Option Investor
Newsletter

Daily Newsletter, Monday, 8/10/2015

Table of Contents

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

Market Wrap

Manic Market

by Thomas Hughes

Click here to email Thomas Hughes
The bulls were out on good news but it may not mean the rally is back on just yet.

Introduction

A host of good news, or semi-good news, had the bulls gunning for big gains in today's session. US markets jumped at the open and pushed their way throughout the day. The cause? Weaker than expected data in China, hints of a new deal for Greece, better than expected earnings for us and nothing significant in the way of economic data. Despite today's gains the major indices remain within recent ranges and below potential resistances.

Starting in Asia, indices were mixed. The Japanese Nikkei finished up 0.42%, the Chinese Heng Seng lost -0.13%. The mainland Shang Hai index however gained nearly 5%, all because Chinese PMI and Export data declined more than expected. Chinese PPI fell by -5.4% in July while exports made their biggest drop in four months, -8.3%, both adding fuel to additional QE measures from the central bank.

European indices were buoyed by the news as well as reports that Greece was about to reach a new deal with creditors. This deal would add an estimated $94 million to Greek coffers and before the next round of stress tests. At last report the deal is expected to be announced tomorrow.

Market Statistics

Futures trading was positive during the early pre-market session. Aside from China and Greece there was not of lot of real news before the bell. One bit is the announcement that Berkshire Hathaway would be buying Precision CastParts for $32 billion. Futures held steady into the opening bell at which time the market began to gain strength. Once the bell sounded the indices began to move higher, hit the early indications within the first few minutes, with the S&P 500 up by 18 points by 9:35. Bullish sentiment lasted all morning, carrying the indices to a high just before12:00AM. Afternoon trading kept the indices moving higher, setting new highs several times, and left them near the highs of the day at the closing bell.

Economic Calendar

The Economy

No economic data was released today. There are some important announcements later this week including reads on the consumer and inflation. Tomorrow look for Industrial Production, Capacity Utilization, Wholesale Inventory and then the JOLTs report and Wednesday. Thursday is the usual release of jobless claims figures as well as Retail Sales, Import/Export prices and Business Inventories. Friday finishes the week off with PPI, Industrial Production, Capacity Utilization and Michigan Sentiment.

According to Moody's Survey Of Business Confidence business remain upbeat with confidence on the rise. This week's diffusion index reading of 43.2 is a full point higher than last week, the fifth week of gain and the highest level in just over 2 months. Mark Zandi, Moody's economist and creator of the survey, says that businesses are reporting robust sales, sturdy prices and ample credit along with strong investment spending and hiring.


FactSet reports that 436, 81%, of the S&P 500 have reported earnings so far. Of those 73% have beaten estimates for earnings while only 51% have beaten estimates for revenue/sales. The blended rate for earnings growth now stands at -1%, a half percent better than last week and 3.8 % better than at the beginning of the season with. The surprise rate is 4.5% better than expected, slightly below the four year average. So far 56 companies have issued negative guidance and 22 positive guidance. Ex-energy earnings growth jumps more than 6% to +5.5%. 15 S&P 500 companies are reporting this week.

The energy and health care sectors are leaders in this seasons activity. The energy sector is leading in surprise percentage, the health care sector in terms of earnings growth. To date, the health care sector has reported a +15.4% increase in year over year profits, more than double the rate predicted by analysts. Hmmm, I wonder what could be causing that?

The market is still expecting to see an overall earnings decline in the next quarter. Current projections show a -3.2% decline, led again by energy. Based on trends we can expect the final rate to be in the range of 0 to +1% with the ex-energy figure in the range of 3.2% to 7.5%. Earnings growth is expected to return, by the analysts, by the 4th quarter with full year 2015 growth of 1.2% (7.1% ex energy).

The Oil Index

Oil prices snapped back in today's session. WTI gained nearly 2.5% to trade just beneath $45 with Brent moving back above $50. Today's gains may have been in response to the bombings in Turkey, one of which targeted the US embassy. The bombings are reportedly in response to intensified cooperation between us and Turkey in the fight against ISIS. Other news, namely the China data, did nothing to change to supply/demand picture which remains heavily tilted to the supply side.

The Oil Index responded with a 2.5% gain. Today's candle is the fourth in a row to trade at my recently drawn support line at 1175 and is setting a 6 day high. Current action appears to be the second bounce of a possible near/short term double bottom following the recent 3 month down trend. This move would be in line with the long term trend and so far supported by the indicators. Stochastic for one is creating a strong trend following signal with MACD hitting the zero line and on the cusp of confirming with a bullish crossover. Stochastic is already making a bullish crossover, low in the range with the lower signal line as support, with both lines moving higher. First target is about 30 points above today's close near the short term moving average and 50% retracement line, next target is the bottom of the currently broken up trend line near 1,300.


