Option Investor
Newsletter

Daily Newsletter, Thursday, 10/29/2015

Table of Contents

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

Market Wrap

Rate Hikes And Slow Growth

by Thomas Hughes

Click here to email Thomas Hughes
The bulls held their ground in the face of weak earnings, renewed chances of a December rate hike and weak economic growth.

Introduction

The market proved to be somewhat resilient today, holding steady near newly reached two month highs. Trading was light and held within a narrow range as the market digests the FOMC statement, today's 3rd quarter GDP estimate and an ongoing season of weak earnings.

The FOMC meeting was a bit of a surprise, the statement was a little on the hawkish side, and basically told the market not to be surprised if they hike rates in December. Their reason, the economy is gaining strength, international concerns are not that big a deal anymore, and conditions are leading to inflation, if not causing it.

The first estimate for 3rd quarter GDP did nothing to change the FOMC outlook; the US economy is still growing, but growth slowed in the 3rd quarter. The surprise, or silver lining, is that income and spending were both up. In terms of corporate earnings, the season remains weak but also better than expected with growth in the outlook, if not next in the next quarter then in the next year.

Market Statistics

International markets were cautious following the Fed announcement. Asian indices closed mixed and near the one month highs. One notable headline; the Chinese government repealed its one child policy. In Europe trading was less optimistic, indices there posted losses in the range of -0.5%.

Early morning pre-market trading here at home was about the same. The indices were indicated to open flat to negative for most of the morning with little to no effect from today's economic data. The indices opened the day with losses near -0.25% and proceeded to trade in a very narrow range from there. A late day rally took the indices to the intraday high but it did not hold, by close of the day they had retreat to near the midpoint of the day's range. The transports were today's leader and the only major index to trade in positive territory.

Economic Calendar

The Economy

The first estimate for 3rd quarter GDP is 1.5%. This is a hair below consensus of 1.6% and the middle part of the range between 1.6% and 2.5%. This is down more than -2% from the 2nd quarter but still expansionary. The two biggest drags on GDP were imports, up, and inventory investment, down. The surprise was that two of the largest positive contributions were in PCE and personal income. Diposable personal income rose by 4.8% versus 3.4% in first quarter, driven by an acceleration in wages. Gross domestic purchases decline from the 2nd quarter but remain positive at 1.5%.


Initial Claims for unemployment rose by 1,000 from last week's unrevised figure to hit 260,000. The four week moving average of initial claims fell by -4,000 to hit 259,250 and a new low not seen since 12/15/1973. On a not adjusted basis claims rose by 5.3% versus the 5.0% predicted by the seasonal factors. On a year over year basis not adjusted claims are down by -9.6%. South Carolina and Michigan led with increases in claims of 2,156 and 2,117. Pennsylvania and Texas led with decreases in claims of -3,583 and -2,893. Based on this data job losses are at historic lows and not consistent with slowing growth.


Continuing Claims for unemployment, those filing for a second week, fell by -37,000 to hit 2.144 million. This is a new low dating back to 11/4/2000. The four week moving average also fell, shedding -12,750 to hit 2.174 million, also a new low dating back to November of 2000. Continuing claims are also not consistent with slowing economic growth.

Total claims rose this week, contrary to declines in the other two gauges, but remains near its historic lows as well. Total claims rose by 18,694 to reach 1.881 million but remain down -8.07% from last year at this time. Despite the gains in this week's data total claims is also not consistent with slowing economic growth. Next week we will get the monthly bundle of labor macro data including ADP, Challenger, NFP and unemployment, each of which will shed new light on the state of labor. If the economy is indeed slowing labor market could begin to cool off, perhaps foreshadowed by last month's NFP. On the flipside, strong labor market and rising income/spending could lead the economy out its slump.


Pending Home Sales declined unexpectedly by -2.3%. Average expectation was closer to +0.6%. This is now the 2nd month of decline and the 2nd lowest level of pending home sales this year. However, on a year over year basis pending homes sales, a forward indicator, is up 3% from last September and have been in Y-O-Y expansion for 13 months. Lawrence Yun, chief economist for the National Association Of Realtors, low interest rates, rising rents and strong labor markets should continue to drive demand in housing markets.

The Oil Index

Oil prices held flat in today's trade, although trading was a little choppy, after rebounding from the 2 month low yesterday. WTI traded in a range around $46, closing near that level as well. Supply and production are still weighing on prices despite today's gains with no change to the fundamentals in sight. Production remains high on a global scale and today's report from Connoco-Phillips underscores that point. They reported production levels up from last year, above guidance, with 7 new projects scheduled for start-up and next year's forecast shows production growth as well. Tomorrow Exxon and Chevron report.

The energy sector was able to continue a bounce from support begun yesterday. The Oil Index gained 0.75% in today's session, creating a medium bodied white candle moving up from support and the short term moving average. The indicators remain bearish but are showing signs of near term support. The index could be moving up to retest the recent high near 1,235. The strength of this move will depend on oil prices which don't look very strong at this time. Support is at the short term moving average, near 1,150. A fall below this level could take the index down to the lows set last month near 1,025.


The Gold Index

Gold prices fell for the 2nd day, losing about -2.5% in today's session. The hawkish sounding Fed statement has put the fear of rate hikes back in the market, strengthened the dollar and sent gold barreling down to support. Gold is now trading just below $1150 and looking like it will move back down to longer term support levels near $1120 and $1100. Data will continue to drive this trade, so long as economic growth remains steady and inflation expectations remain low gold prices should move lower.

The gold miners took a hit today too, driven by the drop in gold prices and by poor results among the miners. Today the Gold Miners ETF GDX fell more than -5%, breaking through near term support and the short term moving average to reach a new 3 week low. The indicators are bearish in confirmation of the break, which is in line with the underlying bear market in the sector. The ETF looks like it could move down to support levels near $13.


In The News, Story Stocks and Earnings

GoldCorp reported earnings this morning. The North American based miner missed expectatios, reporting a net loss of -$0.05, while hitting record production levels. Production is up 42% from last year but hurt by declining gold prices which hit 6 year lows during the reporting period. Although a net loss was reported the company balance sheet is improving. Revolving credit facilities have been repaid, free cash flow is up, all-in-cost is down and production is rising. Despite the improvements the loss was not received well and sent the stock down by more than 10.5%.


Pfizer hit the news this morning for possible M&A activity, with Allergan. The companies have both confirmed that they are in preliminary talks, initiated by Pfizer, to merge. There are no details availabel yet but the news was enough to cause a halt to trading of Allergan's stock. Shares of Pfizer fell more than -2.5%, shares of Allergan jumped more than 7%. Allegan is now trading near a three month high.


ConnocoPhillips reported before the bell. The company reported a wider than expected loss, accelerated cost reductions and rising production levels. Adjusted loss per share of -$0.38 missed by a penny while production levels are rising and above previously guided levels. At the same time, the company also announced 7 new projects on the verge of start-up which will add to production in the next year. Shares of the stock fell in the pre-market session, tested support below the short term moving average after the open, and then rose to post a small gain on the day.


LinkedIn reported after the bell and blew expectations away. The internet networking social media website reported $0.78 per share, analyst had been expecting near $0.46. Total revenue grew 37% on a 24% increase in premium subscriptions. Along with this the company raised next quarter guidance to $0.74 versus the previous $0.67. Shares of the stock shot up more than 14% on the news.


The Indices

Today was rather quiet, considering the FOMC meeting yesterday, the sheer volume of earnings reports released today and the weak/not weak economic data. Action was led by the Dow Jones Transportation Average which posted a gain of 0.84%. The transports rose from the short term 30 day moving average confirming near term support although the indicators remains bearish. Both MACD and stochastic are pointing lower, suggesting support may be tested further although at this time they may be more indicative of range bound trading than anything else. Support appears to be building near the short term moving average, near 8,000, although the bottom of the range is closer to 7,750. Resistance is near 8,250 with a possible move up to 8,500.


The S&P 500 was runner up in today's action although it closed with a loss. The broad market posted a decline of 0.04%, creating a small doji type spinning top. The index has paused once more in it's climb from the September low although indications remain positive so I don't think the move has exhausted itself quite yet. MACD momentum is declining from its peak, indicative of a slowing market, but the current wave is pretty strong relative to the past 12 months so could easily run a bit further. Stochastic is confirming strength, trending high in the upper sigal zone and producing a bullish crossover. Today's action was just beneath resistance at 2,090, a break above this level could take the index to the all time high near 2,130.


The Dow Jones Industrial Average made the next smallest decline in today's session. The blue chips fell by -0.13% and also created a small doji like spinning top, near the top of the previous days candle and above resistance. The indicators are bullish, if momentum is declining, so a continuation of this move, up to next resistance, looks likely. Next resistance is the underside of the long term trend line near 18,000. Regardless, the current rally is now nearly 15% off of it's bottom and in position for profit taking so caution is warranted.


The NASDAQ Composite made the largest decline in today's session, -0.42%. The tech heavy index opened with a loss, then traded near its opening level, so created a very small bodied doji candle above the mid-point of yesterday's range. The indicators are bullish, and showing some strength if MACD declined with today's session. The index is below potential resistance at 5,100, a break above this level could take it back to the all time high and the underside of the previously broken long term up trend line.


The market held steady today which is remarkable. Not only has a hawkish fed resulted in a rally, weak economic growth and tepid earnigs have helped to support prices. Under different conditions any of these situations could have resulted in market hysteria. Today I think was different because they all lead to one thing, expected positive improvements next quarter and next year. In any event, the rally is on and the near term trend is up. There are signs it is losing some steam so caution is due, along with tight stops.

A thought; If earnings growth is expected to return, and GDP growth is expected to average above 2%, and the FOMC thinks we need a rate hike, then the economy is growing and we are indeed about to come out of a trough in the economic and earnings cycle as suggested by the data and the projections. If this is the case then the bull market is intact and the rally will go on.

Tomorrow, more data and more earnings. On the economic calendar; personal income and spending, the Employment Cost Index, Michigan Sentiment and Chicago PMI. On the earnings front the pace of releases falls off somewhat from today but remains strong; more than 7 dozen names, the most important probably Exxon and Chevron. Next week will be no reprieve. There will be another massive round of earnings reports along with the monthly macro economic data.

Until then, remember the trend!

Thomas Hughes


New Option Plays

If At First You Don't Succeed

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Costco Wholesale - COST - close: 158.28 change: +0.52

Stop Loss: 152.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.9 million
Entry on October -- at $---.--
Listed on October 29, 2015
Time Frame: Exit PRIOR to earnings in mid December
New Positions: Yes, see below

Company Description

Trade Description:
We are bringing COST back to the Option Investor newsletter. Shares have been doing well since they bottomed in August this year. We were in COST last week and were unexpectedly stopped out on this Monday's gap down.

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.

Wall Street is generally bullish on COST. Out of the twenty analysts that cover the stock 12 of them have a "strong buy" rating. COST has seen its price target upgraded twice this month. The most recent upgrade was this week with a $180 target. The point & figure chart is very bullish and forecasting a long-term target of $239.00.

The last few days have seen COST consolidating gains with a sideways move in the $155.00-158.50 area. The intraday high was set last week at $158.80. Tonight we are suggesting a trigger to buy calls at $158.85. We will plan on exiting prior to COST's earnings report in December.

Trigger @ $158.85

- Suggested Positions -

Buy the DEC $165 CALL (COST151218C165) current ask $1.25
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Hover Near October Highs

by James Brown

Click here to email James Brown

Editor's Note:

After a big rally yesterday the U.S. market seemed to take the day off. Stocks churned sideways and closed with mild losses. October is on track for the market's best one-month gain in years.

SIG hit our entry trigger.


Current Portfolio:


CALL Play Updates

Salesforce.com, Inc. - CRM - close: 78.14 change: -0.39

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: +24.6%
Average Daily Volume = 3.6 million
Entry on October 12 at $76.25
Listed on October 07, 2015
Time Frame: Exit PRIOR to earnings on November 18th
New Positions: see below

Comments:
10/29/15: CRM spent Thursday's session consolidating sideways in $1.15 range. Technical traders may note that the MACD indicator on the daily chart has turned bearish. More conservative investors might want to adjust their stop loss. You could argue the trading in CRM over the last week and a half is just a pause before the up trend continues. A breakout past $79.40 would be a new all-time high.

I am not suggesting new positions at current levels.

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


The Walt Disney Company - DIS - close: 115.04 change: +0.70

Stop Loss: 111.85
Target(s): To Be Determined
Current Option Gain/Loss: +267.5%
Average Daily Volume = 9.9 million
Entry on October 12 at $106.50
Listed on October 10, 2015
Time Frame: Exit PRIOR to earnings on November 5th
New Positions: see below

Comments:
10/29/15: Bullish analyst comments on DIS helped shares displayed relative strength today (+0.6%). The stock is challenging potential round-number resistance at $115.00 and closed at new three-month highs.

We are planning to exit prior to DIS' earnings next week on November 5th.

Tonight we are adjusting the stop loss up to $111.85. 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

10/29/15 new stop @ 111.85
10/24/15 Less than two weeks to go on this trade
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


The Home Depot, Inc. - HD - close: 123.63 change: -0.19

Stop Loss: 121.75
Target(s): To Be Determined
Current Option Gain/Loss: +23.8%
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:
10/29/15: Hmm... HD posted another loss, its third decline in a row. Shares also closed below short-term technical support at the 10-dma for the first time in almost a month. This is short-term bearish. We need to see HD rally back above the $124.00 level soon.

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


iShares Russell 2000 ETF - IWM - close: 115.87 change: -1.25

Stop Loss: 113.35
Target(s): To Be Determined
Current Option Gain/Loss: -18.5%
Average Daily Volume = 36 million
Entry on October 28 at $116.55
Listed on October 24, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
10/29/15: After yesterday's outperformance the IWM hit some profit taking today. Shares appeared to find some short-term support in the $115.60 area but I would like to see a rally back above $116.35 before initiating new bullish positions.

Trade Description: October 24, 2015:
If you haven't noticed the market is in rally mode. Worries over the Fed raising rates in 2015 are fading while the rest of the world is trying to add stimulus to their economies. Concerns over a terrible Q3 earnings season are also fading. Yes, earnings results have been bad but the bar was set low enough that companies are beating estimates. Now the U.S. market is surging.

One area of the market has lagged behind and that is the small cap stocks. The NASDAQ composite ended the week with a +6.3% gain for 2015. The S&P 500 edged back into positive territory with a +0.8% gain for the year. Yet the small cap Russell 2000 index is still down -3.2%. It's time for the small caps to play catch up with the rest of the market.

A couple of issues have driven this divergence. Right now big caps are outperforming because mutual fund and hedge fund managers are probably window dressing their portfolios for the end of their fiscal year (October 31st). Another factor has been weakness in the biotech stocks. Biotechs reversed sharply in the last three months and they have struggled to keep up with the market's rebound. Currently there are a lot of small biotech companies in the small cap index. Biotechs now account for about 7% of the Russell 2000 index. This group has definitely lagged the rest of the market over the last three weeks.

The good news is that the IWM small cap ETF, which tracks the Russell 2000 index, looks poised to breakout higher. It has been coiling below resistance in the $116 area the last several days. When it finally breaks higher it can move pretty quick.

Tonight we are suggesting a trigger to buy calls at $116.55. If triggered we will start with a stop loss at $113.35. This is a multi-week trade.

- Suggested Positions -

Long 2016 JAN $120 CALL (IWM160115C120) entry $1.89

10/28/15 triggered @ $116.55
Option Format: symbol-year-month-day-call-strike


Lear Corp. - LEA - close: 123.64 change: -2.04

Stop Loss: 117.80
Target(s): To Be Determined
Current Option Gain/Loss: -5.4%
Average Daily Volume = 951 thousand
Entry on October 28 at $123.65
Listed on October 27, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

Comments:
10/29/15: Disappointing earnings results and guidance from rival auto part maker BWA weighed on shares of LEA today. BWA plunged to a -8.6% loss today while LEA slipped -1.6%.

Trade Description: October 27, 2015:
Shares of LEA experienced a correction this summer but the stock has come charging back. Year to day LEA is up +25% against the S&P 500, which is virtually flat with a +0.3% gain. The relative strength has been very evident in the last couple of months. The S&P 500 is up +10.6% from its August-correction lows. LEA is up +36% off its August intraday lows.

LEA is in the consumer goods sector. They are part of the auto parts industry. According to the company, "The Lear Corporation is a Fortune 500 company with world-class products designed, engineered and manufactured by a diverse team of talented employees. As a leading supplier of automotive seating and electrical, Lear serves its customers with global capabilities while maintaining individual commitment. With headquarters in Southfield, Michigan, Lear maintains 235 locations in 35 countries around the globe and employs approximately 135,000 employees. Lear is traded under the symbol [LEA] on the New York Stock Exchange."

The strong dollar has created negative currency headwinds for LEA but the company continues to beat on the bottom line. Their Q2 results, announced on July 24th, were better than expected with earnings of $2.82 per share. That was 34 cents above estimates. Management raised their full-year 2015 guidance.

The trend of better than expected earnings continued in the third quarter. LEA just announced their Q3 results a few days ago on October 23rd. Analysts were expecting a profit of $2.37 a share on revenues of $4.41 billion. LEA delivered a profit of $2.56 a share. That is a +33% jump from a year ago. Revenues were only up +2.3% to $4.33 billion. That missed expectations. However, if you discount negative currency headwinds, sales were up +11%. LEA management raised their 2015 outlook again.

These results were good enough to generate some bullish analyst comments on LEA and a new price target at $138.00. Coincidentally the point & figure chart is bullish and forecasting at $138 target. The current rally in LEA has produced a bullish breakout past major resistance in the $118.00 region, which should now become new support. More aggressive traders may want to buy calls now. We are suggesting a trigger to buy calls at $123.65, which would be a new all-time high. .

- Suggested Positions -

Long DEC $125 CALL (LEA151218C125) entry $3.70

10/28/15 triggered @ $123.65
Option Format: symbol-year-month-day-call-strike


Lam Research Corp. - LRCX - close: 75.84 change: +0.10

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.5 million
Entry on October -- at $---.--
Listed on October 28, 2015
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
10/29/15: Disappointing earnings news in the semiconductor industry today sparked an early morning drop in shares of LRCX. Fortunately traders bought the dip and LRCX rallied back to unchanged on the session. I do not see any changes from last night's new play description. Our suggested entry point is $76.25.

Trade Description: October 28, 2015:
Wall Street loves mergers and this month LRCX has jumped into the 2015 buying spree. Semiconductor stocks had a rough summer with the SOX semiconductor index plunging from early June through late August. Fortunately the group appears to have bottomed. LRCX's recent earnings news and acquisition announcement has accelerated the stock's rebound.

LRCX is part of the technology sector. According to the company, "Lam Research Corp. (LRCX) is a trusted global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. Lam's broad portfolio of market-leading deposition, etch, and clean solutions helps customers achieve success on the wafer by enabling device features that are 1,000 times smaller than a grain of sand, resulting in smaller, faster, more powerful, and more power-efficient chips. Through collaboration, continuous innovation, and delivering on commitments, Lam is transforming atomic-scale engineering and enabling its customers to shape the future of technology. Based in Fremont, Calif., Lam Research is a Nasdaq-100 Index and S&P 500 company whose common stock trades on the Nasdaq Global Select MarketSM under the symbol LRCX."

LRCX's most recent earnings report was October 21st. Analysts were expecting a profit of $1.72 per share on revenues of $1.6 billion. LRCX delivered earnings of $1.82 a share. Revenues were up +38.8% from a year ago to $1.6 billion. Management then raised their Q2 earnings guidance to $1.32-1.52 a share, which is significant above analysts' estimates.

The news didn't stop there. LRCX also announced they were buying KLA-Tencor (KLAC) for $10.6 billion. This new combined company will have $8.7 billion in revenues.

Here are a few highlights from the LRCX-KLAC merger deal:

Creates Premier Semiconductor Capital Equipment Company: Strengthened platform for continued outperformance, combining Lam's best-in-class capabilities in deposition, etch, and clean with KLA-Tencor's leadership in inspection and metrology

Accelerates Innovation: Increased opportunity and capability to address customers' escalating technical and economic challenges Broadens Market Relevance: Comprehensive and complementary presence across market segments provides diversity, scale and value creating innovation opportunities

Significant Cost and Revenue Synergies: Approximately $250 million in expected annual on-going pre-tax cost synergies within 18-24 months of closing the transaction, and $600 million in annual revenue synergies by 2020 Accretive Transaction: Increased non-GAAP EPS and free cash flow per share during the first 12 months post-closing

Strong Cash Flow: Complementary memory and logic customer base, operational strength, and meaningful installed base revenues strengthen cash generation capability Anstice concluded, "We have tremendous respect for the company KLA-Tencor employees have built over nearly 40 years - their culture, technology, and operating practices. I have no doubt that our combined values, focus on the customer, and complementary technologies will create a trusted leader in our industry, capable of creating significant opportunity for profitable growth and in turn delivering tremendous value to all of our stakeholders. This is the right time for the right combination in our industry." You can read more details about the merger here.

The combination of the earnings beat, raised guidance, and the merger news launched LRCX stock higher. Traders have been consistently buying the dips since then. Now shares of LRCX are poised to break through technical resistance at its 200-dma soon. Shares have been upgraded with a new price target of $85.00. Meanwhile the point & figure chart is bullish and forecasting at long-term target of $107.00.

LRCX looks like it could run towards the 2015 highs in the $84-85 region. Today's intraday high was $76.19. We are suggesting a trigger to buy calls at $76.25.

Trigger @ $76.25

- Suggested Positions -

Buy the JAN $80 CALL (LRCX160115C80)

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


Pepsico, Inc. - PEP - close: 102.80 change: +0.06

Stop Loss: 94.75
Target(s): To Be Determined
Current Option Gain/Loss: +42.3%
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:
10/29/15: PEP saw some profit taking this morning but shares found support in the $102 area. The stock managed to recover and close virtually unchanged on the day.

Investors may want to start raising their stop loss. The $100 level should be support.

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


Signet Jewelers Limited - SIG - close: 150.57 change: +1.32

Stop Loss: 144.15
Target(s): To Be Determined
Current Option Gain/Loss: -11.6%
Average Daily Volume = 889 thousand
Entry on October 29 at $150.75
Listed on October 26, 2015
Time Frame: Exit PRIOR to earnings on November 24th
New Positions: see below

Comments:
10/29/15: Shares of SIG got a boost today thanks to some bullish analyst comments. Goldman Sachs added SIG to their "conviction buy list" and gave SIG a $177.00 price target. SIG briefly traded to a new high in response and hit our suggested entry point at $150.75.

Trade Description: October 26, 2015:
The holiday shopping season is almost here. A lot of retailers launch their holiday sales push in the first week of November. Soon investors are going to be looking for a Santa Claus rally. SIG looks like a tempting candidate since it has a history of outperforming the S&P 500 during the fourth quarter.

SIG is in the services sector. According to the company, "Signet Jewelers Limited is the world's largest retailer of diamond jewelry. Signet operates approximately 3,600 stores primarily under the name brands of Kay Jewelers, Zales, Jared The Galleria Of Jewelry, H.Samuel, Ernest Jones, Peoples and Piercing Pagoda. Further information on Signet is available at www.signetjewelers.com. See also www.kay.com, www.zales.com, www.jared.com, www.hsamuel.co.uk, www.ernestjones.co.uk, www.peoplesjewellers.com and www.pagoda.com."

Kay, Zales, and Jared are the first, third, and fourth biggest brand names in the jewelry business. In spite of having such a dominant position SIG only has about 8% of the $74 billion U.S. jewelry market. That leaves plenty of room to grow.

The company is integrating its recent acquisition of Zales. The results have boosted sales. Their 2016 Q1 and Q2 results (announced in May and August) came in better than expected. Same-store sales have been healthy at more than +4%. They are also seeing strong growth in their online sales.

Wall Street seems positive on SIG. A Nomura analyst recently labeled SIG as one of their best multi-year growth stories in retail. The stock has been showing relative strength too. SIG is up +12% in 2015 versus an S&P 500 that is virtually flat for the year.

Technically shares have a bullish trend of higher lows and higher highs. The point & figure chart is bullish with a quadruple top breakout buy signal and a $187 price target. On a short-term basis SIG has resistance in the $150.00 area. The recent high was $150.65. Tonight we are suggesting a trigger to buy calls at $150.75.

- Suggested Positions -

Long DEC $155 CALL (SIG151218C155) entry $4.30

10/29/15 triggered @ $150.75, upgraded by Goldman Sachs
Option Format: symbol-year-month-day-call-strike


Constellation Brands Inc. - STZ - close: 135.11 change: -0.50

Stop Loss: 133.20
Target(s): To Be Determined
Current Option Gain/Loss: -44.0%
Average Daily Volume = 1.29 million
Entry on October 23 at $138.38
Listed on October 22, 2015
Time Frame: Exit PRIOR to earnings in early January
New Positions: see below

Comments:
10/29/15: I am starting to worry about our STZ trade. The stock is now down five days in a row. Shares did bounce near the $134.00 level today but momentum seems to be fading quickly.

Our stop loss is at $133.20. More conservative traders may want to raise their stop closer to $134.00 or just exit early.

No new positions at this time.

Trade Description: October 22, 2015:
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.

- Suggested Positions -

Long 2016 JAN $145 CALL (STZ160115C145) entry $2.50

10/23/15 triggered on gap open at $138.38, entry trigger was $138.25
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Cracker Barrel Old Country - CBRL - close: 139.05 change: -4.85

Stop Loss: 145.05
Target(s): To Be Determined
Current Option Gain/Loss: -35.9%
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:
10/29/15: Disappointing earnings from BWLD last night sparked a widespread sell-off across the restaurant industry. Shares of BWLD plunged -17.3%. CBRL slipped -3.3%.

No new positions in CBRL at this time.

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: 62.43 change: -2.42

Stop Loss: 66.30
Target(s): To Be Determined
Current Option Gain/Loss: + 7.0%
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:
10/29/15: DRI was also influenced by the drop in BWLD today. As expected DRI plunged at the opening bell and shares underperformed the market with a -3.7% decline. The stock is poised to break down below its simple 300-dma soon.

I would consider new bearish positions on a drop under $62.00. Today's low was $62.12.

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: 64.70 change: +0.04

Stop Loss: 66.25
Target(s): To Be Determined
Current Option Gain/Loss: + 97.3%
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:
10/29/15: JWN spent Thursday's session hovering near support in the $64.00 area. Tonight we are adjusting our stop loss down to $66.25.

No new positions at this time.

Trade Description: October 14, 2015:
Normally Q4 is the time investors think about buying retail-related stocks in anticipation of a strong holiday shopping season. This year the retailers' Q4 is off to a weak start.

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

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

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

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

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

- Suggested Positions -

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

10/29/15 new stop @ 66.25
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