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Daily Newsletter, Saturday, 10/17/2015

Table of Contents

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

Market Wrap

One Down, Three to Go

by Jim Brown

Click here to email Jim Brown

The first week of earnings is over but there are three more just ahead. The Dow managed to post three consecutive weeks of gains for the first time since February but weak earnings could derail future rallies.

Market Statistics

The first week of earnings is behind us with 58 S&P companies now reported. Expectations going into last week were for earnings to decline -5.6% and revenue -1.3%. The actual results have changed the forecast. At the close on Friday, the S&P is now expected to see earnings decline -4.6% and revenue drop -3.2%. Clearly, the revenue side has changed significantly. That is due to the almost constant excuse that the strong dollar ate our sales. If this continues to play out it will be the third consecutive quarter of revenue declines and the first time since the financial crisis.

Honeywell (HON) is a prime example. They said revenue for their automation business rose +3% on a constant currency basis but declined -3% as a result of currency translation. Companies are growing revenue overall but the strong dollar is causing a decline in the accounting process. Even Netflix said the strong dollar reduced its revenue by -$96 million. Without that strong dollar impact, the company would have beaten on revenue. They posted $1.740 billion and analysts expected $1.759 billion. Without that impact revenue would have been $1.836 billion.

Despite a lot of high profile earnings misses the actual S&P earnings to date looks like this. With 58 companies reporting, about 71% beat on earnings, 10% met estimates and 19% missed earnings. Only 50% actually beat on revenue according to FactSet.com. The average earnings beat has been +6.6%, which is above the one-year average of +4.4% and five-year average of +4.8%.

The majority of the improvement in the blended earnings results came from GE. Earnings of 32 cents beat analyst estimates for 26 cents. On a weighted basis that is huge. GE also posted revenue of $31.68 billion that easily beat expectations for $28.67 billion. GE is well into its restructuring process to sell $200 billion in financial assets and remove itself as a SIFI (systemically important financial institution) company and all the regulation that entails. GE has sold $126 billion in assets to date. GE is planning on returning $30 billion to investors in stock buybacks, dividends and share swaps for Synchrony (SYF) in 2015. GE still owns 85% of SYF and will be spinning those shares in a swap to shareholders. GE closed at a seven-year high.


Honeywell (HON) posted earnings of $1.60 compared to estimates for $1.55. Revenue of $9.61 billion missed estimates for $9.85 billion because of the strong dollar problem and dramatically declining sales to the oil and gas sector. Shares fell slightly on the news.


There were several economic reports on Friday and the best one was Consumer Sentiment. The headline number rose from 87.2 to 92.1 for October. This was significantly better than expected at 88.7 and the September reading at 87.2. The present conditions component rose from 101.2 to 106.7 and the expectations component rose from 78.2 to 82.7. A rising stock market and falling gasoline prices were credited with the improvement.


Industrial Production for September rose slightly from the -0.4% reading in August to -0.2%. That is hardly a reason to cheer but it was an improvement.

The Job Openings report for August declined from a +3.9% rate to +3.6% but this is old news since we already saw the decline in the August and September payroll reports.

The worst report for the day was the ECRI Weekly Leading Index. I do not discuss this report much because it is a long-term indicator that uses other reports for input. However, the ECRI WLI declined sharply from 132.5 to 128.7 for the week ended October 9th. This was a two-year low and suggests the number of negative economic events are starting to turn into a wave. The economic rebound in early 2015 has been erased and the trend is definitely negative.

This is important. Sometimes the individual economic reports are glossed over or analysts make excuses for individual events. The WLI summarizes all those events and this should make investors cautious about the future.


The Atlanta Fed real time GDP Now forecast is predicting GDP growth of only +0.9% for Q3 compared to the analyst average of +3.2% back in July. That analyst average has now declined to just over +2.0% and dropping fast.


In retrospect, the Fed did the right thing by not hiking rates in September and they are not likely to hike at the October meeting in two weeks. There is only a 17% chance they will hike according to the Fed Funds Futures.

The graphic below shows a summary of the important economic reports for last week. Those in yellow were either lower than last month or less than analyst consensus. Those in green were higher than expected.

On the positive front the weekly jobless claims at 255,000 was a 40-year low and completely unexpected.

Obviously, the weak results greatly overpowered the positive results and this is what we have been seeing for quite a while. It is not an environment where the Fed should be looking to raise rates. In my opinion, we should be more concerned about rising recession risks than hiking rates.


Three of the reports for next week are housing related and they are still expected to show a sector that is growing modestly. The Chicago and Kansas manufacturing surveys on Thursday are likely to show further weakness. Both areas are already in contraction.

The big reports for the week could be from China on Sunday. Because of their recent holiday week, they will announce GDP, Industrial Production and Retail Sales all at the same time on Sunday night. This could definitely set the tone for the markets on Monday.

The Yellen speech on Tuesday is not expected to be a market mover although all of her recent speeches have tended to cause a market bounce.

Watch for another decline on the Weekly Leading Indicators on Friday. Now that the index is at two-year lows, it will receive a lot more attention from investors.


The only split announced last week was actually a spinoff and I did not add it to the calendar. NorthStar Realty Finance (NRF) is going to spin off NorthStar Realty Europe (NRE) on the 31st. Existing shareholders of NRF will receive one share of NRE for every 6 shares of NRF they own. Immediately following the distribution NRF will do a reverse split of 1:2 and reduce the number of shares outstanding from 382 million to 191 million. The implication here is that the removal of the NRE assets from NRF will reduce the share value to single digit levels and the board is planning ahead to keep the share price higher. Since this is not a normal split I did not include it on the calendar.

Skechers (SKX) split 3:1 after the close on Thursday.

Full Stock Split Calendar


Twitter (TWTR) spiked another +5% after former Microsoft CEO, Steve Ballmer, tweeted that he had acquired a 4% stake over the last several months. He praised Jack Dorsey for his efforts to make the company leaner and more focused. On Tuesday, Twitter said it was laying off 336 workers to streamline operations. On Wednesday, Twitter appointed Omid Kordestani, former Google chief business officer, as the executive chairman of Twitter.

Ballmer is now Twitter's third largest shareholder surpassing Jack Dorsey at 3.2%. Saudi billionaire Prince Alwaleed Bin Talal recently increased his position to 5%. Billionaire co-founder Evan Williams is the largest shareholder at 6.9%.


Nike (NKE) surged to a new high two days after raising future revenue targets. The company posted $30.6 billion in revenues in fiscal 2015 and expects to reach $50 billion by 2020. Nike expects sales to China, the emerging markets, central and eastern Europe to grow by low double digits annually through 2020. The company said it expects its ecommerce division to grow from the $1.2 billion in 2015 to $7 billion by 2020. Earnings per share are expected to grow in the mid-teens annually.


Youku Tudou (YOKU) shares rallied +22% after Alibaba (BABA) made an offer to buy them. Youku is the YouTube of China. Alibaba offered $3.6 billion for the 81.5% of Youku that it does not already own. This values YOKU at roughly $26.60 per share or roughly a 30% premium over Thursday's closing price of $20.42. The key shareholders of YOKU already agreed to tender their shares into the deal. That means Alibaba already has 59.3% of the voting rights with Jack Ma already having an 18.5% stake in YOKU. Alibaba will fund the acquisition with cash on hand.


Yum Brands (YUM) shares rebounded +4% after the company said activist investor Keith Meister had been given a seat on the board. Why is this important? Meister has been pressuring Yum to spin off the Asian assets that have been giving them so much trouble. Yum said they were still reviewing the potential spinoff but with Meister added to the board, I would think the odds of a split are very strong. Other investors must have felt the same way and shares rose sharply.

China represents 57.5% of Yum's revenue and 54.2% of the company's profit. Splitting the Asian assets from the U.S. assets would allow each group to manage the businesses differently with a local perspective. KFC, Pizza Hut and Taco Bell are solid businesses in the U.S. and would benefit from a locally focused management. The fast growing KFC and Pizza Hut business in China could be managed better from a Chinese run entity. YUM currently has a 2.66% dividend and a spinoff would generate another profit opportunity along with the potential for a special dividend the parent company receives from Yum China. I think YUM is a buy here with a short fuse into a spinoff announcement.


Wynn Resorts (WYNN) has been crushed by the decline in gaming at the Macau casinos. In their earnings call, Steve Wynn blasted Chinese regulators for irrational gambling rules. The $4 billion Wynn Macau is scheduled to open in early 2016 and they still do not know how many gambling tables regulators are going to allow. This makes it difficult to hire and train employees ahead of the open. China is cutting down on corruption and that means high rollers have been staying away from Macau in order to avoid showing up on a list of visitors that could trigger investigations into their finances.

Regulators have come up with a "table cap" and "employee quota." Half of the VIP market is gone and the Junket operators have gone out of business. The outlook for Wynn is grim. Credit Suisse cut their price target on WYNN by -28% to $76. Shares dipped from $75 on the earnings miss. I would look to short WYNN on the next trade under $70.


McDonalds (MCD) closed at a new high as rumors circulate about a McReit. A board member told the Wall Street Journal that McDonalds has done a lot of due diligence but has not yet made a decision. MGM (MGM) and Macy's (M) are reportedly considering a REIT structure as well.

However, all is not well at McDonalds despite the new highs. According to an article in Business Insider, the McDonald's franchisees believe the brand is in a "deep depression" and could be facing its "final days" according to a recent survey. One franchisee wrote in the Nomura survey that "We are in the throes of a deep depression and nothing is changing. Probably 20% of the operators are insolvent." Another said, "The CEO is sowing the seeds of our demise. We are a quick-serve fast-food restaurant and not a fast casual like Five Guys or Chipotle. The chain may be facing its final days." Management's reaction to the negative comments is for operators to "get out of the system" and quit the business. Several franchisees complained about the all day breakfast saying it has complicated kitchen operations and goes against management promises to simplify the menu.

Another wrote, "The system is very lost at the moment. Our menu boards are still bloated and we are trying to be too many things to too many people. Things are broken from a franchise perspective."

Nomura interviewed franchisees that owned 226 restaurants. McDonalds has more than 14,000 stores and has experienced seven consecutive quarters of declining same store sales.


Crude oil prices declined -$2 for the week but remain stubbornly near $50. There is no fundamental reason for the prices to be moving higher. This is mostly due to the tensions with Russia, Syria, Israel and the Middle East oil producers. With Russia siding with Iran there are worries a conflict with archenemy Saudi Arabia could eventually appear. Bomber videos of an Iraqi oil refinery being bombed on Friday did not help. The refinery was controlled by ISIS but the headline "refinery bombed" was all investors heard.

Oil inventories in the U.S. rose +7.8 million barrels to 468.6 million last week. That is only 22 million barrels below the 40-year high that was set last year at 490.9 million. Between the end of September 2014 and the beginning of the spring demand season on April 24th we added +134 million barrels to inventory. Since that April high inventories have only declined by -45 million barrels. That means we used ONLY ONE THIRD of the inventory buildup from 2014 and there are seven months of inventory builds ahead of us. There is no scenario where we do not exceed the record high at 490.9 million and exceed it by a lot. That buildup caused prices to decline from $92 at the end of September to $42 in March. Why would this year be different except that we are starting from a much higher inventory level and a much lower price level?

Goldman Sachs did say last week that their worst case forecast for oil in the $20s now had a less than 50% chance of coming true. Their rationale was that U.S. production was declining and producers were in crash mode and halting any drilling expenses.

Production declined to 9.096 million barrels per day (mbpd) and a six-month low. That is -514,000 bpd off the peak reached in April. Analysts are calling for production to decline under 9.0 mbpd by the end of December. That seems to be a sure bet but we still added 7.8 million barrels to inventory last week. We would have to see production decline below 8.0 mbpd to really slow the inventory build.

Energy equities are still in rally mode as well. With earnings ahead and the forced restatement of reserves because of the price drop there are going to be some ugly surprises for investors in the earnings reports. I would rather wait for a post earnings decline before adding a bunch of energy stocks to my portfolio.


The Baker Hughes active rig count declined -8 rigs to 787. Oil rigs declined -10 to 595 and gas rigs rose +3 to 192. Offshore rigs rose +1 to 33. To put this in perspective in 1981 there were roughly 4,500 active rigs in the U.S. and that declined to less than 500 in 1999 after Saudi Arabia pushed oil prices to less than $10 in 1998. While oil prices are not going to $10 again the active rig count for oil wells could easily decline back to 500.

With rigs counts in free fall we are going to see some dramatic declines in production in the months ahead. Without the strong flows from new wells the rapid decline rates from existing shale wells is going to be dramatic. The CEO of Core Labs said it could be as much as 10% per month.


Markets

The major indexes closed above recent resistance and appear to be poised to move higher. Investors, or maybe I should say portfolio managers, shrugged off negative economics and crummy earnings and every dip was bought. I have stated over the last couple weeks that fund managers are fully engaged in window dressing for their fiscal year end on October 31st. This is their last chance to grab some performance and put some well-known names into their portfolios before time runs out.

The S&P moved comfortably over resistance at 2,020 and the Dow extended its gains to close at 17,251. The Nasdaq pulled ever closer to 5,000 with a close at 4,886. However, the Dow Transports, Russell 2000 small caps and the biotech index were still weighing on the market.

Monday will be a critical day for market direction with the three major economic reports from China. If the reports are less than dire then the U.S markets have a good chance to extend their gains.

The S&P has resistance at 2,040 and then enters into a solid congestion range from 2050-2130. We spent six months in that range from February through early August and I seriously doubt we are just going to punch through it to a new high without a struggle.

Support is now 2,020 and 1,990, which were both resistance on the way up.


The Dow got some help on Friday from a broad range of companies. Caterpillar and Apple were the only major losers. Nike and McDonalds led the charge with JNJ and GE getting a positive bounce from their earnings reports.

Dow components reporting next week include IBM, UTX, AXP, BA, CAT, MCD, MMM, KO, VZ and MSFT. The risk for Monday is IBM. They have had a tough time over the last several years with international revenue trending lower. China has recommended companies not use their systems on fears of hooks in the hardware to allow the NSA to spy on China. I would be very surprised if IBM was up after earnings.

The Dow edged over resistance at 17,130 to close at 17,215. Starting at 17,500 the Dow has the same wide band of congestion as the S&P up to 18,165. This could be a struggle. Support is now 16,700.



The Nasdaq was helped by Amazon, Priceline and a cluster of biotech stocks to gain a minimal 16 points on Friday. The Nasdaq still has some near term resistance at 4888-4900 before dealing with psychological resistance at 5,000 and the beginning of congestion from 5000-5175. Assuming the biotech sector does not implode again I think the Nasdaq will retest that 5,000 level and above. Apple does not report until the following Tuesday so it should not be a negative influence this week. Netflix is due to rebound next week and the big caps of Amazon, Google/Alphabet and Microsoft do not report until Thursday.

The 4,775 level is now support and it would take a severe direction change to test that level again.



The Dow Transports slammed into resistance at 8,260 again and it was a dead stop. Despite weak oil prices, they cannot seem to mount a credible rally and with the U.S. economics weakening, we could see a decline back below 8,000.


The Russell 2000 small caps also came to a dead stop at resistance at 1,165. However, at least they appear to be trying to chip away at that level. Small caps are normally favored in Q4 but the weak economics may be causing fund managers to go to big caps instead for their window dressing. If the market rally does fail, they would be able to exit quicker and with smaller losses.


This week I would watch the Russell for market direction. If it cannot move convincingly over that 1,165 level then sentiment will remain weak and the big cap rally could fail. However, window dressing into month end could support the market somewhat but look for trouble in early November.

Any tax loss selling should be over and managers should be concentrated on putting extra cash to work rather than saving it for the next dip.

We are well over that solid resistance at 2,020 and that was a critical level. Watch the Russell 2000 for market sentiment and buy the dips until proven wrong.


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Random Thoughts


Bearish sentiment sank to a three-month low at 27.1% but strangely, bullish sentiment declined -3.4% to 34.1% after three weeks of gains. Neutral sentiment is rising again so it appears investors are skeptical of this rally continuing.



Hedge funds are disappearing almost weekly. Fortress Investment Group (FIG) said it was closing its flagship hedge fund following heavy losses and investor withdrawals. The fund had more than $8 billion in assets in 2007 but they declined to $3.2 billion by the start of 2015 and only $1.6 billion last week. The fund bet on macroeconomic trends and lost more than 17% through September.

Bain Capital said it was closing its multibillion dollar Absolute Return Capital fund that also bet on macroeconomic trends after three consecutive years of losses. The fund was down -14% though August.

In 2014, the hedge fund attrition rate was an unprecedented 26%. A survey found that 30% of new funds do not make it past 36 months. Almost half never reach their fifth anniversary and only about 40% survive for 7 years or longer. Hedge Funds Disappearing


I wrote in my Tuesday commentary about the potential for a black swan event because of the rapid buildup of out of the money puts on the S&P. On Thursday somebody bought 70,000 out of the money puts on the Russian ETF (RSX) and almost immediately another 30,000 put contracts appeared at various other OTM strikes for November.

This could be somebody protecting a position in Russian stocks or somebody speculating that a Russian plane will take a shot at a U.S. plane in Syria. We never know why these big positions appear but it is not likely because somebody knows something we do not. They just fear something that might happen.

On Friday, NATO forces shot down a Russian Orian-10 surveillance drone flying over Turkey. In typical Russian fashion, the Russian military replied "what drone." "All of the airplanes in the Russian aviation group have returned to their bases." The more important fact is that NATO forces actually shot it down. That suggests a greater threat of a bigger event in the future.



Iran tested a ballistic missile on October 10th that was "inherently capable of delivering a nuclear weapon" and therefore in direct violation of a UN Security Council resolution. There are resolutions banning Iran from "any activity related to ballistic missiles capable of delivering nuclear weapons, including launches using ballistic missile technology." The U.S. is preparing a position paper to submit to the Security Council on the event.

The real question here is about Iran's clear violations of EVERY UN resolution ever levied regarding its nuclear activities. If Iran will launch an "in your face" missile test that is clearly a violation, why would we expect them to honor the recent nuclear agreement? The answer is that they will not honor the agreement and to believe otherwise is complete stupidity. They are testing the waters to see what they can get away with ahead of the implementation of the new agreement. Iranian Missile Test


What is the big deal about China? Why is every analyst projecting gloom and doom over the decline in China's economy? The decline in China has created a flood of money out of emerging markets. Something close to $500 billion will leave China and the other markets in 2015. Here is a great article on what is happening to China's economy and why we should worry. 30 Years of Chinese History


Leon Cooperman is bullish. On Bloomberg, he gave five reasons why he expects the market to continue higher.

1. This would be the first time the market has peaked before a Fed tightening since 1950.

2. Bear markets are usually caused by recession, overvaluation, hostile Fed or geopolitical event. The risks for all of those are overblown.

3. Individual investors are not bullish enough. There is not enough euphoria.

4. We just had a correction with the "average" common stock down -20% over the last 52-weeks.

5. There are no good alternative investment options relative to stocks.


Bank repossessions spiked 66% in Q3. Apparently, the financial crisis is not yet over. That is the largest spike ever recorded by RealtyTrac. Couple that with rising requirements to get a conventional loan and the housing sector could be headed for a decline. Bank Repos up 66%


Reuters built a computer model to predict the outcome of the presidential election. The answer, a republican will win. Taking in all the historical factors it is three times harder for a candidate to win if they are in the same party as an exiting two-term president. The computer did not pick a specific candidate. Next Presidential Winner


With inflation falling to the lowest rate since 2009 the Fed is not likely to hike rates. If we get another month of economic declines there is a far better chance that they will be forced to take further stimulative action in the months ahead. The current economic cycle is 77 months old and the median economic cycle is 50 months. We are actually closer to a normal recession than we are to some surge in growth that gives the Fed a reason to hike. Inflation at 2009 Lows


 

Enter passively and exit aggressively!

Jim Brown

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Index Wrap

Steady Gains on Trader Disbelief

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

I've had 3 weeks away but last wrote (on 9/19) that ..."the Market won't see lower lows". Sure enough, 9/29 saw the S&P make a double bottom low, on a spike in Volatility with relatively LOW bullish sentiment since then as SPX climbed 161 points! Technical analysis was in this case a likely best trading guide.

I will take such a STRONG (a double bottom) chart 'signal', on a declining VIX from the second bottom, especially as there was significant trader 'disbelief' (per my daily equities call to put ratio, CPRATIO) or a lack of any bullish sentiment extremes on the rally of 160 points off the last SPX low.

I was called away on a family matter and it was my most time away from my OIN column I've had in 12 years as I wrote from all over the place (and the world) whenever I was traveling. This time I was away away, watched from afar and took a writing/forecasting break.

I'll bore you perhaps but just remind quotes from my last (9/19) report/analysis in this space: "My analysis suggests the Market won't see lower lows although timing for a sustained rally is harder to forecast." AND...

"While an apparent recovery rally is seeing a lot of fits and starts with significant volatility which makes any wide-spread 'recognition' of a bottom illusive; however, what may look like continued huge volatility of late isn't so much in context."

"I suggest that the LOWS for the current correction may be in. To that point, there is a 7-year uptrend price channel in SPX as seen below and the recent 1867 low touched support strongly suggested by SPX's long-term up trendline; a good-sized rebound from there did follow. I'm waiting for further signs that the major indexes have stabilized and continue to form an apparent bottom; such as with another retreat to SPX's up trendline or other 'basing' action. Technically the Market remains in a long-term uptrend."

Last but not least I noted that:

"The 7 year age of our current bull market may seem like an overly long time to have gone on by some but we've seen longer periods of rising stock prices such as in the 20 year bull market of 1980 to 2000. The 2003-2007 bull market was shorter than our current 7-year bull market of course."

I repeat the prior comments and strongly urge you to take up technical analysis for market 'timing' and not fall in the trap of waiting for some external event(s) to tell you what to do and finally jump on board after a substantial move and after time premiums have jumped! Waiting for talking heads and 'consensus' opinions to form is generally a losing proposition. At least it is to professional traders, such as my former mentor.

It's not ME as 'brilliant-me' but rather the brilliance of technical analysis correctly applied!

I'll start with the current S&P 500 (SPX) weekly chart I mentioned above as suggesting lows were reached at the low end of SPX's long-term uptrend price channel. Note that the second low 'confirmed' so to speak the existence of support/buying interest at the low end of the uptrend channel. Also, the FIRST low at SPX's up trendline was the one that came down to an 'oversold' extreme.

S&P 500 (SPX) DAILY CHART:

My chart from 3 weeks back doesn't need much updating: 2000 was the first key resistance, then especially 2050 as the prior 'breakdown point'. Next pivotal resistance comes in around 2100.

Key chart support comes in at 1966 at the 21-day moving average, extending to 1950 per my green up arrow highlight.

SPX could fail on a first attempt to breech 2050 but as long a bullish sentiment remains relatively low I'm not overly concerned about any major downside reversal.

The Index has entered its RSI 'overbought' zone so pullbacks can't be ruled out. My upper moving average 'envelope' trading band has also been reached but 'true' resistance by this indicator is now more likely at 3-3.5 percent ABOVE the centered (21-day) moving average. I'll update my trading bands next week, but for now leave the chart where it was on my prior Index Wrap from abo weeks back.

Readers of my column may recall that I pegged major support at 16000 in the Dow 30 (INDU) and that's where INDU's long-term weekly chart up trendline intersected. Yes, there was a brief penetration of that implied line of support on panic selling but what matters is how quickly that penetration is reversed; once traders have set off a bunch of futures sell stops!

Now, at times I decry the over-emphasis of this 30 stock index as the end-all be-all of the day's tally of the what the 'market' did that day. Nevertheless, at times INDU provides or 'confirms' a key buy or sell signal, such as in a recent double top best seen on the daily chart coming up. It's important to follow ALL the major indices, as ONE chart may provide the clearest trend reversal pattern or suggests where support/resistance lies, etc.

THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:

The Dow 30 (INDU) has been climbing the proverbial 'wall of worry' ... or, where ELSE are you going to put your long-term investment money! Bonds?

I mentioned already that there's been a distinct lack of bullishness or at least we haven't seen any 'extremes' in my 'sentiment' indicator per my CPRATIO indicator seen above with the SPX daily chart. If we pay attention to what the Market actually DOES, like Charles Dow taught, we'd be better off in many if not most situations.

INDU has near support in the 16900 area, with pivotal chart support at 16500. INDU first made a decisive upside penetration of resistance implied by its 21-day average; the Dow then continued above its 50-day average which got the attention of even 'fundamentally' oriented money managers. Next up to suggest that the major UP trend is continuing is for the Average to clear the 200-day moving average. Stay tuned on that!

Resistance is seen at 17500, with more major resistance at 18000. INDU has climbed into its 'typical' overbought zone in terms of its 13-day Relative Strength Index (RSI) reading. We may see some corrective action ahead but the trend looks higher overall.

The S&P 100 (OEX) INDEX DAILY CHART

The big cap S&P 100 (OEX) is bullish in its pattern as OEX has now climbed well above resistance implied by its 21-day moving average and also pierced what had been an upper 'band' of resistance at 2 percent above the (21-day) average.

I'm now supposing that OEX could climb to at least 5% over the same average as a possible measure of where OEX could get to next. The Index went well under 5% BELOW the 'centered' 21-day moving average and could, at a minimum, climb to 5% or more above it.

I've highlighted possible resistance in the 920 area with fairly major resistance at 937-940, extending to the prior intraday highs at 947-948.

Near support is suggested around 880, extending to 868 at the 21-day average, with support extending to 860 per the green up arrow chart highlight.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) is bullish in its pattern in that it's recovered much of its prior sharp decline. Yet to come however is a key test of resistance at 4900, the breakdown point that took COMP sharply below pivotal support at the low end of its prior multimonth trading range.

I've highlighted near resistance at 4900 naturally, then next at the milestone 5000 level, another key level. A decline to below 5000 on a downside price gap got the sharp mid-August decline rolling and ended up briefly (intraday) dipping below major COMP chart support at 4500.

The second low made in the 4500 area was a key upside turnaround late in September. By this time the 13-day Relative Strength Index bottomed at a higher low than at the oversold extreme of the first waterfall decline, representing a bullish price-RSI divergence buy 'signal'.

Near support is seen at 4750, extending to 4700. I'm bullish on COMP and the Market while there's such a moderate or mid-range reading of trader 'sentiment'. When everyone starts believing in the bull market again I likely turn cautious. Until, then buy pullbacks although the lowest risk to reward opportunity was seen in the 4500 area in the Composite.

I anticipate that COMP could climb again above 4900, but this time with possible 'basing' action at and above this level which would suggest a retest of 5000 in the Composite. Major resistance starts at 5200 and extends to 5350. Stay tuned!

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) like the Composite has seen a good-sized rebound from its recent lows but some key resistance tests are ahead.

Initial pivotal near resistance comes in at 4470-4500. A Close above 4500 that was sustained would suggest a possible test of resistance in the 4600 area, extending to NDX highs that approached 4700. Major resistance comes at 4800 and eventually at the milestone 5000 level.

Near support is highlighted at 4275, extending to 4200. Fairly major support begins at 4100. The pattern of higher downswing lows and higher upswing highs is, so far, putting the big cap Nasdaq 100 back on a bullish track.

A key technical aspect for the Nas 100 to keep bullish upside momentum going is for the Index to maintain levels at and above 4400, which would set up a possible move back into the 4500 to 4600 resistance zone.

The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock's (QQQ) has had a good-sized rebound from the dips below the milestone 100 level. A good risk to reward equation was seen in buying dips below 100, risking to just under 98 with an objective to at least a recover move back to the 106 'breakdown' point. QQQ has gone further from there of course, which is bullish and the Q's looks like the stock can retest the recent intraday high at 108.7 which I've highlighted as near resistance. A next key resistance then comes in around 110.

Near support is highlighted at 106, with next support suggested at 104, although buying interest/support probably begins around 104.6 at the 21-day moving average.

Daily trading volume has been low on the recent advance. Typical for QQQ has been volume spikes coming on downside breaks, such as to below the key 106 level in the sharp decline of late-August. On Balance Volume (OBV) is the key volume indicator I especially look at and OBV is trending higher which offers some bullish support to the chart pattern of higher recovery Closing highs.

The RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000's (RUT) has seen a recovery move from the 1080 area, but hasn't made a sizable advance from there so far.

Near resistance is at 1180, extending to 1200-1220 and the area where the Russell accelerated in a waterfall type decline and aptly seen as RUT's 'breakdown' point and now suggesting pivotal resistance. Near support is seen at 1140-1130, extending to 1120.

A sustained move above 1180 is needed to suggest that RUT could go on to retrace more of its major decline that took the Index from the 1300 area down 200+ points to the 1100-1080 area.

RUT's recovery move to date has been a 38% retracement of the last downswing, representing a 'minimal' recovery move. A 50% retracement would be to 1187 also suggesting 1187-1200 as perhaps as much of a rally as RUT could muster near-term.


GOOD TRADING SUCCESS!




New Option Plays

No Slow Down Here

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

L Brands, Inc. - LB - close: 96.82 change: +0.78

Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.9 million
Entry on October -- at $---.--
Listed on October 17, 2015
Time Frame: Exit PRIOR to earnings on November 18th
New Positions: Yes, see below

Company Description

Trade Description:
The U.S. economy has hit a slow spot. Q2 GDP growth was +3.9% but Q3 is expected to dip to +1.0%. Consumers are not helping. The monthly U.S. retail sales figures for September inched higher +0.1% when economists were expecting a +0.2% gain. The core-retail sales, which excludes autos, gasoline, building materials, and food actually fell -0.1%.

Wal-Mart (WMT), the biggest retailer on the planet, did not help investor confidence when they surprised the market by lowering their guidance on Wednesday last week. WMT plunged -10% in one day and most of the retail stocks fell with it. Wednesday's decline looks like a buy-the-dip entry point in LB.

LB is in the services sector. According to the company, "L Brands, through Victoria's Secret, PINK, Bath & Body Works, La Senza and Henri Bendel, is an international company. The company operates 2,987 company-owned specialty stores in the United States, Canada and the United Kingdom, and its brands are sold in nearly 700 additional noncompany-owned locations worldwide. The company's products are also available online at www.VictoriasSecret.com, www.BathandBodyWorks.com, www.HenriBendel.com and www.LaSenza.com."

U.S. retail sales may be slowing but not at LB! The company recently reported their same-store (comparable) sales for September. Analysts were expecting comparable sales to rise +5%. LB said their September comps surged +9%. The gain was driven by strength in their Victoria's Secret business. This is a power house in its space with Victoria's Secret capturing 40% of the $13 billion lingerie market (that's just the U.S. market).

The strong September comps followed a strong August where same-store sales rose +6%. After the September numbers came out LB raised their Q3 earnings guidance from +0.12-0.16 per share to $0.18-0.22.

LB is also enjoying some tailwinds for their input costs. You're already aware that oil prices have been depressed all year. Now cotton prices are forecasted to fall this year and into 2016. Plus there has been some bullish speculation that the new Trans-Pacific Partnership trade agreement could also lower costs for apparel makers.

Technically LB has been incredibly strong with a big rebound from its August correction lows. Shares consolidated for a good chunk of September and then resumed its up trend in October. The last few days have seen LB consolidating gains in the $95-97 range. Traders bought the dip on Wednesday, when WMT issued their earnings warning, near round-number support at $95.00. I suspect LB will rally past $100 soon. The point & figure chart is forecasting at long-term $127.00 price target.

I am suggesting an initial stop loss at $92.85 but more conservative investors may want to use a stop closer to $95.00. Tonight we are listing a trigger to buy calls at $97.65.

Trigger @ $97.65

- Suggested Positions -

Buy the NOV $100 CALL (LB151120C100) current ask $1.50
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Big Caps End Week At New Relative Highs

by James Brown

Click here to email James Brown

Editor's Note:

The market continued to ricochet higher after bouncing from its midweek lows. The S&P 500 ended the week at new multi-week highs. Can this momentum continue?

Our new trade on FB has been triggered.


Current Portfolio:


CALL Play Updates

Costco Wholesale Corp. - COST - close: 152.06 change: +0.29

Stop Loss: 147.45
Target(s): To Be Determined
Current Option Gain/Loss: +97.5%
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:
10/17/15: The bounce in COST continued on Friday but shares underperformed the major indices. Shares only gained +0.19% versus a +0.4% gain in the S&P 500. The rebound from Wednesday's low is bullish and I would launch new bullish 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

chart:


Salesforce.com, Inc. - CRM - close: 78.77 change: +1.07

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: +32.8%
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:
10/17/15: It was a great week if you were long CRM. The stock finally broke through resistance in the $76.00 area. Shares accelerated higher on Thursday and Friday. Tonight we are adjusting the stop loss up to $74.75.

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

10/17/15 new stop @ 74.75
10/12/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike

chart:


CVS Health Corp. - CVS - close: 103.38 change: +0.97

Stop Loss: 99.40
Target(s): To Be Determined
Current Option Gain/Loss: -24.6%
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:
10/17/15: CVS is still recovering from its midweek dip. Traders bought CVS near round-number support at $100.00. The stock added another +0.9% on Friday and closed back above technical resistance at its 200-dma. I would consider new positions at current levels. However, more conservative traders might want to wait for CVS to trade above $103.85 first before initiating positions. The high for the week was $103.82.

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

chart:


The Walt Disney Company - DIS - close: 108.24 change: +0.35

Stop Loss: 104.40
Target(s): To Be Determined
Current Option Gain/Loss: +13.9%
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:
10/17/15: The S&P 500 is up three weeks in a row and DIS helped lead the way. Shares have delivered a strong rally from their late September lows and broken through multiple layers of resistance in the process. I would not chase DIS at current levels. Tonight we are adjusting the stop loss to $104.40.

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

10/17/15 new stop @ 104.40
10/15/15 new stop @ 101.85
10/12/15 triggered @ $106.50
Option Format: symbol-year-month-day-call-strike

chart:


Facebook, Inc. - FB - close: 97.54 change: +1.58

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: +20.0%
Average Daily Volume = 31 million
Entry on October 16 at $96.60
Listed on October 15, 2015
Time Frame: Exit PRIOR to earnings on November 4th
New Positions: see below

Comments:
10/17/15: Our new bullish play on FB is off to a good start. Shares continued to rally and outperformed the major market indices with a +1.6% gain. FB pushed through resistance near $96.00 and hit our suggested entry point at $96.60.

Trade Description: October 15, 2015:
Facebook needs no introduction. It's the largest social media platform on the planet. The company is quickly approaching 1.5 billion monthly active users. In early September 2015 FB hit a new milestone - one billion people logged into Facebook in a single day (that's about 1 out of every 7 humans).

The company continues to grow. In addition to their Facebook social media powerhouse they also own Facebook Messenger, WhatsApp, and Instagram. Their WhatsApp product is the largest messaging service on the planet with over 900 million monthly active users. Meanwhile FB's photo-sharing Instagram property has more than 300 million active users. The company has been ramping up their advertising efforts to slowly monetize Instagram. FB has also been very successful with adding video ads to their Facebook platform, which is driving a lot of revenue growth.

FYI: FB also owns Occulus Rift, the virtual reality company, but it's probably a few more years before VR goes mainstream.

The stock can be volatile so traders may want to limit their position size to reduce risk. The bounce off FB's late September low has lifted shares toward resistance near $95.00-96.00. A breakout here could spark the next big leg higher. If you look at the trend line of lower highs then FB has already broken through resistance.

The point & figure chart is bullish and forecasting a $106.00 target. Wall Street is currently more optimistic. The average price target on FB is about $111.00. Shares have recently received a couple of new price targets in the $115.00 area. You could argue that the $100.00 level is round-number, psychological resistance. I suspect FB will be able to break through it as part of a pre-earnings run up. We will plan on exiting prior to FB's earnings report on November 4th. Tonight we are suggesting an entry trigger at $96.60.

- Suggested Positions -

Long NOV $100 CALL (FB151120C100) entry $2.45

10/16/15 triggered @ $96.60
Option Format: symbol-year-month-day-call-strike

chart:


The Home Depot, Inc. - HD - close: 122.74 change: +0.93

Stop Loss: 117.45
Target(s): To Be Determined
Current Option Gain/Loss: +9.1%
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:
10/17/15: HD's bounce off Wednesday's low continued on Friday with a +0.76% gain. The stock ended the week at new six-week highs. Shares are poised to challenge their all-time high from mid-August at $123.80 soon.

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

chart:


Ingredion Inc. - INGR - close: 90.84 change: +0.31

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -48.6%
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:
10/17/15: The bounce in INGR continued on Friday but shares lagged behind the major indices. The stock only gained +0.3%. The intraday high on Wednesday was $91.25. The high on Friday was $91.30. I am suggesting readers wait for INGR to trade above $91.30 before launching new positions. Don't forget that we only have a couple of weeks left before we exit ahead of INGR's earnings.

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

chart:


NIKE, Inc. - NKE - close: 130.47 change: +1.68

Stop Loss: 124.85
Target(s): To Be Determined
Current Option Gain/Loss: +43.2%
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:
10/17/15: It was a great week for NKE investors. The company explained how they expect to grow revenues to $50 billion by 2020. The market responded by lifting NKE to new highs. Wall Street reacted with new upgraded price targets. NKE garnered another new price target on Friday this time with a boost to $150 a share.

Tonight we are adjusting the stop loss up to $124.85.

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

10/17/15 new stop @ 124.85
10/15/15 new stop @ 122.45
10/12/15 triggered @ $126.15
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

B/E Aerospace Inc. - BEAV - close: 43.73 change: -1.27

Stop Loss: 48.20
Target(s): To Be Determined
Current Option Gain/Loss: +47.1%
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:
10/17/15: Thus far BEAV is performing well. Shares continue to underperform the market even as the broader market rallies to multi-week highs. BEAV lost another -2.8% on Friday and started to bounce near short-term support in the $43 region.

No new positions at this time. More conservative traders may want to move their stop lower.

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

chart:


Nordstrom Inc. - JWN - close: 67.27 change: -0.15

Stop Loss: 70.05
Target(s): To Be Determined
Current Option Gain/Loss: +12.4%
Average Daily Volume = 1.4 million
Entry on October 15 at $66.40
Listed on October 14, 2015
Time Frame: Exit PRIOR to earnings on November 12
New Positions: see below

Comments:
10/17/15: The early morning Friday bounce in JWN failed at short-term resistance near $68.00. JWN underperformed the market with a -0.2% decline by the closing bell. I am encouraged by its relative weakness and would launch new positions at current levels.

Trade Description: October 14, 2015:
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.

- Suggested Positions -

Long NOV $65.15* PUT (JWN151120P65.15) entry $1.13

10/15/15 triggered @ $66.40
*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

chart: