outlook. The company expects sales to drop -20% in 2015 from the last year. Yet investors continue to buy the dips. Even more impressive is the fact that AGCO is up +23% year to date, outperforming all of the major indices.

AGCO is in the industrial goods sector. According to the company, "AGCO is a global leader in the design, manufacture and distribution of agricultural equipment. AGCO supports more productive farming through a full line of tractors, combines, hay tools, sprayers, forage equipment, grain storage and protein production systems, seeding and tillage implements and replacement parts. AGCO products are sold through five core equipment brands, Challenger©, Fendt©, GSI©, Massey Ferguson© and Valtra© and are distributed globally through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries. Founded in 1990, AGCO is headquartered in Duluth, GA, USA. In 2014, AGCO had net sales of $9.7 billion."

Looking at AGCO's recent earnings reports the company has reported sales declines the last three quarters in a row. Yet thanks to cost-cutting management has beaten analysts bottom-line earnings estimates each quarter. Management started raising their full-year 2015 earnings guidance in April with their Q1 report and boosted their earnings forecast above analysts' estimates.

They did it again when they reported their Q2 results on July 28th. Wall Street expected Q2 earnings of $1.01 per share. AGCO delivered $1.25 per share. Revenues were down -24.8% to $2.07 billion, which was in-line with expectations. The company said sales were down in every geographical region.

Martin Richenhagen, AGCO's Chairman, President and Chief Executive Officer, commented on their quarter, "Our second quarter results reflect the significant challenges caused by weaker global industry demand and currency headwinds." Yet management raised their 2015 earnings outlook again. They now expect $3.10 per share versus estimates of $2.90. They're forecasting 2015 sales in the $7.7 to $7.9 billion range.

The most recent data listed short interest at more than 18% of the 70.7 million share float. That's plenty of fuel for a short squeeze. The recent breakout past short-term resistance near $55.00 is bullish. Tonight we are suggesting a trigger to launch small bullish positions at $56.15.

*small positions to limit risk* - Suggested Positions -

Long AGCO stock @ $56.15

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

Long NOV $60 CALL (AGCO151120C60) entry $1.35

08/10/15 new stop @ 53.85
08/06/15 triggered @ $56.15
Option Format: symbol-year-month-day-call-strike

ConAgra Foods, Inc. - CAG - close: 44.97 change: -0.02

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: -0.8%
Entry on August 10 at $45.35
Listed on July 30, 2015
Time Frame: Exit PRIOR to earnings on September 22nd,
Average Daily Volume = 3.3 million
New Positions: see below

08/11/15: Traders bought the dip in CAG this morning. Shares managed to pare their losses to the point of closing virtually flat on the session. This is a victory for the bulls.

At this time I would wait for a new rally past $45.25 before initiating positions.

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.

- Suggested Positions -

Long CAG stock @ $45.35

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

Long SEP $45 CALL (CAG150918C45) entry $1.35

08/10/15 triggered on gap higher at $45.35, suggested entry was $45.25
Option Format: symbol-year-month-day-call-strike

Chicago Bridge & Iron Co. - CBI - close: 52.58 change: -0.68

Stop Loss: 50.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 10, 2015
Time Frame: Exit PRIOR to October option expiration
Average Daily Volume = 1.8 million
New Positions: Yes, see below

08/11/15: CBI, like most of the market this morning, gapped down. Shares fell to $51.50 before bouncing. The stock remains inside its recent $51-54 trading range. Our suggested entry point is $54.05.

Trade Description: August 10, 2015:
Last year was a horrible one for shares of CBI. The stock had rallied from less than $5.00 per share at its 2009 lows to almost $90. They traded above $89 in April 2014. Then CBI reversed lower and didn't stop until it hit a capitulation low of $32.16 on January 30th, 2015. That was a -64% plunge in less than a year. It looks like CBI has turned the corner. The stock is outperforming the major indices with a +26% gain year to date.

CBI is in the industrial goods sector. According to the company, "CB&I (CBI) is the most complete energy infrastructure focused company in the world. With 125 years of experience and the expertise of approximately 54,000 employees, CB&I provides reliable solutions while maintaining a relentless focus on safety and an uncompromising standard of quality."

