Option Investor
Newsletter

Daily Newsletter, Thursday, 8/6/2015

Table of Contents

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

Market Wrap

Eyeing The Fed

by Thomas Hughes

Click here to email Thomas Hughes
Once again we're waiting on the Fed. The upcoming September meeting may be the most anticipated since they announced the taper.

Introduction

Global markets were marginally lower in today's trade as speculation over the September FOMC meeting begins to heat up. Economic data, and a fair amount of Fed Speak, has gotten the idea of a September lift-off more firmly cemented in the minds of Wall Street. We still haven't seen any truly significant increases in economic output but the slow, steady rate of growth of the past few years has brought to us to the point that a rate hike is imminent.

Asian markets were mixed. The Nikkei gained a quarter percent, Chinese indices lost a half percent or more. There were no significant headlines from the region that I saw. European indices were largely flat until the open of our markets. At that time they began to fall off but only incurred losses of -0.01% to -0.5%.

Market Statistics

Futures trading in the early hours of the morning was flat to mixed. The indices hugged the flat line with a slight bias to upside. Economic data, Challenger Job Cuts and Jobless Claims, were mixed as well but still well within trend. Earnings were also of interest. Several big names which reported yesterday were still on the minds of traders today, namely Disney, Tesla and Green Mountain Coffee, due to misses and/or poor outlook.

The market opened positive, marginally, and then immediately sold off. Initial losses were in the range of -0.25% but extended in the first hour to near -0.5% on average. These levels held until mid-day when the bottom seemed to fall out of the market. The SPX was down more than 22 points at one point but hit a target support level and bounce back, if only a little. Weakness persisted all day but all indices were able to move off of their lows before the close of trading.

Economic Calendar

The Economy

The Challenger Gray & Christmas report on planned lay-offs was released first. It shows a 136% increase in lay-off's versus last month, and 125% increase over July of last year. This month's cuts bring the YTD total to 393,368, the highest 7 month total since 2009. This month's total is the highest single month gain since 2011.

More than half of this month's gain is due to cuts by the government. More than 57,000 military and civilian work-force jobs are being cut, over the next two years. Backing this out the total comes down to 48,696 and more in line with recent trends. After that the biggest contributor is the tech sector where more than 20,000 jobs are being lost. Primarily at Microsoft (Nokia bust), Qualcom and Intel. Looking at the full year total and taking into account jobs lost to energy, 69,550, as well as the military cuts it comes down to 212,818 and below last years level. As a point of reference the energy sector only lost about 5000 jobs in 2014.


Initial claims for unemployment rose less than expected from last week's unrevised figure. Initial claims rose 3,000 to 270,000 versus the expected rise to 275,000. The four week moving average of claims fell -6,500 to 268,000 as the July data drops out of the calculation. Although there has been a slight rise in claims over the past two weeks they remain in downtrend and near long term lows. On a not adjusted basis claims fell by -2.2% versus the -3.4% projected by the seasonal factors. On a year over year basis not adjusted claims are -9.2% lower than last year at this time. Kansas and West Virginia saw the biggest increases in claims, +481 and +87, while Michigan and California saw the biggest declines in claims, -4,003 and -3,862.


Continuing claims fell by -14,000 from an upward revision of 7,000 to hit 2.255 million. The four week moving average also fell shedding -18,000. Continuing claims also remain in down trend and near its long term lows.

Total claims for unemployment gained 1,649 to reach 2.301 million. This number too has been on the rise in recent weeks but also remains in long term down trend and near its long term lows. On a year over year basis total claims are more than-10% lower than last July.


Tomorrow's jobs report is going to be a market mover any way you look at it. Based on the ADP report it could come in weaker than expected but the NFP does not always track closely with the ADP number. Not to mention the likelihood of revisions in the coming months. The Challenger report is a harbinger of potential increases in overall unemployment, but not until next month or later depending on when the jobs are actually lost. The upshot is that labor market momentum is on the rise, job openings are at high levels and the quits rate remains strong which leads me to believe that job creation is steady at the least.

What may be more important is the Labor Participation Rate, and any information about numbers of new retirees. The rate of retirement is important in relation to jobs creation in that it is opening up higher level jobs and allowing upward mobility in the work force thereby creating lower level positions in need of filling, all without creating any new jobs.

Also on tap for tomorrow is Consumer Credit, Average Work Week and Hourly Earnings.

The Oil Index

Oil prices fell more than -1.5% in today's session reaching a new 5 month low. WTI fell to near $45.50 despite a draw in stockpiles reported yesterday. The draw, due primarily to high refinery runs, did little to change the supply and demand picture which remains decidedly heavy on supply. Brent also fell, dropping below $49.50 for the first time since February. Prices are likely to remain under pressure in the near term. Short to long term prices are expected to trend above $50 for WTI in 2016.

The Oil Index gained more than 1.35% in today's action, counter to the broad market and the drop in oil prices. Today's candle is moving up from the support line I drew earlier in the week and appears to be confirming said support. The indicators are rolling into what could become a bullish signal, in line with prevailing long term trends. My line at 1175 is near term support, a break below here could take the index down to 1120, resistance should today's move result in further upside is near the 50% retracement line and short term moving average near 1235.


The Gold Index

Gold prices rebound in today's action as we wait on the jobs data. Weak ADP has led some to expect a weak NFP which reduces the chances of a September rate hike ever so slightly, putting pressure on the dollar and giving gold a boost. Gold prices have so far not broken below the recently set low near $1175 and have been trending sideways within a consolidation band for nearly 3 weeks. This may continue up to and until the next FOMC rate hike provided data does not sway expectations. However, steady to strong data may help to strengthen the dollar which would provide additional downside pressure. Inflation remains very tame and is not supporting outlook for higher gold prices down the road.

A new though I have had is this, what if the FOMC is the missing link in the inflation picture? A rise in interest rates will cause a chain reaction of higher prices that could ripple through the economy. If so the rate hike itself could weaken gold in the near term while providing the catalyst for longer term inflation and rising gold prices.

The gold miners ETF GDX gained a little over 2.0% in today's session. The ETF is moving up from the recently set all time low with momentum shifting to the upside. The ETF remains below the previous all time low and the short term moving average which are potential targets for a snap-back rally. The fund is in downtrend and tied to the price of gold.


In The News, Story Stocks and Earnings

Mondelez made the news this morning when Pershing Square's Bill Ackman announced a $5.5 billion stake. The stake is equal to 7.5% of shares and is expected to lead to action from Ackman and Pershing. Ackman is expected to “engage” with management and the board over operations and other matters. Shares of the stock opened with a +6.5% gain but sold off during the day. Prices closed near yesterday's closing level on high volume. Mondelez has recently set new all-time highs on a strong earnings report.


A number of top gold producers reported today including Randgold and Royal Gold. Both companies reported record quarters for production. Randgold says production is up 7% over last year at this time with improvements to quality of recovery. Costs have fallen by 3% and will likely continue to fall in light of plunging oil prices. The company also said that it was in position to continue investing in new projects as well as strengthen the balance sheet. Royal Gold increased revenues by 3% in the quarter and produced record cash flow, up 37%. Shares of both companies traded in similar fashion to the miners ETF GDX with indicators pointing toward higher prices. It seems as if the miners are able to perform well, and improve operations, despite the low price of gold. Low realized price will continue to be a headwind but the miners are set up for significant gains once prices stabilize. Increased production, higher realized quality and lower costs can only lead to profits...provided gold prices cooperate.


Shares of Michael Kors jumped more than 10% on better than expected earnings. The company reported earning and revenue above consensus as well as reaffirming full year guidance above current estimates. The stock had been trending lower but may now be on the move up toward possible resistance at the bottom of May window near $50. Today's move took the stock back over the short term moving average with rising bullish indicators.


A lot of today's down side can be blamed on the media sector and led by Viacom. The company reported earnings that were well below expectations and lowered guidance. The reason is rapidly declining subscriber numbers for pay TV as on-line and streaming lure more and more customers away. Viacom fell more than 20% at the lows of the day and closed with a loss of -13.5%.


The Indices

The market sold off today on weak earnings from a few big names and anticipation for the NFP release tomorrow morning. The drop was led by the NASDAQ Composite which dropped a little more than -1.6%. The index created the longest black candle in over 4 months but was halted at support. The index is now trading just above the long term trend line and the 2000 all time closing high. The indicators are bearish in the near term so a test of support could continue with the long term trend line as target. Longer term the indicators remain consistent with support along the trend line so this test appears to be setting up another buying opportunity at this time.


The Dow Jones Transportation Average made the next biggest decline, -0.83%. The index fell from resistance at the bottom of the previously broken Nov 2014- May 2015 trading range but did not fall below the short term moving average. The indicators remain weak but so far consistent with up trend following the recent bottoming pattern near the 8,000 level. Price is now within a tight range bound by two previous support/resistance lines consistent with the June consolidation. It looks like the index has reversed from the April-July short term down trend, consistent underlying longer term trends, but this may only mean sideways action. Upper resistance may be strong, near 8,600, and needs to be broken for additional upside movement.


The S&P 500 comes third in today's action, posting a loss of -0.78%. The index broke through the short term 30 day moving average but was halted near the 2080 level. The indicators are weak and pointing to potentially lower prices but there are several possibilities for support just below today's closing price. The index could fall as much as 30 points before hitting my best target, near 2050, with a chance of moving to the long term trend line if it is broken. Longer term the indicators remain consistent with support along the trend line.


The Dow Jones Industrial Average made the smallest decline but fell beneath its trend line. The blue chips lost -0.69% and also set a new 6 month low. Even with the new low prices remain within the 2015 trading range and above support targets. The indicators are pointing lower in the near term but remain consistent with support in the longer. Prices may continue to test support or move lower with downside target near 17,200.


Earnings and data are fueling market churn. The news has been a bit mixed this week but nonetheless long term trends in both are positive as are future expectations. In between now and then is the upcoming September FOMC meeting and all the speculation that goes with it. It seems more and more likely that this meeting is going to be a rate hike and that I think is ultimately what is keeping the market range bound and trading as it is.

Tomorrow could be a big day. The NFP could be as expected, weaker than expected or better than expected. I am leaning towards as expected, in the 225K range, but any number has the power to move the market. In any event one month of data does not a trend make, the economy is improving and fast approaching interest rate lift off.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Prepare To Buy The Dip

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Starbucks Corp. - SBUX - close: 57.23 change: -1.78

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 7.2 million
Entry on August -- at $---.--
Listed on August 06, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Company Description

Trade Description:
Investors seem spooked today. There was widespread selling and a lot of the profit taking was focused on recent winners. Tim Seymour, managing partner at Triogem Asset Management, said traders were "cutting their flowers and keeping their weeds" today. SBUX looks like one of those cut flowers and we want to be ready to catch it when it stops falling.

Here is tonight's trade description:

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a great 2015 so far with the stock up +39% (that's after today's -3.0% decline), outperforming the broader market. The stock accelerated following its Q1 2015 earnings results in January and again when they reported in April.

It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.

SBUX reported its Q2 (2015) on April 23rd. Earnings of $0.33 a share were in-line with estimates. Revenues were up +17.8% to $4.56 billion, slightly above expectations. It was their strongest growth in four years. Customers are responding well to new drink options and an updated food menu. They're also developing new delivery options, mobile pay options, and alcoholic drinks available at select locations.

Worldwide same-store sales grew +7%. This was significantly above estimates. It also marked the 21st consecutive quarter where SBUX's comparable store sales were +5% or more.

The company issued mixed guidance. The stronger dollar is having an impact. They see fiscal 2015 results in the $1.55-1.57 range. That compares to Wall Street estimates for $1.57 per share. However, the company's revenue estimates are more optimistic. They're forecasting +16-18% sales growth into the $19.1-19.4 billion zone compares to analysts' estimates of $19.1 billion.

The trend of earnings pops continued in July with shares gapping up to new all-time highs following its Q2 report on July 23rd. Earnings were $0.42 per share, a penny above estimates. Revenues were up +17.5% to $4.88 billion, just a hair above expectations. Global same-store sales were up +7% and their non-GAAP operating margin improved 100 basis points to 19.5%. Management is still guiding 2015 revenues to rise +17% in the $19.1-19.4 billion range.

The stock has been extremely resilient until today. We suspect that today's decline will see some follow through lower but investors will likely buy the dip at SBUX's up trend. Shares should find support in the $56.00 area. Tonight we are listing a buy-the-dip entry trigger at $56.00. We'll try and limit our risk with a stop loss just below the 50-dma (start at $54.40).

Buy-the-dip trigger @ $56.00

- Suggested Positions -

Buy the OCT $60 CALL (SBUX151016C60) current ask $0.94
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

Traders Seem Nervous Ahead Of Jobs Number

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market experienced broad-based declines on Thursday. Stocks were down across the board in Europe, which helped set a bearish tone Thursday morning. Investors seem nervous ahead of tomorrow's nonfarm payroll number.


Current Portfolio:


CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 172.74 change: -2.53

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.4%
Average Daily Volume = 1.0 million
Entry on July 23 at $170.25
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 13th
New Positions: see below

Comments:
08/06/15: Thursday was a tough day for the market. All the recent high-flyers like AAP were hit hard. Of course we should keep things in perspective. The stock is only down -1.4% after hitting all-time highs yesterday.

If the market doesn't bounce tomorrow we could see AAP test round-number support at $170.00.

I am not suggesting new positions at this time.

Trade Description: July 18, 2015:
If you listen to financial media long enough you will eventually hear pundits talk about "bulletproof stocks". AAP just might be a bulletproof stock. The company has lowered its earnings guidance three quarters in a row and yet traders continue to buy the stock. Today AAP is hovering at all-time, record highs.

AAP is part of the services sector. According to the company, "Headquartered in Roanoke, Va., Advance Auto Parts, Inc., the largest automotive aftermarket parts provider in North America, serves both the professional installer and do-it-yourself customers. As of January 3, 2015, Advance operated 5,261 stores and 111 Worldpac branches and served approximately 1,325 independently owned Carquest branded stores in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. Advance employs approximately 73,000 Team Members."

There seems to be a divergence in the U.S. We are half way through 2015 and new car sales are surging. Dealers have already sold more than 8.5 million vehicles and the industry is on pace to challenge the all-time record of 17.4 million autos in one year. Yet the age of the average car on the road continues to climb. Next time you're stuck in traffic and all you see is a river of cars, bear in mind that the average car is now 11.4 years old. It's forecasted to 11.7 years old by 2019. Americans are keeping their car longer and longer (because most can't afford a new car). That's really good news for car part sales.

I mentioned AAP's earnings guidance earlier. AAP has actually missed Wall Street's bottom line estimates the last two quarters in a row. They have lowered their guidance three quarters in a row. On May 21st AAP reported its Q1 results of $2.39 per share. Revenues were up +2.3% to $3.04 billion. They lowered their fiscal year 2015 earnings guidance from $8.35-8.55 per shares down to $8.10-8.30. Analysts were expecting $8.51. AAP seems to be having a few issues digesting its acquisition of General Parts International, which took place in 2014.

Normally when a company lowers guidance the stock gets crushed. Yet traders keep buying the dips in AAP. Looking at the AAP's recent announcements there is an knee-jerk reaction gap down in their stock price and then shares of AAP immediately rebound. It's happened multiple times. You have to like that kind of resilience. You could say AAP is almost bulletproof.

The stock has been trading off technical support as it climbed from its May 2015 lows. Last week's breakout past resistance near $165.00 is very bullish. The point & figure chart is forecasting at $193.00 target. Odds are AAP will rally up to its earnings report on August 13th. We want to exit prior to the announcement.

- Suggested Positions -

Long AUG $175 CALL (AAP150821C175) entry $3.50

08/01/15 new stop @ 169.75
07/25/15 new stop @ 165.85
07/23/15 triggered @ $170.25
Option Format: symbol-year-month-day-call-strike


Accenture plc. - ACN - close: 103.10 change: -1.40

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -9.4%
Average Daily Volume = 2.3 million
Entry on July 31 at $103.35
Listed on July 30, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/06/15: ACN suffered some profit taking with a -1.3% decline. The stock is nearing short-term technical support at its 10-dma. If that doesn't hold then shares might see support at $102.00 and at $100.00.

I am not suggesting new positions at this time.

Trade Description: July 30, 2015:
Sometimes slow and steady wins the race. Patient investors have been rewarded in ACN. The stock is up +290% from its 2009 lows. Sales and earnings have also improved. From 2010 to 2014 ACN has seen revenues rise +38% and net income soar +54%. Year to date ACN is up +14%. The S&P 500 index is only up +2.4%.

ACN is in the technology sector. They're considered part of the information technology services industry. According to the company, "Accenture is a global management consulting, technology services and outsourcing company, with more than 336,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world's most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014."

A recent article on Investopedia.com noted that ACN is on a buying spree. "Since the beginning of 2015, Accenture has acquired nine other companies: smart grid company Structure, supply chain analytics company Gaspo, strategy consulting companies Axia and Javelin, Salesforce consulting services provider Tquila UK, digital design company Reactive Media, and digital solutions companies Agilex, Brightstep, and PacificLink Group. All of these acquisitions should strengthen Accenture's position in IT services against rivals like IBM and Infosys."

Last year ACN's earnings progress seemed to slow. Last September they reported their Q4 results that missed estimates by two cents. They beat the revenue number but guided lower. In December they beat analysts' estimates on both the top and bottom line but guided lower again. Guidance improved somewhat with ACN's 2015 Q2 report in March where the company beat estimates and guided in-line.

Their most recent report was June 25th when the company announced its 2015 Q3 results. Earnings were $1.30 per share, which was seven cents above estimates. Revenues were relatively flat (+0.4%) at $7.77 billion but that was significantly above expectations. New bookings last quarter were $8.5 billion. North American sales rose +12% on a local currency basis. Europe sales were up +7% while the rest of the world saw sales rise +13%. Management reaffirmed their fiscal year 2015 guidance and expect new bookings to be $33-to-$35 billion for the year.

The stock has been popping on its recent earnings reports. Then shares fade lower until they hit the long-term up trend and investors buy the dip. The up trend seems to be getting stronger. ACN recently broke out past round-number resistance at $100.00 and managed to hold this level during last week's market sell-off. Now ACN is poised to hit new highs. Tonight we're suggesting a trigger to buy calls at $103.35.

- Suggested Positions -

Long SEP $105 CALL (ACN150918C105) entry $1.60

07/31/15 triggered @ $103.35
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co - DIS - close: 108.55 change: -1.98

Stop Loss: 106.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.9 million
Entry on August -- at $---.--
Listed on August 05, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Comments:
08/06/15: Media stocks were crushed again today. Yesterday DIS plunged more than $10.00 as investors worried about slowing revenues. Today media stocks were hammered lower over worries about pay-TV affiliate fees.

DIS crashed another -5.6% this morning, on top of yesterday's -9% decline. Traders did buy the dip near its exponential 200-dma and DIS pared its loss to -1.79% by Thursday's closing bell.

We are not giving up on DIS but we are not changing our strategy either. Wait for a bounce. Our suggested entry point is currently $111.65.

Trade Description: Disney on Sale, Buy Now

Disney (Nyse:DIS) reported earnings last night and beat the street with earnings of $1.45 compared to estimates for $1.42. Today shares are down -$11 to $110 and erasing 85 points off the Dow. This is a major buying opportunity.

Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There are no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

Analysts are claiming Disney shares could add 25% before the end of December because of their strong movie schedule and coming attractions. The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof.

Disney Movie Schedule (partial)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 29, 2016 - "Captain America: Civil War"
June 17, 2016 - "Finding Dory"
Dec. 16, 2016 - "Star Wars Anthology: Rogue One"
May 26, 2017 - "Star Wars: Episode VIII"
June 16, 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 4, 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 3, 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Disney was recently upgraded with a new price target of $150. The drop to $110 on Wednesday is a buying opportunity. Shares have risen from $90 in February to $122 on Tuesday. The $110 level is major support and should be bought. This is right at the 100-day average.

Tonight we are suggesting a trigger to buy calls at $111.65 with an initial stop loss at $106.85.

Trigger @ $111.65

- Suggested Positions -

Buy the OCT $115 CALL (DIS151016C115)

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


Stryker Corp. - SYK - close: 101.32 change: -1.80

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -33.6%
Average Daily Volume = 1.1 million
Entry on July 29 at $102.15
Listed on July 28, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/06/15: SYK is another high-flyer that was targeted for profit taking today. Shares fell -1.74% after closing at new highs yesterday. If the market declines again tomorrow we could see SYK test round-number support at $100.00.

No new positions at this time.

Trade Description: July 28, 2015:
The healthcare sector has consistently delivered a strong bullish performance for the last three years in a row. When you think of healthcare you might think health insurance providers. They are not the only healthcare stocks in rally mode. Tonight's candidate is in the medical equipment and supplies industry.

According to the company, "Stryker is one of the world's leading medical technology companies and together with our customers, we are driven to make healthcare better. The Company offers a diverse array of innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine, which help improve patient and hospital outcomes. Stryker is active in over 100 countries around the world."

Late last year the company's earnings growth was lackluster at best but the company has turned things around the last couple of quarters. SYK reported their Q1 results on April 21st. They beat the bottom line estimate. Revenues were only in-line with estimates. Yet management raised the low-end of their 2015 sales and earnings guidance. You can see the reaction to the stock price in April.

Their most recent earnings report was July 23rd. Wall Street was expecting Q2 earnings of $1.17 per share on revenues of $2.41 billion. SYK beat both estimates with earnings growth of +11% to $1.20 per share. Revenues were up +2.9% to $2.43 billion. On a constant currency basis their sales were up +7.6%.

SYK management raised their organic growth forecast to +5.5% to +6.5%. They raised both their Q3 and 2015 earnings forecast above analysts' estimates. SYK now expects full year earnings in the $5.06-5.12 range versus consensus estimates at $5.03 per share. Analyst reaction has been positive with several price target upgrades into the $107-110 range. The point & figure chart is bullish and currently forecasting at $111.00 target.

We like how SYK displayed relative strength last week and resisted most of the market's sell-off (prior to their earnings report). The better than expected Q2 results launched SYK to new all-time highs. Traders bought the dip this morning and today is a new all-time closing high for SYK. Tonight we are suggesting a trigger to buy calls at $102.15.

- Suggested Positions -

Long SEP $105 CALL (SYK150918C105) entry $1.13

08/01/15 new stop @ 99.85
07/29/15 triggered @ $102.15
Option Format: symbol-year-month-day-call-strike


Teva Pharmaceuticals - TEVA - close: 70.43 change: -0.76

Stop Loss: 67.45
Target(s): To Be Determined
Current Option Gain/Loss: +5.4%
Average Daily Volume = 5.4 million
Entry on August 04 at $70.25
Listed on August 03, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/06/15: TEVA dipped toward round-number support at $70.00 and technical support at its 10-dma before bouncing. Shares settled with a -1% decline. If both the broader market and TEVA rebound tomorrow morning I would use the bounce as a bullish entry point.

Trade Description: August 3, 2015:
The combination of M&A news and improving earnings results has been a win-win for shares of TEVA. The stock recently soared to new all-time highs on some key headlines in the last several days.

TEVA is in the healthcare sector. They're part of the drug manufacturing industry. According to the company, "Teva Pharmaceutical Industries Ltd. is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions to millions of patients every day. Headquartered in Israel, Teva is the world's largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area. In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. Teva integrates its generics and specialty capabilities in its global research and development division to create new ways of addressing unmet patient needs by combining drug development capabilities with devices, services and technologies. Teva's net revenues in 2014 amounted to $20.3 billion."

TEVA's most recent earnings report was July 27th. Analysts were expecting a profit of $1.29 per shares for TEVA's Q2 results. The company delivered $1.43 per share. Revenues fell -1.5% to $4.97 billion but that was actually better than expected. TEVA's management then raised their 2015 guidance from $5.05-5.35 per share to $5.15-5.40 compared to Wall Street's estimate at $5.21.

If beating earnings and raising guidance wasn't enough to drive the stock higher TEVA also announced major acquisition news. TEVA had been trying to buy British drug firm Mylan (MYL) with an unsolicited bid. Meanwhile MYL is trying to buy Perrigo (PRGO). MYL didn't seem interested in being acquired by TEVA and actually adopted a poison pill strategy to make it less attractive to hostile takeovers.

On July 27th TEVA announced they had dropped their bid for MYL and instead announced a deal to buy Allergan's (AGN) generic drug business for $40.5 billion. TEVA will pay $33.75 billion in cash and $6.75 billion in stock, giving AGN a 10% stake in TEVA. They expect the deal to close in the first quarter of 2016.

According to a Reuters article, "Teva, which will gain a portfolio of more than 1,000 products, forecast a double-digit boost to adjusted earnings per share in 2016 and a more than 20 percent benefit in years two and three after closing the deal. It expects cost synergies and tax savings of $1.4 billion annually by the third anniversary from efficiencies in operations, manufacturing, and sales and marketing."

Wall Street applauded the deal with AGN and shares of TEVA soared from $62 to $72 in a single day.

TEVA has continued its M&A with another story out today. This morning, before the opening bell, TEVA announced it will purchase a 51% stake in a privately-held, genomic-analysis company, Immuneering Corporation. According to the press release "Immuneering uses advanced proprietary techniques to identify hidden signals and biological insights across an array of genetic, genomic, and proteomic data that can direct research for enhanced discovery, development and clinical success." The two companies have worked together before. Financial terms were not disclosed.

The AGN deal has gotten Wall Street's seal of approval. Several analyst firms have upgraded TEVA since then with multiple price target upgrades including: $82 from Deutsche Bank, $82 from Argus, $85 from RBC, $85 from Morgan Stanley, $86 from Citigroup. Just today J.P.Morgan restarted coverage on TEVA with an "overweight" and an $82 target. The point & figure chart is bullish and forecasting a long-term target of $98.00 for TEVA.

Shares of TEVA saw a $4.00 pullback but traders have started buying the dip. We want to hop on board if this bounce continues. Tonight we're suggesting a trigger to buy calls at $70.25.

- Suggested Positions -

Long SEP $70 CALL (TEVA150918C70) entry $2.02

08/04/15 triggered @ $70.25
Option Format: symbol-year-month-day-call-strike


Under Armour, Inc. - UA - close: 98.19 change: -2.85

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +7.1%
Average Daily Volume = 2.3 million
Entry on July 28 at $97.55
Listed on July 27, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/06/15: This stock has been a bright spot in the market but today shares were hammered with profit taking and fell -2.8% toward short-term technical support near the 10-dma.

Tonight we are adjusting the stop loss to $95.65.

Trade Description: July 27, 2015:
UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitness platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it's actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA reported their 2014 Q4 results on February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

There was a steady stream of analysts raising their price targets on UA after its February earnings report. The company's most recent earnings report was April 21st when UA announced Q1 results. After raising guidance back in February the company reported earnings of $0.05 per share, which was in-line with Wall Street's new estimates. Revenues were up +25.4% to $804.9 million, which beat expectations.

UA management raised their outlook again. They expect 2015 operating income to improve +13-to-15%. UA expects 2015 revenues to rise +23% to $3.78 billion.

The company delivered a repeat performance when they did it again with their Q2 earnings on July 23rd. Analysts were expecting a profit of $0.05 per share on revenues of $761.7 million. UA beat both estimates with a profit of $0.07 per share. Revenues were up +28.5% to $783.5 million. Management raised their 2015 revenue guidance from $3.78 billion to $3.84 billion. That's above analysts' estimates of $3.83 billion.

Wall Street reacted to UA's Q2 report with a wave of price target upgrades. Several firms upped their target on UA into the $105-114 range. Naturally the stock rallied on this bullish earnings report and the analyst outlook. The stock soared past resistance near $90.00. More importantly UA has managed to maintain these gains in the face of a widespread market sell-off. We like that kind of relative strength.

Tonight we are suggesting a trigger to buy calls at $97.55. We'll try and limit our risk with an initial stop loss at $93.65.

- Suggested Positions -

Long SEP $100 CALL (UA150918C100) entry $2.66

08/06/15 new stop @ 95.65
08/01/15 new stop @ 94.65
07/28/15 triggered @ $97.55
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 63.19 change: -0.87

Stop Loss: 65.25
Target(s): To Be Determined
Current Option Gain/Loss: +56.9%
Average Daily Volume = 2.0 million
Entry on July 24 at $66.80
Listed on July 23, 2015
Time Frame: Exit PRIOR to earnings in late September
New Positions: see below

Comments:
08/06/15: BBBY underperformed the major indices this morning. The stock spiked down to $61.94, a -3.2% decline. BBBY managed to pare its losses by the close but still lost -1.35% on the session.

Tonight we are adjusting the stop loss down to $65.25.

Trade Description: July 23, 2015:
This year is not shaping up very well for bullish investors in BBBY. The stock is down -11.6% year to date. The trouble started with its earnings report back in January.

If you are not familiar with BBBY they are in the services sector. According to the company, "Bed Bath & Beyond Inc. and subsidiaries (the "Company") is a retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in store, online or through a mobile device.

The Company has the developing ability to have customer purchases picked up in store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, food service, healthcare and other industries.

Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. Shares of Bed Bath & Beyond Inc. are traded on NASDAQ under the symbol "BBBY" and are included in the Standard and Poor's 500 and Global 1200 Indices and the NASDAQ-100 Index. The Company is counted among the Fortune 500 and the Forbes 2000."

On January 8th BBBY reported its 2014 Q3 results. Earnings were in-line with estimates but revenues missed. Management lowered their same-store sales guidance. The stock plunged the next day. A few weeks later BBBY had managed to recover but the rally failed producing a bearish double top.

The trouble continued in April. BBBY had rallied up into its earnings report and then disappointed. Their 2014 Q4 results were in-line with estimates at $1.80 a share. Yet revenues missed estimates again. They lowered their Q1 guidance. The stock plunged the next day.

On June 24th BBBY reported earnings of $0.93 per share. That was down -1% from a year ago and a penny worse than expected. Revenues were only up +3% to $2.74 billion, which met expectations. Yet comparable store sales were +2.2% when Wall Street was expecting +2.5%. Management lowered their Q2 guidance. Guess what happened the next day? Yup, the stock dropped. Traders immediately sold the bounce and BBBY now has a clearly defined bearish trend of lower highs and lower lows. One has to wonder how bad would BBBY's Q1 results have been had the company not spent $385 million buying back stock last quarter?

In summary, BBBY has been missing Wall Street's revenue or earnings estimates the last three quarters in a row. They have warned twice and same-store sales are disappointing. Technically shares have broken down below multiple layers of support. The company is more of a home furnishing store so back to school season may not give them much of a boost. The point & figure chart is bearish and forecasting at $60.00 target. The last few days have seen some support near $67.00. We are suggesting a trigger to buy puts at $66.80.

- Suggested Positions -

Long NOV $65 PUT (BBBY151120P65) entry $2.55

08/06/15 new stop @ 65.25
08/01/15 new stop @ 66.25
07/25/15 new stop @ 67.65
07/24/15 triggered @ $66.80
Option Format: symbol-year-month-day-call-strike


Hess Corp. - HES - close: 56.81 change: +0.89

Stop Loss: 60.25
Target(s): To Be Determined
Current Option Gain/Loss: +26.4%
Average Daily Volume = 2.8 million
Entry on August 03 at $58.21
Listed on August 01, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/06/15: Crude oil plunged to new relative lows and yet traders were buying energy stocks today. HES spiked down to a new low and hit $54.65 before bouncing. This looks like a simple oversold bounce. HES should see its rebound rollover in the $57.50-58.50 region.

No new positions at this time.

Trade Description: August 1, 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. 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. HES is part of the basic materials sector. They explore and produce crude oil, NGL, and natural gas. The company operates in the United States, Denmark, Equatorial Guinea, Malaysia/Thailand, and Norway.

The plunge in oil prices has killed HES' revenues. They reported their 2014 Q4 results on January 28th this year and revenues were down -18.7%. Their Q1 report came out on April 29th and revenues fell -40%. On July 29th HES reported their Q2 results. Wall Street was expecting a loss of ($0.72) per share. HES came in better than expected with a loss of ($0.52) but that was a big drop from a profit of $1.38 a year ago. Revenues plunged -46% from $3.58 billion down to $1.93 billion.

The company is seeing strong production gains. Their Q2 production came in better than analysts expected at 391,000 barrels of oil equivalent per day. Yet this positive news couldn't outmatch the revenue declines. The oversold bounce in HES' stock failed pretty quickly. The long-term trend is down and the point & figure chart is forecasting at $52.00 target. We suspect HES is about to start on another leg lower. Tonight we're suggesting a trigger to buy puts at $58.65.

- Suggested Positions -

Long SEP $57.50 PUT (HES150918P57.50) entry $2.31

08/05/15 new stop @ 60.25
08/03/15 triggered on gap down at $58.21, trigger was $58.65
Option Format: symbol-year-month-day-call-strike


WESCO Intl. - WCC - close: 58.20 change: -0.43

Stop Loss: 61.65
Target(s): To Be Determined
Current Option Gain/Loss: -15.8%
Average Daily Volume = 592 thousand
Entry on August 05 at $58.40
Listed on August 04, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/06/15: WCC continued to sink and ended the session down -0.73%. I don't see any changes from my recent comments and would launch positions here. However, you may want to wait and see how the market reacts to the jobs report tomorrow morning before launching new plays.

Trade Description: August 4th, 2015:
The combination of currency headwinds and a slowing global economy has created a rough environment for WCC's business. Revenues are falling and the strong dollar only makes it worse.

WCC is in the services sector. According to the company, WESCO International, Inc. (WCC), a publicly traded Fortune 500 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating ("MRO") and original equipment manufacturers ("OEM") products, construction materials, and advanced supply chain management and logistic services. 2014 annual sales were approximately $7.9 billion. The Company employs approximately 9,400 people, maintains relationships with over 25,000 suppliers, and serves over 75,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers and utilities. WESCO operates nine fully automated distribution centers and approximately 485 full-service branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.

Looking at some recent earnings reports from WCC the company has missed Wall Street's bottom line estimate three times in a row. Prior to their Q4 earnings report (January 29th), the company issued an earnings warning for their fiscal 2015 on December 17th.

WCC's Q1 report was April 23rd. They missed the EPS number by 10 cents. Revenues were only up +0.3% to $1.82 billion but that missed estimates. Mr. John J. Engel, WESCO's Chairman and Chief Executive Officer, stated, "We had a challenging start to the year where reduced demand in the industrial market, winter weather impacts, and foreign exchange headwinds weighed heavily on our results in the first quarter. While organic sales per workday grew 3%, sales momentum decelerated through the quarter. Gross margin was down versus prior year but was flat sequentially."

Following their Q1 report WCC management lowered their 2015 guidance again from $5.20-5.60 a share down to $5.00-5.40 per share.

The situation worsened in the second quarter. WCC reported its Q2 numbers on July 23rd. Analysts were expecting a profit of $1.15 per share on revenues of $1.97 billion. WCC only delivered $1.00 per share (a -15 cent miss) and revenues plunged -4.4% to $1.92 billion. The company said their normalized organic sales fell -3.0% and foreign exchange hit them for another -3.0%. They also suffered from falling margins while expenses rose. That's not a good recipe.

Following the Q2 numbers, Mr. Engel, stated, "Our second quarter sales declined 4% reflecting continued foreign exchange headwinds and weakness in the industrial market as well as a slow seasonal start in the non-residential construction market." Management lowered their 2015 forecast yet again. This time from $5.00-5.40 down to $4.50-4.90.

The forecast for WCC is bearish and the stock is getting hammered. Shares are trading at two-year lows. It's hard to say where the next support level is. The point & figure chart is forecasting at $44.00 target. Tonight we are suggesting a trigger to buy puts at $58.40.

- Suggested Positions -

Long SEP $55 PUT (WCC150918P55) entry $0.95

08/05/15 triggered @ $58.40
Option Format: symbol-year-month-day-call-strike