Stock of the Week: August 2015

Sunday, August 30, 2015

It's Pandemonium

8/30/15

I don’t think it’s necessary to recap what happened last week, because unless you live in a box or were on a secluded island for the week without wi-fi, you know exactly what happened. The end result of an 1100 point drop in the Dow on Monday, a more than 600 point drop from high to low on Tuesday, and then major rallies the rest of the week resulted in a more about a 1% gain for all of the major averages this week. Last week, I advised NOT selling the farm, but that it was okay to lighten up if you really didn’t like one of your positions. I also said to wait for the capitulation day to start buying, which is really what happened on Monday morning, which saw the largest volume in more than 4 years. All hell broke loose; it was pure pandemonium and panic selling, and hopefully you took advantage and did some buying like I did.

But that was then, this is now. As I mentioned last week, not a single thing has changed that would warrant the market to drop as it did. In fact, the economic data from Europe and the US has been pretty strong. Earlier in the week, European PMI came in much better than expected and on Thursday, the US economy was said to have grown by 3.7%, much better than economists predicted. We also got strong housing data throughout the week, which lends strength to Q3 GDP. If you listen to the earnings conference calls, it’s apparent that US sales remain robust and consumers are indeed spending. In rational markets, all of this data would be a positive sign. However, as you know these are very irrational markets, so the strong economic data is creating more uncertainty as to what the Fed will do in a few weeks, and the markets hate uncertainty. I am in the camp that believes the Fed should and needs to raise rates in September, even if it’s just 12.5 basis points. They should not be basing their decisions on the stock market, which is not an indication of the economy. The Fed has said over-and-over that they are data dependant on when to raise rates, and most of the economic data that has come out over the last couple months, have been positive for future economic growth. At the same time, the Fed needs some firepower in case the economy does regress in the next couple quarters. By raising rates in September, they will give themselves the opportunity to lower rates back down in an emergency, but I don’t think that will be necessary. While what’s happening in China seems to be a big concern for Central Bankers and investors for that matter, the reality is that a slowdown in the Chinese economy is nothing new…it’s been slowing for three years and China accounts for a whopping 7% of US exports. Although markets indicate China should heavily influence the stock price of US companies, remember this: S&P 500 companies generate almost 70% of their sales from the US and only 8% of overall revenues come from Asia-Pacific.

While you will likely still have another chance to buy stocks if you have cash that you want to put to work, I believe the markets will head higher from here into year’s end. $29B existed the market in just the past week, the largest equity outflow since 2002, so there is a significant amount of money that still needs to get back in. Put that on top of all the money that remained out of the market during this entire bull rally, and what you have is a floor underneath the marketplace. As stocks sell off, investors will be looking to get long, and as stocks rally, investors will rush to get in, in fear of missing out again on the bull market. Additionally, companies are rushing in to prop up their stock price with massive buybacks, creating additional support on the downside.

As for the technical levels to watch in the S&P, I am using new Fibonacci retracements from the all-time high of 2135 down to Monday’s low of 1867. The first level of support is the 38.2% retracement at 1970, a level that held on Friday, and which was the low from August 21^st. If that fails during the comings week’s volatility, the next support level is right around 1930, which is the 23.6% retracement, and represents about a 3% drop. To the upside, the key resistance is at 2000 and 2032, which are the 50% and 61.8% retracements, respectively.

I did put money to work this week, mostly on Monday as I took advantage of the panic. I opened a new position in Lockheed Martin (LMT), added to my positions in Disney, Apple, Facebook, Skyworks Solutions, Starbucks, Celgene, and FireEye. Then, later in the week, I bought TJX Companies on the heels of another very strong quarter, got long September call options in Exxon Mobil (XOM) and sold Freeport MacMoran (FCX), which leads me to my top SPECULATIVE two trade ideas for the short-term.

Wednesday was a unique day in the markets, not just because stocks rallied 4%, but also because we may have seen a bottom in oil, at least a near-term bottom. While oil was actually down about 2% on the day, all of the energy names actually rallied sharply. The Spider Energy ETF (XLE) was up 3.5%, outpacing oil by more than 5% on the day. While you can say that they rallied because of the broader market, I would tell you that is not the case, because the energy names have not traded with the overall market since oil’s drop began over a year ago. If you remember back in March, prior to oil bottoming on March 17^th at $42.41, the energy stocks never made new lows and actually began rallying higher on March 13^th. Since the energy stocks rally on Wednesday, crude oil is up 17% and the XLE is up 11.1% compared to the S&P, which is up only 6.5%. Of course, a lot of this recent move is short covering, but some of these big energy names with strong balance sheets are becoming very cheap and there’s anticipation of seeing more mergers in the near future, lead by Schlumberger’s purchase of Cameron on Wednesday morning. I am looking for the oil rally to continue into September, so I bought September call options in Exxon Mobil, as I look for the stock to rally to $79.50, a gain of 6% in just a few weeks. If you want oil exposure and do not want to be levered to one specific company, I recommend buying the XLE as I see the short-term rally continuing to $69.50 by mid-September, which is a 5.7% gain, and one that will likely outpace the S&P in the same time frame.

My last trade idea is another one that I put on early Friday morning, on the heels of Carl Ichan announcing his stake in mining company, Freeport MacMoran (FCX). Freeport Mac explores and mines for copper, gold, silver, oil and natural gas. As you know, those are the worst places to be right now, and its stock price reflects that, with the Freeport having dropped 55% YTD. On Thursday morning, the company announced big spending cuts, which sent the stock up 28%, and after market close, filings showed that Carl Ichan took an 8% stake in the company, sending the stock up another 20% afterhours. However, Ichan has an average purchase price between $16-$17, which means that as of Friday, best case scenario, he has a 35% loss right now. On Friday, Freeport closed at $10.50, down 16% from its afterhours high of $12.22. While it’s great that an activist like Carl Ichan came in and will try to put the company in a better position for the future, the reality is that Freeport Mac is in the worst business it could be in right now and the management team has been a major disappointment over the last couple years. Additionally, unless he is the most powerful man in the world, Ichan cannot create stronger demand for metals and energy. With a slowdown in China, these companies cannot rely on the Chinese to stock up on supplies. Gold has lost its luster with investors, there’s an abundant supply of oil and natural gas and while there is a US housing recovery going on, copper isn’t in high demand anywhere else right now. I am short Freeport from $11.60, with a scratch stop, and am looking for the stock to fall to $8.56, which represents an 18% drop from Friday’s close. I can’t see the stock going higher than $11.50, so I recommend you wait for the stock to rally a little bit and then sell it short, stopping yourself out on the upside at $11.50.

The volatility is here to stay in these irrational markets, but don’t get caught up in the panic. Stay rational and use any market sell offs to add to positions in high quality names that have already reported strong earnings and benefit from a strong US economy, with a focus on mostly domestic companies. If you are looking to add some speculative positions to your portfolio, look at buying the XLE for a short-term pop and/or selling Freeport MacMoran for further downside.

My current positions: Long Gilead Sciences (GILD), Starbucks (SBUX), Facebook (FB), Wells Fargo (WFC), Time Warner (TWX), NXP Semiconductors (NXPI), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The Box (JACK), Under Armour (UA), United Rentals (URI), Regeneron (REGN), Apple (AAPL), Southwest Airlines (LUV), Dow Chemical (DOW), L Brands (LB), Costco (COST), Amgen (AMGN), Home Depot (HD), Allergan (AGN), FireEye (FEYE), Humana (HUM), GoPro (GPRO), Skyworks Solutions (SWKS), Disney (DIS), Lockheed Martin (LMT), TJX Companies, long Exxon Mobil (XOM) SEPT CALLS and short Freeport MacMoran (FCX).

Jeff Lewison

Sunday, August 23, 2015

Irrationality Leads To Capitulation

8/23/15

A couple weeks ago, I wrote that these were irrational markets and that all bets were off when it comes to fundamentals. If you weren’t a believer then, you almost have to be now, with the Dow falling into a correction territory on Friday, having already lost 1,200 points this month. The Nasdaq is on the verge of a correction, down 9.8% from all-time highs, falling 7.5% last week, alone. The S&P dropped 5.7% last week and is now just 50 points, or 1 more day, from falling into a correction. While corrections are normal for long-term bull markets, the violent drop that we saw last week isn’t. In fact, the Dow suffered its worst week since the 2^nd week of the financial crisis, which began in October 2008. There was a lot of panicking in the market place on Thursday and Friday, where companies that reported great quarters and raised guidance, and have absolutely nothing to do with the reasons for the sell-off, were getting slammed. But the reality is, this pullback, should not have been a surprise to you (although the pace of it probably is). For months and months, I have been giving you the technical levels in the IBB, IWM and S&P that had to hold, or else the markets were going lower, and this week was the week they all broke down.

Take your pick, you can name almost any reason you want for the markets trading lower, but there’s no logical reason that stocks should have dropped 5-8% last week. Has anything changed in the world between last Sunday and today? No, absolutely nothing. So what exactly happened last week that scared so many people away? Blame a softening Chinese economy, even though no single company has lowered their numbers because of a slowdown in China. Blame commodities, especially crude oil prices falling below $40/barrel, even though most companies other than energy actually BENEFIT from lower oil prices, not to mention that it’s great for the consumer. You also can’t say that lower oil prices means a weak global economy because oil demand has actually been rising for the last 6 weeks and is higher YoY. Blame a weaker US Dollar, even though when the dollar was strengthening, markets were worried that company’s revenues were being negatively impacted. Blame Fed uncertainty, as there is no indication that the Fed will indeed raise rates in September. Blame stocks being overvalued, even though for every 1 stock that’s overvalued, I can name 2 better ones that are undervalued. The point is, it doesn’t really matter what the reasoning is because it’s over and done. What matters now is where the markets go from here, and how to proceed.

It would be a mistake to panic and sell everything at this point. If you want to lighten up on some positions, I have no problem with that, but selling because of fear of further loses will fall in the hands of the irrational investor. Take a step back and think for a second. Has anything fundamentally changed for the stocks that you own? Because Disney said they expect slightly lower ESPN revenues, should the stock really be worth 19% less today than it was just 20 days ago? Did Apple stop selling the iPhone and didn’t tell anybody? Because with the stock in a bear market (down 20% from the highs), you would think that the company just isn’t making any money anymore. Most of the concern out there is that China is slowing and that’s bad for the global economy. The truth is that nobody really knows how bad China is doing. BMW and Telsa are saying that the Chinese consumer is weakening, but buying a $75,000 car is a whole lot different than buying a $600 iPhone or $80 pair of shoes. There are way too many great companies that are being punished beyond all rationality, which is good news for you if you have money to deploy. Just about everywhere you look, you can find great bargains. UnitedHealthGroup fell 8% last week after hitting an all-time high on Tuesday, simply on profit taking. Skyworks Solutions, which actually doesn’t have very much exposure to China is now down about 30% since June 19^th solely on the basis that China is slowing (mind you, the company reported a huge earnings beat just 30 days ago and actually RAISED guidance despite what may or may not be going on in China).

There’s no way to say for sure where the bottom will be, but I am very confident that stocks are still headed for more pain this week. The 38.2% Fibonacci retracement in the S&P 500 is at 1940, and is a level that absolutely has to hold; otherwise 1920…here we come. But whether it’s at 1940 or 1920, I am looking for that capitulation day (which includes the futures market so pay attention to that) which will indicate a bottom. I want to see a day of very heavy volume where the markets sell off sharply, only to rebound and rally back into the close. The last two trading days have ended with the markets closing on the absolute low tick, which points to further pressure. When we get that capitulation day, you will know it’s time add to your portfolio.

With that said, here is what I recommend:

You should be a buyer and not a seller of equities, but be patient and be selective. The individual company fundamentals do not warrant the drops that some of these stocks have had. When you have panic selling, everything under the sun goes lower, no matter how well the company is operating, which is what we saw at the end of last week. A lot of it has to do with profit taking, where investment managers are selling stocks and raising cash to buy at lower prices. That’s why I see this market rebounding into year’s end. There is a lot of money on the sidelines just from this past week, and that doesn’t include the amount of money that has been on the sidelines all year long. The stocks that have been selling off the hardest are the growth stocks, no matter how cheap they are (see Apple, Facebook and Gilead). You are going to be hard pressed to find a growth stock out there that isn’t in a correction or bear market. So, as long as you have a long-term time horizon, you are getting a steal in this market right now. You don’t have to rush in Monday morning and buy anything. Instead, let the market come in a little more, let the irrational investor sell scared, and let the RATIONAL investor, you, come in and buy on that capitulation day. I would start buying or adding to high growth stocks with strong fundamentals that have already reported great quarters.

Here’s the bottom line. We didn’t learn anything new, not a single thing, which should have sent stocks down 8% in a single week. Sure, China is manipulating its currency (and obviously that is having a negative impact on stocs), but China announced that news on Sunday night and the S&P rallied the following day, so I don’t consider that the reason for this correction. The only logical explanation is what I said two weeks ago, that markets will remain irrational longer than you can remain solvent. There is definitely weakness in the global economy and there is definitely uncertainty, but there are too many US companies doing too well to be down 10%-20% in a matter of weeks. More than 60% of the S&P 500 and 70% of Dow components are in a correction, with 10 of those Dow stocks in a bear market. So get your stock shopping list ready this week, wait for that capitulation day which should come at S&P 1940 or 1920, and that will be your clue to begin stepping back in.

Jeff Lewison

Sunday, August 16, 2015

The Week for Retail

8/16/15

This week is going to be all about retail sales with the likes of Target, Home Depot, and Walmart, reporting earnings. It’s been a mixed bag thus far for retailers, with Michael Kors and Nordstrom beating estimates and Macy’s and Kohl’s badly missing. Retail sales came in better than expected in July, however I am not optimistic in the short-term. The consumer does not seem to be spending on clothing or fashion, and beyond spending money on their homes and cars, most consumers seem to be saving rather than spending. However, if you’re looking to fill positions in your long-term portfolio, you may get some good opportunities to buy the dips post-earnings. With that said, here’s a look at what’s coming this week:

TUESDAY (DKS, HD, TJX, WMT)

Dick’s Sporting Goods (DKS), Home Depot (HD), TJX Companies (TJX) and Walmart (WMT) all report before the market opens on Tuesday and my favorite in the group is Home Depot. The stock has done terrific during this recent market turbulence, closing at $119.75 on Friday, just off all-time highs. Housing seems to be the biggest area where consumers are spending money. Whether you are buying a new home or doing some remodeling projects, Home Depot is a direct beneficiary of that business. I wrote a while back about how their e-commerce business is taking off, and I expect to see that continue to be a huge area of growth for the company. Analysts are expecting $1.71/share on revenues of $24.68B and given how strong the housing market, I like them pre and post earnings, short and long term.

Three months ago, Dick’s Sporting Goods posted solid first quarter earnings and raised full year guidance, however since reporting earnings, the stock is down about 10.5%, closing on Friday at $50.40. The company has actually beaten earnings over the last four quarters, however, investors are concerned about their struggling golf business and are unsure that management can turn that around quickly. On a technical basis, the stock has been consolidating between $48.77-$53.18, trading around the 38.2% and 61.8% retracement, respectively. Given how big of a quarter that Under Armour had and how well Nike has been performing, I actually like Dick’s right here. However, the options market is pricing in about a 7% move in the stock, so if you can stomach a 7% risk, I would suggest buying half before earnings and half after earnings, but you don’t have to buy on Tuesday’s open. The stock has a history of closing lower than it opened on the day it reports earnings each of the last four quarters, and I don’t see a reason that doesn’t continue.

TJX Companies has been one of the best performing retailers for quite some time and I expect that to continue. Quarter after quarter, TJX continues to impress; having beaten earnings estimates each of the last four quarters, and I see that happening once again. TJX has pushed further into the home furnishings business, which as I mentioned when discussing Home Depot, is the sweet spot for the consumer now. I like TJX long-term.

Walmart seems to have bottomed at $70, but also can’t seem to get out of it’s own way. Last quarter I recommending the stock because I believed all the bad news was already priced in. However, that turned out to be wrong, as the stock continued its slide down another 10%. I think there are better places to put your money to work, including the three previous stocks mentioned, so just stay away from Walmart right now.

WEDNESDAY & THURSDAY (TGT)

Target has come a heck of a long way since the hacking incident a couple years ago, and closing at $79.35, is 7.5% off the all-time highs hit in mid-June. CEO, Brian Cornell has come in with a fresh perspective of the company and I like a lot of the improvements that I have seen, even from a consumer perspective. The company is operating more efficiently having eliminated the Canadian Target project, increasing its grocery business, improving on the in-store shopping experience and becoming more competitive in e-commerce. I like Target long-term, however technically, the stock is in no-man’s land. There is a lot of support around the $72 level (50% retracement), which is where I would like to see the stock. However, I believe Target is doing too many things right so like Dick’s, I would buy half prior to earnings and the rest after, as long as the guidance is good.

Retail earnings are in full swing this week. If you had to choose two for a long-term investment, Home Depot rules all, followed closely by Target and TJX. If we get positive news from the above companies, expect the markets to push higher. For the broader market, keep the key technical levels top of mind with the S&P 500 at 2073, IBB at 364 and the IWM at 120.

Jeff Lewison

Saturday, August 8, 2015

The Result of Irrationality

8/8/15

“Markets can remain irrational longer than you can remain solvent.” That was the famous quote of notorious British economist, John Maynard Keynes. That also seems to be the theme of the US stock market over the last 6 weeks. Technicals and momentum has taken the stock market hostage and investors are looking for any tiny reason to sell stocks. Profit taking is normal in the marketplace, but this is mass selling of stocks reporting great numbers and strong future growth. Instead of selling Netflix after they reported a huge YoY DROP in earnings, investors chose to bid it up to where it now trades at 430x FY16 earnings (that’s right, a GROWTH company that’s been around for 18 years is only expected to make a whopping $0.33/share in ALL of 2016). Instead of buying Apple, Gilead, Time Warner, and UnitedHealthGroup, which all trade at ridiculously low valuations and reported great quarters, investors sold with both hands, sending a couple of those names into a correction.

This irrationality is actually something than a rational investor (hopefully all of you) can use to your advantage. Instead of just selling because everyone else is, spend time to read through the conference calls, and often times you will find the selling is overdone. Take Disney for instance…the company reported an earnings beat and quarterly revenues were essentially in-line with estimates. However, since management said that they see “some cord cutting” and anticipate less revenues going forward for their ESPN division, the stock suffered a 9% drop in a single session. Although everything else was great in the quarter, and everything else going forward is going to be great, investors keyed on that one phrase and completely forgot about Star Wars, Shanghai Disney, Frozen, Marvel, and everything else that comes along with the company. The stock spent the next three days in the dog house, falling about 10% and as much as 14% at one point. That sell-off gave you (and still gives you) a great entry point.

This recent love fest for the momentum names right now is what’s dragging the market down. Investors are taking profits where they have them and are putting their money to work in the likes of Amazon, Netflix and Shake Shack for fearing of missing out on the big gains. But like I said, you should use that to your advantage. Don’t assume that because a stock is going lower, that the company is broken. Despite what BofA says in their downgrade of Apple this week, there is nothing to indicate that Apple should be worth 12% less today than it was before it reported an EPS, revenue and margin beat. I’m sorry they only sold 47.5M iPhones (the most ever in Q3, which is always their weakest quarter) when analysts were expecting 49M. Time Warner reported a huge EPS and revenue beat and reaffirmed FY guidance, however since they didn’t give any Q3 guidance (which by the way, they never have), the stock got crushed on worries that too many consumers were cutting the cord on cable bundles. If Disney had not warned on slowing ESPN revenue, I believe Time Warner would actually have been UP this week, not down as much as 15% in less than 2 days.

That’s why it’s important to use rationality when you’re investing. Instead of shooting first and asking questions later, read through what management actually says, or what the analyst report says who upgraded or downgraded a stock. Case in point: On June 19^th, Citron Research, a notorious short-seller, put out a note on semiconductor stock, Ambarella, saying its share price is “ridiculous” and that “Ambarella’s parabolic frenzy has now launched it into a realm that can’t possibly be supported by reality.” That note alone sent everyone running for the hills, dropping the stock 26% in a day. Now, at that point, the stock had rallied about 148% this year, but it was only trading at 31x FY17 (currently in Q2 of FY16) EPS. So Citron is disgusted with a forward P/E of 31 for a company involved in making chips for drones, which seems to be a big part of the future, but they’re okay with Netflix, which is also up 136% YTD and trades at almost 450x next year’s earnings. They must also be okay with Shake Shack rallying 110% in the first 4.5 months of going public and trading at about 450x next year’s earnings. That makes sense. If you listened to the folks over at Citron, you would have missed out on a 36% rally back to new all-time highs, just 30 days later.

Along with irrationality, fundamentals have been wiped out of the equation altogether, and instead technicals are the only thing that investors are trading on. With Apple, all you heard about this week was that it broke the 200-day moving average. I’m sure you also heard about the S&P having to hold the 200-day moving average at least 10 or 12 times this week too. While I am a strong believer in technicals, even more so than fundamentals, I also believe that both are important and both need to be used. The fundamentals will help you determine which stocks to buy, and the technicals will help you determine entry and exit points. So to put you on an even playing field, the only level in the S&P that you need to know is 2073, which is the 200-day moving average and is a level only broken twice (three times if you include Friday) in the last year. The first time was during last October’s sell-off, where the market dropped 9.4% and then most recently in early July when the market fell about 4% from peak to trough. The latter time, the S&P only traded below the 200 day for two days before rallying back towards all-time highs. On Friday, the S&P pierced the 2073 level, but finished the day strong to close at 2078.

Early in the year, while analysts across the board were calling for a market correction, I insisted it wasn’t going to happen because the Biotech ETF (IBB) and the Russell 2000 (IWM) held their key technical levels, the infamous 200-day moving average). However, on Friday, that all changed when the IWM closed at $119.93, its lowest close since December. Although, that’s a bad sign, since the Russell 2000 has been a leader during this 7-year bull market, I am not as concerned because the Biotechs are still holding up strong. So despite the hit to your portfolio over the last two weeks, you should still be in pretty good shape, as long as the IBB can stay firm. The 100-day on the IBB is $364, which held strong on Friday’s drop. If the IBB closes below that level for three straight days, the markets will be in serious trouble because the only support below is at $339, which would be a 15% drop from all-time highs.

So to recap the key technical levels to watch: S&P 500 – 2073, IBB – 364, IWM – 120. Three straight closes below those levels will spell serious short-term trouble for the stock market. But long-term, it’s a healthy pullback. For the markets to really fall, all three have to break down, otherwise, you’ll still in good shape, but keep your stock shopping list handy.

There is and will always be irrationality in the marketplace. But how you handle that irrationality is what will be the difference between outperformance and underperformance. Don’t just assume the company is broken and the stock should be sold, just because it’s going lower or because someone says to sell it. Do your own research and as long as nothing has materially changed for worse, you should be a buyer.

I made some changes to my portfolio this week, most notably cutting my big losses in Twitter and energy. I sold completely out of Twitter on Monday and exited my entire positions in ConocoPhillips, EOG Resources and Marathon Oil. At the same time, I took advantage of a correction in Disney (DIS), buying shares post-earnings, along with buying Skyworks Solutions (SWKS) early in the week on a sell-off.

Jeff Lewison

Sunday, August 2, 2015

All Eyes on Jobs

8/2/15

Unfortunately on Wednesday, the Fed didn’t really give any more clues as to when we can expect the first interest rate hike, which means that markets will remain on edge and will be trading off of every single piece of economic data, none more important than this Friday’s jobs number. As of last Friday, the market was pricing in a 38% chance that the Fed beings raising rates in September and 68.4% chance for December, and those numbers will change on a daily basis. Economists are expecting Friday’s jobs report to show an increase of 215,000 jobs in July, but just because the economy created that many jobs doesn’t mean the market will rally. So, it’s important to not get caught up in the day-to-day market gyrations. Use market pullbacks to buy stocks that you are waiting to get into, which should be the companies that reported good earnings with strong guidance.

With that said, here’s a look at what earnings are on tap for this week:

TUESDAY (AET, CVS, DIS)

Before any of these company report earnings, we’ll get China PMI data, which will certainly control where the US markets go on Tuesday. The Chinese markets have been extremely volatile and if this number disappoints, it could send their markets into another tailspin. I still don’t believe that the drop in the Chinese markets correlates into a drop in Chinese consumer spending, so I reiterate that if US equities fall on worries in China, you should be a buyer rather than a seller.

The biggest earnings report of the day will be when Disney (DIS) reports before the bell. Like Starbucks, Disney is a stock that should be a core holding for any long-term portfolio. The problem is that if you aren’t in it already, it’s been a long time since you’ve had a chance to buy on a pullback. Disney is one of those stocks that simply won’t go lower, already up 27% YTD. The stock has had an incredible run into earnings, and this season we have seen these types of stocks fall victim to profit taking post-earnings. Analysts are expecting the company to report earnings of $1.42 on $13.22B in revenue, which I see Disney beating, helped by strong growth in its theme park business. If the company gives conservative guidance for FY15, then expect the stock to sell-off, which should finally give you a chance to get in. If by some miracle, the stock falls to $112 (78.6% retracement), you should buy with both hands, as I see very little reason the stock cannot continue its strong performance for years to come.

Tuesday is also a big day for healthcare, with Aetna (AET) and CVS Health (CVS) reporting in the morning. CVS has been on fire and I continue to see the stock outperforming. Their recent deal to buy Target’s pharmacy business will bring strong revenue growth for the future, and their desire to move more towards promoting a healthy lifestyle fits in with what is really important to consumers. CVS is an absolute buy.

After a flurry of merger news among the health insurers, things have settled down and these stocks have continued to drop. Unitedhealthcare, Cigna, and Humana have all reported strong quarters, with Unitedhealth even raising guidance, and all three have sold off since. Aetna closed at $112.97 on Friday and is now down 17% since hitting an all-time high in late June, sitting right at a key technical support level of $112.83 (100-day moving average). I like the healthcare space and they will all continue to benefit from a strong US dollar, so as long as Aetna says things are good, I would be a buyer.

WEDNESDAY (GMCR, TSLA, JACK)

You will get a couple good trading opportunities after the close when Keurig Green Mountain (GMCR) and Tesla (TSLA) report earnings. Keurig has been absolutely horrible this year, trading down to multi-year lows following the disaster of their new Keurig 2.0 machine. Expectations for the stock have come in sharply and all that has to happen for the stock to rally is that they say that things are bad, but not as bad as you think. The stock is already down about 45% YTD after the company lowered FY15 guidance in each of the last two quarters. Now, analysts expect a 20% drop in earnings to $0.79/share on revenues of $1.04B (1.5% increase YoY). The stock has come in so much that it’s trading at just 18x FY16 earnings and a PEG rate of 1.37, which is far cheaper than the likes of Coca-Cola, Pepsi and Dr. Pepper Snapple. On a technical basis, the stock has support at the $69 level and the three-year 38.2% Fibonacci retracement is $73.56. I think you can buy the stock and risk down to $69. The stock has a big short interest, so any little positive piece of news will result in short covering, sending the stock higher.

The other trading opportunity that you will have after the markets close on Wednesday is with Tesla. If you’re really daring, you will buy…or sell Tesla prior to earnings, but the stock is really sitting in no-man’s land at $266.15. The stock has failed twice in the last year at $290 so I think your upside is capped there. The downside levels that I am watching are $249 and $237, which would be a drop of 6.3% and 11%, respectively. $249.39 is the 61.8% retracement and $237ish is the 100-day moving average and 50% retracement. If you want to be in Tesla, my advice is to set an afterhours trading buy stop at $237 and hope it gets there on the report. I don’t recommend being in Tesla (long or short) before earnings. In fact, if you look at the last three times the company reported, it has opened lower and rallied sharply into the close, so look for that opportunity this time as well.

One of my favorite stocks is Jack-in-the-Box (JACK), which also reports Wednesday afternoon. Last time these guys reported, they beat every estimate in every category, except Qdoba same-store sales (although overall same-store sales sharply beat estimates), including raising guidance, and the stock still dropped 4%. I believe Jack is the best-run restaurant behind Starbucks, and can be bought before, during and after earnings. Jack is going to benefit from the strong US Dollar, new menu items, outstanding franchise model, and an improving US employment picture. Although there is way more to Jack than its Qdoba sales, that seems to be all analysts actually care about, so if they are unsatisfied with how those sales look, use that to your advantage and buy it.

THURSDAY (AGN, EOG)

On Thursday, I’ll be focusing on two stocks going in opposite directions. Allergan (AGN) reports before the bell and after recently selling off its generics business to Teva, the stock has been on fire. Allergan is up 29% YTD but is still very cheap, trading at just 16x FY16 earnings (lower than the overall market) and a PEG rate of 1.30. Management continues to say that they are looking to acquire another company, with the most recent speculation being biotech giant, Amgen. Although it seems unlikely since Amgen has a market cap of $134B, it is still very possible. The Teva deal allowed Allergan to essentially wipe out all of its debt, so the balance sheet is as good as it gets. I think Allergan is one of the best in the healthcare industry and would be a buyer on any pullback. The stock is priced for perfection going into earnings, so I suggest you wait until they report.

EOG also reports on Wednesday, but after the close. Like the rest of the energy sector, this one is a no-touch. EOG has a very strong balance sheet and can afford to cut production, but either way, I cannot recommend buying any energy other than the refiners, until I see a sign that these stocks have bottomed. With ConoccoPhillips, Exxon Mobil and Chevron all reporting less than stellar earnings last week, and then proceeded to hit three year lows, I don’t see EOG taking off any time soon. No matter how good of a quarter they report, do not buy it.

As I mentioned, Friday could be the big day for markets. All eyes will be on the jobs data, and the jobs data only. The problem is that there is no way to know how the markets will react to a good, bad or in-line jobs number. The best thing to do is to ignore the actually number because the market reaction will only be about what it expects the Fed to do in September. Use any market pullbacks to buy the stocks on your shopping list, and any rallies to sell stocks that you aren’t too excited about any more.

My current positions: Long Gilead Sciences (GILD), Starbucks (SBUX), Facebook (FB), Wells Fargo (WFC), ConocoPhillips (COP), Time Warner (TWX), Twitter (TWTR), NXP Semiconductors (NXPI), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The Box (JACK), Under Armour (UA), United Rentals (URI), Regeneron (REGN), Apple (AAPL), Southwest Airlines (LUV), Dow Chemical (DOW), L Brands (LB), Costco (COST), AMGEN (AMGN), Home Depot (HD), Allergan (AGN), FireEye (FEYE), Humana (HUM), Marathon Oil (MRO), GoPro (GPRO), and long LAS VEGAS SANDS (LVS) CALLS.

Jeff Lewison