The company's most recent earnings report was July 23rd. CBI delivered a profit of $1.55 per share. That was 13 cents better than estimates. Revenues did fall -2.6% to $3.21 billion but mostly due to foreign currency headwinds, which shaved off about $270 million. CBI had a strong quarter with $2.8 billion in new contract wins. Their backlog remains one of the biggest in the business at more than $29 billion.

Philip K. Asherman, CB&I's President and Chief Executive Officer, commented on his company's quarterly results, "We continue to deliver solid performance despite a volatile commodity market and geopolitical issues that create instability in many of the traditional international energy markets. The U.S. remains a great opportunity for us particularly in LNG, petrochemicals and fossil power generation markets. East Africa will be a source of solid backlog for many years as Anadarko and other owners develop these tremendous assets. Additionally, we continue to produce significant profitability from not only our insourcing capabilities but also the diverse portfolio of new opportunities in our facilities maintenance, engineered products, steel plate storage, pipe fabrication, technology licensing and catalyst businesses."

Zacks Equity Research had some positive things to say about CBI. They looked at the company's growth rate and believe CBI will grow earnings at 12%, which is almost double the industry average of 6.7%. Zacks also noted that CBI's cash flow growth of 19% was significantly above its industry average of just 4.9%.

CBI has not been an easy stock to own this year. Shares have been volatile. The month of May saw a rally from about $44 to $59 in a matter of days. Then CBI gave it all back with a six-week plunge. It looks like CBI is back in rally mode. Previously weakness in oil played a part in CBI's troubles but shares appear to be divorced from crude oil movement. There are concerns about a slowing global economy but CBI's ability to grow earnings seem to be shielding it at the moment. The point & figure chart is bullish and forecasting at $65.00 target.

On a short-term basis CBI appears to be breaking out from a bull-flag consolidation pattern over the last several days. Tonight I am suggesting a trigger to open bullish positions at $54.05.

Trigger @ $54.05

- Suggested Positions -

Buy CBI stock @ $54.05

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

Buy the OCT $55 CALL (CBI151016C55)

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 Hartford Financial Services Group - HIG - close: 47.84 chg: -0.54

Stop Loss: 46.40
Target(s): To Be Determined
Current Gain/Loss: -1.1%
Entry on August 10 at $48.35
Listed on August 03, 2015
Time Frame: Exit PRIOR to September option expiration
Average Daily Volume = 3.0 million
New Positions: see below

08/11/15: HIG bounced at $47.55 this morning. Shares spent most of Tuesday's session churning sideways in the $47.70-48.00 range. At this point I would wait for a new rally past $48.35 or even $48.60 before considering new positions.

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.

*small positions to limit risk* - Suggested Positions -

Long HIG stock @ $48.35

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

Long SEP $50 CALL (HIG150918C50) entry $1.13

08/10/15 triggered @ 48.35
Option Format: symbol-year-month-day-call-strike

21Vianet Group, Inc. - VNET - close: 20.68 change: -0.31

Stop Loss: 19.20
Target(s): To Be Determined
Current Gain/Loss: -0.3%
Entry on July 23 at $20.75
Listed on July 22, 2015
Time Frame: Exit PRIOR to earnings on August 26th
Average Daily Volume = 996 thousand
New Positions: see below

08/11/15: After a five-day rally shares of VNET retreated from resistance near $21.00. Shares fell toward their simple 50-dma before starting to trim their losses.

I'd prefer to see a breakout past $21.00 before considering new bullish positions. Keep in mind our plan is to exit prior to earnings on August 26th.

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: 31.48 change: +0.19

Stop Loss: 31.65
Target(s): To Be Determined
Current Gain/Loss: +1.9%
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

08/11/15: Our BBY trade might be over tomorrow. Shares displayed relative strength today with a +0.6% gain. If BBY sees any follow through higher tomorrow it will likely hit our stop loss at $31.65.

More aggressive investors might want to give BBY more room (i.e. raise your stop) since the $31.75 area looks like it could be overhead resistance.

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

08/08/15 new stop @ 31.65
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

GrubHub Inc. - GRUB - close: 28.61 change: -0.97

Stop Loss: 30.55
Target(s): To Be Determined
Current Gain/Loss: +0.0%
Entry on August 11 at $28.60
Listed on August 08, 2015
Time Frame: Exit PRIOR to September option expiration
Average Daily Volume = 2.2 million
New Positions: see below

08/11/15: A positive analyst rating on GRUB this morning didn't help shares. The stock reversed lower and underperformed the broader market with a -3.2% decline. The stock hit our suggested entry point to launch bearish positions at $28.60. Today is a new all-time closing low for the stock. I would still consider new positions at current levels or as an alternative you could wait for a drop below today's low of $28.26.

Trade Description: August 8, 2015:
It's been a rough ride for investors in GRUB over the last year and a half. The roller coaster ride in the stock has taken a bearish turn for the worse in spite of strong growth numbers.

The company held its IPO in April 2014. GRUB priced about 7 million shares at $26.00 each. The stock opened at $40.00. Four months ago shares peaked at $48.00 after a very volatile year of trading. Today there are over 83 million shares outstanding (77 million in the float) giving GRUB a market cap of $2.4 billion. Annual revenues over the last twelve months were $283 million.

GRUB is considered part of the technology sector. It's lumped in with the Internet stocks. According to the company, "GrubHub (GRUB) is one of the nation's largest portfolios of online and mobile takeout food ordering and delivery services. Connecting diners to more than 35,000 restaurants in 900 U.S. cities and London, the company's platforms and services strive to make takeout better through innovative restaurant technology, easy-to-use platforms and an improved delivery experience. The GrubHub portfolio of brands includes GrubHub, Seamless, AllMenus, MenuPages, Restaurants on the Run and DiningIn."

The bulls do have a case. GRUB is seeing strong growth. They reported their Q1 results on April 29th. Earnings were $0.12 per share, which beat estimates by a penny. Revenues were up +50% to $88.2 million, also above estimates. GRUB said their Q1 saw active diners rise +46% from a year ago to 5.6 million. Their number of "daily average grubs" rose +30% from a year ago to 234,700.

The strong growth continued in the second quarter. GRUB reported on July 28th and results were $0.17 per share. That beat estimates by four cents. Revenues were up +46.7% to $88 million, also above estimates. Active diners were up +42% from a year ago to 5.9 million. Daily average "grubs" were up +26% from a year ago to 220,000.

Matt Maloney, GRUB's CEO, commented on their results, "We delivered significant year-over-year growth in the seasonally slower second quarter, driven by strong performance in all of our markets across the country."

Management then raised their 2015 revenue guidance from $346-361 million to $358-364 million. Wall Street was forecasting $360 million.

Unfortunately traders sold the news. The Q1 results ignited a sell-off in late April and GRUB continued to sink. There was a lot of volatility in the stock surrounding its Q2 results but investors have continued to sell GRUB in spite of its growth numbers.

The bears argue that GRUB is not only super expensive but it's facing growing competition. Uber is building up its UberEATS meal delivery service. Yelp is trying to build up its Eat24 service. That's on top of other competitors like BeyondMenu, Delivery.com, and MyPizza.com. Even Amazon.com is getting in the food delivery game with a service for Amazon Prime members in Manhattan.

The shorts seem to have momentum in their favor. The most recent data listed short interest at 18% of the 77.2 million share float. The point & figure chart is bearish and forecasting at $13.00 target. The $30.00 level was major support and the breakdown is technically very bearish. It's possible that the IPO price at $26.00 is potential support but I doubt it. Traders have been selling every rally. Tonight we are suggesting a trigger to launch at $28.60. More conservative traders may want to wait for a new low under $28.00 as an alternative entry point.

- Suggested Positions -

Short GRUB stock @ $28.60

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

Long SEP $27.50 PUT (GRUB150918P27.5) entry $1.25

08/11/15 triggered @ $28.60
Option Format: symbol-year-month-day-call-strike

Whiting Petroleum - WLL - close: 19.51 change: -0.60

Stop Loss: 20.35
Target(s): To Be Determined
Current Gain/Loss: +1.7%
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

08/11/15: Thankfully WLL did not see an follow through on yesterday's huge bounce higher. Another sharp decline in crude oil undercut the energy stocks. WLL gapped down at the open. It's worth noting that shares did pared their losses and settled with a -2.9% decline.

No new positions at this time.

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

08/05/15 new stop @ 20.35
08/05/15 new stop @ 21.25
08/03/15 triggered @ $19.85
Option Format: symbol-year-month-day-call-strike