The Gold Index

Gold prices gt a boost today in what looks more like short covering than anything else. Gold prices have been trading in a tight range, at long term lows, over the past few weeks on interest rate/dollar strength outlook but but downside momentum has waned. Today's move barely breaks price out of that range and is helping to alleviate oversold conditions. Both indicators are now confirming a bullish movement but in light of the recently set lows, FOMC rate hike lift off and a lack of inflation it is more likely setting up for bearish entry rather than reversing trend. Support is in the range of $1070-$1180 with potential resistance in the range of $1130-$1150.

The miners moved higher in tandem with the underlying commodity. The miners ETF GDX gaining about 6.5% in today's session. The indicators are confirming a bullish movement with upside targets near the short term moving average at $15 and then the 100% retracement level that was broken mid July. This move would close the window that opened with the drop below the retracement level but not necessarily reverse the down trend in gold to an uptrend. At best I think we can expect more sideways trading and consolidation. Longer term direction will depend on gold prices, as always. The miners reported slightly better than expected on improving production leaving them ripe for advance should gold prices recover. However, until inflation rears it ugly head strengthening dollar and FOMC rate hikes will keep the pressure on the miners.


In The News, Story Stocks and Earnings

Warren Buffet made the news this morning with the Berkshire Hathaway acquisition of Precision CastParts. The deal is worth $37.2 billion in cash and gives Berkshire exposure to the booming aircraft building business. Mr. Buffet said this in a his statement "I've admired PCC's operation for a long time. For good reasons, it is the supplier of choice for the world's aerospace industry, one of the largest sources of American exports,". The news took shares of Precision CastParts up nearly 20%. Shares of BRK/B traded up after a lower opening but failed to recover all the loss. They closed -0.35%.


Dean Foods reported before the bell. The dairy and specialty foods maker beat earnings and revenue but sent shares tanking on guidance. Despite beating the projections Dean set guidance in line with expectations. The company is expecting earnings in the range of $0.17 to $0.27, consensus is $0.21. This was a surprise given strength of pricing and cash flow. Shares of the stock lost more than -10% on an intraday basis but closed with a loss near -3.0%.


Shake Shack reported after the bell and blew away consensus estimates. Adjusted earnings of $0.09 per share beat estimates by at least $0.06 and comes on a 75% increase in revenue and a 78% increase in sales. The company went on to raise full year guidance and announce the addition of 5 new stores. Shares of the stock jumped more than 4% after the news, support along the 30 day moving average had been tested during the day.


Retail was in focus after the bell as well with earnings guidance from Gap Stores. The jeans company released information on July and 2nd quarter sales, both down, and provided guidance for its upcoming earnings announcement due out August 20th. The company now expects to earn in the range of $0.60 to $0.63 per share, below current guidance and consensus estimates. Shares of the stock fell over -1.5% just after the announcement but recovered the loss just as quickly.


Google made a rather unusual announcement, after the bell. The company is becoming another company, Google will still exist but it is now going to be a wholly owned subsidiary of Alphabet, a new company which will be the umbrella/parent company of Google itself as well as the many side businesses that are now part of Google. Shares of Google will convert to shares of Alphabet and rallied by 6% in after hours trading.


The Indices

The market opened positive and moved higher all day, closing at or near the high for each of the major indices. Today's move was a good sign for bulls but still light on volume. Action was led by the Dow Jones Transportation Index which gained 1.47%. The transports created a long whit candle moving up from support and the short term moving average. The indicators are mixed but it looks like the index is confirming support and the recent bounce from long term lows. MACD is showing bullish momentum, although it is currently in decline, and stochastic is moving higher in the longer term while lower in the shorter term. The index could move higher in the next day or two with upside target near 8,500. This level provided resistance last week and may do so again, a move above this level could take the index up to 8,750 or 9,000.


The Dow Jones Industrial Average made the next biggest gains in today's session. The blue chips gained 1.39% and also created a long white candle. Today's action extended the Friday support bounce and moved the index back above the long term trend line. The index is still below potential resistance levels such as the short term moving average but the indicators are in support of a trend following bounce, if a little mixed. Stochastic is making a strong bullish crossover and MACD is approaching the zero line with 17,750 looking like a good target for resistance over the next few days. Support is currently near 17,300.


The NASDAQ Composite made the third biggest gain in today's session, 1.28%. The tech heavy index created the smallest candle though, what looks like a spinning top compared to the blue chips and the transports. The indicators on this one are still more bearish than not but price action has so far confirmed the long term trend line. Stochastic is pointing lower in both the near and the short term, MACD momentum is still bearish. Today's price action was centered on the short term moving average and appears to be heading up to test resistance at the all time high.


The S&P 500 made the smallest gain today, only 1.16%, but is making one of the stronger signals relative to the other indices. Today's candle is long and white, moves up from support, breaks resistance and the short term moving average and is supported by the indicators. MACD has reached the zero line and is about to form a bullish crossover while stochastic is forming a strong bullish crossover, both in line with the underlying trend. The index appears to be moving up with only the all time high as potential resistance at this time. Support may be found along the short term moving average or just below that near 2,075.


The indices look, once again, like they want to move higher. They are supported by trend, economic data, earnings and outlook. The only problem is that they are still within their respective ranges without a truly clear signal so are just as likely to remain range bound as to break out.

A few things may be keeping them in check including options expiration (next Friday), summer market volume (still low), fear of China (will probably not go away anytime soon), FOMC outlook (September lift-off looking likely), news from Greece and of course the uncertainty of the presidential race.

While trends in earnings (ex energy) and economics are leading the market higher low volume, news and speculation could easily keep the market range bound. It'll be at least at least 3 weeks until more "normal" trading volumes return, and another 2 weeks until the FOMC meeting which I think may be the biggest limiters for any upside movement. In between then and now there will be lots of data as well as plenty of news from Europe and China to move our manic market. I remain bullish, buying on the dips, but as cautious as ever.

Until then, remember the trend!

Thomas Hughes


New Option Plays

About To Break Out

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

GoPro, Inc. - GPRO - close: 64.74 change: +1.68

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 6.2 million
Entry on August -- at $---.--
Listed on August 10, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Company Description

Trade Description:
GPRO is only up +2.4% year to date but shares are up about +70% from their 2015 lows in March. The post-IPO craziness has worn off and now shares seem to be building a new long-term up trend.

If you're not familiar with GPRO here is the company's rather self-confident description, "GoPro, Inc. is transforming the way consumers capture, manage, share and enjoy meaningful life experiences. We do this by enabling people to self-capture engaging, immersive photo and video content of themselves participating in their favorite activities. Our customers include some of the world's most active and passionate people. The quality and volume of their shared GoPro content, coupled with their enthusiasm for our brand, virally drives awareness and demand for our products.

What began as an idea to help athletes document themselves engaged in their sport has become a widely adopted solution for people to document themselves engaged in their interests, whatever they may be. From extreme to mainstream, professional to consumer, GoPro has enabled the world to capture and share its passions. And in doing so the world, in turn, is helping GoPro become one of the most exciting and aspirational companies of our time."

GPRO came to market with its IPO in June 2014. The stock opened for trading at $28.65 and by October 2014 shares were nearing $100 per share. That proved to be the peak. GPRO spent the next six months correcting lower and finally bottomed near $37 in March 2015.

GPRO reported their 2015 Q1 results on April 28th. Wall Street was expecting a profit of $0.18 per share on revenues of $341.7 million. GPRO beat estimates with a profit of $0.24 a share. Revenues were up +54% from a year ago to $363 million.

Management said it was their second highest revenue quarter in history. Their GAAP results saw gross margins improve from 40.9% in Q1 2014 to 45.1% today. Their net income attributable to common stockholders increased 98.2% compared to the first quarter of 2014. International sales surged +66% and accounted for just over half of total sales in Q1 2015. GPRO shipped 1.3 million devices in the first quarter. This was the third quarter in a row of more than one million units.

GPRO management raised their guidance. They adjusted their Q2 revenue forecast to be in the $380-400 million range with earnings in the $0.24-0.26 region. Analysts were only forecasting $335 million with earnings at $0.16 a share.

The better than expected Q1 results and the upgraded Q2 guidance sparked several upgrades. Multiple analysts raised their price target on GPRO. New targets include: $56, $65, $66, $70, and $76.

GPRO reported its Q2 report on July 21st. Results were way above expectations. Analysts were expecting earnings of $0.26 per shares on revenues of $396 million. GPRO said Q2 earnings came in at $0.35 per shares. That's a +337% improvement from a year ago. Revenues were up +71.7% to $419.9 million, significantly above the estimate. Gross margins improved from 42.2% to 46.4%.

Naturally GPRO management was enthusiastic. GoPro Founder and CEO, Nicholas Woodman, commented on their quarterly results saying, "I couldn't be more proud of our aggressive pace of innovation. With the introduction of HERO4 Session and HERO+ LCD, we've launched five new cameras in the past 10 months, exciting both new and existing customers and contributing to strong second quarter results. Our core business is enjoying terrific momentum as we charge forward into attractive adjacent markets."

This better than expected Q2 result sparked another round of upgrades. Piper Jaffray raised their GPRO target to $72. Barclays bumped theirs to $71. Another firmed raised theirs to $70. Shares of GPRO saw a bit of a short squeeze following its Q2 report. There are plenty of traders who think GPRO is overpriced and too rich with a P/E above 44, especially when you consider the company is facing rising competition.

The biggest argument against GPRO is competition from a Chinese rival Xiaomi who has produced a competitive action camera that they're selling for about half of GPRO's similar model. GPRO critics are worried this could kill GPRO's growth in China and the rest of Asia. It's too early to tell who will be right but momentum is currently favoring the bulls. The point & figure chart is forecasting a long-term target at $95.00.

Technically shares of GPRO have been consolidating sideways in the $60-65 zone for three weeks. Shares seemed relatively immune to the market's ups and downs while it just digested gains in this trading range. Now GPRO is on the verge of a bullish breakout.

The $65.00 area is resistance. Today's high was $65.49. If shares do breakout past resistance it could spark some short covering. The most recent data listed short interest at 13% of the 61.2 million share float. Tonight we are suggesting a trigger to buy calls at $65.55.

Trigger @ $65.55

- Suggested Positions -

Buy the OCT $70 CALL (GPRO151016C70) current ask $3.35
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Rebound After Rough Week

by James Brown

Click here to email James Brown

Editor's Note:

After widespread losses last week the market bounced on Monday. Investors were digesting a lot of news. There was a big bounce in commodities and related stocks. There were fed governor comments on the future of rate hikes. Plus there was M&A news.

We exited the AAP trade at the closing bell tonight.

SBUX hit our entry trigger.


Current Portfolio:


CALL Play Updates

Accenture plc. - ACN - close: 105.20 change: +1.46

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: +40.6%
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:
08/10/15: ACN is off to a strong start this week. Shares rallied +1.4%, outperforming the major indices. This is a new all-time closing high for the stock.

More conservative traders may want to raise their stop loss.

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: 111.00 change: +1.65

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:
08/10/15: The oversold bounce in DIS continues with shares up +1.5% today. If this rebound continues tomorrow we could see DIS hit our suggested entry point at $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


Starbucks Corp. - SBUX - close: 56.27 change: -0.93

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: -1.6%
Average Daily Volume = 7.2 million
Entry on August 10 at $56.00
Listed on August 06, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/10/15: Hmm... we were expecting SBUX to dip toward support but it is surprising to see shares underperform the market today. The major U.S. indices rallied sharply higher and SBUX fell the opposite direction with a -1.6% decline.

SBUX almost hit our alternative entry trigger at $57.65 this morning but shares peaked at $57.63. They promptly retreated. The selling stalled exactly at its long-term trend line of support. Our trigger to buy calls was hit at $56.00.

If you're still looking for an entry point I suggest waiting for a rally past $56.60.

Trade Description: August 6, 2015:
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).

- Suggested Positions -

Long OCT $60 CALL (SBUX151016C60) entry $0.63

08/10/15 triggered on a dip at $56.00
08/08/15 Added a second entry trigger to buy calls at $57.65 (in addition to our buy-the-dip trigger at $56.00)
Option Format: symbol-year-month-day-call-strike


Stryker Corp. - SYK - close: 102.19 change: +1.25

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -15.9%
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:
08/10/15: SYK gapped open higher this morning. Shares ended the session with a +1.23% gain. I'm a little bit hesitant to buy this bounce. Readers may want to wait for a rally past today's high, $102.50, before considering new positions.

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: 69.80 change: -0.52

Stop Loss: 67.45
Target(s): To Be Determined
Current Option Gain/Loss: -18.3%
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:
08/10/15: Bullish analyst comments from Goldman Sachs and an $80 price target did not do much for shares of TEVA today. The stock rallied initially but gains faded and then TEVA turned negative. The stock eventually underperformed with a -0.7% decline.

I am not suggesting new positions at this time. Today's relative weakness could be a warning signal.

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: 98.75 change: +0.82

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +10.9%
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:
08/10/15: Shares of UA popped this morning but the rally failed near $100 and UA spent the rest of the day drifting sideways.

I don't see any changes from my recent comments. No new positions at this time.

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: 64.00 change: +0.70

Stop Loss: 65.25
Target(s): To Be Determined
Current Option Gain/Loss: +39.2%
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:
08/10/15: The stock market's widespread rally today sparked some short covering in BBBY. Fortunately the bounce stalled near technical resistance at its 10-dma. BBBY pared its gains to just +1.1%.

More conservative traders may want to adjust their stop loss lower again. I am not suggesting new positions at this time.

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: 58.44 change: +2.52

Stop Loss: 59.05
Target(s): To Be Determined
Current Option Gain/Loss: -15.6%
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:
08/10/15: Ouch! Dollar weakness today helped fuel an oversold bounce in crude oil. This gave the energy stocks some breathing room and many of them produced large oversold rebounds as well. HES was one of those stocks in bounce mode. Shares surged +4.5% and closed above short-term resistance at its 10-dma. If there is any follow through higher tomorrow we could see HES hit our stop at $59.05.

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

08/08/15 new stop @ 59.05
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


Tupperware Brands - TUP - close: 57.73 change: +0.58

Stop Loss: 59.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 489 thousand
Entry on August -- at $---.--
Listed on August 08, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: Yes, see below

Comments:
08/10/15: Shares of TUP briefly traded down to a new two-week low before bouncing with the rest of the market. Nothing has changed from the weekend new play description. Our suggested entry point is $56.50.

Trade Description: August 8, 2015:
The Tupperware brand has been around for over 60 years. Yet the current version of the company was founded in 1996. They went public the same year. The stock market's huge rally off the 2009 bear-market lows saw shares of TUP surge from $11.00 per share to $97 by December 2013. Unfortunately that was the peak. TUP's stock has been sinking ever since.

TUP is in the consumer goods sector. According to the company, "Tupperware Brands Corporation is the leading global marketer of innovative, premium products across multiple brands utilizing a relationship-based selling method through an independent sales force of 2.9 million. Product brands and categories include design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware brand and beauty and personal care products through the Avroy Shlain, BeautiControl, Fuller Cosmetics, NaturCare, Nutrimetics and Nuvo brands."

It's easy to see why investors are selling TUP. The company has lowered its guidance four quarters in a row. The outlook seems to be getting worse. Revenues fell -5.2% in Q4 2014. They reported their 2015 Q1 results on April 22nd. TUP beat estimates but revenues were down -12%. They managed to beat the bottom line estimate in their Q2 report (July 22nd) but revenues were down -12.7%. Currently TUP management is expecting 2015 revenues to fall -10% to -11% from 2014.

The reaction to its Q2 results and lowered forecast sparked a sharp decline that pushed TUP to multi-year lows. There has been almost no oversold bounce. TUP tried to bounce last week and traders sold it pretty quick.

Shares displayed relative weakness on Friday with a -2.59% decline and a new multi-year closing low. The point & figure chart is bearish and forecasting at $44.00 target. Tonight we are suggesting a trigger to buy puts at $56.50. I'm listing the September puts but investors may want to go further out and give TUP even more time. There's no telling where the bottom might be.

Trigger @ $56.50

- Suggested Positions -

Buy the SEP $55 PUT (TUP150918P55)

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


WESCO Intl. - WCC - close: 58.02 change: +1.14

Stop Loss: 59.35
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:
08/10/15: I warned readers in the prior update to beware a bounce in WCC. After a multi-day drop shares were due. The stock rallied +2.0% but remained inside Friday's trading range so we shouldn't be too alarmed.

No new positions at this time.

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

08/08/15 new stop @ 59.35
08/05/15 triggered @ $58.40
Option Format: symbol-year-month-day-call-strike




CLOSED BULLISH PLAYS

Advance Auto Parts Inc. - AAP - close: 173.66 change: -0.09

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: +14.3%
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:
08/10/15: The broader market produced a widespread gain. Yet for some reason shares of AAP did not participate. That's just bad luck when we had already decided to exit this trade today at the closing bell.

Our plan was to exit at the closing bell to avoid holding over AAP's earnings on the 13th.

- Suggested Positions -

AUG $175 CALL (AAP150821C175) entry $3.50 exit $4.00 (+14.3%)

08/10/15 planned exit
08/08/15 prepare to exit on Monday at the closing bell
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

chart: