Option Investor
Newsletter

Daily Newsletter, Monday, 9/14/2015

Table of Contents

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

Market Wrap

Three Days Till The Fed

by Thomas Hughes

Click here to email Thomas Hughes
There are only three days left until the September FOMC meeting and possible rate hike announcement. . . and the market is waiting.

Introduction

It's Fed week once again and like all such the market is wound up in anticipation. After months, years, of speculation we are only three days away from the next chance at an interest rate hike and indication of economic health. This week is bound to be volatile. Adding to chances of volatility will be a round of economic data and options expiration on Friday.

There was some international news to affect early trading. Chinese Factory Output fell, adding to fears of slowdown, but were offset by a surge in Retail Sales. Asian indices fell, as did those in Europe, led by the Shang Hai Index -2.67%. The Japanese Nikkei fell -1.6% while those in Europe hovered closer to break-even levels.

Market Statistics

No economic data was released today and there were no market moving earnings reports. Futures trading was indicating a positive open at the earliest part of the pre-market session. By 8AM this had changed, the indices had fallen to break-even levels and were pushing negative territory going into the open. At the open trading began near to break-even levels and then moved down from there, the S&P 500 posting a loss near -11 at the low of the morning.

The early low held and produced a bounce which carried the indices sideways into the lunch hour. Between 12:00 and 2:00 support along the low was tested, eventually producing another bounce. The second bounce of the day was short lived, the market quickly retreat back to today's support levels where a second consolidation resulted in a third bounce. The third bounce occured just before the close of the day and left the indices near the bottom of today's range.

Economic Calendar

The Economy

As mentioned, no official US economic data today but there is quite a bit this week. Tomorrow is Retail Sales, Empire Manufacturing, Industrial Production and Business Inventories. Wednesday is TIC Flows, CPI and the Housing Index. Thursday is Jobless Claims, Housing Starts, Building Permits, Philly Fed Survey and the September FOMC Meeting. Friday wraps it up with the Leading Indicators. Obviously, the FOMC Meeting is the most likely market mover of the week, although the week as a whole is fairly significant in the rate hike cycle outlook.

Moody's Survey Of Business Confidence fell -0.9% to 41.9 in the last week. According to the summary from Mark Zandi it reflects a softening in outlook for present conditions due to recent turbulence in the financial markets. On the positive side confidence remains near long time highs and showing particular strength in the US. Sales, hiring and business investment have been areas of strength all year and continue to be so now.


Another earnings season is fast approaching and it is not expected to be any better than last. According to FactSet the current expectation for 3rd quarter earnings growth among S&P 500 companies is -4.4%. This is down from -1% at the beginning of the last reporting season. Last quarter expectations hit a low near -4.8% but outperformed with a net decline of -0.7%. Based on the four year averages we can expected the 3rd quarter to improve from -4.4% to near 0% by the end of the season. There are four companies left to report for the 2nd quarter, they report this week. Alcoa officially kicks off the new season October 8th.

Energy is going to be the big drag on earnings again. The energy sector is expected to show earnings declines greater than -60, followed by -12% decline in the Materials Sector. Ex-energy S&P 500 earnings growth is positive at 6.9%, well ahead of the ex-energy final for the 2nd quarter. Next year revenue and earnings growth is expected to return with full year 2016 growth at 10.2%.

Telecom, Consumer Staples, Financials and HealthCare are the only sectors expected to show increases in earnings. Healthcare is the laggard of those four with estimated growth near 7.5%. Last quarter the Healthcare Sector had similar expectations and blew them away, more than doubling them by the end of the season, and could be set up to do so again.

The Oil Index

Oil prices fell -1.40% in today's session. Supply and production remain high despite falling US rig counts and rumors of international efforts to stabilize prices. Rumors of efforts to curb supply issues helped support prices over the past two weeks but so far have not resulted in any change to fundamentals. Weak Chinese data is also helping depress demand expectations so it looks like oil could continue to move lower. Today's action took WTI below $44.

The Oil Index fell -1.5% in today's action. The index is setting a new three week low with weakening indicators. Stochastic has already turned over, MACD is about to make the bearish crossover, and is pointing to a retest of the recent low near 1,020. Earning expectations for the energy sector is not good for the coming season and could result in a test of the low or a new low, depending on how oil trades between now and when the big companies report, about 6 weeks from now. However, the long term outlook for the energy sector is a return to earnings growth in 2016 so any weakness remains a potential buying opportunity for long term positions.


The Gold Index

Gold prices rose in today's session but are holding near the 1 month low. Trading was choppy but hovered between $1105 and $1110. Gold seems to be stabilizing just above the $1100 support level going into the FOMC meeting with price tied to their decision and how it affects dollar value. The biggest risk is that the Fed will raise rates and strengthen the dollar, a move that will likely send gold back below $1100. Should the Fed not raise rates gold could spike to $1150 or higher but I think any such move would be short lived, rates will get raised sooner or later. Economic data released tomorrow and Wednesday could add to volatility.

The Gold Miners ETF GDX lost nearly a full percent in today's session and is flirting with a new all-time closing low. The miners are now trading at support levels set and tested in August as gold was setting its lows. The ETF is now positioned to bounce or move lower, dependent on direction in gold prices. Since many of the miners have already set new lows on an individual basis it looks like the rest will soon follow. Support for the ETF is $13.00, a break below here could take it to $12.00 or lower.


In The News, Story Stocks and Earnings

Apple gained more than 1.25% after news they were on target to break all-time iPhone sales records hit the market. A separate report stating sales of wearable devices such as the Watch were going to triple this year over last helped to spur the move. Apple is now trading above the short term moving average for the first time since it began its descent two months ago. Shares are also trading above my support/resistance line at $115.50. The indicators are bullish and gaining strength so this move may not be over, we are going into the fall/holiday shopping season. Upside targets are near $120 and $125 should today's move hold. Support is just below today's closing price in the range between $110 and $115.


Alibaba made big headlines today. A big story from Baron's over the weekend, outlining the many ways in which the Chinese based online retailer is misrepresenting itself to share holders, was met by a lengthy response from Alibaba's. The story basically calls Alibaba a fraud but is nothing more than any one else has said at one time or another. Regardless, the Baron's story shook investor confidence and sent the stock down more than -3%. It is now trading just above the long term low with bearish indicators. $60 could prove to be support but it looks like it will be tested.


Oracle reports earnings on Wednesday. I like to use it as a benchmark, its roughly half-way between the end of one earnings season and the next. The software giant is expected to report a decline in year over year and quarter to quarter earnings, in the range of $0.50. Cloud computing is expected to outperform but not enough to offset weakness in software sales. The stock lost -1% in a move confirming resistance at the short term moving average. The stock has been below the average for three months and is now consolidating just beneath it, ahead of earnings. Weak earnings, particularly weaker than expected calendar 4th quarter outlook, could send it back to $35. A break above the moving average could go to $40.


The Indices

The indices fell in today's session but not hard. Today's action was no fear driven sell-off, merely an orderly retreat to support levels ahead of what could be an historical FOMC meeting. The move was led by the Dow Jones Transportation Average and a loss of -0.45%. The transports created a very small black candle sitting just above 8,000 and on the short term moving average. Today's action appears to be another in a slow wind up from the recently hit bottom that could result in a sharp move in the near future. The indicators are bullish but may have topped out, which along with a convergence with the recent low, suggest a test of that low is possible if not likely. Support target is about 250 points lower, along 7,750, with resistance equidistant near 8,250.


The S&P 500 made the second largest decline, -0.41%. The broad market also created a small bodied black candle but one that formed well below the short term moving average. It also formed below the long term trend line and comes with indicators that are bullish, but weaker than those on the transports. Today's action is near the point of a triangle pattern/wind-up that has been forming since hitting bottom last month. A retest of the bottom or support near 1,900 is likely although long term outlook remains bullish. Resistance is just above the current level in the range of 1,950 to 1,980 with a break above the trend line consistent with the long term trend.


The Dow Jones Industrial Average posted the next smallest decline, -0.38%. The blue chips created a small bodied black candle well below the short term moving average and potential resistance at the 16,500 level. The indicators are bullish but very weak, they give more indication of range bound trading than anything else. This, combined with a convergence between the most recent low and a strong bearish MACD peak, suggest a test of the low is very likely.


The NASDAQ Composite made the smallest decline, -0.34%. The tech heavy index created a small bodied candle just above the 4,800 support line and below the short term moving average. The indicators are bullish but showing signs of near term resistance that could cap forward movement at the moving average. I'm still looking for a retest of support, possible as low as 4,250, based on convergence with MACD, failing to break above the moving average could lead to that event. Long term outlook remains bullish but near term volatility is likely.


The summer is over, many of the near term fears that drove summer trading are gone, the market has corrected, the FOMC meeting is here once again and it is options expiration week to boot. I think it needless to say that this week could be volatile.

The FOMC meeting is the focus of much speculation and will likely spark a significant market move, one aided and enhanced by unwinding options positions. This unwind could lead to violent moves in either, or both, direction and result in the retest of support hinted at by the indices.

Regardless of two quarters of weak earnings growth the economy, according to the data, is back on track and growing. The FOMC may raise rates, and it may scare near term traders, but if they do raise them it will be an affirmation of economic strength and not a a sign of impending doom. I'm waiting for the meeting, and the smoke to clear once the statement is released, but I am still bullish on the market and anticipate a rally into the end of the year.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Outperforming The Market

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Vulcan Materials Co. - VMC - close: 99.84 change: +0.71

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on September -- at $---.--
Listed on September 14, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: Yes, see below

Company Description

Trade Description:
VMC and rival MLM are some of the best performing stocks this year. The S&P 500 index is down -5% year to date while VMC is up +51%. That's because the construction business in the U.S. has rebounded. VMC is a domestic company that primarily sells its building materials in the U.S.

According to the company, "Vulcan Materials Company is the nation's largest producer of construction aggregates-primarily crushed stone, sand and gravel-and a major producer of aggregates-based construction materials, including asphalt and ready-mixed concrete. Our coast-to-coast footprint and strategic distribution network align with and serve the nation's growth centers."

Looking at the last few earnings reports VMC has had some trouble meeting Wall Street's bottom line earnings estimates. However, they have been consistently beating on the revenue estimate. The last three quarters in a row have seen revenues come in better than expected. The most recent quarter (Q2) was reported on August 6th and revenues were up +13%.

The stock has seen multiple upgrades into the $106-110-111 region. The point & figure chart is bullish and forecasting at $115 target. The stock has displayed significant strength with its bounce off the late August lows (when the market corrected lower).

Today VMC is challenging round-number, psychological resistance at $100 and closed at new multi-year highs. The intraday high on September 9th was $101.00. We are suggesting a trigger to buy calls at $101.15.

Trigger @ $101.15

- Suggested Positions -

Buy the NOV $105 CALL (VMC151120C105) 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:



In Play Updates and Reviews

The Waiting Game

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market's early morning gains faded. Stocks spent the rest of the day drifting sideways. Investors are waiting on the announcement from the FOMC meeting on Thursday afternoon.

AVGO hit our entry trigger.

KORS has been removed.


Current Portfolio:


CALL Play Updates

Avago Technologies - AVGO - close: 131.19 change: +0.11

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -10.8%
Average Daily Volume = 3.8 million
Entry on September 14 at $132.50
Listed on September 12, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/14/15: Our new trade on AVGO is open. The plan was to buy calls at $131.55 but AVGO gapped open higher this morning at $132.50. Shares hit $133.73 before giving back nearly all of its Monday morning gains.

After looking at the intraday chart I am suggesting readers wait for a rally past $131.75 before initiating new positions.

Trade Description: September 12, 2015:
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.

*small positions to limit risk* - Suggested Positions -

Long OCT $140 CALL (AVGO151016C140) entry $3.70

09/14/15 triggered on gap open at $132.50, suggested trigger was $131.55
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co. - DIS - close: 103.82 change: -0.66

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
Average Daily Volume = 8.5 million
Entry on August 27 at $101.35
Listed on August 24, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/14/15: DIS' early morning attempt at a rally failed near resistance at $105.00. Shares spent the rest of the day churning sideways in the $103.00-104.00 range.

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


Facebook, Inc. - FB - close: 92.31 change: +0.26

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +357.1%
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:
09/14/15: FB displayed relative strength again by ignoring the market's widespread declines on Monday and adding another +0.28%.

The close above $92 and its 50-dma looks bullish but I would not launch new positions at this time.

Trade Description:
Facebook needs no introduction. It is the largest social media platform on the planet. As of June 30th, 2015 the company reported 1.49 billion monthly active users and 968 million daily active users. If FB were a country that makes them the most populous country on the planet. China has 1.35 billion while India has 1.25 billion people.

Earlier this year (March) the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

Meanwhile business at FB is great. According to IBD, FB's Q4 earnings, announced in January, were up +69% from a year ago. Revenues were up +49%. The company released their Q1 results on April 22nd. Earnings were up +20% to $0.42 per share, which beat estimates. Revenues were up +41.6% to $3.54 billion in the first quarter.

FB's Q2 results, announced July 29th, were also better than expected. Earnings were $0.50 per share, which was three cents above estimates. Revenues surged +39% to $4.04 billion, above expectations. Daily active users were up +17%. Mobile daily active users were up +29%. Monthly actives were up +13%. Wall Street expects income to surge next year with +12% profit growth in 2015 but +32% profit growth in 2016.

FB continues to see growth among its niche properties. The company bought Instagram for $1 billion in 2012. Last late year Instagram surpassed Twitter with more than 300 million active users. FB is also a dominant player in the messenger industry with more than 600 million users on WhatsApp and 145 million users on Facebook Messenger.

FB has not yet started to truly monetize its WhatsApp and Messenger properties. It's just now starting to include ads in Instagram. Eventually, with audiences this big, FB will be able to generate a lot of cash through additional advertising. On the subject of Instagram advertising, FB just released the advertising API for the photo-sharing service in August 2015. The API or application programming interface will allow third-party marketers to plug into the system to buy advertising. Instagram could soon rival Google and Twitter for the online ad market. According to EMarketer, Instagram will surpass Google and Twitter for U.S. mobile display ad revenue by 2017.

Since we are talking about advertising, this year has seen FB jump into the video ad market with both feet and it's off to a strong start. FB claims that it's already up to four billion video views a day. They had 315 billion video views in Q1 2015. That's pretty significant. YouTube had 756 billion video views in Q1 but YouTube has been around for ten years (FYI: YouTube is owned by Google). FB has only recently focused on video.

Wall Street is growing more optimistic as FB develops its blooming video ad business, its Instagram business, and messaging properties. In the last several weeks the stock has seen a number of price target upgrades. Bank of America upped their FB price target from $95 to $105. Cantor Fitzergerald upped theirs to $100. Brean Capital raised theirs to $108. Piper Jaffray upgraded their FB target to $120.

After surging to new highs in mid July shares of FB had been consolidating sideways in the $92-99 zone. The stock broke down through the bottom of that trading range today with a -4.98% plunge toward technical support at the simple 50-dma. The broader market looks very vulnerable right now with the S&P 500, the NASDAQ composite, and the small cap Russell 2000 all piercing key support levels with today's sell-off. If this market weakness continues we want to take advantage of it.

Stocks tend to overreact to big market moves, especially to the downside. FB is no exception. When traders panic they sell everything. We want to be ready to buy FB when it nears support. Prior resistance near $85-86 should be new support. Tonight we are suggesting a buy-the-dip trigger to buy FB calls at $85.50. If triggered we'll start with a stop at $81.40, just below the simple 200-dma.

- Suggested Positions -

Long OCT $90 CALL (FB151016C90) entry $1.05

09/05/15 FB recently announced their WhatsApp service has hit 900 million people
08/27/15 Zuckerberg announced that FB hit a new milestone - one billion people used FB in a single day.
08/24/15 Strategy Update = remove the stop loss. Expect more volatility
08/24/15 Trade opens. FB gapped down at $77.03.
08/22/15 Adjusted entry point. FB missed our buy-the-dip trigger at $85.50 by a few cents on Friday. We want to buy calls at the opening bell on Monday morning, August 24th.
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 114.65 change: -0.53

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: -4.8%
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:
09/14/15: The IWM spent Monday's session drifting sideways. Shares essentially erased Friday's small gain.

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


Martin Marietta Materials, Inc. - MLM - close: 172.88 change: +1.40

Stop Loss: None, no stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: -8.9%
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:
09/14/15: MLM displayed some relative strength today. Shares hit new two-week highs near $175.00 this morning. MLM pared its gains by the close but still added +0.8%.

No new positions at this time.

Trade Description: September 2, 2015:
Industrial sector stocks have not had a good year. The IYJ industrial ETF is down -7.4%. The XLI industrial ETF is down -9.7% year to date. Yet shares of MLM are up +52.7% for 2015. (for the record the Dow Jones Industrial Average is down -8.3%).

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

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

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

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

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

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

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

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

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

- Suggested Positions -

Long OCT $175 CALL (mlm151016C175) entry $5.60

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


Noble Energy, Inc. - NBL - close: 30.90 change: -0.29

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -33.3%
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:
09/14/15: NBL delivered a very quiet session. The stock spent most of the day inside a 50-cent range.

This is a speculative play. I would consider new positions now (if NBL doesn't gap open too high tomorrow morning) 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


Post Holdings, Inc. - POST - close: 65.27 change: -0.78

Stop Loss: 62.40
Target(s): To Be Determined
Current Option Gain/Loss: -36.2%
Average Daily Volume = 1.0 million
Entry on September 03 at $66.55
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/14/15: Unfortunately POST did not see any follow through on Friday's bounce. Shares actually underperformed today with a -1.1% decline.

No new positions at this time.

Trade Description: August 29, 2015:
Shares of ready-to-eat cereal maker POST have shown surprising strength this month and the last few days during the market turmoil. POST is also poised to be one of the better performing stocks this year with a +57% gain year to date.

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

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

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

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

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

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

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

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

- Suggested Positions -

Long OCT $70 CALL (POST151016C70) entry $2.43

09/10/15 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


Constellation Brands Inc. - STZ - close: 127.90 change: +0.49

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 Earnings on October 7th
New Positions: Yes, see below

Comments:
09/14/15: We are starting to run out of time on our STZ trade and it's not even open yet. Shares displayed relative strength today with a +0.38% gain. We are waiting for a breakout past resistance. Our suggested entry point is $130.55. Our new challenge is time. STZ is due to report earnings on October 7th and normally we like to exit prior to an earnings announcement.

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

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

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

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

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

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

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

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

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

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

Trigger @ $130.55

- Suggested Positions -

Buy the OCT $135 CALL (STZ151016C135)

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

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


The TJX Companies - TJX - close: 71.21 change: -0.59

Stop Loss: None. No stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: -24.1%
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:
09/14/15: Hmm.... TJX underperformed the broader market. Shares lost -0.8% versus the S&P 500's -0.4% decline.

I would hesitate to launch new positions.

Trade Description: August 26, 2015
Believe it or not but there are only 120 days until Christmas 2015. Most of us are just adjusting to school starting again but retailers are already planning for the 2015 holiday shopping season. Historically the time to buy retailers has been early fall (i.e. right now) and then sell on Black Friday (day after Thanksgiving). TJX could be a great way to play that seasonal trend.

TJX is in the services sector. According to the company, "The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of May 2, 2015, the end of the Company's first quarter, the Company operated a total of 3,441 stores in seven countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, and Austria, and three e-commerce sites. These include 1,126 T.J. Maxx, 987 Marshalls, 498 HomeGoods and 6 Sierra Trading Post stores, as well as tjmaxx.com and sierratradingpost.com in the United States; 239 Winners, 97 HomeSense, and 39 Marshalls stores in Canada; and 416 T.K. Maxx and 33 HomeSense stores, as well as tkmaxx.com, in Europe."

Just a couple of days before the market collapsed TJX reported its Q2 2016 earnings results (on August 18th). Wall Street was looking for a profit of $0.76 per share on revenues of $7.25 billion. TJX beat both estimates with a profit of $0.80 per share and revenues of $7.36 billion. Earnings were up +7% from a year ago and revenues were up +6.5%. Gross margins improved. Comparable-store sales improved from +3% a year ago to +6%. TJX said their customer traffic improved for the fifth quarter in a row.

Most retailers have not been doing so hot this year so TJX management was naturally optimistic given their strong results. Carol Meyrowitz, Chairman and Chief Executive Officer of The TJX Companies, Inc., commented on her company's quarter,

"We are extremely pleased that our momentum continued in the second quarter. Our 6% consolidated comparable store sales growth and 7% adjusted EPS growth significantly exceeded our expectations. It was great to see that comp sales were entirely driven by customer traffic - our fifth consecutive quarter of sequential traffic improvement - and that we had strong sales across all of our divisions. Our flexible model and ability to offer an eclectic, exciting merchandise mix at outstanding values continues to resonate with consumers in all of our geographies. We were also very pleased with our solid merchandise margins. We are proud of our strong comp sales, traffic increases and merchandise margins, all of which are core to a successful retail business. We enter the back half of the year in an excellent position to keep our momentum going and have many exciting initiatives planned. I am convinced that our gift-giving selections will be better than ever this year, and that our fall and holiday marketing campaigns will keep attracting more shoppers to our stores. Above all, we will be offering consumers amazing values every day! The third quarter is off to a solid start and we are raising our full year comp sales and earnings per share guidance. Today, we are a nearly $30 billion retailer with a clear vision for growth, a differentiated apparel and home fashions business, and world-class organization. Looking ahead, we are confident that we will achieve, and hope to surpass, our plans as we continue to bring value around the world and grow TJX to a $40 billion-plus company!"
TJX management did lower their Q3 guidance but they raised their full year 2016 EPS forecast. They also raised their 2016 comparable store sales estimate from +2-3% to +3-4%. It was the second quarter in a row that management raised their guidance.

The stock market's recent sell-off produced a correction in shares of TJX, which fell from its August high of $76.78 down to an intraday low of $67.25 on Monday morning. That is a -12.4% correction. Shares just happened to bounce near technical support at the simple 200-dma and its late July lows near $67.00. In spite of the sharp retreat the point & figure chart is still bullish and still forecasting at long-term $98.00 target.

Tonight we are suggesting a trigger to buy calls at $72.05. This is a relatively longer-term trade and hope to hold this position for several weeks.

- Suggested Positions -

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

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




PUT Play Updates

Caterpillar Inc. - CAT - close: 72.77 change: +0.14

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:
09/14/15: Shares of CAT bounced off short-term support near $72.00 this morning. Yet the stock did not see that much follow through higher.

We are still bearish. Our suggested entry trigger is $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


Jack In The Box - JACK - close: 77.37 change: -2.07

Stop Loss: 82.55
Target(s): To Be Determined
Current Option Gain/Loss: -43.7%
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:
09/14/15: It was a decent day for JACK bears. The stock's attempt at a rally this morning failed beneath resistance near $80.00. Shares reversed lower and underperformed the market with a -2.6% decline. I would be tempted to launch new bearish positions on a drop below $77.00.

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


Tiffany & Co. - TIF - close: 79.60 change: -0.50

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: - 9.5%
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:
09/14/15: TIF's attempt at a rally failed near Friday's high at $80.50. Shares eventually sank to a -0.6% decline. I would consider new bearish positions here or you could wait for a drop beneath today's low (79.32).

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


Wynn Resorts Ltd. - WYNN - close: 68.47 change: +0.75

Stop Loss: 72.45
Target(s): To Be Determined
Current Option Gain/Loss: + 8.8%
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:
09/14/15: WYNN saw a little bit of an oversold bounce on Monday. Shares dipped to new multi-year lows this morning and hit $66.72. Then WYNN started to bounce and ended the session up +1.1%.

No new positions at this time.

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



CLOSED BULLISH PLAYS

Michael Kors Ltd. - KORS - close: 43.15 change: -1.00

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: see below

Comments:
09/14/15: We are cutting KORS loose. Shares underperformed the market with a -2.26% decline. Our trade has not opened yet. Tonight we are removing it from the newsletter.

Trade did not open.

09/14/15 removed from the newsletter, suggested entry was $46.05

chart: