Option Investor

Daily Newsletter, Thursday, 8/13/2015

Table of Contents

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

Market Wrap

International Woe, Domestic Strength

by Thomas Hughes

Click here to email Thomas Hughes
The market moved higher as China fear subsides and domestic economic data supports rate hike lift-off.


The market moved higher today despite a third day of devaluation for the Chinese yuan. The PBOC once again changed the mid-point for yuan trading but soothed investor sentiment with statements to the effect that there was no basis for a prolonged devaluation program. Reasons given were strong economic environment, a chronic trade surplus, a sound financial position and deep foreign exchange reserves. Whether or not any of this is true remains to be seen but nevertheless helped to support today's trading.

Asian indices ended their day in positive territory following another day of wild swings. European indices also finished in positive territory although rumblings from Greece may add volatility to the market tomorrow and into next week. The recently reached agreement between PM Tsipras and creditors will get voted on early Friday morning and faces tough opposition. The ruling Syriza party is facing a split as far left members seek to block the deal.

Market Statistics

All of this news had futures trading strongly positive in the early hours of the premarket session but economic data tempered the trade. Today's economic calender included reads on employment, the consumer and business that all support current rate hike expectations and a possible September lift-off. By 9:30 futures were indicating a flat to mildly positive open and that is what we got. The first hour of trading saw the indices struggle though and make a dip into negative territory. The SPX lost about 8 points at its morning low but was able to recover. By 10:45 the indices were flirting with break even levels and by noon most were back in positive territory.

Afternoon trading was exactly opposite to the morning session. The indices moved higher from the break even point, pushing more than a half percent higher from yesterday's close, but were not able to hold the gains. By the end of the day all the majors had retreat back to break even levels with more than one closing with more than one posting small losses.

Economic Calendar

The Economy

Today's economic calender was pretty full. Along with jobless claims we got data on Retail/Sales, Import/Export Prices and Business Inventories. First up, jobless claims. Initial claims for unemployment rose by 5,000 from a downward revision of -1,000 to hit 274,000. This is the fourth week of mild gains in initial claims but the number remains near the long term low and consistent with labor market health. The four week moving average of initial claims fell however, shedding -1,750 to hit a new 15 year low. On a not adjusted basis claims rose by 7% versus the 5.2% predicted by seasonal factors. Not adjusted claims are down -11% from this same time last year. Virginia and Iowa led with increases in claims of 1,094 and 538. California and Tennessee led with decreases in claims of -3157 and -1451.

Continuing claims also rose, gaining +15,000 from an upward revision of +3,000 to hit 2.273 million. This leaves continuing claims basically flat for the month and trending near the long term low. The four week moving average of continuing claims gained 14,500 to reach 2.258 million and is also trending flat, just above the long term low. Total claims fell this week, shedding -42,092 to hit 2.260 million. This is the first week of decline in over a month but is still nearly 11% below last year at this time and near the long term low.

Retail sales rose more than expected, +0.6%. Consensus was in the range of 0.5%. On a year over year basis sales are also up, 2.4% from last July. The previous month was revised higher to "virtually unchanged" according to the press release. Sales were boosted primarily by auto/auto parts and food&beverage which are up 6.9% and 9% over the last year at this time.

Import and export fell in July, primarily on the plunge in oil prices. Import prices fell -0.9% on the headline number and -0.3% ex-energy. Export prices fell a more modest -0.4%.

Business Inventories rose much more than expected, 0.8%. Consensus was in the range of 0.3%, in line with the previous month's 0.3%. Sales rose 0.2% for the month but are down -2.5% from last July.

The Oil Index

Oil prices fell again today, hitting a new 6.5 year low. WTI fell a little more than -3% to hit $42. Supply issues persist despite recent draw downs in US supplies. Worries over economic slowing in China are adding increasing pressure on demand outlook despite the changes in expectations issued by the EIA earlier this week. They are now calling for production growth to slow in 2015 and 2016, but remain near all time highs, while demand growth was upgraded for 2016. Even with this new prediction supply is outweighing demand and will likely keep pressure on oil prices. The EIA has also lowered its 2015 and 2016 price targets to $49 and $54 respectively.

The Oil Index fell only about -1.25% in today's action and did not set a new low. The index fell from resistance at the short term moving average and the 50% retracement level with indicators suggesting a test of that resistance may still come. Both stochastic and MACD are bullish and moving higher, in line with the underlying long term trend in the index, and could lead to a move above resistance, currently at 1235. A break above resistance could take the index up to next support, about 80 points above today's close, near the bottom of the long term trend line. Trend remains broken but recent price action suggests a bottom that could lead to a resumption in trend provided the energy sector does indeed return to profitability as expected.

The Gold Index

Gold prices fell in today's session, shedding about -0.8%, as the PBOC moves to devalue the yuan have strengthened the dollar. Gold lost about $10 but is still trading above $1100. Adding to the downside pressure is today's economic data which is in support of the upcoming FOMC rate hike whether or not the first one comes in September. Tomorrow's data, and in particular the PPI, could add additional downside pressures should inflation remain low.

The gold miners traded lower today, in tandem with the drop in gold, despite an upgrade of seniors Barrick Gold and Newmont Mining that came from Deutsche Bank. The upgrade is based primarily on valuation, Barrick alone is more than 35% below consensus targets and is expected to rise over the next year. This is consistent with my personal view of the sector which has been reporting increasing production and lower costs. The miners ETF lost -5.5% in today's session but looks strong to retest resistance met yesterday just below the 100% retracement level. Both MACD and stochastic are bullish and on the rise, today's action is no doubt tied to the drop in gold but may also include backing and filling after yesterday's opening gap up.

In The News, Story Stocks and Earnings

Retailer Kohl's fell more than -8% after reporting weaker than expected earnings. The company reported a miss on revenue and sales despite adding four new stores over the past year. Company CEO blamed the miss on a shift in sales in tax-free states from July to August but tempered it by saying they were well positioned for the back-to-school and fall season. However, positioning was not enough for the company to maintain guidance, which was lowered to the bottom of the previously released range. Kohl's is now trading near a 52 week low.

Eggs and egg prices have been in the spotlight this week as they are largely expected to rise. For one thing, egg producers have not recovered from the bird flu epidemic we saw this spring and summer. For another, bird flu is expected to become a problem again this fall when the seasonal migration of wild birds gets underway. According to data from the USDA prices for mid-west large brown eggs has risen more than 140% from last year and are at record highs.

This of course makes me think of Cal-Maine, a large southern based egg producer and one of the single largest distributors of shell eggs in the country. The company has not yet been hit significantly by the flu epidemic which is centered in the mid-west population. It has also not yet benefited from the increase in egg prices, per the most recent earnings report released in late July. Shares of the stock have been trending around $55 over the past few months, near the all time high, with support near $50. Rising prices should carry over into the companies bottom line with the risk that bird flu this year will not be as bad as predicted. Next earnings release is scheduled for the first week of October.

High end retailer Nordstrom reported after the bell. The company was expected to report $0.90 per share but the company blew away the projection and sent the stock shooting higher in after hours trading. According to the release sales grew at a rate greater than 9%, the fourth consecutive quarter of high single digit growth, and come on a 4.9% increase in comp store sales. EPS was projected in a range near $0.90, the actual is $1.09. The company also announced plans to open 19 new stores and upped guidance to a range slightly above previous guidance. Shares gained more than 5% after the announcement.

The retailers have been in focus this week and have largely disappointed the market. Companies from Macy's to Kohl's have reported weaker than expected earnings with a mixed outlook for the future. While economic data shows retail sales are on the rise the improvements are not carrying over into the general population of retailers. The Retail Sector Spyder XRT reflects this. The ETF entered a near to short term down trend with yesterday's candle and may see further declines. It ended today near flat to yesterday's close with weak indicators suggesting a test of support is likely. Both MACD and stochastic are pointing lower with first support target near $95. A break below this level could take it as low as $92.50. Resistance appears to be just above today's high, near $97.50.

The Indices

Today's action was mild compared to yesterday. Regardless of loss or gain all created small bodied spinning top candles without much indication of direction. For the most part the indices closed flat for the day, led by a small gain in the Dow Jones Industrial Average. The blue chips rose 0.03% in today's session and created a small doji candle after moving down, and then up, by about a half percent. Today's action is roughly centered in the 5 day trading range and stuck between support near 17,200 and resistance near 17,500. The indicators are both bearish/pointing lower with a test of support very possible, however, they are also still consistent with a supported market at this time. The short term moving average is still well above current price action and fast approaching the long term trend line. The long term trend is still up while the near to short term trend is down to sideways.

The NASDAQ Composite made the largest decline, -0.21%. The tech heavy index made a more pronounced downside movement but one that is still little more than a spinning top. The index is now trading just above the support of the long term trend line and set up for a trend following bounce. The indicators are bearish in the near term but MACD is cresting a bearish wave while stochastic is flat, both consistent with support at current levels. The trend line could be tested with a move down to 5,000 or lower, with a break below the trend line opening it up for a possible decline to 4,900.

The S&P 500 and Dow Jones Transportation Average made equal declines of -0.13%. The transports made a move down from resistance at the short term moving average and my support/resistance line at 8,280. This, along with rapidly declining bullish momentum and both stochastic lines moving lower, makes a test support look likely. Yesterday's candle puts support just below 8,250.

The S&P 500 also fell -0.13% and created a small bodied black spinning top candle. Today's action was trapped between two tightly packed support and resistance lines with indicators in support of a range bound index with little momentum, trading in the middle of a range. MACD momentum is on the bearish side but very very weak, stochastic is trending in the middle of its range with only very weak crosses by %K. News and/or data will likely cause a move in either direction but the risk I think, is to the downside. Any move to the downside is likely to find resistance before falling too far, with targets near 2,075, 2,060 and 2,050.

The markets are winding up on news, fears, earnings, economic data and FOMC expectations. At this point it seems like everything is being tied to the FOMC and rate hike expectations so there is a good chance the wind up could continue for the next month, up to and until the next Fed meeting. Between now and then there will be little in the way of earnings, we are near the end of the season, so news and data will be the market mover du jour.

China is the biggest risk for now. There is no telling what they will do, what they will say and what the data will show. My take is that whatever is going on over there has been going on for a long time and since we can't really trust the official government reports any news we do get has little worth... until we can definitely say it is having an effect on our economy. Until then our data remains positive and expansionary, earnings are still OK and outlook for both is good. I remain bullish for the long term and a buyer on the dips but ever so cautious.

Until then, remember the trend!

Thomas Hughes

New Plays

No Bottom In Sight

by James Brown

Click here to email James Brown


Marathon Oil Corp. - MRO - close: 18.02 change: -1.04

Stop Loss: 19.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 13, 2015
Time Frame: Exit
Average Daily Volume = 7.8 million
New Positions: Yes, see below

Company Description

Trade Description:
Falling crude oil prices are crushing oil-sector stocks. A -50% drop in crude oil that began in the second half of 2014 was horrendous for the U.S. and global oil industry. Oil managed a bounce off its March 2015 lows but that rebound has failed.

Since late June the price of oil has fallen about -30%. Today saw crude oil close near $42.00 a barrel, the lowest since March 2009 (during the bear market in stocks).

Shares of MRO are getting hammered on this oil slide. According to the company, MRO is a global energy company. They explore for, produce, and market oil and natural gas. They are also involved in the oil sands mining in Canada and the big shale oil and gas basins in the United States. The company has operations in Angola, Equatorial Guinea, Ethiopia, Gabon, Kenya, Libya, Norway, the United Kingdom, and the Kurdistan region of Iraq.

There are a ton of factors impacting crude oil and the energy sector. OPEC's largest producer, Saudi Arabia, has decided keep production high. They would rather suffer low oil prices than lose market share to rival producers.

According to CNBC today, "OPEC's second-largest producer, Iraq, plans to export near-record volumes of Basra crude in September, adding to an already oversupplied market." Plus, "The U.S. Energy Information Administration also said on Thursday that Iran's release of oil held in storage could boost global supplies by 100,000 barrels per day this year, and that it had the 'technical capability' to boost output by 600,000 bpd by the end of next year."

If that wasn't enough the recent focus on China is undermining oil prices. China is one of the largest, if not the largest, consumer of commodities on the planet. Their economy has been slowing down for years. The central bank of China's decision to devalue their currency this week stokes fears that China's economy is falling even faster than previously expected. That doesn't bode well for China's future oil demand.

Meanwhile back at home in the U.S. we see crude oil inventories building. Wall Street is worried that domestic oil companies have not cut their spending budgets enough. There is growing concern that MRO may have to slash its dividend. The plunge in MRO's stock price has boosted its dividend yield to more than 4%.

A quick look at MRO's last few earnings reports shows the trend in revenues. Their Q3 2014 results saw revenues fall -5%. Q4 results saw revenues drop -16% from the prior year. Their Q1 2015 report said revenues plunged -46%. Their most recent report, their Q2 report on August 5th, said MRO's revenues dropped -47.9% to $1.53 billion. The company reported a loss of ($0.23) per share. Management has been slashing their budgets and cutting expenses but it wasn't enough.

The last few days have seen MRO's stock hovering above short-term support at $18.00. Unfortunately today's drop (-5.45%) left shares poised for a breakdown. Tonight we are suggesting a trigger to launch bearish positions at $17.80. We're not setting a target tonight but I will point out that the point & figure chart is bearish and forecasting at $5.00 target.

FYI: MRO does have a 21-cent dividend coming up. The stock will trade ex-dividend in the August 17-19th time frame.

Trigger @ $17.80

- Suggested Positions -

Short MRO stock @ $17.80

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

Buy the OCT $17 PUT (MRO151016P17) current ask $0.97
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 See Intraday Bounce Fade Into Red

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market's midday bounce reversed this afternoon. Most of the major indices faded back into negative territory for the session.

AGCO and GRUB hit our stop loss.

Current Portfolio:

BULLISH Play Updates

ConAgra Foods, Inc. - CAG - close: 44.44 change: -0.25

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: -2.0%
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

08/13/15: It was a relatively quiet day for CAG. Shares slipped -0.5%. Tomorrow we may not be so lucky. After the closing bell tonight CAG reported that its private label business assets have been relabeled as "impaired". The company will need to write down the value of these assets. Shares of CAG might spike lower at the open tomorrow. However, the market already knew that CAG is trying to sell this business and the market already knew that they would probably lose $1.5 billion on any deal. So it's possible that tonight's statement may not have much of an impact.

No new positions at this time.

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

08/13/15: CBI is still churning sideways in the $51-54 zone. The stock did underperform the broader market today. If the recent trend is any guide CBI should bounce near its converging 50-dma and 100-dma near $51.00. 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: 48.82 chg: +1.34

Stop Loss: 46.40
Target(s): To Be Determined
Current Gain/Loss: +1.0%
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

08/13/15: It was an exciting day for shares of HIG. Rumors that the company was a takeover target sparked a big rally before lunchtime. HIG surged +7.3% intraday and hit $50.95 but gave back the majority of these gains. We can't complain about a new multi-year high when the rest of the market was sinking today.

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

Total System Services, Inc. - TSS - close: 47.47 change: +0.21

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

08/13/15: TSS displayed relative strength on Thursday with a +0.44% gain. The stock is inching closer to a bullish breakout higher. Our suggested entry point is $48.05.

Trade Description: August 12, 2015:
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)

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

21Vianet Group, Inc. - VNET - close: 20.25 change: +0.14

Stop Loss: 19.20
Target(s): To Be Determined
Current Gain/Loss: -2.4%
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

08/13/15: VNET held up pretty well on Thursday with a +0.6% gain. Traders bought the dip near $20.00 this morning.

Keep in mind that we do not have a lot of time left. VNET is scheduled to report earnings on August 26th. We plan to exit before their announcement.

More conservative traders may want to raise their stop loss.

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: 49.81 change: -0.30

Stop Loss: 52.05
Target(s): To Be Determined
Current Gain/Loss: -0.9%
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

08/13/15: GMT tried to rally this afternoon but quickly reversed. Shares closed down -0.59%, underperforming the major indices. I would prefer to see a new drop below $49.50 before considering new bearish positions. 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

Whiting Petroleum - WLL - close: 19.19 change: -0.89

Stop Loss: 20.35
Target(s): To Be Determined
Current Gain/Loss: +3.3%
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

08/13/15: Crude oil slipped to new relative lows again today and this weighed heavily on the energy stocks. WLL fell -4.4%. While I do expect energy stocks to move lower I would hesitate to launch new positions in WLL.

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


AGCO Corp. - AGCO - close: 54.31 change: -0.62

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: -4.1%
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

08/13/15: It has been a terrible week for AGCO shares. The stock reversed from 52-week highs and pierced technical support at its 50-dma today. Our stop was hit at $53.85.

*small positions to limit risk* - Suggested Positions -

Long AGCO stock @ $56.15 exit $53.85 (-4.1%)

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

NOV $60 CALL (AGCO151120C60) entry $1.35 exit $0.85 (-37.0%)

08/13/15 stopped out
08/10/15 new stop @ 53.85
08/06/15 triggered @ $56.15
Option Format: symbol-year-month-day-call-strike



GrubHub Inc. - GRUB - close: 30.32 change: +0.34

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

08/13/15: I warned readers yesterday that any follow through higher in GRUB would likely stop us out. The stock managed to break through resistance near $30.00 and hit our stop loss at $30.55.

- Suggested Positions -

Short GRUB stock @ $28.60 exit $30.55 (-6.8%)

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

SEP $27.50 PUT (GRUB150918P27.5) entry $1.25 exit $0.65 (-48.0%)

08/13/15 stopped out
08/11/15 triggered @ $28.60
Option Format: symbol-year-month-day-call-strike