Option Investor
Newsletter

Daily Newsletter, Thursday, 10/1/2015

Table of Contents

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

Market Wrap

Rocky Start For Fourth Quarter

by Thomas Hughes

Click here to email Thomas Hughes
The market struggled for direction on the first day of the fourth quarter.

Introduction

The market struggled for direction today, the first day of the fourth quarter of 2015. Although there was plenty of news nothing seemed to inspire much action. There were quite a few economic releases and a statement from Fed president Lockhart but investor eyes remain glued to tomorrow's NFP report and its impact on FOMC outlook. All signs point to at least a decent NFP number and a possible rate hike before the end of the year.

Asian indices started the quarter off on a largely positive note although new Chinese PMI data still shows an economy in contraction. The good news is that the number was a little better than expected so helped relieve some fear of declining momentum. European indices began the day in positive territory but were not able to hold the gains. Disappointing, although still expansionary, PMI data may have been the cause. The German DAX led declines with a loss of -1.57%.

Market Statistics

Our indices were indicated to open higher for most of the early session. Futures trading was not strong, there were no huge moves indicated, but they were pointing higher. Economic data released before and after the opening bell was largely positive but had little effect; labor data remains steady, auto sales are strong, the housing recovery is expanding as is manufacturing although momentum is waning.

The indices opened in positive territory but the bulls were not able to hold the gains. Sellers took control within the first few minutes and drove the indices back to break even levels and lower. Morning action was choppy but trend lower until intra-day bottom around noon. Some sideways action followed, until about 1:30PM, when the bulls were able to regain control and the indices rebound from their lows. The rally lasted until late afternoon and took the indices back into positive territory. The last hour of trading saw the indices falter once again but for the most part they were able to close even or better than yesterday's closing prices.

Economic Calendar

The Economy

The Challenger, Gray & Christmas report on planned lay-off's was released first. It shows that planned lay-off's increased by 43% over last month. This is a 93% increase over this same time last year and brings the 3rd quarter total up to 205,759 and the largest quarterly total since 2009. On a quarterly basis the 3rd quarter total is up 40% from from the 2nd quarter and 75% from the 3rd quarter of 2014. The year to date total is now 493,431, well above last years pace.

Now, to get a little perspective. More than 50% of last month's lay-off's are reported by one company, Hewlett Packard, as part of their ongoing restructuring program. These cuts are massive, but not unexpected as Meg Whitman has said repeatedly over the past year that more cuts were coming. On a year to date basis the tech sector, led by HPQ and Microsoft, are the second biggest contributor to cuts, 58,874. The largest contributor is the energy sector, also largely expected, coming in at 72,708 compared to less than 5,000 job cuts last year. Together these two sectors have contributed more than 25% of all job cuts this year. This is not to say that high job cuts are not something to be worried about, just that the pace of job cuts does not necessarily show weakness in the job market, just weakness in two sectors, and in two specific companies.


Initial Claims for unemployment rose by 10,000, slightly ahead of expectations, to hit 277,000. Last week's number was not revised. The four week moving average fell, losing -1,000, to hit 270,750. On a not adjusted basis claims fell by -1.8%, less than than -5.4% predicted by the seasonal factors. Despite the small gain claims remain near the long term lows where they have been trending for more than 6 months. On a state by state basis California had the biggest increase in claims, +3,725, while Wisconsin had the largest decrease in claims, -278.

Continuing Claims fell in this week's data, shedding -53,000 to hit 2.191 million. This is the lowest level for adjusted continuing claims since 11/11/2000. Last week's figure was revised higher by 2,000. The four week moving average fell, hitting 2.235 million. Needless to say continuing claims numbers are good this week and are another sign that labor markets were gaining strength going into September.

Total Claims fell by -2,996 to hit 1.985 million, another new low. Total claims have now made their second new low in two weeks and are -8% lower than they were last year at this time. Based on this and the other employment data I'd have to say it looks like hiring has been steady if not actual job creation. ADP came in at 200K earlier this week and shows steady, stable and almost strong private sector employment. The NFP is expected to come in around 200K as well and could provide an upside surprise. Unemployment is expected to hold steady at 5.1%.


ISM Manufacturing came in at 50.2. This is below expectations for 50.6 and last month's reading of 51.1 but is above the 50 level and shows some expansion in the sector. It is also the 33rd consecutive month of expansion in the manufacturing sector. Within the report all segments declined except New Export Orders which held steady.

Construction Spending was released at 10AM and came in hotter than expected. August Construction Spending rose 0.7% over the July figure, consensus estimate was near 0.5%. The year over year gain in spending is 13.7%. These numbers are pretty good and consistent with trends in housing. Low inventory, upward pressure on prices and buyer traffic are leading to increases in spending, which in turn is helping to drive the labor market, and the consumer.

Auto Sales were released throughout the day but were strong right from the start. All of the major manufacturers produced better than expected sales led by a 26% increase reported by Ford. GM sales rose by 12%, Toyota rose by 16.2%, Chrysler Fiat rose by 14% and even VW sales rose, by 0.6%. Total sales came in well above expectations at 18.17 million units, a high since mid 2005.

Federal Reserve Bank of Richmond president Lockhart made some comments today. The one that sticks out is that an October rate hike is possible because consumer spending warrants it. Another one I like mentioned the market and how it might doubt the FOMC's resolve.

The Oil Index

Oil prices tried to catch a bid today and gained over 2% in early trading. A basket of near term fears helped to lead the market higher but the gains could not be held. In no particular order Hurricane Joaquin, fighting in Syria, China PMI data, US auto sales and labor data and gave reason for oil to rise either on fear or thoughts of rising demand. With the storm and intensified activity in Syria there is a real risk of fear entering the oil market and driving up prices. If and until then, no real sign of diminished global capacity or rising demand.

The Oil Index gained on the rise in oil prices but like the underlying commodity, could not hold all of it's gains. The index extended its bounce from support but met resistance at the short term moving average, where it was halted. The index is in a rapidly narrowing range between support along the 1,020 level and short term moving average with weak indicators. Momentum seems to be settling down after hitting low last month and retesting that low this week but stochastic is still pointing lower so this retest may not yet be over. Long term outlook for oil prices, EIA says average $53 in 2016, up $4 from 2015, and outlook for earnings in the sector lead me to think we are at or nearing a bottom. The 1,020 is key at this point, a drop below here could lead to more pain in the sector, for now it is support and expected to hold, resistance is near 1,100.


The Gold Index

Gold held steady today but near the 2 week low. Prices traded with a few dollars of $1,112 all day, with a spike during the early morning following the release of data. Gold is hovering near the middle of the 3 month range and just above support levels at $1100. Price is tied to data and the dollar, tomorrow's NFP could be a big mover as it will, maybe, help cement when the rate hike is going to come. It will at least help to strengthen the dollar on economic health and potentially send gold lower.

The gold miners continue to trend sideways while gold prices are stuck in their range. The Gold Miners ETF GDX doing the same. Today the ETF lost -2.33% but is more or less flat over the last few weeks. The ETF appears to be settling down to support for another test or possible break through. Stochastic is already rolled over and pointing lower and MACD is very weak and retreating to the zero line so a retreat to support looks very likely. Where it goes from there will depend on gold prices, and of course data and the Fed.


In The News, Story Stocks and Earnings

Micron Technologies reported after the bell. The chip make beat on the top and bottom lines surprising just about everyone. The beat came on strong demand for its chips and sent the stock shooting higher in after hours trading.


Twitter was in the news today too. The board is expected to announce Jack Dorsey as CEO at any minute, an action which is calling their credibility into question. The issue of course is due to issues with Dorsey and his role as the CEO of Square. Regardless, I don't get Twitter to begin with, I don't use it and don't really understand what the point is. The news did not reassure investors either, shares fell more than -8% in today's session.


Growth story Dunkin Donuts announced it was closing 100 stores today in the pre-market session. Along with this announcement the company also lowered sales growth outlook for the US to 1% from an analyst consensus near 2.5%. Analysts suggest that the company expanded too aggressively an is not able to compete in some markets. Shares of the stock fell more than -12% on the news to trade just above the 12 month low.


The Indices

Today's action was mild compared to what we have seen lately but a little volatile just the same. Today's ranges were greater than 1% and saw the indices trade from one extreme to the other and back again, led by the Dow Jones Transportation Index. The transports were one of the indices able to close in the green, and did so with a gain of 0.60%. This move is an extension of a support bounce which began earlier this week, today's candle also tested support at yesterday's close. The indicators remain bearish, MACD is below the zero line and stochastic %D is moving lower, but there are signs support has been met, and that momentum may be shifting back to the upside. Support may be tested again but if holds could result in a move back to the recent high near 8,250. Support is indicated near 7,750 with first target resistance along the short term moving average.


The S&P 500 made the 2nd largest gain in today's session, 0.2%. The broad market created a small bodied candle with long lower shadow indicative of support near 1,900. Today's move extends and helps to confirm the bounce from which began two days ago but indicators remain mixed so it is possible the test of support is not over. Should the market find its legs this bounce could take the index back up to the 2,000 level with possible resistance near 1,950 and the short term moving average.


The NASDAQ Composite made the smallest gain in today's session. The tech heavy index gained 0.15% in a move that created a doji candle touching support. This is the 2nd day of gains for the index after hitting my support target Tuesday morning with indicators confirming this bounce. Although there is sign of near term strength short term indications remain bearish so support could easily be hit again, if not my lower target near 4,300. For now, support is indicated between 4,500 and 4,600. A move up from here could take the index 4,750 or the recent high near 4,900.


The Dow Jones Industrial Average was the only major index to close in the red. The blue chips lost -0.08% and created a candle with long upper and lower shadows. This is indicative of support near 16,000, but also of resistance near the short term moving average, near 16,500, but mostly of indecision. Near term fears are holding the market down while longer term outlook is supporting. The indicators are mixed but the most positive of all four of these indices. Momentum is bullish and rising, although it is weak, while stochastic is on the verge of a weak bullish crossover... a combination that makes the index looks as the market wants to move higher. The problem is resistance is just above the current levels, at the top of today's range, if it can break above there next target is 17,000.


The market has reached support, possibly, and looks like it wants to move higher. We've gotten past the government shut down, for now, and have only data, the Fed, earnings, global economic strength and the debt ceiling to worry about. Tomorrow's NFP report could spark a continuation of the bounce begun earlier this week but there is resistance, primarily due to aforementioned issues, that needs to be broken. So long as current trends hold this correction we're in should soon reverse, if it hasn't already.

The market has begun to retest support near the August bottom. Support has kicked in a little higher than I would have thought, which, along with current indications, suggests that the test of support may not be over despite the bounce we've seen so far this week. It might, but it might not and without a definitive test its hard to say for sure the correction is over. Until we get that definitive test, or move to the upside, I remain bullish in the long term, careful and optimistic in the near term.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Love The Product, Not The Stock

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

The WhiteWave Foods Co. - WWAV - close: 40.11 change: -0.04

Stop Loss: 42.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.8 million
Entry on October -- at $---.--
Listed on October 01, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: Yes, see below

Company Description

Trade Description:
America is slowly starting to eat healthier. That has been a huge tailwind for WWAV who is one of the fastest growing companies in the United States. I personally know a lot of consumers who buy plenty of WWAV's products from their plant-based beverages to their organic milks and creamers. Unfortunately, even a strong, growing company like WWAV can see its stock price retreat. After a two and a half year rally from $15 to $52 WWAV appears to be in correction mode. Actually that's being generous. Shares of WWAV are technically in a bear market with a -23% pullback from its early August highs.

WWAV is in the consumer goods sector. According to the company, "The WhiteWave Foods Company is a leading consumer packaged food and beverage company that manufactures, markets, distributes, and sells branded plant-based foods and beverages, coffee creamers and beverages, premium dairy products and organic produce throughout North America and Europe. The Company also holds a 49% ownership interest in a joint venture that manufactures, markets, distributes, and sells branded plant-based beverages in China.

WhiteWave is focused on providing consumers with innovative, great-tasting food and beverage choices that meet their increasing desires for nutritious, flavorful, convenient, and responsibly-produced products. The Company's widely-recognized, leading brands distributed in North America include Silk®, So Delicious® and Vega® plant-based foods and beverages, International Delight® and LAND O LAKES® coffee creamers and beverages, Horizon Organic® premium dairy products and Earthbound Farm® organic salads, fruits and vegetables. Its popular plant-based foods and beverages brands in Europe include Alpro® and Provamel®, and its plant-based beverages in China are sold under the Silk® ZhiPuMoFang® brand."

Earnings growth has been steady and the company has been making acquisitions. Their most recent report was August 7th when WWAV announced their Q2 results. Earnings were up +8% from a year ago to $0.24 a share. Revenues were up +10.3% to $924 million. That actually missed estimates of $928 million but on a constant currency basis WWAV's revenues were up +14%.

Here's an excerpt from WWAV's earnings release discussing their 2015 forecast, "The company expects continued strong growth in 2015 and is increasing its full year outlook for net sales, adjusted operating income and adjusted diluted earnings per share. Management is increasing its net sales growth expectations for full year 2015 to 15 percent to 16 percent on a constant currency basis, and 12 percent to 13 percent on a reported basis. For third quarter 2015, management expects net sales growth to be 18 percent to 19 percent on a constant currency basis, translating into 14 percent to 15 percent growth on a reported basis."

That forecast wasn't good enough for Wall Street. The stock retreated on this news. A few days later the market started to correct lower. Suddenly the floor just fell away from WWAV's stock. In five trading days the stock plunged from about $50 to almost $35 erasing five months of gains. The stock did see a big bounce back but that rebound has failed under new resistance in the $47.00 area (see chart).

Personally, WWAV is a long-term bullish candidate for me. They are also widely considered to be an acquisition target (which is a risk if you're short the stock). However, on a short-term basis the stock is underperforming. WWAV has spent the last few days hovering near round-number support at $40.00 but it looks like the stock is about to break down.

The stock market seems to be in a risk-off mood and traders are selling anything and everything, especially if it looks rich. Even with the -20% decline from its highs WWAV has a P/E near 50. The point & figure chart is bearish and forecasting at $22.00 target. Tonight we are suggesting a trigger to launch bearish positions at $39.45.

Trigger @ $39.45

- Suggested Positions -

Buy the NOV $37.50 PUT (WWAV151120P37.5) current ask $1.60
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

Markets Rebound Off Midday Lows

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market bounced off the midday lows but the major indices closed mixed on the first day of trading for the fourth quarter. A disappointing PMI reading added to worries that parts of the U.S. economy are slowing down.

CAT hit our stop loss.


Current Portfolio:


CALL Play Updates

Nike, Inc. - NKE - close: 123.83 change: +0.86

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

Comments:
10/01/15: NKE has been more resilient than expected. Shares continued to bounce today after traders bought the dip near $121.25.

I would be tempting to buy NKE on this bounce. However, historically the first 10 to 14 days of October are usually bearish. We just need to be patient and wait for the dip.

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: 88.56 change: -0.05

Stop Loss: 90.85
Target(s): To Be Determined
Current Option Gain/Loss: - 3.0%
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:
10/01/15: AON is quietly churning sideways near its 2015 lows. Wait for a new decline under $87.50 as our next bearish entry point.

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: 58.87 change: -0.10

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:
10/01/15: BABA did not see any significant follow through on yesterday's bounce. Shares tried to rally but failed under the $60.00 level again.

There is no change from my prior comments. 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


Compass Minerals Intl. - CMP - close: 78.82 change: +0.45

Stop Loss: 79.55
Target(s): To Be Determined
Current Option Gain/Loss: -25.0%
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:
10/01/15: CMP is clearly not cooperating with us. Shares continue to churn sideways in the $77-79 range. There is no follow through lower as traders keep buying the dips. Big picture for CMP looks bearish but on a short-term basis the stock acts like it wants to bounce.

More conservative traders may want to abandon ship now. No new positions at this time.

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

10/01/15 CMP is not cooperating. Readers may want to exit early now
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: 58.08 change: +0.02

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:
10/01/15: Thursday proved to be a quiet day for DECK. Shares churned sideways inside a $1.00 range. The stock closed virtually unchanged on the session. 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: 103.88 chg: +0.62

Stop Loss: 105.05
Target(s): To Be Determined
Current Option Gain/Loss: -16.1%
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:
10/01/15: IFF's oversold bounce continued for a third day in a row. The stock did stall near short-term resistance at its 10-dma and the $104.00 level.

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: 110.18 change: +1.71

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: + 43.9%
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:
10/01/15: Bearish traders have to decide how much risk they want to allow with LH bouncing. Shares rebounded off their morning lows (near yesterday's lows) and the stock rallied through out the rest of the session. LH outperformed the broader market with a +1.5% gain. The close above potential round-number resistance at $110.00 is arguably short-term bullish. Readers may want to consider lowering their stop loss. We are going to keep our stop at $112.25 tomorrow since Friday morning could be volatile thanks to the jobs report.

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


Outerwall Inc. - OUTR - close: 57.85 change: +0.92

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

Comments:
10/01/15: OUTR rebounded off its morning lows and closed up +1.6%, outperforming the major indices. Shares did close below short-term resistance at $58.00. Technical traders will note that OUTR did produce a bullish engulfing candlestick reversal pattern but it needs to see confirmation.

Nothing has changed from last night's new play description. Our suggested entry point for bearish trades is $56.35.

Trade Description: September 30, 2015:
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)

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


Tiffany & Co. - TIF - close: 76.58 change: -0.64

Stop Loss: $77.55
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
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:
10/01/15: TIF's oversold bounce appears to be rolling over beneath technical resistance at its 10-dma. Shares closed down -0.8%.

Our stop loss is at $77.55. More aggressive traders may want to move their stop so it's above the 20-dma (currently $79.10) to give TIF more room to maneuver.

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


CLOSED BEARISH PLAYS

Caterpillar Inc. - CAT - close: 64.39 change: -0.97

Stop Loss: 65.85
Target(s): To Be Determined
Current Option Gain/Loss: + 81.5%
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:
10/01/15: It was another volatile session for CAT. Shares opened higher and spiked to $66.10 only to see the rally quickly reverse. Shares fell to $63.61 intraday. The stock underperformed the broader market with a -1.48% decline on the session. Unfortunately the morning rally hit our stop loss a $65.85.

- Suggested Positions -

NOV $70 PUT (CAT151120P70) entry $3.25 exit $5.90 (+81.5%)

10/01/15 stopped out
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

chart: