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Daily Newsletter, Wednesday, 10/21/2015

Table of Contents

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

Market Wrap

Bulls Struggling to Hold On

by Keene Little

Click here to email Keene Little
For the past week we've seen the major indexes chop their way marginally higher while running out of upside momentum. This follows a strong 3-week rally and it's looking like the bears might get a turn to play.

Today's Market Stats

The market has been refusing to sell off, especially after being lifted up from last week's low, but the rally has not been inspiring. The choppy push to minor new highs each day (again for the DOW today) has been met with bearish divergence and this has it looking like an ending pattern. Today's small break down looks like the first sign of the bears starting to get stronger.

The DOW was relatively stronger today as it was the only major index to make a new high, both this morning and again this afternoon, but it was not immune to an afternoon selloff that drove all indexes into the red. The RUT has been relatively weak the past several days and that was no different today as it led to the downside. Its relative weakness has been one of several warning signs for the bulls

There were no economic reports of significance this morning and it will be relatively quiet the rest of the week. The market has been more focused on earnings this week and while it hasn't been terrible, we're certainly not seeing barn-burning hot performance either. Many companies are still going into (cheap) debt in order to fund dividends and stock buybacks in an effort to show good earnings in a declining-revenue environment. This is especially true in the energy sector and all the debt they've accumulated is going to bite back soon. Without increasing revenue the clock is ticking...

Last week we saw a market save off following Wednesday's low, which led to a positive week for opex. As we know, opex weeks tend to be bullish but it was looking a little worrisome for bulls as of last Wednesday's close. But "someone" rescued the market, starting with buying in the futures market in the after-hours session, and another opex was saved. This week we've seen the market struggle to continue adding gains and as mentioned above, the buying surge last Thursday and Friday essentially stopped and this week the market has been more or less simply trying to hold up.

In case you think the bullish opex week is not true, a study done by Phoenix Capital Research shows it to be true. Wall Street banks, with help from Uncle Fed's money, tend to keep opex bullish so that their millions of dollars in sold puts expire into their accounts. The Fed, a private consortium of banks, taking care of itself. Who woulda thunk? The study by Phoenix shows the Fed's balance sheet over the past year expands on average about $10B during opex week and shrinks during non-opex week. Flood the banks with money during opex and shrink it back down during non-opex weeks -- we've seen this result consistently in the market. As Phoenix reported, "...this is during the period in which the Fed is NOT engaged in a QE program."

While the Fed is not pumping more money into the system, it has kep up its repurchase program and through selective timing it's been able to help the Wall Street banks during opex weeks. But while the Fed is not going further into debt, corporations have not yet slowed down adding debt to their balance sheets and it's starting to have a more negative impact now. The Wall Street Journal has reported that credit-rating agencies have been downgrading more U.S. companies than any other time since 2007-2009. Corporate debt levels have been climbing steadily higher compared to their cash flows and much of the debt has been used to buy back stock and continue dividends rather than invest it in new capital equipment/improvements. Analysts now expect profits at large companies to decline for a second straight quarter, which would be the first time since 2009. Just as ominous, trailing 12-month default rates on corporate bonds is on the rise, nearly doubling from 1.4% in July 2014.

Many of the credit downgrades and defaults are from the energy field but about two thirds of the downgrades are non-energy related. There's real concern about this "contagion" spreading out into stocks and other assets, especially since most participants in the stock market don't see it coming. As I'll mention with the first chart below, a credit crisis is looming and we're talking about individuals (think about the massive growth in student loans), corporations and governments that are far too much in debt. A collapse of the credit market will create a situation much worse than what we saw leading to the 2007-2009 stock market decline.

All of this is of course background stuff and it's anyone's guess when it will matter to the stock market, which most of us trade (instead of bonds, commodities and currencies). The best we have for predicting what will happen are the charts so with that, let's jump into them.

I want to start off tonight's chart review with a look at the market from 30,000 feet. Traders should feel as hypoxic at the market's current altitude as you'd feel at 30,000 feet without supplemental oxygen. The rally for SPX from 2009 managed to make it all the way back up to its broken uptrend line from 1990-2002, as can be seen on its monthly chart below. This follows the strong break of the trend line in 2008. But even with the significant new price high it's still showing bearish divergence compared to the 2000 and 2007 highs. From a macro view, one could easily time the market by simply staying long above the 12-month MA and flat/short below the MA. With this method you'd now be flat/short the market until we see a monthly close above the MA, currently near 2047.

S&P 500, SPX, Monthly chart with 12-month MA

Note the labels above each of the highs on the chart above for what they are -- a tech bubble into the 200 high, a housing bubble into the 2007 high and a Fed-inspired credit bubble into the 2015 high (cheap money has been misappropriated, including into riskier asset classes). As anyone who has studied markets knows, the popping of a credit bubble is always the worst one since it's highly deflationary, um I mean "disinflationary." It should be noted that since the 2009 low previous breaks of the 12-mma were met with the Fed starting another QE program. Will they save the market again? The trouble with that thought is that the market is beginning to understand the Fed is much less powerful than was thought back in 2010-2012.

Just as important a reason, if not more important, for why the Fed is hamstrung in its ability to start another QE program is as much political as anything else. Presidential primaries have started and one of the big sticking points for politicians is income/wealth inequality. Most politicians today talk about how they're going to correct it (Democrats, especially ultra-liberal Bernie Sanders, talk about higher taxes and income/wealth distribution, as has been supported by Obama) but the bottom line is that it's a real sore point with most Americans. And how do you think much of this disparity occurred? Cheap plentiful money going into riskier assets that are owned by the super rich, who have become super richer.

In this environment, can the Fed get away with another QE program? For the next year it's going to be very difficult for the Fed to make it easier for the rich to get richer without Congress and Presidential candidates feeling the intense heat from American voters. The Fed might not be political (cough) but you can bet they bend to the political winds. If the Fed is on the sidelines, other than continuing to keep liquidity in the system through its repurchase program, the stock market is going to have to figure out another reason why it should be as high as it is. With declining corporate revenues, and the resulting declining in P/E ratios (if not now then very soon), it's getting harder to justify the high stock prices. We now wait to see if the charts reflect some of these concerns.

SPX has made it up to what is likely to be tough resistance at price-level S/R at 2040-2045. SPX had cycled around this level from November 2014 through the end of January 2015 and then rallied above the level in February 2015. From there it held above this level, testing it in March and July as it chopped sideways for most of the year. This support level was then snapped with the strong decline in August, which trapped a lot of traders you were holding or bought into the rally since February. Many of these traders kicked themselves for not stopping out when that support level was broken and have vowed to get out once they can do so with minimal loss. This is what makes support turn into resistance -- traders do a lot of "thank you God" selling when the market comes back to the scene of the crime as they promise to never let that happen again (until next time).

SPX hit a high at 2039 yesterday, only a point below resistance, and with the market overbought through the daily timeframe, there's a good chance we'll see at least a pullback to regroup before heading higher (if it's to head higher). This week's new high and now a red candle could result in a bearish engulfing candlestick (key outside down week) if today's selling continues. The bearish setup here is that an a-b-c bounce correction off the August low will now lead to another leg down below the August low. Two equal legs down from July points to 1773 and then a little lower, near 1738, is its February 2014 low and the uptrend line from March 2009 - October 2011 (arithmetic price scale). It's obviously early, but I think that's where it will head next. The bulls need to see a rally above 2045 to turn this more bullish, but then it will run into potential trouble at its 50-week MA near 2060 (as well as its 200-dma at the same level).

S&P 500, SPX, Weekly chart

In addition to price-level S/R at 2040-2045 there is a downtrend line from July-August near 2040. With short-term bearish divergences over the past week as SPX pushes up against resistance I think the higher-odds play is the short side for at least a pullback before heading higher. As explained above, I think a short play here has the potential to make a lot of money with another strong drop into November/December but at the very least we should get at least a short-term pullback to play. If the pullback/decline starts down impulsively we'd then know to hold on for a bigger ride. But if it pulls back in a choppy corrective way then we'd know to play the short side for just a pullback and then get ready to buy it for another rally leg. At the moment I see little upside potential and big downside potential, hence a high reward vs. low risk potential with a short play.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2045
- bearish below 1990

The 60-min chart below shows yesterday's minor break of the uptrend line from September 29th and then a bounce back above it with this morning's quick high. A drop below price-level S/R near 2020 adds another reason why the top is likely in place. It's only a minor break so far (2019 close) and it could easily recover. A rally above 2038 would obviously point higher, in which case the 200-dma, near 2060, would be an upside target. But if the market breaks down further on Thursday I'd look for a decline to about 1990, a corrective bounce back up, maybe back up to 2020, and then a stronger decline into the end of the month.

S&P 500, SPX, 60-min chart

The DOW was the stronger index today and it was able to push slightly higher in the morning and then again in the afternoon while the other indexes struggled with lower highs. If the bulls can keep the rally going we could see the DOW push up to its 200-dma, currently near 17576, about another 400 points above today's close. But there are two things that I see as trouble for further gains: one, the DOW has now bumped up against its trend line along the highs from 2000-2007, which it broke back below in August, for what could be a bearish back-test. A return to the scene of the crime should result in a strong rejection of price; and two, the way it's been chopping marginally higher since October 16th has it looking more like an ending pattern, with bearish divergence, rather than something more bullish. Earlier today I had pointed out why a drop below 17200 this afternoon would create a sell signal, which it did into the close. Notice that today's candlestick is a bearish engulfing one at resistance, which is a result of the new high and lower close, which creates a key outside down day (a reversal pattern).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,300
- bearish below 16,887

The recent choppy move higher, easily seen on the SPX 60-min chart further above, looks like a distribution pattern as Big Money hands off inventory to the retail crowd. Once the selling starts to overwhelm the buying I think we'll see a sudden break to the downside. As shown on the daily chart above, the expectation is for another leg down below the August low following the completion of the a-b-c bounce off the August low. Not shown on the chart is the projection for another leg down that equals the May-August decline, which is at 14334 (almost 3000 points below today's high at 17315) if it starts down from here. That is close to the 50% retracement of the October 2011 - May 2015 rally, at 14378.

NDX made it up to the price projection at 4463, where the 2nd leg of its bounce off the August low is 62% of the 1st leg up and appears to be rolling over. But it still has a chance to stay bullish if it drops down to its 200-dma, near 4393, and uses it to launch another rally leg. Note that the Nasdaq is not as strong -- it rallied up to the same 62% projection but that was at its 200-dma, which it has been unable to break. The relative weakness in the COMPQ is a bearish warning sign for now.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4403
- bearish below 4329

The RUT tried hard to break through resistance at its downtrend line from June and its 50-dma, both now crossing price-level S/R near 1152. Today's close near 1145 follows the second attempt to rally above these lines of resistance this month. A rally above yesterday's high near 1170 would be the third attempt, which would likely work and that would open up the next upside target near 1190 for a back-test of its broken uptrend line from October 2011 - October 2014 (arithmetic price scale). But a drop below its October 15th low near 1135 would suggest the next decline has started, one which could see the RUT down near 1000, if not lower, in November.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1170
- bearish below 1135

Bonds have not been helping us figure out the direction of the stock market since they've been doing the sideways things for a couple of months. As can be seen on the TLT (20+ year Treasury bond ETF) daily chart below, it has been trapped inside a sideways triangle consolidation pattern since the June low and August high. I think it's building a bullish breakout pattern, which would not be confirmed until it breaks above the October 2nd high at 126.21, but I also recognize the potential to stay stuck inside a relatively tight trading range for at least another month. Notice too how TLT has been trading closely to its 20-, 50- and 200-dma's that are starting to group closely together. There's pressure building for a big move.

20+ Year Treasury ETF, TLT, Daily chart

I have occasionally shown a comparison between the stock market and HYG, the junk bond index (well, it's actually called the High Yield Corporate Bond fund). I've pointed out in the past the huge and widening gap between the stock market and HYG, which vividly shows how the risk-off trade is happening in the bond market (selling in HYG) while the stock market has continued higher, or held up this year. It's just another warning sign, one of many, for those who hold stock as the market holds up with steadily decreasing participation of stocks.

Below is another comparison with HYG but this time with LQD, which is an ETF composed of investment grade corporate bonds. The two ETF's have run mostly in synch for the past several years but started to diverge following the mid-year lows in 2013. HYG's bounce topped out in June 2014 while LQD went on to new highs in January 2015. In other words investment grade bonds were doing much better than junk bonds, indicating bond players were also taking risk off the table. The spread has continued to widen since January, which is just another sign that underneath the hood of the market, big players have been slowly decreasing their risk exposure while many TV pundits will tell you that this is a great time to buy risk (the stock market), with the belief the bull market has much higher to go. They could be right but that's not how I see it.

Investment grade bond fund (LQD) vs. Junk bond fund (HYG), Weekly chart

The U.S. dollar bounced off support last week, which is the top of a parallel up-channel from 2008-2011, currently near 93.85, and closed at its 50-week MA. I'm looking for another leg up into early November to complete a 3-wave move up from August and upside targets for the rally, assuming we'll get it, is first to its downtrend line from March-August, near 97 by the first of November, and then maybe up to 97.66 for two equal legs up from August. Once that's complete I'll then be looking for another leg down to the bottom of its descending wedge from March, perhaps finishing its pullback by the end of the year. That would then set up the next rally leg in 2016.

U.S. Dollar contract, DX, Weekly chart

Gold almost made a break for it last week but got slapped back down by gold bears. It had broken above its downtrend line from October 2012 - January 2015 and its 50-week MA, both near 1181, with a high at 1191.70 last Thursday. That high was only a few points shy of a projection at 1195.20 for two equal legs up from July. Last week's close was below resistance near 1181 and so far this week's red candle is pointing to a reversal into a decline that should take gold to new lows below the July low at 1072.30. A rally above 1195 would be more bullish.

Gold continuous contract, GC, Weekly chart

Oil has dropped back down to its broken downtrend line from September 1st for what could be another back-test. It had broken above the line on October 6th and then dropped back down to it for a back-test last Thursday. It bounced and is now back down for what could be another back-test. At the same time it is also back down to its 50-dma, currently near 44.91 (today's low was 44.86). A drop below its October 2nd low at 43.97 would obviously be a little more bearish, if only for a larger pullback, but for now it remains bullish into November with an expected rally up to 55-56 area before rolling back over.

Oil continuous contract, CL, Daily chart

Tomorrow will be a little busier for economic reports than it was this morning. Other than unemployment claims, we'll get some housing data (existing home sales, which is expected to be flat for September) and Leading Economic Indicators, which is expected to show slowing in September.

Economic reports and Summary

Conclusion

We had a good setup coming into this week for a completion of the 3-wave bounce off the August lows and with indexes up against significant resistance levels, and/or hitting price targets for the bounce, I liked the opportunity to play the short side. With the choppy climb marginally higher over the past week it's been frustrating trying to get an entry but I think today's rollover is a good sign for the bears. Short-term support and key levels were broken and while we could always see another surprise attack by the bulls, I think the odds are in favor of the bears here. Short with a stop just above today's highs should work and if not then watch for a continuation of minor new highs with bearish divergence as a reason to continue to look for a shorting opportunity. But if SPX can rally above 2045 I'd back away from the short side and watch to see if it can make it up to 2060 before considering another shorting opportunity.

The ECB will decide on Thursday whether or not to add to their 60 billion euro ($68B) monthly QE efforts. They haven't accomplished much for their economy (or stock market for that matter) but that might not stop them from trying more of the same failed monetary policies (what's that saying about insanity?). The recent decline of inflation into "disinflationary" territory (-0.1% was the last reading) could prompt further action but at the moment the consensus is that they'll stick with what they're doing. At any rate, it could prompt a bigger move in the stock markets.

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

Keene H. Little, CMT

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


New Option Plays

Sales Growth Is Slowing

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Cracker Barrel Old Country - CBRL - close: 137.50 change: -3.41

Stop Loss: 145.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 395 thousand
Entry on October -- at $---.--
Listed on October 21, 2015
Time Frame: Exit PRIOR to earnings on Nov. 24th
New Positions: Yes, see below

Company Description

Trade Description:
Some of the restaurant stocks are struggling. Disappointing consumer spending, slower foot traffic, and tougher comparisons are weighing on the group.

CBRL is in the services sector. According to the company, "Cracker Barrel Old Country Store restaurants provide a friendly home-away-from-home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping that's surprisingly unique, genuinely fun and reminiscent of America's country heritage...all at a fair price. Cracker Barrel Old Country Store, Inc. (Nasdaq:CBRL) was established in 1969 in Lebanon, Tenn. and operates 637 company-owned locations in 42 states."

Earnings have taken a turn for the worse with CBRL. Back in June this year CBRL delivered a very upbeat earnings report. Profit was $1.49 per share, which was 12 cents above estimates. Revenues were up +6.3% to $683.7 million, beating expectations. Comparable store sales were relatively healthy and management raised their guidance.

Fast-forward to September 16th and CBRL reported their fiscal Q4 results of $1.97 a share. That did beat estimates but revenue growth slowed down to +3.8% to $719 million, which missed estimates. Comparable store sales slowed down to +0.6%. Management lowered their fiscal 2016 Q1 guidance.

Technically CBRL has developed a bearish trend of lower highs and now lower lows. This past week has seen the oversold bounce fail at resistance near its 200-dma. The point & figure chart is bearish and forecasting at $124.00 target.

I'm a little bit worried about the elevated short interest. The most recent data listed short interest at 22% of the small 19.0 million share float. That could make CBRL more volatile than normal but the shorts are probably right on this one, at least for a little while.

Tonight we are suggesting a trigger to launch bearish positions at $136.90. We are not setting an exit target tonight but the $130.00 and $120.00 levels are potential support (and thus possible bearish targets).

Trigger @ $136.90

- Suggested Positions -

Buy the DEC $130 PUT (CBRL151218P130) current ask $3.10
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

Another Day Of Disappointing Q3 Results

by James Brown

Click here to email James Brown

Editor's Note:

The market endured another day of disappointing Q3 earnings reports. Plus there was some damage done in the biotech industry thanks to a big decline in Valeant Pharmaceuticals (VRX).

LB and DRI both hit our entry triggers.


Current Portfolio:


CALL Play Updates

Costco Wholesale Corp. - COST - close: 155.21 change: +0.65

Stop Loss: 147.45
Target(s): To Be Determined
Current Option Gain/Loss: +197.5%
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:
10/21/15: COST shrugged off another widespread market decline. The stock inched higher and tested the $156 level twice today. If COST does dip we can watch for support at the 10-dma near $153.00 or the $150.00 level.

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: 75.83 change: -1.70

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:
10/21/15: The profit taking in CRM accelerated on Wednesday with a -2.19% decline. This is CRM's third drop in a row. It was disappointing to see CRM trade below $76.00, which should have been strong support. The intraday low today was $75.31. If shares see any serious follow through lower we could get stopped out at $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


CVS Health Corp. - CVS - close: 103.29 change: -0.31

Stop Loss: 99.40
Target(s): To Be Determined
Current Option Gain/Loss: -21.7%
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:
10/21/15: CVS held up reasonably well today. The stock was not immune to the market's weakness but CVS only fell -0.29%. Traders bought the dip near $103 and its simple 200-dma. I would hesitate to launch new positions tomorrow. Let's see how CVS performs.

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: 110.09 change: +0.25

Stop Loss: 104.40
Target(s): To Be Determined
Current Option Gain/Loss: +98.8%
Average Daily Volume = 9.9 million
Entry on October 12 at $106.50
Listed on October 10, 2015
Time Frame: Exit PRIOR to earnings on November 5th
New Positions: see below

Comments:
10/21/15: DIS continued to march higher on Wednesday but shares pared their gains and closed the opening gap higher this morning. DIS is arguably short-term overbought here and due for a dip. Our option has almost doubled in value. Traders may want to take some money off the table.

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: 97.11 change: +0.11

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: +24.5%
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:
10/21/15: Today's good news for FB traders is that shares did not see any follow through lower on yesterday's potential bearish reversal pattern. The bad news is that today's bounce was pretty anemic (+0.1%).

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: 123.30 change: +0.45

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

Comments:
10/21/15: HD traders bought the dip this afternoon and shares surged to new all-time highs, trading above $124.00. The rally faded by the closing bell and HD settled with a +0.3% gain.

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: 91.61 change: -0.19

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -42.9%
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:
10/21/15: INGR managed to tag a new eight-week high intraday but the rally did not last. Shares reversed into a -0.2% decline. This is starting to feel like a short-term bearish double top near $92.00.

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: 96.52 change: +0.14

Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: -36.4%
Average Daily Volume = 1.9 million
Entry on October 21 at $97.65
Listed on October 17, 2015
Time Frame: Exit PRIOR to earnings on November 18th
New Positions: see below

Comments:
10/21/15: The early morning rally in LB was strong enough to lift shares to all-time highs. LB hit our bullish entry trigger at $97.65. Sadly the rally didn't last. LB touched $97.70 and reversed lower. At this time I would wait for a new rally above $97.70 before initiating new positions.

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.

- Suggested Positions -

Long NOV $100 CALL (LB151120C100) entry $1.65

10/21/15 triggered @ $97.65
Option Format: symbol-year-month-day-call-strike


NIKE, Inc. - NKE - close: 132.47 change: +0.10

Stop Loss: 127.85
Target(s): To Be Determined
Current Option Gain/Loss: +75.3%
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:
10/21/15: NKE has been acting bullet proof the last couple of days. Shares are just hovering near their new all-time highs set on Monday. If the market accelerates lower I would expect NKE to follow as traders take some cash off the table.

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: 100.25 change: -0.02

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:
10/21/15: KO's earnings report this morning didn't seem to have much impact on PEP. KO reported Q3 earnings of $0.51 a share, which beat estimates by a penny. Revenues fell -4.6% to $11.43 billion, which missed estimates. KO said their volume grew +3% and they reaffirmed their prior 2015 guidance.

Shares of PEP rallied intraday. The stock hit $100.90 before fading back to unchanged on the session. Our suggested entry point is $101.00.

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: 43.70 change: -0.02

Stop Loss: 48.20
Target(s): To Be Determined
Current Option Gain/Loss: +29.4%
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:
10/21/15: Traders sold the rally in BEAV today and shares faded back to unchanged on the session. There is no change from my recent comments.

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


Darden Restaurants - DRI - close: 62.80 change: -0.93

Stop Loss: 66.30
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 1.7 million
Entry on October 21 at $63.40
Listed on October 20, 2015
Time Frame: Exit PRIOR to earnings in December
New Positions: see below

Comments:
10/21/15: Our new bearish trade on DRI is open. Shares underperformed the market with a -1.45% decline. Our trigger to buy puts was hit at $63.40.

After the bell DRI announced that their Board of Directors had approved the spin-off plan to put hundreds of its restaurant properties into a REIT. The new company will be called Four Corners Property Trust Inc. DRI will distribute shares of the new REIT to DRI shareholders on November 9th to shareholders of record on November 2nd. Investors will receive one shares of Four Corners for every three shares of DRI they own. I don't see any after hours action in DRI tonight.

Trade Description: October 20, 2015:
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.

- Suggested Positions -

Long 2016 JAN $60 PUT (DRI160115P60) entry $2.15

10/21/15 triggered @ $63.40
Option Format: symbol-year-month-day-call-strike


Nordstrom Inc. - JWN - close: 67.68 change: -0.85

Stop Loss: 70.05
Target(s): To Be Determined
Current Option Gain/Loss: -1.8%
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:
10/21/15: JWN looks a lot more appealing today after the early morning rally failed near $69.50. The stock reversed into a -1.24% loss on the session. I am suggesting a new decline under $67.40 as a new entry point for bearish positions.

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