Option Investor
Newsletter

Daily Newsletter, Saturday, 8/22/2015

Table of Contents

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

Market Wrap

Corrections Arrive

by Jim Brown

Click here to email Jim Brown

The Dow and the Russell 2000 dropped into correction territory with more than a -10% decline since their recent highs. The Nasdaq is only 13 points away from a correction with a -9.75% loss. The S&P still has more than 50 points to drop to qualify.

Market Statistics

The Dow has declined -1,853 points (-10.12%) from the 18,132 closing high on May 19th.

The S&P has declined -160 points (-7.51%) from the 2,131 closing high on May 21st.

The Nasdaq Composite has declined -509 points (-9.75%) from the 5,218 closing high on July 20th. The Nasdaq 100 ($NDX) has declined -478 points (-10.22%) from the 4,679 closing high on July 20th.

The Russell 2000 has declined -140 points (-10.8%) from the 1,296 closing high on June 23rd.

The Dow decline last week was the worst week since August 2011 when it fell -2,120 points in ten days from the 12,724 high.

More than 31% of the S&P-500 stocks are in a bear market with more than a 20% decline. More than 70% are in a correction with declines of more than 10%. More than 85% of the energy sector stocks are in a bear market, 40% of tech stocks and 43% of materials stocks.

Multiple factors powered the market decline. The primary factors came from China. The Shanghai Index fell -11.2% for the week after China's Caixin Manufacturing PMI for August fell from 47.8 to 47.1 and a 6.5-year low. The Chinese equity market has lost the equivalent of $5 trillion since peaking in June at 5,166. It closed on Friday at 3,507 for a -32% decline from the June high. Conditions in China are deteriorating faster than most analysts have been expecting. Chinese auto sales are expected to decline for the first time in 17 years.

Global commodities are imploding. Jim Chanos pointed out that the global capex for mining was only $14 billion a year in 2000. After the market crash, companies went on a spending spree to explore, mine and produce commodities to fuel China's growth that was adding 1% to their GDP every year. The GDP went from 9.1% in 2002 to 14.2% in 2007. Commodity producers were scrambling to mine, grow and produce as much as possible to feed this growth giant. In 2012, the annual capex for mining companies peaked at $125 billion and almost 10 times the $14 billion in 2000. It takes 10-15 years to find, develop and produce a hard commodity like copper. All of those efforts were just reaching full production in 2012 as China's GDP was collapsing. Today the "official" GDP is 7% but nearly every reputable analyst believes it is closer to 5% or less if you overlook the government "adjustments."


Today commodities have no place to go. Producers are slashing production but there are still more in the pipeline than there is demand to consume them. In some commodities like copper, there is a growing lack of storage space. To make the situation worse the commodities already delivered to China were being used as collateral for loans. With the sharp drop in prices, those loans are being called and forcing speculators to sell other assets like stocks to cover the shortfall.

The CRB Index declined -5.54% last week alone and closed at a 13 year low. Note that the post recession peak in 2011 corresponded with the sharp decline in China's GDP that began after 2010.


China's panic move to devalue their currency the prior week has set off a chain reaction in all emerging markets. Currencies are plunging all over Asia.

Kazakhstan shocked the markets by allowing its currency to free float in order to remain competitive with China. The tenge fell -22% almost immediately.

Vietnam devalued the Dong for the third time in 2015 because of the yuan drop.

Over the last week the Russian ruble fell -5%, Belerusian ruble -4.5%, Seychelles rupee -4.4%, Zambian kwacha -3.7%, Rwandan franc -3.7%, Ghana cedi -3.6%, Mexican peso -3%, Turkish lira -2.9%, Liberian dollar -2.9% and the Columbian peso -2.8%. This represents a race to the bottom in order to remain competitive in the market. It also means that any goods priced in dollars, euros and Swiss francs are suddenly a lot more expensive in emerging market countries. Sales will slow.

Globally there are a lot of bear markets. Russia is down -40%, Brazil -25% and Taiwan -22% name a few.

The MSCI Emerging Market Index fell -5.7% for the week and the biggest drop since May 2012. Hong Kong, Indonesia and Taiwan saw their stocks enter a bear market. Brazil and the Philippines are very close to bear markets.


The Stoxx Europe 600 Index lost -3.3% on Friday and -6.5% for the week for the biggest weekly loss since 2011. It is now down -13% from the April high and now in correction territory. This is a result of the decline in currencies making the euro worth more and damaging exports to emerging market economies.


The U.S. markets were plagued with narrowing breadth for the last several months. This has been pointed out here many times in the past. A smaller number of big cap stocks were supporting the market. The Fab Five including Netflix, Facebook, Google, Amazon and Apple finally saw the adoring crowds flee their high prices stocks. More than $97 billion in market cap has been erased in those five stocks alone. The Nasdaq 100 lost -7% in just the last two days and the worst drop since 2008. Apple shares closed in bear market territory at $105.76 with a -20.5% decline from the recent high at $133. This should be major support for Apple.



Friday was option expiration. Higher volume was expected but nothing like the 10.5 billion shares that traded. Normally on opex we see 7-8 billion shares. This was also a summer Friday and volume should have been less than average. Volume began to rise on Wednesday with 7.0 billion then 7.9 billion on Thursday. I doubt anyone expected the blowout on Friday.

The term capitulation was being tossed around by the talking heads on TV. Normally a "classic" capitulation event has declining volume at roughly 10:1 over advancing volume. Friday was 8:1 declining over advancing volume. In a capitulation, there are normally 5:1 or higher decliners to advancers. On Friday, it was slightly under 4:1 in favor of decliners. Yes, even on Friday when the Dow was down -530 points there were still 1,497 advancing stocks to 5,754 declining stocks. Roughly 25% of stocks were still advancing in a very ugly market. While there is no official definition of a capitulation day, Friday could still qualify since the volume spike was off the scale. The fact that a lot of investors were buying the dip at correction levels probably kept the internals from being even worse. There were 45 new 52-week highs and 1,494 new 52-week lows. However, only 15 of the S&P-500 stocks closed positive. The majority of the gainers were in the small cap space because of their limited exposure to China and currencies.

There were no new highs on the S&P-500 on Friday. That is the first time since August 8th, 2011 when the last correction occurred after S&P downgraded the U.S. credit rating.

The Volatility Index ($VIX) spiked 46% on Friday alone and +100% since Tuesday's close at 13.79. If you ever thought about shorting some VIX calls this would be the time to do it. That is the second highest reading in three years. You have to go back to November 2011 for a higher reading. The VIX has risen 10% or more per day for the last three days. That has only happened twice in its 21 year history. Those were in March 1994 and October 2014.


The global market crash and currency implosion caused a huge flight to quality. The yield on the ten-year treasury declined to a three-month low at 2.05%. Just a few weeks ago, it was right at 2.5% on expectations for the Fed to hike rates. Yields go down when there is a high demand for treasuries. Today a secure investment is more important than worry over what might happen in the future. Investors overseas want to be invested in dollar denominated securities that will not devalue overnight.


With the global markets crashing and emerging market currencies in free fall, the odds are good the Fed is not going to be raising rates three weeks from now. The Fed's Jackson Hole seminar is next weekend and you can bet they will be discussing the global events. However, if the market were to rebound from the lows and add a significant number of points next week the pressure to do nothing could ease. The futures are projecting a 34% chance of a September rate hike, down from 48% the prior week.

The index to watch will be the S&P-500. The index crashed through support at 2040, 2000 and 1985 to close at 1972. While a -131 point decline in only four days is a major move, it only managed to push the S&P to -7.5% below the recent highs. In order for the S&P to enter correction territory, it would need to trade at 1,918 or another 54-point drop. While the Dow is already in correction territory, the real benchmark for the market is the S&P-500. In October the S&P declined -9.4% from the high close at 2010 to an intraday low at 1820 but only -7.4% on a closing basis after a 42-point afternoon rebound.

In theory, Friday's decline on the S&P to a -7.5% level could be seen as a buying opportunity for next week. Capitulation levels were reached in volume and internals and the Dow and Russell 2000 hit correction territory. It has been 1027 days since the S&P experienced a correction. It would not be a stretch of the imagination for anxious dip buyers to call this a bottom and jump in on hopes of an October repeat.

In October, the S&P rebounded from the low at 1820 to 2075 in only six weeks. That was a +255 point rebound and a +14.1% gain. Big market moves like that tend to be remembered with the mindset of "I sure don't want to miss it if that happens again." Remember, most analysts are still expecting a lot higher finish for the S&P in December. The average end of year target is 2231, which would be a +260 point rebound from here.



There were no economic reports of note on Friday. Next week will have several Fed surveys and a chance to see how the U.S. economy is doing regionally. The Richmond survey on Tuesday is the most important of those reports.

The GDP revision on Thursday is expected to rise from 2.3% to 3.0% growth. I would not hold my breath on that one. The odds of that consensus target being reached are slim in my opinion. However, the Q3 forecast by the Atlanta Fed is just over 1% growth. Did Q2 growth suddenly spike only to crash again in Q3? We will not know that for several months.

The Atlanta Fed GDPNow product at the end of the quarter predicted 2.4% growth for Q2 and that was only 0.1% off of the last revision by the BEA. Of course, the government has announced a new GDP calculation since then that is supposed to level out the peaks and valleys and that could make the Fed's calculation obsolete. Without the new calculation method, I would be betting on the Fed's number. What I am trying to say is that I would bet on a number lower than the consensus but not by much. As long as it is just a couple tenths of a percent, nobody will care. However, too bearish of a number and analysts will begin to doubt the Q3 estimates. Too bullish of a number and the Fed will be back in play again for a September rate hike.


Skechers USA (SKX) announced a 3:1 stock split for October 15th. Given their recent chart, I think this stock could have a split run once the market calms. I would sure like to buy this back around the $120 level.


We are still waiting on the UnderArmour board meeting next week to approve the split and set a split date.


Hewlett Packard (HPQ) was one of the few big name stocks with a gain on Friday. The company reported earnings of 88 cents that beat estimates for 85 cents. Revenue of $25.35 billion declined -8% and missed estimates for $25.64 billion. Much of that revenue decline was due to the strong dollar.

Shares declined in the Thursday night session after the company guided for earnings in the 92-98 cent per share range for the current quarter. Analysts were expecting $1.00. Shares were up on Friday after Meg Whitman went on CNBC and talked up the coming split into a PC focused company and an enterprise focused company. Whitman was applauding the enterprise company saying post split it will have some real strength. She said the PC company will be dependent in the short term on how Windows 10 is received by the public. Shares were up +$2.50 from the lows after Whitman's appearance but faded to close with only a 12 cent gain in an ugly market.


Salesforce.com (CRM) reported earnings of 19 cents that beat estimates by a penny. Revenue rose +24% to $1.63 billion. The company raised full year forecasts for the third time this year. Revenue is now expected to be between $6.6-$6.625 billion compared to the prior forecast for $6.52-$6.55 billion. Analysts were expecting $6.55 billion.


Deere (DE) reported earnings of $1.53 that beat estimates for $1.44. However, sales declined -20% to $7.6 billion. The company said demand was declining for agricultural and construction equipment. They lowered full year profit forecast from $1.9 billion to $1.8 billion and analysts were expecting $1.93 billion. Shares fell -8% for the day.


Earnings are winding down but there are still some notable companies reporting next week.


Spa operator Steiner Leisure (STNR) announced it was being acquired by private equity firm Catterton for about $834 million. The PE firm offered $65 for Steiner and a 15% premium to its prior close. Shares gained $8.25 to close at $64.78.


Crude oil dipped under $40 for a few minutes on Friday but rebounded on short covering going into the close. The outlook for crude oil remains bearish but it is significantly oversold. Crude has been down for eight consecutive weeks and that is the worst losing streak since 1986. Analysts are now starting to warn about oil prices in the mid $20s. That is a real stretch of the imagination but it is possible. Back in 1998 when Saudi Arabia tried this, "flood the market" stunt oil prices fell under $10 before the rest of OPEC agreed to cut production and not cheat.

Energy equities are in free fall after bouncing the prior week on some analyst recommendations. The Oil Exploration ETF (XOP) is now at post recession lows. Some producers are definitely going to have their loan base cut when they have to revalue their reserves based on current prices.



Active rigs rose +1 from last week to 885. Active oil rigs rose +2 to 674. Gas rigs were unchanged at 211. Offshore rigs declined -3 to 32. Active rigs are down -1,011 from this time last year.


Markets

The previously range bound markets decided enough was enough and exploded out of that range to 10-month lows in the case of the Dow and S&P. All the weeks of anguish we spent debating whether support from 2040-2050 would hold on the next dip are now history.

The market changed character in only three days and now we have a new set of support points to discuss. Several analysts immediately pointed out that the chart patterns today were eerily similar to the correction in August 2011. That correction did not rebound until October.

Back in 2011 the S&P made a new high in May and then attempted to retest that high in June/July but fell 10 points short. The last week of July and the first week of August saw the S&P lose more than -250 points in a very direct manner. The tone of the market changed from bouncing around in a trading range of 90 points for five months to plunge into correction territory in only two weeks.

I am not a fan of comparing years old chart patterns to current charts. There are so many things different today than in 2011 that it would be impossible to list them all. The macro world is materially different. Earnings are different, global trade is different, China's economy is different. The Fed is a cloud on the horizon, etc.



If we just analyze the current charts we will have plenty to worry about. The S&P closed at 1970.89 and -2 points below the December low of 1972.56. In theory the two numbers are close enough together that we can say the S&P closed on support. Whether that support holds depends on weekend events and specifically events in China. There is a lot of speculation that China will cut rates again on Sunday. If that were to occur, it could halt the decline at least temporarily.

We have the same problem in the U.S. today that China has had for the last several weeks. The severity of the decline has caused significant margin calls. Since much of the Friday decline came late in the afternoon, there will be another round of margin calls impacting trading on Monday. If China cuts rates and the futures rebound strongly on Sunday night that margin selling could be reduced. If nothing happens in China over the weekend and the U.S. markets open lower we could see a real capitulation day as stop losses are hit and margin calls accelerate.

The support at 1985 was strong. However, the S&P blew through that level like it never existed. If you just look at the S&P chart, the next material support is the October low at 1835. I am using the higher low from October 16th rather than the panic low of 1820 on the 15th. The higher low was the result of calmer heads buying the second dip and represents the real support level, in my opinion.

However, if we step back in time another six months there was another closing low at 1815 in April. That April low and the October low at 1820 are what I would call the worst-case scenario.

When markets change sentiment almost overnight it is normally because of some headline that appears out of the darkness like the yuan devaluation and the ripple effect around the world. We have numerous examples in the last 20 years where one event set off a chain reaction and lowered the market significantly.

Normally the severity of the plunge relates to the strength of the market before the event. If the case of the yuan devaluation the market had been weak for the last two months. Market breadth had been declining. New lows rising and the market was being pushed higher by only a few big cap tech stocks. Those few stocks began to falter a couple weeks ago after their earnings left more questions than answers. Earnings for the S&P were better than expected but revenue numbers were down sharply. Buybacks and dividends had been supporting the market.

With the market already weak, in the two worst months of the year for stocks and with the Fed ready in the wings to hike rates we were living on borrowed time. The yuan devaluation and subsequent ripple down in the emerging markets was just the last straw rather than an overriding event.

I always say if you want to know the market direction show the chart to a 5th grader. They are not biased because they do not have all the macro and fundamental "knowledge" most investors have today. A 5th grader would look at the chart below and say the market is going lower. I would like to believe we will see an oversold rebound on Monday but that may be a glass half-full view rather than an objective view of the chart. I have been warning about weak economics and revenue for several months now. When the markets change direction on an external event sometimes those internals factors suddenly make a difference where they were previously ignored.


The Dow was ugly on Friday with more than half the components losing $2 and several losing a lot more. The Dow was already the weakest index because of the impact of the strong dollar on the international stocks. With emerging market currencies crashing those companies will be impacted even more.

However, with the potential for a Fed rate hike rapidly evaporating the dollar fell off a cliff last week. After setting a three-month high in early August at 98.34 the dollar index collapsed back to 95 on Friday. That is a big move for the dollar especially when the emerging market currencies were plunging. That should have made the dollar more valuable.


The Dow is in free fall with 16,000 clearly the next target. More than half the Dow stocks are in a correction and many are already down more than 20%. I have pointed out the weakness in the individual components over the last couple of months and nothing has changed. Some of those already deep into correction territory collapsed last week and they are probably starting to look like bargains. However, the macro environment could keep investors from bargain shopping until something changes.

Support is 16,350 and then 16,000. Resistance at 17,150 is out of range until we see a multi-day rebound.

The Dow closed on the lows of the day with a -2% decline or more on the last two days. That is the first time that has ever happened.



The Nasdaq declined -171 points on Friday. That number should take your breath away. All the big tech stocks were crushed by people racing to get out of the market. The general weakness in AMZN, GOOGL, NFLX, AAPL, etc over the prior two weeks turned into a full-fledged rout on Friday. Those stocks are officially broken. Analyst suggested buy points are now well above current levels and everyone that bought the dip on the way down has lost money. Those stocks bought on margin were being liquidated in mass on Friday as stop losses were crushed.

On the positive side the Nasdaq has decent support at 4545-4605 and only about 100 points below Friday's close. That could suggest the carnage in the tech sector is about over. However, should those levels break the next support is well below at 4133.

The Nasdaq Composite is -9.75% off its highs and right on the verge of a correction. Unfortunately, directional moves on the Nasdaq typically overshoot by a wide margin. Traders get caught up in the momentum of the move and technical levels can be bypassed.

Personally, I think the damage is overdone. For instance, Apple closed right on support at $105. This stock was at $133 just four weeks ago. The $105 level "should" be at least a pause point if not a rebound level. However, should it trade below that level we could easily see $98. Apple is being hurt by the surge in other smartphones in China and now with the yuan significantly cheaper those high dollar iPhones and iPads are even more expensive.


If Apple shares do pause at $105 the Nasdaq could take a breather. However, Amazon, Netflix, Google, Gilead and Facebook are still very extended and could continue lower.


I would look for the Nasdaq to pause around 4600 but the eventual direction will be driven by the overextended Fab Five stocks.



I was encouraged by the Russell 2000 on Friday. The R2K declined the least (-1.34%) of any of the major indexes with the Russell Microcap ($RUMIC) declining only 0.6%. Normally in a capitulation flush the small caps are the stocks hurt the worst.

In this case the small caps are not impacted by the strong dollar and emerging market currencies. The index came to a dead stop right at strong support and even tried to rebound late in the afternoon.

We are playing a long call on the Russell IWM ETF this weekend on the possibility for the small caps to lead any future rebound.


There is a monster short squeeze in our future. Whether it comes on Monday or later in the week is unknown. The market is extremely oversold but nothing prevents it from becoming even more oversold.

Friday's capitulation flush was heightened by the option expiration. Art Cashin said there was $2.5 billion in market on close orders on the sell side. All the various factors seemed to appear on the same two days and there was never any doubt about direction.

Next week there will be doubt. There are traders at home this weekend pouring through hundreds of charts and building their shopping list. However, having a list is only half the battle. The market needs to provide an entry point. Traders will want to see a pause in the selling and at least a minor rebound before they decide to take the plunge. Nobody ever made a living buying stocks in free fall. Wait for a bottom to form. I would rather be a few points late in a bullish entry than a lot of points early.


If you did not get the posts I made to the Option Investor Facebook page last week, please like our page so you will receive the posts on specific stock events this coming week.


If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

Random Thoughts


Interesting commentary from Barry Ritholtz. Is the Bull Market Over


How fast is China really growing? Gordon Chang believes there is ample proof that it is closer to 2% than the officially reported 7%. Steel demand, rail freight and electricity consumption are all showing big declines. Reportedly the private sector believes growth is around 2%. Full Story

Jim Chanos said regardless of how bad you think it is, in reality it is worse. "People are beginning to realize the Chinese government is not omnipotent and omniscient." Worse than you think


How low can we go? Bespoke said since the bull market began there have been 14 declines of 6% or more. On average those 14 declined have averaged 9.1% and lasted 31.6 days. The current decline is 92 days old. There were only two declines of 10% or more since this bull market began in 2009. How low can we go?


China tested its most powerful nuclear weapon last week. The DF-41 ICBM is capable of carrying 10 nuclear warheads, each independently targeted to different locations. The DF-41 has a range of up to 7,456 miles. This is the fourth time they have tested this missile in the last three years and suggests they are ready to deploy it. This is a road-mobile ICBM and not capable of being targeted by offensive missiles from another country. The test contained two independently targeted dummy warheads that confirm the MIRV capability.

A MIRV missile is generally considered a first strike weapon designed to take out multiple targets with one shot. The independently directed warheads are more survivable from anti-missile missiles since the one main missile subdivides into 10 individual missiles. An antimissile missile may only take out one or two of the warheads with the others continuing to their targets. China Missile Test


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Saying 'Death to America' is easy. We need to express death to America with action."

Hassan Rouhani, President of Iran, May 8th, 2013

 

subscribe now

 


Index Wrap

Rout!

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The Dow busted below long-term trendline support at 17000 and fell like a stone; the big cap Nas 100 wasn't spared, breaking key support at 4400-4300. The VIX volatility index ran from a 13 low this past week up to 28, up 118%

Friday saw more attention paid to our current panic-prone Market and suddenly highly volatile market. This recent supposed 'shock and awe' of the Dow Closing down 531 points brought back memories of the 1987 crash. I vividly remember the day, as I was a junior analyst at an seminar above the CBOE trading floor on so-called 'black Monday'. And it was a HUGE shock that day to see the Dow down 405 points. Just imagine this relative to a Friday Close of 2246. Watching panic selling at the CBOE on Monday's (10/19/87) 405 point Dow loss, down 18 percent!

The Dow, from the aforementioned panic low of that Monday, rallied steadily in the monthly following. What was DIFFERENT that day then had come along before, was the significant adoption of something called 'portfolio' insurance, involving computerized programs that shorted S&P 500 futures for every X decline in SPX on behalf of big funds. The amount of computerized selling that occurred that day (aka 'black Monday') was the first time that computerized trading had exacerbated a decline well BEYOND what it would likely have been just on European currency jitters at the time.

High Frequency trading is the just the latest iteration of computerized trading. I'd like to see overall High Speed Trading reduced in volume and frequency. It would be better for the Market to have prices go where the economics and health of stocks was taking it and not to tack on 200 Dow points due to hi-freq traders stoking downside velocity.

This past week's jump in volatility and downside price pressures also caused a sizable jump in my 'typical' index moving average envelope line measuring 'oversold'/likely lows at 2 percent BELOW the 21-day moving average to a much expanded trading band at 5-5.5 percent BELOW my 'centered' moving average.

In the case of the Nasdaq, my envelope lines suggesting 'overbought' had been 3.5% above the centered 21-day moving average and around 2.5% below the 21-day average to suggest deep 'oversold'/high probability lows. My lower envelope lines for COMP and NDX, suggesting possible oversold lows, has expanded to between 6 to 7 percent as you'll see on those charts.

Bullish sentiment among options traders fell sharply as you can imagine and reached an oversold extreme at "1" on Friday, as seen with my 'CPRATIO' indicator on the SPX and COMP daily charts; i.e. a "1" (rounded from .96) reading was Friday's CBOE equities put volume equal to or greater than equities call volume. So much put volume to suggest that traders may be 'overly' bearish and overreacting.

The S&P 500 Volatility Index (VIX):

I had indicated over past weeks that buying the VIX index in the 12 area would pay off over time as VIX was seeing what seemed like inevitable periodic, although short-lived, spikes in VIX to 22 on up to 30 and over. There wasn't much to report on VIX then, but there is NOW!

The VIX daily chart here is worth MORE than a 1000 words, as the 'obvious' resistance levels at 14-16 were blown through stemming from a sharper and deeper sell off then seen in the past 10-month Market trading range on Thursday and Friday.

I'm guessing we won't see VIX above 30, if that, for any amount of time and have highlighted 30 as initial 'resistance'. We have to go back to mid-August 2011 to see VIX rocket above 30 for any period of time.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) pierced key support in the l0w-2000 area and there was nothing but air below. Expected support at 2000 didn't stem the bearish tide either.

SPX's possible downside trading 'band', technically a 'moving average envelope' indicator, is shifted to 5% below the 21-day moving average. 5-6% below the centered moving average is about as much as you see in the S&P and Dow before there's at least an interim bottom.

I'll mark immediate/near support at 1970 and assume SPX is not going to go too far below my 5% lower envelope line. Next support is highlighted at 1930. Near resistance now seen at 2000, at what was a prior key 'support' where sellers will be in wait, with resistance extending to 2040.

SPX has reached what is 'typically' an oversold extreme for this Index so there may be rally attempt shortly. Bullish 'sentiment' has fallen off the charts as a bearish Market view gripped investors this past week. So much bearish gloom that it's also 'supportive' for a short-term bottom; contrary opinion in action!

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) has sold off far enough relative to its 21-day moving average that I've marked a next implied 'support' envelope line at 5 percent below the Fibonacci 21-day average. Quite a jump from 2% under as volatility took a panic leap. It's relatively rare for the S&P and Dow to trade more than 5-6 percent below the key 21-day 'centered' moving average except for very brief periods; e.g., 2-3 days.

The chart is bearish except for the very long term time frame. Intermediate trend momentum now is down. However, the sell off looks 'overdone' and I've marked initial possible support at 865, at my revised lower (moving average) 'envelope' line per the chart. Next support 855. I'm assuming a short-term rally is near at hand. Stay tuned!

Overhead resistance where else but at prior key support at 900. Next resistance implied by the 21-day moving average at 920.

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

The Dow 30 (INDU) is bearish in its chart pattern, which really started with its March-May double top. INDU's break below first 17200, then especially 17000, set off an avalanche of selling and broke key technical support, especially at 17000.

I'm assuming for right now that the Dow's lower 'support' envelope line is at 5% below the 21-day average where SPX got to Friday. It's rare to see the Dow or S&P falling to levels that represent more than around 5-5.5% below the key centered average. Immediate support/buying interest may come at 16460-16400, with anticipated support extending to 16300.

Overhead resistance now seen at the Dow's recent breakdown point of 17000, when INDU pierced a long-term up trendline. Next resistance is comes in at 17200.

The Dow's at an oversold extreme in terms of the 13-day Relative Strength Index (RSI) so at a minimum I'm looking at some attempt for INDU to rally and/or stabilize common with patterns after 'oversold' extremes like this developed.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) finally cracked and broke sharply below its multimonth trading range. This looks like chart pattern when a possible bullish 'rectangle'/sideways consolidation BECOMES a rectangle top, which is one of the 5 most predictive patterns in technical analysis according to one MIT study I quote in my (Essential Technical Analysis) book.

Key support was first pierced at 4900 and the next day's 'gap down' opening and a plunge like no tomorrow took COMP all the way to the 4700 area where I've highlighted potential near support; next support, 4600. In the 4700-4600 zone, Nasdaq buying opportunities should exist for at least a short-term rebound.

Near resistance is seen at 4900, then at the key 5000 level.

COMP is quite oversold according to some key indicators like RSI and in terms of my CPRATIO indicator suggesting an extreme in bearish trader sentiment reached on Friday, suggesting (beside RSI) another kind of 'oversold'.

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nasdaq 100 (NDX) is like the Composite as the 'volatility' range on the downside has expanded in a leap! The lower 'range' on the downside for NDX is now at least 6-7% BELOW the 'centered' 21-day moving average. I've seen this operating over many market cycles, including extreme bear and extreme bullish moves. I'm assuming a possible low at a 7% (moving average) 'envelope' line set to 'float' 7 percent BELOW the Nas 100's 21-day moving average.

So, support calculated at 4200 initially, then in the 4100 area if this freight train keeps rolling lower. Near resistance looks to form on rebounds to 4350, extending to 4450.

I see probabilities for a rally attempt coming up, perhaps after some further selling spilling over from this past week. It's rare, except in period when very HIGH volatility has been the norm, for Nasdaq to trade above or below 6-7 percent relative to its 21-day average. Past patterns aren't always repeated but my super successful trader-mentor did incredibly well in anticipating pattern outcomes similar to ones he studied before. Helpful too, if you've been through both bull and bear market cycles, boom and bust.

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

The Nasdaq 100 tracking stock (QQQ) is bearish in its break of a long-range uptrend line pierced at 108. The next day's downside chart gap 'confirmed' a bearish pattern.

Friday's decline almost carried to 102, which is where near support is implied by my much expanded lower 'envelope' line, set this week at 7 percent below QQQ's the pivotal 21-day moving average and much 'expanded' from where it was resting for months prior, at just 2 and half percent below the average. Pow! Volatility.

Near resistance, 108, extending to 110-110.4. We may have seen a volume 'climax' bottom on Friday; daily trade volume certainly spiked enough.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) is bearish in its pattern, 'confirmed' with RUT pierced 1220-1200 recently. The lower moving average envelope line I've pushed out to 5 percent under the 21-day average; this aspect plus another suggests to me near support around 1150, extending to 1135.

With RUT this oversold (see RSI) and with RUT's most recent Close so 'extended' below its 21-day average, a snap back rally may be near, especially after another dip, if mild. Mild weakness or a rally from the get-go would be a tip off that selling was satisfied for now.

Near resistance is seen at 1190-1200, extending to 1215.


GOOD TRADING SUCCESS!




New Option Plays

Was Friday A Capitulation Sell-off?

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

iShares Russell 2000 ETF - IWM - close: 115.03 change: -1.36

Stop Loss: 112.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 31 million
Entry on August -- at $---.--
Listed on August 22, 2015
Time Frame: Exit PRIOR t October option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Stocks are getting crushed. Worries about a slowing Chinese economy worsened this week. This China concern combined with uncertainty about the Federal Reserve raising rates was enough of a catalyst to spark a serious sell-off. The U.S. market just experienced its worst weekly decline in more than four years.

Friday's action looks like a capitulation sell-off. Volume soared. It was the heaviest volume day of the year. Most of that volume was down volume. The S&P 500 posted zero new highs on Friday. All ten sectors were in the red. The two-day (Thursday-Friday) decline has pushed all of the major U.S. indices into negative territory for 2015 (although the NASDAQ composite is only -0.6% year to date).

The Dow Jones Industrial Average and the NASDAQ-100 index are both in correction territory, which is a decline of more than -10% from its highs. The small cap Russell 2000 index also hit correction territory on Friday. The tone on Friday was fearful with the volatility index (VIX), a.k.a. the fear gauge, soaring +46% to a new high for 2015. One CNBC commentator described the action on Friday as investors just "puking" up stocks to get out of the market.

According to 18th century British nobleman Baron Rothschild, "The time to buy is when there's blood in the streets." We think Friday's market sell-off qualifies as a "bloody" day for stocks.

Did you notice that the Dow Industrials, the NASDAQ composite, and the S&P 500 were all down -3.1% (or worse) but the small cap Russell 2000 index was only down -1.3% on Friday? This relative strength is a reflection of investors' fears. If China is the bogeyman then no one wants big multi-nationals that do a lot of business overseas. Small cap companies tend to be more U.S. focused. They do less business overseas and should have less exposure to China or a rising U.S. dollar.

Tonight we are suggesting a bullish trade to buy calls on the IWM, which is the small cap Russell 2000 ETF. The afternoon peak on Friday was $116.66 for the IWM. We are suggesting a trigger to buy calls if the IWM trades at $116.85 or higher.

Please note that this is just a trade. We are not calling a bottom for the stock market. On a short-term basis stocks are very oversold and due for a bounce. The big cap indices (S&P 500, NASDAQ, and Dow Industrials) all closed on their low for the day. Normally that's a bearish indication for the next trading day. There is a very good chance that stocks see another spike lower on Monday morning before bouncing. That's one reason why we are suggesting a trigger to buy IWM calls on a bounce.

Trigger @ $116.85

- Suggested Positions -

Buy the OCT $120 CALL (IWM151016C120) current ask $1.50
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

The Worst Day Of The Year

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. stock market collapsed on Friday, which happened to be an option expiration. Friday's decline marked the worst day of the year for U.S. equities. All of the major indices are now negative for the year.

The two-day drop in stocks has been brutal. On Friday we lost a lot of our bullish candidates with GD, LII, SBUX, SYK, TEVA, and UA all getting stopped out.

Tonight we have updated stop losses on most of our bearish candidates.


Current Portfolio:


CALL Play Updates

Facebook, Inc. - FB - close: 86.06 change: -4.75

Stop Loss: 81.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 27.3 million
Entry on August -- at $---.--
Listed on August 20, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Comments:
08/22/15: After a $4.75 drop on Thursday the selling in shares of FB continued on Friday. The stock market accelerated lower and FB fell another $4.50 or -4.9%. Shares stalled at technical support on its simple 100-dma. The intraday low was $85.61. Our plan was to buy calls on a dip at $85.50. We think this is close enough. Tonight we are adjusting our entry point strategy and suggesting an immediate entry on Monday morning at the opening bell.

However, I do want to caution readers about the broader market. The major indices closed on their lows on Friday. This would normally suggest a weak open for the next trading day (in this case Monday). It wouldn't surprise me to see the market (and FB) spike lower on Monday morning before bouncing. Nimble traders may want to wait and see if FB does spike lower and jump in when it starts to bounce.

If the $85.00 level fails as support the next support level looks like $83.00 and then the simple 200-dma near $82.00.

Trade Description:
Facebook needs no introduction. It is the largest social media platform on the planet. As of June 30th, 2015 the company reported 1.49 billion monthly active users and 968 million daily active users. If FB were a country that makes them the most populous country on the planet. China has 1.35 billion while India has 1.25 billion people.

Earlier this year (March) the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

Meanwhile business at FB is great. According to IBD, FB's Q4 earnings, announced in January, were up +69% from a year ago. Revenues were up +49%. The company released their Q1 results on April 22nd. Earnings were up +20% to $0.42 per share, which beat estimates. Revenues were up +41.6% to $3.54 billion in the first quarter.

FB's Q2 results, announced July 29th, were also better than expected. Earnings were $0.50 per share, which was three cents above estimates. Revenues surged +39% to $4.04 billion, above expectations. Daily active users were up +17%. Mobile daily active users were up +29%. Monthly actives were up +13%. Wall Street expects income to surge next year with +12% profit growth in 2015 but +32% profit growth in 2016.

FB continues to see growth among its niche properties. The company bought Instagram for $1 billion in 2012. Last late year Instagram surpassed Twitter with more than 300 million active users. FB is also a dominant player in the messenger industry with more than 600 million users on WhatsApp and 145 million users on Facebook Messenger.

FB has not yet started to truly monetize its WhatsApp and Messenger properties. It's just now starting to include ads in Instagram. Eventually, with audiences this big, FB will be able to generate a lot of cash through additional advertising. On the subject of Instagram advertising, FB just released the advertising API for the photo-sharing service in August 2015. The API or application programming interface will allow third-party marketers to plug into the system to buy advertising. Instagram could soon rival Google and Twitter for the online ad market. According to EMarketer, Instagram will surpass Google and Twitter for U.S. mobile display ad revenue by 2017.

Since we are talking about advertising, this year has seen FB jump into the video ad market with both feet and it's off to a strong start. FB claims that it's already up to four billion video views a day. They had 315 billion video views in Q1 2015. That's pretty significant. YouTube had 756 billion video views in Q1 but YouTube has been around for ten years (FYI: YouTube is owned by Google). FB has only recently focused on video.

Wall Street is growing more optimistic as FB develops its blooming video ad business, its Instagram business, and messaging properties. In the last several weeks the stock has seen a number of price target upgrades. Bank of America upped their FB price target from $95 to $105. Cantor Fitzergerald upped theirs to $100. Brean Capital raised theirs to $108. Piper Jaffray upgraded their FB target to $120.

After surging to new highs in mid July shares of FB had been consolidating sideways in the $92-99 zone. The stock broke down through the bottom of that trading range today with a -4.98% plunge toward technical support at the simple 50-dma. The broader market looks very vulnerable right now with the S&P 500, the NASDAQ composite, and the small cap Russell 2000 all piercing key support levels with today's sell-off. If this market weakness continues we want to take advantage of it.

Stocks tend to overreact to big market moves, especially to the downside. FB is no exception. When traders panic they sell everything. We want to be ready to buy FB when it nears support. Prior resistance near $85-86 should be new support. Tonight we are suggesting a buy-the-dip trigger to buy FB calls at $85.50. If triggered we'll start with a stop at $81.40, just below the simple 200-dma.

Buy calls at the open on Monday morning

- Suggested Positions -

Buy the OCT $90 CALL (FB151016C90) current ask $3.60

08/22/15 Adjusted entry point. FB missed our buy-the-dip trigger at $85.50 by a few cents on Friday. We want to buy calls at the opening bell on Monday morning, August 24th.
Option Format: symbol-year-month-day-call-strike

chart:


Tempur Sealy Intl. - TPX - close: 74.51 change: -1.35

Stop Loss: 74.25
Target(s): To Be Determined
Current Option Gain/Loss: -37.5%
Average Daily Volume = 711 thousand
Entry on August 17 at $78.25
Listed on August 15, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

Comments:
08/22/15: TPX displayed some relative strength on Friday. The S&P 500 plunged -3.1% while TPX only fell -1.7%. Unfortunately, I fear that stocks could see a spike lower on Monday morning and odds are high that TPX could hit our stop loss at $74.25.

No new positions at this time.

Trade Description: August 15, 2015:
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.

- Suggested Positions -

Long DEC $85 CALL (TPX151218C85) entry $3.20

08/17/15 triggered @ $78.25
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 61.87 change: -0.91

Stop Loss: 64.35
Target(s): To Be Determined
Current Option Gain/Loss: +88.2%
Average Daily Volume = 2.0 million
Entry on July 24 at $66.80
Listed on July 23, 2015
Time Frame: Exit PRIOR to earnings in late September
New Positions: see below

Comments:
08/22/15: The bearish trend in BBBY continues but I am not suggesting new positions. The broader market's big cap indices all dropped -3% or worse on Friday. BBBY only fell -1.4%. Shares stalled near short-term support in the $62.00 region.

No 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

08/20/15 new stop @ 64.35
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:


Jack In The Box - JACK - close: 81.41 change: -2.51

Stop Loss: 85.15
Target(s): To Be Determined
Current Option Gain/Loss: +48.6%
Average Daily Volume = 639 thousand
Entry on August 19 at $84.75
Listed on August 18, 2015
Time Frame: Exit PRIOR to earnings in November
New Positions: see below

Comments:
08/22/15: The sell anything and everything mood on Friday helped push JACK to a -2.99% loss and a new six-month low. Tonight we are moving the stop loss down to $85.15.

No new positions at this time.

Trade Description: August 18, 2015:
Wall Street can be a fickle place. Sometimes a company seems to be doing everything right and their stock gets crushed anyway. That appears to be the case with JACK.

JACK is in the services sector. According to the company, "Jack in the Box Inc., based in San Diego, is a restaurant company that operates and franchises Jack in the Box® restaurants, one of the nation's largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Grill®, a leader in fast-casual dining, with more than 600 restaurants in 47 states, the District of Columbia and Canada."

JACK reported its 2015 Q3 results on August 5th. Earnings rose +17% from a year ago to $0.75 per share. That beat estimates by three cents. Revenues were up +3.2% to $359.5 million, which is essentially in-line with estimates. Their margins improved 270 basis points to 21.8%. Their Jack in the Box business saw comparable store sales of +7.3% versus +2.4% a year ago. Qdoba's comps were +7.7% vs. +7.5% a year ago. That's significantly above rival Chipotle Mexican Grill's comparable store sales, which only rose +4.3%. Management said their catering business for Qdoba saw double-digit gains. They even raised their fiscal year 2015 earnings guidance from a range of $2.90-3.00 a share to $2.97-3.03 per share. Wall Street was estimating $2.99.

In spite of all of these positives JACK's stock price was hammered the next day on August 6th with a plunge from $97 to almost $89 intraday. Now two weeks later shares of JACK are trading down -11% from its pre-earnings high. Why are shares of JACK being punished? That's a really good question. The only issue I can see might be the pace of store openings for their Qdoba brand. Previously JACK was forecasting 50 to 60 new Qdobas this year. In their last earnings report that estimate dropped to 40 to 45 new Qdobas.

At the moment, it doesn't matter what the reason is. JACK has reversed lower and reversed hard. The point & figure chart has turned bearish and is now forecasting at $74.00 price target. Today saw JACK close below technical support at its simple 200-dma for the first time since November 2012. JACK looks like it's about to breakdown under key support near the $85.00 level. Tonight we are suggesting a trigger to buy puts at $84.75.

FYI: JACK will trade ex-dividend on Monday, August 24th. The quarterly dividend should be $0.30.

- Suggested Positions -

Long DEC $80 PUT (JACK151218P80) entry $3.23

08/22/15 new stop @ 85.15
08/19/15 triggered @ $84.75
Option Format: symbol-year-month-day-call-strike

chart:


Mallinckrodt Public Ltd - MNK - close: 88.30 change: -1.14

Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: +28.6%
Average Daily Volume = 1.3 million
Entry on August 20 at $93.49
Listed on August 19, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/22/15: After a big drop on Thursday the sell-off in MNK slowed down a bit on Friday. The stock dipped to $86.51 intraday before paring its losses and closing with a -1.2% decline.

Tonight we are moving the stop loss down to $92.85. No new positions at this time.

Trade Description: August 19, 2015:
Normally you might think of mergers and acquisitions in the healthcare sector is a bullish recipe. It has been a winning combination for Irish drugmaker MNK who has been actively buying smaller rivals. Unfortunately, after the company's most recent earnings report, Wall Street is worried they may have paid too much for a recent purchase.

MNK is in the healthcare sector. According to the company, "Mallinckrodt is a global specialty biopharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. Areas of focus include therapeutic drugs for autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology; neonatal critical care respiratory therapies; and analgesics and central nervous system drugs for prescribing by office- and hospital-based physicians. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Brands segment includes branded medicines; its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing; and the Global Medical Imaging segment includes contrast media and nuclear imaging agents."

Their most recent earnings report was August 4th. MNK announced its Q3 results of $2.05 per share. That beat estimates of $1.83. Revenues surged +47.8% to $965 million. A big chunk of that revenue improvement was due to recent acquisitions. Furthermore, analysts were expecting MNK to report revenues of $984 million. That's a $19 million miss.

The fly in the ointment seems to be sales of Acthar gel. MNK recently paid $5.6 billion to buy Questcor Pharmaceuticals who makes HP Acthar Gel, which is derived from the pituitary glands of pigs. The drug can be used to treat a variety of autoimmune and inflammatory conditions, plus rare skin diseases. MNK reported that sales of Acthar were only up +4% from a year ago, which was a disappointment. Management lowered their long-term forecast for Acthar sales to mid-single digit to low-double digit percentage growth.

MNK's CEO said they're facing pressure from health insurance companies over the price of Acthar. Some insurance companies have gone so far as to restrict coverage or refusing to cover the drug due to costs (source: AP).

The combination of the revenue miss and this disappointing outlook for Acthar sales sparked a serious sell-off in shares of MNK. The stock plunged from $124 down to $102 the next day. Shares have spent the last couple of weeks trying to produce an oversold bounce but traders keep selling the rallies. The point & figure chart has reversed sharply and is now forecasting at $63.00 target.

The $95.00 level was support in early August but MNK is about to break it. Today's intraday low was $94.44. Tonight I am suggesting a trigger to buy puts at $94.35.

MNK can obviously be a volatile stock. I would consider this a more aggressive, higher-risk trade.

*small positions to limit risk* - Suggested Positions -

Long OCT $90 PUT (MNK151016P90) entry $4.90

08/22/15 new stop @ 92.85
08/20/15 new stop @ 97.75
08/20/15 triggered on gap down at $93.49, suggested entry was $94.35
Option Format: symbol-year-month-day-call-strike

chart:


Tupperware Brands - TUP - close: 52.53 change: -0.59

Stop Loss: 54.15
Target(s): To Be Determined
Current Option Gain/Loss: +144.4%
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:
08/22/15: TUP slipped to levels not seen since 2012 on Friday. The stock touched $51.72 before trimming its losses. Shares settled with a -1.1% decline. The afternoon rebound makes us cautious so we are moving the stop loss down to $54.15.

No 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

08/22/15 new stop @ 54.15
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: 53.05 change: -1.61

Stop Loss: 56.05
Target(s): To Be Determined
Current Option Gain/Loss: +178.9%
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:
08/22/15: WCC plunged to new three-year lows with Friday's -2.9% decline. The stock is very oversold here. Investors may want to take some money off the table before WCC sees an oversold bounce.

Tonight we are moving the stop loss down to $56.05. No new positions.

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

08/22/15 new stop @ 56.05
08/20/15 new stop @ 57.05
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: 81.77 change: -3.81

Stop Loss: 85.75
Target(s): To Be Determined
Current Option Gain/Loss: +192.3%
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:
08/22/15: WYNN continues to cascade lower with another -4.45% drop on Friday. This stock has lost more than -20% in the last two weeks. Our put option has almost tripled in value. Traders may want to take some money off the table.

Tonight we are moving the stop loss down to $85.75. No new positions at this time.

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

08/22/15 new stop @ 85.75
08/20/15 new stop @ 91.65, more conservative traders may want to take some money off the table now that our put option has doubled in value.
08/19/15 new stop @ 97.25
08/14/15 triggered @ $93.40
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

General Dynamics - GD - close: 145.17 change: -3.76

Stop Loss: 147.50
Target(s): To Be Determined
Current Option Gain/Loss: -50.0%
Average Daily Volume = 1.3 million
Entry on August 19 at $153.55
Listed on August 17, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

Comments:
08/22/15: Big caps and industrial names were crushed on Friday. GD lost another -2.5% and is down almost $9.00 in the last three days. Shares hit our stop loss at $147.50.

I would keep GD on your watch list. The $140-142 area should be support and could be a entry point for new bullish positions.

- Suggested Positions -

NOV $160 CALL (GD151120C160) entry $2.70 exit $1.35 (-50.0%)

08/21/15 stopped out @ $147.50
08/19/15 triggered @ $153.55
Option Format: symbol-year-month-day-call-strike

chart:


Lennox Intl. - LII - close: 120.00 change: -2.70

Stop Loss: 121.45
Target(s): To Be Determined
Current Option Gain/Loss: -22.9%
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:
08/22/15: Shares of LII had been doing extremely well the last couple of weeks. Unfortunately they reversed sharply lower when the market's decline accelerated. Our stop was $121.45 but LII gapped open lower at $121.21 on Friday morning.

- Suggested Positions -

SEP $125 CALL (LII150918C125) entry $1.75 exit $1.35 (-22.9%)

08/21/15 stopped out
08/19/15 new stop @ 121.45
08/18/15 More conservative traders may want to take some money off the table here with our call option up +88%.
08/15/15 new stop @ 119.85
08/12/15 triggered @ $121.60
Option Format: symbol-year-month-day-call-strike

chart:


Starbucks Corp. - SBUX - close: 52.84 change: -2.97

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: -49.2%
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:
08/22/15: SBUX is more proof that investors were selling everything, including their winners. This stock has been in a long-term up trend for months. Shares just collapsed on Friday. SBUX gapped open lower on Friday morning at $54.72 and plunged to a -5.3% drop before settling on technical support at its 100-dma. Our stop was hit at $54.40.

If the selling continues the next level of support is probably $50.00.

- Suggested Positions -

OCT $60 CALL (SBUX151016C60) entry $0.63 exit $0.32 (-49.2%)

08/21/15 stopped out @ $54.40
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: 99.37 change: -3.15

Stop Loss: 101.75
Target(s): To Be Determined
Current Option Gain/Loss: +5.3%
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:
08/22/15: Shares of SYK melted on Friday. Our stop loss was $101.75 but shares gapped down at $101.61 immediately triggering our exit. The stock plunged past support near $100.

I would keep SYK on your watch list. The $97.00-98.00 zone should be significant support. A bounce in this region could be a new bullish entry point.

- Suggested Positions -

SEP $105 CALL (SYK150918C105) entry $1.13 exit $1.19 (+5.3%)

08/21/15 stopped out on the gap down Friday morning
08/19/15 new stop @ 101.75
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: 66.92 change: -1.31

Stop Loss: 68.20
Target(s): To Be Determined
Current Option Gain/Loss: -62.9%
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:
08/22/15: TEVA was another stock that gapped down on Friday morning. Our stop loss was $68.20 but TEVA opened at $67.56. If this weakness continues TEVA might fill the gap and that could mean a drop into the $62-64 region.

- Suggested Positions -

SEP $70 CALL (TEVA150918C70) entry $2.02 exit $0.75 (-62.9%)

08/21/15 stopped out on Friday's gap down at $67.56
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: 90.03 change: -6.62

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: -45.5%
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:
08/22/15: UA was squashed on Friday. Traders were desperate to sell and this stock gapped down at $95 and plunged to $89.26 before closing near round-number support at $90.00. UA underperformed the broader market with a -6.8% decline. UA is another example of investors selling their winners to take some money off the table. Shares have plunged $10.00 in the last two sessions.

Our stop was $95.65 but the gap down at $95.07 closed this trade on Friday morning.

I would keep UA on your watch list. A dip near the $85-86 area could be a new bullish entry point.

- Suggested Positions -

SEP $100 CALL (UA150918C100) entry $2.66 exit $1.45 (-45.5%)

08/21/15 stopped out on gap down at $95.07
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: