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Daily Newsletter, Wednesday, 8/26/2015

Table of Contents

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

Market Wrap

Bulls Get Some Traction

by Keene Little

Click here to email Keene Little
Following the spike down into Monday morning's low we've seen quick short-covering rallies (inspired by overnight rallies in the futures market) but then sellers quickly took over. That almost happened again today but the selling has been decreasing in intensity and we could be looking at least a short-term bottom.

Today's Market Stats

Today started out like Tuesday with a large gap up following an overnight rally in the futures, which ostensibly was due to more "good" news about China pulling out the stops to get their stock market to rally. So far their efforts have failed miserably and in fact have had the opposite effect by scaring investors out of the market. But it had a positive effect on our market today as traders did some more buying following the pullback from this morning's gap up. A larger price pattern suggests we'll get at least another leg down before setting up a larger bounce correction and it's possible we'll see the market work its way lower over the next couple of weeks but it could be a very choppy affair but at the moment it's looking like we might get at least a slightly larger bounce (in time if not price) before heading back down.

These are wild times in the market as multiple-hundred point swings in the DOW create excitement and fear, all at the same time. We haven't seen price swings like this since 2008 and it does make you wonder if we've entered a similar phase for the market. Bulls will contend it was just a scary pullback into what will be just another v-bottom reversal. Bears argue the technical damage to the charts says this time it's different and is finally reflecting some reality in the global climate (a different kind of climate change). I'm siding with the bears here but as always, we'll let the price pattern develop a little more and make some judgments based on what price tells us, not what CNBC and others (your humble analyst-writer included) tell us.

The trading in the past week has highlighted a problem that has been plaguing the market for some time -- liquidity and its evaporation when it's needed most. A fellow trader, Bob, asked the following questions:

"In Monday's trading there were many large-cap stocks and ETFs that cratered between 9:29 and 9:31 (I watched QQQ trade at ~ $97 at 9:29 and then trade UNDER $85 at 9:30!!), which to me indicates that many, if not most, of the 'liquidity providers' pulled their bids faster than in the blink of an eye and created the resulting price 'vacuums.' How exactly can HFT [high frequency trader] shops claim, without laughing hysterically, that they provide liquidity when they can and do remove their bids, resulting in that 'liquidity' vaporizing in nanoseconds? Is it really liquidity if it's gone in nanoseconds and isn't there when it is needed most?"

To me this is more than an academic question because it highlights the problem with our current computer-traded market. The specialists and market makers are pretty much gone now, replaced by computers matching our orders. In front of our orders are the HFTs and they're typically in and out so quickly that they do provide liquidity for us "normal" traders. But when they step aside and take their orders with them it can present a sudden liquidity problem for the market.

As Bob highlighted above, are the HFTs really providing a service to the market or have they instead made it more dangerous? The answer is both -- during normal times the bid-ask spread is very narrow as orders are firing away on both sides. But when a big move happens the HFT algorithms take the computers off line until the market settles down (their split-penny trading suddenly goes to dimes and quarters and that's not how they trade). Poof, there goes the liquidity in a nanosecond and everyone else is left scrambling to find someone on the other side of their trade.

The "someone" who gets matched up with your order might have stuck an order in that's dollars away from the current price. He might have placed a buy order in months ago, figuring if SPY ever gets down to last October's low (near 182) he'd gladly be a buyer down there. But if decline in SPY hits your market stop order at 185 and liquidity goes poof at the same time, that 182 price could be the nearest matching price to your sell order. Hence the "vacuum" left below the last price as soon as the HFTs pull out. This is part of the explanation for the flash crashes we've seen and will likely see many more, some a lot worse than what we've seen so far.

There was an article in the Wall Street Journal and at Bloomberg Market Flaws that also discussed this problem with lack of liquidity, especially in ETFs. Could the cracks in the dam now finally be getting highlighted? What to do about it is the bigger problem. Shut down HFT houses? Demand market makers make a market at all costs? Perhaps the next real crisis will have the Fed announcing a program to back all banks who make a market (they've done similar things in the past when we've had market disconnects).

As mentioned in the article, there is now so much trading in ETFs, instead of stock picking, that when someone wants to sell (or many someones) they now sell ALL stocks at once. SPY is one of the most heavily traded ETFs and when one buys or sells the SPY they're effectively buying or selling all 500 stocks in the S&P 500. But that balancing between the ETF and the component stocks typically happens during the day whereas a sudden move often leaves the ETF disconnected from its component stocks. As reported in the article, "dozens of ETFs traded at sharp discounts to their net asset value (NAV) -- or their components' worth -- leading to outsize losses for investors who entered sell orders at the depth of the panic." Equity futures trading was halted shortly before the cash market opened Monday morning. The value of the VIX wasn't published until 10:00, by which point the DOW had already traded through the vacuum and lost nearly 1100 points. That's the kind of risk we see when liquidity vanishes in a nanosecond.

The article highlights a couple of ETFs and the general problem with circuit breakers hitting stocks and halting trading on them. The ETF market makers were unable to figure out the true value of the ETF and therefore started underpricing their sell orders and overpricing their buy orders so that they didn't take on too much risk. That's what created the low prices relative to their NAV and ETF sellers took it on the chin. Examples included the Vanguard Consumer Staples index ETF and the Vanguard Health Care index ETF both collapsing 32% in the opening minutes. During that time the value of the component stocks in the Consumer Staples ETF dropped only 9%.

All of this is only scaring more investors out of the market, which merely exacerbates the liquidity problem. This problem is not going to go away anytime soon and it sure is a caveat-emptor market. Keep this in mind when we're looking at the potential for a strong decline, what I often refer to as a disconnect to the downside.

Since Monday's low we've seen bounce attempts, helped by the overnight rallies. Today was the first day that sellers did not overwhelm buyers into the close, which could have bullish potential. The selling in the market could be close to drying up as margin selling finishes. Today's strong rally certainly helps in that regard. The market is showing short-term bullish divergences as the selling pressure wanes and tests of Monday's lows has it looking like we might be setting up for at least a bigger bounce. But a short-term pattern suggests we should get at least one more test of this week's lows, if not new lows, so it's not a time to get aggressive on the long side (or short side for that matter). If we get something stronger and impulsive to the upside I'll reevaluate what's happening but right now I would not trust the upside for anything more than a bounce. If we get the test/new low I would then be more inclined to try the long side.

Getting to the charts, with major uptrend lines broken when viewed with the log price scale, I've switched to the arithmetic price scale on the SPX weekly chart below to show where traders might react to them. For now it's looking like we have price-level S/R to watch for price influence. A retest of this week's lows, near 1867, is probable (until I see something more bullish) and we could see a drop down to the October 2014 intraday low near 1820. So far the March 2014 high and October 2014 weekly closing low near 1885 has been acting as support as price consolidates the sharp decline into Monday morning's low. If the consolidation is followed by another leg down (again, it could be for just another retest of this week's lows) we could have a good setup for a strong bounce to a high in mid-September. I think THE high is now in place and therefore a high bounce in September would make for a very good trade setup on the short side for the next, and stronger, leg down.

S&P 500, SPX, Weekly chart

Looking at the ES (S&P emini futures) and cash index patterns I've been thinking about the potential for a sideways triangle (descending for SPX, ascending for ES) to play out this week and then the retest/new low early next week. If SPX rallies above 1954 that would be a little more bullish, in which case I'd look for Monday's gap to be closed, near 1972, and potentially up to 2008, for a higher a-b-c bounce off Monday's low. Assuming we'll get another leg down by early next week I'll then be looking for a setup to get long for a big bounce into September. Upside projections for the bounce are anywhere from 1980 to 2040 (I'll get a tighter projection as the bounce pattern (assuming we'll get it) develops.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- Cautiously bullish above 2010
- bearish below 1885

The 30-min chart below shows a couple of ideas for a correction pattern off Monday's low. Sorry for the crowded ideas but there are multiple possibilities and I've narrowed it down to "only" three. The descending triangle calls for another down-up sequence into next Monday (maybe finishing this Friday) and then another leg down to complete a 5-wave move down. There are potentially a couple more stair-steps lower for the market over the next couple of weeks, perhaps putting in a tradeable bottom in mid-September instead of a top, but I can only evaluate that once we get more price action. For now the bullish divergences suggest the bears be cautious here. If the sideways triangle drawn on the chart doesn't hold price down, watch for a possible high for the bounce at gap closure, near 1972 and then a projection up to 2008, which is where the c-wave of a larger a-b-c bounce would be 162% of the a-wave (the first leg up from Monday morning's low). Above 2010 would be more bullish but again, potentially only for a higher bounce before turning back down.

S&P 500, SPX, 30-min chart

It's a battle of the trend lines when I look at the DOW's weekly and daily charts. The weekly chart below shows the DOW has created a strongly bullish hammer at support following Monday's low at 15370. Support includes its February 2014 low at 15340, the 38% retracement of its October 2011 - May 2015 rally at 15315 and its 200-week MA at 15290. On Monday it broke its uptrend line from March 2009 - October 2011, arguably THE uptrend line defining the bull market since 2009. The line is currently near 16300 so for all intents and purposes it has now recovered the line with today's rally. Now all it has to do is hold it or climb higher for the important weekly close. A weekly close above 16300 with that bullish hammer (similar but larger than the one at the October 2014 low) would get a lot of traders interested in buying, with the expectation of a new rally leg to new highs. Who's to argue they're wrong?

Dow Industrials, INDU, Weekly chart

The daily chart also shows the bounce off Monday's low but now it looks like it could be a back-test of support-turned-resistance near 16300. A selloff from here would create a bearish kiss goodbye and a strong sell signal. Different from what I'm showing on SPX, for the DOW I'm tracking the idea that the decline into Monday's low was only the completion of one of the nested 3rd waves in the wave count. It says we'll see the DOW stair-step lower into mid-September before making a good tradeable bottom, perhaps down near 14380 for a 50% retracement of its 2011-2015 rally. Note that the decline from here, if it follows something like I've depicted, would be a whippy affair and difficult to trade. Only after hitting the bottom would we have a very good setup for a trade on the long side into November and then a monster decline into the new year.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,100
- bearish below 15,300

NDX has had one of the stronger bounces off Monday's low and if it can close above 4250 (today's high was near 4228) it will close back above its broken uptrend line from November 2012. This is again using the arithmetic price scale because all of its uptrend lines have been broken when viewed with the log scale price, including the one from March 2009 - November 2012. If the bulls can accomplish that with a Friday close I'll have more respect for the upside but for now I'm not so sure the bears are done. A stair-step move lower could see NDX down to the 3600 area by mid-September before it will be ready for a higher bounce.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4385
- stay bearish below 4250

The semiconductor index is always a good one to keep an eye on, not just for the techs but for a sense about the broader economy. With chips in just about all consumer products these days, how the semis are doing is a good reflection of how the economy is doing. While the stock market has been disconnected from reality (the economy) for a long time, eventually it will prove itself to be a good indicator. At the moment, as the weekly chart of the SOX shows, Monday it gapped down and opened at price-level support near 545, breaking its uptrend line from November 2008 - November 2012, near 583 in the process. That's a major bull-market trend line and breaking it is bad news for the bull trend. But as with the others, it will be the weekly closing price that matters and the trend line will be near 585 on Friday. Today's bounce brought it back up to the line (closing slightly above it with the little spurt higher into the close. Each day this week it has bounced back up to the trend line and while today's bounce looks more bullish, it will need follow through on Thursday or Friday. A break, and hold, above 585 would be bullish (leaving a failed breakdown) while a drop back below 545 could result in at least a test of its 200-week MA near 518 next week.

Semiconductor index, SOX, Weekly chart

I'm showing a downside pattern for the RUT that is similar to the DOW's -- both show the market will continue to stair-step lower into mid-September before setting up a much larger bounce correction. The RUT could drop down to its October 2014 low at 1040 or perhaps a little lower.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1156
- bearish below 1080

Bonds have had a wild ride in the past week as well and it's been a choppy ride since Treasuries bottomed in June. The rally in bond prices has forced yields back down and as can be seen on the TNX (10-year yield) weekly chart below, it broke its uptrend line from February-April (on August 11th), made repeated attempts to get back above the line and then dropped sharply last week, firmly breaking below its 50- and 200-week MAs in the process. This week's rally has now brought it back up to the MAs as well as its downtrend line from December 2013 - September 2014, all crossing near 2.18%. Up near 2.4% is its broken uptrend line from February. A turn back down here would be bearish for yields and bullish for bond prices, which could coincide with another selloff in the stock market. Keep an eye on the bonds. TNX needs to get above 2.4% to at least lend a helping hand to the stock market.

10-year Yield, TNX, Weekly chart

The U.S. dollar spiked down on Monday, with all the turmoil going on in China and other currency issues, and dropped below the top of its parallel up-channel from 2008-2011, which it broke above in January and has been using as support since then. It had also dropped below its 50-week MA at 93.41 but has had a strong recovery the past two days. Based on Monday's low I've modified the expected consolidation pattern from a sideways triangle to more of a shallow descending wedge for a consolidation pattern that should continue through the rest of this year before rallying early next year.

U.S. Dollar contract, DX, Weekly chart

Much of the blame for the diver lower in commodity prices is placed on the rallying U.S. dollar (most commodities are priced in dollars). But as the dollar has traded sideways since March, and trades lower than where it was in March, you can see commodity prices, as reflected in the Bloomberg Commodity index, have continued to sink lower. It's the ol' supply-demand equation and clearly demand has dropped and prices are chasing it lower in hopes of sparking more buying. I don't think we've seen the lows yet but prices are probably near or at a level that will create a multi-month bounce/consolidation before heading lower. Between the bottom of a parallel down-channel for the leg down from April 2014 and the December 2001 low at 85.38 we could see the start of a bigger bounce (in time if not price). I do see a short-term pattern suggesting only a small bounce and then a low near 82 by October before the bigger bounce gets started but I think at this point it could be risky chasing commodity prices lower.

Bloomberg Commodity index, DJUBS, Weekly chart

Gold's rally into Monday's high achieved a projection at 1162.50 (with a high at 1169.80) for two equal legs up from July 24th for an a-b-c bounce correction to its decline. Last week's rally saw gold break above its price-level S/R near 1142, which it had broken below in mid-July, and that was looking bullish. But at Monday's high it tagged its downtrend line from January-May and has done a quick turnaround this week and back below 1142. As I'll show further below with the silver chart, it was not confirming gold's rally and gave traders a heads up that gold's rally might not last. My expectation is that gold will work its way lower toward 1000, if not 900, this year and so far I'm not seeing anything to change my opinion about that. We could see a higher bounce before heading lower, but only if silver participates.

Gold continuous contract, GC, Weekly chart

As mentioned above, while gold was breaking above its shelf of support, near 1142, silver was not doing the same thing. There's a slight uptrend to the line of support from November 2014, near 15.50, that was holding silver down and today it firmly broke longer-term price-level S/R near 14.65, which started back in 2006. If it's not quickly recovered we'll probably see silver drop down to the price projections (based on previous consolidation patterns, as noted on the chart) in the $12 area. A drop down to the bottom of a parallel down-channel from the April 2011 high could see silver trading closer to 11 before the end of the year.

Silver continuous contract, SI, Weekly chart

I've been watching the 127% Fib price extension of oil's previous rally (3-wave bounce from January to May), which is at 38.41. This is a common reversal level if the prior trend is not still in force. I've believed the leg down into the January low would be followed by a sideways consolidation and therefore the 127% extension should hold as support if the downtrend is not still in progress. On Monday it did a minor break below that level but then recovered the next day. If the consolidation pattern is going to hold, perhaps something like what I've depicted on its weekly chart, we should see oil start to rally. But as shown with the light red dashed line, if we get a small bounce and then a minor new low we could then see the start of a larger bounce/rally. As for the downside, there's still the potential for a drop down to its January 2009 low at 33.20. The commodity index has already broken well below its equivalent 2009 level and is testing its December 2001 low. The equivalent low for oil is just above 17, more than a 50% haircut from here (gulp). That would likely not be at all helpful to stock market bulls.

Oil continuous contract, CL, Weekly chart

The market is not paying much attention to economic reports, although there was a slight bump higher after this morning's 8:30 Durable Goods reports. They were better than expected although at +2.0% it was less than half of June's +4.1%, which was revised higher from the originally reported +3.4%. Ex-transportation the number was only marginally better than expected, +0.6% vs. +0.4%. The big number before the bell Thursday morning will be the GDP 2nd estimate, which is expected to improve to 3.1% for Q2 vs. 2.3% in Q1. We'll see...

Economic reports and Summary

Conclusion

The strong decline into Monday's low hasn't been followed by the typical v-bottom reversal we've seen so often in the past. On the weekly chart it looks the same but on the daily charts you can see the difference and it could be a key difference. The technical damage to the charts is significant. The oversold readings (and extreme move in the VIX) could be worked off in a sideways consolidation and then prices head lower again. There is of course the potential for the weekly v-bottom reversal to carry the day for bulls but at the moment there's a caution flag on the track.

Severe spikes to the downside in a bear market (yet to proven we've entered one but I believe we have) are often followed by strong spikes to the upside, usually on news about some kind of action that will save the market. Once it's realized the save isn't going to work (and short covering stops) the bear mauls all those who dared to try to catch falling knives. I don't know if we're there yet but the risk is high for either direction at the moment with all the violent price swings we're seeing, much of which is occurring during the overnight sessions and creating large gap openings for us. Holding a position overnight is dangerous for your health, especially if you find yourself not sleeping well -- lighten up your position and try not to be involved in the market every second of the day. When we see price action like this the best trade is often cash. It's a position, even if you don't like that one.

If prices continue to chop up and down then I would expect another leg lower. I show a stair-step pattern lower for several indexes into mid-September, or we might see only minor new lows before setting up a stronger bounce into mid-September. We should get a better sense of which it will be by the end of the week. But the crash flag is still flying and that means huge risk to the downside is still with us. Stay safe.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Only 120 Days Until Christmas

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

The TJX Companies - TJX - close: 70.81 change: +1.96

Stop Loss: None. No stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.0 million
Entry on August -- at $---.--
Listed on August 26, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Trade Description:
Believe it or not but there are only 120 days until Christmas 2015. Most of us are just adjusting to school starting again but retailers are already planning for the 2015 holiday shopping season. Historically the time to buy retailers has been early fall (i.e. right now) and then sell on Black Friday (day after Thanksgiving). TJX could be a great way to play that seasonal trend.

TJX is in the services sector. According to the company, "The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of May 2, 2015, the end of the Company's first quarter, the Company operated a total of 3,441 stores in seven countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, and Austria, and three e-commerce sites. These include 1,126 T.J. Maxx, 987 Marshalls, 498 HomeGoods and 6 Sierra Trading Post stores, as well as tjmaxx.com and sierratradingpost.com in the United States; 239 Winners, 97 HomeSense, and 39 Marshalls stores in Canada; and 416 T.K. Maxx and 33 HomeSense stores, as well as tkmaxx.com, in Europe."

Just a couple of days before the market collapsed TJX reported its Q2 2016 earnings results (on August 18th). Wall Street was looking for a profit of $0.76 per share on revenues of $7.25 billion. TJX beat both estimates with a profit of $0.80 per share and revenues of $7.36 billion. Earnings were up +7% from a year ago and revenues were up +6.5%. Gross margins improved. Comparable-store sales improved from +3% a year ago to +6%. TJX said their customer traffic improved for the fifth quarter in a row.

Most retailers have not been doing so hot this year so TJX management was naturally optimistic given their strong results. Carol Meyrowitz, Chairman and Chief Executive Officer of The TJX Companies, Inc., commented on her company's quarter,

"We are extremely pleased that our momentum continued in the second quarter. Our 6% consolidated comparable store sales growth and 7% adjusted EPS growth significantly exceeded our expectations. It was great to see that comp sales were entirely driven by customer traffic - our fifth consecutive quarter of sequential traffic improvement - and that we had strong sales across all of our divisions. Our flexible model and ability to offer an eclectic, exciting merchandise mix at outstanding values continues to resonate with consumers in all of our geographies. We were also very pleased with our solid merchandise margins. We are proud of our strong comp sales, traffic increases and merchandise margins, all of which are core to a successful retail business. We enter the back half of the year in an excellent position to keep our momentum going and have many exciting initiatives planned. I am convinced that our gift-giving selections will be better than ever this year, and that our fall and holiday marketing campaigns will keep attracting more shoppers to our stores. Above all, we will be offering consumers amazing values every day! The third quarter is off to a solid start and we are raising our full year comp sales and earnings per share guidance. Today, we are a nearly $30 billion retailer with a clear vision for growth, a differentiated apparel and home fashions business, and world-class organization. Looking ahead, we are confident that we will achieve, and hope to surpass, our plans as we continue to bring value around the world and grow TJX to a $40 billion-plus company!"
TJX management did lower their Q3 guidance but they raised their full year 2016 EPS forecast. They also raised their 2016 comparable store sales estimate from +2-3% to +3-4%. It was the second quarter in a row that management raised their guidance.

The stock market's recent sell-off produced a correction in shares of TJX, which fell from its August high of $76.78 down to an intraday low of $67.25 on Monday morning. That is a -12.4% correction. Shares just happened to bounce near technical support at the simple 200-dma and its late July lows near $67.00. In spite of the sharp retreat the point & figure chart is still bullish and still forecasting at long-term $98.00 target.

Tonight we are suggesting a trigger to buy calls at $72.05. This is a relatively longer-term trade and hope to hold this position for several weeks.

Trigger @ $72.05

- Suggested Positions -

Buy the 2016 Jan $75 CALL (TJX160115C75) current ask $2.50
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

Stocks Snap 6-Day Slide

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market delivers its best one-day gain since 2011 with a very widespread rally. Big cap indices rallied close to +4% with high-profile, market darling stocks leading the way (AMZN, NFLX, FB, etc.)

MNK hit our stop loss.


Current Portfolio:


CALL Play Updates

The Walt Disney Co. - DIS - close: 99.23 change: +3.34

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 8.5 million
Entry on August -- at $---.--
Listed on August 24, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Comments:
08/26/15: The market delivered a big rally today. DIS managed a +3.48% gain. Yet shares remained stuck in the $96-100 range. The stock looks poised to breakout past round-number resistance at $100 tomorrow.

One of our suggested entry triggers is a breakout at $101.00. See below for details.

Trade Description: August 24, 2015:
We are bringing DIS back. The sell-off from its August high has been extreme. At its low today near $90.00 DIS was down -26% from its high. The retreat offers a lot of opportunity. Jump to the bottom of this play update for our entry point strategy.

Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off in DIS stock has continued thanks to a global market meltdown.

We think this pullback in the stock is way overdone. 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"

The four-week drop in DIS' stock has sent shares back to their 2015 lows. During the panic this morning investors bought the dip at round-number support near $90.00 (FYI: the February 2015 low was $90.06). When the market bounced DIS rallied more than +10% only to stall at round-number resistance at $100.00. DIS closed right in the middle of this $90-100 trading range today.

We want to be ready no matter what direction DIS moves. That's why we are listing two different entry point strategies.

Our first plan is to buy calls on a dip at $91.00 should DIS dip toward today's low. The second entry trigger is to buy calls on a breakout at $101.00 since the $100 level was resistance.

We are not listing a stop loss tonight. The market volatility has been extreme. The intraday moves in the market are a little ridiculous and nearly impossible to trade around if you're not glued to your screen and day trading. You can manage your risk by limiting your position size. We'll add a stop loss once the dust settles, likely in a couple of days.

Option strikes and entry points are listed below:

- TWO DIFFERENT ENTRY POINTS -

#1) Buy-the-dip trigger: If DIS hits $91.00

- Suggested Positions -

Buy the OCT $95 CALL (DIS151016C95)

- or -

#2) Breakout trigger: If DIS hits $101.00

- Suggested Positions -

Buy the OCT $105 CALL (DIS151016C105)

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


Facebook, Inc. - FB - close: 87.19 change: +4.19

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +281.0%
Average Daily Volume = 27.3 million
Entry on August 24 at $77.03
Listed on August 20, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/26/15: Traders bought the dip in FB near yesterday's lows and the stock soared back to a +5.0% gain. If this market rebound continues we are expecting FB to outperform.

Keep a wary eye on potential resistance at $90.00 and its simple 50-dma (near $90.75).

No new positions at this time.

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.

- Suggested Positions -

Long OCT $90 CALL (FB151016C90) entry $1.05

08/24/15 Strategy Update = remove the stop loss. Expect more volatility
08/24/15 Trade opens. FB gapped down at $77.03.
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


iShares Russell 2000 ETF - IWM - close: 112.48 change: +2.79

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: -21.0%
Average Daily Volume = 31 million
Entry on August 25 at $114.05
Listed on August 22, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/26/15: The IWM also bounced near yesterday's lows. Shares rallied to a +2.5% gain. The small caps were underperforming the large caps today.

Aggressive traders may want to consider buying this bounce if the IWM continues to rally tomorrow.

Trade Description: August 22, 2015:
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.

- Suggested Positions -

Long NOV $115 CALL (IWM151120C115) entry $4.15

08/25/15 Trade opened this morning. The IWM gapped higher at $114.05
08/24/15 Adjust Entry Strategy = new entry = buy IWM calls at the opening bell tomorrow (Tuesday, August 25th). No stop loss at the moment.
Previous entry trigger was $116.85
08/24/15 Adjust option strike = use the November $115 calls
Option Format: symbol-year-month-day-call-strike


Netflix, Inc. - NFLX - close: 110.13 change: +8.61

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 8.0 million
Entry on August -- at $---.--
Listed on August 25, 2015
Time Frame: Exit PRIOR to Earnings in October
New Positions: Yes, see below

Comments:
08/26/15: Market darling stocks like FB and NFLX were outperformers today. Shares of NFLX soared +8.48% The stock garnered yet another price target in the $140 region, which certainly didn't hurt this morning. Shares closed right near resistance in the $110.00 area. Our suggested entry point to buy calls is $110.65. I am reiterating my earlier comments that this is an aggressive, higher-risk trade.

NOTE: I am REMOVING the entry point disclaimer about gap open entries. Odds are good we could see NFLX gap open (up or down) tomorrow. If NFLX gaps open above $110.65 that counts as being triggered. That doesn't mean you personally want to jump in. Use caution.

Trade Description: August 25, 2015:
Some of the market's best-loved stocks have been crushed in the last couple of weeks. NFLX is one of them but this big decline offers a big opportunity.

If you're not familiar with NFLX, here is a brief summary from the company, "Netflix is the world's leading Internet television network with over 62 million members in over 50 countries enjoying more than 100 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments."

NFLX is cashing in on a massive sea change in consumer media viewing habits. Traditional TV is dead. Cable is worried as more and more consumers "cut their cord" and only consume media on streaming services. NFLX is the leading streaming service in the world.

The company said their customers watched over 10 billion hours of streaming content in the first quarter of 2015. That is a +20% jump from a year ago. The company has been focused on building up their own original content creation and expanding overseas. Just this week NFLX announced a deal with Japanese company SoftBank that would bring NFLX to Japan. Softbank is a bit of a technology conglomerate with stakes in multiple companies. One of their biggest investments is an 80% stake in Sprint (S). NFLX also struck a deal with T-Mobile. There seems to be a trend here of consumers, Netflix, and their smart phones.

The carnage over the last several days has been brutal. Shares of NFLX have plunged from its recent highs above $125.00 to almost $85.00 during Monday's market crash. Today the stock bounced with a range of $101.52-107.88. There is no denying the volatility in NFLX's stock. However, multiple analysts have said that investors should buy the "market darlings" like NFLX during this sell-off. They believe stocks like NFLX will outperform in the next few weeks and over the next few months.

Prior to the market's crash over the last few days analysts were upgrading their price targets on NFLX into the $140 area.

Tonight we are listing two different entry triggers to buy calls.

NOTE: This is an aggressive, higher-risk trade. NFLX options are expensive and the stock is volatile. We are not listing a stop loss at this time. Traders can try and limit their risk by adjusting their position size.

If NFLX rallies from current levels then we want to buy calls if shares traded at $110.65. We'll use the November $120 call.

If NFXL sinks from current levels then we want to buy calls on a dip at $92.00. We'll use the November $100 call.

- - TWO DIFFERENT ENTRY POINTS - -

#1) Buy-the-dip trigger: If NFLX hits $92.00

- Suggested Positions -

Buy the NOV $100 CALL (NFLX151120C100)

- or -

#2) Breakout trigger: If NFLX hits $110.65

- Suggested Positions -

Buy the NOV $120 CALL (NFLX151120C120)

08/26/15 removed the gap-open disclaimer on entry points for NFLX
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 61.21 change: +1.14

Stop Loss: 61.55
Target(s): To Be Determined
Current Option Gain/Loss: +111.8%
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:
08/26/15: BBBY churned sideways in the $60.00-61.50 range for the second day in a row. If there is any follow through higher tomorrow we could easily see BBBY hit our stop at $61.55.

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

08/24/15 new stop @ 61.55
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


Tupperware Brands - TUP - close: 48.74 change: +0.32

Stop Loss: 51.25
Target(s): To Be Determined
Current Option Gain/Loss: +381.5%
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:
08/26/15: Shares of TUP sank to new four-year lows before bouncing. When it finally bounced TUP underperformed with a +0.66% gain versus the S&P 500's +3.9% rally.

More conservative traders may want to consider taking some money off the table since our put option is up over +380%.

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

08/24/15 new stop @ 51.25
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


WESCO Intl. - WCC - close: 52.01 change: +0.77

Stop Loss: 54.25
Target(s): To Be Determined
Current Option Gain/Loss: +247.4%
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:
08/26/15: WCC also underperformed the major indices. Shares spent most of the day hovering just below the $52.00 level. The stock closed with a +1.5% gain, which was less than half of the broader market's rally.

More conservative traders may want to take some money off the table with our put option value so elevated.

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

08/24/15 new stop @ 54.25
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


Wynn Resorts Ltd. - WYNN - close: 74.29 change: -1.42

Stop Loss: 79.25
Target(s): To Be Determined
Current Option Gain/Loss: +398.5%
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:
08/26/15: WYNN sank to new lows and hit $71.25 before starting to bounce. Shares did pare their losses but they still closed down -1.8%. That's pretty ugly when you consider the huge rally in the market today.

We are losing the stop loss down to $79.25, just above the yesterday afternoon high.

More conservative traders may want to take some money off the table with our put option value so elevated.

No new positions.

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

08/26/15 new stop @ 79.25
08/24/15 new stop @ 81.55
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


CLOSED BEARISH PLAYS

Mallinckrodt Public Ltd - MNK - close: 85.82 change: +7.16

Stop Loss: 85.25
Target(s): To Be Determined
Current Option Gain/Loss: +79.6%
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:
08/26/15: The market's crazy volatility continues and today MNK rebounded from very oversold levels. Shares gapped open at $81.37 (almost $3.00 higher) and then rallied to a +9.1% gain. Our stop loss was hit at $85.25.

*small positions to limit risk* - Suggested Positions -

OCT $90 PUT (MNK151016P90) entry $4.90 exit $8.80 (+79.6%)

08/26/15 stopped out
08/24/15 new stop @ 85.25
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: