Option Investor
Newsletter

Daily Newsletter, Thursday, 10/22/2015

Table of Contents

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

Market Wrap

A Good Day For Stocks

by Thomas Hughes

Click here to email Thomas Hughes
Strong earnings, positive data and a dovish ECB propelled the market to new near term highs.

Introduction

A day filled with strong earnings, positive economic data and a very dovish ECB saw the bulls propel the market to new highs. Starting in Asia, markets were mixed but led by gains in the mainland Shang Hai index. The Shang Hai index was driven by a rally in small caps but indices in Hong Kong and Japan both fell as traders were waiting on a policy statement from the ECB. The European markets got a boost from dovish comments made by Mario Draghi. The DAX jumped more than 2.5% on statements to the effect that if there is no significant improvement in the EU economy by December the ECB would be ready to act again, increasing the amount and scope of QE. There was no change to the policy today.

Market Statistics

Futures trading were indicating a positive open for the indices right from the start. Along with the international news a round of decidedly positive earnings releases hit the market. McDonald's may be the most noteworthy, beating estimates by more than a dime. Share prices jumped to a new all time high and added more than 40 points to the Dow Industrial Average on its own. Economic data before and after the bell was also very positive and helped to spur the indices to today's highs.

The SPX was indicated to open with a gain greater than 0.5% and shot past that target within the first 15 minutes of trading. The bulls were out, if not in force, then at least in numbers above recent averages. The rally extended itself through the morning hitting a high just before noon, and then extending again to a new high 45 later. At this point some resistance set in, trimming gains, but the indices remained strong. By end of day the market had once again moved higher, to set a new intraday high, and closed near the high of the session.

Economic Calendar

The Economy

Jobless claims was the only release before the bell, and they at least indicate healthy if not strong labor conditions. Initial Claims rose by 3,000 from an upward revision of 1,000 to hit 259,000, below expectations. On a not adjusted basis claims fell by -9.2% versus an expected -10.3% and are now down -9.1% on a year over year basis. The four week moving average of adjusted claims declined despite this week's small rise in claims, to hit 263,250 and a new 42 year low. The largest increases in claims occurred in Texas and New York, 2,627 and 2,269 respectively. The largest decreases in claims were in Nebraska and Ohio with -290 and -277. Initial claims, on an adjusted and not adjusted basis, continue to trend at historic low levels. Negative labor data in the manufacturing reports is not yet passing through into this figure that I can see.


Continuing Claims rose by 6,000 to hit 2.176 million. Last week's figure was revised up, also by 6,000. The four week moving average of continuing claims fell by -18,500 to 2.184 million and a new 15 year low. Continuing claims are also trending at long term lows and consistent with healthy labor markets.

Total Claims for unemployment dropped by -54,986, reflecting the fall to new lows seen in the initial and continuing claims numbers over the past few weeks. The total number of Americans on unemployment benefits is now 1.861 million, -10.2% from the same time last year. Total claims is also trending at long term/historic lows and consistent with with low unemployment levels and healthy labor market conditions.


Existing Home Sales jumped a surprising 4.7% in September, driven by a small decline in home prices and mortgage rates. The annualized rate of sales is now 5.55 million and makes this the 12th month in a row of year-over-year gains. Sales are now up 8.8% from this same time last year. All regions showed increases, the only negative is a decline in inventory. Inventory fell -2.6% and is down -3.1% on a year over year basis. The bright side is that strong sales and low inventory may continue to drive new home construction.

The Index of Leading Indicators declined by -0.2% but remains expansionary at 123% of 2010 levels. Growth is still expected into the future, although the pace of growth has declined in the current month. Forward outlook is for GDP in the range of 2.5% over the next 2-3 quarters. The Coincident Index rose by 0.2%, the Lagging Index rose by 0.5%.

The Oil Index

Oil prices held steady today, WTI just above $45. Price action was choppy but held in check by rising natural gas supply, as well as yesterday's larger than expected build in US crude supply. Supply/Demand imbalance remains, and may get worse going into next year despite signs of declining production levels. Adding to the imbalance is the IEA's new prediction that demand growth will fall by a third in 2016. $45 looks like a key level for oil, a break below here could see WTI test lows near $40.

The Oil Index gained more than 2.25% in today's action. The index made a move up from near term support levels near 1,175 despite oil's tepid day. Oil outlook is poor, but prices are still expected to average above $50 in 2016, and the energy sector is expected to see a rebound in earnings growth next year, so support could in fact be present. The indicators are mixed, momentum has retreated to near zero, stochastic is moving lower and fallen out of the upper signal zone. A fall below support could take the index back down to long term lows near 1,025. Oil prices, but also earnings and earnings outlook, will play a big role over the next week or so. Exxon, Connoco Phillips and other big name oil companies report next week.


The Gold Index

Gold prices were able to hold steady in a tight range just below $1170 despite a huge surge in dollar value. The ECB meeting and Mario Draghi's comments were extremely dovish and sent the euro to the bottom of the three month range and the Dollar Index to the top of its, the kind of move that would ordinarily have resulted in a sharp drop in the price of gold but with the FOMC meeting next week traders may be waiting. The FOMC is not expected to change policy, but their statement will be just as important and market moving as the ECB's. A dovish statement could reduce the chance of a rate hike in the near future, weaken the dollar and help support gold prices. A hawkish sounding statement could add momentum to the dollar trade and that I think would send gold lower.

The gold miners rallied along with the broader market despite the weak action in gold. Even with today's close near a one week low gold prices are more than 9% off the summer lows and helping to support the sector. Today the Gold Miners ETF GDX gained nearly 2% in a session spent contained between support and resistance levels. The ETF moved higher early this month but is now in a consolidation, awaiting the FOMC meeting and earnings. The indicators are in retreat from bullish peaks and consistent with the pull back to support. If support break this could lead it lower with first support target near $15. For now, support is along the 100% retracement line near $15.70.


In The News, Story Stocks and Earnings

The Dollar Index moved up on euro weakness following the ECB announcement and press conference. The index gained more than 1.3% creating a long white candle in a move up to the top of the recent range. The indicators have both turned bullish with recent crossovers, confirming the move, but a break above resistance is necessary to get really bullish on it. Resistance is near $96.50 and could keep the index contained until the FOMC meeting. At that time it will come down to their tone and the market's outlook on rate hikes. However, regardless of FOMC tone next week, the FOMC is still on track for a rate hike, the ECB on track for more QE, so there is a good chance the dollar could continue to rise into the short term with targets near $97.50 and $100.


McDonald's was the big name in earnings, among a host of positive surprises and earnings beats. The company reported before the bell and beat by $1.41 per share versus the expected $1.27 projected by analysts. The report shows that new initiatives by management, and new CEO, are already bearing fruit and even before the start of all day breakfast. Global comp sales increased 4%, well above expectations with a 5% decrease in revenues. Revenues were impacted by currency conversion, constant currency revenue rose 7%. Investors cheered the news as it drove prices of the stock up by over $8.50 on high volume.


GNC got walloped today after reports about some of its weight loss products led to lawsuits. The Oregon attorney general is behind the move which alleges the company is using illegal and/or potentially harmful substances. The news led to a sharp sell-off which took the stock down to a new 12 month low; shares were halted more than once during an active session of trading. The company responded by saying they would fight the allegations. In unrelated news shares of Valeant continued their slide today as well, shedding more than -11%.


There was a lot of earnings action after the bell. Amazon, Microsoft, Google (Alphabet) and many more. All three beat expectations smartly, for earnings if not revenue, and sent shares soaring in after hours trading. Microsoft gained about 6%, the other two greater than 12%. Google and Amazon both set new all time highs, Microsoft is still trading below the top of a two year range. Tomorrow's action could be hot, these stocks could drive another rally.


The Indices

The indices were strong today, driven by a round of positive news. Moves made are not the largest in recent history but significant nonetheless and extend the rally to new 2 month highs, led by the Dow Jones Industrial Average. The blue chip index gained 1.87% and created a long white candle in what looks like a decisive move above resistance levels. The indicators remain bullish and, judging by the MACD, momentum has begun to increase again. Next target is in the range between 17,600 and 17,700 with a move back to the all time high very possible.


The S&P 500 gained about 1.66% in today's action and also created a long white candle. The index moved up from support levels to resistance, remaining above that resistance by the close of trading. The indicators remain bullish but are softening so there is risk a test of support could come. MACD is slowly winding down and unlike with the blue chips has not yet begun to increase. Stochastic is also a little worrying as it has rolled over into a bearish crossover that could indicate the index is approaching stronger resistance levels than what we have so far seen. That being said the move is in line with the underlying trend and moving higher on a wave of strong momentum, driven by today's good news, so it is likely to continue into the near term at least. Next target is near 2,100.


The NASDAQ Composite was third strongest in today's session, gaining 1.65% and barely setting a new one month closing high. The index appears to be drifting higher like the others but has yet to break through near term resistance levels and move above last month's peak. The indicators are bullish but weakening, consistent with the top of a range so caution is due. A break above 4,950 could take the index up to 5,100, support target should the index pull back are near 4,800 and the short term moving average. Based on today's earnings reports from Amazon, Google and Microsoft I would not be surprised to see this index break resistance tomorrow.


The Dow Jones Transportation Average was today's laggard with a gain of only 1.48%. This index is also still below the one month high and resistance levels with indicators that are either indicative of the top of a range, or gearing up to break above resistance. MACD has retreated from a peak to near zero and is ticking up with today's action so a further test of resistance at least is likely. Stochastic has rolled over into bearishness, consistent with the top of the range, but %K has begun to move back and could easily lead to a bullish crossover. A break above resistance could take the index as high as 8,600 in the near term, with support targets near 7,750 should a break fail.


Today was a great day for the market. There was no bad news, or at least no bad news not construed as good news, and lots of plain old good news. Granted, earnings expectations were not high this quarter but there are being soundly beaten by most companies. Outlook for earnings growth remains positive from this quarter on, as do those for the economy, and with the FOMC not expected to be very hawkish at the next meeting the chances for the rally to continue are very high.

Tomorrow, the earnings onslaught continues, not as heavy as today but there are quite a few names on the list, and several big ones like Proctor & Gamble. On the economic front there are no reports due out so earnings, and headlines, will carry the day.

Until then, remember the trend!

Thomas Hughes


New Option Plays

It's Five O'Clock Somewhere

by James Brown

Click here to email James Brown

Editor's Note:

FYI: In addition to tonight's new bullish candidate STZ, I would also check out shares of Adobe Systems (ADBE) . ADBE's bounce today looks like a potential entry point. I would be tempted to buy ADBE calls on a rally past $89.10.




NEW DIRECTIONAL CALL PLAYS

Constellation Brands Inc. - STZ - close: 137.81 change: +1.50

Stop Loss: 133.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.29 million
Entry on October -- at $---.--
Listed on October 22, 2015
Time Frame: several weeks
New Positions: Yes, see below

Company Description

Trade Description:
Major beer brands have suffered from the boom in craft beers. Yet STZ's Corona and Modelo have seen significant growth, especially in the U.S. The company's earnings and revenue growth has fueled a rally in the stock that has outpaced the major marker indices.

STZ is in the consumer goods sector. According to the company, "Constellation Brands (NYSE:STZ and STZ.B) is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world`s leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company`s premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky.

Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,200 talented employees."

STZ has been reporting strong earnings numbers. Back in January they reported their Q3 2015 numbers that beat estimates on both the top and bottom line numbers. STZ management raised their 2015 guidance. Their Q4 results were out on April 9th. Earnings were up +37% from a year ago. Gross margins improved. Their fiscal year 2015 sales were up +24%. Management guided 2016 earnings growth in the +12% to +17% range.

Their 2016 Q1 report came out in July. They managed to beat estimates again on both the top and bottom line. STZ management raised their guidance again. Their most recent earnings report was October 7th. STZ said their 2016 Q2 earnings were $1.56 a share. That was 24 cents better than expected. Revenues were up +7.8% to $1.73 billion, which was in-line with estimates. The company remains optimistic and raised their guidance yet again.

This strong track record of earnings growth has fueled a long-term rally in STZ. The stock is also outperforming the broader market. The S&P 500 index is flat for the year (-0.3%) while STZ is up +40% in 2015.

After a big rally off its late September lows (about $122 to almost $139) shares dipped to their 10-dma and bounced (around $133.25). The market's current rally has lifted STZ back toward its all-time highs. Tonight we are suggesting a trigger to buy calls at $138.25.

Trigger @ $138.25

- Suggested Positions -

Buy the 2016 JAN $145 CALL (STZ160115C145) current ask $2.40
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Markets Surge On Dovish ECB

by James Brown

Click here to email James Brown

Editor's Note:

ECB President Mario Draghi did not disappoint and provided dovish comments about the central bank's QE program and plans for the future. European markets rallied big and the U.S. followed suit.

We have updated several stop losses tonight.

CBRL hit our entry trigger.

We want to exit our LB trade tomorrow morning.


Current Portfolio:


CALL Play Updates

Costco Wholesale Corp. - COST - close: 158.15 change: +2.94

Stop Loss: 153.25
Target(s): To Be Determined
Current Option Gain/Loss: +317.5%
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:
10/22/15: The stock market's widespread rally today provided a fertile environment for COST to keep rising. Shares surged +1.89% and ended the day at new all-time highs.

Tonight we are moving our stop loss up to $153.25. No new positions at this time.

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

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

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

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

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

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

- Suggested Positions -

Long NOV $150 CALL (COST151120C150) entry $2.00

10/22/15 new stop @ 153.25
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: 77.37 change: +1.54

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: + 4.9%
Average Daily Volume = 3.6 million
Entry on October 12 at $76.25
Listed on October 07, 2015
Time Frame: Exit PRIOR to earnings in November
New Positions: see below

Comments:
10/22/15: CRM popped higher this morning. Shares were up +3.4% at their best levels of the day. Gains faded but CRM still outperformed the major indices with a +2.0% advance on Thursday.

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: 104.29 change: +1.00

Stop Loss: 99.40
Target(s): To Be Determined
Current Option Gain/Loss: -4.8%
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:
10/22/15: Traders bought the dip in CVS this morning. The stock managed to climb back toward technical resistance at its 100-dma and close with a +0.9% gain.

No new positions at this time. Our plan is 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: 113.25 change: +3.16

Stop Loss: 109.25
Target(s): To Be Determined
Current Option Gain/Loss: +201.2%
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:
10/22/15: It might be window dressing ahead of month end but DIS was a big performer today. Shares surged +2.8% to close at new two-month highs. Tonight we are adjusting our stop loss up to $109.25.

Our option has tripled in value so more conservative investors 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

10/22/15 new stop @ 109.25
Investors may want to take some money off the table with our option up +200%
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: 99.67 change: +2.56

Stop Loss: 95.75
Target(s): To Be Determined
Current Option Gain/Loss: +75.5%
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:
10/22/15: Big cap tech stocks were popular today and FB surged +2.6% to a new all-time closing high. The stock is poised to breakout past round-number, psychological resistance at the $100.00 mark soon. Tonight we are adjusting the stop loss up to $95.75.

In other news FB has expanded its search feature. If you search for something on Facebook it will include the system's two trillion archived posts by its users.

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

10/22/15 new stop loss at $95.75, FB looks poised to breakout past $100
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: 124.36 change: +1.06

Stop Loss: 121.75
Target(s): To Be Determined
Current Option Gain/Loss: +53.8%
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:
10/22/15: HD's rally today lagged behind the major indices but shares still added +0.85%. The stock is on track for its fifth weekly gain in a row. Today's move is technically a breakout past its August highs ($123.80).

Tonight we are moving our stop loss up to $121.75. More aggressive traders may want to keep their stop loss below the $120.00 mark for now.

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

10/22/15 new stop @ 121.75
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: 93.15 change: +1.54

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: -14.3%
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:
10/22/15: INGR participated in the market's big rally today with a +1.6% gain. The stock has broken through its October highs in the $92.25 area but now it faces potential resistance at its all-time high from August near $93.85.

Tonight we are raising the stop loss to $89.85. Don't forget that we plan to exit prior to earnings on October 29th.

No new positions at this time.

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

10/22/15 new stop @ 89.85
10/12/15 triggered @ $91.05
Option Format: symbol-year-month-day-call-strike


L Brands, Inc. - LB - close: 96.76 change: +0.24

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:
10/22/15: Attention! We are hitting the eject button on our LB trade. Shares did not truly participate in the market's rally today. The S&P 500 surged +1.6% while LB only added +0.2%. LB seems stuck in this sideways trading range. We had hoped to catch a breakout but upward momentum has stalled.

Tonight we are suggesting an immediate exit tomorrow morning.

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 LB did not participate in the market rally today, prepare to exit tomorrow morning
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: 129.15
Target(s): To Be Determined
Current Option Gain/Loss: +74.1%
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:
10/22/15: Smaller rival Under Armour (UA) reported earnings this morning. UA beat analysts' estimates on both the top and the bottom line. UA's management raised their guidance. Yet traders sold the news and UA's stock plunged -5.3% on the session (that's off its intraday lows).

This weakness in UA appeared to weigh on shares of NKE. Fortunately traders bought the dip in NKE at $130.58 and NKE managed to close virtually unchanged on the session. Tonight we are adjusting our NKE stop loss to $129.15.

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

10/22/15 new stop @ 129.15
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: 103.08 change: +2.83

Stop Loss: 94.75
Target(s): To Be Determined
Current Option Gain/Loss: +49.5%
Average Daily Volume = 5.0 million
Entry on October 22 at $101.00
Listed on October 19, 2015
Time Frame: Exit prior to expiration in January
New Positions: see below

Comments:
10/22/15: Our new trade on PEP is off to a strong start. Shares gapped open higher at $100.67 and then surged to a +2.8% gain and to a new all-time high. The stock has broken through major resistance in the $100-101 region. Our trigger to buy calls was hit at $101.00 this morning.

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.

- Suggested Positions -

Long 2016 JAN $100 CALL (PEP160115C100) entry $2.81

10/22/15 triggered @ $101.00
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

B/E Aerospace Inc. - BEAV - close: 44.75 change: +1.05

Stop Loss: 46.25
Target(s): To Be Determined
Current Option Gain/Loss: + 2.9%
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:
10/22/15: BEAV has started to bounce and today's big market rally helped fuel a +2.4% gain in the stock. This rebound should fail inside the $45.00-46.00 region. BEAV's trend line of lower highs (resistance) should cross at $46.00. Tonight we are moving the stop loss down to $46.25. More conservative traders not willing to risk that much of a move may want to use a lower stop (maybe $45.25).

No new positions. We only have a few days left before we plan to exit prior to BEAV's earnings report on October 27th.

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

10/22/15 new stop @ 46.25
10/14/15 triggered @ $45.75
Option Format: symbol-year-month-day-call-strike

chart:


Cracker Barrel Old Country - CBRL - close: 139.62 change: +2.12

Stop Loss: 145.05
Target(s): To Be Determined
Current Option Gain/Loss: -37.5%
Average Daily Volume = 395 thousand
Entry on October 22 at $136.90
Listed on October 21, 2015
Time Frame: Exit PRIOR to earnings on Nov. 24th
New Positions: see below

Comments:
10/22/15: Our brand new bearish play on CBRL is open but I am not suggesting new positions tomorrow. The stock traded low enough to hit our suggested entry point at $136.90 this morning. Unfortunately CBRL reversed higher and followed the market's rally with a +1.5% gain.

Let's see how CBRL performs tomorrow and then we'll reconsider when and where to launch new bearish positions.

Trade Description: October 21, 2015:
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).

- Suggested Positions -

Long DEC $130 PUT (CBRL151218P130) entry $3.20

10/22/15 triggered @ $136.90
Option Format: symbol-year-month-day-call-strike


Darden Restaurants - DRI - close: 64.09 change: +1.29

Stop Loss: 66.30
Target(s): To Be Determined
Current Option Gain/Loss: -11.6%
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:
10/22/15: The stock market's big rally today also fueled an oversold bounce in shares of DRI. The stock gained +2.0%. Shares should find resistance in the $65-66 zone and roll over again.

No new positions at this time.

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: 68.51 change: +0.83

Stop Loss: 70.05
Target(s): To Be Determined
Current Option Gain/Loss: -26.5%
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:
10/22/15: JWN was not immune to the market's broad-based rally today. Shares added +1.2% but traded inside yesterday's range (an inside day), which suggest indecision by investors.

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