Option Investor
Newsletter

Daily Newsletter, Tuesday, 10/20/2015

Table of Contents

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

Market Wrap

Climbing the Earnings Mountain

by Jim Brown

Click here to email Jim Brown

Earnings reports continue to be a drag on the market but lackluster volume suggests there is no conviction in either direction. IBM subtracted about 60 points from the Dow but United Technology and Travelers added +48 so the net result was a -13 point loss for the day.

Market Statistics

IBM posted its 14th consecutive quarter of revenue declines with hardware revenue falling -40%. Earnings beat the street by 4 cents but revenue of $19.28 billion missed estimates for $19.62 billion. They also guided lower for future quarters. Shares fell -$8.58 on the news to drag the Dow lower. Berkshire Hathaway lost more than $500 million on IBM's decline.


Rescuing the Dow from a bad day were Travelers (TRV) and United Technology (UTX). Travelers closed near a new high at $109 after reporting operating earnings of $2.93 per share that beat the consensus estimate by 32.6% and up +12.3% over the comparison quarter. Revenue of $6.8 billion beat estimates for $6.6 billion. The company bought back 7.3 million shares in the quarter to raise the total to 21.5 million year to date. They have $4.3 billion in outstanding authorizations.


United Technology (UTX) reported earnings of $1.67 that easily beat estimates for %$1.54. However, revenue of $13.788 billion missed estimates for $14.593 billion. Aerospace orders rose +8% at Pratt & Whitney division. The company sold its Sikorsky unit to Lockheed Martin for $9 billion in cash and that is expected to close this year. UTX authorized a new $12 billion stock buyback program, in addition to the existing $6 billion authorization, using the proceeds from the Sikorsky sale. The company expects to buy back $16 billion in shares through 2017. Shares rallied +4% on the news.


Sonic (SONC) reported earnings of 43 cents that beat by a penny but revenue of $175.3 million missed estimates for $176.5 million. The CEO said McDonald's "all day breakfast" was no big deal. "We have been doing all menus, all day, forever." He said made to order food with menu options that crossed all meal schedules would always beat fast food from a rigid menu. When customers are offered choices, they are happy to buy your food. Same store sales were up +4.9%. Shares rose +8% on the news.


Harley Davidson (HOG) ran off the road after reporting earnings of 69 cents that missed estimates for 78 cents. Revenue of $1.14 billion also missed estimates for $1.21 billion. Harley lowered guidance for shipments in 2015 from 276,000-281,000 to 265,000-270,000. Harley sold over 52.4% of all motorcycles sold in the USA, down from 56.3% a year ago. The company is planning on an unspecified number of job cuts in an effort to lower costs. In July, the company issued a recall for 312,000 of its most popular motorcycles. Competition is coming from Polaris owned Indian Motorcycles. Shares crashed -14% on the news.


After the bell, Yahoo (YHOO) reported earnings of 15 cents that missed estimates for 17 cents. Revenue of $1.23 billion missed estimates for $1.26 billion. Shares were volatile after the report but settled near unchanged after the company said it signed a search advertising deal with Google. Google will provide Yahoo with search ads, while Yahoo can select which search queries it sends to Google.

Yahoo's CEO said the Alibaba spinoff was on track to take place in January. Yahoo cut its revenue guidance from $1.2 billion to $1.16 billion. Unfortunately, analysts were expecting $1.33 billion. Search revenue rose +2% to $870 million but traffic acquisition costs soared from $54 million to $223 million. They are being forced to buy more traffic rather than produce it organically.


Chipotle Mexican Grill (CMG) reported earnings of $4.59 that missed estimates for $4.64. Revenue of $1.22 billion barely beat estimates for $1.21 billion. Same store sales rose +2.6% compared to estimates for +2.5%. Operating margin fell -50 basis points to 28.3% and they opened 53 stores in the quarter. For the full year, they are now predicting 215-225 new stores compared to prior guidance of 190-205. They continue to blame the earnings problems to supply challenges of getting high quality ingredients. After a severe shortage of pork earlier in the year they are now offering carnitas in 90% of the stores and expect to raise that back to 100% in Q4. Chipotle share fell -$50 in afterhours. While researching these earnings I found this. Enjoy! Double the size of a Chipotle burrito for free.


VMWare (VMW) reported earnings of $1.02 on revenue of $1.67 billion. Analysts were expecting $1.00 on revenue of $1.66 billion. While the results were technically a beat, shares declined -$3.50 after the report. Bookings, a measure of future results, rose only +3%. Analysts were expecting an 11% increase. VMWare said it would form a new cloud computing business with EMC that would be marketed under the Virtustream brand. It will be 50% owned by VMWare and 50% by EMC. We learned last week that EMC would be bought by Dell for $67 billion. EMC owns 80% of VMWare.


Intuitive Surgical (ISRG) reported earnings of $5.24 compared to estimates for $4.26. This was a monster beat on earnings but revenue of $589.7 million barely nudged over estimates for $583.7 billion. Shares rose +$37 in afterhours.


With 71% of the S&P beating on earnings and only 50% on revenue, we are in a revenue recession. This is not a one-quarter event. In Q1 revenue declined -2.9%. In Q2 it fell -3.4%. Q3 is now forecast to decline -3.4% and Q4 is expected to decline -1.8% but that number is still falling.

If revenue is declining and earnings are to rise, then companies have to continue cutting costs. That only works in the short term. You cannot cut your way to profitability forever. Eventually revenue must rise or profits must fall.

With earnings under pressure in Q3 and currently expected to decline -4.1% this could be the quarter where trouble begins. Since we are already in a revenue recession, the advent of a profit recession could trigger a significant market decline. I am not predicting it this week but the long-term outlook is worsening. The earnings and revenue forecast for Q3 is the worst EVER for not being in an economic recession. Can an economic recession be that far away?

Two Dow components report on Wednesday. Those are American Express and Boeing. We will also hear from SanDisk (SNDK) and more about its acquisition talks with Western Digital (WDC). Ebay, Texas Instruments and Biogen round out the list of high profile companies. Thursday is the big day and there is sure to be some post earnings volatility.


The only material economic report for today was New Residential Construction for September. Housing starts rose +6.5% from 1.126 million to 1.206 million and +17.5% higher than the same period in 2014. However, permits declined -5% to 1.103 million. Starts in the Northeast rose +25.7% and +25.4% in the West. The South suffered a slowdown with a rise of only +0.6%. The Midwest saw starts decrease -12.2%. This report was ignored by the market.

There are no major reports due out on Wednesday.


If you do not live in a cave, I am sure you heard that Disney released the trailer for the new Star Wars movie, "The Force Awakens," that opens on December 18th. Along with the trailer, the advance ticket sales began and set records worldwide. Trailer: The Force Awakens

AMC Entertainment sold out more than 1,000 shows in the first few hours. Fandango sold more than 8 times as many tickets as it did for the prior record holder "The Hunger Games." Ticket demand crashed several online ticket sales websites including Fandango and MovieTickets.com. Analysts are expecting $250 million in ticket sales for the opening weekend. The movie will air on 5,500 screens. It will also be offered in RealD and Imax 3D.

Morgan Stanley is expecting global revenue of $1.95 billion for the Force compared to $2.8 billion for Avatar and $2.2 billion for Titanic.

Disney has already said there will be two additional episodes and a couple of spinoff movies based on Star Wars characters and events. Disney has an incredibly full calendar of movies due out over the next several years. Here is a "partial" list. There are another 10 from late 2017 through 2019 that do not have firm titles or dates. After the acquisition of Pixar, Marvel, Lucas Films and Star Wars, Disney has a constant stream of cash cows coming in the future.

Oct 16th, 2015 - "Bridge of Spies"
Nov 25th, 2015 - "The Good Dinosaur"
Dec. 18th, 2015 - "Star Wars: Episode VII - The Force Awakens"
Jan 29th, 2016 - "The Finest Hours"
Mar 4th, 2016 - "Zootopia"
April 15th, 2016 - "The Jungle Book"
May 6th, 2016 - "Captain America: Civil War"
May 27th, 2016 - "Alice: Through the Looking Glass"
June 17, 2016 - "Finding Dory"
July 1st, 2016 - "The BFG"
Aug 12th, 2016 - "Pete's Dragon"
Nov 4th, 2016 - "Doctor Strange"
Nov 23rd, 2016 - "Moana"
Dec. 16, 2016 - "Star Wars Anthology: Rogue One"
Mar 17th, 2017 - "Beauty and the Beast"
April 14th, 2017 - "Ghost in the Shell"
May 4th, 2017 - "Guardians of the Galaxy II"
May 26, 2017 - "Star Wars: Episode VIII"
June 16, 2017 - "Toy Story 4"
Mid 2017 - "The Incredibles 2"
July 17th, 2017 - "Pirates of the Caribbean"
Late 2017 - "Thor: Ragnarok"
Early 2018 - "Frozen 2"
May 4, 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 3, 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"


Amazon (AMZN) said it was planning on hiring 100,000 workers for the holidays. That is a 25% increase from 2014. This is in addition to the 25,000 regular, new full time workers it just hired. Walmart is adding 60,000. Target is hiring 70,000. Macy's is adding 85,000 temporary workers.

Amazon has expanded same day delivery to 12 cities for Prime customers. Reportedly, the number of Prime subscribers is exploding as Amazon adds additional benefits to the membership besides free two-day shipping. Amazon earnings are Thursday.


Apple shares surged $2 to close over resistance at $112 after CEO Tim Cook made positive comments about multiple products. He said he would not reveal the exact numbers but they shipped a lot of watches in Q1, even more in Q2 and shipped an even larger number in Q3.

He said the new Apple TV would change TV viewing forever. It would be a foundation on which the company planned to build as it "modernized" the medium. Orders for the fourth generation Apple TV will open on Oct 26th with shipments starting on Oct 30th.

Cook said Apple Music now had 6.5 million paying subscribers and 8.5 million on free trial. While acknowledging there were challenges he said the 15 million current users was a good starting point for future growth. Apple earnings are next Tuesday.


Tesla (TSLA) shares lost -7% after Consumer Reports said the Model S was rated "worse than average" in reliability. Just a couple months ago, the consumer company gave the Model S a rating of 103 out of a possible 100 on drivability and broke the Consumer Reports rating system. Since then the consumer company surveyed 1,400 Model S owners who detailed an array of complicated maladies with the drive train, power equipment, charging equipment and center console view screen. They also complained about body and sunroof squeaks, rattles and leaks. As the cars age there are more complaints about the electric motors, charging systems and batteries that will not hold a charge.

Since Tesla has always held the highest rating for consumer satisfaction, the new report crushed the stock and the news could be a serious headwind for Tesla in the months ahead. Having a near perfect reputation was a big selling point for the high dollar cars.


Ferrari (RACE) priced its IPO after the close at $52 and the high end of the range. The company will raise $894.4 million with the sale of 17.2 million shares. For the six-months ended in June, the company had revenue of $1.6 billion and profits of $140 million. Rapid Ratings gave Ferrari 77 out of 100 for financial health based on 70 individual measures. The average rating for a U.S. company is 64.4.

Yum Brands (YUM) announced today it was spinning off Yum China in 2016 as expected after announcing the addition of activist investor Keith Meister to the board last week. He had lobbied for the spinoff. Yum China will become a franchisee of U.S. based Yum Brands. Yum China generated more than half the revenue and profit for Yum Brands but it has been challenged by food issues that caused consumers to stay away. Same store sales in China rose only +2% last quarter.

If Yum China, which will be run by Micky Pant in China, can resolve the lingering food issues the growth could skyrocket. They will open 700 new stores in China this year to total 7,500 and will eventually have 20,000 locations. Currently Yum Brands has 41,000 total stores and opens about 2,000 a year. The last food issue came from a supplier that shipped out of date meat to the Chinese stores. Before that, the bird flu caused consumers to avoid chicken restaurants.

The greater growth will come from Yum China but Yum Brands will become more stable once the Chinese stores are no longer causing extreme volatility in the earnings. Yum Brands said it was planning on selling the majority of the company owned stores to raise cash for expansion and would be 95% franchisee owned by the end of 2017. The spinoff is expected to be tax-free. Yum shares rose slightly on the news.


Markets

Volume was weak at 5.9 billion shares and buying interest was minimal. The momentum stocks were the hardest hit. If you are familiar with the FANG acronym, today the market was defanged. That stands for Facebook, Amazon, Netflix and Google. Those are the big cap tech stocks that kept the Nasdaq alive for months when the broader market was in distress. All of those stocks declined today.

This is concerning since you would expect those stocks to be on the fund manager shopping list for window dressing going into their fiscal year end on October 31st. Winners get bought and losers get sold.

The very low volume and almost dead even advancing/declining stocks was the only consolation prize. There was no conviction from buyers or sellers. The S&P gave back less than 3 points and the Dow lost only 13. That is hardly a negative day.

The S&P came within a fraction of touching the resistance at 2,040 before pulling back -10 points from the intraday high. Even with that drop, the close at 2,030 was still well over prior resistance at 2,020.

Since there was very little damage despite several large drops in high profile stocks, I think we are still in a buy the dip market.


The Dow retained its positive bias despite the huge drop in IBM, thanks to the big gains in UTX and TRV. Even Apple posted a decent gain on the Tim Cook comments. The Dow needs to pause to consolidate and we could get that on Wednesday when only two Dow components report. The big day is Thursday with four Dow reporters. After Friday, 18 Dow components will have reported earnings.

Resistance remains the beginning of congestion at 17,500 and all the way to 18,165. If we do move higher, it will not likely be in multiple triple digit sprints.



The Nasdaq moved +9 points over resistance at 4,900 intraday but could not hold it with the FANG stocks in decline. That level remains resistance but the close at 4,880 is well within range where a good day in the market could catapult us over that resistance level.

The big gain in ISRG after the close has pushed the Nasdaq futures into positive territory by +9 points. That could be erased by morning but it is a good start after a negative move today.



The Russell 2000 remains stuck under resistance at 1,165 but at least it is trying to break out. The intraday high was 1,169. If we do eventually see a breakout by the small caps, I think the large cap indexes will sprint higher.


We missed a good opportunity today for a decent dip on the IBM disaster. To end the day basically flat and with the futures positive overnight it confirms my belief that we are still in a "buy the dip" market until proven wrong.

Anything is of course possible but the market is not giving in to negative events. The earnings forecasts were too bearish and the slightly better results are providing support for the market.

However, we are eventually going to have to pay the piper for the current revenue recession. You cannot watch revenue decline forever without fundamentals eventually forcing a price correction. I think we are safe until the end of October but once into November we need to be more cautious.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

 


New Option Plays

Customer Traffic Is Slowing

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Darden Restaurants - DRI - close: 63.73 change: -1.97

Stop Loss: 66.30
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.7 million
Entry on October -- at $---.--
Listed on October 20, 2015
Time Frame: Exit PRIOR to earnings in December
New Positions: Yes, see below

Company Description

Trade Description:
Consumer spending has been disappointing and some of the restaurant names are suffering for it. DRI has actually raised guidance two quarters in a row but investors are ignoring this news and seem to be focusing on the larger macro trends for the industry.

DRI is in the services sector. According to the company, "Darden Restaurants, Inc., (DRI) owns and operates more than 1,500 restaurants that generate $6.8 billion in annual sales. Headquartered in Orlando, Florida, and employing 150,000 people, Darden is recognized for a culture that rewards caring for and responding to people. Our restaurant brands - Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's and Yard House - reflect the rich diversity of those who dine with us. Our brands are built on deep insights into what our guests want."

DRI reported their Q4 report on June 23rd. They beat Wall Street's EPS estimate and raised their 2016 guidance. Shares popped on the news and the stock continued to rally into late summer. Unfortunately shares produced a bearish double-top pattern in the July-August time frame. DRI began to correct lower.

The company reported its 2016 Q1 results on September 22nd. Earnings of $0.68 per share beat estimates by 10 cents. Revenues were up +5.7% to $1.69 billion, which was above estimates. Same-store sales were up +3.4% for the quarter. Management raised their 2016 earnings guidance again. This looked like a pretty good report. Yet three days later investors sold the rally.

Nationwide the pace of consumer spending has been lower than expected. A few days ago an industry research firm said U.S. restaurant sales were up +1.5% in Q3 but that was slower than Q2's +1.8% growth. A higher tab helped offset slower traffic numbers. The outlook for traffic is worrisome. This firm expects restaurant traffic numbers to be stagnant. This is inline with another research note that expects foot traffic at retailers to fall -8% this holiday season.

The market used to think that consumers would take the money they saved from lower gasoline prices and spend it elsewhere. That doesn't seem to be happening. Now the restaurant industry is facing tough comparisons to last year's relatively healthy Q4 numbers.

Technically DRI is now in a bearish trend of lower highs and lower lows. Shares have broken down below their 200-dma. The oversold bounce just failed at resistance near $66.00. The point & figure chart is bearish and forecasting at $55.00 target. Tonight we are suggesting a trigger to buy puts if DRI trades down to $63.40. This is a multi-week trade. We will plan on exiting prior to earnings in December.

Trigger @ $63.40

- Suggested Positions -

Buy the 2016 JAN $60 PUT (DRI160115P60) current ask $2.10
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Slip On Earnings Weakness

by James Brown

Click here to email James Brown

Editor's Note:

Tuesday's session was relatively quiet for the market. Stocks chopped around sideways and eventually settled with minor losses for the major indices. Disappointing Q3 earnings results was the major theme today.


Current Portfolio:


CALL Play Updates

Costco Wholesale Corp. - COST - close: 154.56 change: +1.34

Stop Loss: 147.45
Target(s): To Be Determined
Current Option Gain/Loss: +175.0%
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:
10/20/15: The major U.S. indices posted declines today but COST managed to keep the rally alive. Shares added another +0.8% to close at new multi-month highs.

No new positions at this time. Readers may want to start inching up their stop loss.

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: 77.53 change: -0.40

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.5%
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:
10/20/15: CRM suffered a second day of profit taking but shares only lost -0.5%. Broken resistance at $76.00 should be new support. Nimble traders could use a dip near $76.00 as a new entry point.

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


CVS Health Corp. - CVS - close: 103.60 change: +0.44

Stop Loss: 99.40
Target(s): To Be Determined
Current Option Gain/Loss: -15.9%
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:
10/20/15: CVS began trading ex-dividend this morning, which explains the gap down at the open. Traders bought the dip and CVS rallied to new six week highs before failing at its 100-dma.

I would still consider new positions on a rally past $103.85 but readers may want to wait for a move above today's high ($104.40) instead. Keep in mind that we plan to exit prior to earnings on October 30th.

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: 109.84 change: +0.37

Stop Loss: 104.40
Target(s): To Be Determined
Current Option Gain/Loss: +80.7%
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:
10/20/15: DIS was getting a lot of press today. The company plans to cut 350 jobs at its ESPN unit. The really big story was its final Star Wars: The Force Awakens trailer that came out last night. It's already been seen more than 16 million times in less than 24 hours. Consumers were able to buy advance tickets for the movie last night. There were reports of online ticket sale websites crashing due to overwhelming demand. AMC, the biggest movie chain in America, said they sold out of 1,000 showings. Fandango said their Star Wars ticket sales were eight times stronger than the previous record.

The stock inched higher and spent the day consolidating sideways near round-number resistance at $110.00.

No new positions at this time.

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


Facebook, Inc. - FB - close: 97.00 change: -1.47

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: +18.8%
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:
10/20/15: FB garnered new bullish analyst comments and a new higher price target (from $120 up to $130). This helped produce the spike higher this morning. Unfortunately traders sold the rally with FB near resistance. I warned readers that the $99-100 area was resistance and FB could see a pullback. Technically today's move has generated a bearish engulfing candlestick reversal pattern.

No new positions at this time.

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

10/20/15 Caution - FB has generated a technical reversal pattern but it needs to see confirmation
10/16/15 triggered @ $96.60
Option Format: symbol-year-month-day-call-strike


The Home Depot, Inc. - HD - close: 122.85 change: -0.25

Stop Loss: 117.45
Target(s): To Be Determined
Current Option Gain/Loss: +14.0%
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:
10/20/15: HD spent most of today drifting sideways and settled with a minor decline. I don't see any changes from my recent comments.

No new positions at this time.

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: 91.80 change: +0.06

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -37.1%
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:
10/20/15: It was also a quiet day for INGR. Shares rallied toward their mid October high and reversed. Shares closed almost flat on the session.

No new positions at this time. Readers may want to move their stop loss closer to last week's low near $89.65.

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


L Brands, Inc. - LB - close: 96.38 change: -0.80

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

Comments:
10/20/15: There was no follow through on yesterday's rally in LB. Shares reversed instead with a -0.8% decline. We are on the sidelines waiting for a breakout. Our suggested entry trigger to buy calls is $97.65.

Trade Description: October 17, 2015:
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)

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


NIKE, Inc. - NKE - close: 132.37 change: -0.84

Stop Loss: 127.85
Target(s): To Be Determined
Current Option Gain/Loss: +72.8%
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:
10/20/15: Yesterday shares of NKE got a boost thanks to some very bullish analyst comments. Today a different analyst came out with a "sell" rating. The technical analyst at MKM Partners believes NKE has gone too far too fast and suggest selling the stock and buying it back after a correction. They remain long-term bullish on NKE.

NKE shares dipped less than $1.50 before paring its loss to -0.6% today.

No new positions at this time.

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

10/19/15 new stop @ 127.85
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


Pepisco, Inc. - PEP - close: 100.27 change: +0.09

Stop Loss: 94.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.0 million
Entry on October -- at $---.--
Listed on October 19, 2015
Time Frame: Exit prior to expiration in January
New Positions: Yes, see below

Comments:
10/20/15: PEP quietly drifted sideways but still managed to eke out its fourth gain in a row. There is no change from last night's new play description. Our suggested entry point is $101.00.

FYI: Rival Coca-Cola (KO) reports earnings tomorrow morning. Wall Street is expecting KO to report a profit of $0.50 a share. KO's results could have a big impact on PEP tomorrow.

Trade Description: October 19, 2015:
Soda sales remain the biggest chunk of non-alcoholic drinks. Unfortunately for big soda makers like PEP and KO trends are changing. Consumers are become more health conscious. Sugary soda drink sales have fallen ten years in a row. The good news is that more and more consumers are reaching for bottled water and other drinks perceived to be healthier than traditional colas. Bottled water sales are on pace to surpass soda as the beverage of choice for U.S. consumers soon. (FYI: PEP's bottled water brand is Aquafina)

PEP is a consumer goods giant with a global presence. According to the company, "PepsiCo products are enjoyed by consumers one billion times a day in more than 200 countries and territories around the world. PepsiCo generated more than $66 billion in net revenue in 2014, driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. PepsiCo's product portfolio includes a wide range of enjoyable foods and beverages, including 22 brands that generate more than $1 billion each in estimated annual retail sales."

The stock has been stuck consolidating sideways in the $90-100 trading range for almost a year. It looks like that consolidation may be nearing its end.

Earnings have been better than expected. I looked at the last three quarters. PEP has managed to beat Wall Street's estimates on both the top and the bottom line. Revenues have declined year over year but that is due to negative foreign currency exchange rates that is shaving off about -10% from earnings and revenues. The company says their gross margins and operating margins continue to improve.

PEP's Q3 results showed a +7.4% jump in organic revenues. On a constant currency basis their operating profit was up +12%. Earnings were up +14% from a year ago and their core gross margins surged 120 basis points. They have raised their full year 2015 core constant currency EPS guidance twice this year. Thus far PEP has saved $1 billion in productivity savings and returned $9 billion to shareholders in 2015.

The U.S. market is up the last three weeks in a row but it's relatively flat for the year. Investors are confused with all the different global cross currents, exchange fluctuations, central bank moves, and more. Fund managers are probably tempted to park cash in a huge, liquid big cap like PEP and get paid 2.8% a year with dividends. Why not? PEP is still growing with solid single-digit growth.

Technically PEP looks poised to breakout past major resistance in the $100 area. The point & figure chart is already bullish and forecasting at $120.00 target. Tonight we are listing a trigger to buy calls at $101.00.

Trigger @ $101.00

- Suggested Positions -

Buy the 2016 JAN $100 CALL (PEP160115C100)

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

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




PUT Play Updates

B/E Aerospace Inc. - BEAV - close: 43.72 change: +0.11

Stop Loss: 48.20
Target(s): To Be Determined
Current Option Gain/Loss: +41.2%
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:
10/20/15: BEAV bounced this morning but the rally failed under the $44.50 level. Shares saw their gains fade to just +0.25%.

We only have a few days left before we plan to exit prior to BEAV's earnings report on October 27th. 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


Nordstrom Inc. - JWN - close: 68.53 change: +0.09

Stop Loss: 70.05
Target(s): To Be Determined
Current Option Gain/Loss: -24.8%
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:
10/20/15: The $69.00-70.00 region should be overhead resistance for JWN. The stock advanced to $69.19 before paring its gains today. JWN appeared to be rolling over this afternoon. No new positions at this time.

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