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Daily Newsletter, Saturday, 9/5/2015

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

Market Wrap

Long Weekend Worries

by Jim Brown

Click here to email Jim Brown

Fears of what could happen over the Labor Day weekend and worries over a pending rate hike caused investors to sell stocks again on Friday. With Asian markets open on Sunday night and Monday night there would be two trading sessions before the U.S. markets could react.

Market Statistics

Japan's Nikkei 225 Index declined -2.15% on Friday to trade down for four of the last five days on a struggling economy. The Chinese markets have been closed for two days and will reopen on Monday. With the Nikkei down -7% for the week and accelerating the weakness is likely to carry over into the U.S. markets on Tuesday. The Shanghai Composite was down -2.23% for the week and still falling.



With the U.S. markets closed on Monday that means the Asian markets will trade two complete sessions before the U.S. markets reopen on Tuesday. Anything is possible and Japan and China could trade down significantly leading to a horrendous gap lower in the U.S. markets on Tuesday. Traders not wanting to be caught in that potential downdraft exited long positions early on Friday. Shorts not wanting to bet on Tuesday's market direction exited those short positions late afternoon on Friday and lifted the Dow more than 160 points off its lows. The Dow traded down to 16,026 at 2:PM (-348) before rebounding to 16,190 at 3:45. Sell on close orders knocked it back to 16,106 and a loss of -272 points.

Ahead of the open the weak S&P futures sank even lower after Jeffery Lacker, a voting member of the FOMC said it was time for the Fed to raise rates regardless of the economy. He said, "I am not arguing that the economy is perfect, but nor is it on the ropes, requiring zero interest rates to get it back into the ring. It is time to align our monetary policy with the significant progress we have made." He said the China problem would only make a difference of a tenth or two in U.S. GDP growth.

The weak jobs report also caused the market to decline because after the Lacker comments it appears the Fed is prepared to cut rates no matter what the data says.

The Nonfarm Payroll report for August showed a gain of +173,000 jobs compared to estimates for a gain of +215,000. In a Bloomberg survey of 97 economists, the estimates ranged from 130,000 to 253,000.

The private sector gained only +140,000 jobs. June numbers were revised up by +14,000 to 245,000 and July was revised by +30,000, also to 245,000. That means the three month average is now 221,000 and well over the "greater than 200,000" target for the Fed to hike rates.

The August numbers are normally revised higher. In 21 of the last 27 August reports, the total was revised higher later. There is a problem in estimating August employment because of the abnormally low responses from employers. The rapidly disappearing summer means fewer people are in the office to respond to the survey. For this report, the response rate was unusually low at 69.9%. That was the lowest since August 2006. The average upward revision for August is a total of 61,000 jobs over the next two revisions. Obviously, the Fed is aware of this and the probability the final number will be closer to +250,000 than +173,000.

Goods producing sectors saw jobs decline -24,000 in August. New service sector gains declined from +232,000 in July to +197,000 in August. Private sector job gains declined from +224,000 in July to +140,000 in August. Average hourly earnings rose +0.32%. The average workweek rose one tenth to 34.6. The managed unemployment rate declined from 5.3% to 5.1% or 8.029 million. The real unemployment rate (U6) declined -0.1% to 10.3% (16.215 million) but still well above the pre recession rate of 8%. The labor force declined -261,000 and the labor force participation rate was flat at 62.6%.

Manufacturing lost -17,000 jobs and the energy sector lost -10,000 jobs. July numbers for those sectors were revised lower. The energy/mining sector has lost -90,000 jobs since December. Government jobs rose +31,000 after a +21,000 spike in July. Most of that was from workers returning to public schools for the fall session.

According to the Fed's guidance, the economy has reached full employment. In March, they lowered the range to 5.1%-5.2% and with Friday's reading at 5.1% that means the Fed is on target for a September rate hike. Of course they could lower the range again as they did in March.

However, in an August 22nd speech Yellen appeared to have a moment of clarity and suggested "our understanding of labor market developments and their potential implications for inflation remain far from perfect. As a consequence, monetary policy ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy." She went on to talk about the surprisingly rapid decline in unemployment from the 8.1% post recession level and how the falling labor force participation rate and the high U6 number of total unemployed was skewing the numbers. She pointed out that the significant number of dislocations in the labor market had caused numerous analysts to suggest the Fed focus solely on inflation and ignore the current labor market conditions. Full Speech Here

While ignoring the labor market is not likely to happen the low unemployment rate may be a lot smaller factor in the Fed's decision to hike rates. Until the fed either changes the guidance range or gives us some new decision matrix for a rate hike the focus is now on the September meeting as the first rate hike. Employment may appear to be up but inflation is declining and that puts the Fed in a box for September. The best solution would be for the Fed to hike 25 basis points and then issue guidance that suggests it will be a long time before the next hike. That would take the market's focus off the timing of the first hike and then calm the market by saying it will be mid 2016 before they consider a second hike.


There are no major economic reports due out next week. All eyes will be focused on the FOMC announcement the following Thursday. However, there is a flurry of economic data coming out of China. That will probably have the most impact on our market.


It was the last summer Friday and the amount of stock news was minimal. Only a handful of companies made headlines. Blackberry (BBRY) announced it was acquiring mobile security company Good Technology for $425 million. Good has clients in global financial firms and experience in providing security for both Android and iOS cell phones. Good already provides security for the Apple Watch. Blackberry is rumored to be preparing an Android based phone and this acquisition suggests those rumors are true. Blackberry phones have had very few security issues because of the way the messaging system was written. Shares declined more than -2% on the news.


Noble Energy (NBL) was the recipient of some unusual options action. More than 18,000 September $30 calls were purchased against an open interest of only 863. More than 5,200 October $30 calls were purchased against an open interest of only 100. Shares closed at $30.73 after a 50-cent gain. Three-day weekends are known for concluding merger and acquisition agreements. Just in case nothing happens by the open on Tuesday, we are listing this as a short-term play in Option Investor.


Disney (DIS) announced the availability of Star Wars toys based on the new movie coming out in December. Disney called it "Force Friday" as it unveiled the event in a YouTube video. It was an 18+ hour global event with more than 3,000 stores in the U.S. opening at midnight for fans to get the first look at the new toys. A major city in every time zone opened to feature a specific toy for that region in what was called a global "unboxing" event. Disney press release with toy details

Fans that subscribed to the Star Wars page were treated to new videos of each toy as they were announced. This is going to be a major profit maker for Disney with the film alone expected to gross $2.2 billion. The toys are expected to gross another $1 billion. The BB-8 Droid, $149, is already sold out in some locations. The droid has its own programming but can also be controlled by an iPhone or an Android device. Disney shares lost $1 for the day but with all the Star Wars promotion over the next couple of months the decline will be short lived.



B&G Foods (BGS) sprinted to a new high after General Mills (GIS) agreed to sell the Green Giant brand for $765 million in an all cash transaction. BGS will also get the Le Sueur vegetable business. General Mills will continue to operate the European Green Giant business under license from BGS. Proceeds of the sale will be used for share repurchases and debt retirement. BGS expects the acquisition to be immediately accretive. General Mills just took a $260 million write down on the value of the Green Giant business in Q2. Apparently, they were not seeing any bidders at the higher valuation. GIS shares lost $1.


Cooper Companies (COO) reported earnings of $1.97 that was in line with estimates. Revenues rose +6.8% to $461.7 million but missed estimates for $467 million. Earnings were hurt by weakness in the surgical procedures business with revenue down -8% and -11% in the fertility business. Shares were hurt by slightly lowered guidance.


Chipotle Mexican Grill (CMG) shares lost -$5.76 after an attack ad by the Center for Consumer Freedom. The full-page ad ran in the New York Post. The ad attacked Chipotle food as unhealthy and called their marketing hypocritical.

The ad depicted a seriously overweight man with no shirt saying "Eat two 'all natural' Chipotle burritos a week and you could gain 40 pounds in a year." The ad claims the food is NOT GMO and antibiotic free as Chipotle claims.



Twitter's board met last week and there were no announcements regarding a new CEO. The company still has a heavy event schedule over the next few weeks as different products are launched and analysts still believe a CEO announcement is imminent. Shares only declined -15 cents in a very bad market. The acquisition rumor resurfaced on Friday but that is not likely to happen until a new CEO has been installed.


Esterline Technologies (ESL) reported earnings of $1.33 but that missed estimates for $1.47. Revenue of $496.2 million also missed estimates for $531.4 million. Shares declined -6% on the news.


Apple shares are clinging to the $110 level ahead of the product announcement event at 1:PM on Wednesday. This is expected to be the iPhone 6 refresh, an update for Apple TV and possibly the 12.9-inch iPad Pro. There is a lot of buzz surrounding the booking of the 6,000 seat Bill Graham Civic auditorium for the announcement since they only send out about 750 invitations to the press. This has the rumor mill buzzing but so far no real clues. You can bet that whatever it is will be extravagant.


WhatsApp founder Jan Koum announced on Facebook that the messaging application had crossed the 900 million monthly active user mark. WhatsApp was purchased by Facebook for $22 billion and they have yet to monetize the application. The fee to be a user on WhatsApp is 99 cents a year. WhatsApp has more users than Facebook Messenger at 700 million, WeChat at 600 million, Viber 236 million and Line at 205 million. With Facebook owning the top two messaging applications Mark Zuckerberg controls the world of messaging. Twitter is not a person-to-person messaging app but they have 300 million users. While WhatsApp still has no business model you can bet Mark has plans for it. Once they turn on the advertising, it will be a money-printing machine.


When a public company wants to release bad news that they hope nobody will notice it is done after the close on a Friday before a holiday weekend. Yahoo announced late Friday that Aman Kothari, senior vice president, global controller and chief accounting officer, is leaving on September 11th. Not a month from now or 3 months or when a replacement has been hired. He is leaving next Friday. That type of immediate exit is never good news. No reason was given for the departure. CFO Kenneth Goldman will assume his duties until a replacement is hired. Shares of Yahoo were unchanged because of the lateness of the announcement at 4:30 on Friday. Shares of Yahoo have been in a decline since the $52 high in November.


After the monster short squeeze last week we saw crude prices trade mostly over $45 and retain much of their gains. Support came from comments from Jack Lew that Iranian sanctions would not be lifted until they complied with the various terms of the nuclear agreement. Analysts are now projecting late Q2-2016 for the potential release date. That means additional Iranian oil should not be on the market until next summer. They currently have about 50 million barrels stored on tankers in the Persian Gulf and elsewhere in anticipation of the sanctions being removed. That is going to be a long wait. However, there have been previous reports of tankers meeting up with other tankers in a clandestine bay and transferring oil so it does not look like it came from Iran. How much of that is currently being done is unknown.

We are entering a period where demand is going to decline sharply and inventories are going to surge. The Labor Day weekend is the end of the driving season. Demand will not pickup again until Thanksgiving and the holiday shopping season.

Analysts are predicting gasoline prices will decline under $2 in the weeks ahead. They are currently $2.44 per gallon and 96 cents less than the same period last year. This is the lowest price for Labor Day gasoline since 2004. Consumers are going to save roughly $1.4 billion over the 4-day weekend starting on Friday.


Active oil rigs declined -13 to 662 last week and a six-week low. The low for this cycle was 638 back on July 17th. Gas rigs were unchanged at 202 and an 18-year low.


Markets

It was a tough week in the market, the second worst of the year, and a JP Morgan strategist claims the volatility is only half done. Marko Kolanovic wrote in a note to clients that robotic selling by quantitative investment funds tuned to volatility and price contributed to the July losses in stocks and is only half over.

Traders using a trend-following strategy in futures and those using a risk-parity strategy will have to sell another $100 billion in stocks over the next one to three weeks. A week ago, he said the risk was $300 billion and some of that has now passed with the -3% decline in the market over the last week.

Back on August 21st Kilanovic warned that market swings would accelerate now that the S&P had broken below the trading band that had lasted for most of the year. In his Friday note, he said the three largest firms with the risk parity strategy were midway through their rebalancing. One firm had completed, the second firm had about $60 billion left and the third firm had about $40 billion in selling to complete. He warned clients that the best strategy was to wait in cash until the volatility generated by these moves was over.

Other analysts have warned that equity funds were becoming increasingly desperate to liquidate positions in order to salvage what little year to date gains they had left. Whatever the reason the volatility is increasing with Thursday's triple digit gains erased and Friday's decline never in doubt.

The Dow lost -3.25%, S&P -3.4% and Nasdaq -2.99% for the week. The biotech index declined -3.91% and the energy sector fell -4.09%.

In addition to the weakness coming from Asia there are fundamental problems in the U.S. as well. Q3 earnings are now expected to decline -4.1% compared to estimates for -1.0% on July 1st. With earnings declining and worries over events overseas pushing earnings even lower, it is no wonder that stocks are declining. However, most analysts believe the fundamental adjustment is already complete.

The problem is that once a correction begins it tends to take on a life of its own. Millions of investors, each exposed to a different subset of market views and trading experiences, see the market risk differently. Every big decline like the one we had on Friday scares another group out of the market while other investors step in to buy the dips.

I believe the late week decline was almost entirely due to the risk of the Asian markets trading for two days while the U.S. markets will be closed. Add in the risk for a September rate hike in two weeks and market sentiment was negative.

I think nearly every investor would tell you that a 25 basis point hike will not harm the market or the economy but the crowd sentiment regarding the hike is still negative. Overall sentiment has reached a neutral point.

The AAII Investor Sentiment survey for the week ended on Wednesday after a +293 point Dow gain, reflected about one-third of investors in each category. Bearish sentiment had declined -6.6% after Wednesday's rebound. Neutral sentiment rose by an equal amount and bullish sentiment remained flat. If Friday's lows are broken next week I would expect a dramatic shift in sentiment.


At the risk of repeating myself too often the historical trend for corrections in August/September is for a retest of the initial high intensity low after several days or weeks have passed. As of Monday that low will be two weeks ago and we are definitely in the valid retest period. That does not mean that a dip back to 1,867 next week is going to be the magic bullet that kills this correction. With the Fed meeting the following week, I would expect some continued weakness or at least some lackluster upward movement. As before, we probably have a major short squeeze in our near future but resistance is strong.

I am an aggressive trader. I am looking to buy any future retest of the lows and add some quality stocks that are oversold and will probably become more oversold. If the 10% correction turns into a bear market drop of 20% I will suffer for my aggressiveness. I would suggest investors with a longer time horizon consider the same strategy. Do your research, pick a few stocks and put in some limit orders at a price you would be willing to pay.

Support on the S&P is 1,912 and 1,867. We have seen the S&P move 50-60 points in a single day multiple times over the last three weeks. That means the Friday close at 1,921 could be 1,971 or 1,871 by the close on Tuesday or anywhere in between depending on events in Asia over the long weekend.

Several analysts are targeting the October lows at 1,820. I am not. That would be a 15% correction and it is possible but today I am not expecting it. We would have to drop to 1,704 to enter a bear market with a 20% decline and I am definitely not expecting that.

A retest of the October lows at 1,820 would produce some tremendous buying opportunities but it would definitely crush investor sentiment and kill all the year-end forecasts by analysts. Individual investors with retirement accounts are already going to cash to preserve their nest eggs and a decline to 1,820 would remove another large percentage of them from the market. The problem is that many would not come back. After the financial crisis, the flash crash, and now the current crash they may decide to move to the safety of bonds or annuities rather than risk further losses in the market. I hope this does not happen. With 10,000 baby boomers retiring every day there are a lot of investors that are going to be reconsidering the market's future if the current weakness continues much longer.


The longer-term trend is more disturbing. The 13-week EMA has only crossed below the 34-week EMA twice before in the last 10 years. The third time was two weeks ago. If history repeats, we could be looking at some significantly lower lows. This type of long-term trend following is used by institutions and hedge funds. Obviously, had you acted on each cross over the last ten years you would have always been on the right side of the market.


I went through the charts for the 30 individual Dow stocks. Eighteen were still in a downtrend and only about five were showing any positive trend. The rest had flat lined over the last week and could not be considered positive or negative. For instance, Disney has stabilized at just over $100 and is neither rising or falling. The MACD is showing a potential reversal higher but it has not yet happened so I counted Disney as neutral.


With the majority of the Dow stocks still in decline, it would be tough to predict a rally next week. Anything is always possible and I am sure those declining stocks are short squeeze fodder but the overall trend is still down.

Unlike the S&P, I do expect the Dow to retest its lows at 15,370 or somewhere in that vicinity. The 16,000 level is too close to sustain any material decline on Tuesday and that means the next target is the low from the prior Monday.

Support is 16,000, 15,780 and 15,666 on the way to the 15,370 retest. Resistance is 16,500, 16,660.



The Nasdaq has performed better on a relative basis than the Dow and S&P. The tech index has moved roughly sideways since the rebound but it still lost -2.9% for the week. The Nasdaq has risk to 4,500 with interim support at 4,635. The biotech sector was a major weight on the index for the week but there were some stocks switching sides on Friday with Clovis (CLVS) up +$2.44 as an example. The additional gain came afterhours. There are a couple conferences next week that could lift biotech shares.


Nasdaq 30 min chart

The Nasdaq has decent support at 4,605 and 4,545 and that should cushion any further attempt to retest the August lows.


The Russell 2000 small caps are a problem. The index declined under support at 1,150 and that is now resistance. The Russell did decline the least of any major index at -2.3% but it is at a lower relative position on the chart. The odds of a retest of the 1,104 low are good on any material bout of market weakness. Interim support is 1,129 and it closed at 1,136 after rebounding slightly from 1,130 on Friday.


Last week I said, "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. That is still my recommendation for this week.

This could be a really volatile week. Try not to act on emotion and have a game plan prepared in advance that considers both the potential for a decline and for a short squeeze.


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


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

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Random Thoughts


The percentage of newsletter editors bullish on the market is at the lowest level since March 2009. The Investor Intelligence Survey is different than the AAII sentiment survey I discussed earlier. Readings in the IIS report show bullish advisors have declined below 30%. That reading is 2.5 standard deviations below the mean. This has only happened three other times in the last 20 years. Those were in October 2002, November 2008 and March 2009. Nice chart


ECB president Mario Draghi said there could be even more QE as a result of the weakness in China. Draghi said the ECB is ready to increase the 1.1 trillion euro QE program where they are currently buying 60 billion euros a month of mostly government bonds. He said the ECB stood ready to extend the "size, composition and duration" of its existing program. Currently the existing QE program is slated to last until "at least" September 2016.

The ECB is targeting 2% inflation in Europe. However, Japan has been doing QE off and on for nearly three decades and the U.S. for half a decade and neither program has had any impact on increasing inflation. ECB growth forecasts were recently lowered to 1.4% for 2015, 1.7% for 2016 and 1.8% for 2017. The inflation forecast for 2015 was revised lower to only +0.1% and 1.1% in 2016.

Since $4 trillion in QE in the U.S. and tens of trillions of yen in QE in Japan has not worked it is amazing that the ECB wants to continue down that path. The world appears headed for a deflation cycle rather than inflationary growth.


Comstock Partners believes that the market will not only test the 1,820 level on the S&P but break below it. In their Deflation Cycle chart below, they note that we have been stuck at the "competitive devaluation" level for several years. With China slashing the value of the yuan by -4% and all the emerging markets racing to push their currencies even lower in order to compete the end result will be the global export of deflation. Full article here



The IMF implored central banks to maintain a "supportive policy" and avoid raising interest rates in this time of global stress. While the letter was to all the central bankers in the G20, it was directed at the Federal Reserve. The rest of the world is fighting even lower growth than the U.S. and they are not going to be raising rates in the near future. IMF Warns against Rate Hikes

The IMF also warned the slowdown in China would impact global growth and countries should prepare now for the rough times ahead. China has grown at roughly 10% for the last three decades and they may only be growing at 5% or less today despite the official government manipulated 7% rate. Investors have pulled more than $1 trillion out of emerging markets over the last year as Asian growth slowed. That is twice the amount that left during the financial crisis. IMF Warns on Slowdown


Despite the increase of +173,000 jobs in August there is another number that is more troubling. Another -261,000 workers dropped out of the labor force to push that number to more than 94 million and a record. The labor force participation rate at 62.6% is the lowest since 1977. More than 1.8 million workers have dropped out of the labor force in the past year. These are not retirements but people who have given up looking for work. Since the financial crisis began in 2007, more than 14.9 million people have dropped out of the labor force. Over that same period, only 4 million jobs have been created.


It is not a coincidence that five Chinese naval vessels came within 12 miles of the Alaskan coast last week while President Obama was touring Alaska and visiting glaciers on a boat. The U.S. said this was the first time Chinese vessels had intruded on U.S. territorial waters and they were monitored at all times. China later said they were only "transiting" on their way to the Bering Sea for training. China must be taking pointers from Putin on how to tease the U.S. and test our response.

Two days ago, the U.S. military spotted a Russian spy ship off the coast of Kings Bay Georgia. That just happens to be the home of the Navy's East Coast ballistic missile submarine fleet. The ship carries 200 sailors, contains high-tech electronic surveillance equipment and surface to air missiles. The ship is designed to loiter and gather radio and electronic intelligence as well as conduct electronic warfare.


The Fed's real time GDPNow forecast for Q3 has risen to the high for the cycle at +1.5% growth, up from +1.3% the prior week. It is strange to see the Fed considering a rate hike at 1.5% growth and 0.3% inflation.



 

Enter passively and exit aggressively!

Jim Brown

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Index Wrap

Areas of Potential Long-term Support Appear

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The Market has finally gotten to major oversold extremes in the S&P, Dow and the Russell but not quite yet in the Nasdaq indices. This dynamic accompanies possible long-term Dow support reached around Dow 16000.

The Dow 30 (INDU) has been the laggard among the major stock indices for some time but sometimes is pivotal in terms of chart/technical analysis. INDU tends to have support and resistance trendlines that will often mark important lows, highs and trend turning points. It makes some sense that the previously laggard Dow might be the first to find bottom.

With this in mind, the weekly Dow chart seen first is of interest in terms of calculating potential support and a possible turning point ahead in the current and seemingly relentless selling pressures of recent weeks. Assuming that INDU holds mostly at or above its long-term up trendline, this suggests that Dow 16000 may be an area for a Market bottom ahead.

Moreover, there's an another aspect to look at on this chart, which is the oversold extreme that's been reached in terms of the 13-week Relative Strength Index which 'measures' a quarter of a year. 'Extreme' lows in the (13-week) RSI have only been seen 3 previous times in this key momentum indicator which at those times preceded or accompanied prior bottoms as follows:

1.) A similar RSI extreme low occurred ahead of and at the 2009 bottom that kicked off the current major bull Market; note that this time period is unseen in my INDU chart dating from 2011.

2.) Ahead of, but close to the 'final' low of the August 2011 bottom (see chart) in the Dow.

3.) At the mid-November 2012 INDU lows as seen on the chart.

An oversold RSI extreme such as seen above is not an exact 'timing' vehicle for bullish trade entry but a major oversold extreme is seen at or not far before major upside trend reversals in a long-term BULL market; it's necessary to make the distinction that such RSI extreme lows are patterns in primary/major bull market bottoms. Perhaps as we get closer to October we may again see the same bottom dynamic 'signaled' by the current long-term oversold extreme in the RSI.

As anticipated, the major indices also appear to be establishing lows that are now at or above the 5 percent lower (moving average) envelope lines seen in the all but the Nasdaq charts, which after the initial 'crash', are now holding above 6 percent lower envelope lines; these percentages are relative to the 'centered' 21-day moving average. Such trading 'bands' give some idea(s) of where to look for possible buying interest.

Moreover, trader bearishness is quite pronounced which also tends to mark a turning point in major declines, although this dynamic can take some time to be realized, such as over days and a few weeks in some cases.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

[Note: For a general Market overview as to the current trend, also see my initial 'bottom line' commentary at top.]

The S&P 500 (SPX) is bearish in its pattern at the most recent lows, which are so far holding ABOVE the lower 5% 21-day moving average 'envelope' line which tends to suggest potential index 'support', except in extreme selloffs such as seen at the 3-day late-August cluster of lowest lows to date for the current move.

Support is highlighted at 1900, then around prior lows in the 1867-1870 area. The prior SPX bottom may get re-tested, but I also assess some likelihood that the lows for the current move may have been established there or close to it. Bullish sentiment was quite low, suggesting that SPX may be nearing a bottom but bearishness may go on for a while ahead of 'Fed Dread'!

Upside resistance begins around 1950 and extends to 1987 at the prior recent rebound highs. Next resistance and pivotal to any prolonged recovery comes in at 2050, representing the key 'breakdown' point.

S&P 100 (OEX) INDEX; DAILY CHART

[Note: For a general Market overview as to the current trend, also see my initial 'bottom line' commentary at top.]

The S&P 100 (OEX) is bearish in its pattern at the most recent lows, which as with SPX are so far holding ABOVE OEX's lower 5% 21-day moving average 'envelope' line which tends to suggest potential index 'support', except in extreme selloffs such as seen at the 3-day late-August cluster of lowest lows to date for the current move.

OEX support is highlighted at 840, then around prior lows in the 820 area. The prior OEX bottom may get re-tested, but I also assess some likelihood that the lows for the current move may have been established there or close to it. Bullish sentiment was quite low this past week.

Resistance is highlighted in the 875 area, then at 900 which was a prior pivotal 'breakdown' point when the Index was locked into a long-standing trading range.

Prior lows may get re-tested. Assuming further lows form in the same area as in the late-August panic selloff, that's evidence pointing to a 'final' bottom.

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

[Note: For a general Market overview as to the current trend, also see my initial 'bottom line' commentary at top.]

The Dow 30 (INDU) is bearish in its pattern like the S&P, but there may be major support that develops in the 16000 area. However, should 16000 get pierced next support looks to come in around 15800. If so and assuming support comes in again in the 15650-15800 zone I'd look for a 'final' bottom. Timing for any bottom is tricky as the Market has to navigate the Fed meeting results coming up later this month.

Near resistance is highlighted at 16650, with next resistance suggested at 17000 where downside momentum got into high (panic-induced) gear. The Dow weekly chart mentioned (seen at top) is 'fully' oversold on a 13-week basis.

The daily chart seen below saw late-August lows as a 'benchmark'. I anticipate some likelihood that prices and the RSI may dip again toward prior lows seen in panic selloff. Depending on the same, or higher, lows, this would suggest as noted a tradable bottom.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

[Note: For a general Market overview as to the current trend, also see my initial 'bottom line' commentary at top.]

The Nasdaq Composite (COMP) is bearish like the S&P and Dow but not surprisingly for the most-favored tech sector, COMP is holding further above ITS prior (late-August) recent lows.

Key near COMP support is at 4600, then at 4505-4500. A successful re-test of those lows should set up a 'final' bottom in this oversold market. The RSI saw an extreme low late last month. Prices and this indicator with it may dip toward its prior lows. Assuming COMP holds above 4500-4600, I anticipate a subsequent upside trend reversal. Stay tuned on that!

Key near resistance is suggested at 4800, extending to 4875-4900. Bullish sentiment got quite low recently but I don't anticipate a sustained reversal of bearishness ahead of more evidence for or against a Fed hike in rates. The Market has always reacted and OVER-reacted to short-term interest rates. It seems like crazy excess but in the face of a slowing China which may or may not affect US corporate earnings, the Fed is dominant.

b>NASDAQ 100 (NDX); DAILY CHART:

[Note: For a general Market overview as to the current trend, also see my initial 'bottom line' commentary at top.]

The big cap Nasdaq 100 (NDX) has the same bearish pattern as the broad Composite. Ahead of any Fed actions, the chart/technical picture is one of watching for further NDX weakness in any re-test of 4140-4100 support, extending next to the 4050-4015 area. Assuming especially that 4050-4100 holds up as support, I anticipate a tradable bottom forming.

Technical considerations are tricky ahead of Fed action regarding a rate hike. Is this priced 'into' stocks? I don't know on this front but don't at least don't see danger in a new down leg below 4000.

On a risk to reward basis, I'd be happy owning NDX calls on another dip to 4000 but this seems a bit of stretch for the bears to accomplish. The bears and computer programs do best at hammering stocks when there's panic overseas or here! Traders and investors got spooked on China weakness but this may be mostly now 'priced' into stocks.

Key near resistance is noted in the 4330 area, extending to near 4400. A sustained move above 4500 is needed to reverse current sideways to lower NDX momentum.

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

[Note: For my general Market overview as to the current trend, also see my initial 'bottom line' commentary at top.]

The Nasdaq 100 tracking stock (QQQ) is bearish in its pattern. If QQQ holds above 101-100 support, 'par' (100) is a good area to test bullish waters. Next lower support is at 98.4-98 even.

Near resistance comes in at 105.6-106. Next resistance, not highlighted on the chart looks like 107, where a recent downside price gap would get 'filled in'. I've highlighted next resistance above 106, at 108.

RUSSELL 2000 (RUT); DAILY CHART:

[Note: For my Market overview as to the current trend, also see my initial 'bottom line' commentary at top.]

The Russell 2000 (RUT) is bearish in its pattern. Lows may continue to be seen however above the panic low near 1100 and which is above my lower 'envelope' line suggesting the low end of a projected price range. Assuming RUT doesn't Close below 1100 in any extended way, there's potential for a bottom being traced out at or above 1100 over the next couple of weeks.

I've highlighted near support at 1128, extending to 1120. Next support comes around 1105-1100.

I'd be evaluating bullish strategies on dips to 1120-1100 if seen. A successful re-test of recent lows would offer a favorable risk to reward outlook, assuming rebound potential back to 1200, at the recent 'breakdown' point and risk or exit at 1050.


GOOD TRADING SUCCESS!




New Option Plays

Energy and Basic Materials

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Noble Energy, Inc. - NBL - close: 30.73 change: +0.52

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.7 million
Entry on September -- at $---.--
Listed on September 5, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Unless you have been living under a rock the last several months then you already know that energy stocks have been crushed thanks to a plunge in crude oil prices. One side effect of this crash in energy stock is the potential for mergers and acquisitions as companies try and buy growth and assets while valuations are depressed.

According to the company, "Noble Energy (NBL) is a global independent oil and natural gas exploration and production company, with proved reserves of 1.7 billion barrels of oil equivalent at year-end 2014 (pro forma for the Rosetta acquisition). The company's diverse resource base includes core positions in four premier unconventional U.S. onshore plays - the DJ Basin, Eagle Ford Shale, Delaware Basin, and Marcellus Shale - and offshore in the U.S. Gulf of Mexico, Eastern Mediterranean and West Africa."

The bear market in oil stocks has pushed NBL down to five-year lows. Shares are hovering near round-number support in the $30.00 region. On Friday market watchers noted that someone bought 18,000 call options at the September $30 strike. That's rather unusual since there were only 863 contracts of open interest at that strike price. That got people talking that maybe there is a deal in NBL's future.

We are adding NBL as a very speculative bullish play. Tonight we are suggesting traders buy calls (October $32.50 strike) at the opening bell on Tuesday morning. However, we do not want to initiate positions if shares of NBL gap open more than $1.00 higher (or lower) on Tuesday.

Speculative trade = buy calls at the open on Tuesday morning

- Suggested Positions -

Buy the OCT $32.50 CALL (NBL151016C32.5) current ask $2.05
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:




NEW DIRECTIONAL PUT PLAYS

Praxair Inc. - PX - close: 101.44 change: -1.57

Stop Loss: 105.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on September -- at $---.--
Listed on September 5, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Investors are worried that stocks' six-year bull market might be in jeopardy. Unfortunately for PX investors the rally in this stock stalled last year. Shares peaked in 2014 and after months of consolidating sideways the stock has begun to breakdown.

PX is suffering from a number of issues. They face rising competition and rising production costs. Their results are also being hurt by foreign currency headwinds. The economic slowdown in China and Brazil is also taking a toll on PX's business.

If you're not familiar with PX they are in the basic materials sector. According to the company, "Praxair, Inc., a Fortune 250 company with 2014 sales of $12.3 billion, is the largest industrial gases company in North and South America and one of the largest worldwide. The company produces, sells and distributes atmospheric, process and specialty gases, and high-performance surface coatings. Praxair products, services and technologies are making our planet more productive by bringing efficiency and environmental benefits to a wide variety of industries, including aerospace, chemicals, food and beverage, electronics, energy, healthcare, manufacturing, primary metals and many others."

Looking at recent earnings results PX has seen revenues slowdown. They reported Q1 earnings o April 29th. Earnings of $1.43 per share missed estimates by a penny. Revenues were down -9% to $2.76 billion.

Their Q2 results were announced on July 29th. Earnings per share of $1.45 was in-line with Wall Street estimates. Yet revenues fell -12% to $2.74 billion. That missed expectations of $2.85 billion.

PX management lowered their guidance for the current quarter and 2015 below Wall Street's forecast. The company tried to mitigate the bad news by announcing an increase in their stock buyback program. In a separate press release PX announced their "board of directors has also authorized a new share repurchase program for up to $1.5 billion of Praxair's common stock. Praxair has approximately $500 million of repurchase authority available under its previously announced buyback authorization from January 2014, giving it approximately $2.0 billion available for stock repurchases under these programs."

Stock buybacks have lost their luster on Wall Street and PX plunged to new multi-year lows when the market corrected two weeks ago. The oversold bounce has already failed and PX is poised to breakdown under key psychological support at the $100 level. Tonight we are suggesting a trigger to buy puts at $99.85.

Trigger @ $99.85

- Suggested Positions -

Buy the OCT $95 PUT (PX151016P95) current ask $1.55
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

In The Mood To Sell

by James Brown

Click here to email James Brown

Editor's Note:

Investors were in a selling mood on Friday. The market was already weak before the August jobs report hit the wires on Friday morning. Big declines in Japan and Europe sparked a drop at the open for U.S. stocks.

U.S. markets fared better than their foreign counterparts but the action was still bearish.

Our NFLX trade was stopped out on Friday morning.


Current Portfolio:


CALL Play Updates

The Walt Disney Co. - DIS - close: 100.97 change: -1.02

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -21.0%
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: ee below

Comments:
09/05/15: Force Friday failed to help shares of DIS.

The company unveiled a number of new toys on Friday as hype starts to ramp up for the next Star Wars movie this coming December. All the press didn't help shares of DIS, which lost -1.0%. I guess that's better than the -1.5% decline in the S&P 500.

DIS has spent the last few days churning sideways in the $99-103 range. No new positions at this time.

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: 88.26 change: +0.11

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +242.9%
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:
09/05/15: FB received some positive press about its WhatsApp platform on Friday. The company said they added 100 million new members in the last five months. Now there are 900 million monthly active users on WhatsApp, which is a messaging platform.

Shares of FB dipped to $86.70 on Friday morning. A late day rebound lifted the stock to a very minor gain on the session, which was enough to outperform the major indices.

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

09/05/15 FB recently announced their WhatsApp service has hit 900 million people
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: 112.87 change: -0.86

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: -10.6%
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:
09/05/15: The IWM dipped toward short-term support near $112.00 again. If this level breaks it will likely see a drop toward $110 or its August 24th lows near $108.25.

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:


Martin Marietta Materials, Inc. - MLM - close: 166.46 change: -1.45

Stop Loss: None, no stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: -44.6%
Average Daily Volume = 855 thousand
Entry on September 03 at $170.46
Listed on September 2, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/05/15: MLM managed to pare its losses to -0.8%, which was better than the S&P 500's -1.5% decline. If this dip continues the nearest support looks like the $162.50 area. I would wait for a new rally past $170.25 before considering new bullish positions.

Trade Description: September 2, 2015:
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.

- Suggested Positions -

Long OCT $175 CALL (mlm151016C175) entry $5.60

09/03/15 triggered on intraday gap at $170.46, suggested entry was $170.25
Option Format: symbol-year-month-day-call-strike

chart:


Post Holdings, Inc. - POST - close: 65.40 change: -0.13

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -19.8%
Average Daily Volume = 1.0 million
Entry on September 03 at $66.55
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/05/15: POST is still holding up relatively well. Shares bounced at $64.47 on Friday. I would wait for a new rise past $66.50 before considering new positions.

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.

- Suggested Positions -

Long OCT $70 CALL (POST151016C70) entry $2.43

09/03/15 triggered @ $66.55
Option Format: symbol-year-month-day-call-strike

chart:


Skechers USA Inc. - SKX - close: 136.95 change: +0.18

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:
09/05/15: SKX dipped to technical support at its rising 50-dma and bounced. SKX still has potential if the market will cooperate but we would like to see SKX rally past the short-term trend of lower highs.

Tonight we are adjusting our entry point strategy. Move the trigger lower from $145.15 to $142.25.

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 @ $142.15

- 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.

09/05/15 adjust entry trigger from $145.15 to $142.25
Option Format: symbol-year-month-day-call-strike

chart:


Stamps.com Inc. - STMP - close: 79.38 change: -1.61

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -55.8%
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:
09/05/15: STMP displayed some relative weakness on Friday. Shares bounced off its intraday low of $78.02 but still closed down -1.98%. I am not suggesting new positions at this time.

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

chart:


Constellation Brands Inc. - STZ - close: 127.52 change: -1.48

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.1 million
Entry on September -- at $---.--
Listed on September 3, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Comments:
09/05/15: STZ gapped open lower at $127.22 on Friday. Shares spent most of the session ricocheting between $127.20 and $128.20. Our suggested entry point to buy calls is $130.55. Wait for a new high.

Trade Description: September 3, 2015:
Major beer brands have suffered from the boom in craft beers. Yet STZ's Corona and Modelo have seen significant growth, especially in the U.S. The company's earnings and revenue growth has fueled a rally in the stock that has outpaced the major marker indices.

STZ is in the consumer goods sector. According to the company, "Constellation Brands (NYSE:STZ and STZ.B) is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world`s leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company`s premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky.

Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,200 talented employees."

This past January STZ reported their fiscal year 2015 Q3 results that beat analysts' estimates on both the top and bottom line. Management raised their 2015 guidance. Their Q4 results were announced on April 9th. Earnings were up +37% from a year ago to $1.03 per share. That was 9 cents above estimates. Revenues were up +5% to $1.35 billion. Gross margins improved to 44%.

STZ said they're seeing strong demand for their Mexican beer brands Corona and Modelo. They're gaining market share in both the spirits and wine categories as well.

The company said 2015 sales were up +24% from the prior year to $6.03 billion. STZ's management guided in-line for fiscal 2016 and forecast earnings of $4.70 to $4.90 per share. That compares to 2015's profit of $4.17 per share (essentially +12% to +17.5% earnings growth).

STZ's most recent earnings report was July 1st. Wall Street was expecting a profit of $1.24 per share on revenues of $1.62 billion. STZ narrowly beat expectations with a profit f $1.26 per share. Revenues were up +7% to $1.63 billion. Management then raised their full-year 2016 earnings guidance from $4.70-4.90 to $4.80-5.00 a share.

The stock did not get much of a reaction from its earnings news or improved guidance. There was a brief spike higher but it didn't last. STZ spent almost the entire month of July consolidating sideways.

The technical picture changed in August. STZ began to rally and displayed impressive strength with a climb from its July 27th low near $115 to $130 by August 18th. Then STZ gave it all back in about three days as the U.S. market tanked. The sharp correction lower saw STZ plunge back toward support in the $114-115 area. What is shocking is how fast STZ has recovered. Buyers just poured into this stock and now STZ is testing its all-time highs near $130 again.

While the three-day crash is a bit terrifying the relative strength in STZ's rebound is impressive. I would consider this an aggressive, higher-risk trade due to STZ's volatility. Tonight we are suggesting a trigger to buy calls at $130.55. We'll exit prior to the October option expiration.

Trigger @ $130.55

- Suggested Positions -

Buy the OCT $135 CALL (STZ151016C135)

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: 70.76 change: -0.68

Stop Loss: None. No stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: -17.2%
Average Daily Volume = 3.0 million
Entry on September 03 at $72.05
Listed on August 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/05/15: TJX followed the market lower on Friday and ended the session with a -0.9% decline. I don't see any changes from my recent comments. Wait for a rally past Thursday's high ($72.18) before considering new positions.

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.

- Suggested Positions -

Long 2016 Jan $75 CALL (TJX160115C75) entry $2.90

09/03/15 triggered @ $72.05
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Jack In The Box - JACK - close: 78.31 change: -0.34

Stop Loss: 82.55
Target(s): To Be Determined
Current Option Gain/Loss: -40.1%
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:
09/05/15: Looking at JACK's performance on Friday there is good news and bad news. The good news is that the stock failed at short-term resistance along its simple 10-dma again. The bad news is that traders bought the dip on Friday afternoon and JACK pared its loss to just -0.4%, which was better than the NASDAQ's -1.0% decline.

Nimble traders could still watch for a failed rally near $80.00 as a new bearish entry point but at this time I would hesitate to open new positions.

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

chart:


Wynn Resorts Ltd. - WYNN - close: 73.07 change: -0.75

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:
09/05/15: WYNN tried to rally twice on Friday and failed both times near $74.50. There is a good chance we'll see this stock renew its push lower soon.

Currently we are on the sidelines and waiting for a breakdown below support near $70.00. 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

chart:



CLOSED BULLISH PLAYS

Netflix, Inc. - NFLX - close: 98.79 change: -2.27

Stop Loss: $98.45
Target(s): To Be Determined
Current Option Gain/Loss: -63.2%
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:
09/05/15: It was a terrible week for NFLX. We knew shares were volatile but the stock fell almost $19 and broke down below round-number support at $100.00.

We added a stop loss at $98.45 but NFLX gapped open lower at $98.05 on Friday morning.

- Suggested Positions -

NOV $120 CALL (NFLX151120C120) entry $12.65

09/04/15 stopped out on gap down at $98.05
09/03/15 new stop loss @ $98.45
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: