Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/30/2015

Table of Contents

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

Market Wrap

Another Negative Quarter

by Keene Little

Click here to email Keene Little
An oversold bounce today did not prevent a negative month or a negative 3rd quarter. This makes three negative quarters in a row for the DOW, a relatively rare event, and that raises more questions about whether or not we've started a bear market cycle.

Today's Market Stats

The 3rd quarter came to an end today and the bulls tried to reduce the loss for both the month and quarter but it would have taken a rally of nearly 500 points for the DOW to just breakeven for the month. But with the loss for the 3rd quarter it makes it three in a row, which hasn't happened since the 1st quarter of 2009 (the market bottom). That doesn't necessarily indicate we've had a significant turn in the market this year, from bull to bear, but it's certainly another warning sign, which follows the break of the uptrend lines from 2009 back in July-August.

Three quarterly losses in a row is a big deal if only because it doesn't happen very often. In the DOW's 119-year history it's happened only 20 times, including the current 3-quarter stretch, and in the past 40 years it's happened only three times, including this year. The losses accelerated as the year progressed, starting with a loss of only -0.3% for Q1 and then -0.9% for Q2 before dropping harder with a loss of -7.6% for Q3. But this is hardly the longest streak -- the loss into March 2009 was 6 straight quarters, which matched the previous longest stretch into the second quarter of 1970 (early in the previous secular bear market, which we've been in since 2000).

Today started with a big gap up after rallies in the Asian markets lifted the futures market and then helping this morning's upbeat mood was the ADP employment report. It came in at +200K, which is the number that was expected and it was a slight improvement from the 186K in August (revised slightly lower from the originally reported 190K). This points to the probability that Friday's NFP report will at least be in line with expectations.

Today's bounce looks like a quick short-covering rally in a continuing downtrend. That could of course change if the bounce develops some legs but at the moment it looks like just another bounce that gave the bears another opportunity to get short. Resistance held and as long as that remains true we should continue to look for lower prices.

Countering this morning's ADP report was the Chicago PMI, which has now dropped into contraction territory with the reading for September at 48.7, dropping from 54.4 in August and much worse than the expected 52.9. The big drop in the Production Index, from 59.0 to 43.6, is the largest one-month decline since February and is now lower than any time since July 2009. New orders and the order backlogs continue to shrink, which points to even weaker numbers in the coming months.

With more evidence of a slowing economy it becomes harder and harder for the bulls to argue the market should be higher. The quick fade off this morning's spike up provided more evidence that the bears' argument for lower prices is scaring more investors out of the market. But there was clearly an effort to trim the losses for September and the indexes were able to close at/near their highs for the day. If there is any upside follow through Thursday morning it could start to scare the bears away.

The SPX weekly chart continues to look bearish because of the spike down from August followed by a choppy consolidation. But the current week is showing a bullish hammer candlestick at support (price-level support near 1885), which could of course change since we've still got two days of trading to see how it finishes. A test of the August low with a bullish hammer, if it holds, would embolden the bulls to do some buying but if support doesn't hold we'll probably see SPX drop down to its October 2014 low, near 1820, and potentially down to its February 2014 low, near 1738. The wave pattern for the decline from July is not clear enough to rely on but one possibility looks for two equal legs down, which points to 1755. So we've got some downside targets to watch for in case the market continues to head lower. But a rally above price-level S/R near 1985 would have me feeling less bearish and above price-level support near 2040 would have me looking for new highs.

S&P 500, SPX, Weekly chart

The daily chart below shows a bear flag pattern for the bounce off the August low. SPX dropped below the bottom of the flag pattern (uptrend line from August 24 - September 24) on Monday and today it made it back up to the broken line, near 1919. A rally much above 1920 would leave a head-fake breakdown, which would be bullish, whereas a decline from here would leave a back-test followed by a bearish kiss goodbye.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1981
- bearish below 1871

The 60-min chart below shows more clearly the uptrend line from August and how this morning's quick high was a back-test of the broken uptrend line. It pulled back and tried again into the close. The bulls need to see a gap up over resistance while the bears need to see an immediate selloff. I think following the initial move Thursday morning could see a tradeable move, even if for only a day trade. A rally above last Friday's high near 1953 would be a bullish move, which would point to a minimum upside target near 1998 (and potentially a back-test of the 50-dma next week) and possibly up to 2025 or higher.

S&P 500, SPX, 60-min chart

The DOW has a very similar setup as SPX but its bear flag pattern is slightly different. I've drawn the uptrend line from August 24th through Tuesday's low and a parallel line is attached to the August 28th high. A larger a-b-c bounce off the August low would be achieved with another leg up, potentially to the 17300 area, before heading back down. A rally above its downtrend line from July-August, currently near 16715, would be a bullish sign but for now the larger pattern continues to suggest lower prices.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,100
- bearish below 15,942

There are no strong technical clues for the tech indexes and I'm left scratching my head for some ideas as to where it's more likely to go from here. It's currently trading around price-level S/R near 4119, which is its September 2014 high and where it was finding support back in December 2014 through January 2015. But other than that I don't have a good feel for what will happen next.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4309
- bearish below 4053

The RUT has been weaker than the other indexes, being the first to break below its August low, but it's the one that has the best setup for a higher bounce. The bounce off price-level support near 1080 is a good setup for a bounce at least up to its downtrend line from July, currently near price-level S/R near 1152. The downtrend line drawn from its June high through the September 17th high is closer to the 50-dma near 1176. There is a way to consider the decline from June to yesterday's low to be the completion of a 5-wave move, which sets it up for a much higher bounce and therefore bears should be playing defense here. I'd like to see an impulsive rally off yesterday's low (it's just a 3-wave bounce correction so far) before turning bullish so we have no clear setup at the moment. Add in the uncertainty in front of Friday's NFP report and it's probably a good time to stay flat and watch for a bit longer.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1150
- bearish below 1080

The 30-year yield (TYX) is sitting on support and which way it goes from here should help us figure out the likely direction of the stock market. If TYX gives up price-level support near 2.85% (yesterday's close was 2.855 and today's was 2.88) it will likely break down much further. A bond rally could mean money is rotating from the stock market into the bond market.

30-year Yield, TYX, Daily chart

There's very little to add to the above commentary when I look at the other indexes for clues. The SOX looks like the tech indexes while the banks and trannies look like the blue chips. Several indexes rest on support and therefore it's important for the bulls to keep up the buying pressure over the next couple of days. Continued selling from here would leave just another oversold bounce correction before heading lower.

The U.S. dollar is working its way back up toward its downtrend line from March-August, currently near 97.54, where I'm expecting it to reverse back down for one more leg inside a descending wedge pattern off the March high. Once the pattern completes I'm expecting another rally in the dollar next year. If it rallies above its August 2nd high at 98.42 it would become more immediately bullish.

U.S. Dollar contract, DX, Weekly chart

Last week gold made it back up to its downtrend line from January-May and was again rejected, just as it was in August. The drop back below price-level S/R near 1142 is also bearish and I continue to look for lower prices for gold. It takes a rally above 1195 (two equal legs up from July) before I'd turn more bullish.

Gold continuous contract, GC, Weekly chart

The whole time gold was trying to bounce off its July low I was watching silver to see if it supported the idea that the metals would head higher. But silver was stuck below its price-level S/R near 15.25, as can be seen on its weekly chart below. It was also being held down by its downtrend line from October 2012 - July 2014, currently near 15.30. As long as silver remains below its September 13th high at 15.43 I'll stay bearish the poor man's gold. A rally above 16 and its 50-dma would have me less bearish.

Silver continuous contract, SI, Daily chart

Following the spike up off the low on August 24th into the high on August 31st oil has been consolidating in a contracting pattern, which fits best as a bullish continuation pattern. Another equal leg up points to 55.29 if it starts up from here and then I think it would turn back down from there in a larger contracting pattern (this one being a bearish continuation pattern in the larger pattern).

Oil continuous contract, CL, Daily chart

Thursday will be busy for economic reports but the potentially market-moving ones will be at 10:00 -- the ISM index will be important because of the concern that it too could show contraction with a drop below 50 (following today's Chicago PMI report). Construction spending is also expected to slow but the bulls will need to see it stay above contraction territory.

Economic reports and Summary

Conclusion

Today's bounce looks like an oversold bounce and nothing more bullish than that. But most rallies start this way and we'll have to see if the bulls can get some follow through on Thursday. The RUT is currently showing the most bullish setup and therefore if the RUT rallies it would be a good sign for the bulls. SPX rallied up to trendline resistance and therefore it needs to rally in order to prevent a bearish kiss goodbye following the bounce up to a back-test. Based on where the indexes are located I think the initial move Thursday morning will see follow through and therefore trading in that direction (even if for only a day trade) should work.

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

Keene H. Little, CMT

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


New Option Plays

An Outdated Business Model

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Outerwall Inc. - OUTR - close: 56.93 change: -0.31

Stop Loss: 60.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 486 thousand
Entry on September -- at $---.--
Listed on September 30, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: Yes, see below

Company Description

Trade Description:
Technology and consumer trends are constantly growing and changing. OUTR has failed to keep up and it's business model appears to be outdated.

OUTR is part of the services sector. According to the company, "Outerwall Inc. has more than 20 years of experience creating some of the most profitable spaces for their retail partners. The company delivers breakthrough kiosk experiences that delight consumers and generate revenue for retailers. As the company that brought consumers Redbox® entertainment, Coinstar® money services, and ecoATM® electronics recycling kiosks, Outerwall is leading the next generation of automated retail and paving the way for inventive, scalable businesses. Outerwall kiosks are in neighborhood grocery stores, drug stores, mass merchants, malls, and other retail locations in the United States, Canada, Puerto Rico, the United Kingdom, and Ireland."

The Redbox DVD kiosks business was great while it lasted. Last year the company hit their four billionth rental. Unfortunately today everything is turning digital and consumer viewing habits are moving into streaming services. I'm sure we'll see Redbox kiosks around for years but their growth is over. That's bad news for OUTR since Redbox accounts of 80.5% of their revenues.

Another challenge is OUTR's ecoATM concept. The idea is people bring their old smartphones, tablets, and other electronic gadgets to the kiosks and sell them to OUTR. OUTR then resells the used electronics. One of the biggest categories for their ecoATM business was buying and selling used Apple iPhones. Unfortunately for OUTR Apple just announced a new iPhone leasing program where consumers can get a new upgraded iPhone every year for just $32 a month. Obviously every iPhone user is not going to take advantage of Apple's new program but it will reduce the number of iPhones that end up in an ecoATM kiosk. Plus, the bigger risk is that other mobile phone makers like Samsung might follow Apple's lead and offer their own program that reduces the number of used smartphones in the after market.

The ecoATM concept was already struggling before Apple made their leasing announcement. OUTR more than doubled the number of ecoATM kiosks and yet revenues only rose +9%.

Looking at OUTR's earnings report results have been mixed. The company managed to beat estimates on the bottom line the last couple of quarters but revenues have been flat or down the last three quarters. One of the biggest reasons OUTR has been beating the top line is their aggressive stock buyback program that is reducing the number of shares.

The company's most recent earnings report was July 31st. Q2 revenues were down -0.2% to $545.4 million, which missed estimates. Earnings guidance was in-line with estimates but revenue guidance for 2015 was below Wall Street expectations. OUTR's stock collapsed on the earnings news because of the sharp slowdown in their Redbox business.

Last quarter the number of rental nights per Redbox fell -19% while rentals per kiosk dropped -8.9%. It was the fifth quarter in a row of declines for the Redbox business. Analysts believe this trend will continue for the aging business.

Technically OUTR's stock is bearish. The stock is in a bear market with a -32% drop from its July 2015 highs. OUTR has broken down below its August (market-correction) lows. The stock is also in the process of breaking down below a very key trend line of support on the long-term weekly chart (see below).

Yesterday's intraday low was $56.50. We are suggesting a trigger to launch bearish positions at $56.35. Odds are good we could see OUTR drop toward round-number support at $50.00. The point & figure chart is more bearish and forecasting at $32.00 target.

I have to caution traders that there is an elevated risk of a short squeeze. There are already a lot of bears in this trade. The most recent data listed short interest at 40% of the very small 14.5 million share float. That raises the risk of a short squeeze. Combine that with the company actively buying back stock and any significant bounce is the beginning of a potential squeeze higher. I suggest small positions to limit risk.

Trigger @ $56.35 *small positions to limit risk*

- Suggested Positions -

Buy the NOV $55 PUT (OUTR151120P55) current ask $3.50
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Fall -7% In Q3

by James Brown

Click here to email James Brown

Editor's Note:

Some last minute window dressing and short covering before the third quarter ended fueled a widespread bounce on Wednesday. It was the market's best day in weeks. Yet all of the major U.S. indices ended Q3 with loss of -7% or more.


Current Portfolio:


CALL Play Updates

Nike, Inc. - NKE - close: 122.97 change: +3.30

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

Comments:
09/30/15: NKE was a popular stock today with shares surging +2.75%. Since today was month end and quarter end today's bounce was probably boosted by some fund manager window dressing. We are not giving up on a buy-the-dip entry for NKE (yet).

Stick to the plan. The next week or two tends to be weak for stocks. Our suggested entry point is $117.50.

Trade Description: September 28, 2015:
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

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: 88.61 change: +0.21

Stop Loss: 90.85
Target(s): To Be Determined
Current Option Gain/Loss: - 6.1%
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:
09/30/15: AON displayed relative weakness. The S&P 500 surged +1.9% and financials rallied +1.5%. AON only gained +0.2%. Yesterday's low was $87.58. Wait for a breakdown below this level before initiating new positions.

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


Alibaba Group - BABA - close: 58.97 change: +1.15

Stop Loss: 61.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 15.8 million
Entry on September -- at $---.--
Listed on September 29, 2015
Time Frame: Exit PRIOR to earnings in November
New Positions: Yes, see below

Comments:
09/30/15: A bounce in Asia helped BABA gap higher this morning. The rally did fail at round-number resistance near $60.00. BABA settled with a +1.98% gain.

There is no change from last night's new play description. We are waiting for a new relative low. Our suggested entry point is $57.15.

Trade Description: September 29, 2015:
BABA was the biggest IPO in history. After a rocket-ride higher shares peaked at $120.00 in November 2014. Today BABA is in bear market, down -51% from its peak. The stock is on pace for its fourth monthly loss in a row. The company's valuation has plunged $75 billion since May (currently at $143 billion). There doesn't appear to be any bottom in sight.

BABA is in the services sector. According to the company, "Alibaba Group's mission is to make it easy to do business anywhere. The company is the largest online and mobile commerce company in the world in terms of gross merchandise volume. Founded in 1999, the company provides the fundamental technology infrastructure and marketing reach to help businesses leverage the power of the Internet to establish an online presence and conduct commerce with hundreds of millions of consumers and other businesses."

Alibaba Group's major businesses include:

Taobao Marketplace (www.taobao.com), China's largest online shopping destination
Tmall.com (www.tmall.com), China's largest third-party platform for brands and retailers
Juhuasuan (www.juhuasuan.com), China's most popular online group buying marketplace
Alitrip (www.alitrip.com), a leading online travel booking platform
AliExpress (www.aliexpress.com), a global online marketplace for consumers to buy directly from China
Alibaba.com (www.alibaba.com), China's largest global online wholesale platform for small businesses
1688.com (www.1688.com), a leading online wholesale marketplace in China
Alibaba Cloud Computing (www.aliyun.com), a provider of cloud computing services to businesses and entrepreneurs
BABA's IPO last year was a huge event for Wall Street. They came to market with 320 million shares that priced at $68.00. BABA opened for trading at $92.70. Today the number of shares outstanding has ballooned to 2.48 billion and the number of shares in the float is over 1.6 billion (available for sale). The company just had a huge lock up expire last weekend so major shareholders are now able to sell.

Big momentum stocks like BABA draw a lot of attention because of the company's growth rate. BABA is still growing. The problem is that growth is slowing down.

BABA reported their Q4 report on May 7th. Earnings of $0.48 per share beat estimates by seven cents. Revenues were up +44.7% to $2.81 billion, which was above estimates. Their Q1 numbers were announced on August 12th. BABA only beat earnings by a penny with $0.59 a share. Revenues were up +28% to $3.26 billion but that missed expectations. BABA's management tried to soften the bad news by announcing a big $4 billion stock buyback program over the next two years.

The buyback news didn't work. Shares of BABA plunged on the earnings news. Wall Street is turning cautious on the stock. Bloomberg recently reported that 12 analysts have cut their BABA sales estimates for Q3 and Q4, the most important quarter of the year. Wall Street is now forecasting BABA sales growth to slow down to +27% in Q3 and +24% in Q4. This is the slowest pace of growth since BABA's IPO.

Why the bearish outlook? The answer could be the slowing Chinese economy. The country is suffering from a hard landing as Chinese growth sinks to its slowest pace in years. The biggest shopping day of the year is Singles Day on November 11th. This year BABA is facing tougher competition for the online shopping fest. Barron's recently argued that shares of BABA could fall another -50%. The point & figure chart is bearish and forecasting at $51 target.

The bearish trend of lower highs has pushed BABA's stock to record lows and below its IPO price of $68. As concerns over China's economy persist BABA could have much further to fall. Tonight we are suggesting a trigger to buy puts at $57.15. We will plan on exiting prior to BABA's earnings in November.

Trigger @ $57.15

- Suggested Positions -

Buy the NOV $55 PUT (BABA151120P55)

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


Caterpillar Inc. - CAT - close: 65.36 change: +1.05

Stop Loss: 65.85
Target(s): To Be Determined
Current Option Gain/Loss: +101.5%
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:
09/30/15: CAT's oversold bounce continued on Wednesday. Traders bought the dip midday near $64.00 and shares ended the session with a +1.6% gain. If there is any follow through higher tomorrow we could get stopped out at $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: 78.37 change: +0.90

Stop Loss: 79.55
Target(s): To Be Determined
Current Option Gain/Loss: -21.9%
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:
09/30/15: CMP tagged a new 2015 low intraday and bounced. The lack of follow through lower is sapping my enthusiasm for this trade. No new positions at this time.

The $79-80 region should be resistance. Our stop loss is at $79.55. More aggressive traders may want to move their stop so it's above $80.00.

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: 58.06 change: +0.40

Stop Loss: 60.25
Target(s): To Be Determined
Current Option Gain/Loss: -17.5%
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:
09/30/15: DECK's early morning bounce failed near $59.00. Shares underperformed the major indices and only gained +0.69%. Nimble traders could watch for a failed rally near $60.00 as a new entry point.

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: 103.26 chg: +2.17

Stop Loss: 105.05
Target(s): To Be Determined
Current Option Gain/Loss: -8.9%
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:
09/30/15: IFF's oversold bounce continued for a second day. Shares added +2.1%. I warned readers yesterday that IFF looked poised to rally today. The $104-105 region should be short-term resistance.

No new positions at this time.

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: 108.47 change: +1.61

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: + 86.0%
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:
09/30/15: LH gapped open higher this morning and then spent the rest of Wednesday's session churning sideways.

More conservative traders might want to move their stop loss closer to short-term resistance near $110.00.

No new positions at this time.

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: 77.22 change: +2.02

Stop Loss: $77.55
Target(s): To Be Determined
Current Option Gain/Loss: -5.8%
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:
09/30/15: TIF was a big performer today. The market's big rally helped fuel an oversold bounce in TIF and shares rose +2.69%. The intraday high was $77.49. Our stop is at $77.55. Any follow through higher tomorrow could stop us out.

No new positions at this time.

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