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Daily Newsletter, Saturday, 9/12/2015

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

Market Wrap

Tick Tock

by Jim Brown

Click here to email Jim Brown

Friday's lackluster market traded in both positive and negative territory before a flurry of buying ahead of the close lifted it back to Thursday's highs. With China and Japan now old news, it was fear of the Fed that kept investors wary.

Market Statistics

Friday's lack of news and volume was more like a summer Friday than the middle of September. Market commentators everywhere were struggling to find something to talk about. The market call for the possibility of $20 oil by Goldman Sachs was the topic for the day because of its dramatic potential. I will cover that in depth later.

The Producer Price Index (PPI) for August gave the Fed something else to worry about at the meeting this week. Producer prices were flat compared to +0.2% in July and +0.4% gains in both May and June. Goods prices actually fell -0.6% after -0.1% in July and +0.7% in June. Core goods fell -0.2%. Intermediate goods declined -0.6% after a -0.2% drop in July. Intermediate unprocessed goods declined -4.4% after a -2.9% drop in July. Core unprocessed goods fell -10.6% after a -5.5% decline in July.

The trend is clear and inflation is dropping like a rock. Low oil prices are driving the declines but the drop in commodities in general is affecting the decline in inflation. Food prices rose or the overall numbers would have been worse. Driving food prices higher was a +23.2% jump in egg prices after the loss of more than 50 million chickens to the bird flu.

On a trailing 12 month basis producer prices have declined -0.7% because of the -4.0% decline in goods prices. Year over year prices have declined all year. With Goldman warning that $20 oil prices are possible in the coming months the Fed is fighting a losing battle to raise inflation. The Fed believes the drop in commodities is transitory but that transit period is looking longer every day.

Consumer sentiment for September declined -6.2 points from 91.9 to 85.7. Analysts expected 91.5 and this is the third consecutive monthly decline. It is also the lowest reading in 2015. Analysts believe the stock market volatility had a direct impact on the sentiment numbers.

The present conditions component declined from 105.1 to 100.3 for the third consecutive monthly decline. The expectations component declined from 83.4 to 76.4 and the third decline.

In September, 33% of respondents said their finances were worst than last year. That was an 8% increase from the prior month. This is why analysts believe the headline decline was market related. Another 46% of respondents said the U.S. was going to experience bad economic times over the next year.


There are a lot of economic reports out next week but the big news is on Thursday. The Philly Fed Manufacturing Survey is out in the morning followed by the Fed announcement and press conference in the afternoon.

The odds for a rate hike are about 50:50 if you believe the financial press. With the World Bank and the IMF warning the Fed not to hike until 2016 there is a decent chance they could pass. However, the Fed has been promising a hike for the last year and not doing it at the September meeting moves them to December in order to have a press conference after the rate hike.

The market is pricing in a hike. If there is no hike the Fed will lose a prime opportunity and have to go through the same pre meeting volatility at some point in the future. Personally, I think they will take this opportunity in order to get the first hike behind them and then target Q2-2016 for the next one.

The market may react positively since it is already factored into sentiment and getting it behind us would be a plus. This is like a child dreading a scheduled vaccination. They worry about the shot well in advance and once in the doctor's office the worry increases significantly. Once the shot is over, they are ready to run and play again. Within minutes, they have completely forgotten about the pain. The market has been kicking and dragging its feet on the way to the doctor's office for the last several weeks. Once past next Thursday the worry will be over and the market can relax again.


James Hardie Industries (JHX) announced a 5:1 stock split to be made at the close on September 21st. JHX only trades about 5,000 shares per day so this will not be a candidate for a split run. Stock Split Calendar


Early Twitter (TWTR) investor Chris Sacca, went on a twitter rant on Friday complaining about the lack of a CEO announcement. The rant was heavily pro co-founder Jack Dorsey and criticized the board for the lack of an announcement. Even before Dick Costolo resigned on July 1st the board had been looking for a new CEO. While the search drags on key employees have left, the stock has declined and the company is being left for dead. Sacca's 7-tweet rant captured a lot of attention but did not help the stock price. Shares were down 32 cents. However, we know there will eventually be a CEO named and their new products will begin to gain traction. It is only a matter of time before the stock rises or they are acquired.


Mattress Firm (MFRM) warned on guidance and the stock was crushed. The company said it now expects earnings of $2.30-$2.45 for the full year. That was down from prior forecasts of as much as $2.70. Shares fell -23% for the biggest one-day drop in its history. Shares of competitors Tempur Sealy International (TPX) fell -2.3% and Select Comfort (SCSS) fell -2.2% in sympathy. Mattress Firm blamed the slow sales on the decline in oil prices saying the 100,000 energy layoffs kept a lot of people out of stores. I think that was a convenient excuse rather than reality.


Unilever (UL) is now selling a single serve tea machine to compete with the Nestle Nespresso beverage maker. The device is called T.O. by Lipton and manufactured by Krups. The device will go on sale in France on Monday with distribution to expand in the coming months. It will not be cheap. The initial price will be about $200 with 10 tea capsules for about $5. Shares of UL were down fractionally and shares of competitor Green Mountain were up fractionally. I guess that means investors were not impressed with the new product.



Kroger (KR) shares rallied 5% after the company reported earnings of 44 cents that beat estimates for 40 cents. Revenue of $25.5 billion matched estimates. Kroger raised full year estimates from $1.95 to $1.98 per share. Kroger said it was expanding its online offerings and would be adding 20,000 workers.


Avon (AVP) lost another 15% on Friday after a -9.5% decline on Thursday. Shares spike Thursday morning on a rumor that Cerberus Capital and Platinum Equity might be taking a stake in the company. Shares briefly spiked nearly +25% on the news but immediately crashed after more details were known. The PE firms were reportedly going to inject funds through a PIPE acquisition (Private Investment in Public Equity) where the shares could be bought at a significant discount to the current market. Shares of Avon crashed because it suggested company finances were weak and they needed additional capital to survive the holiday season. Avon has been in a slump and the drop in foreign currencies has been painful. Brazil has been a serious drain on profits.


Chico's Fashion (CHS) is reportedly in talks to be acquired by a private equity firm. Reportedly, Sycamore Partners has made an offer while Chico's is still in talks with other bidders. The company hired Investment bank Peter Solomon to explore options. Sycamore has arranged $3 billion in debt financing for an acquisition. Shares spiked $2 to $17 in afterhours on Friday.


If you want a McRib sandwich, you have to look for it. The McDonalds McRib sandwich is now available for the once a year sales special. However, it will only be offered in about 8,000 of McDonald's 14,350 U.S. restaurants. That equates to about 55% compared to 75% in 2014. The McRib is only offered once a year because of the shortage of the main ingredient. The boneless McRib is a regional favorite with most of the buyers in the south. The company allows the stores to decide if they want to offer the boneless barbecue rib sandwich based on their prior sales.

In another menu change McDonalds is returning to its roots with the original egg McMuffin on an actual English Muffin. They are also replacing margarine with the real butter as a McMuffin ingredient. This is in addition to having breakfast items all day long. McDonalds is struggling to overcome the rising competition from other chains including Five Guys, Shake Shack, etc. Junk food lovers rejoiced and shares rose +$2 on the menu news.


Restoration Hardware (RH) reported earnings of 85 cents that beat estimates for 83 cents. Revenue rose +14% to $506.9 million and beat estimates. The company expects revenue to grow +16.2% for the year and earnings up +32%. The company raised guidance for the full year from $3.02-$3.15 to $3.06-$3.16. Analysts were expecting $3.11. Shares rallied +9% on the news.


Marvell Tech (MRVL) shares crashed -16% after the company said it had begun an internal investigation into its accounting and reported seeing weakening demand for personal computer parts. That was the biggest decline since 2002. The accounting review is focused on revenue recognition and whether the revenue was recognized sooner than it should have been. That would have made earnings appear better than they were. Susquehanna Financial said the stock was "unownable" during the investigation since years of earnings could be restated. The company posted a loss of $382.4 million, which included a charge of $394 million for pending litigation. Analysts were expecting a $12 million profit.


Zumiez (ZUMZ) shares fell -32% after reporting earnings of 12 cents that matched estimates. However, that was -60% below the year ago quarter. Same store sales fell -4.5% compared to +3.4% growth in the year ago quarter. Zumiez guided to a decline of 7-9% in sales in Q3 and revenue of $204 million. Analysts were expecting $224 million. They guided for earnings in the range of 27-31 cents and analysts were expecting 53 cents. The company is planning on opening 57 new stores in Q3 despite a sharp decline in sales at existing stores. Investors are running scared with revenue and profits declining.


You know you have entered the Twilight Zone when you read a headline that Microsoft may acquire Advanced Micro Devices (AMD). Advanced Micro is a failing semiconductor manufacturer that only exists because Intel needs somebody else in the market to keep from being called a monopoly. The tech site Fudzilla.com said the two companies were in serious talks about the acquisition. AMD products are seriously lagging the Intel processor family and there is almost zero hope of ever being competitive with Intel again.

Apparently, Microsoft is hoping to control the next round of Xbox development and having its own chip company could allow it to lower costs and increase the capability of the gaming console. Microsoft could also streamline the future of the Zen processors from AMD and put them in the Surface tablets.

There may actually be a growth path for AMD as a Microsoft subsidiary as strange as that idea may seem. Shares spiked 9% on the news.


Goldman Sachs (GS) created a flurry of arguments when they said crude prices could fall to $20 a barrel in the near future. Goldman's report said "Although oil prices have revisited the lows of last winter, this time both financial and fundamental metrics are much weaker. Forward demand expectations are lower as the emerging market economic outlook continues to deteriorate."

Goldman is not predicting a drop to $20 but they said that was their worst-case scenario. Goldman is expecting $45 oil for 2016, down from the prior forecast of $57. The doomsday scenario of $20 rocked the market but Goldman is known for making wild forecasts as part of its broad outlook. You may remember their $200 forecast in 2008.

Goldman said it was still unclear how the eventual supply adjustment will take place. However, we can say for certain that North American supply growth will slow down or even reverse given recent drilling and investment patterns. The U.S. has created such a backlog of drilled but uncompleted wells that future profit margins will be pressured. The drilled but unfracked wells are now called the "Fracklog."

A Reuters analyst pointed out that the top 50 U.S. producers have spent more than $200 billion in capex over the last two years and took on more than $150 billion in debt to do it. That debt will be coming due soon and they cannot pay it back on $40 oil. Shale producers rarely get the WTI price for their oil. Shale oil is superlight and very gaseous and does not produce the mix of products refiners want to sell. When combined with the high transportation expense from the various shale fields the actual price received is in the mid $30s per barrel. It is very hard to drill an $11 million well and make a profit at $35 oil.

Crude prices closed the week at $44.76, down -$1.22 for the week but they are on a downhill slide now that we are past Labor Day. Refineries are shutting down for seasonal maintenance and more than 2 million barrels per day will be offline at the peak of maintenance season. Refinery utilization has already declined from 96.1% for the week of August 7th to 90.9% today. That will continue down into the mid 80% range over the next several weeks. This means inventories will rise for the next 10-12 weeks and they are already near multi-decade highs.

From the middle of September 2014 until the peak in May 2015 crude inventories rose from 360 million barrels to nearly 490 million and 100 million barrels over the normal highs for that period. Today we are starting out that same period at 460 million and it is nearly inconceivable that we will not exceed that 490 million high from last year and possibly by a lot.

Goldman's worst-case scenario assumes we add the same 100+ million barrels as in 2014 and we run out of places to store the oil. Storage at the futures hub at Cushing Oklahoma peaked at a record 62.2 million barrels on April 17th and has only declined -5 million barrels ahead of the inventory accumulation season. Cushing has barely enough room to maintain operating capability and cannot absorb millions of extra barrels.

We may have seen a preview of things to come last week. U.S. production declined -83,000 bpd to 9.135 mbpd. That is -475,000 bpd below the June 5th peak at 9.61 mbpd. Production is suddenly beginning to decline at a rapid pace. However, because of the fracklog it will not decline quick enough to raise prices. Those wells have to be completed in a certain period of time or be plugged and abandoned.

The active rig count declined by -16 for the week ended on Friday and that was after a -13 rig decline the prior week. Active rigs at 848 are now at the cycle low and below the prior 857 low back in early July. They are also below the July 2009 low of 866. Active gas rigs declined -6 to 196 and a new 18-year low. Active oil rigs are 652 are still above the July low at 638 but a couple more weeks of decline should see that low broken.

Producers have given up on the Q3 rebound. Many put rigs back to work in July/August in expectations of a rise in prices. That rise did not happen except for the short squeeze two weeks ago and prices are now fading again. The mindset is no longer to try and squeeze a few more rigs into production but to cut every expense possible and go into conservation mode and try to live on existing cash flow until the cycle reverses. As inventory levels rise in the coming weeks I would expect to see prices decline at least back to the $40 level or lower.



Markets

Wednesday's rebound took the Dow and S&P right to resistance and those levels acted like an electric fence. The rally stopped dead on that resistance and was repelled instantly. On the negative side that showed exactly how many sellers were waiting at those key levels. On the positive side, the decline was not severe and we know exactly where to make our next trade decision. A break over those resistance levels would be a buy signal and another failure at those levels would be a sell signal.

Also positive is the pattern of higher lows on both the Dow and S&P. This suggests investors are buying the dips with an increasingly higher threshold. As long as we do not dip below the blue lines the rebound remains in play. A breakout over the red lines could attract a lot of buying interest and short covering.

For the S&P the resistance is strongest at 1,990 but last through 2,005. Support is now 1,939 followed by 1,912.




The high for the Dow on Wednesday was 16,664 with resistance at 16,666. That is almost a perfect test and failure. That is now the line in the sand for next week. A move over that level could move back over 17,000 before hitting significant resistance at higher levels.

The Dow stocks are still in the tank with only about five charts that could be considered buyable. The rest are either falling knives or they are basing in a sideways motion. However, the intraday Dow chart still shows the suggestion of a breakout in the coming days, Fed permitting.



The Nasdaq closed very near resistance at 4,835 and could be poised for a breakout as well. The Biotech sector continued to supply the gains but Amazon and Google were also leaders.

The chip sector remains weak and a drag on the tech index. Were it not for the AMD/Microsoft rumor on Friday the Semiconductor Index ($SOX) would have been negative rather than fractionally positive.

Apple (AAPL) closed at the highs of the week at $114.20 after a post announcement decline on Wednesday. The products are seeing mixed reviews but most believe the iPhone changed enough that consumers will want to upgrade. More than 70% of iPhone users are still on phones older than the iPhone 6 so there are plenty of faithful that could upgrade.




The Russell 2000 chart looks more like the Nasdaq with a close at 1,157 and just slightly under resistance at 1,165. With any positive headlines, the Russell could breakout over that resistance and possibly trigger a broader rally among the big caps.


At this point, I believe a Fed rate hike is priced in. There may be some immediate volatility if a hike is announced on Thursday but I think the market will shake it off very quickly and the next move will be higher. It will all depend on the forward guidance. If they emphasize as expected that the next hike will be well into the future then we could reach new highs before year-end. If they try to get cute and dangle the possibility of an October or December hike in the statement then all bets are off. If the market thinks there is any chance of a second hike in 2015 the bears will come out of the forest and the rest of September could be bleak.

If the Fed does not hike then the market will be left in limbo for another month. The vaccination will be postponed and the adolescent patient will continue to anguish over the eventual shot.

If the Fed were reading my comments, I would ask them to please hike this week and end the uncertainty. The market needs a firm direction rather than continuous Fedspeak that promises but never delivers.


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Random Thoughts




A year ago, ISIS warned that it could destabilize Europe by forcing 500,000 Syrians to migrate to Europe. To date more than 4.5 million Syrians and Iraqi's have fled their country to avoid the war and the terror that is ISIS. With more than one million walking into Europe the individual countries are being forced to accept more "refugees" whether they want to or not. An illegal alien that crosses borders and ends up in a country illegally receives no social service benefits. However, a refugee is immediately awarded a full slate of benefits from housing, welfare, food stamps, healthcare, etc. In Germany, this could add as many as 460,000 people to their social benefits programs. The amount of money Germany and the other European countries are going to have to spend to support this migrant flood is astronomical and this will burden an already marginal economy.

The EU Commission could mandate what benefits countries must provide to the migrants. That is the real name for them. If they were just refugees from the Syrian war they could have stayed in Turkey and be ready to go home once the fighting ends. They do not want to go home. They are looking for a new home and the rich European countries are being deluged with migrants while the poor countries with minimal social services are being avoided. If the Commission mandates a full slate of services to be provided by each country it could cause significant division between EU countries.

Several officials have proposed a "blue card" experiment. With all countries facing streams of migrants at their borders waiting for entry the government should allow everyone entry with only one catch. Anyone entering would have to sign an agreement to never be eligible for social benefits. You would immediately see how many people really wanted to migrate to seek a new opportunity and be a productive citizen and who was simply looking for the best handout. I am sure many entrance lines would evaporate once the new rules were explained.

In the U.S., about 51% of immigrant-led households receive at least one kind of welfare benefit, including Medicaid, food stamps, school lunches, housing assistance, etc. This compares to 30% for native-led households. If there are children in the household, the percentages rise to 76% for immigrant-led homes and 52% for native-born households.

This is not a defect of moral failing on the part of immigrants. Rather, unrestrained immigration, whether legal or illegal, allows a lot of less-educated immigrants to settle in the country and they only earn minimal wages and become eligible for a very generous welfare system.

Europe is facing a monstrous increase in their social service costs. This will require higher taxes and more facilities like hospitals and schools. I have not even discussed the problems of allowing another million plus Muslims into Europe and the fundamental assimilation problems that will occur.

Officials are worried that hundreds or even thousands of ISIS sympathizers and fighters are hidden in the migrant horde currently trying to infiltrate Europe. This is going to cause significant problems in the years ahead as those people spread their message to other Muslims in the communities where they settle.

Europe is facing an ISIS invasion only without guns. The migrants will drain their public coffers and cause challenges for generations to come.


Noted investor John Hussman expects a pullback in stocks of 40% to 55% to bring valuations back into line with historical levels. He is not predicting this in the next few weeks or months but at the end of the current market/economic cycle. He makes a good case for the current dip expanding into a bigger decline based on historical cycles. Don't Get Comfortable


The Energy Information Administration (EIA) is now predicting gasoline prices will decline to $2.03 per gallon by December. Gasoline has not been that low since the Great Recession in 2009. In 17 states, gasoline is already below $2 with six more states near that level. Unfortunately, low gasoline prices come with a catch. More than 86,405 jobs have been lost that are directly attributed to lower oil prices and more than 150,000 jobs have probably been lost in total because non energy jobs depend on workers employed in the energy sector. That includes waitresses, retail workers, service businesses like carpet cleaners, roofers, etc, that lose their jobs because energy workers lost their jobs and incomes.


Goldman said China spent more than $236 billion trying to support their declining equity markets. That is 3.5% of the total market value. The Shanghai Composite rallied +150% in 12 months only to lose -32% in just 18 trading sessions. The government has now declared they will prosecute short sellers and suspended new IPOs. Institutions and funds have been told to buy stocks and hold them. Selling is deemed "against the state" and will be dealt with. China will eventually learn that manipulating the market is a fool's game and it is best left to normal market forces.


Tomi Kilgore warned that a bearish "symmetrical triangle" on the Dow and S&P suggests a continuation of the decline with a target of 14,000-14,200 on the Dow. The triangles normally appear in the middle of a sharp selloff and are continuation patterns. That means the next breakout is more likely to break down and continue the decline. Personally, I view the charts differently but that is what makes a market. I also factor in the current news events and the macro picture rather than simply rely on a chart pattern. New Lows Ahead


David Bianco, chief U.S. equity strategist at Deutsche Bank, warned that earnings estimates for S&P companies might be too high. For every $5 decline in the price of oil, it reduces the net income for S&P companies by $7.5 billion or $1 per share. A 10% rise in the dollar cuts profits by about $20 billion or $2.50 per share. Every 25 basis point rise in the Fed funds rate cuts S&P earnings by 50 cents per share.

Bianco is expecting S&P earnings to come in at $128 in 2016, up from $120 in 2015. Because of the impact from oil and the dollar, earnings could decline to $125. Despite the reduction in his earnings forecast Bianco is still expecting the S&P to rise to 2,150 this year and 2,300 in 2016.


I received this from a reader. I have not heard about this in the press. Thank you Bob for the input.

Potential Drop in Microsoft Earnings

I see in the news that the Justice Department is pursuing Microsoft to access data stored on Microsoft servers in Ireland. Two judges have ruled in favor of the government, but Microsoft is appealing the rulings. If the government is prevails in the appeal, would that not send a message to all the tech companies that have data servers overseas that the data stored outside the US is now accessible? Should this occur, one could expect a serious slide in tech company earnings (and therefore stock prices) as both US and foreign investors decide they do not want US companies storing their sensitive data. Much like what happened to IBM after the Snowden revelations when companies abandoned IBM servers en masse over NSA snooping and IBM earnings took a huge hit. IBM sold their server business to Lenovo (pretty much in accordance with their plan to get out of the hardware business anyway), but Lenovo cannot sell the servers to US DoD or companies supplying servers to the US military. If companies and individuals decide they do not want the Justice Department reviewing their sensitive business data (instead of the NSA), there could be wholesale departure from large tech company products and migration to European companies, where data privacy is better protected.

This is all theoretical at the moment, but if Microsoft were to lose on appeal, I would expect a potential sell-off following a big earnings hit by not only Microsoft, but other big tech companies (Google, Amazon, et. al.) as people and companies decide they need to protect their data. Of course, if the data were encrypted, in theory it would be protected against review by the Justice Department, but one never really knows what the capabilities of real world encryption breaching algorithms are (not trying to wear a tin foil hat here, only remarking on what could be versus what is acknowledged ...). Trader's perceptions of the earnings hit, were it to occur, would constitute (let's say) a "gray swan", since a "black swan" would be by definition a totally unexpected event, while this one would be telegraphed.

We did see a major hit to IBM and other U.S. hardware manufacturers after Snowden. "Cloud" companies could be next since that information is relatively easy to obtain by a governmental spy agency. Encrypting all the information in the cloud is not practical since the higher grade encryption that would be necessary to defeat government (NSA) spying is too slow for the billions of terabytes of data stored in the cloud. It has to be encrypted going in and decrypted coming out and the computing overhead would be tremendous. Bob could be right that corporations could move away from the commercial cloud networks and into private clouds or European cloud services that ar enot subject to prying U.S. government eyes.


The AAII Investor Sentiment Survey for the week ended on Wednesday, surprised once again. Both bullish and bearish sentiment rose with neutral sentiment declining. Apparently the market is polarizing opinions but the opposite ends of the spectrum are almost dead even.



 

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Jim Brown

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Index Wrap

Marking Time But Finding Some Support

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The S&P 500 (SPX) and Dow 30 (INDU) have been finding some support/buying interest as seen in slightly higher lows off the recent bottom, but higher highs are illusive.

The Nasdaq Composite (COMP) has been hitting a recent line of resistance at approximately 4825 and at 4328 in the Nas 100 (NDX). Both COMP and NDX have eked out Closes above their respective 21-day moving averages which is a technical plus but more is needed to suggest a possible further upswing.

Traders and investors of course are waiting for Fed action or not on raising rates. The charts suggest what looks like 'basing' action so a minor rate hike (or, no hike) could be priced into the Market and allow stocks to rally at least back to re-test the prior 'breakdown' points; e.g., to 2050 in SPX, to 17000 in INDU, 5000 in COMP and 4500 in NDX.

With an up day on Friday, although prices were all over the place intraday, bearish sentiment increased some. A rise in bearish plays on an up day may look encouraging for the bulls. As my daily 'sentiment' indicator is based on the ratio of total CBOE equities call volume versus daily put volume, this aspect may also be simply too few traders willing to bet on calls and a minor increase in put buying to hedge downside risk.

Bearishness, as suggested by the recent dips in my CPRATIO 'sentiment' indicator (displayed with the SPX and COMP daily charts) dipping into the oversold 'extreme' zone, is rife. I think this factor of possible 'excessive' bearishness is something that keeps me from getting overly bearish myself, especially at potential bottoms and within long-term bull markets. I've seen the lemming effect for decades where gloom is usually quite overdone at lows. In Market bubbles, bullish 'sentiment' gets wildly overdone too but can go on MUCH longer.

When I indicated the Market trend is down, I would note that this is the 2-3 month intermediate-term trend. The long-term trend in the major indexes hasn't reversed its multiyear uptrend to down.

This Market is tough to call as to upcoming direction, but I lean to a bullish stance based on the past pattern of many of these big panic declines that rebound, but initially just tentatively and later to re-test pivotal resistances such as to the breakdown points already mentioned.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) is bearish in its pattern after SPX fell sharply from the low end of its multimonth trading range at 2050, which was the key 'breakdown' point on the chart. 2050 then becomes the level which the Index needs to regain to turn the intermediate trend back to bullish. Immediate resistance comes in at 1985-2000.

The recent rebound and gradual trend higher came until SPX has hit resistance a few times now at 1985-1990. The pattern traced out from the lows could be seen as a consolidation ahead of another downswing, such as one re-testing prior lows around 1866-1867. I don't see the chart as suggesting another such sell off but it could go that way. My view is that buying interest will be found in the 1900 to 1880 zone assuming another such dip.

Closing above and maintaining most closes above the 21-day moving average is a tip off to trend momentum turning back up. If that doesn't happen, prepare for another possible dip. Exit bearish strategies on another sell off into the support area highlighted.

Bullish sentiment is low according to my CPRATIO indicator. I think that bears will be surprised if stocks rally on a minor rate hike as the uncertainty will be resolved and a small increase is probably well priced into the SPX; for now anyway.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) is bearish in its intermediate trend. The long-term trend in all the major indexes hasn't reversed to down relative to the Market's multiyear uptrend. However, there's little point in going beyond the 1-3 month chart picture from a trading, versus long-term investment, perspective.

The big cap S&P 100 index needs to climb back above 900 to turn the trend back up substantially or just to regain the LOW end of its prior multimonth trading range. Immediately ahead, a move back above the 21-day moving average, currently at 872, is needed to suggest the possibility of a climb next to 900. Stay tuned on that!

Key near support is seen at 840, with next support at 820. I think 840 will end up as a support on a further downswing and would exit bearish strategies on such a dip.

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

The Dow 30 (INDU) is bearish. Many of the 30 stocks are of course down substantially from their highs. I assess AXP, CAT, CVX, DD, IBM, INTC, KO, MCD, MRK, PFE, PG, maybe AAPL, UTX, VZ, WMT, and XOM as unlikely to mount sustained rallies anytime soon. Actually, AAPL looks like it was a past and future buy on dips to 100. Let's say that half (15), not 16, of the Dow 30 are a likely drag on much of a recovery rally happening soon in INDU.

I do see fairly solid technical/chart support at 16000 in the Dow as I wrote about last week in analyzing the weekly chart (not shown here again). The 15 Dow stocks acting as a drag on the market are now getting toward, or are, oversold. I've pegged INDU support below 16000, at 15800 per the daily chart highlights below.

Near Dow resistance is seen at 16650, then at 17000-17100. 17070 was the low end of INDU prior trading range from October of last year going into this recent sharp decline. Once penetrated (especially so decisively) prior support tends to 'become' subsequent resistance. INDU needs to regain 17070-17100 and hold this area on dips to turn the chart pattern back to a more bullish picture or one having at least bullish potential again.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) is bearish as its recovery rally has hit resistance repeatedly now around 4825 as highlighted below. To turn the chart to a more bullish hue would take a move back above 4900; not only that but a sustained move above 4900 where this level defined or showed up as support on pullbacks.

Fairly major resistance and a next test for the tech heavy Nasdaq would come in at 5000. To turn the chart back to decisively bullish, COMP needs to again trade predominately above 5000. Reminder: 5132 was the prior all-time COMP monthly peak from March 2000. Seems like a century ago! 5128 was the highest monthly Closing high recently, in July 2015.

Near support is highlighted at 4700, with next support at 4600. 4500, extending to 4430, is major support.

Bearishness, as seen in the recent dips in my CPRATIO 'sentiment' indicator into the oversold 'extreme' zone, is rife. I think this factor or what is perhaps 'excessive' bearishness for stocks ahead is something that keeps me from getting overly bearish myself. I've seen the lemming effect for decades where gloom is usually quite overdone at bottoms. (In bubbles, bullish sentiment gets wildly overdone too but this can go on MUCH longer.)

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart turned decisively bearish on the waterfall decline below 4400 initially, then in the 4300 area which I'd define as the key recent technical 'breakdown' point. Recently, on the recovery rebound, NDX has been hitting selling pressure/resistance at 4328 predominately with a couple of prior rallies a bit higher intraday but which faded by the Close.

I've highlighted resistance (above 4328) at 4400, then at 4500. NDX would need to get above 4500 to put price/trend momentum squarely higher over time.

Near support is seen at 4200, extending to 4150. Major support begins around 4000.

NDX volatility as measured by the 'VXN' index has been declining but is still relatively high and not surprising ahead of Fed action. The Fed hasn't been a key external (to the Market) factor in years. Get used to it! That is, assuming the economy keeps growing and the Fed continues to put on the breaks, even gently and gradually.

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

The Nasdaq 100 tracking stock (QQQ) is bearish in its pattern although there's been of course a good-sized rebound off QQQ's panic low. What would turn the chart bullish? We're almost there, which is a Close back above 106 and more importantly than 1-2 days of that, is a SUSTAINED move above 106. Where what is a current (and pivotal) resistance at 106 'becomes' a floor of support/buying interest on future pullbacks. Stay tuned on that!

I've noted near chart resistance of course in the 106 area, specifically at 105.8 to 106 even. Next resistance then is highlighted at 108-108.4; 108.4 would take QQQ back to resistance implied by its previously pierced up trendline.

Near support/buying interest looks like 102.7-103, extending to 101.5 to 101. Fairly major technical support begins at 100.

The On Balance Volume (OBV) indicator is slightly encouraging for a further rebound in that the OBV line has turned up a couple of times in recent days. Volume is a secondary indicator and price action is the main event so to speak but the aforementioned OBV/price pattern is what's often seen at significant bottoms.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) is bearish in its pattern and it will take a substantial move higher to suggest otherwise; specifically to above RUT 1200-1220, representing a key technical resistance zone.

Near-term, a RUT Close above 1160 that's maintained on the next trading day (and for the most part on subsequent days) would suggest upside potential to initial resistance highlighted at 1180. As already noted next and pivotal, chart resistance in the Russell 2000 starts at 1200.

Near support and anticipate buying interest is highlighted at 1140, extending to 1120. Fairly major support comes in at 1105-1100.

RUT got as 'oversold' at the recent Closing low in terms of the 13-day Relative Strength Index (RSI) as the Index has got to in the past 3-4 years; e.g., at key tradable bottoms in 2011, twice in 2012 and again in late-2014. The caveat to this is contained in the 'risk' statements re stocks, etc. that 'past results are no guarantee of future activity'. Stay tuned!


GOOD TRADING SUCCESS!




New Option Plays

The Up Trend Is Back For This Tech Stock

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Avago Technologies - AVGO - close: 131.08 change: +2.36

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.8 million
Entry on September -- at $---.--
Listed on September 12, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Company Description

Trade Description:
It's been a while since we traded AVGO. The stock has seen some big moves this year. Shares peaked near $150 on June 1st and then spiked down toward $100 during the market's correction on August 24th.

If you're not familiar with AVGO they are in the technology sector. The company is part of the semiconductor industry. They make chips that speed up mobile phones while reducing interference. According to company marketing materials, "Avago Technologies is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing. Backed by an extensive portfolio of intellectual property, Avago products serve four primary target markets: wireless communications, wired infrastructure, enterprise storage, and industrial and other."

AVGO is probably best known as a part supplier to Apple Inc. (AAPL). AAPL's huge success with the iPhone 6 and 6+ has been a blessing for AVGO. Earnings and revenue growth is seeing significant momentum. Revenues were up +137% from a year ago during Q2 (reported May 28th) and up +36% during Q3 (reported Aug. 26th).

Another key event happened on May 28th. AVGO announced they were buying rival Broadcom (BRCM) for $37 billion. Wall Street applauded the news and shares of AVGO rallied on the announcement. The combined company will have revenues of $15 billion a year. The M&A news also sparked a handful of new price targets on AVGO in the $160-170-180 region. Currently the point & figure chart is bullish and forecasting at $185 target.

As a high-profile, momentum stock shares of AVGO are volatile. I am suggesting traders start with small positions to limit risk. The stock is breaking out through significant resistance in the $125-130 region. Friday's display of relative strength (+1.8%) is a good sign and the first close above $130.00 in about two months. The intraday high on Friday was $131.22. We are suggesting a trigger to buy calls at $131.55. I'm listing the October calls. You may want to consider January calls but we'll exit ahead of October option expiration.

Trigger @ $131.55 *small positions to limit risk*

- Suggested Positions -

Buy the OCT $140 CALL (AVGO151016C140) current ask $3.50
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Ending On An Up Note

by James Brown

Click here to email James Brown

Editor's Note:

Stocks ended the week on an up note. With the exception of energy and commodity-related stocks, the U.S. market posted relatively widespread gains. Now all eyes turn toward the Fed meeting on Sept. 17th.

TIF hit our entry trigger.


Current Portfolio:


CALL Play Updates

The Walt Disney Co. - DIS - close: 104.48 change: +1.88

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: +12.3%
Average Daily Volume = 8.5 million
Entry on August 27 at $101.35
Listed on August 24, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/12/15: DIS outpaced the broader market with a +1.8% gain. Shares are once again challenging resistance near $105 and its simple 200-dma. I would be tempted to buy calls on a rally past $105.25.

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

09/12/15 a breakout past resistance near $105 could be a new bullish entry point.
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

chart:


Facebook, Inc. - FB - close: 92.05 change: +0.07

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +347.6%
Average Daily Volume = 27.3 million
Entry on August 24 at $77.03
Listed on August 20, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/12/15: After big gains on Thursday the relative strength in FB stalled. Shares hovered near $92.00 most of the session on Friday.

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: 115.18 change: +0.54

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +3.6%
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:
09/12/15: The major U.S. indices all kept pace with one another on Friday. The IWM rallied off its morning low ($113.66) and close up +0.47% near its simple 20-dma. The $116 area is short-term resistance.

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:


Michael Kors Ltd. - KORS - close: 44.15 change: +0.46

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:
09/12/15: KORS outperformed the market on Friday with a +1.0% gain. Shares look like they could re-challenge short-term resistance in the $45-46 area soon.

Currently our suggested entry point 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

chart:


Martin Marietta Materials, Inc. - MLM - close: 171.48 change: +0.71

Stop Loss: None, no stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: -17.9%
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:
09/12/15: MLM rebounded off its rising 10-dma again. Shares added +0.4%, which was in-line with the S&P 500's gain. The short-term trend of higher lows is bullish.

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

chart:


Noble Energy, Inc. - NBL - close: 31.19 change: +0.44

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -35.7%
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:
09/12/15: Crude oil ended the week with a loss while NBL shrugged off oil's weakness and posted a gain. Shares added +1.4% on Friday. It didn't hurt that shares were upgraded to a "buy" on Friday. The chatter that NBL is a prime takeover target also continued on Friday.

This is a speculative play. I would consider new positions now (if NBL doesn't gap open too higher on Monday) or you could wait for a rally past $32.00.

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

chart:


Post Holdings, Inc. - POST - close: 66.05 change: +1.91

Stop Loss: 62.40
Target(s): To Be Determined
Current Option Gain/Loss: -32.1%
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:
09/12/15: Great news! POST did not see any additional follow through on Wednesday's bearish reversal pattern. Shares rebounded with a +2.9% gain on Friday.

Let's see if POST can build on this rally 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

09/10/15 new stop at $62.40
More conservative traders may want to exit early tomorrow morning
09/03/15 triggered @ $66.55
Option Format: symbol-year-month-day-call-strike

chart:


Constellation Brands Inc. - STZ - close: 127.41 change: +0.00

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:
09/12/15: Friday's session was almost a carbon copy of Thursday for STZ. Traders bought the dip on Friday morning and shares rallied back to the $127.40 area. STZ actually closed unchanged on Friday.

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

chart:


The TJX Companies - TJX - close: 71.80 change: +0.31

Stop Loss: None. No stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: -15.5%
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:
09/12/15: TJX followed the broader market higher. Friday's +0.4% gain was in-line with the S&P 500's rally. I am suggesting readers wait for a rally past $72.25 before considering new bullish 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

Caterpillar Inc. - CAT - close: 72.63 change: +0.21

Stop Loss: 76.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.6 million
Entry on September -- at $---.--
Listed on September 10, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Comments:
09/12/15: CAT briefly traded below $72.00 but not low enough to hit our entry trigger on Friday. We are suggesting a trigger to buy puts when CAT trades at $71.75.

Trade Description: September 10, 2015:
The bear market in shares of CAT continues. Most of the big industrial names are down about -10% year to date. CAT is down -20% in 2015 and off about -35% from its 2014 highs. The company has seen business hurt by a multitude of factors.

If you're not familiar with CAT, a component of the Dow Jones Industrial Average, they are in the industrial goods sector. According to the company, "For 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2014 sales and revenues of $55.184 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three product segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment."

The earnings outlook has been somewhat volatile for CAT. On January 27, 2015, the stock collapsed to new 52-week lows after the company missed earnings estimates and guided lower for 2015. Three months later on April 23rd the company beat estimates on both the top and bottom line and management raised their 2015 guidance. Jump ahead three more months and on July 23rd CAT reported earnings that were in-line with expectations but revenues fell -13% to $12.3 billion. This was below analysts' revenue estimates. CAT's management lowered their 2015 guidance below Wall Street expectations. Naturally the stock plunged on this bearish outlook.

The company has been hurt by the crash in commodity prices. Low prices for coal, iron ore, and oil discourage production and thus the need for more equipment from companies like CAT and rival Joy Global. A couple of weeks ago CAT reported that worldwide sales were down -11% in July. That was actually an improvement from the -14% drop in June. Asia was hardest hit thanks to weakness in China. Joy Global just lowered their 2015 outlook a few days ago as they look ahead through the rest of 2015. CAT also expect a tough second half.

CAT is a global business. Currency translations are taking a big bite out of sales. Weakness in the euro, the Japanese yen, and the Brazilian real are all adding pressure. If the U.S. Federal Reserve raises rates that should boost the dollar and only make the currency issue worse.

CAT is trying to support their stock price with an accelerated stock buyback program of $1.5 billion. It doesn't seem to be working. Investors are selling every rally and CAT is in a clear down trend of lower highs and lower lows. Today CAT is hovering along short-term support at $72.00. We are suggesting a trigger to launch bearish positions at $71.75.

Trigger @ $71.75

- Suggested Positions -

Buy the NOV $70 PUT (CAT151120P70)

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:


Jack In The Box - JACK - close: 79.44 change: +1.25

Stop Loss: 82.55
Target(s): To Be Determined
Current Option Gain/Loss: -59.5%
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:
09/12/15: JACK did not cooperate on Friday. The stock gapped open lower at $77.52 but then bounced. Shares outperformed the broader market with a +1.5% gain. The $80.00-80.50 area is still short-term overhead resistance but I am not suggesting new positions at this time.

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:


Tiffany & Co. - TIF - close: 80.10 change: -0.10

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -11.6%
Average Daily Volume = 1.2 million
Entry on September 11 at $79.75-
Listed on September 9, 2015
Time Frame: Exit PRIOR to November option expiration
New Positions: see below

Comments:
09/12/15: TIF broke down to new 52-week lows on Friday morning and shares hit our suggested entry point at $79.75. Unfortunately the stock pared its losses by the closing bell. TIF still underperformed the broader market with a -0.1% loss on Friday.

I would wait for a new drop below $79.50 before considering new bearish positions.

Trade Description: September 9, 2015:
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.

- Suggested Positions -

Long NOV $75 PUT (TIF151120P75) entry $2.42

09/11/15 triggered @ $79.75
Option Format: symbol-year-month-day-call-strike

chart:


Wynn Resorts Ltd. - WYNN - close: 67.72 change: -1.95

Stop Loss: 72.45
Target(s): To Be Determined
Current Option Gain/Loss: +20.0%
Average Daily Volume = 2.7 million
Entry on September 10 at $69.85
Listed on September 1, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/12/15: WYNN's relative weakness continued on Friday with a -2.8% decline. Friday's move should confirm Thursday's bearish breakdown below support near $70.00.

Tonight we are adding a stop loss at $72.45.

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.

*caution - WYNN is a volatile stock* - Suggested Positions -

Long OCT $65 PUT (WYNN151016P65) entry $2.50

09/12/15 new stop loss @ 72.45
09/10/15 triggered @ $69.85
Option Format: symbol-year-month-day-call-strike

chart: