Option Investor
Newsletter

Daily Newsletter, Monday, 9/28/2015

Table of Contents

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

Market Wrap

Almost Back To Recent Lows

by Thomas Hughes

Click here to email Thomas Hughes
The market continues it corrective action in today's session, the major indices are now approaching the recent lows.

Introduction

The market continued corrective action in today's session. A slew of headlines ranging from slowing China to economic data to corporate news all playing a part in a sell-off which took the indices down more than -1.25%.

The sell-off began in China where new data renewed fears of a hard-landing for its economy. According to reports Chinese industrial profits fell -8.8% year-over-year, the fastest pace of decline in over 4 years. Markets in Asia were mixed on the news although several key exchanges are closed for holiday's. Japanese stocks sold of the hardest in the Asia region. The Nikkei fell -1.32% but was also heavily impacted by a round of stocks going ex-dividend.

Market Statistics

European indices were hit hard. The China news as well as the ongoing VW scandal, a sharp drop in mining stocks and an expected downgrade in global growth. On the VW front Audi says some of its vehicles are affected while on the growth front Christine Lagarde says slowing in emerging markets is hurting estimates.

All this news had US futures trading in the red from the start of the early session. A few positive bits of corporate news was not enough to off-set other, less positive, news as well as some tepid economic data. Futures weakened going into the open with the SPX indicated down about a half percent. After the open the indices moved lower as expected and kept drifting lower into the early afternoon. Intraday bottom was finally hit in late afternoon but it did not produce a significant bounce, the indices closed near the lows of the day.

Economic Calendar

The Economy

First up on the economic front is Personal Income and Spending, released at 8:30AM. Income rose by 0.3%, slightly below expectations for 0.4% and last month's 0.5%. Spending rose by 0.4%, above expectations for a gain of 0.3% and in line with last months 0.4%. While not robust these numbers remain positive and show continued growth in wages and spending. From my perspective it shows that wage inflation remains steady, if tame, and that the consumer is spending more, both in-line with current trends and future expectations.

Pending Home sales, based on signed contracts and a leading indicator of Existing Home Sales, declined by -1.4% from last month's figures. Despite the decline Pending Sales are up 6.1% year-over-year and this is the 12th month of year-over-year increases. The decline in signed contracts is attributed to tight supply and higher prices by Lawrence Yun, NAR's chief economist. Again, this month's number is not robust but remains positive and consistent with long term recovery in the housing market. Mr. Yun went on to say in his statements that he expects this years pace of sales to remain constant although there are some obstacles ahead.

Moody's Survey Of Business Confidence declined for the fourth week since hitting a peak in late August. The index declined by -1.3 points to hit 39.9, the lowest level since March of this year. Despite the decline the index remains near long term high levels and according to Mark Zandi, Moody's chief economist, indicates strong levels of confidence for international businesses. According to his summary the US leads in sentiment. Fear of Chinese slowing and global financial turmoil are possible causes for the decline in the index but as yet there are signs of sentiment reversing.


According to FactSet the blended rate for Q3 S&P 500 earnings growth is -4.5%. This is steady from last week and down -3.5% from expectations at the start of the third quarter. So far 15 companies have reported with 14 beating on EPS estimates and 10 beating revenue estimates. Bank Of America is expected to have the single largest positive impact on earnings growth. On a sector level Telecom is expected to be the single largest positive contributor, 17%. There are 4 companies reporting this week.

Energy is expected to be the sector with the largest decline in earning growth, over -64%. This is more than the -50% expected earlier this year. Ex-energy growth should be in the range of 2.3%. Based on the four year averages we can expect to see final S&P 500 Q3 growth in the range of -0.5%, with ex-energy earnings in the range of 6.0%.

Looking forward, analysts are still expecting to see earnings growth return in the fourth quarter. According to FactSet this growth could result in record setting EPS for the index. Revenue growth is not expected until next year. Earnigns growth in 2016 has come down a half percent, largely due to revisions in the energy sector, but is still +10%.

This is a big earnings week. Tomorrow is Case-Shiller and Confidence, Wednesday is ADP Employment, and Chicago PMI. Thursday is weekly Jobless Claims, Challenger Lay-off's, Auto/Truck Sales, ISM and Construction Spending. Friday will be the big day with NFP and Unemployment Rates. NFP is expected in the range of 200K and this could be on the weak side. We've gotten good employment data this month, even within the headline poor manufacturing data. Unemployment is expected to hold steady.

Also on tap this week are several, at least 4, speeches from Federal Reserve Governors. Today Dudley spoke and says that an interest rate hike is most likely going to come later this year. He also said that the move would be data dependent, no surprise, and that it would not be driven by the calender. Expect more this week from Janet Yellen, Lael Brainard and Stanley Fischer. The minutes of the last meeting come out next week.

The Oil Index

Oil prices took another hit today. The weak China data is the most likely culprit although the global market sell-off bears some of the blame. WTI fell nearly -3% on an intraday basis to trade below $44.50 and near the bottom of the one month range. The market is still trying to make sense of supply/demand imbalance. A few draw-downs in US supply has been providing support the past couple of weeks, along with a decline in the US rig count, but global production remains high, storage remains high and demand growth is weak with China weighing heavily on it.

The Oil Index fell about -2.75% in today's session. The index is now just a few points above the recently set low and appears to be set up for a full retest of support at that low. Stochastic has been moving steadily lower over the past few weeks, leading the index, and MACD has now confirmed with a bearish crossover. Support target is near 1,020, I will be looking for signs of bounce with next year's earnings growth in mind. However, if oil moves down to retest it's lows or even lower this support may not hold. Earnings are not expected to be good this reporting season, they get better next quarter and next season but a fall in oil prices will hurt that outlook.


The Gold Index

Gold prices fell more than -1%. The move was supported by renewed FOMC rate hike fears which have been whipped up over the past few trading days by Fed Speak. Today's move was a little odd due to the dollar trade. The dollar index lost about a quarter percent on tepid housing and spending data, a move that ordinarily pushes gold higher. The metal is now trading just above $1130 and back near the mid-point of recent trading ranges. Strong dollar or strong FOMC rate hike expectations could send gold down to $1100, weak dollar or dovish FOMC expectations could send it up to $1150, both on knee-jerk reaction and both driven by the data. Without inflation and a rate hike on the horizon gold does not appear to be reversing its down trend. The caveat is that we have a government shut-down looming and that could put a bid into gold regardless of Fed Speak, inflation or dollar strength.

The gold miners have retreat to last week's lows. The Gold Miners ETF GDX lost -4.5% in a move that gapped down from the short term moving average and looks set to test long term support. Support is near $13 and has been tested twice since being set in early August. The indicators are consistent with an index settling down to support levels and rolling over into a possible bearish signal. MACD is retreating from weak bullish peak and looks like a test of support would bring it to the zero line at least, stochastic is forming a bearish crossover in-line with the prevailing down trend in the index. A break below this line would be bearish and could result in a move down as low as $11. If support holds, and there is catalyst to get gold moving to the upside, the ETF could rise to the top of the two month range near $16.00.


In The News, Story Stocks and Earnings

There were several head lines from the corporate front to help get the market moving today, not all of them bearish. Apple reported that it experienced record sales of iPhone 6's over the weekend, pretty much as expected. The company reported sales of 13 million phones, better than last years numbers, and ahead of analysts expectations in the range of 12-13 million phones, but comes with a major caveat. Last year did not include numbers from China, this year they did and reveal slower sales growth than the headline would lead you to believe. The news is nonetheless good for Apple and helped cushion it in today's trading session. Shares of Apple fell about -1.5% to trade below resistance and the short term moving average. The indicators are rolling consistent with a peak and resistance so a retest of support is possible. Support targets are near $110 and $105.


Alcoa announced that it was splitting into two companies, an upstream miner/smelter and a down stream value added products group. The move is and isn't surprising. The company has been scooping up value added businesses for several years in an attempt to diversify into an integrated aluminum company from its historic role as a miner. This move is intended to unlock value and will roughly split the business in two based on annualized revenues. Alcoa was one of very few companies to trade positive today although it did fall from the short term moving average to form a black candle (after gapping open). The stock is forming a potential bottom that as yet is unconfirmed. A break above $10 would be bullish but require the companies to prove their earnings potentials. Support is in the range of $8-$9.


Veleant made the news today as congressional democrats push to have company execs subpoenaed. This is due to the recent price gauging issues that came to light last week in and in the wake of Hillary Clinton's vow to stop such practices. Valeant is accused of buying the rights to two drugs earlier this year and then immediately raising the prices. The news was bearish for the pharma company and not good for Bill Ackman's Pershing Square. The last report I saw says Pershing has invested 20% of its capital in the company, which lost -15% today and -30% over the past week. One report I read today estimates Pershings loss for today at $700 million.


Cal-Maine, one of the nations largest egg producers, reported stellar earnings today but fell short of analysts expectations. The company reported +70% increase in sales, driven by expansion plans and rising egg prices, but the cost of purchased eggs and enhanced bio-security efforts cut into the bottom line. On a split adjusted basis earnings per share rose more than 500%, with additional expansions plans about to begin production, and yet the stock lost more than -12% in today's session. The stock is now trading near the bottom of the 4 month trading range. The indicators are rolling over into a bearish signal with down-side targets near $45. Looking forward, if the US hen flock is able to recover this year, as in no more bird flu outbreaks, then earnings could have a negative impact. So far no new outbreaks are reported, Cal-Maine's flock is untouched as yet, but we are still in a risky part of the season as migratory birds are still moving.


The Indices

The market continued its sell-off today in a move that has taken the indices down to support levels. Today's action was led by the NASDAQ Composite which was led lower by the bio-techs. The tech heavy index fell a little more than -3% in what was the biggest movement of the index in nearly a month. The index created a long black candle and broke through my first support target with indicators in confirmation of the move. Both indicators are bearish, and pointing to lower prices, with next support target just below 4,350. This would put the index back to the low set last month and consistent with the short term MACD analysis which had been indicating a retest was at least possible, if not probable. Once reached support will need to be watched for signs of strength and/or weakness.


The SPX was the next biggest loser in today's session. The broad market shed -2.57% in a move that just about reached the low set in August where the NASDAQ is still well above its low. The indicators are bearish, MACD confirmed with today's action, and are pointing to a retest of the low if not a breach of it. Support is near 1,860 with a possible move below that to 1,850 or even 1,800. Data will be important, but I think earnings and earnings growth and earnings expectations are going to be what makes or breaks support.


The Dow Jones Transportation Average made the third largest decline in today's session. The transports lost -2.23% and are setting up for a retest of support just like the techs and broader market. Today's candle is long and black, not the longest in the last month but pretty close, and broker my first support target near 7,750. The indicators have rolled into a bearish signal with rising momentum with next target at the recent low set last month. Next target for support is just shy of 7,500,


The Dow Jones Industrial Average made the smallest decline in today's session, only -1.92%. The blue chips not only made the least decline, they also have not yet reached first support target which is near 15,750. The indicators are retreating and leading to a possible test of that target but momentum remains bullish at this time, it has not confirmed. A break below this target could take it as far as the intraday low set last month.


The market sold off today, and sold off hard. On a positive note, despite today's decline it still looks like we're in for a retest of support and not a full market reversal. I say this because economic trends remain positive, as do forward earnings expectations. If the economy was in decline with a contraction of revenue and earnings on tap I would probably be singing a different tune. This quarters reporting season is not going to be a good one, but it is expected to be the last bad one ahead of at least 5 quarters of earnings and revenue growth.

There is still a little time before positive forward earnings expectations will become the focus of near term traders so nearer-term issues such as 3rd quarter earnings, slowing China, the as yet unfulfilled promise of an FOMC rate hike, and election hoopla will continue to drive the day to day trade. This being said I am going to be looking for a bounce, a bullish entry and possible rally into the end of the year.

Things to watch out for this week include earnings, as mentioned, but also the end of a quarter. The 3rd quarter ends on Wednesday and could produce a bit of volatility of its own. Economic data is going to be important as well, including Fed Speak. So long as trends remain intact I remain a bull.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Cashing In On Athleisure

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Nike, Inc. - NKE - close: 122.14 change: -2.86

Stop Loss: 112.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.6 million
Entry on September -- at $---.--
Listed on September 28, 2015
Time Frame: Exit PRIOR to earnings in December
New Positions: Yes, see below

Company Description

Trade Description:
In the athletic footwear and apparel industry Nike is the 800-pound gorilla with annual sales of more than $30 billion. According to the company, "NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

The stock has been a great performer thanks to NKE constantly delivering better than expected results. Today shares of NKE are up +27% for 2015 versus an S&P 500 that is down -8.6%.

Looking at the last few quarters NKE has seen strong growth across all geographic categories. Their 2015 Q3 results were announced on March 19th. Earnings and revenues were better than expected. Sales were up +7% but on a currency neutral basis Q3 sales were +13%. Margins improved and their online sales soared. This trend has continued over the last six months.

NKE's 2015 Q4 results were announced on June 25th. Earnings were 15 cents above estimates while revenues beat expectations at $7.78 billion. On a reported basis sales were up +4.8% but on a currency neutral basis sales rose +13%. Global future orders, a key metric Wall Street watches for NKE, were up +2% but backing out currency headwinds future orders were up +13%, above estimates.

The trend of earnings beats continued with NKE's most recent report on September 24th (last week). Analysts were expecting a profit of $1.19 per share on revenues of $8.22 billion. NKE beat both estimates with a profit of $1.34 a share. Revenues were up +5.4% to $8.41 billion. Margins improved again thanks to a shift to higher-margin products and continued growth for online sales.

Management said revenues in Western Europe were up +14%. Emerging market sales were up +19%. North American sales rose +9% and future orders are up +15%. China was a bright spot as the great China region delivered sales growth of +30% and future orders are up +27%.

NKE's global future orders improved from +2% the prior quarter to +9%. Yet on a constant currency (neutral) basis their future orders are up +17%, which is significantly above analysts expectations.

This better than expected report and their bullish forecast for orders generated a parade of positive comments from Wall Street analysts. Several reiterated their "buy" rating or upgraded the stock. A few upgraded their price targets into the $140 area. The point & figure chart is bullish and forecasting a long-term target of $182.00.

Last week's earnings report saw NKE's stock pop to new highs near $125.00 a share. Today NKE saw some profit taking, down -2.28%. The broader market is sinking and this could drag on NKE. The stock is likely to fill the gap from Friday morning. Meanwhile prior resistance in the $117.00 area should be new support. We want to take advantage of any short-term weakness in NKE and buy a dip.

Odds are good NKE will decline toward the $117 region. Tonight we are suggesting a buy-the-dip entry trigger at $117.50. We'll start with a stop loss at $112.90.

Buy-a-dip Trigger @ $117.50

- Suggested Positions -

Buy the 2016 Jan $125 CALL (NKE150115C125) estimated entry in the $4 range
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Hammered Again On Monday

by James Brown

Click here to email James Brown

Editor's Note:

The weekend failed to slow the sell-off that began last week. The major U.S. indices fell -2.5% or more on Monday. Healthcare and biotech stocks were underperformers and the Russell 2000 broke down below its August low.

Our bullish plays on DIS, EA, FB, POST, and TJX were all stopped out.

We have updated stop losses on nearly all of our bearish trades.


Current Portfolio:


CALL Play Updates

Constellation Brands Inc. - STZ - close: 125.93 change: -3.89

Stop Loss: $124.95
Target(s): To Be Determined
Current Option Gain/Loss: -78.0%
Average Daily Volume = 1.1 million
Entry on September 16 at $130.55
Listed on September 3, 2015
Time Frame: Exit PRIOR to Earnings on October 7th
New Positions: see below

Comments:
09/28/15: STZ has been no stranger to volatility over the last two months. Shares were volatile again today with a -3% plunge from resistance near $130 toward support near $125. The intraday low was $125.21, which is getting close to our stop loss at $124.95.

The plan is to exit this trade before STZ's earnings on October 7th but if STZ sees any follow through lower tomorrow we could get stopped out.

No new positions at this time.

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.

- Suggested Positions -

Long OCT $135 CALL (STZ151016C135) entry $2.05

09/19/15 new stop @ 124.95
09/16/15 triggered @ $130.55
Option Format: symbol-year-month-day-call-strike


ULTA Beauty - ULTA - close: 164.36 change: -4.79

Stop Loss: 164.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 900 thousand
Entry on September -- at $---.--
Listed on September 26, 2015
Time Frame: Exit PRIOR to November options expiration
New Positions: Yes, see below

Comments:
09/28/15: ULTA lost more than 5 and a 1/2 points at its lows for the session before bouncing near its simple 20-dma. At the moment I do not see any changes from the weekend newsletter's new play description. Our suggested entry point is $170.50.

Trade Description: September 26, 2015:
Few stocks have done as well as ULTA over the last six years. ULTA is up more than +4,000% from the bear-market 2009 low. The stock has continued to show relative strength this year with a +32% gain in 2015.

ULTA is in the services sector. They are considered a specialty retailer. According to the company, "ULTA Beauty (NASDAQ: ULTA) is the largest beauty retailer in the United States and the premier beauty destination for cosmetics, fragrance, skin, hair care products and salon services. Since opening its first store 25 years ago, ULTA Beauty has grown to become the top national retailer providing All Things Beauty, All in One Place®. The Company offers more than 20,000 products from over 500 well-established and emerging beauty brands across all categories and price points, including ULTA Beauty's own private label. ULTA Beauty also offers a full-service salon in every store featuring hair, skin and brow services. ULTA Beauty is recognized for its commitment to personalized service, fun and inviting stores and its industry-leading ULTAmate Rewards loyalty program. As of August 1, 2015 ULTA Beauty operates 817 retail stores across 48 states and also distributes its products through its website, which includes a collection of tips, tutorials and social content. For more information, visit www.ulta.com."

There is a reason investors have lifted ULTA so high. That is because the company has continued to deliver strong earnings and revenue growth. ULTA has beaten Wall Street's estimates the last three quarters in a row on both the top and bottom line. Back in March ULTA reported their 2014 Q4 results with revenues up +20.7% and management raised guidance. In May this year ULTA reported their 2015 Q1 results with revenues up +21.6% and management raised their comparable store guidance.

ULTA's most recent quarter was August 27th. The company announced their Q2 results. Wall Street was looking for a profit of $1.12 per share on revenues of $870.4 million. ULTA delivered earnings of $1.15 per share. That's a +22% improvement from a year ago. Revenues were up +19.4% to $877 million. Comps came in better than expected +10.1%. Management raised their comparable store forecast again.

Mary Dillon, ULTA's Chief Executive Officer, commented on their last quarter,

"Strong traffic growth drove healthy comparable sales increases across stores, salon and e-commerce, while average ticket growth also contributed. An exciting pipeline of new products, combined with increasing effectiveness of our marketing strategies, drove market share gains across all categories. In light of the excellent performance of the business in the first half of the year, we are raising our outlook for the full year and now expect to achieve earnings per share growth in the high teens."
Investors have been buying the dips and ULTA's bullish trend of higher lows has pushed the stock back toward its highs. The point & figure chart is bullish and forecasting at $187 target. Currently shares are hovering just below resistance at $170.00. Tonight we are suggesting a trigger to buy calls at $170.50.

I am suggesting small positions to limit risk. The volatility in ULTA during the market's August correction was shocking. The stock plunged from $173 to $120 in four days during the market's decline. That's a little crazy. We can't predict that kind of volatility so I suggest limiting your exposure.

Trigger @ $170.50 *small positions*

- Suggested Positions -

Buy the NOV $175 CALL (ULTA151120C175)

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

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




PUT Play Updates

Aon plc - AON - close: 88.41 change: -1.61

Stop Loss: 90.85
Target(s): To Be Determined
Current Option Gain/Loss: -12.1%
Average Daily Volume = 1.2 million
Entry on September 23 at $88.65
Listed on September 22, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

Comments:
09/28/15: It looks like the oversold bounce in AON might be over. Shares lost -1.78% today and look poised to hit new relative lows tomorrow. Tonight we are adjusting the stop loss down to $90.85.

Trade Description: September 22, 2015:
A slowing global economy and negative currency winds have created a tougher environment for AON. Financial stocks in general have underperformed the broader market (-8%) and AON looks like it could play catch up with the group.

AON is in the insurance business. According to the company, "Aon plc is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise."

Management has managed to beat Wall Street's bottom line earnings estimate the last few quarters. However, they have been missing analysts' revenue estimates. Revenues have been falling faster than expected. Their Q4 results saw revenues drop to +3% growth. By Q1 revenues were down -3.4%. Their Q2 results, announced on July 31st, saw revenues decline -3.9%. As a global company the impact of negative currency headwinds does account for a lot of this revenue trouble. While some traders may want to write this off the situation could get worse as the U.S. dollar should rally when the Fed starts to raise rates.

Technically shares of AON look broken. The stock collapsed during the market's correction in late August. The oversold bounce failed pretty quickly. Now three weeks later the stock is starting to breakdown from this short-term consolidation pattern. The point & figure chart is already bearish and forecasting at $75.00 target. We are suggesting a trigger to buy puts at $88.65.

- Suggested Positions -

Long 2016 JAN $85 PUT (AON160115P85) entry $3.30

09/28/15 new stop @ 90.85
09/23/15 triggered @ $88.65
Option Format: symbol-year-month-day-call-strike


Caterpillar Inc. - CAT - close: 63.79 change: -1.19

Stop Loss: 65.85
Target(s): To Be Determined
Current Option Gain/Loss: +140.0%
Average Daily Volume = 5.8 million
Entry on September 22 at $71.12
Listed on September 21, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

Comments:
09/28/15: Constant worries about China, a global slowdown, weakness in commodities, and oil have pushed CAT to another new low. Shares were upgraded to a "buy" today but CAT still lost -1.8%.

We are lowering our stop loss down to $65.85. No new positions at this time.

Trade Description: September 21, 2015:
The recent relative weakness in CAT has awarded the stock a spot in our bearish plays section.

The bear market in shares of CAT continues. Most of the big industrial names are down about -10% year to date. CAT is down -21% 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 manufacturers like CAT and rival Joy Global. A few 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.

This morning, September 21st, CAT updated their worldwide sales numbers for August. Global sales fell -11% again. This followed a -11% drop in July. The Asia-Pacific region worsened from -25% to -29%. Latin America improved from -37% to -33%. North America was still at -5%. CAT also noted that oil and gas-related equipment sales were down -20%, and transportation was down -38%. These are pretty ugly numbers.

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. When the U.S. Federal Reserve eventually raises rates that should boost the dollar and only make the currency issue worse.

CAT's management has been 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.

The most recent oversold bounce from short-term support at $72.00 failed near resistance at $76.00. Now CAT is about to breakdown under $72.00. Friday's intraday low was $71.61. Tonight we are suggesting a trigger to buy puts at $71.40.

- Suggested Positions -

Long NOV $70 PUT (CAT151120P70) entry $3.25

09/28/15 new stop @ 65.85
09/26/15 new stop @ 67.05
09/24/15 CAT warned. The company lowered its 2015 and 2016 forecast and announced thousands in job cuts.
09/22/15 triggered on gap down at $71.12, trigger was $71.40
Option Format: symbol-year-month-day-call-strike


Compass Minerals Intl. - CMP - close: 77.83 change: -1.35

Stop Loss: 79.55
Target(s): To Be Determined
Current Option Gain/Loss: - 9.4%
Average Daily Volume = 269 thousand
Entry on September 24 at $78.70
Listed on September 23, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

Comments:
09/28/15: It looks like the bounce attempt in CMP might be over. Shares did hit new lows and set a new 52-week closing low today as well.

Previously I suggested waiting for a drop below $77.50 as our next entry point. Today CMP hit a low of $77.33 but it bounced. I'd probably look for another drop below $77.50 before initiating new positions.

We are going to try and limit our risk with a stop loss at $79.55.

Trade Description: September 23, 2015:
Continued weakness in commodities is really started to weigh down the basic material stocks. CMP could be on the verge of a big breakdown.

CMP is in the basic materials sector. According to the company, "Compass Minerals is a leading provider of essential minerals that provide solutions to nature's challenges, including salt for winter roadway safety and other consumer, industrial and agricultural uses, and specialty plant nutrition minerals that improve the quality and yield of crops. The company produces its minerals at locations throughout the U.S. and Canada and in the U.K."

Looking at CMP's last few earnings reports their results have been mixed. They tend to beat Wall Street's estimate on the bottom line but revenues have been up and down. The most recent report (Q2) came out on July 27th. Revenues were down -1.6% from a year ago but that actually beat expectations. CMP's management has reaffirmed their full year guidance two quarters in a row but that hasn't stopped multiple analyst firms from downgrading their outlook for the stock.

Technically CMP has been churning sideways in the $79.00-86.00 trading range for about three months. A breakdown through the bottom of this range would also generate a new sell signal on the point & figure chart.

Tonight we are suggesting a trigger to buy puts at $78.70. Plan on exiting prior to CMP's earnings report in late October.

- Suggested Positions -

Long DEC $75 PUT (CMP151218P75) entry $3.20

09/28/15 new stop @ 79.55
09/24/15 triggered @ $78.70
Option Format: symbol-year-month-day-call-strike


Deckers Outdoor Corp. - DECK - close: 56.75 change: -1.53

Stop Loss: 60.25
Target(s): To Be Determined
Current Option Gain/Loss: + 3.5%
Average Daily Volume = 775 thousand
Entry on September 24 at $58.28
Listed on September 23, 2015
Time Frame: Exit PRIOR to earnings
New Positions: see below

Comments:
09/28/15: The sell-off in DECK continues. Shares lost another -2.6% and posted its eighth loss in a row. I would not chase it here. We are moving the stop loss down to $60.25.

Trade Description: September 23, 2015:
Slowing sales and rising expenses is a dangerous recipe. Investors seem to have lost confidence in DECK with the stock down -35% year to date.

DECK is in the consumer goods sector. According to the company, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The Company's portfolio of brands includes UGG®, Teva®, Sanuk®, Ahnu®, and HOKA ONE ONE®. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 143 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

The stock was crushed in January 2015 with a plunge from $94 to $66. A big chunk of that decline was a reaction to their earnings (January 29th). DECK missed estimates on both the top and bottom line and lowered guidance.

Since then DECK has seen some improvement in earnings but their most recent report was still disappointing. DECK reported its 2016 Q1 results on July 30th. Wall Street was expecting a loss of ($1.50) per share on revenues of $213 million. DECK delivered a loss of ($1.43) a share. That beat estimates but it was still worse than the ($1.07) loss a year ago. Revenues were up +4.5% to $221 million. Unfortunately DECK said their expenses were up while margins contracted.

DECK management also offered soft Q2 guidance while bumping their full-year 2016 earnings estimates. Investors chose to sell. Their Q1 results saw Teva brand sales up +6.8% but Sanuk brand sales fell -7.0% while Ugg brand sales dropped -7.2%. The Ugg number is important since Ugg sales account for more than 50% of DECK's revenues.

It looks like the bears might be right about this one but I have to warn you this is starting to look like a crowded trade. The most recent data listed short interest at 20% of the 32.1 million share float. This raises the risk of a short squeeze. Consider small positions to limit risk.

Technically DECK is in a bear market. The trend of lower highs is pushing it lower. Today DECK just broke down below key support at the $60.00 level. The next support area could be the $50 region. Today's low was $58.77. I am suggesting a trigger to open bearish positions at $58.65.

- Suggested Positions -

Long NOV $55 PUT (DECK151120P55) entry $2.85

09/28/15 new stop @ 60.25
09/24/15 Trade begins on gap down at $58.28, trigger was $58.65
Option Format: symbol-year-month-day-call-strike


International Flavors & Fragrances Inc. - IFF - close: 100.59 chg: -5.17

Stop Loss: 105.05
Target(s): To Be Determined
Current Option Gain/Loss: +32.1%
Average Daily Volume = 470 thousand
Entry on September 23 at $104.45
Listed on September 19, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: see below

Comments:
09/28/15: Someone yanked the carpet out from underneath shares of IFF today. The stock gapped lower and then plunged to a -4.88% decline. I would not chase it here. We are moving the stop loss down to $105.05.

Trade Description: September 19, 2015:
Currencies moves and a slowing global economy appear to be souring IFF's performance.

IFF is considered part of the basic materials sector. According to the company, "International Flavors & Fragrances Inc. (IFF) is a leading global creator of flavors and fragrances used in a wide variety of consumer products. Consumers experience these unique scents and tastes in fine fragrances and beauty care, detergents and household goods, as well as beverages, sweet goods and food products. The Company leverages its competitive advantages of consumer insight, research and development, creative expertise, and customer intimacy to provide customers with innovative and differentiated product offerings. A member of the S&P 500 Index, IFF has more than 6,200 employees working in 32 countries worldwide."

Bulls could argue that emerging markets offer a lot of opportunity as the growing population of consumers demand more variety and flavors. Bears can argue that IFF faces a lot of competition around the globe and they're very vulnerable to currency moves. We can already see the impact of currency fluctuations in IFF's results.

Their Q4 results, announced Feb. 12th, were better than expected but revenues were only +4.7%. Their Q1 results, out May 12th, beat estimates by a thinner margin. Revenues were only up +0.6%. Their Q2 report came out on August 10th. Wall Street was expecting a profit of $1.36 a share on revenues of $776 million. IFF only delivered $1.29 a share with revenues down -2.6% to $767 million. Currencies are a big part of the issue here but the stock is not acting very healthy either.

On August 6th, 2015, the company announced they were raising their quarterly dividend by +20% to $0.56 a share. IFF should begin trading ex-dividend on Sept. 23rd. Management also announced a $250 million stock buyback through 2017. This news has not helped the stock price.

Investors seem to be selling the rally. Shares peaked in early 2015 and have made a trend of lower highs and lower lows. It looks like the trend of lower lows will accelerated. A few days ago IFF broke down under a major trend line of support on its long-term chart (see below). Tonight we are suggesting a trigger to buy puts at $104.45.

- Suggested Positions -

Long NOV $100 PUT (IFF151120P100) entry $2.80

09/28/15 new stop @ 105.05
09/23/15 triggered @ $104.45
Option Format: symbol-year-month-day-call-strike


Laboratory Corp. Of America - LH - close: 108.27 change: -4.72

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +89.5%
Average Daily Volume = 1.0 million
Entry on September 25 at $114.25
Listed on September 24, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

Comments:
09/28/15: Healthcare stocks were underperformers and LH fell -4.17%. The stock was down almost -5.5% at its worst levels of the session. LH is now down seven days in a row and looking oversold. I would not start new positions. We are moving the stop loss down to $112.25.

Trade Description: September 24, 2015:
Investor sentiment on LH seems to have soured. The stock is up +6.8% for the year but it's down more than -10% from its early August peak. LH's 2015 gains could vanish if shares break support.

LH is in the healthcare sector. According to the company, "Laboratory Corporation of America® Holdings, an S&P 500 company, is the world's leading healthcare diagnostics company, providing comprehensive clinical laboratory services through LabCorp Diagnostics, and end-to-end drug development support through Covance-Drug Development. LabCorp is a pioneer in commercializing new diagnostic technologies and is improving people's health by delivering the combination of world-class diagnostics, drug development and knowledge services. With combined revenue pro forma for the acquisition of Covance in excess of $8.5 billion in 2014 and more than 48,000 employees in over 60 countries, LabCorp offers innovative solutions to healthcare stakeholders. LabCorp clients include physicians, patients and consumers, biopharmaceutical companies, government agencies, managed care organizations, hospitals, and clinical labs."

LH has delivered decent results over the last four quarters. The company has beaten Wall Street estimates on the bottom line four quarters in a row. They have beaten analysts' revenue estimates three out of the last four quarters. Their most recent report was July 28th. LH announced their Q2 results with revenues up +49% thanks to its Covance acquisition. Management raised their 2015 guidance above Wall Street expectations.

Unfortunately the post-earnings rally did not last very long. Shares reversed under resistance near $130 and its 2015 highs. Since then traders have been selling the rallies and LH has a bearish trend of lower highs. Today LH underperformed the broader market with a -1.27% decline. The stock is poised to breakdown under support in the $114-115 region.

The August 25th low was $114.44. Tonight I am suggesting a trigger to buy puts at $114.25. The point & figure chart is bearish and forecasting a $102.00 price target but I see potential support in the $108-110 region. Don't be surprised to see a temporary bounce in that area.

- Suggested Positions -

Long NOV $110 PUT (LH151120P110) entry $2.85

09/28/15 new stop @ 112.25
09/25/15 triggered @ $114.25
Option Format: symbol-year-month-day-call-strike


Tiffany & Co. - TIF - close: 74.88 change: -2.50

Stop Loss: $77.55
Target(s): To Be Determined
Current Option Gain/Loss: +38.4%
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:
09/28/15: It was a rough start to the week for TIF. Shares gapped down at the open and fell -3.2% by the closing bell. No new positions at this time. We are moving the stop loss down to $77.55.

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

09/28/15 new stop @ 77.55
09/23/15 new stop @ 80.35
09/19/15 new stop @ 82.35
09/11/15 triggered @ $79.75
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

The Walt Disney Co. - DIS - close: 98.49 change: -1.81

Stop Loss: $98.85
Target(s): To Be Determined
Current Option Gain/Loss: -84.9%
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:
09/28/15: The stock market's sharp decline on Monday pushed DIS below support near $100 and the stock hit new four-week lows. DIS also hit our stop loss at $98.85.

I am still long-term bullish on DIS but we may need to wait for shares to test their August lows near $90.00 before considering new bullish positions.

- Suggested Positions -

OCT $105 CALL (DIS151016C105) entry $2.52 exit $0.38 (-84.9%)

09/28/15 stopped out
09/19/15 new stop loss @ 98.85
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:


Electronic Arts - EA - close: 66.46 change: -3.03

Stop Loss: $67.35
Target(s): To Be Determined
Current Option Gain/Loss: -39.7%
Average Daily Volume = 3.1 million
Entry on September 17 at $70.75
Listed on September 16, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

Comments:
09/28/15: EA shot lower on Monday. Shares underperformed the market with a -4.3% plunge to new three-week lows. EA hit our stop loss at $67.35.

- Suggested Positions -

DEC $75 CALL (EA151218C75) entry $3.15 exit $1.90 (-39.7%)

09/28/15 stopped out
09/19/15 new stop @ 67.35
09/17/15 triggered @ $70.75
Option Format: symbol-year-month-day-call-strike

chart:


Facebook, Inc. - FB - close: 89.21 change: -3.56

Stop Loss: $90.65
Target(s): To Be Determined
Current Option Gain/Loss: +214.3%
Average Daily Volume = 27.3 million
Entry on August 24 at $77.03
Listed on August 20, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/28/15: I warned readers in the weekend newsletter that FB had produced a potential bearish reversal on Friday. Shares confirmed the reversal with a big drop today. The stock fell -3.8%, underperforming the broader market. FB sliced through multiple layers of short-term support and hit our stop at $90.65.

I would keep an eye on the $85.00 area, which should be support for FB and a potential entry point for new bullish positions.

- Suggested Positions -

OCT $90 CALL (FB151016C90) entry $1.05 exit $3.30 (+214.3%)

09/28/15 stopped out
09/22/15 Instagram announces they hit 400 million users
09/19/15 new stop @ 90.65
09/16/15 More conservative traders will want to consider taking some money off the table before the Fed decision tomorrow afternoon
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:


Post Holdings, Inc. - POST - close: 61.37 change: -6.12

Stop Loss: 65.85
Target(s): To Be Determined
Current Option Gain/Loss: -56.8%
Average Daily Volume = 1.0 million
Entry on September 03 at $66.55
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
09/28/15: POST was crushed on Monday. The major U.S. indices fell -2.5% to -3.0% but POST plunged -9.0% and broke down below its 50-dma. Traders started buying the dip near round-number support at $60.00. Our stop loss was hit at $65.85.

- Suggested Positions -

OCT $70 CALL (POST151016C70) entry $2.43 exit $1.05 (-56.8%)

09/28/15 stopped out
09/26/15 new stop @ 65.85
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:


The TJX Companies - TJX - close: 69.09 change: -1.87

Stop Loss: $69.85
Target(s): To Be Determined
Current Option Gain/Loss: -48.3%
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:
09/28/15: The stock market's big decline today pushed TJX through support at its 50-dma and at the $70.00 level. Our stop was hit at $69.85.

- Suggested Positions -

2016 Jan $75 CALL (TJX160115C75) entry $2.90 exit $1.50 (-48.3%)

09/28/15 stopped out
09/19/15 new stop @ 69.85
09/03/15 triggered @ $72.05
Option Format: symbol-year-month-day-call-strike

chart: