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Daily Newsletter, Saturday, 8/29/2015

Table of Contents

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

Market Wrap

What Correction?

by Jim Brown

Click here to email Jim Brown

After declining -1,089 points intraday on Monday and suffering through a very volatile week, the Dow rebounded to actually gain +183 points. The Nasdaq gained +122 to 4,827 despite crashing below 4,300 on Monday. That was a +535 point rebound or +12.5% from the Monday lows.

Market Statistics

Analysts are calling last week a "flash correction." If you blinked or hesitated, you missed it. However, as I warned about in my earlier commentary, corrections are very rarely "V" shaped and that is especially true in the August/September period. Historically the vast majority of late summer corrections last for weeks. They begin with a high intensity bottom and are followed by an oversold bounce. Once the bounce fades the sellers come back and new lows are created but with a lot less volatility.

I would also like to remind everyone that historical norms are just historical long-term averages. Past performance is no guarantee of future results. Anything is possible we could still go either way in the coming weeks.

The Dow had just broken into positive territory on Friday when Fed Vice Chair Stanley Fischer was interviewed on CNBC. That interview prompted a -105 point decline from the high as Fischer put September back on the calendar for a potential rate hike.

While he did not say the Fed would hike rates he was positive on the economy and data dependent but the data was improving to the point where the Fed could make a decision. Fed heads are masters at talking around the subject and leaving all their options open but Fischer seemed to suggest the Fed was closer to hiking rates than the market expected. He said the China situation and the market volatility was a challenge but the Fed would not let volatility deter them from making a decision.

Fischer said the Fed officials realize that they need to act before the data requires them to hike rates to alleviate inflation. He said, "When the case is overwhelming, if you wait that long, you will be waiting too long. There is always uncertainty and we will just have to recognize that." When we do hike, "We will be adjusting the knob slightly." Before the recent market volatility, "there was a pretty strong case" for a rate hike at the September meeting. Today his "confidence is pretty high" that inflation will head toward the Fed's target of 2%.

The key will be his comments in the Jackson Hole keynote speech on inflation on Saturday. How he phrases his comments will be important for market direction next week.

One of the factors in the Fed's decision is inflation. The PCE Deflator released on Friday showed that inflation rose +0.1% in July. The cost of durable goods declined -0.2% while nondurable goods rose +0.1%. Housing rose +0.2% as a result of higher rents. The Core PCE excluding food and energy rose +0.1%. These numbers indicate the Fed is a long way from their 2% target.

The trailing 12-month PCE is only +0.3% and the Core PCE only +1.2% compared to a +1.3% rate in January. Now eight months later the Fed may be confident that inflation is rising but the gains are at a snail's pace and it could be another year before that 2% level is reached. Inflation is hardly rising at a rate that the Fed should be worried. With low commodity prices, I would be more worried about deflation.

Personal income rose +0.4% in July and the same pace as the prior three months. This was also led by a rise in rental income and proprietor's income rather than from wages.

Personal spending rose +0.2% driven by a +2.6% rise in motor vehicles and parts, +1.0% in household furnishings and +1.3% in recreational equipment. Summer is a big spending period on boats, jet skis, motorcycles, campers, etc. Spending in August will likely decline as the impact of China on the equity markets makes consumers less confident about their net worth if they own stocks.

The revision in Consumer Sentiment for the last half of August saw the headline number decline -1 point from the initial estimate to 91.9. That is down from 93.1 in July and a three-month low. Present conditions declined from 107.2 to 105.1 and the expectations component declined from 84.1 to 83.4.


We have a full calendar for next week with the ISM reports and the employment reports. The Fed Beige Book with the economic conditions in all 12 Fed regions will also be released. That is just in time to let us see what the Fed knows about U.S. economic growth. This will be a foundation to whatever decision they make at the September FOMC meeting.

The forecasts for the nonfarm payroll report on Friday are relatively flat with only a +4,000 job increase. However, the ADP forecast is for an increase of +20,000 jobs to +205,000. For the nonfarm report, a 225,000 job gain would be the Goldilocks number. If the report did come in hot at 275,000 it would almost certainly guarantee a rate hike in September. This makes Friday's report critical for Fed forecasting.

The ISM Manufacturing report is expected to be flat at 53.0 and that may be optimistic after several regional reports declined sharply. With 50 the dividing line between expansion and contraction the pace of growth is very weak and should give the Fed some cause for concern. The Kansas Manufacturing Survey last Thursday fell deeper into contraction territory at -9, down from -4 in July. The Kansas region has been in contraction since March. The prior week the New York Empire survey declined from 3.9 to -14.9 and deep into contraction.


There were no stock splits announced last week. However, Under Armour (UA) approved their 2:1 split. Unfortunately, the board elected to postpone the split until 10 days after the class action suit filed by shareholders complaining about the new share structure. The suit was filed in June and it could be a very long time before there is a ruling. Google was also sued when they created their new share class.

The 2:1 split will be one share of Class C nonvoting stock for every share of Class A or B stock currently held. The Class B stock has ten times the votes as a Class A share. Founder and CEO Kevin Plank owns 16.8% of all shares outstanding and 67% of voting shares. By creating a new class of stock, it allows the company to expand stock based compensation and make acquisitions with a stock that does not dilute Plank's voting rights. Any shareholder with voting rights today will retain those rights regardless of the outcome of the suit. Only new shareholders of Class C shares will have no rights.

Because of the delay until the suit is settled I have removed the Under Armour split from the calendar.

The Skechers 3:1 split on October 15th has the best chance for a pre-split run because of its positive trend. Medivation (MDVN) is in a downtrend so that would have to reverse before there is any chance of a split run.

Reynolds American (RAI) splits 2:1 on Monday.


Friday was really light on stock news. I think everyone was still shell shocked from the volatility and were happy to just get out of the week alive. Next week should be even lighter since the vast majority of traders, portfolio managers and corporate executives will be on vacation. This is the last weekend of summer and nearly everyone takes advantage of it.

Shares of Autodesk (ADSK) lost 5% after reporting earnings of 19 cents that beat estimates by 2 cents. Revenue fell -4.3% to $609.6 million and missed estimates for $612.4 million. The company cut the full year forecast for the second time. The new forecast for 60-72 cents was well below the analyst forecast of $1.04. They cut the revenue forecast from $2.56-$2.61 billion to $2.47-$2.50 billion. Analysts were expecting $2.59 billion.

The company is struggling through its conversion to a subscription model rather than upfront pricing. While that produces a steady revenue stream over time, they give up the current model where large upfront payments are received for sales. Licensing and subscription revenue declined -17% in the quarter.


Big Lots (BIG) reported earnings of 40 cents compared to estimates for 34 cents. Revenue of $1.21 billion also beat estimates for $1.19 billion. The company forecast full year earnings in the range of $2.90-$3.00 per share. Same store sales rose +2.8% and the sixth quarter of sales growth. Shares spiked +16% on the news suggesting there were a lot of shorts that lost a lot.


Smith & Wesson (SWHC) reported earnings of 32 cents that easily beat estimates of 22 cents. Sales rose +12% to $147.8 million after a +6% rise in the prior quarter. Profits rose +23%. The company said firearms demand was strong but accessories sales were stronger with a 29% increase. The company raised guidance for the current quarter to 19-21 cents on revenue of $135-$140 million. Full year guidance was raised from $1.02-$1.07 to $1.14-$1.19 per share.


Gamestop (GME) shares fell -8% after the company reported earnings of 31 cents that beat estimates for 24 cents. Revenue of $1.76 billion also beat estimates for $1.73 billion. Same store sales rose +8.1%.

Gamestop guided for current quarter earnings in the range of 53-60 cents on revenue of $2.09-$2.18 billion with same store sales (SSS) up 1-4%. Analysts were expecting 59 cents on revenue of $2.16 billion and SSS of 4.5%. Analysts called the targets conservative and felt the company would exceed them. Investors thought otherwise and shares declined. Benchmark cut their rating from hold to sell and that accelerated the decline. The analyst said the company's core business is being displaced by digital games with streaming capability rather than console games.


Aeropostale (ARO) shares fell -27% after the company reported its 11th consecutive quarterly loss. The company reported a loss of 56 cents on a -17.5% decline in revenue to $326.9 million. The loss matched Wall Street estimates. For Q3 the company expects to lose 30 cents. I would recommend shorting them except that they are already under $1.


Activision Blizzard (ATVI) gained +5% after S&P announced they were replacing Pall Corporation (PLL) in the S&P-500 at Friday's close. Pall is being acquired by Danaher.

United Continental (UAL) is also joining the S&P-500 after the close on Wednesday when it replaces Hospira (HSP), which was bought by Pfizer.

Facebook (FB) said it hit a new milestone. More than one billion people logged in on a single day on Monday. That is the equivalent of one-seventh of the world's population. Facebook now has nearly 1.5 billion members that log in at least once a month. While that is a lot of users Google services more than 100 billion searches every day and that means more than one billion people use Google every day.

Most of the one billion that logged into Facebook on Monday reside outside the USA. More than 83% of Facebook users are outside the USA. Since China blocks Facebook, the majority of users come from Europe, India and South America. The company is planning on expanding to 200 more countries in 2016. Japan will launch on September 2nd.

The number is even more amazing when you realize that about 5 billion people do not have access to the Internet.

It would be hard to bet against Facebook because they are increasing their ad reach on a daily basis and they have not even started to monetize WhatsAp yet and Instagram is just in the beginning stages. Facebook bought Instagram for $1 billion in 2012. Instagram now has more than 350 million users and WhatsAp has more than 800 million. As Facebook completes the advertising integration into those services, their revenue is going to explode. Facebook had $12 billion in revenue in 2014 and revenue rose +43% in Q2 to $3.8 billion. It will continue to soar for years to come. There are currently more than 2 million active advertisers on Facebook. Facebook shares are going well into the triple digits. It is only a question of when. Twenty-two analysts raised their price targets on Facebook after Q2 earnings. Piper Jaffray has the highest target at $146.


Freeport McMoran (FCX) rallied +29% from the Wednesday lows of $7.76 after Carl Icahn announced he had taken an 8.5% stake in the company worth $900 million. Icahn said he planned to hold talks with the company about cost cutting and capital expenditures and may seek board representation. The company had already announced plans for a 25% cut in capex from $5.6 billion to $4 billion and would cut production at some mining operations.

Icahn filed a notice with the SEC that he intended to buy as much as 25% of the company. Shares of Freeport had declined -66% year to date on the decline in copper prices and the drop in oil. Freeport has a significant investment in the energy sector through the acquisition of McMoran Exploration and Plains Exploration. Freeport planned on spinning off the oil assets but the drop in oil prices killed that idea. I think Icahn picked the bottom perfectly on Freeport given their recent announcements.


Mylan (MYL) shareholders approved the hostile pursuit of Perrigo (PRGO). Mylan raised its offer in April to $232.23 in cash and stock or about $34.1 billion for Perrigo but was rejected. Since April, Mylan's stock has declined and the offer is worth about $190 today. After the shareholder approval, Mylan said it would launch a formal offer for Perrigo in the coming weeks. Analysts believe Mylan was pursuing Perrigo in order to avoid being acquired by Teva Pharmaceuticals (TEVA). However, Teva broke off its pursuit and bought the generics business from Allergan for $40.5 billion. On Friday, Perrigo completed a $200 million acquisition of GlaxoSmithKline's over-the-counter brands business. Most analysts believe there is little chance of Mylan acquiring Perrigo.


Investors are running for cover. According to Bank of America Merrill Lynch investors pulled out $29.5 billion from equity funds over the last week. On Tuesday alone, they withdrew $19 billion. That was the second largest one-day withdrawal since 2007. Equity funds have about $10.5 trillion under management. Bond funds saw $11.7 billion in outflows and the most in two years. However, treasury funds saw inflows of $1.7 billion. Money market funds saw inflows of $22 billion to bring their total cash hoard to $2.7 trillion according to ICI. Precious metal funds gained +$1.1 billion. July and August could mark the first consecutive monthly outflows since late 2008.

Through July equity funds had outflows of more than $78.7 billion. That is worse than during the financial crisis. In fact, that number is more than any full year dating back to 1993. Outflows in July were $20.3 billion. Over the 12 months ended on July 31st more than $158.6 billion flowed out of funds. That is even more confusing because the market traded at historic highs in May, June and July.

Several days last week, the market sold off hard at the close. Jack Bouroudjian, CEO of Index Futures Group, said the billions in market on close sell orders were likely from sovereign wealth funds. Nine of the top ten countries with sovereign wealth funds are oil producers. With oil hitting a six-year low at $37.75 on Monday and the market in a dive, he believes the massive selling was from those funds. They have lost their oil revenue and need to raise cash. Jack used to handle trades for several of those funds and he recognized the pattern. While he cannot prove it, he was pretty sure they were liquidating.

Crude prices exploded higher on Thursday and Friday for multiple reasons. News reports of Saudi Arabian ground troops entering Yemen and seizing control of multiple areas in Saada province caused massive buying in crude. Pictures of long lines of Saudi tanks moving into Yemen caused oil traders to immediately begin covering shorts and there were a lot of shorts. By invading with ground troops, it is likely to make the Houthi rebels desperate and they could strike back at Saudi oil installations. Whenever there is a ground conflict in the Middle East the price of oil soars.

Add in the approach of Hurricane Erika towards the Gulf of Mexico and there was a monster short squeeze. Oil prices soared from the $37.75 low on Monday to close at $45.33 on Friday for a +20% gain. On Wednesday the weekly inventory numbers showed an unexpected decline of -5.5 million barrels.

Sometimes you just cannot get a break when you are on the wrong side in a market. Oil shorts were definitely on the wrong side for good reason. The fundamentals support declining oil prices for the next couple months so once the Yemen news fades this should be another shorting opportunity.


Active rigs declined -8 last week but they were all gas rigs. Active oil rigs rose +1 to 675 and gas rigs declined -9 to 2002. That is a new 18 year low on gas rigs. Offshore rigs declined -2 to 30 and the lowest level since July 3rd. That is 36 below year ago levels.


Markets

What can I say except, wow! More than 55 billion shares traded hands over the last five days. Monday was the largest at 14 billion with Tuesday, Wednesday and Thursday at 10 billion each. Friday, normally a very slow end of summer Friday with barely 5 billion shares saw almost 8 billion traded. Where Monday appeared to be a capitulation day to the downside, Thursday appeared to be a strong reverse to the upside with strong conviction. Advancers were 5:1 over decliners and advancing volume was 12:1 over declining. Traders worried over the nearly -300 point decline from the highs in the afternoon but another surge of buyers erased that decline to close at the high of the day. Life was good or so many thought.


Friday rekindled doubts in many minds. The internals were still positive but the gains minimal. The Dow closed down -11 after a week of monster moves. The S&P gained only 1 point and the Nasdaq +15, thanks mostly to biotech stocks.

While every investor is hoping the rally will continue next week, I would not hold my breath. The rebound stopped right on decent resistance at 1,985 and the intraday range was very narrow compared to the big swings over the past week.

There is a resistance range from 1985-2005 that could easily halt this rally in its tracks. The Fed is back in play for September and while China posted gains on Friday, their market is far from healed. Their manufacturing PMI to be released on Monday night could be another nail in their coffin.

I do not want to curse this rebound but there is a very good possibility we could see further declines. That is the normal series of events for an August/September correction. With equity outflows occurring at a record pace there may be something under the surface we don't know about. If sovereign funds are indeed liquidating to raise cash then there could be tens of billions of additional repatriation.

The bull case starts with the high intensity plunge on Monday followed by two days with Dow declines intraday of -650 points each without that Monday low being broken. That is a strong case but it only covers the reaction period. That is the period where panicked investors dumped stocks and then bought stocks without applying too much thought. Dang it everything is crashing, sell everything. Dang it, I sold at the bottom, buy it all back quick. Now that the smoke has cleared we hope that calmer minds will prevail next week. However, a calm mind may start to worry about the historical pattern of August/September corrections and begin to take profits from the rebound.

You could make up a hundred potential scenarios and they could all be wrong. We are always at the market's mercy and we need to trade what we see rather than what we hope to see. We want to see a continued rebound but we need to be ready for the alternative as well.



I looked at the chart for each of the Dow components and there were some really ugly charts. Unfortunately, there was not a single one I would buy today. That may be the overriding worry for trading next week. Every single chart had either rebounded from the panic low to close right at resistance OR they failed to even reach resistance. It was a depressing exercise.

Here are three examples. Would you buy these charts?




The 20% rally in oil prices helped to lift the Dow thanks to Chevron and Exxon. Unfortunately, the rest of the group remains lackluster. There are no momentum stocks like Netflix or Amazon. Apple was the leader for a while but even that company has lost its luster. If the Fed does hike rates we could see gains in the financials but that may not erase the potential declines ahead of the FOMC meeting on the 17th.

My historical bias may be getting in the way of my analysis this weekend but I am not hopeful that the Dow is suddenly going to soar for another 1,000 points. The rebound cured the seriously oversold conditions and now we have to depend on fundamentals for motive power.



The Nasdaq is showing a little more encouragement. The lows were not as low as those on the Dow and the rebound brought us back to within 400 points of the recent highs. We saw a range of more than 500 points last week alone. While I do not expect to just race back the recent highs there were a lot of gainers in the Nasdaq Composite on Friday. Biotechs are back and the Biotech Index ($BTK) gained +136 points for the week to close at 3,909 after hitting 3,412 at the Monday low. That is a +15% rebound!!

There is plenty of overhead resistance and the 4,900 level on the Nasdaq could be a problem. If the tech stocks continue to move higher, it might trigger some buying in the broader market.



The Russell Microcap Index ($RUMIC) was the biggest gainer on Friday with +1.33% followed by the Russell 2000 at +0.8%. If funds are buying small caps, they are not afraid of a future market decline. However, this could still be short covering since the small caps were heavily shorted.

The R2K did manage to close well above decent support at 1,150 and that could give us a cushion on any further market weakness.


After looking at all the individual stocks on the Dow, I have a negative bias for next week. Obviously, that bias and $5 will only buy you a cup of strong coffee at Starbucks. I would be careful about loading up on too many long positions. I recommended buying "decent" dips last week. We definitely had several. I would continue to recommend buying decent dips to obvious support levels. While we could see lower lows ahead, I do expect to see higher highs as well once we are out of September.

If you missed the correction and did not buy anything on the quick drop, be patient. You may still get your chance. Build your shopping list and put in some buy orders at ridiculous prices. You may actually get filled in the weeks ahead.


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.


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Random Thoughts


Marketwatch put together a really good summary of recent comments by all the Fed heads. This should give you a much better idea about the outcome of the September meeting. Fed Member Positions on Rates


Fortune ran an article this weekend on the 5 reasons the Fed will not raise rates in 2015. I am going to list the reasons but the entire article is worth reading. Five Reasons

Recent stock market volatility
Slowing global growth
China's economic wildcard
Strong U.S. dollar
Very low inflation


Bespoke said the volatility last week was the worst in 75 years. The S&P closed more than four standard deviations below its 50-day average for three consecutive sessions. This is only the second time ever that this has happened. The other one was May 15th, 1940. The crash of 1987 was not as bad as the crash last week. Worst in 75 Years


Since 1950 September has been the worst performing month of the year for the Dow, S&P and the Nasdaq since 1971. Fund managers coming back from vacation after Labor Day tend to clean house as Q3 comes to a close. They are preparing on taking advantage of any buying opportunity in October. The first half of September has a positive bias but the last half of the month is normally negative as the quarter ends. Remember September


Monday could be called the Great ETF Crash of 2015. Large portions of the ETF market saw declines of 30% to 43% on sketchy volume. When some individual stocks failed to open on time on Monday the pricing algorithms for the ETFs went awry. The S&P Smallcap 600 (IJR) fell -30% while the Smallcap 600 Growth (IJT) declined -34%. The Nasdaq 100 (QQQ) declined -17.25% at its lows when the underlying index only declined -9% intraday. The S&P 500 equal weighted ETF (RSP) fell -43% and took more than 30 minutes to recover. The moral to this story is to not use stop losses on ETFs because in fast markets they can be significantly mispriced. Great ETF Crash

Understanding the ETF Crash



With the bankruptcy and shutdown of the Molycorp Mountain Pass rare earth mine, China now controls more than 95% of the supply of rate earth minerals. It takes 920 pounds of rare earths to build an F-35 fighter and 9,200 pounds to build a Virginia class nuclear submarine. Without rare earths, guided missiles are unguided. China in Control


Moody's reduced its growth forecast for the global economy to 2.8% for 2015, down -0.3% from the prior forecast just two weeks ago. The company said China's problems are going to make a bigger dent in the global economy than previously expected. They are projecting only 6.3% growth for China in 2015 compared to the official government projections for 7.0%.

Citigroup cut world growth estimates for 2016 from 3.3% to 3.1% and that was the third time the bank has cut the forecast this year. Citigroup said the greatest risks to the growth forecast were to the downside.

Fitch Ratings warned that China will likely grow well below 7% for a "prolonged period of time."

Add in the severe recession in Russia and Brazil and the rapid decline in emerging market currencies and global growth is in a downward spiral.

Source

Global Growth Declines


Trading curbs on individual stocks halted trading more than 1,200 times last week on the NYSE. More than $2 trillion in market cap was erased since the end of July to the lows on Monday. Unless the market soars over the next 5 weeks, the correction will knock most equity funds into losses for the quarter and possibly for the year. The Investment Company Institute said more than $94 billion had been pulled out of equity funds in the month of August. Rout Ruins August


David Woo, BAML head of global rates and currency research, said the rise in yields in U.S. Treasuries during a period of equity market volatility was contrary to historical norms. Yields normally decline as investors flee to treasuries. He said the reason treasuries sold off was redemptions from China. In order for China to support its currency and its equity market it was forced to sell treasuries and convert those proceeds from dollars to yuan. In a period when investors flee to the safety of bonds, the biggest holder of U.S. treasuries was selling. China Selling Treasuries

China Sells $100 Billion in Treasuries - Bill Gross


Apple finally announced the date for their next product announcement. On September 9th, the event will be held at the Bill Graham Civic Auditorium. Analysts are expecting a major revamp for the iPhone 6S camera system to 12 megapixels and 4K video recording, stepping up from the 1080p in the iPhone 6. The new phone will also have front flash support for the camera. There will also be a faster A9 processor. The next generation Apple TV could also be announced.


The AAII Investor Sentiment Survey for the week ended on Wednesday showed a very surprising gain of +5.7% to push bullish sentiment to 32.5%. Yes, bullish sentiment rose in an ugly week. Apparently, investors felt the bad news was over. However, bearish sentiment also rose +4.9% to 38.3%. I guess that is a sentiment battle between the daredevils and the scaredy cats.



 

Enter passively and exit aggressively!

Jim Brown

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"Everything possible today was at one time impossible. Everything impossible today may at some time in the future be possible."

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Index Wrap

Rebound in a Yo-yo Market!

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The rebound from mid-week lows put the S&P and Dow back above their 'normal' volatility range of trading within 5 percent of their 21-day moving averages; with Nasdaq, 6-7% as you'll see on the charts.

A week ago Friday, with the declines to 5 percent under the 'centered' 21-day moving average, my last thought was we'd see a further 'waterfall' decline from there. WRONG!

The Market didn't see it coming in mid-October 1987 either with the Dow down one Friday some 4-5%. Surely I thought after the weekend, prices would stabilize and stem the strong downside momentum. NOT! What became known as 'Black Monday' saw the Dow down 508 points, but that then was a whopping 18 percent!!

This day, by the way (10/19/87) also saw the advent of computerized sell programs as they made a major impact on the major indices, driving them lower; something then called 'portfolio insurance'. It was a mess is what it was.

Within the past few days on our most recent bout of extreme volatility, the indices rebounded back into a more Market 'normal' volatility range as suggested by the Dow and the S&P back above their 5 percent moving average 'envelope' lines relative to a 'centered' 21-day moving average.

In the case of the Nasdaq, their rebound has been to back above 6-7 percent moving average envelope lines relative to the 21-day average. See the charts for my further take on the various index patterns. I'll start with a brief look at the S&P 500 Volatility Index (VIX) chart.

The S&P 500 Volatility Index (VIX):

VIX shot up into its 'extreme' volatility zone between 30 and 40, then quickly came back down. Resistance is seen at 30, then 35 and I assess VIX as coming back down gradually.

Support so to speak or where VIX might pull back to next is seen at 20, then at 15.

A long 'base' building process in the sideways trend from February on. The better, so to speak, to support this recent major spike up in Market volatility.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) is bearish, except for very long-term charts. Showing the limits of a prolonged deep decline, SPX rebounded within 3 days this week back into a more 'normal' range in terms of moving average envelope lines that normally 'contain' 90-95 percent of all declines to below SPX's 21-day average.

The lower (moving average) 'envelope' value on the downside has rarely exceeded 5 percent below the 'centered' average. BUT (there's always one!), there are also occasional 'black swan' or exceptionally rare events where panic selling drives things to sharp downside extremes; these can be once a decade type event as with the '87 crash I referenced in my initial 'bottom line' comments remembered for years as 'Black Monday'.

The recent SPX low is a likely intermediate bottom and support is now pegged above these lows; a good case for at least an interim bottom in that over 3 trading days the index failed to break to a new bottom. Support looks like 1950, extending to 1900. I think SPX will hold for the most part at the lower (green) line set to float at 5 percent line UNDER the 21-day average; that lower envelope line currently intersects at 1920.

Near resistance is seen at 2000, extending to 2050, which is a pivotal resistance overhang as buying interest was seen in this area on multiple occasions. Those who bought there will, on the return, SELL there so that's selling that must be absorbed for SPX to churn through 2050.

Bearish 'sentiment' and the RSI got to oversold type extremes, which provides support for the idea of a bottom but not that buyers will be in a hurry to bid stocks back up again!

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX), as I discuss with the S&P 500 above, has probably hit bottom for the foreseeable weeks ahead. Some further rallies can be expected but also continued volatility.

880 looks like near-term support and 840-845 may be a 'maximum' downside ahead. Lows should hold for the most part at the lower (green) 'envelope' line at minus 5 percent under the 21-day average, with that envelope currently intersecting at 845.

Near resistance, a pivotal one, is seen at 900, not only because of it being a prior line of support now 'become' resistance but also because the 21-day moving average will often if not usually 'act as' as fairly strong resistance, especially after a sharp sell off. Upside from recent lows maybe to 900, not as likely for a strong move above 900. Resistance above 900 looks to come in around 925.

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

The Dow 30 (INDU) led on the way down but hasn't bounced back more than the S&P has percentage wise, but even staying equal is a plus for INDU. As with OEX and SPX, I think that recent lows will not be re-tested and see near support/buying interest at 16200, with next pivotal support in the 15800 area.

INDU is back into its 'normal' range relative to a 'centered' 21-day moving average and envelope values above and below the daily Closing average as seen below; i.e., at 2.5% (can easily expand to 3%) ABOVE the 21-day average and to 5 percent BELOW the average on 'normal' type corrections, but NOT sell offs on flow blown panic attack lows! However, as with most markets, prices tend to snap back to a 'mean'.

Tough resistance is anticipated on a further advance to 17000-17200. A prolonged move above 17200 is needed to suggest that prices won't be under pressure again in the fall.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) is bearish in its pattern given the sharp break below the line of key prior support in the 5000-4900 zone. Lows are likely in for the recent move and there will be further attempts to rally with bouts of selling driving COMP lower. How much lower? I look for support initially on pullbacks to 4700, with even stronger support/buying interest at 4600.

Near resistance is projected at 4875-4900, with next resistance and an even more pivotal one, at 5000. Ability for COMP to sustain a rally above 5000 is need to suggest that the Index had regained its prior upside momentum.

COMP, like the other indices, got to DEEP downside indicator extremes in the Relative Strength Index (RSI) and my CPRATIO 'sentiment' indicator consistent with the view that a climax low was made this past week. This is not to say that its up, up and away again for tech. Investors are still quite cautious and there are further unknowns with the Fed and with China.

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nasdaq 100 (NDX) is bearish short and intermediate-term given the extreme break below NDX's prior line of support in the 4400 area. Of course, dropping like a STONE after that made for a panic early going to the week. Support was found over a 3-day period and in major downside corrections in bull markets you rarely get more than three days to see that there is in fact a BOTTOM for the index in question.

Near NDX support is seen at 4200. The snap back rally of this past week puts the Index back into what I consider to be a more normal volatility range as measured by percentage envelope lines set relative to a 'centered' 21-day moving average. A pullback to the 4100 area, at the lower (-7%) envelope line wouldn't be surprising but not another sharp break below 4000.

Key near resistance in NDX is seen at 4400, extending to 4480-4500. It would take a solid move above the 21-day moving average to suggest that NDX had regained its prior upside momentum. 4400 may be a 'lid' on recovery as it represented the recent 'breakdown' point. Stay tuned!

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

The Nasdaq 100 tracking stock (QQQ) is bearish but the Q's also may have traced out a 'final' low for the recent steep sell off. The long-term Nas 100 index trend remains up so it's not surprising that there is a value area where stocks will see buying.

QQQ support/buying interest could come in on pullbacks to the 102 area, extending to 100. I anticipate fairly major support at 98.

Immediate overhead resistance is at 106, and a key 'breakdown' point. Next resistance/selling pressure could come in around 108, but with potential to 110 if 108 is pierced.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) dipped below its lower (minus 5 percent) envelope line as the rally went to 'hyper-extreme' oversold. Now, the snap rally puts RUT back above my lower envelope line. The picture provided by the lower envelope suggests a possible support 'floor' at around 1120; see the lower (green) envelope line. Near support highlighted at 1140 is also an area to watch.

I see upside potential to perhaps the 1180-1200 area before serious selling might erupt again. Anyway, 1200 was a key 'breakdown' point and now is seen as pivotal resistance. RUT would need to manage a sustained rebound to above 1200 to 1220 to suggest the Index could challenge the various prior highs on the stair-step decline seen on the chart.


GOOD TRADING SUCCESS!




New Option Plays

Relative Strength Winners

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Post Holdings, Inc. - POST - close: 66.06 change: +2.35

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on August -- at $---.--
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Shares of ready-to-eat cereal maker POST have shown surprising strength this month and the last few days during the market turmoil. POST is also poised to be one of the better performing stocks this year with a +57% gain year to date.

POST is in the consumer goods sector. According to the company, "Post Holdings, Inc., headquartered in St. Louis, Missouri, is a consumer packaged goods holding company operating in the center-of-the-store, private label, refrigerated and active nutrition food categories. Through its Post Consumer Brands business, Post is a leader in the ready-to-eat cereal category and offers a broad portfolio that includes recognized brands such as Honey Bunches of Oats(R), Pebbles(TM), Great Grains(R), Grape-Nuts(R), Honeycomb(R), Frosted Mini Spooners(R), Golden Puffs(R), Cinnamon Toasters(R), Fruity Dyno-Bites(R), Cocoa Dyno-Bites(R), Berry Colossal Crunch(R) and Malt-O-Meal(R) hot wheat cereal.

Post's Michael Foods Group supplies value-added egg products, refrigerated potato products, cheese and other dairy case products and dry pasta products to the foodservice, food ingredient and private label retail channels and markets retail brands including All Whites(R), Better'n Eggs(R), Simply Potatoes(R) and Crystal Farms(R). Post's active nutrition platform aids consumers in adopting healthier lifestyles through brands such as PowerBar(R), Premier Protein(R) and Dymatize(R). Post's Private Brands Group manufactures private label peanut butter and other nut butters, dried fruits, baking and snacking nuts, cereal and granola."

The earnings picture has improved significantly. Back in February 2015 POST reported its Q1 results that missed estimates by a wide margin. Yet the last couple of quarters the company has seen earnings and revenues soar. Their Q2 report said revenues were up +140%. Their Q3 results, announced on August 6th, reported revenue growth of +91%. Earnings were $0.27 per share, which was $0.20 better than expected. Management raised their full year guidance from $585-610 million up to $635-650 million. A lot of POST's revenue growth has been due to its aggressive acquisition strategy but Wall Street doesn't seem to care.

As a matter of fact, Wall Street has ignored POST's warnings about its egg supply. The company uses a lot of eggs and the U.S. egg-production industry has been hammered by an outbreak of Avian Influenza (AI). The last significant outbreak of AI was back in the early 1980s. According to CNN the current outbreak has been causing havoc since December 2014 and 35 million egg-laying hens have been killed. The price of eggs surged this summer but looks like it may have peaked.

Back in May this year POST warned that the outbreak had infected a significant portion of their company-owned flocks and 35% of their egg commitments could be impacted. Fortunately, a few weeks later they said the damage may be down to just 25% of their egg supply but they still expected a $20 million hit to earnings. The market doesn't seem to care.

Instead POST seems to be getting a boost from the crop outlook for the rest of 2015. The USDA raised their estimates for crop productions. The harvest this year could see record soybean numbers. Corn could produce the third largest crop on record. This is pushing commodity prices lower, which is a bullish tailwind for cereal makers like POST.

Shares of POST have been very strong this month. The market's reaction to their Q3 results produced a bullish breakout in POST with a rally past resistance near $55.00 and a surge to all-time highs. When the market crashed late last week and this past Monday, shares of POST did see a decline but it was minor compared to the rest of the market. POST didn't even dip to support at $60.00.

Today POST is surging. Shares are poised to breakout past their mid-August high. If that happens POST could see more short covering. The most recent data listed short interest at 19% of the 54.2 million share float. The point & figure chart is bullish and forecasting at $78.00 target. Tonight we are suggesting a trigger to open bullish positions at $66.55.

Trigger @ $66.55

- Suggested Positions -

Buy the OCT $70 CALL (POST151016C70) current ask $2.85
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:


Stamps.com Inc. - STMP - close: 83.17 change: +2.00

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 222 thousand
Entry on August -- at $---.--
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Company Description

Trade Description:
STMP is another stock showing significant relative strength this year. Shares were not immune to the market's recent sell-off. STMP fell about -14% but investors bought the dip near support. Even with the pullback STMP maintained its long-term up trend. The recent bounce has lifted STMP to a +73% gain year to date.

STMP is in the technology sector. They're considered part of the application software industry. According to the company, "Stamps.com is the leading provider of Internet-based mailing and shipping services to over 500,000 customers. Stamps.com's services enable customers to print U.S. Postal Service-approved postage with just a computer, printer and Internet connection, right from their homes or offices. The company has been the leader in transforming the world of mailing and shipping for small business owners, e-commerce sellers, high volume shippers, and enterprise organizations alike."

The company has been showing very strong earnings and revenue growth. They have beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row. Q4 revenues were up +29%. Q1 revenues were up +32%. Q2 revenues, announced on August 6th, were up +41% from a year ago to $48.4 million. Q2 earnings were $0.97 per share, which beat estimates by 26 cents. STMP management has raised their guidance two quarters in a row.

Ken McBride, Stamps.com's chairman and CEO, commented on his company's recent quarter, "We are pleased with our continued strong revenue and earnings growth this quarter. We achieved record performance across multiple financial and customer metrics including total revenue, core mailing and shipping revenue, non-GAAP earnings per share, paid customers and average revenue per paid customer. In addition, we saw continued growth across all of our business segments and we experienced positive contributions from our ShipStation and ShipWorks subsidiaries. We remain excited about our future prospects which led us to increase our guidance for 2015."

STMP raised their 2015 earnings guidance from $2.55-2.90 per share to $3.10-3.50. Wall Street estimates were around $2.90.

The market's reaction to the better than expected earnings, revenues, and bullish guidance launched STMP to levels not seen since early 2000. STMP closed at $88.25 on August 19th, just before the market's correction. The pullback in STMP saw shares decline to support near $75-76 and its rising 50-dma. You can see on the weekly chart that STMP did not break its long-term up trend. The point & figure chart has already reversed back into positive territory and is forecasting at $132.00 target.

Tonight we are suggesting a trigger to launch bullish positions at $83.55.

Trigger @ $83.55

- Suggested Positions -

Buy the OCT $85 CALL (STMP151016C85) current ask $4.30
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

Stock Market Rebound Stalls On Friday

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market's huge rebound off its Monday morning lows seemed to run out of steam on Friday. The major U.S. indices just drifted sideways in a relatively narrow range.

WYNN hit our stop loss on Friday morning.


Current Portfolio:


CALL Play Updates

The Walt Disney Co. - DIS - close: 102.48 change: +0.30

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: +10.3%
Average Daily Volume = 8.5 million
Entry on August 27 at $101.35
Listed on August 24, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/29/15: DIS spent Friday's session consolidating gains in a sideways move. Shares hovering between what should be short-term support at $100 and short-term resistance at $105.

I am not suggesting new positions at this time. After a +13% bounce from last Monday's lows DIS could see a dip.

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.

- Suggested Positions -

Long OCT $105 CALL (DIS151016C105) entry $2.52

08/27/15 triggered on gap open at $101.35, suggested entry was $101.00
Option Format: symbol-year-month-day-call-strike

chart:


Facebook, Inc. - FB - close: 91.01 change: +1.28

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +428.6%
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:
08/29/15: FB has been showing relative strength all week long, excluding the spike down to $72.00 on Monday. The rebound continued on Friday with FB outperforming the major indices thanks to a +1.4% gain. Shares are above potential resistance at $90.00 but the rally stalled near its simple 50-dma.

I would not be surprised to see FB dip. Shares look like they might have support in the $88.00 region.

With our call option value up more than +400% readers may want to take some money off the table.

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

08/27/15 Zuckerberg announced that FB hit a new milestone - one billion people used FB in a single day.
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

chart:


iShares Russell 2000 ETF - IWM - close: 115.62 change: +1.13

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +21.4%
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:
08/29/15: Small caps were showing some relative strength on Friday, which is encouraging. The IWM added +0.98% versus a +0.06% gain in the S&P 500 index.

The IWM is up three days in a row and the rally on Friday closed near short-term technical resistance at the simple 10-dma. We should not be surprised to see a brief pullback here.

No new positions at this time.

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

chart:


Netflix, Inc. - NFLX - close: 117.63 change: -0.03

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 8.0 million
Entry on August 27 at $114.94
Listed on August 25, 2015
Time Frame: Exit PRIOR to Earnings in October
New Positions: see below

Comments:
08/29/15: The last couple of weeks have been extremely volatile for NFLX. Shares have fallen from $125.00 down to $85.50 and bounced back up to $119.35 at Friday's peak.

The stock is currently trading between what should be new support near $110 and short-term resistance near $120.

No new positions at this time.

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.

- Suggested Positions -

Long NOV $120 CALL (NFLX151120C120) entry $12.65

08/27/15 Trade is open. NFLX gapped higher at $114.94
08/26/15 removed the gap-open disclaimer on entry points for NFLX
Option Format: symbol-year-month-day-call-strike

chart:


Skechers USA Inc. - SKX - close: 141.98 change: -0.75

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on August -- at $---.--
Listed on August 27, 2015
Time Frame: Exit PRIOR to the 3-for-1 stock split in mid October
New Positions: Yes, see below

Comments:
08/29/15: The stock market's big bounce last week stalled on Friday. Shares of SKX also stalled with shares hovering just below resistance at its 10-dma and short-term support at $140.00.

Our suggested entry point to buy calls is at $145.15.

Trade Description: August 27, 2015:
SKX seems to be doing everything right and investors have noticed. Shares are one of the best performing stocks this year. At its early August high near $160.00 a share SKX was up +190% for the year. Today SKX is only up +158% year to date. The company is growing faster than rivals Nike (NKE), Under Armour (UA), and Adidas.

SKX is in the consumer goods sector. According to the company, "SKECHERS USA, Inc., based in Manhattan Beach, California, designs, develops and markets a diverse range of lifestyle footwear for men, women and children, as well as performance footwear for men and women. SKECHERS footwear is available in the United States and over 120 countries and territories worldwide via department and specialty stores, more than 1,100 SKECHERS retail stores, and the Company's e-commerce website. The Company manages its international business through a network of global distributors, joint venture partners in Asia, and 12 wholly-owned subsidiaries in Brazil, Canada, Chile, Japan and throughout Europe."

Earnings have been great. SKX reported their Q1 results on April 22nd. Results of $1.10 per share beat estimates by nine cents. Revenues soared +40% to $768 million, above expectations. Their Q1 earnings were +80% higher from a year ago. These results were in spite of the West Coast port slowdown.

The winning results continued in the second quarter. SKX reported their Q2 results on July 29th and they were record-breaking for the company. Wall Street was expecting a profit of $1.01 per share on revenues of $740 million. SKX blew those numbers away with a profit of $1.55 per share. That's a +128% improvement from a year ago. Revenues were up +36.4% to $800 million.

Under Armour's revenues were up only +28% and Nike's were only up +5%. It probably helped that SKX was able to pass along a +9% increase in their average selling price.

Naturally management was bullish. David Weinberg, chief operating officer and chief financial officer, commented on his company's quarterly results, saying,

"Our record first half of 2015 follows a record 2014, and is a result of the universal demand for our wide assortment of diverse footwear collections for men, women and kids. At no other time in the history of our company have so many product lines resonated with consumers, giving us a broad base to continue to build upon and grow. With increased year-over-year backlogs at the end of June, strong incoming order rates and July sales, as well as the positive sell-through reports from wholesale and an additional 125 to 135 Company-owned and third-party-owned Skechers retail stores planned to open later this year, we believe that we will continue to achieve new sales and profit records through 2015. With $513.9 million in cash, inventories in line with sales, and improved efficiencies and capacity in both our North American and European distribution centers, we believe we are well prepared for our planned growth. We remain comfortable with the analysts' current consensus estimates for the back half of 2015."
Shares of SKX soared to new highs following their Q2 results. A month later, August 21st, SKX announced a 3-for-1 stock split. Here's a bit from their press release, the "Board of Directors has approved a three-for-one split of the Company's Class A and Class B common stock that will be distributed in the form of a stock dividend." The stock split is subject to shareholder approval. They're holding a shareholder meeting on September 24th, 2015. If approved the stock split should take place on October 16th.

Odds are pretty good that SKX could see a run up into its stock split. During the market's recent turmoil SKX managed to maintain its long-term up trend. Shares filled the gap from late July and bounced off support near $120.00. Today's high was $144.86. We are suggesting a trigger to buy calls if SKX trades at $145.15.

We will plan on exiting prior to the 3-for-1 split.

Trigger @ $145.15

- Suggested Positions -

Buy the OCT $150 CALL (SKX151016C150)

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

chart:


The TJX Companies - TJX - close: 70.72 change: -0.72

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

Comments:
08/29/15: TJX has spent the last couple of days consolidating sideways in the $70-72 zone.

Currently our suggested entry point to buy calls is $72.05.

Trade Description: August 26, 2015
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)

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

chart:




PUT Play Updates


Currently we do not have any active put trades.



CLOSED BEARISH PLAYS

Wynn Resorts Ltd. - WYNN - close: 78.20 change: -0.32

Stop Loss: 79.25
Target(s): To Be Determined
Current Option Gain/Loss: +256.9%
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:
08/29/15: WYNN continued to underperform the broader market on Friday. Unfortunately shares did trade high enough to hit our stop loss at $79.25.

- Suggested Positions -

SEP $90 PUT (WYNN150918P90) entry $3.25 exit $11.60 (+256.9%)

08/28/15 stopped out
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

chart: