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Daily Newsletter, Saturday, 8/15/2015

Table of Contents

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

Market Wrap

Sigh of Relief

by Jim Brown

Click here to email Jim Brown

Investors were breathing a sigh of relief at the close on Friday. After a week of extreme volatility with multiple 200+ digit swings on the Dow the indexes closed the week with gains. Those gains were minimal but the Dow closed +325 points off its lows for the week.

Market Statistics

The Dow declined -504 points from its high for the week at 17,629 on Monday to the low of the week at 17,125 on Wednesday. The +325 point rebound off that low suggests buyers are starting to nibble at stocks again.

Friday's economics were slightly positive and not really a driver for the market. The late week rebound was more a result of seller exhaustion after the Chinese devaluation of the yuan caught everyone off guard. Wednesday's dip was seen as somewhat of a capitulation event and retest of the July lows.

The Producer Price Index for July rose +0.2% after gains of 0.4% in June and +0.5% in May. The decline in wholesale prices was blamed on the -20% decline in oil prices from the June high of $63.12. Final demand for goods declined -3.7% year over year while demand for services rose +0.6%. Core processed goods declined -3.1% and core unprocessed goods fell a whopping -30.7%. That is a direct result of the decline in oil and other commodities.

The weak PPI report could cause the Fed to rethink their plans to hike rates in September. However, the Fed has been steadfast in claiming that the drop in commodity prices was transitory and would not impact inflation long-term. The current set of inflation numbers could cause them to reevaluate their view of the "transitory" concept.

The Industrial Production report for July showed a rise of +0.6% compared to estimates for +0.3%. The reason for the stronger rise was purely auto related. Durable goods production rose +1.2% but inside that category was a +10.6% rise in motor vehicles and parts. That came after a -4.3% decline in June. Several domestic automakers either shortened the annual summer shutdowns or cancelled them completely. This caused a monster spike in auto production. Normally the seasonal adjustments level out the July/August period and the plant shutdowns.

In the bad news section, there were downward revisions to May and June that pushed the annualized production rate down from -1.4% to -2.0%. Overall, the report was disappointing.

The first consumer sentiment reading for August declined slightly from 93.1 to 92.9. The internals components barely changed. The present conditions component declined from 107.2 to 107.1 and the expectations component declined from 84.1 to 83.8. As Obi-Wan Kenobi would say, "Nothing to see here, move along." (FYI - there is a strong rumor of an Obi-Wan Kenobi movie spinoff from the Star Wars series)


The economic calendar is pretty busy next week but the two main events will be the FOMC minutes on Wednesday and the Philly Fed Survey on Thursday. The minutes will be under a magnifying glass for clues about a September rate hike. I doubt there will be any real clues but you can bet the market will become jittery ahead of the release.

The Philly Fed Manufacturing Survey is a proxy for the national ISM Manufacturing due out two weeks later. This is the first look at the August manufacturing conditions.

The new residential construction and existing home sales reports will be of interest just to make sure sales did not fall off a cliff in August. Since sales and construction both decline in late summer and into the fall these reports are just a pass-fail test for the sector. It would take a material decline in the numbers to produce a market response.


There were no stock splits announced last week. We are still waiting on the UnderArmour board meeting to set the date on their previously announced split.


The earnings calendar is finally shrinking. The material earnings for next week are primarily in the retail sector. Walmart, Target, Staples, Sears, Gap Stores, Home Depot, Limited, Disks Sporting Goods, Hibbett Sports, Lows, Foot Locker and Urban Outfitters are the best known.

SalesForce.com, Deere and Agilent are the non-retail headliners.


El Pollo Loco (LOCO) was road kill on Friday with a -21% drop. Earnings of 18 cents were in line with expectations but down from 22 cents in the comparison quarter. Revenue of $89.5 million missed estimates for $93 million. Guidance was also weak. The CEO said we "kind of lost the value focus" in the first half of 2015 and put too much emphasis on the higher dollar items. Same store sales of +1.3% fell short of estimates for +3.2%.


Nordstrom (JWN) rallied after posting earnings of $1.09 compared to estimates for 90 cents. Total revenue also rose +9.1% to $3.701 billion. Same store sales at Nordstrom's rose +1.1% while the Rack stores rose +13%. Nordstrom online sales rose +20% and NordstromRack.com/HauteLook sales rose+50%. The combination of all of the above pushed Nordstrom's total same store sales to +4.9%. Total stores rose +13 to 304. Eleven of those new stores were the Rack stores, which are in high demand today. The company raised guidance from 7-9% sales growth to 8.5-9.5%. Earnings per share guidance rose from $3.65-$3.80 to $3.85-$3.95.


Sysco Corp (SYY) surged +7% on news Nelson Peltz's Trian fund had acquired a $1.6 billion, 7.5% stake and intended to go active against the board. Announcing the 42 million share stake gives Peltz one week to nominate individuals for a board seat. The nominations close on August 21st. Judging from the stock chart the news of his position was leaked. Shares rebounded from $35.73 the prior Friday to $38.50 this Friday before the headlines broke. Once the news was reported on CNBC shares rallied +$3 to close at $41.39 and an eight-month high. Volume was eight times normal.


Lumber Liquidators (LL) rallied +8% after news broke that Julian Robertson's Tiger Management had acquired 238,000 shares. LL was crushed after a 60 Minutes report claiming their flooring had a hazardous level of a cancer causing chemical. LL has reportedly denied the allegation but more than 10,000 customers have filed claims to get their floors replaced. 60 Minutes will be rerunning that broadcast on Sunday evening.


Twitter (TWTR) shares were up slightly after a rumor that the CEO search would end next week with the announcement that co-founder Jack Dorsey would be named CEO again. Sun Trust analyst Robert Peck believes Dorsey will get the CEO role and join product head Adam Bain and board member and co-founder Evan Williams as the "triumvirate of leadership." Peck said given the tough road ahead the guidance of this triumvirate might be the best solution.

However, other analysts were not as confident. Dorsey is CEO of Square, a payments company that is expected to IPO soon. Previously the board of Twitter said they would not consider a dual CEO role where the CEO still occupied a position elsewhere. Dorsey has said he wants to remain at Square.

This will give Twitter traders indigestion and should that announcement occur the stock could trade in either direction. Dorsey has his fans but Twitter investors were hoping for new blood that could hit the door running and turn the company around. It might be time to add some December $32 calls and some September $28 puts as insurance.


Whole Foods Market (WFM) was initiated with a sell rating by Pivotal Research. The analyst said in every single market Trader Joes is gaining market share against Whole Foods. Also, Walmart and Kroger have added numerous organic products at a much cheaper price. The individual store category is also getting crowded with Fresh Market (TFM) and Sprouts Farmers Market (SFM) also gaining share. With Whole foods, jokingly referred to as Whole Paycheck and the most expensive of the various other options, it is the most at risk.


Shake Shack (SHAK) finally floated enough stock to qualify for options. The rules require a 7 million share float in order to list options. Puts were trading at a higher cost than calls. Apparently, existing shareholders were looking for a way to protect against further downside. Traders were also looking for a way to profit from further declines. Puts down to $47.50 for August with only five days remaining were being bought with the stock at $55. The most active call was the September $65 with 711 purchased. Multiple analysts expect to see SHAK trade down to the IPO lows at $40.

The stock has a cult like following but it is really a very small company. They have 71 stores and plan to add 12 per year up to a target of 450. That would take them about 35 years at the current pace.


Tesla (TSLA) announced a secondary offering of 2.1 million shares earlier in the week at a price of $242. On Friday, they raised the offering to 2.7 million shares. Underwriters have an overallotment option of another 400,000 shares. Tesla shares did not decline because Elon Musk said he would buy $20 million of the shares being offered or roughly 82,645 shares. Musk already owns 28,288,697 shares worth $6.874 billion. What is another $20 million when you are hyping your own offering?


Alibaba's Jack Ma now owns the most expensive home in China. According to a report in the South China Morning Post, Ma bought a luxury home in Hong Kong for $193 million. On a square foot basis that is the second most expensive home in the world because it only has 9,890 square feet. At that price, you would expect a lot of drive up appeal but the street view of 22 Barker Road on The Peak is severely lacking. However, the opposite side has panoramic views.



Jack Ma better start worrying about Alibaba's share price or several million investors will be hunting him down. Shares traded at a historic low at $72 on Wednesday after the company reported its lowest revenue growth as a public company at +28% to $3.3 billion. Operating profits declined -25% to $832 million. Slower economic growth in China and stronger competition are hurting the Alibaba fan base. Rival Tencent said revenue rose +19% to $3.8 billion and net profit rose +25% to $1.2 billion. Jack's wealth declined by -$752 million on Wednesday. That has to hurt even for a billionaire.


General Electric (GE) signed a deal to sell GE Capital Bank's U.S. online deposits to Goldman Sachs (GS) for $16 billion. Goldman will acquire $8 billion in online accounts and $8 billion in brokered certificates of deposit owned by GE.

Also on Friday the company said it now expects approval of its deal to buy Alstom's energy business for $13.8 billion. The deal is backed by France and the EU Commission had some concerns. GE said they submitted a remedy package that addresses the commission's concerns and a speedy approval is expected.


John Paulson served notice that he was voting all of his 21.9 million shares in favor of the proposed merger of Mylan (MYL) with Perrigo (PRGO). He issued a press release that praised the deal. Shares of Perrigo rallied $3.50 on the news to close at $196.

However, Institutional Shareholder Services (ISS) recommended voting against the deal. Mylan has offered to acquire Perrigo for $75 in cash and 2.3 Mylan shares for each Perrigo share. As of Friday's close, that would value Perrigo at $200 per share.

ISS said the transaction would be "value destructive" and would incur significant dilution with no subsequent leverage. "Approving this proposal requires too heavy a belief that the 'real' synergistic opportunity is much greater than Mylan has been able to demonstrate." ISS also said it appears Mylan has been unable to win over the required 80% of shareholder approvals.

While the market appears to be expecting a Mylan win the analysts are far less hopeful. Mylan shares have languished at the $55 mark since Teva dropped its $40 billion hostile bid on July 24th and pursued a deal with Allergan for a similar amount.



Hercules Offshore (HERO) filed bankruptcy after revenue declined -67% because of the drop in oil prices and reduced offshore drilling activity. The company listed $1.3 billion in debt and $546.3 million in assets. The filing was done with the permission of the bondholders. Under the preapproved plan the bond holders will receive 96.9% of the company in exchange for the debt. Existing shareholders will retain 3% of the company plus receive some warrants. Under the plan, Hercules will receive $450 million in new debt financing. The money will be used to complete the construction of the new Hercules Highlander, which is currently under construction in Singapore. The jackup rig can operate in 400-feet of water and drill to 30,000 feet. The rig already has a five-year contract from Maersk Oil at a lease rate of $225,000 per day. Hercules operates 27 jackup rigs and 21 liftboats.


KKR's Samson Resources, a company they bought in a leveraged buyout in 2011 for $7.2 billion, is planning on filing bankruptcy by mid September. This was the largest LBO of an energy company at that time. The company has worked out a deal with lenders to turn over ownership to the debt holders. KKR had invested $4.1 billion in cash into the company. Samson will miss a bond payment due on Monday and use the 30-day grace period to try and seek broader creditor support for the plan.

Samson was primarily a natural gas producer and troubles started right after the LBO when gas prices fell to a decade low. Samson has been bleeding cash and has lost more than $4.5 billion since the buyout including $490 million in the first three months of 2015. Japanese firm Itochu Corp took a 25% stake in Samson for $1 billion and they are writing off the entire amount as a loss. Samson was debt free before the buyout but ended up with $3.6 billion in debt as a result of the LBO.

There will be more bankruptcies as the pain increases from oil prices remaining lower for longer than analysts had first predicted. Citigroup warned last week that prices would decline after Labor Day as demand slowed. Gary Shilling of Shilling and Company warned that prices could be headed for the $20s. However, other analysts believe Saudi Arabia has reached their pain threshold are could announce a cut in production in Q4.

There was a major development on Friday with regard to the exporting of U.S. oil. The Commerce Dept said it was "acting favorably" on a number of applications to export U.S. crude to Mexico in exchange for imported Mexican oil. The oil swaps involve licenses that are expected to be issued by the end of August and will last one year. Producers can ship light crude to Mexico in exchange for heavy crude from Mexico. Mexican refineries are old and they can process light crude easier. U.S. coastal refiners are better equipped to process the heavy crude, which they get from Mexico, Venezuela and the Middle East. Pemex said it was seeking to swap 100,000 bpd or 1% of U.S. production. While this event is not material for the price of oil it is the second such deviation by the Commerce Dept over the last year. This suggests the administration is becoming more open to ending the 40-year outright ban on exporting U.S. crude.

Oil prices declined to $41.35 on Thursday to a 6.5 year low. Energy stocks rallied +3% for the week. If you are looking for logic do not look in the equity markets. Energy stocks are so depressed that analysts are recommending them as a buying opportunity. Most carry decent dividends but most investors do not realize that these dividends are an endangered species.

With cash flows imploding, debt payments coming due and drilling expenses a daily occurrence, the odds of dividend cuts are very good. I wrote a couple weeks ago that I did not want to try and catch the falling knives in the energy sector.

Oil prices "should" continue lower because the fall maintenance season begins in about two weeks. Refiners will begin shutting down for maintenance and conversion to winter blend fuels. During this period, oil demand will decline about 1.5 mbpd at the peak and that will allow inventories to begin rebuilding again. Once the summer driving demand ends with the Labor Day weekend those crude inventories should rise quickly. Prices should continue to fall as inventories rise.

Active rigs were flat at 884 for the week ended on Friday. However, there was an addition of 2 oil rigs and decline of 2 gas rigs. As long as oil rigs continue to climb we should see oil prices continue to weaken.



The decline in oil prices plus the sudden drop in agricultural commodities pushed the CRB index to new 13-year lows. This will definitely give the Fed something to worry about with their "transitory" view of lower inflation.


Markets

Wednesday's dip and rebound caught a lot of traders off guard. Volume of 8.2 billion shares was 1.2 billion more than Tuesday's decline. Despite the sharp drop at the open to 2052 and a six-week low, advancing volume was higher at 4.32 billion shares compared to declining volume at 3.66 billion. There were plenty of buyers waiting for a dip to that level. There had been some heavy selling on Tuesday and Wednesday and I am sure the short interest increased significantly. Those shorts were squeezed hard on the rebound and were unable to reestablish enough positions to push the indexes back lower by Friday.

The S&P rose on Friday to close just under Thursday's high at 2091. If you look at a daily chart, it is still ugly. Friday's green candle is miniscule compared to the long candles for the last two weeks. However, there were some positive points.

The 200-day average at 2076 was broken severely on Thursday but the rebound back over that level kept it in play. The long-term horizontal support at 2075 was also in play all week and there were no closes under that level. While I may be grasping at straws here, the S&P appears to be setting up for a stronger rebound.

However, the S&P faces serious resistance at 2100 and 2110 and it will take more than a few dip buyers to push it higher ahead of the Fed meeting in September. If we look back to March the S&P has been stuck in this 2040-2130 range for the last six months. We have crossed the 2100 level dozens of times in both directions without a lasting move.

While it may appear that the S&P is setting up for a continued move higher, that move is probably not going to retest the highs. That 2100-2110 resistance is likely to remain firm and the index will continue to fluctuate in its current range. The expression "buy the dips and sell the rips" comes to mind. Traders employing this strategy over the last six months would have done well.


What I find amazing is that the percentage of stocks in the S&P with a bullish chart has not changed over the last two weeks despite all the volatility. We are stuck in the 52% range. Also, the AAII Investor Sentiment Survey confounded expectations last week with a surge in bullish sentiment. This is for the week ended on Wednesday. With Thr/Fri from the prior week and Tue/Wed all showing significant declines in the market you would have expected a surge in bearish sentiment and no gain in bullish sentiment.

Apparently, the big gains on Monday and the strong +275 point rebound from negative territory on Wednesday were enough to turn some people bullish. There was an increase in bearish sentiment as well so at least some traders were worried about the big drops. Neutral sentiment declined a whopping -10.6% so the big swings in both directions definitely polarized some opinions.



The Dow remains the weakest chart but the drop to 17125 on Wednesday could be seen as a retest of the February lows and traders definitely rushed to buy those stocks. The rebound slowed just under 17500 and the chart is still in a decline. While the dip recovery was amazing, it did not correct the trend in the chart. Resistance at 17500, 17600 and 17775 remains strong. The Dow is well under its 200-day average at 17821 but the Dow is not very reactive to averages because of the slim 30-stocks composition.

The 50/200 death cross last week is normally a sell signal but Bespoke was out with some analysis last week showing that the Dow has not followed that pattern either over the last 60 years. It was up after the cross about as much as it was down in the weeks that followed. I chalk this up to the lack of average reaction as I stated above. A death cross on the S&P would be more critical. That could also come in the next couple of weeks.

The Dow stocks were mostly neutral on Friday. There were no big winners or losers. With total market volume of only 5.17 billion shares it was the lightest volume day in 2015. Traders were exhausted from the huge moves over the last two weeks and they probably left early to try and squeeze one more weekend into their summer. There was a definite lack of conviction by both buyers and sellers.



The Nasdaq punched through support at 5000 on Wednesday but recovered to close back above that level. Thursday's rally failed at 5070 and collapsed back to 5033 at the close. Friday's +15 point gain closed at 5048 and failed to return to Thursday's highs. This is actually negative compared to the Dow and S&P. It would appear that the Nasdaq is nursing some weakness. This came from the biotech sector.

The Biotech Index declined hard the prior week and was down slightly by -1% last week. The index broke below its 100-day average and is struggling to hold over support at 4000. The biotech bubble may be bursting after the recent flurry of M&A sent stocks to nosebleed valuations. A sustained dip below 4000 would be a real drag on the Nasdaq.


Like the Dow the number of big winners/losers were limited on Friday. Most of the stocks on the top of the list were names most traders do not know and they had very little impact on the Nasdaq because of their small capitalizations.



The Russell 2000 barely hung on to the 1200 level last week. The index broke below that level on Thursday before rebounding and then dipped back to test it at 1199.46 on Friday. This is the critical level for the index and the market. A close materially below 1200 would be negative for market sentiment. The Russell index is in decline and while I would like to point to the support test last week as a material event, I do not want to recognize it as such until a couple days have passed. The Russell could still go either way.


The Vanguard Total Stock Market Index ETF (VTI) is still neutral. The ETF shows the same rebound as the other indexes with support at $106. At some point soon there will be a test of down-trend resistance and possibly a retest of that 106 level. The VTI is right in the middle of its range since March and approaching a decision point for direction.


While there were encouraging signs over the last couple days, it is too soon to make a judgment call over market direction. We are still in the summer doldrums and market volume will continue to slow over the next two weeks. Fund managers are not likely to be making major purchases ahead of the Labor Day holiday and the FOMC meeting but they may be interested in taking profits to raise cash for a post Fed dip. With the year rapidly slipping away those managers will be dumping underperforming positions in hope of snagging some winners with enough beta to lift their sagging returns before the year expires.

Morningstar reported that equity fund outflows for the first seven months of 2015 exceeded the entire year for every year since 1993. In July alone $14 billion flowed out of equity funds and that followed an $8 billion withdrawal in June. More than 56% of the S&P stocks are in a correction. More than 60% of the Russell 3000 stocks are in a correction. This is the most hated bull market in history. Despite the withdrawals, the S&P has remained within 3% of its historic highs. That is very good relative strength and it can be chalked up to stock buybacks. Companies have already bought back more stock in 2015 than in all of 2014.


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Random Thoughts


The Atlanta Fed's real-time GDPNow projection has sunk to +0.7% growth for Q3 compared to the 2.7% average forecast by the private sector. The Fed has got to be wondering how they can justify a rate hike in September with their own numbers showing less than 1% growth.

I believe the Fed is stuck between a rock and a hard place. The current zero percent interest rate was put in place as an emergency backstop to the financial crisis. After six-years, the low rate is no longer having any impact on the economy. While the U.S. is not growing at its full potential it is growing. However, as each day passes we near the next recession. Regardless of how well the Fed manages the economy the seven-year cycle will eventually bring us a new recession. If interest rates remain at zero the Fed will be left with few options to provide stimulus when that recession appears. They have to raise rates even though the economy is not strong enough to justify it.

The Fed has another problem that is rarely discussed. They continue to buy treasuries each month as securities in their portfolio mature. Basically this is QE light since they are maintaining the size of their balance sheet and keeping interest rates artificially low. They have two ways to deal with this. They can quit replacing maturing securities and let the portfolio decline over the next 5-7 years. That would be the preferred method. If they are forced to sell treasuries into the market the interest rates will rise possibly more than they would like.

The Fed is facing numerous options and headlines as the current recovery ages. If a recession appeared over the next couple of quarters, there would be some very tense discussions in the halls of the Fed. Since the Federal Reserve has never successfully unwound a period of monetary stimulus and they have never had a stimulus program this large, the long-term outlook for the markets is negative. There is always a first time for success but I doubt this is it.


In a survey by the WSJ, 82% of economists questioned expect the Fed to raise rates in September. Another 13% said the Fed would wait until December. WSJ Survey


Between March 2014 and May of this year China reduced its holdings of U.S. treasuries by -$180 billion. China's appetite for U.S. debt peaked at $1.65 trillion in 2014. Despite their reduced appetite for U.S. debt, the interest rates on treasuries have remained low. Mutual funds, institutions, insurance companies and other countries are picking up the slack. Bond funds have seen major inflows of cash seeking a return safe from the equity market's fluctuations. Major dealers have even said there is a shortage of quality securities in the market. The current uncertainty about China, Greece and Russia has increased the appetite for treasuries.

Overseas investors and institutions now own about $6.13 trillion in U.S. treasuries. That is up from $2 trillion in 2006. China owns roughly $1.47 trillion today. Japanese investors sold $9.4 billion in treasuries in June. That is the most in two years.

With political candidates constantly warning about the nearly $19 trillion in U.S. debt and the potential for it to rise to $25 trillion by early next decade the overseas appetite may be shrinking. Source


A couple of weeks ago China said it was going to support the stock market until the Shanghai Composite Index returned to 4,500. I said at the time this was a suicidal admission since naming a specific index level would only mean that investors would sell whenever the index neared that level. I said they would have to modify their support claims to a more generic form without specific numbers to prevent that from happening.

China realized the error of its admission. On Friday the China Securities Finance Corp (CSFC), the market regulator, said "for a number of years to come, the CSFC will not exit the market. Its function to stabilize the market will not change." The CFSC was tasked with buying shares in the market in order to end the collapse. The regulator was given a credit line of up to 3 trillion yuan ($500 billion) to halt the market collapse.


Jeff Hirsch at the Stock Trader's Almanac said August was proceeding as expected. The first nine trading days were down as is normally the case. The middle of the month surrounding option expiration was slightly more bullish with a cluster of 4-5 trading days with market gains. However, expiration week has been negative 3 of the last 5 years. The week following expiration was down more often than not.


Apple is reportedly farther along than expected on its self-driving electric car program. Emails acquired under a public records act request show that Apple was negotiating for test time at the GoMentum Station. This is a 2,100 acre former naval base near San Francisco that contains 20 miles of paved highways and city streets. The base is closed to the public and guarded by the military. The military claims it is the largest secure test facility in the world for testing CV and AV technologies. CV means connected vehicles and AV means autonomous vehicles. Mercedes and Honda have already used the facility to test their self-driving cars.

Apple is known to have hired dozens of automobile engineers and large-scale battery technicians. Tim Cook has toured various auto-manufacturing plants and Apple held discussions a couple years ago about buying Tesla. Apple Building a Car


Iran has as much as 50 million barrels of crude oil stored on tankers in the Persian Gulf. If sanctions are lifted this would allow them to put up to 500,000 bpd of crude oil on the market by mid 2016. This would force prices lower once again. Iran Hiding Oil


This year's El Nino could be the strongest since records were started 60 years ago. El Nino, begins with warmer than usual water temperatures in the Eastern Pacific. This modifies weather patterns around the entire world. In the U.S. it can bring heavy winter precipitation to California and the south. That would be great news for the drought stricken region. However, it can also bring warmer weather around the world including droughts in Australia, hurricanes in the pacific and a warmer planet in general. Since 2015 is already shaping up to be the warmest year on record we really do not need to see hotter weather ahead. Mother of all El Ninos


 

Enter passively and exit aggressively!

Jim Brown

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"You can never make the same mistake twice because the second time you make it, it is not a mistake, it's a choice."

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Index Wrap

Stuck in the Middle Again

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

All the major indices, except the Dow and Russell 2000 remain 'stuck' in long-standing trading ranges. However, INDU looks to have long-term trendline support around 17000 (17125 is its recent low). And RUT may find support back at a long-standing line of prior resistance at 1200; i.e., resistance, once pierced, tends to 'become' support on subsequent pullbacks.

A recent long-term weekly Dow chart showing implied support in the 17000 area, at the low end of INDU's broad weekly chart uptrend price channel, is seen in my recent 8/13 Trader's Corner.

As the Russell chart pattern I've referred to, suggesting support on pullbacks to the 1200 area (prior resistance) also is a pattern best seen on RUT's weekly chart seen after the daily RUT chart; i.e., on my last chart at bottom.

Fundamentally, this Market doesn't lend itself to overarching generalizations other than uncertainty on the earnings and interest rate picture ahead, with whippy price action magnified by lower summer volumes.

Technically, what continues to 'work' in suggesting tradable tops and bottoms is when upswings and downswings reach my upper and lower trading 'bands' or more accurately known as upper and lower moving average envelope lines used on the major indices, that 'float' at set percentages above/below a centered 21-day moving average. Buying dips to the lower envelope lines has worked well in exiting bearish positions. However, subsequent rallies from such 'oversold' extremes have been limited recently in INDU, RUT and perhaps recent rebounds in the S&P and Nasdaq may not gain much traction. Stay tuned on that.

A key thing to say about using this technical indicator, this tool of moving average envelopes in the indexes, is that it suggests highs and lows that are unlikely to be exceeded at all short or medium-term, at least by much. Use of the right percentage input above and below the 21-day average, is a terrific tool for use in exiting or entering positions.

Lately, it's uncertain HOW MUCH upside potential on rebounds that occur from lower envelope lines. The charts that follow will show how prices tend to behave at lower and upper envelope lines. It's a useful tool, but isn't all that should go into a trading decision in terms of upside or downside potential; e.g., SPX mid-week this past week dipped sharply lower but then rebounded almost exactly from the lower envelope line seen on my first chart. How high this rebound might carry is another strategy decision that has to be made.

What's implied in most cases such as this past week's dip TO or near my lower SPX envelope line, to use this example, is that FURTHER downside is probably quite limited in both price and duration; e.g., 1-3 days is about as long as we'll see prices under or above my lower and upper envelope lines; with the exception of some catastrophic event.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) is mixed in its trend, which is basically sideways and has been for over 9 months. Hard to believe after years of prior monster GAINS, that SPX has been narrowly range-bound between 2000 on the downside and 2130 on the upside.

A characteristic tendency, especially in a lateral trading range market given 'normal' or low volatility has been for SPX to trade between moving average 'envelope' values set to 2 percent above and 2% below a 'centered' 21-day moving average. I always use the same moving average length input (21) but vary the upper and lower envelope values as needed. In a strong bull market trend, the upside value that 'contains' most rallies might be 2.5-3%. In a dominant downtrend the downside value may expand also as declines will carry farther than rallies.

The aforementioned tendency for percent envelope values that is 'ideal' for SPX (and OEX and the Dow) is highlighted below. When the decline carried to the lower envelope line, I suspect that many of you didn't see 'bottom' possibilities first and foremost because of a moving average envelope indicator. Stay tuned to this possibility over the years!

I liked owning SPX calls in the 2050 area, although time spent there was short-lived. What I upside is, I can't predict so well. If the Index pierces its 21-day moving average in 2100 area, then to above 2110, upside potential is maybe back to 2130 area.

Initial support is highlighted around 2073, extending to 2050. 2040 begins fairly major support. Bullish sentiment dropped significantly into or just ahead of the recent low. My CPRATIO indicator is a 'leading' indicator suggesting a bottom within 1-5 days of lowest point of bullishness.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) is also range-bound and has tended to make tops at prices that are 2 percent above the 21-day moving average. More on use of the moving average envelope indicator for the Indexes (only) is seen above in my S&P 500 commentary.

The most recent intraday sell off carried TO, and just under, 905, at lower support suggested by my 2 percent envelope value or trading 'band'. 900 offered pivotal support and sellers were not willing to try to push it to this 'benchmark' where buying interest was undoubtedly good. I've noted initial support again at 915 at the 66% retracement level (of the prior advance). Next support is 905, extending to 900.

Near resistance is seen at 928-930, then at 935-937. I favored buying OEX calls/selling OEX puts on the dip toward 900 as exiting stops could be set just under 900. I make a lot of trading decisions that are at projected 'extremes' which also means 'defensible' stops are not far from trade entry; e.g., just below key support points in terms of bullish strategies.

Re trade entry at what look like 'extreme' lows or highs. I know that major trends may devolve into trading range affairs where a strong trend won't bail me out of a sloppy trade decision; e.g., where I depend on a strong uptrend to make a trade profitable versus patient waiting for a good-sized dip. Of course sometimes you just have to jump into a fast moving trend, up or down.

THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:

The Dow 30 (INDU) has struggled to gain traction on the upside. It's been better to bet on the downside on rallies into resistance. For the period shown, INDU has seen downside trend reversals at lower and lower rally highs. Buying into 'oversold' situations such as at my lower (2%) trading band has led to upside reversals but which, in turn, led to mostly short-lived rallies.

In my initial 'bottom line' commentary above with its link to the Dow weekly chart analyzed this past week highlights the long-term up trendline comprising the low (support) end of a long-term uptrend price channel. The weekly Dow chart suggests key longer-term support coming in around 17000. INDU has already seen one intraday low at 17125.

Owning Dow Index calls when INDU got into the 17200 area may see upside Dow potential to 17600-17660, which is noted below (down red arrows) as resistance. Next Dow resistance not highlighted is at 17800, extending to 17900, where the top (resistance) end of the current daily chart downtrend channel intersects.

Near support is highlighted at 17300, extending to 17200. Major support as noted already per INDU's longer-term weekly chart up trendline (not shown here but via the above link) comes in at 17000.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) for the period shown has traded between my UPPER 3.5% moving average envelope line (twice) and twice down to the lower 2.5% envelope or trading 'band'. Rallies in its strong uptrend have carried COMP higher above the 'centered' 21-day moving average at 3.5% ABOVE the average, than declines have carried the Index down to around 2.5% BELOW the centered average.

Upper and lower envelope values that 'contain' most up/down price swings can be different by a half to a full percent or more depending on strong trend direction. Unfortunately, some moving average envelope indicators ONLY allow setting the SAME value for upper and lower envelope values.

The aforementioned price swings have often also seen overbought or oversold extremes in terms of my CPRATIO sentiment indicator, but such 'extremes' often occur a day or a few (e.g., up to 5) days before an actual tradable top or bottom is seen.

COMP support is highlighted at the milestone 5000 level, with support extending to 4950. Near resistance comes in at 5100, as suggested by the 21-day average, with resistance extending to the 5150 area. Major resistance begins around 5230, extending to around 5260.

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nasdaq 100 (NDX) is near-term bearish on this last pullback but within a still-bullish intermediate to long-term uptrend. The recent pullback retraced just over 2/3rds of the prior advance and went on intraday to reach my lower (support) envelope line at 2.5% below the centered 21-day moving average. My upper and lower NDX envelope percent values are the same as the broad Nas Composite.

The last rally peak near 4700 also occurred simultaneously with an 'overbought' or high Relative Strength Index (RSI) reading. The bottom made prior to that high started not only from the lower envelope line but occurred along with a low/'oversold' RSI. The two occurrences together of envelope and RSI extremes were pointing to compelling trades in both cases.

This last low might have been a 'compelling' buy but I'm less convinced. If you bought into the last dip such as to/near the lower envelope line, I suggest exiting if 4450 support is pierced. Near support is seen in the 4490-4500 area. Fairly major support begins at 4400, extending to 4350.

Upside potential is may be for a recovery move back up to the 21-day average, currently intersecting at 4580. Next resistance is seen in the 4615 area. Major resistance beings around 4700.

Lastly, I'd note that the last extreme low in the Nas 100 volatility index (VXN) per the chart highlight below came just ahead of the last major NDX top. That inverse VXN/price relationship, along with other factors, can at times provide added input for an exit on bullish positions and possibly a reversal into a bearish play. I'd emphasize that the price pattern should be primary in suggesting a possible top.

The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) is mixed with the short term trend definitely lower with the intermediate trend mixed. The recent low reversed from my lower (2.5%) envelope line. The prior upside price gap was 'filled in' and a rebound followed.

Near support is highlighted at 110, extending to 109.5. Major support is anticipated if the Q's again dip to the 108 area.

Near resistance is seen in the 111.6 area, at the 21-day average. Next resistance comes in at 113, with fairly major resistance beginning around 114.

Bullish plays looked ok on a risk to reward basis at the lower envelope line with exiting stops just below 108 and with upside potential back to the 111.6-112 area.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) is bearish in its short to intermediate pattern. The long-term trend has not reversed to the downside however and I have something to say about that on the long-term weekly chart that follows the daily chart.

RUT, relative to my first chart is finding support at around 3 percent BELOW its 21-day moving average, but recent rebounds from this area haven't carried above resistance implied by the same (21-day) average at least not by much in one instance of penetration. Moreover, price action has traced out a downtrend price channel that's also highlighted below.

RUT resistance is implied in the 1230 area at the current 21-day moving average, extending next to the 1247 area, the intersection of the upper resistance end of the bearish downtrend channel.

Current support is highlighted at 1200, extending to 1190-1185. If I had to be in RUT options, no choice, I'd rather be in calls or short puts around 1200, than hanging on to put positions thinking that there's just no support floor to RUT.

There is something more to say about the significance of potential support in the 1200 area in RUT which is best highlighted in the long-term weekly chart that is seen after my daily chart.

RUSSELL 2000 (RUT); WEEKLY CHART:

The 'something' more to say about the significance of 1200 as potential RUT support is highlighted in the WEEKLY chart seen next. There were several instances over 2013-2015 that RUT failed to pierce 1200 on rallies. This pattern set up in technical/chart terms a strong line (a horizontal 'trendline' so to speak) of resistance in the 1200 area.

There's a long-standing rule of thumb that resistance, once penetrated, tends to 'become' support on subsequent pullbacks; that's a good guess here but stay tuned!


GOOD TRADING SUCCESS!




New Option Plays

Under Promise, Over Deliver

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Tempur Sealy Intl. - TPX - close: 77.77 change: +0.28

Stop Loss: 74.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 711 thousand
Entry on August -- at $---.--
Listed on August 15, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: Yes, see below

Company Description

Trade Description:
TPX is turning out to be one of the better performing stocks this year. The S&P 500 index is only up +1.6% in 2015. Yet TPX has soared +41%. That's because the company has been delivering with its earnings results.

If you are not familiar with TPX they are in the consumer goods sector. According to the company, "Tempur Sealy International, Inc. (TPX) is the world's largest bedding provider. Tempur Sealy International develops, manufactures and markets mattresses, foundations, pillows and other products. The Company's brand portfolio includes many of the most highly recognized brands in the industry, including Tempur®, Tempur-Pedic®, Sealy®, Sealy Posturepedic®, Optimum® and Stearns & Foster®. World headquarters for Tempur Sealy International is in Lexington, KY."

Back in February this year shares of TPX plunged from about $56.00 down to $49.00 when the company warned and lowered their earnings and revenue guidance for all of 2015. This may be a case of setting expectations with an under promise and over deliver strategy.

Looking at TPX's recent earnings results they have beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row. They've actually raised their 2015 earnings guidance the last two quarterly reports.

TPX's most recent report was July 30th. The company's Q2 profit swung from a loss a year ago to a profit of $0.53 per share. That was eight cents better than expected. Their adjusted net income was up +38.8% from a year ago and up +49% on a constant currency basis. Revenues were up +6.9% to $764.4 million, above expectations. Gross margins improved +140 basis points to 38.9%. TPX said they saw double digit sales growth in both North America and internationally (when you back out currency headwinds). Management raised their 2015 earnings guidance from $2.80-3.15 per share to $3.00-3.20.

Shares of TPX surged on this bullish outlook and rallied toward $78.00. The last two weeks have seen TPX consolidate sideways under this new resistance at $78.00. Shares have been relatively resistant to the market's volatile swings in August. If shares can breakout past $78 we could see TPX make a run towards its all-time high near $87.50 set in April 2012. The point & figure chart is more optimistic and forecasting at $95.00 target.

Tonight we are suggesting a trigger to buy calls at $78.25. Plan on exiting prior to TPX's earnings report in late October.

Trigger @ $78.25

- Suggested Positions -

Buy the DEC $85 CALL (TPX151218C85) current ask $3.10
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:



In Play Updates and Reviews

Stocks End The Week With A Gain

by James Brown

Click here to email James Brown

Editor's Note:

Friday's generally widespread bounce helped the U.S. market firmly secure a gain for the week. Worries over China persist but there was good news on the European front as Greece appears to have secured its third bailout.


Current Portfolio:


CALL Play Updates

Accenture plc. - ACN - close: 103.45 change: +0.06

Stop Loss: 101.85
Target(s): To Be Determined
Current Option Gain/Loss: -15.6%
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:
08/15/15: Traders bought the dip in ACN near Wednesday's lows. The stock managed to bounce back to virtually unchanged on Friday's session. There is no change from my prior comments. Consider wait for a rally past $104.25 before initiating new positions.

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

08/12/15 new stop @ 101.85
07/31/15 triggered @ $103.35
Option Format: symbol-year-month-day-call-strike

chart:


The Walt Disney Co - DIS - close: 107.16 change: -0.36

Stop Loss: 102.85
Target(s): To Be Determined
Current Option Gain/Loss: +9.2%
Average Daily Volume = 5.9 million
Entry on August 12 at $106.00
Listed on August 05, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/15/15: Barclays lowered their price target on DIS, which seemed to throw a wet blanket on the stock for Friday's session. Shares languished in a sideways range of $106.80-107.60 most of the day. This weekend was the company's bi-annual D23 EXPO, the "ultimate fan event" for Disney. The company teased several of their upcoming films. This might rejuvenate the stock on Monday. If not, I would hesitate to launch new positions.

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.

On August 11th we added a buy-the-dip trigger at $106.00 with an initial stop loss at $103.00 and listed the October $110 call.

- Suggested Positions -

Long OCT $110 CALL (DIS151016C110) entry $2.06

08/12/15 new stop @ 102.85
08/12/15 triggered at $106.00
08/11/15 Added a buy-the-dip trigger at $106.00 with a stop at $103.00 and listed the October $110 call
Option Format: symbol-year-month-day-call-strike

chart:


Lennox Intl. - LII - close: 125.05 change: +2.06

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: +45.7%
Average Daily Volume = 427 thousand
Entry on August 12 at $121.60
Listed on August 11, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/15/15: LII was a strong performer all week long. The stock rallied another +1.6% to challenge potential round-number resistance at the $125.00 level. LII shares are up seven days in a row so I would expect a pullback sooner rather than later.

No new positions at this time. We are moving the stop loss to $119.85.

Trade Description: August 11, 2015:
Record profits and relative strength have made a recipe for new highs in LII. Shares have been outperforming the market with a +27% gain year to date.

LII is in the industrial goods sector. According to the company, "Lennox International Inc. is a global leader in the heating, air conditioning, and refrigeration markets."

The company has beaten Wall Street's earnings estimates in three of the last four quarterly reports. Although according to the IBD, LII's Q3 earnings miss was the first drop in three years.

LII's most recent report was July 20th when they announced their Q2 results. Earnings were up +22% from a year ago to $1.84 per share, which was three cents above estimates. Revenues improved +3.3% to $992.5 million, also better than expected. Management raised their full year 2015 earnings guidance.

LII's Chairman and CEO Todd Bluedorn offered bullish comments on his company's performance,

"Lennox International posted record profits in the second quarter with margin expansion across all three of our businesses. Total segment profit margin for the company expanded 120 basis points from the prior-year quarter to a record 13.5%. In our Residential business, we hit record revenue, margin and profit levels. Residential revenue was up 6% at constant currency, and margin expanded 190 basis points to 18.0%. In Commercial, segment profit reached new highs while revenue and margin set second-quarter records. Commercial revenue was up 10% at constant currency, and margin expanded 80 basis points to 17.0%. North America national account business resumed growth as expected, with revenue up high single-digits, and we continued to see success in non-national account business with mid-teens revenue growth. In Refrigeration, revenue was up 4% at constant currency, driven by high single-digit growth in North America. Refrigeration margin ticked up 10 basis points to 7.2%, including headwinds from negative foreign exchange and the mid-2014 repeal of the carbon tax on refrigerant in Australia."
The stock market rewarded LII shareholders with a huge pop from about $107 to $116 on this earnings news. Shares have been very resilient since this earnings announcement. Investors have been buying the dips and LII has avoided a lot of the market's volatility.

Yesterday LII managed to breakout from its post-earnings sideways consolidation and rally past resistance near $120.00. LII displayed relative strength again today. The point & figure chart is bullish and forecasting at $136.00 target. Tonight we are suggesting a trigger to buy calls at $121.60.

- Suggested Positions -

Long SEP $125 CALL (LII150918C125) entry $1.75

08/15/15 new stop @ 119.85
08/12/15 triggered @ $121.60
Option Format: symbol-year-month-day-call-strike

chart:


McCormick & Co. - MKC - close: 85.20 change: +0.69

Stop Loss: 82.45
Target(s): To Be Determined
Current Option Gain/Loss: -3.2%
Average Daily Volume = 608 thousand
Entry on August 14 at $85.05
Listed on August 12, 2015
Time Frame: Exit PRIOR to September earnings expiration
New Positions: see below

Comments:
08/15/15: MKC kept the rally alive on Friday with a +0.8% gain and a breakout to new highs. Shares hit our suggested entry point to buy calls at $85.05. I would consider new positions at current levels.

Trade Description: August 12, 2015:
MKC sales its products around the world. Currency headwinds have been a major issue this year. Yet investors seem to be looking past the currency issue and have driven MKC to a +13.9% rally in 2015, outperforming all the major U.S. indices.

MKC is in the consumer goods sector. According to the company, "McCormick & Company, Incorporated is a global leader in flavor. With $4.2 billion in annual sales, the company manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the entire food industry – retail outlets, food manufacturers and foodservice businesses. Every day, no matter where or what you eat, you can enjoy food flavored by McCormick."

Looking at their last three earnings reports MKC has managed to beat Wall Street's estimates on the bottom line three quarters in a row. Yet revenue growth has taken a hit due to currency headwinds. Management offered soft guidance in January when they reported their Q4 results. They lowered guidance in March when MKC reported its Q1 results. Yet after their most recent report MKC raised their full year 2015 earnings guidance, which might suggest the slowdown has passed.

Looking at their Q2 report in more detail (announced on July 1st) the company delivered earnings of $0.75 per share. That's a +17% rise from a year ago and seven cents better than expected. Revenues were down -0.9% to $1.02 billion, which missed expectations. When you back our currency headwinds their revenues were up +5%.

Investors have been buying the dips in MKC for months. The rally accelerated in the last couple of weeks with MKC surging to new all-time highs. Traders were quick to buy the dip today at short-term technical support on the 10-dma. We suspect MKC's relative strength will continue. The point & figure chart is forecasting at $95.00 target.

Tonight we are listing a trigger to buy calls at $85.05.

- Suggested Positions -

Long SEP $85 CALL (MKC150918C85) entry $1.55

08/14/15 triggered @ $85.05
Option Format: symbol-year-month-day-call-strike

chart:


Starbucks Corp. - SBUX - close: 57.10 change: +0.25

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: +31.7%
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:
08/15/15: The rebound in SBUX continued on Friday with shares up four days in a row. The stock has yet to rally back above its simple 10-dma, which is a potential short-term hurdle. Traders may want to wait for a rally past $57.50 before considering new positions.

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

chart:


Stryker Corp. - SYK - close: 103.64 change: +0.67

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: +28.3%
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:
08/15/15: SYK ended the week on a high note. The stock outperformed the major indices with a +0.65% gain and it set a new all-time closing high. The $104.00 level still looks like short-term resistance and traders might want to wait for a rally past $104.00 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

chart:


Teva Pharmaceuticals - TEVA - close: 69.02 change: -0.33

Stop Loss: 68.20
Target(s): To Be Determined
Current Option Gain/Loss: -40.1%
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:
08/15/15: We are about ready to throw in the towel on TEVA. Shares have been underperforming the last few days. We were prepared to drop it tonight. However, on Friday afternoon, near the close (or shortly thereafter) it was unveiled that a couple of hedge funds had launched new positions in TEVA in the last quarter. This could give TEVA a boost on Monday.

I am not suggesting new positions. We will raise the stop loss to $68.20. If shares do not show improvement on Monday we'll likely remove it as a trade in the Monday night newsletter.

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

08/15/15 new stop @ 68.20
08/04/15 triggered @ $70.25
Option Format: symbol-year-month-day-call-strike

chart:


Under Armour, Inc. - UA - close: 100.25 change: +0.85

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +31.6%
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:
08/15/15: UA continues to show relative strength and outperformed the major indices with a +0.85% gain on Friday. The close above round-number resistance at $100.00 is another positive sign. Yet I'm a little bit hesitant to launch new positions. Shares still have resistance near $102.00 at its early August highs.

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

chart:




PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 63.31 change: -0.36

Stop Loss: 65.25
Target(s): To Be Determined
Current Option Gain/Loss: +52.9%
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:
08/15/15: BBBY didn't move much last week but it continues to underperform the broader market. On Friday shares hit another lower high on a short-term basis.

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

chart:


Tupperware Brands - TUP - close: 55.08 change: +0.38

Stop Loss: 56.65
Target(s): To Be Determined
Current Option Gain/Loss: +29.6%
Average Daily Volume = 489 thousand
Entry on August 11 at $56.50
Listed on August 08, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/15/15: Friday was another quiet day for TUP. The stock churned sideways beneath the $55.30 level. On Friday morning the company announced a quarterly dividend of 68 cents per share payable on October 5th to shareholders on record as of September 18th.

I am not suggesting new positions at this time.

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.

- Suggested Positions -

Long SEP $55 PUT (TUP150918P55) entry $1.35

08/12/15 new stop @ 56.65
08/11/15 triggered @ $56.50
Option Format: symbol-year-month-day-call-strike

chart:


WESCO Intl. - WCC - close: 56.80 change: +0.47

Stop Loss: 59.35
Target(s): To Be Determined
Current Option Gain/Loss: +10.5%
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:
08/15/15: WCC bounced on Friday. Shares recovered about half of Thursday's losses. The trend of lower highs remains intact. More conservative traders may want to use a stop loss closer to the simple 10-dma (currently near $58.00).

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

chart:


Wynn Resorts Ltd. - WYNN - close: 92.17 change: -2.45

Stop Loss: 100.15
Target(s): To Be Determined
Current Option Gain/Loss: +4.6%
Average Daily Volume = 2.5 million
Entry on August 14 at $93.40
Listed on August 13, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/15/15: Our brand new put play on WYNN is off to a good start. Shares continued to sink on Friday and broke down to new multi-year lows. WYNN hit our suggested entry point at $93.40.

I would consider new positions now at current levels. However, nimble traders could wait and see if shares bounce. Broken support in the $93.60-94.00 region should be new resistance and a bounce to this area could be another entry point to buy puts.

Trade Description: August 13, 2015:
Casino stocks have been a bad bet this year. CZR and LVS are both down for the year. MGM seems to be an exception with a very minor gain. Yet one of the biggest losers is WYNN. Shares of WYNN are down -36% in 2015. The bear market started last year. Shares of WYNN peaked just below $250.00 in early 2014 and now they're down -60% from the highs. The catalyst for this dramatic decline is a plunge in gaming revenues from Macau.

WYNN is in the services sector. According to the company, "Wynn Resorts, Limited, owns 72.2% of Wynn Macau, Limited (www.wynnmacaulimited.com), which operates a casino hotel resort property in the Macau Special Administrative Region of the People's Republic of China. The Company also owns and operates a casino hotel resort property in Las Vegas, Nevada.

Our Macau resort is a resort destination casino with two luxury hotel towers (Wynn Macau and Encore) with a total of 1,008 spacious rooms and suites, approximately 280,000 square feet of casino space, casual and fine dining in eight restaurants, approximately 57,000 square feet of retail space, and recreation and leisure facilities, including two health clubs and spas and a pool.

Our Las Vegas operations (Wynn Las Vegas and Encore) feature two luxury hotel towers with a total of 4,748 spacious hotel rooms, suites and villas, approximately 186,000 square feet of casino space, 34 food and beverage outlets featuring signature chefs, an on-site 18-hole golf course, meeting space, a Ferrari and Maserati dealership, approximately 96,000 square feet of retail space, two showrooms, three nightclubs and a beach club."

The problems started in June 2014. China launched a nationwide crackdown on corruption. This had a huge impact on how many government officials decided to vacation and gamble in Macau. The region also saw a drop in other high rollers not wanting to be seen tossing money around. Plus the Chinese government enacted harsh no-smoking rules in Macau. There was a direct impact on gambling revenues that is still being felt today.

WYNN reported its 2015 Q1 results on April 28th. Analysts were expecting a profit of $1.33 per share on revenues of $1.17 billion. The company delivered a profit of $0.70 (big miss) and revenues plunged -27.8% to $1.09 billion. Its Macau revenues were down -37.7%. Management also announced they were reducing their quarterly dividend.

We looked at playing WYNN as a bearish candidate back in June after several bearish analyst calls on the gambling companies with exposure to Macau. A Sterne Agee analyst noted that table-only gross gaming revenues in Macau were down -46% from a year ago in the first week of June. They estimate that June 2015 will see Macau gambling revenues fall -33% to -38%. June is on track to be the 13th monthly decline in gambling revenues and the tenth month in a row of double-digit declines.

A Susquehanna Financial Group analyst also warned that the region could suffer further declines. There are rumors of an complete smoking ban and there seems to be no let up on the government's anti-corruption efforts. Meanwhile a Wells Fargo analyst is forecasting June gambling revenues in Macau to plunged -30% to -40% to about $2 billion. This would be the lowest monthly total in more than four years.

The stock saw a big bounce in early July on an upgrade but the rally didn't last. WYNN reported its Q2 results on July 29th. Analysts were forecasting $0.97 per share on revenues of $1.07 billion. WYNN missed both estimates with a profit of $0.74 as revenues plunged -26% to $1.04 billion. Their Macau business saw revenues drop -35.8%.

Believe it or not but shares of WYNN saw a relief rally on this earnings news. Maybe investors were expecting even worse numbers. Yet the rally failed the very next day. That's because the situation in Macau hasn't changed. July was the 14th month in a row of falling revenues for the casino industry.

The recent headlines regarding the Chinese government's devaluation of their currency (the yuan, a.k.a. the renminbi) could be a clue that their economy is slowing down faster than expected. That's bad news for the casino business. If the Chinese economy is retreating it would seem unreasonable to expect a recovery in the gambling business.

Shares of WYNN have plunged to key support in the $93.60-94.00 region. We are suggesting a trigger to buy puts at $93.40. A breakdown to new lows could spark the next leg lower after weeks of consolidating sideways.

Traders should note that WYNN can be a volatile stock. The most recent data listed short interest at 13.7% of the relatively small 80.8 million share float. Currently the point & figure chart is bearish and forecasting an $85.00 target.

- Suggested Positions -

Long SEP $90 PUT (WYNN150918P90) entry $3.25

08/14/15 triggered @ $93.40
Option Format: symbol-year-month-day-call-strike

chart: