Option Investor

Daily Newsletter, Wednesday, 8/12/2015

Table of Contents

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

Market Wrap

Currency War

by Keene Little

Click here to email Keene Little
For the 2nd day in a row China devalued their currency (after telling the world the 1st time was a only one-time devaluation) and it sent the global stock markets tumbling this morning. But the decline became too irresistible to value hunters and they drove the indexes back up near the flat line for the day. Both sides are now asking "what's next?"

Today's Market Stats

Developed countries continue to compete in the race to the bottom as they each devalue their own currency in an effort to fight the deflation monster and make their products cheaper for other countries to buy. It's the new way to fight a trade war (instead of tariffs as in previous trade wars). But as in all wars, it tends not to end well for anyone.

China has shocked the markets with not one but two significant devaluations in the past two days. After the first one, which hit our futures market Sunday night, China said it was a one-time reevaluation of their yuan and that there would be no more adjustments. Ha, if their mouth is moving they're lying (just like our politicians and Fed). After devaluing the yuan 2% on Sunday (their Monday), they did it again last night with another 1.6% devaluation. Those sound like small corrections but in the currency world they're huge moves. But not to worry, after two moves the Chinese tell us they're done. Ha, their mouths are still moving.

Many believe China did this out of spite for not being allowed into the IMF's world money called the Special Drawing Right (SDR). They had expected a decision by November to allow the yuan to be included in the basket of currencies but last week the decision was moved out nearly a year to the end of September 2016. Devaluing their yuan as they've done, with the surprise move, is tantamount to declaring they've joined the currency war (which the U.S. started with all the rate reductions and QE efforts).

But the problem for China was that they were leaving the yuan essentially pegged to the U.S. dollar, which has remained strong, and that's been hurting China's economy. While other countries have been devaluing their currencies (where's the outrage there?) to fight deflation and make their products more competitive in pricing in the export market, China has been losing market share and their own domestic demand is not enough to soak up the excess manufacturing capability that they have. They were willing to hold on until November to get accepted into the IMF's SDR but once the decision was pushed out a year the Chinese leadership realized they can't hold on for another year. Hence the devaluation now -- get it done, get the hate mail now and let it be forgotten in a year when the IMF reevaluates the yuan for inclusion. Actually, yuan devaluations are probably long from being finished.

China's economy is imploding and we see evidence of this even in commodity prices, which are now below where they were in 2009 at the bottom of that period of global contraction (and yet here we sit at the top in the stock market -- major disconnect anyone?). China feels it must devalue their currency to make it cheaper to sell their goods overseas. The fact that everyone is doing this and therefore no one is gaining an advantage seems to be lost on those making the decisions. But the race for the bottom continues as the currency wars heat up.

I have believed for a while that there's a snowball's chance in hell that the Fed would raise rates in September (or December for that matter) and now the chances are even less. The U.S. economy is headed for the slowest growth since 2012 and Yellen's forecast for unemployment to decline to 5% while the economy grows by +2.5% and inflation rises to 2% is as likely to happen as a pole flip in the earth's magnetic core.

China's devaluation is a direct admission their economy is in trouble. And if they're in trouble it's because the other countries are not buying their products. The global consumer has pulled back and obviously that means lower global growth. And if China continues to devalue the yuan it would keep the dollar stronger and as long as the dollar remains strong (above 93) the more difficult it is for the Fed to raise rates, which would only strengthen the dollar even more and make it more difficult for us to compete with prices with the rest of the world. We would experience even slower growth at a time when growth is already slowing. Do you see the corner into which the Fed has successfully painted itself? The Fed can't raise rates and instead of celebrating, as it is now, the stock market will realize it's because the global economies are not allowing rates to be raised and that means the stock markets are way overvalued.

These are interesting times indeed and as if figuring out what the stock market is up to was not hard enough on our own, we now have the global economies, currencies, bond markets, etc. to worry about. They're all factors that must be considered in our market analysis. They say everything that is known is already priced into the market and that's why we study charts. Surprise currency announcements and other events will always be a present danger and it's one reason why you don't go all in on a trade. Accept the fact that your position might get body slammed in an overnight move and be sure a big hit on your position is not going to wipe you out. At this time you should NOT be using any margin in your stock trades.

With that let's move to the stock charts, starting a "simple" look at DOW's uptrend, as shown on its weekly chart below. You can see how this morning's low was a small poke below the bottom of its up-channel for the rally from October 2011, which is currently near 17340. A weekly close at or above that level will be important. If the market rallies from here I see upside potential for the DOW to a new high in the 18500-18600 range by September (that would frustrate a few bears), where it would meet the midline of its up-channel and the trend line along the highs since last December.

Dow Industrials, INDU, Weekly chart

One thing that many are talking about is the death cross for the DOW, which is when the 50-dma crosses down through the 200-dma, which it did yesterday. One thing to take note about these though -- instead of being bearish they tend to mark turning points and instead should be called a bullish cross. By the time the index has dropped enough to get the cross it's usually oversold and ready for a reversal back up. Obviously the two MA's will be potential resistance if and when reached but for now there are enough pieces in place to suggest yesterday's death cross will in fact mark the bottom of the DOW's pullback this morning.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,630
- bearish below 17,200

There are a couple of points I'd like to make about the DOW's daily chart. First, it's using the arithmetic price scale, as is the weekly chart shown above, and that lowers the uptrend line from October 2011. Using the log price scale that uptrend line is near 17790 (near the 50-dma) and I'll be watching it for resistance again if tested (it held as resistance on a weekly closing basis on July 31st). With the arithmetic price scale it's holding as support. The second important point is the descending wedge pattern for the decline from July 20th, which at the moment looks like it completed with this morning's spike below the bottom of the wedge on news (a typical way for wedges to complete). The pattern for the pullback from May looks corrective, with an A-B-C pullback with two equal legs down at 17252, which was achieved (easily) today. With today's low at 17125 it also looks like a satisfactory test of its December 2014 low at 17067 and these are part of the reason I'm feeling bullish against this morning's low. But another drop below 17200 would have me turning more bearish.

I've mentioned before a rounding top pattern that appears to be developing as the choppy price action since last November/December has that choppy topping pattern look to it. But it doesn't preclude another stab higher and on the SPX weekly chart below that's what I'm projecting. The uptrend line from February-July fits as the bottom of a shallow rising wedge pattern for the 5th wave in the rally from October 2011 (to complete wave-C of an A-B-C bounce off the 2009 low). Currently near 2060, it was tested today and held on a closing basis (intraday stop runs are common in this market). More importantly, for the bulls, SPX has not yet dropped below price-level support near 2040, a break of which would be much more bearish.

S&P 500, SPX, Weekly chart

The bold blue lines on the daily chart below are the boundaries of the shallow rising wedge mentioned above, the top of which will be near 2150 next week. Two equal legs up from July 7th, for an a-b-c move to complete the 5th wave of the rising wedge, points to 2140.86, shown on the chart. The top of the wedge will be near 2152 by the end of the month and a little throw-over above the top, equal to today's 8-point throw-under, points to almost 2160 in early September. That gives us a 2140-2160 upside target zone, which will be narrowed if and when the rally makes it up there. We're still in the chop zone, which I define to be between 2045 and 2115 so be careful about continued choppy whipsaw price action until either one of those levels breaks.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2115
- bearish below 2045

Today's rally off this morning's low looks like a 5-wave move, which means we should look for a pullback Thursday morning. Maybe the pullback will be a scary one in order to suck the shorts back in so that they'll provide more short-covering fuel for a rally into opex. But the 5-wave move up suggests the pullback should be bought for at least another leg up for either another a-b-c move back up or something more bullish. Based on the choppy decline I'll be looking at a pullback as a buying opportunity for a higher rally into next week. If wrong, that's what stops are for.

S&P 500, SPX, 60-min chart

NDX also has a corrective (3-wave) move down from its high on July 20th. Each of the two legs down is also a 3-wave move and that has it looking like a double zigzag pullback correction. That's just EW terminology for the kind of pullback it looks like and it means we should be looking for a reversal of it and the start of a new rally leg. Two equal legs down for the zigzag pattern points to 4446.76, which was achieved with this morning's low near 4436 and the strong reversal supports the higher-probability move belongs to the bulls. An upside projection, at 4786, is based on two equal legs up from the July 7th low and that projection cross the trend line along the highs from November 2014 - April 2015 around mid-September. That gives us a price and time to watch for the next rally (if we get it), which if achieved would then set up a shorting opportunity for what should be a monster move back down into next year. Who knows, maybe the Fed will announce a large rate increase in spite of everything that points to no increase. More likely there will be no increase and a final high could be made on "good" news.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4635
- bearish below 4400

Similar to the DOW, the RUT looks like it completed a bullish descending wedge today. The decline from June 23rd has formed the wedge with the requisite 5-wave move and that in turn should be the completion of an A-B-C correction off the April high. The Fibs fit the EW pattern, known as an expanded flat correction where the b-wave (the May-June rally) was 127% of the a-wave (the April-May pullback), which was missed by only a point. Then the c-wave (the June-August decline) is a 5-wave move that typically achieves 162% of the a-wave, which is near 1187 and missed by a little more than 2 points. Until and unless the RUT drops below 1186 this is a bullish pattern, supporting what I'm seeing in the other indexes.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1245
- bearish below 1186

Treasuries may have given us an important turn signal today. With Treasury prices often counter to stock prices (money rotates into the relative safety of Treasuries during risk-off times) we might have seen at least a short-term top in Treasury prices today. The 20+ Treasury Bond ETF (TLT) daily chart below shows a key outside down day today (it gapped up, made a new high and then closed below yesterday's low). It also tried to climb above its 200-dma, at 124.48, as well as the top of a rising wedge pattern off it June 26th low, and left a throw-over above both before collapsing back down. A decline in TLT would be supportive for a stock market rally. A good trade on TLT is short against today's high at 125.71 (only a suggestion for educational purposes, wink).

20+ Year Treasury ETF, TLT, Daily chart

The initial negative reaction in the banks was a sign that a Fed rate hike has been pushed out by China's actions and that wouldn't help banks' profitability. This morning's decline broke below the uptrend line from January for BKX but it recovered it by the end of the day, near 77 (although intraday it looks like a bounce back up to the trend line for what could be a back-test to be followed by a bearish kiss goodbye). From its high on July 23rd there is so far just an a-b-c pullback with two equal legs down at 75.89 (missed by a penny with today's low at 75.90) and now it takes a rally above Monday's high at 79.54 to confirm new highs are likely coming.

KBW Bank index, BKX, Daily chart

The U.S. dollar tumbled a dollar lower today and briefly broke below its 50-dma, at 96.37, and closed pennies below it. It's also back-testing a previous broken downtrend line from April 13 - July 7, just as it did with a previously broken downtrend line from April 13 - May 27. The pullback from last Friday could be the start of another trip back down near the May low as part of a larger sideways consolidation that I've been showing on the weekly chart. A drop below today's low at 95.94 would likely mean lower prices for the dollar but keep in mind all the choppy price action in the dollar and that means potential whipsaw, subject to overseas news and what the Fed has to say. At the moment the message from the dollar is that the Fed will not be raising rates in September.

U.S. Dollar contract, DX, Daily chart

The relatively strong bounce in gold the past week has many calling for a stronger rally and a good time to buy gold. Every time I see so many newsletters calling for a strong rally in gold I keep thinking about all the previous times there were similar calls, only to see new lows follow. I don't think it will be any different this time, although I do see the potential for a higher bounce so for a trade it might work. But first I'd want to see gold get above a previous trend line along the lows from June-July, which was broken on July 17th and it led to a strong decline. At the moment gold is back up for a test of the line, near 1126, and it could be followed with a bearish kiss goodbye. A decline from here would target 1050 before another multi-month consolidation in a stair-step pattern lower into the end of the year. But the first sign of bullishness would be a climb back above price-level S/R near 1142 and its 50-dma which is coming down to the same level. Notice on the daily chart below that MACD has made it back up to the zero line and a cross back down from here would create a MACD sell signal, just as it did following the June 18th high.

Gold continuous contract, GC, Daily chart

While gold is back-testing a trend line along the lows from June-July, silver is back-testing a broken uptrend line from November 2014 - March 2015 (it ignores a brief spike down in December 2014), near 15.60. It's bullish above that level but remains bearish below it and another leg down would likely be a test of the July 24th low at 14.33 before a multi-month consolidation in its stair-step decline.

Silver continuous contract, SI, Daily chart

Oil has made it back down to previous lows in January and March and it currently showing a significant bullish divergence. I'm sticking with the big sideways consolidation into the end of the year until proven otherwise. That calls for a rally back up to the 58.50 area in October before dropping back down again.

Oil continuous contract, CL, Weekly chart

Not that anyone is paying much attention to domestic economic reports right now but tomorrow's will include the unemployment claims data, retail sales, which are expected to show further slowing in this sector as the mighty consumer pulls in their spending horns, and export and import prices. If we see further signs of deflation it will be another point for the Fed to evaluate in their rate-increase analysis (since they're so data dependent, as they say at each meeting). The PPI numbers on Friday are also expected to show a slowing in inflation, otherwise referred to as disinflation (that 'D' word is allowed but not Deflation).

Economic reports and Summary


In this yo-yo market that we've been in since last December, when SPX first climbed above today's closing price at 2086, means we really don't have a clue as to what direction this market will finally trade when it breaks out of the trading range. That means traders need to be cautious and assume the reversals of reversals will continue. But I think the market might have tipped its hand this week and I'm seeing more bullish signs than bearish.

I don't know what could drive a rally to new highs but I definitely see the potential from here. That could drastically change by this time next week and all I can do is go with what the market is telling me at the time. I use a combination of EW patterns, trend lines, Fib projections, oscillator divergences, market psychology, astrological signs (have I missed anything) and at the moment most of the tools I use tell me to look to buy pullbacks. August is typically a bearish month but I have a feeling to many are going to be caught leaning the wrong way if they keep trying to sell rallies.

Again, that could change in a heartbeat, which it has often done in this choppy market, but until I see some bearish price patterns emerge from this mess I'll be leaning with the bulls into a September high. From there we would then have a shorting opportunity of a lifetime (better than in 2008) but I'll get ready for that opportunity if and when it presents itself. Trade carefully in this whippy market.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Plays

Sprinting Past Its Peers

by James Brown

Click here to email James Brown


Total System Services, Inc. - TSS - close: 47.26 change: +0.19

Stop Loss: 45.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 12, 2015
Time Frame: Exit 6 to 9 weeks.
Average Daily Volume = 969 thousand
New Positions: Yes, see below

Company Description

Trade Description:
TSS is probably one of the best performing stocks in the S&P 500 this year. The S&P 500 index is up +1.3% year to date. The financial sector is up +1%. Yet TSS has surged +39% in 2015 and shares look poised to keep running.

TSS is in the financial sector. According to the company, "As one of the world's largest payment solutions and services companies, TSYS believes payments should revolve around people, not the other way around. Since we got our start in the payments space more than 30 years ago, we have evolved from a supporting role servicing several hundred bank card issuers and bank acquirers to directly touching hundreds of thousands of merchants and millions of consumers.

TSYS is a global, publicly traded company with operations in more than 80 countries, including many of the world’s most high-growth emerging markets. We provide electronic payment services to financial institutions and companies around the globe with a broad range of issuing and acquiring payment technologies, including consumer, credit, debit, healthcare, loyalty, prepaid, chip and mobile payments."

Earnings are supposed to be the main driver behind stock price appreciation. TSS has not disappointed. The company has beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row. Revenues have grown +8.9%, +11.7%, and +15.1%, respectively over the last three quarters.

TSS' most recent earnings report was July 28th. They announced their Q2 results were $0.58 per share. This was a +29% improvement from a year ago and five cents above expectations. Management then raised their 2015 guidance.

Since this late July earnings report shares of TSS have been consolidating sideways in the $46-48 range and essentially ignoring the market's recent volatility. Shares displayed some relative strength today and we want to be ready to hop on board if TSS can breakout. Tonight we're listing a trigger to open bullish positions at $48.05.

Trigger @ $48.05

- Suggested Positions -

Buy TSS stock @ $48.05

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

Buy the NOV $50 CALL (TSS151120C50) current ask $1.10
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:

In Play Updates and Reviews

Buying The Dip Again?

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 rushed toward the bottom of its seven-month trading range but the selling pressure was not strong enough to produce a breakdown. Stocks bounced and they bounced big with a rally back to virtually unchanged on the session.

GMT hit our entry trigger. BBY hit our stop loss.

Current Portfolio:

BULLISH Play Updates

AGCO Corp. - AGCO - close: 54.93 change: -2.03

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: -2.2%
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

08/12/15: Ouch! It was an ugly day for shares of AGCO. The stock erased the last several trading sessions with a plunge toward $54.00. AGCO did managed to trim some of its losses but it did not see the same intraday rebound that the major indices did. The broader market managed to bounce back to unchanged on the day. AGCO underperformed with a -3.5% decline.

I am not suggesting new positions at this time.

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: 44.69 change: -0.28

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: -1.5%
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

08/12/15: CAG dipped toward $44.00 during today's market-wide drop this morning. The stock managed to bounce back to where it gapped down this morning.

More conservative traders may want to adjust their stop loss closer to the $44.00 level.

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: 53.20 change: +0.62

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

08/12/15: Shares of CBI held up reasonably well today. Traders bought the dip near yesterday's lows. The stock outperformed the broader market with a +1.1% gain. CBI still looks poised to breakout from its recent sideways consolidation. 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: 47.48 chg: -0.36

Stop Loss: 46.40
Target(s): To Be Determined
Current Gain/Loss: -1.8%
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

08/12/15: HIG traded below what should have been support in the $47.00-47.25 area. Fortunately the stock bounced at $46.65. While HIG pared its losses it still underperformed the market with a -0.75% decline.

I am not suggesting new positions at this time.

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: 20.11 change: -0.57

Stop Loss: 19.20
Target(s): To Be Determined
Current Gain/Loss: -3.1%
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

08/12/15: VNET dipped toward technical support at its simple 100-dma before starting to bounce. Unfortunately shares underperformed the broader market with a -2.75% decline on the session.

More conservative traders may want to raise their stop loss. Today's intraday low was $19.84 and the 100-dma is at $19.75.

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

GATX Corp. - GMT - close: 50.11 change: +0.41

Stop Loss: 52.05
Target(s): To Be Determined
Current Gain/Loss: -1.5%
Entry on August 12 at $49.35
Listed on August 11, 2015
Time Frame: Exit 4 to 6 weeks
Average Daily Volume = 334 thousand
New Positions: see below

08/12/15: The stock market's spike lower this morning helped push GMT to new 52-week lows. Shares hit our suggested entry point at $49.35. Unfortunately the market and GMT both delivered a sharp afternoon rebound.

Technically today's move in GMT has produced a bullish engulfing candlestick reversal pattern. This pattern needs to see confirmation so I wouldn't panic yet but I'm not suggesting new positions at the moment. More conservative traders might want to use a lower stop loss.

Trade Description: August 11, 2015:
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.

- Suggested Positions -

Short GMT stock @ $49.35

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

Long SEP $50 PUT (GMT150918P50) entry $2.45

08/12/15 Caution: GMT has produced a bullish engulfing candlestick reversal pattern.
08/12/15 triggered @ $49.35
Option Format: symbol-year-month-day-call-strike

GrubHub Inc. - GRUB - close: 29.98 change: +1.37

Stop Loss: 30.55
Target(s): To Be Determined
Current Gain/Loss: -4.8%
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

08/12/15: We need to be cautious with the GRUB trade. Shares gapped open lower but didn't see much follow through. GRUB bounced near its recent lows and rallied right back to resistance near $30.00. Technically today's move has generated a bullish engulfing candlestick reversal pattern but it needs to see confirmation. Of course any follow through higher is going to breakthrough resistance at $30.00.

No new positions at this time.

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: 20.08 change: +0.57

Stop Loss: 20.35
Target(s): To Be Determined
Current Gain/Loss: -1.2%
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

08/12/15: Energy stocks were some of the market's best performers today. WLL did not participate in the market's spike lower this morning. When the market rebounded WLL was already testing resistance near $20.00. The intraday high was $20.31 and our stop is at $20.35. Any follow through higher tomorrow will likely close this play.

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


Best Buy Co., Inc. - BBY - close: 31.71 change: +0.23

Stop Loss: 31.65
Target(s): To Be Determined
Current Gain/Loss: +1.4%
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

08/12/15: The afternoon bounce in BBY was enough to hit our stop loss at $31.65. The longer-term trend for BBY is still down but this bounce may not stop until BBY hits resistance in the $32.50 area or its 50-dma near $33.35.

- Suggested Positions -

Short BBY stock @ $32.15 exit $31.65 (+1.4%)

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

OCT $30 PUT (BBY151016P30) entry $1.28 exit $1.09 (-14.8%)

08/12/15 stopped out
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