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Daily Newsletter, Wednesday, 9/2/2015

Table of Contents

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

Market Wrap

V-Bottom Reversal in Doubt

by Keene Little

Click here to email Keene Little
For what seems like years, each spike down in the stock market has been met with a v-bottom reversal and a rally to new highs. Last week's v-bottom reversal had many thinking the same thing was happening again but this week's decline now has many questioning whether it's going to be different this time. The volatile price swings is certainly keeping both sides jumpy.

Today's Market Stats

Last week's strong reversal off the spike low on Monday, with the large weekly hammer at support levels for the indexes, certainly looked like the typical v-bottom reversal we've come to expect in this market. But the decline was more significant than any seen since the decline into the October 2011 low and the reversal off the August 24th low had a different daily pattern, which suggested it might be different this time. This past Monday's decline followed by Tuesday's strong decline now has many questioning whether it really is different this time.

Today started with a gap up, thanks to an overnight rally in equity futures, but the market struggled following the gap up. A pullback was followed by another rally back up to the morning highs where the indexes stalled mid-afternoon. But some buying in the final 30 minutes pushed the indexes to highs for the day and most closed at their highs, which had the market looking bullish. Too bad these late-day spurts to the upside are often followed by an immediate reversal the next day (one sign of the bears).

The bounce off Tuesday afternoon's low fits best as a correction to an impulsive decline from last week's highs, both of which suggest we'll see lower prices this week. Depending on how I interpret the pattern for the decline from July (May for the DOW), I can see the possibility for just one more low (or test of last week's lows) before setting up a stronger bounce correction this month, or we could see the market stair-step lower into mid- to late-September before setting up a bigger bounce into October/November. I'll point out on the charts what to watch for in the coming week(s).

The day started with a few important economic reports this morning, starting with the ADP Employment report before the bell. It was somewhat of a goldilocks number at 190K, which was less than the expected 201K but better than July's 177K (which was revised lower from 185K). Not too hot, not too cold, but just right for the Fed to raise rates if that's what they're burning to do.

Hurting the Fed's cause (to raise rates in September) was the Unit Labor Costs (revised) for Q2, also released before the bell. It dropped -1.4%, which was below the expected -0.9% and well below the +0.5% for Q1. A decline in the labor costs reflects a slowing economy in which there is no wage pressure and raising rates would only put the economy at further risk.

Another sign of a slowing economy came from this morning's Factory Orders report, which was +0.4% for July and less than the expected +0.9%. Disappointingly, for the economy, this was a strong drop from June's +2.2% (which was revised higher from the originally reported +1.8%. A lack of wage pressure (used by the Fed as an inflation indication) and more signs of a slowing economy make it harder for the Fed to raise rates. The chart below shows Factory and Durable Goods Orders for the past 15 years and the sharp drop since last October's high has not been an encouraging sign.

Factory and Durable Goods Orders, July 2000 - July 2015, chart courtesy briefing.com

This afternoon the Fed Beige Book was released and was somewhat mixed but the bottom line is that it makes it harder for the Fed to justify raising rates this month. The report cited growing wage pressures in several of the Fed's 12 districts, although that was called into question with today's labor costs report. The report also cited the strong dollar and declining oil prices as depressing economic activity. China's slowdown was the reason given for reduced demand for wool products, chemicals and high-tech goods. China's slowdown and the impact it's having on global stock markets is a real thorn in the side of the Fed when considering a rate hike. This is especially true since the Beige Book covers the period through August 24th, just as the markets were starting a stronger selloff. The report was generally optimistic but then again, economists have been optimistic through most of this year, even as the economy has shown signs of slowing. Generally speaking they continue to expect the economy to grow at a modest pace.

The market remains on a nervous watch in front of the next FOMC announcement on September 17th. There will be plenty of important economic/inflation reports between now and then and the market will be watching them closely, especially this Friday's NFP report since employment is an important measurement for the Fed. The more that Fed heads continue to talk about raising rates in the face of signs of a slowing economy, the more the stock market will struggle to get its footing.

Jumping into the charts, I'll start with the small caps and the RUT's weekly chart. I normally use trend lines on longer-term charts using the log price scale because I think it more accurately reflects the trends (as a percentage change instead of price). But I keep an eye on the trend lines using both scales because I know many traders use the arithmetic scale all the time. For the RUT, the uptrend line from October 2011 - October 2014, using the log price scale, was broken with the snap to the downside that started August 18th, which was near 1195 at the time. But when the trend line is viewed with the arithmetic price scale it's near 1169 and only about 4 points above Monday's high. On this chart it's looking like a break of a major trend line and now a back-test on Monday. A selloff from there would leave a bearish kiss goodbye so the bulls need to get the RUT above 1170 and keep it above.

Russell-2000, RUT, Weekly chart, arithmetic price scale

The chart above shows a price projection for the current decline to price-level support near 1040 by the end of September. The 200-week MA, now at 1022, might be close to that level by the end of the month as well. The expectation following a decline like that would be for a large bounce correction into November, maybe all the way back up to price-level S/R near 1215 and another back-test of its broken uptrend line. That would then set up a strong 3rd wave down into early next year. This is assuming THE high is now in place, which is yet to be proven. Notice too that a big bounce into the end of the year would set up a large H&S topping pattern that starts with the left shoulder as the 2014 highs.

The daily chart below depicts a decline this month that will essentially be a stair-step pattern lower to complete a 5-wave move down from June. There are enough differences between the indexes that tell us this is only one bearish possibility of many so for now it's just a projection and I'll need further price action to help confirm or negate it along the way. If this week's bounce gets the RUT above Monday's high near 1165 I'd look for a move up to its downtrend line from July, near 1192 by the end of the week. Two equal legs up for a larger a-b-c bounce off last week's low points to 1183 as an upside target. But first the bulls need to break the downtrend line from August 17th, near 1148 (marginally above today's high), and then price-level S/R near 1152.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1165
- bearish below 1124

As noted on the RUT's daily chart above, it has followed the DOW with a bearish death cross (50-dma crossing down through the 200-dma). This signal is not always reliable since it often marks a short-term washout to the downside and a reversal back to the upside. But for now it's a bearish warning sign and SPX also now has its own death cross (as of last Friday's cross). Unlike the RUT's wave count, I'm using a slightly less bearish idea for SPX, which calls for only one more new low to complete a 5-wave move down from July. I show a projection to the October 2014 low near 1820 but it be just a test of last week's lows near 1867 (or even a slightly higher low). Once the 5-wave move down is complete, assuming we'll get a new low (or test), it would then be a setup for a higher bounce into October before the real meat of the decline kicks in. The differences between the RUT and SPX wave counts simply means it will be time for bears to be cautious following a new low. As long as the bounces are 3-wave (or something choppier) corrections we'll stick with the short side but it's living through the bounces that's painful for bears.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1994
- bearish below 1867

Today's bounce to 1948 retraced 50% of the decline from last week and at the same time tested short-term price-level S/R near 1948 and its downtrend line from August 19th. It was a good setup to short the bounce but it was a scary setup because of the strong spike up in the final 30 minutes to the highs for the day. The bearish play needs an immediate reversal back down on Thursday and then the downside pattern shown on the 60-min chart below has a chance of playing out (for a drop down to 1820 next week).

S&P 500, SPX, 60-min chart

The wave count that I'm tracking on the DOW is the same as I have on the RUT, even though their price peaks were a month apart (May for the DOW, June for the RUT). It suggests we'll see the market stair-step lower this month and the DOW could drop down to the 14380 area where it would retrace 50% of its October 2011 - May 2015 rally. If that plays out we'd then have a very good setup to get long into November before joining the bears again. Today's rally brought the DOW back up to its broken uptrend line from March 2009 - October 2011, near 16350 (arithmetic price scale). It's another setup only a bear could love and we'll find out quickly Thursday morning if the bears pounce on it.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,300
- bearish below 15,980

With all the indexes breaking long-term uptrend lines, when using the log price scale, I'm looking at them with the arithmetic price scale since it drops the trend lines lower. Using this scale for NDX as well, it broke its uptrend line from 2012-2013-2014 on August 21st, bounced back above it last Thursday, hit its broken price-level support near 4345 and its broken 50-week MA, near 4331, and then sold off again this week. The back-test of price-level support-turned-resistance near 4345 and its 50-week MA, followed by the kiss goodbye, looks bearish. Back below the uptrend line is bearish. Now today's rally has brought it back up to its broken uptrend line, near 4257, and the bears are waiting for another kiss goodbye (like the DOW's setup above). If the bears pounce we could see NDX work its way down to its uptrend line from March 2009 - November 2012, near 3600 (arithmetic price scale), before the end of the month. For comparison purposes, the uptrend line from 2009 was last back-tested at its July high, near 4680.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4345
- bearish below 4121

While the stock market has been whipping up and down over the past week the bond market has been relatively quiet. It's like the parents watching little children scream and run around as if their hair was on fire. The TLT (20+ year T-Bond ETF) daily chart below shows a strong selloff following the back-test of its broken uptrend line from December 2013 - November 2014 on August 24th. But after three days of strong selling (rally in yields), the past five trading days have been muted. In fact it's looking like a bottoming pattern is setting up a rally in bond prices and with TLT back-testing its 50-dma at 120.83 (today's low was 120.86) it could start from here. A rally in bonds could put additional pressure on stocks as money rotates into the relative safety of Treasuries. However, if TLT loses support here we could see stronger selling in bonds and that would be supportive for stock market bulls.

20+ Year Treasury ETF, TLT, Daily chart

So many indexes and stocks have very similar patterns and therefore reviewing any more simply becomes repetitive. Keep an eye on any one of the above and you'll have a good sense about what the broader market is doing.

The U.S. dollar has been consolidating following last week's strong bounce back up but is still not yet near its downtrend line from March-August, currently near 98. I'm looking for a rally up to that line, either from here or after a little pullback correction, and then a continuation of a larger consolidation pattern into the end of the year. Next year we should see a bullish breakout (possibly sooner). As noted on the weekly chart below, as long as MACD stays above the zero line the dollar stays bullish. A return to the zero line while price consolidates, followed by a turn back up, is oftentimes a reliable buy signal (and the opposite for a sell signal).

U.S. Dollar contract, DX, Weekly chart

Gold's bounce off its July 24th low had achieved two equal legs up, at 1162.50, with a high at 1169.80 on August 24th. It tagged its downtrend line from January-May and then sold off into last Wednesday's low before bouncing again up to 1147.30 yesterday. The small bounce again looks like an a-b-c bounce correction to its decline, nearly achieving two equal legs up at 1148.30 and almost a 62% retracement (near 1150) of the decline from last week's high. From a bearish perspective, which I still have for gold, it looks like a setup for a stronger selloff to follow. It doesn't turn at least short-term bullish until it can rally above 1170 and in the meantime I continue to look for gold to drop down toward 1000 in the weeks ahead.

Gold continuous contract, GC, Daily chart

There's very little change to silver's weekly chart. While gold was trying a strong bounce off its July 24th low, silver was only able to make it back up to its broken uptrend line from November 2014 (which fits as a H&S neckline). The horizontal line of support, near 15.25, also kept getting in the way of the bulls on a weekly closing basis, all of which had me doubting gold's rally potential. When gold pulled back from last week's high silver made a new low below price-level support near 14.65, which is where it's currently struggling to hold on. A rally above its August 21st high at 15.71 would be at least short-term bullish but in the meantime I'm looking for silver to break down and work its way lower to the $12 area, potentially lower.

Silver continuous contract, SI, Weekly chart

I think the low is in for now for oil. The strong rally off Fib support at 38.41 (the August 24th low was 37.75), which is the 127% extension of its previous rally (January-May), looks like the start of at least a bigger bounce. The idea that I've been tracking for a large sideways consolidation pattern into early next year is still possible, especially if the dollar continues to trade sideways. For that pattern I show a bounce back up to about 58.50 and then back down to a higher low. But it's possible we have a completed 5-wave move down from August 2013, which would be a setup for a larger multi-month bounce correction and potentially back up to the $70-75 area before heading back down. In any case I think the short side for oil (except for short-term trades) is the riskier trade. The big bullish divergence on the weekly MACD has been warning bears not to get aggressive on the short side.

Oil continuous contract, CL, Weekly chart

Tomorrow's economic reports include the Challenger Job Cuts report, so another employment report for the Fed to chew on. The big one will of course be the NFP report on Friday. After the opening bell we'll also get the ISM Services report, which is generally stronger than the manufacturing report. It's expected to show a slowdown from July's 60.3 to 58.4 and anything significantly less than that could actually spark a market rally since it would be one more reason for the Fed not to raise rates.

Economic reports and Summary

Conclusion

While many think we have a strong v-bottom reversal off last week's low, which they believe will lead to a continuation of the bull market and new highs this year, I'm not seeing enough evidence to suggest that's going to happen. It of course could happen but I'll want to see some impulsive price action back to the upside and so far I'm seeing corrective price action (3-wave moves, overlapping highs and lows, etc.). The declines are sharp (impulsive) and the bounces are corrective, which keeps me in the company of bears.

The bigger question for me, assuming we've got new lows coming, is how low it could go and how long it will take, which at the moment is not very clear. Slightly different interpretations of the wave counts for the various indexes makes a difference in the projections for how low the market could go and how long it could take. We could get just a test or minor new low and then start a much larger bounce correction into the end of the month or early October, or we could see the market stair-step lower for another couple of weeks before setting up a big bounce into November.

Each leg down to a new low, assuming we'll get it, will have to be considered THE bottom that sets up a multi-week/month bounce correction (I believe we'll only be looking for a correction to the decline before heading much lower) until proven otherwise. The proof will be in the bounce patterns -- as long as we get choppy or 3-wave moves, such as the bounce off last Monday's low and the current one off yesterday's low, we should look for lower prices. If the current bounce off yesterday's low becomes impulsive (5-wave move up), I'll then look to buy the next pullback for at least another leg up.

The whole idea here is that we're into the part of the pattern that requires analysis of each leg to help determine what the next move is likely to be. Don't get married to any positions and instead look to trade quickly in and out. And most of all, don't worry about missing a trade. In this environment you're likely to miss far more than you catch, otherwise you may be getting too aggressive and acting like a gambler instead of a trader.

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

Most Industrials Are Negative Year To Date

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Martin Marietta Materials, Inc. - MLM - close: 168.55 change: +4.83

Stop Loss: None, no stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 855 thousand
Entry on September -- at $---.--
Listed on September 2, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Industrial sector stocks have not had a good year. The IYJ industrial ETF is down -7.4%. The XLI industrial ETF is down -9.7% year to date. Yet shares of MLM are up +52.7% for 2015. (for the record the Dow Jones Industrial Average is down -8.3%).

If you're not familiar with MLM, here is a brief description, "Martin Marietta, an American-based company and a member of the S&P 500 Index, is a leading supplier of aggregates and heavy building materials, with operations spanning 32 states, Canada and the Caribbean. Dedicated teams at Martin Marietta supply the resources for the roads, sidewalks and foundations on which we live. Martin Marietta's Magnesia Specialties business provides a full range of magnesium oxide, magnesium hydroxide and dolomitic lime products."

If you look at a year-to-date chart of MLM then you probably noticed the huge rally in MLM back in February. That was a reaction to its 2014 Q4 results. Earnings were above expectations and revenues soared +57% from a year ago to $856 million, which was also above analysts' estimates.

The company also announced a 20 million share stock buyback program back in February. Now 20 million shares may not sound like much but MLM only has 67.48 million shares outstanding.

The stock spent the following eight weeks slowly drifting lower. It finally found support in the $135.00 area. Then suddenly MLM found its mojo again when the company reported its 2015 Q1 results on April 30th. The funny thing is MLM actually missed Wall Street estimates. Analysts were expecting a profit of $0.09-0.12 a share for the first quarter. MLM only delivered $0.07 but it was better than a loss of $0.47 a year ago. 2015 Q1 was the first time MLM had reported a profit in the first quarter since 2008.

MLM said revenues rose +61% from a year ago to $691.4 million. That too was below expectations but traders didn't care. Management said their margins improved 500 basis points. Business was strong enough they were able to raise prices +11%.

MLM's Q2 results, announced on August 4th, were not quite as good. The company missed estimates. Wall Street was expecting a profit of $1.60 per share on revenues of $1.01 billion. MLM only delivered $1.22 per share (relatively flat from a year ago) as revenues were up +37.7% to $921 million. Management did say their gross margins improved 350 basis points. They also provided a relatively optimistic outlook for the rest of 2015 and 2016 albeit without significantly raising their estimates.

The company said this year was the second wettest year in the last 100 years. A lot of companies postponed construction projects, which delayed sales for MLM. They expect this pent up demand to return.

Investors must have been in a forgiving mood because shares of MLM soared following this Q2 report. The stock delivered a string of all-time highs before collapsing during the stock market's recent correction. Shares fell from $175.00 to $$143.16 (at its intraday low on Aug. 24th) in just four days. That's a -$32.00 drop (a -18% correction).

Since that market correction MLM has rebounded back above previous resistance at $156 and $160. Shares were showing relative strength today with a +2.95% gain and a close above all its key moving averages. The point & figure chart has gone from bullish to bearish and back to bullish with a $197.00 target. The next hurdle could be potential round-number resistance at $170.00. Tonight we are suggesting a trigger to buy calls at $170.25.

Trigger @ $170.25

- Suggested Positions -

Buy the OCT $175 CALL (mlm151016C175) current ask $5.00
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 Bounce After Yesterday's Plunge

by James Brown

Click here to email James Brown

Editor's Note:

U.S. economic data was mixed with a disappointing ADP employment report but a generally optimistic Fed Beige Book report. The stock market delivered widespread gains that recouped a good chunk of yesterday's losses.


Current Portfolio:


CALL Play Updates

The Walt Disney Co. - DIS - close: 101.89 change: +2.38

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -5.6%
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:
09/02/15: Stocks delivered a widespread bounce today and DIS rallied just enough to erase yesterday's losses. The move looks like a rebound off round-number support around the $100 area.

If feel like you just have to buy something then today's bounce in DIS could be your entry point although I'd be more inclined to wait on launching new positions here.

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


Facebook, Inc. - FB - close: 89.89 change: +2.66

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +333.3%
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:
09/02/15: DIS bounced just enough to cover yesterday's losses but FB's rebound today managed to erase Tuesday's decline and then some. Shares of FB soared +3.0%, outperforming the major indices. The stock is once again testing potential round-number resistance at the $90.00 level.

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


iShares Russell 2000 ETF - IWM - close: 113.91 change: -2.01

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +1.0%
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:
09/02/15: The IWM's +1.79% rally today leaves the ETF sitting near short-term resistance at $114.00 and its 10-dma.

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


Netflix, Inc. - NFLX - close: 105.44 change: -0.35

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -37.9%
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:
09/02/15: NFLX was getting a lot of negative press today as analysts worry about the company's increasing competition. NFLX is the dominant player in the streaming video on demand business but rivals like Hulu and Amazon.com are trying to compete. Now Alibaba has launched a video service. Even Apple's media business is seen as a rival. Yesterday Hulu announced a commercial-free upgrade of its service. Hulu's most competitive edge is its current season TV content, which NFLX does not have.

Shares of NFLX did not react well this morning and the stock dropped toward round-number support near $100 before bouncing back to almost unchanged on the day.

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


Post Holdings, Inc. - POST - close: 65.56 change: +0.90

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

Comments:
09/02/15: POST managed a +1.39% gain. The stock is inching closer to a bullish breakout higher. Our suggested entry point to buy calls is $66.55.

Trade Description: August 29, 2015:
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)

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


Skechers USA Inc. - SKX - close: 139.38 change: +2.86

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:
09/02/15: Today's bounce in SKX recovered more than half of yesterday's losses. If the rally continues tomorrow we should see SKX back above the $140 level.

Currently our suggested entry point is $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


Stamps.com Inc. - STMP - close: 80.93 change: +1.39

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -39.5%
Average Daily Volume = 222 thousand
Entry on August 31 at $83.55
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/02/15: STMP dipped to $78.56 before bouncing today. Shares rallied back above the $80.00 level and closed with a +1.74% gain on the session.

I am not suggesting new positions at this time. The $82.00 level looks like potential short-term resistance.

Trade Description: August 29, 2015:
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.

- Suggested Positions -

Long OCT $85 CALL (STMP151016C85) entry $4.30

08/31/15 triggered @ $83.55
Option Format: symbol-year-month-day-call-strike


The TJX Companies - TJX - close: 70.84 change: +1.45

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:
09/02/15: TJX bounced back into the $70-72 range with today's +2.0% gain. There is no change from my previous comments. Our suggested entry point 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




PUT Play Updates

Jack In The Box - JACK - close: 78.04 change: +1.03

Stop Loss: 82.55
Target(s): To Be Determined
Current Option Gain/Loss: -24.3%
Average Daily Volume = 677 thousand
Entry on September 01 at $76.88
Listed on August 31, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/02/15: JACK was not immune to the market's widespread bounce today. Shares added +1.3% but that lagged behind the NASDAQ's +2.4% gain and the S&P 500's +1.8% gain.

The $80.00 level should be new overhead resistance for JACK.

Trade Description: August 31, 2015:
It's a burger-eat-burger world out there in the fast-food business. Jack in the Box is small fries compared to its larger rivals like McDonalds (36,258 locations) and Wendy's (6,515 locations). Let's not forget heavy weights like Taco Bell, Burger King, Subway, Dairy Queen, and a handful of pizza chains. JACK only has about 2,200 restaurants but it also has a secret weapon and that is the Qdoba Mexican Grill, a fast-casual restaurant with about 600 locations. Fast-casual restaurant rival Chipotle Mexican Grill has almost 1,800 locations.

Some of that intense competition being felt by McDonalds and Chipotle Mexican Grill is coming from Jack in the Box and its Qdoba brand, which is growing sharply. A majority of their Qdoba franchisees own multiple stores with 10, 20 even 40 stores common. Enterprising business owners don't open additional stores if the original stores are not working. To have so many owners with high numbers of stores suggests the franchise is consistently profitable.

To be profitable they need solid customer traffic, good food and decent margins. Shares of JACK have been one of the best performers on the S&P over the last couple of years because the company has been posting solid earnings and growth.

Customers are trending towards healthier foods and away from the mass produced burgers and fries at McDonalds. Did you know there are 19 ingredients in McDonalds fries? Surely you didn't think they were just potatoes and grease? This trend may not help the Jack in the box brand but it's good news for Qdoba. Restaurants like Qdoba and Chipotle are capitalizing on the healthy food craze.

Management is trying to be shareholder friendly. They have an active share buyback program and they reduced the share count by 10% over the last few quarters. In their Q2 earnings report (May 13th) the company raised their quarterly dividend by +50%.

JACK reported its Q1 2015 earnings on February 17th. Analysts were expecting a profit of $0.87 a share on revenues of $461.2 million. JACK delivered earnings of $0.93 a share. That's a +24% improvement from a year ago. Revenues were up +4.1% to $468.6 million, above estimates. Their operating margins improved 1% to 19.3%. Management raised their 2015 guidance.

The company did it again in May with their Q2 report. Estimates were for $0.66 per share on revenues of $356 million. JACK reported $0.69 per share with revenues up +5.0% to $358 million. That is a +35.2% earnings improvement from a year ago. Their consolidated restaurant operating margins improved 210 basis points to 20.6%. Plus, management raised their 2015 guidance again.

If we stopped right here the story for JACK looks pretty bullish. They definitely seem to be outgrowing their competition. However, the picture appeared to change in the third quarter.

It looks like growth slowed down a bit too much for the market's liking. JACK reported its Q3 earnings on August 5th. Earnings were $0.76 per share. That beat analysts' estimates by three cents. Revenues only rose +3.2% to $359.5 million, which was essentially in-line with estimates. JACK is still seeing strong same-store sales growth with Q3's SSS up +7.3% for their Jack in the Box brand and +7.7% for the Qdoba business. Management said they are only expecting +3.5-5.5% same-store sales growth for Jack in the Box and +5.0-7.0% growth for Qdoba in the fourth quarter.

Investors must have been expecting more from the company because they sold JACK after its earnings report. Shares corrected pretty fast with a -$10.00 drop in following week. JACK was trying to hold support near $85.00 and then the market collapsed. Last Monday saw shares of JACK plunge to an intraday low of $63.94. The oversold bounce just failed at its 10-dma.

Technically JACK looks broken. After incredible gains over the last couple of years JACK is now in a bear market. The peak in August was a lower high. The breakdown under major support near $85 and its 200-dma was bearish. Now JACK has broken one of its long-term trend lines of support. It looks like JACK has further to fall. Today's low was $78.00. Last Wednesday's low was $77.81. I am suggesting a trigger to buy puts at $77.70.

- Suggested Positions -

Long OCT $75 PUT (JACK151016P75) entry $2.84

09/01/15 triggered on gap down at $76.88, suggested entry was $77.70
Option Format: symbol-year-month-day-call-strike


Wynn Resorts Ltd. - WYNN - close: 72.43 change: +1.44

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.7 million
Entry on September -- at $---.--
Listed on September 1, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Comments:
09/02/15: Before the opening bell WYNN was upgraded to a "buy". The stock reacted by gapping higher at $73.34 and spiking up to $73.50. Traders immediately sold the rally and WYNN filled the gap with a plunge back below $71.00. Shares spent the rest of the day churning sideways and happened to close up +2.0% for the session.

The $75.00 level should be short-term resistance. Our suggested entry point to buy puts is at $69.85.

Trade Description: September 1, 2015:
We recently traded WYNN as a bearish play. The bounce from last week's lows stopped us out on Friday, which was unfortunate since WYNN has continued to show relative weakness and plunged to new multi-year lows this week. We believe WYNN still has much further to fall as the company's Macau-region revenues plunged -35% in August. The Chinese weakness shows no signs of slowing down.

What follows is an updated version of our bearish trade description for WYNN:

Updated Bearish Trade Description:

Casino stocks have been a bad bet this year. CZR, LVS, and MGM are all down for the year. One of the biggest losers in the group is WYNN. Shares of WYNN are down -52% in 2015. The bear market started last year. Shares of WYNN peaked just below $250.00 in early 2014 and now they're down -70% 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."

Problems in Macau

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.

I mentioned earlier that WYNN's Macau revenues for August fell -35% from a year ago. August is the 15th month in a row of declining revenues for the casino industry.

The recent headlines regarding the Chinese government's devaluation of their currency (the yuan) 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.

Traders should note that WYNN can be a volatile stock. The most recent data listed short interest at 13% of the relatively small 80.8 million share float. It looks like bears have the right idea. It could be a long time before gambling recovers in Macau.

What to watch for:

I also want to warn readers that this is an aggressive trade for technical reasons. WYNN is extremely oversold. On the weekly chart (see below) the stock is nearing potential support at the bottom of its bearish channel. Now that channel does not guarantee a bounce. WYNN could break through it or it could follow the lower boundary. I do want investors to be aware of it.

The last few days have seen WYNN churn sideways in the $70-80 range. Tonight we are suggesting a trigger to buy puts at $69.85. Where WYNN bottoms is anyone's guess. The stock hasn't been this low since 2010. Looking at its trading in 2009 you could argue for potential support at $60, at $50, or $30. The bear-market bottom from early 2009 was near $15.00 a share. We are planning to exit prior to October option expiration. WYNN reports earnings in late October.

Trigger @ $69.85 *caution - WYNN is a volatile stock*

- Suggested Positions -

Buy the OCT $65 PUT (WYNN151016P65)

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