Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/9/2015

Table of Contents

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

Market Wrap

Another Gap, Another Reversal

by Keene Little

Click here to email Keene Little
Since the sharp decline into the August 24th low we've seen multiple large opening gaps and big price swings but the market hasn't gone anywhere since the low. Trying to figure out market direction day-to-day has only led to frustration and today was no different.

Today's Market Stats

Over the holiday weekend we received additional information that China was continuing to slow down and dramatically in some ways. That should have tanked the futures on Monday but instead they rallied, which set up the big gap up Tuesday morning. The Fed stepped in front of the bad news by putting San Francisco Fed chief John Williams out in front, talking about the difficulty the Fed will have raising rates. This was done with an interview with the WSJ's Jon Hilsenrath, who is the Fed's authorized "leaker." Before the interview it has been Williams who has consistently supported a rate hike, feeling the economy was strong enough to support it. But in the interview Williams said "There are some pretty significant -- and I would say have now grown larger -- head winds that have developed." That was Fed speak for "we don't think we can raise rates at this time."

The interview with Williams was all it took to ignite short covering in the futures market, which created a large gap up Tuesday morning. A price consolidation was then followed by a push higher in the afternoon and that was then followed by more another overnight rally in the futures. It was looking like it was going to be off to the races again as more short covering launched this morning's big rally but this time the sellers smacked it back down and the DOW's 200-point rally became a 200-point loss before today's close. Basically it was just a continuation of what we've seen for the past 10 trading days -- big price swings with large gaps in both directions, which has created a large-range sideways consolidation. This fits best as a bearish continuation pattern and I'm watching for price evidence to the contrary (but not seeing any yet).

Tonight I'll just jump into the charts since there's very little to discuss about the world economies and other factors that affect the market sentiment. It's been a roller coaster with so many reversals, which has made trading difficult. The only thing I can do at this point is recommend safety over aggressive trading. There are times to watch and wait and this is one of them. What to wait for is what I'll attempt to show tonight.

The DOW's weekly chart is not terribly helpful at this point as price cycles around the broken uptrend line from May 2009 - October 2011, currently near 16400 (arithmetic price scale). There's a wide support-resistance window between roughly 15300 and 17100, or perhaps a tighter one between 15300 and today's high near 16665 (and the August 28th high near 16670). The bulls will argue the choppy consolidation since August 24th is part of a bullish base building while the bears will argue the consolidation is just a bearish continuation pattern. I'm currently arguing the latter (with the bears) but either potential needs to be respected by both sides.

Dow Industrials, INDU, Weekly chart

The consolidation pattern off the August 24th low currently looks like an ascending triangle (rising lows, flat top) and we could see one more bounce up to the top of the triangle (16670) before heading for new lows. The wave count is not clear because of what looks like an outsize 4th wave correction following the August 24th low but the triangle fits well for a 4th wave and the pattern off the May high continues to support the idea that we'll see the market stair-step lower into November. But a rally above 17100 would at least turn the market neutral, if not bullish.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,100
- bearish below 15,980

The 60-min chart below shows the ascending triangle pattern, assuming that's what's playing out. It's possible the bounce correction has already finished with this morning's high and a break below last Friday's low near 16026 would be more immediately bearish (although the potential for just a deeper pullback before bouncing back up can't be ignored).

Dow Industrials, INDU, 60-min chart

The SPX daily chart below shows a different kind of triangle consolidation pattern that could play out for many weeks before dropping lower. This would be a tough pattern to trade so let's hope this one doesn't happen. It could also be a tighter ascending triangle like the DOW's and as long as price stays above last Friday's low near 1911 and the August 28th high near 1994 you want to be careful of the chop. A break of either of those levels could lead to a larger tradable move.

S&P 500, SPX, Daily chart

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

On August 28th NDX tagged price-level S/R near 4345 (with a high near 4341), which is the level that was resistance in November 2014 and support in April and July. It had broken with a big gap down on August 21st and that gap would be closed with a rally to 4385. But 4345 acted as resistance again this morning with the gap up and quick rally to almost 4353. That was followed by an immediate reversal back down and the big red candle looks bearish against price-level resistance, especially since an outside down day or what could be considered a key reversal day. If the bulls can turn it around and push it up a little higher we could see its August 21st gap closed at 4385 and its broken 200-dma back-tested near 4384. And if the buyers can do better than they did today and really juice the market higher (where's a Fed head and "no rate hike" when you need one?), we could see NDX up to its broken 50-dma, currently near 4446 and its broken uptrend line from 2012-2013-2014, which crosses the price projection where the 2nd leg of the bounce off the August 24th low would be 62% of the 1st leg, near 4464.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4385
- bearish below 4121

I'm using the RUT to track a pattern for lower prices with a stair-step move down into October (a common month for a major low). Notice that this morning's high for the RUT, near 1170, was a test of its broken uptrend line from October 2011 - October 2014 (arithmetic price scale). It's a good setup for lower lows if it drops below 1124 but continue to respect the potential for a higher rally.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1000
- bearish below 1000

While the stock market has been jumping around the past two weeks the bond market was at first chopping sideways but then bond prices sold off the past two days. That had rates rising and they acted like the stock market today, which had it looking like a rotation out of stocks and into bonds. TYX made it up to its broken uptrend line from January-April with this morning's gap up but it then sold off, leaving a bearish kiss goodbye. A reversal in bond yields to the downside (with a rally in bond prices) would support stock market bears.

30-year Yield, TYX, Weekly chart

The trannies were relatively strong today and I see the potential for another push higher to complete an a-b-c bounce off its August 24th low. The 2nd leg of the bounce, from September 1st, would be a cleaner 5-wave move with one more new high and the 3-wave bounce off the August 24th low would have two equal legs up at 8131. That would also be a test of its broken 50-dma, currently at 8136 and coming down. If you like to trade this index, such as with IYT, watch for this setup to get short if it plays out.

Transportation Index, TRAN, Daily chart

The U.S. dollar continues to stay choppy and that's one of the things that keeps me thinking it will stay stuck in a consolidation pattern for another 2 to 3 months. The downtrend line from March-August is currently near 97.85 and should hold as resistance if tested. The bottom of a descending wedge pattern is the trend line along the lows from May-August, is currently near 92.30 and that line should act as support if tested. Ideally we'll see the dollar push marginally higher before heading back down to the bottom of the wedge and finish close to the end of the year. That would do a nice job setting up a rally next year to new highs.

U.S. Dollar contract, DX, Daily chart

Gold broke down today from short-term price support at its August 26-27 lows, near 1117, and now looks like it will head lower sooner rather than later. If the bulls can turn this around and get gold above its August 24th high near 1170 that would be a bullish heads up. But the larger pattern is what suggests lower prices and down to around 1000 is the next target.

Gold continuous contract, GC, Daily chart

Oil's spike up from its August 24th low was impulsive and that suggests another leg up following the corrective pullback from August 31st. I'll continue to show the idea for a big sideways consolidation into next year (before heading lower) until the price pattern tells me otherwise.

Oil continuous contract, CL, Daily chart

Other than the PPI numbers and Michigan Sentiment on Friday, there's not much in the way of economic reports for the rest of the week that will move the market. It will continue to be more influenced by rumors and overseas events.

Economic reports and Summary

Conclusion

The stock market has been working hard to hold up off its August 24th lows. Following the comments from the Fed heads it's becoming more likely in the minds of many market participants that there will not be a rate hike this month. I've felt there was no chance of it happening and now with the admission of weakening economic numbers I don't believe the Fed will puts itself in a potentially embarrassing position of having to backtrack in a couple of months. It might be embarrassing to backtrack on their talk about raising rates but their easy out is to simply say the numbers have changed to the point where they can no longer support a rate hike at this time. That's far different from having to admit in a few months that they made a mistake when they raised rates. The Fed is all about saving face because once they lose the faith of the markets they've lost to battle to survive.

It's of course not so much the rate hike that bothers the market; it's more about the Fed changing their posture from supporting the market to one of letting the market flounder on its own. Most believe the market will not stay up without the Fed's help. Wait until they realize the Fed is really powerless and it's only the belief in the Fed (kind of like belief in the good faith of the U.S. government to back its fiat money) that kept the market heading higher.

With multiple large gaps in both directions and reversals of reversals following corrective price action (3-wave moves), it's been a rough time to trade. You had to be in position to enjoy the market gaps (good luck choosing that direction) and then you had to be quick to take profits following the gap, especially if in long options since premium quickly deflates once the gap move completes. From an EW perspective, it looks like a 4th wave correction following the August 24th low and 4th waves are notorious for being choppy and whippy. The only ones to consistently make money during these corrections are the brokers. I've been saying it's a good time to be flat because of the known difficulty trading these patterns. It's possible the bounce correction has finished but if the triangle pattern shown for the DOW (on its 60-min chart) is correct, we'll see one more bounce up before heading lower. I lean bearish, either from here or after another bounce attempt but the bulls can always pull another surprise attack. Trade carefully if you can't stand being on the sidelines.

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

Keene H. Little, CMT

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


New Option Plays

Six-Year Up Trend - Broken

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Tiffany & Co. - TIF - close: 80.96 change: -0.91

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.2 million
Entry on September -- at $---.--
Listed on September 9, 2015
Time Frame: Exit PRIOR to November option expiration
New Positions: Yes, see below

Company Description

Trade Description:
2015 has not been a good year for shares of TIF. The stock is down about -24% for the year thanks to a big drop in January and August. The August drop was painful with a -14% slide.

TIF is in the services sector. According to the company, "Tiffany is the internationally-renowned jeweler founded in New York in 1837. Through its subsidiaries, Tiffany & Co. manufactures products and operates TIFFANY & CO. retail stores worldwide, and also engages in direct selling through Internet, catalog and business gift operations."

On January 12th, 2015, TIF issued an earnings warning for 2015 and lowered guidance. Shares fell from about $103.50 to $90. TIF spent months churning sideways and the popped higher in May thanks to better than expected earnings results. Their Q1 results, reported May 27th, beat estimates by a wide margin and revenues came in better than expected in spite of a -5% slide from a year ago.

Three months later the company missed analysts' expectations. TIF reported their Q2 results on August 27th. Wall Street was looking for earnings of $0.91 a share on revenues of $1 billion. TIF said earnings fell -10% to $0.86 a share (a 5-cent miss). Revenues dropped -0.2% to $991 million.

The strong dollar is hurting their sales. Tourists coming to America are spending less in TIF's flagship stores. Management lowered their 2016 guidance. TIF now expects earnings to be -2% to -5% less than last year's $4.20 per share.

Analysts have been lowering their price targets in response to TIF's new guidance but shares are sinking faster than expected.

TIF is currently hovering near round-number support at $80.00. The breakdown in August was significant because TIF has broken below its long-term up trend dating back to the 2009 bear-market lows (see weekly chart below). If TIF breaks down below $80 the next support level could be $70.

Trigger @ $79.75

- Suggested Positions -

Buy the NOV $75 PUT (TIF151120P75) current ask $2.14
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Shrug Off Japan's Surge

by James Brown

Click here to email James Brown

Editor's Note:

The Japanese NIKKEI stock market index soared almost 8% higher on Wednesday. This fueled widespread gains around the globe. The American market opened higher in reaction to the overseas rally. Unfortunately the U.S. rally reversed.

The market's gap higher and then reversal to close near its lows has produced a potential one-day bearish reversal pattern. Technically it's called a bearish engulfing candlestick reversal pattern. These patterns need to see confirmation but today's move is definitely a warning signal for bullish traders. Sadly the pattern was very widespread today.

We closed the STMP trade this morning.


Current Portfolio:


CALL Play Updates

The Walt Disney Co. - DIS - close: 101.91 change: -2.10

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -23.8%
Average Daily Volume = 8.5 million
Entry on August 27 at $101.35
Listed on August 24, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/09/15: DIS rallied up to resistance near $105 and its 200-dma and then reversed. The move in DIS is almost a carbon copy of the move in the S&P 500. Unfortunately shares of DIS did produce a bearish engulfing candlestick reversal pattern. The nearest support is $100.

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

09/09/15 caution - DIS produced a bearish engulfing candlestick reversal pattern
08/27/15 triggered on gap open at $101.35, suggested entry was $101.00
Option Format: symbol-year-month-day-call-strike


Facebook, Inc. - FB - close: 90.44 change: +0.91

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +290.5%
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:
09/09/15: FB displayed relative strength with a +1.0% gain. The stock managed to pierce technical resistance at its 50-dma but couldn't hold it. Optimistically the $90.00 level would be new support but I wouldn't count on it.

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


iShares Russell 2000 ETF - IWM - close: 114.12 change: -1.33

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: -6.5%
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:
09/09/15: The IWM briefly traded above resistance near $116.00 before reversing lower. This ETF has produced a bearish engulfing candlestick reversal pattern. The nearest support is probably the $112.00 level.

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


Michael Kors Ltd. - KORS - close: 43.92 change: -0.58

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.2 million
Entry on September -- at $---.--
Listed on September 8, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: Yes, see below

Comments:
09/09/15: KORS managed to tag a new relative high but failed to rally past $46.00. Shares ended the session near its lows with a -1.3% decline.

I don't see any changes from last night's new play description. Our suggested entry trigger is $46.05.

Trade Description: September 8, 2015:
Shares of KORS may have finally found a bottom. The stock has been crushed over the last 12-18 months. KORS peaked around $100 in the first half of 2014. Since then shares have been in a bear market as investors consistently sold the rallies near the trend of lower highs.

The bear-market selling accelerated back in May when KORS gapped down following its disappointing earnings and guidance. The stock finally appeared to bottom in the $37-38 region in just the last few weeks.

If you're not familiar with KORS they are in the consumer goods sector. The company has over 525 stores worldwide. They have an active e-commerce website. Plus they sell their products wholesale to specialty and department stores.

According to the company, "Michael Kors is a world-renowned, award-winning designer of luxury accessories and ready to wear. His namesake company, established in 1981, currently produces a range of products through his Michael Kors and MICHAEL Michael Kors labels, including accessories, footwear, watches, jewelry, men's and women's ready to wear, and a full line of fragrance products. Michael Kors stores are operated, either directly or through licensing partners, in some of the most prestigious cities in the world, including New York, Beverly Hills, Chicago, London, Milan, Paris, Munich, Istanbul, Dubai, Seoul, Tokyo and Hong Kong."

The company has been struggling with over exposure weakening its luxury brand name and slowing growth. Analysts have expressed concern that KORS has relied too much on its promotions and discounts to generate sales. There has been a very dramatic decline in comparable store sales from the +20% range down to mid single digits and then eventually into negative comparable store sales growth.

The company has been struggling to stop the slowdown. Management has been lowering guidance the last few quarters. However, the worst might be behind it for KORS. The company's most recent earnings report was August 6th. Wall Street was expecting a profit of $0.75 per share on revenues of $944 million. KORS managed to beat estimates on both counts with a profit of $0.87 per share. Revenues were up +11.2% to $986 million.

Their total retail sales grew +9.0% but this was offset by a -9.5% decline in comparable store sales. On a constant currency basis comp sales were down -5.0%. Management lowered their Q2 estimates. However, they actually raised their full year 2016 estimates. KORS is now forecasting EPS at $4.40-4.50 per share on revenues of $4.7-4.8 billion. Wall Street was only expecting 2016 results of $4.26 a share on revenues of $4.66 billion. The company said their comparable stores will continue to slip but the decline should slow to low single digits and on a constant currency basis actually be close to flat.

Technically shares of KORS look like they may have hit a bottom. The stock was not immune to the market's recent correction. The August 24th crash in the stock market pushed KORS to a new multi-year low. The stock has rebounded dramatically. Last week was the U.S. stock market's second worst week of the year. Yet KORS managed to post a gain.

Seasonally, one of the best times to buy retail-related stocks is the between the Labor Day holiday and Black Friday (day after Thanksgiving). Retail stocks tend to rally into the holiday shopping season.

We also noticed that if KORS can rally past short-term resistance at $46.00 it will reverse its point & figure chart from a sell signal to a new buy signal. Tonight we are suggesting a trigger to buy calls at $46.05.

Trigger @ $46.05

- Suggested Positions -

Buy the NOV $50 CALL (KORS151120C50)

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


Martin Marietta Materials, Inc. - MLM - close: 168.60 change: -1.39

Stop Loss: None, no stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: -28.6%
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:
09/09/15: MLM managed to hit a new two-week high before fading lower. The stock ended with a -0.8% decline, which fared better than the broader market's -1.4% decline.

If this dip continues the nearest support is probably the $165 area.

No new positions at this time.

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


Noble Energy, Inc. - NBL - close: 30.19 change: -1.23

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -40.5%
Average Daily Volume = 5.7 million
Entry on September 08 at $31.32
Listed on September 5, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/09/15: Some of the energy stocks were underperformers and NBL was one of them with a -3.9% decline. The rally this morning failed at its simple 10-dma. If this decline continues the nearest support is last week's lows near $29.50.

No new positions at this time.

Trade Description: September 5, 2015:
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.

- Suggested Positions -

Long OCT $32.50 CALL (NBL151016C32.5) entry $2.10

09/05/15 trade begins. NBL opens at $31.32
Option Format: symbol-year-month-day-call-strike


Post Holdings, Inc. - POST - close: 64.54 change: -2.05

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -36.2%
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:
09/09/15: POST gapped open higher and hit a new all-time high before following the market's reversal lower. The stock did produce a bearish engulfing candlestick reversal pattern. If this stock breaks down under short-term support at $64.00 the next support level could be $61.00-60.00.

No new positions at this time.

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


Constellation Brands Inc. - STZ - close: 125.91 change: -3.25

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:
09/09/15: STZ made a dramatic move today. The rally failed at resistance near $130 and shares plunged toward the $125 area. The move today has generated a bearish engulfing candlestick reversal pattern. If STZ confirms this reversal tomorrow we might drop it as a candidate.

Currently our suggested entry point is $130.55.

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


The TJX Companies - TJX - close: 71.06 change: -1.28

Stop Loss: None. No stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: -20.7%
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:
09/09/15: TJX, like most of the market today, gapped open higher and then reversed. Shares also produced a bearish engulfing candlestick reversal pattern. If this dip continues the nearest support is $70.00.

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




PUT Play Updates

Jack In The Box - JACK - close: 78.71 change: -1.08

Stop Loss: 82.55
Target(s): To Be Determined
Current Option Gain/Loss: -54.2%
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:
09/09/15: JACK's attempted rally this morning failed near $80.60. The stock tried to hold the $80.00 level but eventually succumbed to the market's plunge. JACK has also produced a bearish engulfing candlestick reversal pattern. I would be tempted to buy puts again on a drop below $78.40.

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


Praxair Inc. - PX - close: 104.30 change: +0.03

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

Comments:
09/09/15: PX displayed some relative strength today. The gap open higher failed but PX managed to close virtually unchanged while the rest of the market sank. If PX displays strength again tomorrow we might remove it as a candidate. Currently our suggested entry trigger is $99.85.

Trade Description: September 5, 2015:
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)

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


Wynn Resorts Ltd. - WYNN - close: 73.04 change: -1.81

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:
09/09/15: Shares of WYNN tagged a new one-week high this morning before reversing lower. Like much of the market today WYNN has produced a bearish engulfing candlestick pattern. I am expecting shares to retest support near $70.00 soon.

We are waiting for a breakdown. 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



CLOSED BULLISH PLAYS

Stamps.com Inc. - STMP - close: 79.77 change: -0.13

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -58.1%
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:
09/09/15: The market's gap open higher this morning helped our exit in STMP. Shares had not performed well and our plan was to exit this morning.

- Suggested Positions -

OCT $85 CALL (STMP151016C85) entry $4.30 exit $1.80 (-58.1%)

09/09/15 planned exit this morning
09/08/15 prepare to exit tomorrow morning
08/31/15 triggered @ $83.55
Option Format: symbol-year-month-day-call-strike

chart: