Option Investor
Newsletter

Daily Newsletter, Wednesday, 10/14/2015

Table of Contents

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

Market Wrap

Market Turns Down

by Keene Little

Click here to email Keene Little
Heading into Tuesday's highs we had a good setup for a reversal of the rally. Following Tuesday morning's highs we now have some confirmation that the rally has probably finished and the 3-wave bounce correction off the August low has probably completed. We now wait for further confirmation.

Today's Market Stats

Tuesday morning gapped down but there was a big buying spike at the open, which was then followed by strong selling as big money used the buying and increased liquidity to sell into. The same thing happened this morning with the buy programs hitting at the open and then before 10:00 AM the sellers hit the tape, again using the liquidity surge in the buying as a way to cover their selling. But then the selling overwhelmed the buying and the indexes dropped back into the red. An afternoon bounce attempt was again used to sell inventory and it's looking like a distribution pattern this week, which is at odds with a normally bullish opex week. Was last week's rally the usual head-fake move in front of opex, but this time opposite to what has been normal?

Not helping the market's mood this morning were the economic reports that showed a continued slowing in inflation (not deflation since that's a bad word so we'll go along with the Fed's "disinflation") and a continued slowing in the economy.

The PPI numbers before the bell showed a decline of -0.5%, which was a more significant drop than the expected -0.3% and a drop from 0.0% in August. This continues the slowing in inflation since peaking around +2% last year. Taking out those items near and dear to most of us, that being food and energy-related goods, the core PPI was -0.3%, which was also lower than expected. The expectations were for a drop from +0.3% in August to +0.1% for September. The economy appears to be dissing the Fed with its disinflation.

Retail sales are also in decline and have been this year, coming in at +0.1% (but -0.3% when removing automobiles). August was revised lower as well, from +0.2% to 0.0% and it was less than the +0.2% expected. Ex-auto saw the August number revised lower from +0.1% to -0.1% and it too came in less than the expected -0.1%. A drop in energy prices was expected to boost retail spending but it appears the consumer failed to get the memo and instead pocketed the savings. Not even back-to-school shopping could get the consumer spending more than usual. And if the mighty consumer cuts back on his and her spending it's going to cause further slowing in the economy.

But the Fed continues to see "moderate" growth according the Fed Beige Book report for September, which was released this afternoon. Wage growth was mostly flat and consumer spending grew moderately (not apparent in this morning's retail sales report). The energy sector continues to slow as active rigs and drilling activity continue to decline. The stronger dollar gets the blame for the slowdown in manufacturing (never mind that the dollar hasn't moved much since March and is in fact lower since then). Overall, the report supports those who say the Fed will not be raising rates this year.

Jumping into a review of the charts, I'll start tonight's review with a look at the NYSE Composite index since it gave one of the cleaner setups for this week's reversal. Following the low in August, which was a test of the 200-week MA, we've had a 3-wave bounce correction (I'm calling it a correction to the May-August decline until proven otherwise). The b-wave, which was the pullback into the end of September, was another test of support and a retest of the August low. The c-wave, which is the rally from September 29th, came close to achieving a price projection near 10418 (with a high at 10400 on October 9th), which is where the bounce off the August low has two equal legs up. When I see a reversal from near that kind of price projection it helps confirm the likelihood that it's an a-b-c bounce correction and not something more bullish.

NYSE Composite index, NYA, Weekly chart

The bearish setup on NYA was triggered with the decline below the October 7th high at 10284 and now we wait for further confirmation that we have something more than just a pullback before pressing higher. Note also that the rally into the October high was also rejected from price-level S/R at 10387 (the October 2007 high). The bulls need to get the NYA above 10418 before I'd starting thinking that perhaps we have something more bullish going on. In the meantime, shorting the bounce for another leg down is the higher-probability play and the downside target is the May 2011 high near 8700 (-16% from the October high). That level is also close to where the decline from May would have two equal legs down. A more bearish interpretation of the pattern calls for much lower prices than 8700 but one leg at a time until the bigger picture becomes clearer.

The daily chart below shows the price projection near 10418 for two equal legs up from August and how close it is to the October 2007 high at 10387. Last Friday's small doji at resistance was a good setup to short resistance. Now all the bears need to do is break support at the 50-dma, near 10211, which was almost tagged with today's low near 10215. It could be good for at least a little bounce on Thursday but watch the series of lower highs since last Friday -- a break of a downtrend line along those highs would be fair warning to those in short positions.

NYSE Composite index, NYA, Daily chart

Like the NYA, SPX nearly achieved its price projection at 2025.76 (with Tuesday's high at 2022.34) where its 3-wave bounce off the August low would have two equal legs up. Tuesday's high was short of price-level resistance at 2040-2045 that most had been expecting to see and the spike rallies out of the gate yesterday and today likely caught many traders in bull traps. While the setup for a reversal followed by the decline from Tuesday morning looks good for the bears, another leg up can't be ruled out yet. SPX hasn't yet tested/broken its 50-dma, currently near 1988 (today's low was near 1991) and there's a bullish setup for a back-test that could be followed by a bullish kiss goodbye. Back above Tuesday's high near 2023 would be bullish but then there's that 2040-2045 resistance to worry about.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2023
- bearish below 1960

The rally from September 29th (the c-wave of the a-b-c bounce off the August low) completed as a 5-wave move, which it needs to be. There's a way to look at the current pullback as just a correction that will lead to another new high, probably up to the 2040-2045 resistance zone. A rally back above today's midday bounce high at 2005.74 would be a warning sign for bears to heed since that would suggest another new high is coming. In the meantime, especially with the downside potential, I think shorting bounces is the way to go.

S&P 500, SPX, 60-min chart

Considering what looks like a reversal back down in the stock market, the VIX is confirming it with what looks like a reversal to the upside. On Monday I thought it was setting up a reversal after it dropped down near 16 where it was about to test price-level S/R and back-test its broken downtrend line from October 2014 - July 2015. The bounce off Tuesday's low leaves a reversal signal so VIX is bullish until proven otherwise (with a drop below 15.70).

Volatility index, VIX, Daily chart

Into Tuesday's high the DOW had been able to push marginally above price-level resistance at 17037-17067, which are the February 2015 and December 2014 lows, resp. But yesterday's little doji and close at this S/R line has now been followed by a big red candle and that gives us a sell signal. If the bulls negate the sell signal with a rally above Tuesday's high at 17173 I'd look for a rally to 17242, for two equal legs up from August, and perhaps up to the top of its parallel up-channel for the bounce off the August low, near 17450. If this is the start to the next decline, one which should at least match the May-August decline (nearly 3000 points), the first downside target would be a test of the August low at 15370 before getting another large bounce before heading lower again.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,173
- bearish below 16,740

NDX held onto a potentially bullish setup today. Last Friday it climbed above price-level S/R near 4345 and its downtrend line from July and then tagged its broken 200-dma on Monday and again on Tuesday. Tuesday's pullback was close to back-testing both the S/R line and its broken downtrend line, which it did again today but continues to hold above both. Today's pullback found support at its 50-dma, near 4329, and all of this keeps the NDX looking bullish and a rally back above today's midday high near 4374 would keep the bulls in control. The bears need to see a continuation lower Thursday morning and a firm break below the 50-dma near 4329. It should be noted that the Nasdaq has not been able to break its downtrend line from July and has only been able to back-test its broken 50-dma, near 4816, including another failed test today (twice).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4403
- bearish below 4273

The RUT's rally off the September 29th low, which was a test of price-level support near 1080, made it up to its downtrend line from June, poking slightly above it and its 50-dma, both near 1160. It then rolled over from resistance and has dropped back below price-level S/R near 1152. It tagged its 20-dma, near 1137, and held it so there's the potential for another attempt at a new high for the bounce and maybe up to its broken uptrend line from October 2011 - October 2014, near 1187 (and a test of its September high at 1194). The bears would be in better shape with the RUT below the October 6th low, near 1127, which would also be a break of an uptrend line that is parallel to the one for the August-September bounce.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1170
- bearish below 1127

The RUT continues to be a good sentiment index for us -- when investors are feeling bullish they want to be exposed to the higher-beta names to get more punch out of their investments. When they're worried about the stock market they know the small caps are higher risk. The big fund managers know it's harder to get out of the small caps and therefore start lightening up their inventory of small caps if they're worried about the market. So when we look at a relative strength (RS) chart of SPX vs. the RUT we can identify those times when the players are feeling bullish vs. bearish and take our cues from that overall sentiment.

The chart below shows the RS of the RUT as compared to SPX and it's been warning us since it peaked in March 2014. That's a long time that the RUT has been underperforming and the bounce from the October 2014 low led to a RS high in June 2015 was followed by a break of the uptrend line from October 2014 in July. That was of course during the time the entire stock market started to decline and the RUT was one of the leaders to the downside. Another bounce off the August low has been followed by a new low, once which is breaking a H&S neckline along the lows since May. This is all supportive of the idea that we've entered a larger decline and that the RUT will likely lead the way down.

RUT vs. SPX Relative Strength, Daily chart

I think another sign of trouble for the stock market comes from what we see happening in the emerging market, using EEM, which better reflects the weaknesses underlying the markets. The removal of the threat of a rate increase by the Fed helped the emerging market recover off their August lows (along with the bounce in the markets in developed countries), as can be seen on the EEM weekly chart below. A stronger dollar from a rate increase would further devastate developing economies as they struggle to pay down their debts (all thanks to the lower-than-normal borrowing rates that prompted over-leveraging in the past decade) with a lower-value currency. The bounce off the August low was good enough for a back-test of the shelf of support near 36.15 and a rollover from here creates another sell signal.

Emerging Market ETF, EEM, Weekly chart

Another interesting RS chart is between the banks and the broader market. BKX had peaked in RS compared to SPX back in early 2003, started to taper off into September 2005 and then peaked at a lower high in July 2006. It started to drop steeply from there into the 2009 low. I remember in July and October 2007 thinking the banks' weakness was another confirming sign that the broader market was peaking. Following the March 2009 low we've seen the RS chart go sideways and it has formed a sideways triangle, retracing less than 38% of its former glory. As the stock market made new highs along the way, the RS chart made lower highs, once again showing us the banks were never full onboard with the Fed-induced rally (the unnatural low rates hurt the banks). The wave count for the sideways triangle looks complete (a-b-c-d-e) with a throw-over for wave-e into the August high. This pattern suggests another big leg down in what will be a large A-B-C pullback from the 2003 peak. In other words, along with the RUT, I see the banks leading the way lower. As leveraged as they are (far more than in 2006-2007) we're looking at either massive bank bailouts in the near future or massive failures.

BKX vs. SPX Relative Strength, Weekly chart

Need a little more proof that the thrill is probably gone for bulls? A comparison (not RS) between SPX and the difference between junk bond prices and 10-year Treasury prices (HYG-ZN, the blue line on the weekly chart below) shows the significant drop in HYG prices relative to Treasury prices (less demand for the riskier junk bonds) compared to the much smaller drop (so far) for SPX. This is just another chart showing how much money is leaving the riskier assets and why it's important to think defensively about the broader market. It's time to be picking out shorting candidates or if you don't like playing the short side then at least get into cash, which includes short-term Treasuries.

Comparison between SPX and difference between HYG and 10-year prices, Weekly chart

The U.S. dollar has pulled back a little further than I expected but still well inside its descending wedge pattern and holding above support at the top of its parallel up-channel from 2008-2011, currently near 93.70. It's also currently holding its 50-week MA, near 94.77, which held on the last two tests in August and September. I continue to look for a slightly higher bounce before turning back down inside its descending wedge pattern before starting another rally at the end of this year.

U.S. Dollar contract, DX, Weekly chart

Gold has attracted strong buying over the past two weeks, rallying $86 from a low near 1104 on October 2nd to a high near 1190 today. And the rally might not be finished since there's a price projection near 1195 for two equal legs up from its July 24th low at 1072. But it has reached a level that could be a challenge for gold bulls to push through. It climbed above its 200-dma, near 1176, and its 50-week MA, near 1181, but it's only one day so far. The downtrend line from October 2012 - January 2015 is also near 1181 and it has almost made it up to the top of a parallel up-channel for its 3-wave bounce off its July low. So there's a little more upside potential but if you're long gold here you should be asking yourself if this is a place you'd enter a new long trade. If not then you should either take profits and/or trail your stop up closer. I think gold will head lower into next year (1000 or lower) as the deflationary cycle continues.

Gold continuous contract, GC, Weekly chart

Supporting gold's bullish run is silver, which is lagging but it has climbed above resistance near 16 (with today's high at 16.19), which includes its 200-dma, at 15.97, and 50-week MA at 16.04. But its daily RSI is showing bearish divergence against last week's lower price high and its weekly RSI is in overbought territory and back up to previous highs made in January and May. Again, there's more upside potential but I would not want to enter a new long trade here. If anything I'd be looking to short the bounce into resistance (on a rollover) since silver should drop down toward 12 (if not lower) by the end of the year.

Silver continuous contract, SI, Weekly chart

Last week I had mentioned I expected oil to pull back to retrace a portion of the rally off its October 2nd low before continuing higher. We have the pullback and now I'm looking for the rally to continue up to the price projection at 55.55 for two equal legs up from August 24th. Assuming we'll get the rally, I continue to believe it's all part of a larger sideways consolidation that will continue into early next year before heading lower (as the dollar heads higher).

Oil continuous contract, CL, Daily chart

Tomorrow morning will be busy with economic reports, which will include CPI data, the Empire Manufacturing index and the Philly Fed index. We'll get to find out more data about what's happening with inflation as well as the economy. With each passing report it seems the bond market is pricing in a lower and lower probability of a rate increase this year. I continue to believe the Fed will be implementing its next QE program (probably a massive one) long before they'll raise rates.

Economic reports and Summary

Conclusion

Last week I was watching for the completion of the leg up from September 29th (with a 5-wave move) to then complete the 3-wave bounce off the August low. That was a setup for at least a pullback, if not the start to the next big decline, one which should at least match the leg down in the August lows. If the market is going to instead head higher, we should see a choppy pullback that retraces a portion of the rally from September 29th and then continue higher. If that happens I'll turn bullish since it should indicate new highs are coming. But for now, I think the 3-wave bounce correction off the August low is a very good setup to get short and ride the next leg down, possibly into the end of the year. By this time next week we should have a much better idea whether or not the market has turned down and then whether or not we should expect lower lows or instead just a pullback before heading higher. In the meantime, trade safe until we get further confirmation of what the next big move should be.

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

Retailers In Retreat

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Nordstrom Inc. - JWN - close: 66.87 change: -1.66

Stop Loss: 70.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.4 million
Entry on October -- at $---.--
Listed on October 14, 2015
Time Frame: Exit PRIOR to earnings on November 12
New Positions: Yes, see below

Company Description

Trade Description:
Normally Q4 is the time investors think about buying retail-related stocks in anticipation of a strong holiday shopping season. This year the retailers' Q4 is off to a weak start.

JWN is in the services sector. According to the company, "Nordstrom, Inc. is a leading fashion specialty retailer based in the U.S. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 316 stores in 39 states, including 120 full-line stores in the United States, Canada and Puerto Rico; 188 Nordstrom Rack stores; two Jeffrey boutiques; and one clearance store. Additionally, customers are served online through Nordstrom.com, Nordstromrack.com and HauteLook. The company also owns Trunk Club, a personalized clothing service serving customers online at TrunkClub.com and its five clubhouses. Nordstrom, Inc.'s common stock is publicly traded on the NYSE under the symbol JWN."

JWN's earnings results have struggled this past year. Last November they beat estimates by a penny but guided lower. When JWN reported earnings in February 2015 they missed expectations and guided lower the second quarter in a row. In May this year they missed estimates again. Their most recent earnings report was August 13th. JWN beat Wall Street estimates by three cents with a profit of $0.93 a share. Revenues were up +9% to $3.6 billion, slightly above estimates. Management actually raised their 2016 guidance. The stock popped higher on the earnings beat and bullish guidance. Unfortunately the rally did not last.

Shares of JWN reversed and formed a bearish double top. Since then investors have continued to sell the rallies. The big drop on October 7th was an adjustment for JWN's special cash dividend of $4.85. There has been virtually no bounce.

Today JWN underperformed as the market reacted to Wal-Mart's earnings warning. Suddenly investors are concerned that consumer spending this holiday season may be weaker than expected. That doesn't bode well for JWN. The trend is already down and the point & figure chart is forecasting at $58.00 target.

Shares readers could argue there is potential support near the $65.00 level but we think JWN is headed a lot lower and could drop toward round-number support at $60.00. Tonight we are suggesting a trigger to buy puts at $66.40. Prepare to exit prior to JWN's earnings report in November.

Trigger @ $66.40

- Suggested Positions -

Buy the NOV $65.15* PUT (JWN151120P65.15) current ask $1.59
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.

*NOTE: The odd option strike is due to JWN's special cash dividend of $4.85 per share. The ex-distribution date was Wednesday, October 7, 2015. The option market adjusted all the prior option strikes down -4.85.

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Wal-Mart Warning Rolls Back Prices On Stocks

by James Brown

Click here to email James Brown

Editor's Note:

Dow-component and retail titan Wal-Mart (WMT) shocked Wall Street with a significant earnings warning today. WMT shares plunged and pulled most of the market down with it.

Our ALKS trade was closed this morning.

BEAV, a new put play, hit our entry trigger.


Current Portfolio:


CALL Play Updates

Costco Wholesale Corp. - COST - close: 149.84 change: -2.44

Stop Loss: 147.45
Target(s): To Be Determined
Current Option Gain/Loss: +52.5%
Average Daily Volume = 1.9 million
Entry on October 05 at $146.25
Listed on October 03, 2015
Time Frame: Exit PRIOR to November option expiration
New Positions: see below

Comments:
10/14/15: Retail giant Wal-Mart (WMT) stunned Wall Street with a huge earnings warning. They lowered their forecast for fiscal 2016. WMT also said they will spend billions over the next three years to lower prices. This sparked concerns over a potential price war among the major retails. COST held up better that you might expect. WMT's stock plunged -10%, its biggest percentage drop in 25 years. Shares of COST only lost -1.6% for the day after finding support near its 10-dma.

No new positions at this time.

Trade Description: October 3, 2015:
Thus far 2015 has been a frustrating year for COST bulls. After years of steady stock price appreciation (2009-2014) the rally peaked in the first quarter of 2015. Shares spent months correcting lower but it looks like the worst may be behind it for COST.

If you're not familiar with COST they are in the services sector. The company runs a membership warehouse business that competes with the likes of Sam's Club (a division of Wal-Mart). According to the company, "Costco currently operates 686 warehouses, including 480 in the United States and Puerto Rico, 89 in Canada, 36 in Mexico, 27 in the United Kingdom, 23 in Japan, 12 in Korea, 11 in Taiwan, seven in Australia and one in Spain. The Company plans to open up to an additional 16 new warehouses (including one relocation to a larger and better-located facility) prior to the end of its fiscal year on August 30, 2015. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico."

Revenue growth has been lackluster this year. COST has managed to beat Wall Street estimates on the bottom line but the revenue number has been soft. Their most recent quarterly report was announced on September 29th. Earnings were up +10% from a year ago to $1.73 a share. That beat estimates. Yet COST said their Q4 revenues were virtually flat (+0.7%) to $35.78 billion. That missed expectations. Comparable store sales were up +2% in the U.S. but down -10% in Canada.

A lot of COST's revenue troubles have come from lower oil, which has pushed gas prices lower. The big drop in gas prices cuts their revenue growth. Plus the stronger dollar hurts their foreign sales. The company continues to expand its presence in the U.S. and overseas. Management plans to launch 12 new warehouses this quarter. Overall COST plans to build 32 new stores in the next 12 months, including its first store in France.

The stock looks poised to breakout past its July, August, and September highs and make a run at its 2015 highs. We suspect COST is going to grab more investor attention as we approach the holiday shopping season. The stock tends to see a rally from September into Black Friday (the day after Thanksgiving).

Tonight we are suggesting a trigger to buy calls at $146.25. More conservative traders may want to wait for a rally past the September peak ($146.90) or even past short-term resistance $147.00. We want to jump in a little early as COST could surge wants it clears $147.00.

- Suggested Positions -

Long NOV $150 CALL (COST151120C150) entry $2.00

10/14/15 Wal-Mart warns and retail-related stocks suffer
10/10/15 new stop @ 147.45
10/08/15 COST rises on better than expected September same-store sales
10/07/15 COST could see a short-term dip here.
10/05/15 triggered @ $146.25
Option Format: symbol-year-month-day-call-strike


Salesforce.com, Inc. - CRM - close: 75.58 change: -1.05

Stop Loss: 72.95
Target(s): To Be Determined
Current Option Gain/Loss: -8.9%
Average Daily Volume = 3.6 million
Entry on October 12 at $76.25
Listed on October 07, 2015
Time Frame: Exit PRIOR to earnings in November
New Positions: see below

Comments:
10/14/15: Uh-oh! Yesterday CRM closed above resistance at $76.00. It was unable to hold that level today as shares fell -1.3%. CRM's performance yesterday is suddenly starting to look like a potential short-term top.

CRM's intraday high today was $76.57. I'd wait for a new rise above $76.60 before considering new bullish positions.

Trade Description: October 7, 2015:
Cloud computing and software giant CRM has been churning sideways for almost seven months. In spite of this lack of upward movement CRM is still outperforming the broader market. The NASDAQ composite is up +1.2% year to date. CRM is up +26%. The good news is that CRM looks poised to breakout past major resistance and begin its next leg higher.

CRM is part of the technology sector. According to the company, "Salesforce is the world's #1 CRM company. Our industry-leading Customer Success Platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in cloud, social, mobile and data science technologies with the Customer Success Platform."

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. The company's most recent quarter was announced August 20th. Analysts were expecting Q2 results of $0.17 a share on revenues of $1.6 billion. CRM beat both estimates with a profit of $0.19 as revenues grew +23.5% to $1.63 billion. Management raised their Q3 and full year 2016 revenue guidance.

Technically the stock is in a long-term up trend and the point & figure chart is forecasting an $85.00 target. The $75.00-76.00 area is major resistance with CRM failing in this region multiple times. The recent rally has boosted CRM back to this level and the stock looks poised to breakout soon.

(Side note - CRM did hit an intraday high of $78.46 on April 29th thanks to M&A rumors. The company is still considered a potential acquisition target by larger rivals.)

We like CRM's relative strength and consistently strong earnings and revenue growth. A breakout here could spark a run that lasts until the company's earnings report in November. Tonight we are suggesting a trigger to buy calls if CRM trades at $76.25 (or higher).

- Suggested Positions -

Long DEC $80 CALL (CRM151218C80) entry $3.05

10/12/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike


CVS Health Corp. - CVS - close: 100.45 change: -1.60

Stop Loss: 99.40
Target(s): To Be Determined
Current Option Gain/Loss: -56.5%
Average Daily Volume = 4.7 million
Entry on October 13 at $103.75
Listed on October 12, 2015
Time Frame: Exit PRIOR to earnings on October 30th
New Positions: see below

Comments:
10/14/15: WMT's earnings warning also weighed heavily on CVS, given their retail business. Shares of CVS plunged to round-number support at $100 before starting to pare its loss.

Considering where our stop loss is (at $99.40) I would be tempted to buy calls on a bounce above $100.85 (the midday high).

Trade Description: October 12, 2015:
Healthcare stocks have outperformed the broader market over the last few years. The country's adjustment to the Affordable Care Act (Obamacare) is one reason. There are huge demographic shifts occurring as well. Currently the U.S. sees 10,000 Baby Boomers hit 65 years old every single day. This is a trend that will last for years and highlights the aging population in the U.S. Older consumers have higher healthcare costs and they will likely try to save money by using companies like CVS.

CVS is in the healthcare sector. According to the company, "CVS Health (CVS) is a pharmacy innovation company helping people on their path to better health. Through its more than 7,800 retail drugstores, nearly 1,000 walk-in medical clinics, a leading pharmacy benefits manager with more than 70 million plan members, and expanding specialty pharmacy services, the Company enables people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs."

CVS has been making some key acquisitions lately. They spent $1.9 billion to buy all of Target's (TGT) 1,660 pharmacies across 47 states. CVS will operate them as a store-within-a-store format. CVS also acquired Omnicare for almost $13 billion. Omnicare is the biggest provider of pharmacy services to nursing homes, assisted living facilities, and other healthcare providers. This is a key acquisition to capitalize on the aging of America.

CVS has been consistently beating Wall Street's bottom line earnings estimates. Their most recent report was August 4th. CVS said their Q2 earnings were $1.19 a share, above estimates. Revenues rose +7.4% to $37.17 billion, which was in-line with expectations. Management offered slightly bullish guidance, above analysts' estimates.

Technically healthcare stocks peaked this past summer and began to correct lower in August. CVS was no exception. The trading on August 24th, the market's August-correction low, was more than a little crazy in shares of CVS. If we ignore that one day, then CVS has corrected from $113.45 down to $96.35 by late September. That was a -15% pullback. Fortunately investors finally stepped in to buy the decline and CVS has produced a bullish reversal higher.

The last few days have seen CVS' stock rally through resistance at $100. Today's rally (+1.0%) was significant because CVS closed above technical resistance at both its 50-dma and its 200-dma. The intraday high today was $103.52. I am suggesting a trigger to buy calls at $103.75. We will plan on exiting this trade prior to CVS' earnings report on October 30th.

- Suggested Positions -

Long NOV $105 CALL (CVS151120C105) entry $2.07

10/13/15 triggered @ $103.75
Option Format: symbol-year-month-day-call-strike


The Walt Disney Company - DIS - close: 105.73 change: -0.86

Stop Loss: 99.75
Target(s): To Be Determined
Current Option Gain/Loss: -20.5%
Average Daily Volume = 9.9 million
Entry on October 12 at $106.50
Listed on October 10, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: see below

Comments:
10/14/15: DIS held up reasonably well. The company makes a lot of money through merchandising and licensing. Wal-mart's earnings warning fueled worries about lower consumer spending this holiday season. This may have pressured DIS to a -0.8% decline today. Traders did buy the dip near $105.00 so I'm not worried yet.

More conservative traders may want to consider a higher stop loss.

Trade Description: October 10, 2015:
The Force is strong with this one. DIS is poised to reap a galaxy of profits as the company re-launches the Star Wars franchise.

DIS has been a big cap superstar with strong, steady gains off its 2011 lows. That changed in August this year. Shares of DIS plunged into a very sharp and painful correction. The catalyst for the drop was the company's earnings report. Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off accelerated in August thanks to the global market meltdown. Since then shares have recovered.

Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There were no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

(sidenote - The advertising environment for television should also improve in 2016 thanks to the U.S. presidential election.)

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

Analysts are claiming Disney shares could add 25% before the end of December because of their strong movie schedule and coming attractions. The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof.

Disney Movie Schedule (partial list)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 2016 - "Captain America: Civil War"
June 2016 - "Finding Dory"
Dec. 2016 - "Star Wars Anthology: Rogue One"
May 2017 - "Star Wars: Episode VIII"
June 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Content is still king and DIS rules. They're going to make a hoard of money off their Star Wars movies but that's just the tip of the iceberg. There will be tons of money made on merchandising from toys, clothing, video games, and just about everything else under the sun they can slap a Star Wars logo on.

The stock's correction from $121 to $90 was abrupt. DIS quickly fell from correction territory to bear-market territory in just a few days. Fortunately DIS produced a pretty good rebound. Yet the oversold bounce stalled under resistance near $105 and its 200-dma.

The breakdown under round-number support at $100 in late September looked ugly but there was no follow through lower. Since the late September low shares have rallied and Friday, October 9th, saw DIS close above resistance at its 50-dma and above resistance at $105.00. Now it just needs to clear technical resistance at the 200-dma currently at $106.21. We are suggesting a trigger to buy calls at $106.50.

We will plan on exiting prior to DIS' earnings report in early November. More aggressive investors might want to hold over the report (if that's you I suggest considering the January 2016 calls).

- Suggested Positions -

Long NOV $110 CALL (DIS151120C110) entry $1.66

10/12/15 triggered @ $106.50
Option Format: symbol-year-month-day-call-strike


The Home Depot, Inc. - HD - close: 120.27 change: -1.34

Stop Loss: 117.45
Target(s): To Be Determined
Current Option Gain/Loss: -25.9%
Average Daily Volume = 5.3 million
Entry on October 08 at $120.25
Listed on October 05, 2015
Time Frame: Exit PRIOR to earnings on November 17th
New Positions: see below

Comments:
10/14/15: Wal-Mart's surprise earnings warning today negatively affected all the big retailers including HD. Investors might be worried about consumer spending and shares of HD slipped -1.1%. The stock dipped to its simple 10-dma (near $119.85) before trimming its loss. I would use a bounce above $120.75 as a new bullish entry point.

Trade Description: October 5, 2015:
Home Depot's stock has outperformed the broader market in spite of the fact shares have been stuck in a trading range for the last seven months. That could be about to change.

The big surge in the U.S. housing market this year has been a bullish tailwind for HD's business. The home remodeling and repair industry and consumer spending in this category is expected to hit levels not seen since before the "Great Recession" in 2008-2009. HD is poised to reap the benefits.

HD is in the services sector. According to the company, "The Home Depot is the world's largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2014, The Home Depot had sales of $83.2 billion and earnings of $6.3 billion. The Company employs more than 370,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index."

HD has been showing steady earnings and revenue growth. The company has beaten Wall Street estimates on both the top and bottom line the last three quarters in a row. Management has also raised their guidance the last three quarters in a row.

Their most recent report was August 18th. HD announced its Q2 earnings were up +14% from a year ago to $1.71 per share. Revenues were up +4.3% to $24.83 billion. Comparable store sales came in better than expected with a +4.2% improvement.

Wall Street analysts seem bullish with firms like Deutsche Bank and UBS recently raising their price targets on HD. Currently the point & figure chart is bearish but a rally past $120.00 would generate a brand new buy signal.

Earlier I mentioned that HD has been stuck in a long trading range or consolidation for most of 2015. With the exception of a few days, shares of HD have been churning sideways in the $110-120 range. Today HD looks poised to breakout from this channel. The $120.00 level is round-number resistance. Tonight we are suggesting a trigger to buy calls at $120.25. Plan on exiting prior to HD's earnings report in mid November.

- Suggested Positions -

Long NOV $125 CALL (HD151120C125) entry $1.43

10/10/15 new stop @ 117.45
10/08/15 triggered @ $120.25
Option Format: symbol-year-month-day-call-strike


Ingredion Inc. - INGR - close: 89.83 change: -1.38

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -51.4%
Average Daily Volume = 458 thousand
Entry on October 12 at $91.05
Listed on October 08, 2015
Time Frame: Exit PRIOR to earnings on October 29th
New Positions: see below

Comments:
10/14/15: INGR encountered some profit taking. Shares dropped back toward $90 and closed on technical support at the 10-dma (near $89.80). I would use a bounce above $90.25 as a new entry point.

Trade Description: October 8, 2015:
The rally continues for INGR. The stock is up +400% from the 2008-2009 bear-market lows. Shares are only up +6.3% in 2015 but that's better than the S&P 500's -2.2% decline this year.

INGR is in the consumer goods sector. According to the company, "Ingredion Incorporated (INGR) is a leading global ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients and biomaterial solutions. With customers in more than 100 countries, Ingredion serves approximately 60 diverse sectors in food, beverage, brewing, pharmaceuticals and other industries."

Looking at the last couple of quarters INGR has beaten Wall Street's bottom line earnings estimates both times. Revenues have slipped -2.0% in Q1 and -2.3% in Q2 but that is a reflection of bearish foreign currency exchange rates. Their Q2 earnings were up +13.3% from a year ago.

Technically shares are in a long-term up trend. They're also seeing strength on a short-term basis with traders buying the dips. The $90.00-91.00 area has been short-term resistance. Tonight we are suggesting a trigger to buy calls at $91.05. Plan on exiting prior to INGR's earnings report on October 29th.

- Suggested Positions -

Long NOV $95 CALL (INGR151120C95) entry $1.75

10/12/15 triggered @ $91.05
Option Format: symbol-year-month-day-call-strike


NIKE, Inc. - NKE - close: 125.84 change: +0.03

Stop Loss: 119.75
Target(s): To Be Determined
Current Option Gain/Loss: -6.2%
Average Daily Volume = 3.8 million
Entry on October 12 at $126.15
Listed on October 08, 2015
Time Frame: Exit PRIOR to earnings in December
New Positions: see below

Comments:
10/14/15: It was a risk off day for the market. NKE shares gained no benefit from the company's very bullish forecast today. The company held their investor day event and the news is very positive.

The company outlined plans for revenues to surge +60% over the next five years. NKE believes they will hit $50 billion in annual sales by 2020. Their women's division is forecasted to almost double to $11 billion a year. E-commerce sales should surge from $1 billion to $7 billion. NKE still sees healthy growth in the U.S. and strong growth overseas, especially China.

Trade Description: October 8, 2015:
Nike is named after the Greek goddess of victory. The stock has definitely been winning this year. NKE's stock is up +30% in 2015 and looks poised to keep running.

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."

NKE has reported strong earnings all year long. You could probably sum up NKE's year with growth in every geography and every key category and improving gross margins. Their Q3 2015 earnings in March beat estimates with earnings up +16% from a year ago and revenues up +7% in spite of negative currency headwinds (would have been +13%).

NKE's Q4 2015 earnings were 15 cents better than expected at $0.98 a share. Revenues were up +4.8% (+13% on a currency neutral basis). Future orders were above expectations. Their 2016 Q1 results just came out a few weeks ago on September 24th. Earnings of $1.34 a share beat estimates by 15 cents. Revenues were up +5.4% to $8.41 billion, above expectations. Their future orders were up +9% compared to estimates for low single digits. On a constant currency basis their future orders are up +17%. Their China business was a bright spot with very strong growth.

Shares of NKE vaulted higher on their Q1 results and closed at all-time highs near $125 a share. The stock has spent the last two weeks consolidating gains in a sideways range. We want to hop on board the NKE bandwagon if shares rally to new highs. NKE's intraday high is currently $126.49. Tonight we are suggesting a trigger just below this level at $126.15. The plan is for this to be a multi-week trade and we'll exit prior to earnings in December.

- Suggested Positions -

Long 2016 JAN $130 CALL (NKE160115C130) entry $4.05

10/12/15 triggered @ $126.15
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

B/E Aerospace Inc. - BEAV - close: 44.99 change: -1.05

Stop Loss: 48.20
Target(s): To Be Determined
Current Option Gain/Loss: +11.8%
Average Daily Volume = 1.3 million
Entry on October 14 at $45.75
Listed on October 13, 2015
Time Frame: Exit PRIOR to earnings on October 27th
New Positions: see below

Comments:
10/14/15: Our brand new bearish play on BEAV is off to a good start with shares falling -2.2%. Delta (DAL), a major airline, reported earnings today. Their management said they see a global "bubble" in wide-body planes. DAL expects prices for wide-body planes to drop. This fueled a sell-off in Boeing (BA) who makes the wide-body 777s. There is also concern this price weakness could spread to narrow-body planes as well. Falling plane prices does not bode well for plane interior-maker BEAV.

Our entry point to launch bearish positions in BEAV was hit at $45.75 today.

Trade Description: October 13, 2015:
The business jet market is tough these days. Falling demand from foreign customers and companies cutting their capex budgets has hurt sales. Shares of BEAV have suffered due to the bearish outlook.

BEAV is in the industrial goods sector. According to the company, "B/E Aerospace is the world's leading manufacturer of aircraft cabin interior products. B/E Aerospace designs, develops and manufactures a broad range of products for both commercial aircraft and business jets. B/E Aerospace manufactured products include aircraft cabin seating, lighting systems, oxygen systems, food and beverage preparation and storage equipment, galley systems, and modular lavatory systems. B/E Aerospace also provides cabin interior reconfiguration, program management and certification services. B/E Aerospace sells and supports its products through its own global direct sales and product support organization."

BEAV has missed Wall Street revenue estimates two quarters in a row. The most recent report (July 22nd) saw revenues crumble -35%. Management has also lowered their guidance two quarters in a row.

Last month BEAV announced they were cutting 450 jobs as they shuttered some facilities and eliminated some product lines. The company said they're trying to reduce expenses due to slowing revenues expected in 2015 and 2016.

Technically the stock is bearish. Shares are in a bearish trend of lower highs and lower lows. The oversold bounce in October has failed at the trend of lower highs (resistance). The point & figure chart is bearish and forecasting at $41.00 target. Today saw BEAV's attempt at a bounce fail and shares underperformed the market with a -1.49% decline. We suspect BEAV will continue to drop into its earnings report as investors fear the worst.

Use a trigger to launch bearish positions at $45.75. Plan on exiting prior to BEAV's earnings report on October 27th.

- Suggested Positions -

Long NOV $45 PUT (BEAV151120P45) entry $1.70

10/14/15 triggered @ $45.75
Option Format: symbol-year-month-day-call-strike


The Cooper Companies Inc. - COO - close: 140.19 change: +0.75

Stop Loss: 143.60
Target(s): To Be Determined
Current Option Gain/Loss: -4.9%
Average Daily Volume = 469 thousand
Entry on October 08 at $141.75
Listed on October 06, 2015
Time Frame: Exit PRIOR to November options expiration
New Positions: see below

Comments:
10/14/15: The oversold bounce in COO continued for a third day in a row. Shares hit an intraday high of $141.21 before paring its gains.

There is no change from my recent comments. Readers might want to adjust their stop loss lower.

No new positions at this time.

Trade Description: October 6, 2015:
Healthcare stocks have been strong market performers for years. The group seems to be struggling with healthcare down -11% in the third quarter. Shares of COO are also underperforming the broader market. COO is down -10.7% year to date but it's down -23.4% from its 2015 highs. That means shares are in a bear market.

If you're not familiar with the company, here's a brief description: "The Cooper Companies, Inc. is a global medical device company publicly traded on the NYSE Euronext (COO). Cooper is dedicated to being A Quality of Life Company(TM) with a focus on delivering shareholder value. Cooper operates through two business units, CooperVision and CooperSurgical. CooperVision brings a refreshing perspective on vision care with a commitment to developing a wide range of high-quality products for contact lens wearers and providing focused practitioner support. CooperSurgical focuses on supplying women's health clinicians with market leading products and treatment options to improve the delivery of healthcare to women. Headquartered in Pleasanton, CA, Cooper has close to 10,000 employees with products sold in over 100 countries."

Earnings results have been mixed but there has been one constant over the last three quarters. COO has missed Wall Street's revenue estimate the last three quarters in a row. Plus, COO management has lowered their revenue guidance three quarters in a row.

The company's most recent earnings report was its Q3 results, announced on September 3rd. Earnings were $1.97 per share. That beat estimates by two cents but represents a -2% drop from a year ago. Revenues were down -6.8% to $461.7 million.

Shares of COO plunged on its revenue miss and lowered revenue guidance. The oversold bounce in September has failed. Now shares are poised to breakdown down to new 2015 lows and could begin its next major leg lower. The stock found support near $142.00 last month. Tonight we are suggesting a trigger to buy puts at $141.75. Plan on exiting prior to November options expiration. Investors may want to limit their position size to reduce risk because COO's option spreads are a little bit wide.

- Suggested Positions -

Long NOV $140 PUT (COO151120P140) entry $4.10

10/10/15 new stop @ 143.60
10/08/15 triggered @ $141.75
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Alkermes Plc - ALKS - close: 59.28 change: +1.39

Stop Loss: 54.25
Target(s): To Be Determined
Current Option Gain/Loss: -57.1%
Average Daily Volume = 1.0 million
Entry on October 05 at $61.17
Listed on October 03, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

Comments:
10/14/15: ALKS has not been making any progress. The stock has been stuck churning sideways. Last night we decided to exit this morning. Naturally ALKS bounces and outperforms the market today with a +2.4% gain.

- Suggested Positions -

NOV $65 CALL (ALKS151120C65) entry $3.50 exit $1.50 (-57.1%)

10/14/15 planned exit this morning
10/13/15 prepare to exit tomorrow morning
10/06/15 a very volatile day with ALKS down -11% from its intraday highs. Shares close down -2%.
10/05/15 triggered on gap open at $61.17, suggested entry was $60.75
Option Format: symbol-year-month-day-call-strike

chart: