Option Investor
Newsletter

Daily Newsletter, Sunday, 8/16/2015

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

China Makes A Big Splash In Forex

by James Brown

Click here to email James Brown

Investors might be feeling a little motion sick after a volatile week in the stock market. Big moves in the currency market, thanks to China, rattled traders and poured gas on the fire of worry that China is slowing down too fast. The People's Bank of China (central bank) decision to devalue their currency was the main story of the week. Meanwhile negotiations between the EU and Greece continued in the background.

The major U.S. indices managed to eke out gains for the week after a big intraday reversal higher on Wednesday. Semiconductor and biotech stocks were some of the worst performers while housing and oil stocks were up more than +3%. The U.S. dollar weakened, in spite of China's move with their yuan, and dollar weakness helped commodities bounce. Gold rebounded +2% while silver rallied +3%.

The exception to the oversold bounce in commodities was crude oil, which plunged another -3.8% for the week. WTI crude closed near $42.00 a barrel. Crude oil hasn't been this low since March 2009. It was the seventh weekly loss in a row. WTI oil is now down -56% from a year ago.

Economic Data

U.S. economic data last week was mostly benign if a little disappointing. Retail sales in June were revised higher from -0.3% to flat at 0.0%. July's retail sales number was +0.6%, slightly lower than the +0.7% estimate. Automobile sales played a big part in July's number. The seasonally adjusted annual rate for vehicle sales improved from 17.0 million in June to 17.6 million in July, which is a very strong number. Excluding auto sales the core retail sales for July was only up +0.4%, which was below estimates.

The producer price index (PPI) for July rose +0.2% following a +0.4% gain in June. Energy prices normally play a big part in the PPI but last month saw rising gasoline prices offset by declines in heating oil. Excluding food and energy the core-PPI was up +0.3%, which was stronger than expected. Year over year the PPI is still down -0.8%.

U.S. industrial production in June was revised lower from +0.2% to +0.1% while July's reading showed a +0.6% gain. The surge in July was the biggest one-month move since November 2014. Most of the rise was due to strength in the automobile and auto parts industry, which climbed +10.6%.

The University of Michigan Consumer Sentiment index slipped from 93.1 in July to 92.9 in the preliminary August survey. This was actually a hair above expectations.

Overseas Economic Data

China's devaluation of the yuan

Everywhere you looked there were headlines and opinion about China and its decision to devalue its currency. That's because the People's Bank of China (PBOC) decision to devalue the yuan against the dollar on Tuesday night was one of the largest on record. The Chinese government pegs their currency in a specific range against the dollar. For years the yuan was pegged at 8.3 per dollar. Then after 2005 they started letting the yuan appreciate, albeit very slowly and in a controlled manner. The last few months the yuan seemed to be pegged in a narrow range around 6.2 per U.S. dollar. On Tuesday the PBOC adjusted their currency and let it fall -1.9% against the dollar (the biggest one-day move since 1994).

China let the yuan slip again on Wednesday and finally held a press conference on Thursday to calm investor fears after rumor and speculation suggested they were going to let the yuan crash -10%. PBOC officials said the -10% story was nonsense and that their devaluation was about done. By the end of the week the yuan lost -3% and is currently trading near 6.39 per dollar.

A -3% drop doesn't sound like much if you're a stock or option trader but it's a huge move in the currency markets. Currencies are trading in "pips", which is 1/100th of 1%.

So why did China devalue its currency? There are plenty of opinions. On Monday China reported that its exports plunged -8.3% in July. That's the largest drop in four months. The country has been trying to transform into a more consumer-powered economy but that transformation has a long way to go and exports are still a major part of their economy. You could speculate that China weakened their currency to boost exports, since it makes their exports cheaper. Another opinion on China's devaluation suggested the country is trying to let the markets have more influence on their currency because they want to be considered a reserve currency by the IMF.

The knee-jerk reaction to the PBOC's move reignited fears of a global currency war. If China is going to devalue to make their exports more affordable overseas then everyone else might do the same thing. The yuan devaluation also fueled plenty of concern about China's economy. Maybe their economy is much worse than expected and the government is trying to drive up exports. If the Chinese economy is worse than expected then what does that say about their demand for commodities? The yuan devaluation story had a negative impact on crude oil. In spite of all the worry the Chinese Shanghai stock market index actually rallied +5.9% for the week.

Here's a chart from the Wall Street Journal on the yuan vs. dollar

WSJ's charts from the week.

If you'd like to see more history on the yuan's performance and China's decisions, visit this page. Bloomberg has a big chart going back to 2005. (Click on their chart to enlarge it).

Greece

While China was the main story for the week the Greek negotiations continued in the background. All week long there were hints and stories suggesting Greece was closing in on its third bailout deal in the last five years. Finally on Friday we heard that Eurozone finance ministers had agreed to an 86 billion euro ($96 billion) bailout while the Greek parliament also voted in favor of the deal. However, it's not done yet. Several EU nations need their governments to approve the rescue package. At the same time Greek Prime Minister Alexis Tsipras is facing huge defections from hits leftwing Syriza party. Odds are rising that Greece may have to deal with another round of elections as Tsipras suffers with crumbling political support.

Elsewhere in Europe the focus was on slowing growth. France saw its Q2 GDP fall flat (+0.0%) when economists were expecting +0.2% growth. Germany slowed down as well with Q2 GDP growth of +0.4%. That's up from Q1 but down from estimates of +0.5%. Altogether the Eurozone Q2 GDP estimate was +0.3%, which was worse than the +0.4% estimate.




Major Indices:

Last week saw the S&P 500 index plunge past its simple 200-dma but it rebounded near the 2,050 level to close up +0.6% for the week. Year to date the S&P 500 is up +1.6%. The intraday bounce on Wednesday was the biggest one-day, positive reversal since October 4, 2011, according to Dow Jones.

The action last week didn't really change anything for the S&P 500. It remains stuck in the 2,040-2,130 trading range. On a short-term basis the index has a bearish trend of lower highs so that doesn't bode well. It would not surprise me to see the S&P 500 remain in this trading range until the next FOMC meeting on September 17th, which is when most analysts expect the Fed to raise interest rates.

Five-Day chart of the S&P 500 index:

chart of the S&P 500 index:

The NASDAQ composite had a similar rebound on Wednesday. The index dipped below technical support at its 150-dma but it bounced near the 4,950 level. The NASDAQ ended Friday with a +0.09% gain for the week (less than five points). Year to date it's up +6.6%.

The 4,900 and 4,950 levels look like short-term support. Meanwhile 5,100 and the 5,165 area look like overhead resistance.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index dipped toward its trend line of lower lows (see daily chart) before bouncing. It managed a +0.48% gain for the week. Fortunately the action in the $RUT last week looks like a short-term bottom. The challenge will be resistance in the 1,240-1,250 area.

chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead will bring two regional fed surveys from New York and the Philadelphia regions. We will also see the pace of inflation at the consumer level with the CPI. Analysts will be combing over the minutes from the last Fed meeting for any clues on the next one in September.

- Monday, August 17 -
New York Empire State manufacturing survey
NAHB housing market index

- Tuesday, August 18 -
Housing starts and building permits

- Wednesday, August 19 -
Consumer Price Index (CPI)
FOMC minutes from the last meeting

- Thursday, August 20 -
U.S. Existing Home sales data
Philadelphia Fed survey

- Friday, August 21 -
Eurozone consumer confidence

Additional dates to be aware of:

Sept. 7th - U.S. Markets closed for Labor Day holiday
Sept. 17th - FOMC meeting, policy update, economic forecasts
Sept. 17th - Fed Chairman Yellen press conference

Looking Ahead:

The Philadelphia Federal Reserve just released the results of their quarterly survey. They asked 42 economists for their estimates on U.S. GDP growth for Q3, Q4 and Q1 2016. Back in May the survey showed analysts estimating +3.1% growth in Q3 and +2.9% growth in Q4 while Q1 2016 was estimated to be +2.4%. The latest results have changed with new estimates showing slower growth this year and an uptick in 2016. Forecasters now expect Q3 growth to dip to +2.7% and Q4 to be +2.8%. Yet they upgraded their Q1 2016 estimate to +2.8%.

Unfortunately the forecast above seems wildly optimistic. The Atlanta Fed has done a pretty good job of nailing U.S. GDP estimates this year. Right now the Atlanta fed has downgraded their Q3 estimate from +1% down to +0.7% in just the last week. It seems a little strange that the Federal Reserve is on the verge of raising rates and yet the U.S. is likely to see growth below 1%.

The Wall Street Journal surveyed a bunch of economists and found that 82% expect the Federal Reserve to raise rates in September while only 13% expect a rate increase in December. However, it's possible that the Chinese government's currency devaluation could alter the Fed's timeline.

According to the team at FactSet, "this week's devaluation of the Chinese yuan could derail the Fed's plans for a near-term rate hike. In order to deal with slower economic growth and recent stock market turmoil, this week the People's Bank of China allowed the yuan to sharply depreciate against the U.S. dollar. The weaker yuan threatens to widen the U.S. trade deficit with China, as it makes U.S. exports more expensive and Chinese imports cheaper. It also puts upward pressure on the already-strong U.S. dollar, a trend which could force the Federal Reserve to delay its widely anticipated September rate increase."

Another factor the Fed has to consider is plunging commodity prices and the threat of deflation. As you know, crude oil is trading at lows last seen back in 2009. Odds are oil is headed even lower.

Edward Morse, head of commodities research at Citigroup, commented on the oil market saying, "A three-way game of chicken is underway. Three big buckets of global oil supply - the Organization of the Petroleum Exporting Countries, shale, and non-OPEC non-shale - are each proving to be resilient to the drop in prices, at least for now." He continued, "Saudi Arabia could raise and then sustain oil production at a massive 11 million barrels a day, while Iran sanctions relief could lead to large volume gains, and Iraqi production growth could surprise to the upside."

The Iran situation is interesting. If the nuclear deal gets approved and sanctions are lifted then Iran will be allowed to sell more oil on the global market. Maritime surveillance firm Windward estimates that Iran is storing 50 million barrels of oil in tanker ships. That's up from previous estimates of 30-40 million. They could flood the market with additional oil, which would drive prices even lower.

Citigroup is estimating a 30% chance that oil falls into the low $30s per barrel and could stay there for most of 2016. There seem to be a number of analysts suggesting oil could hit the low $30s. A few outliers are forecasting oil to fall into the $10-20 a barrel range.

Investor Sentiment

The recent volatility in the market had an interesting effect on investor sentiment. It appears to have shaken a few traders off the fence. The weekly survey by the American Association of Individual Investors (AAII) saw neutral sentiment plunge -10.6% to 33.4%. This had been stuck above 40% for a long time. Over half of the neutral investors turned bullish with bullish sentiment rising +6.1% to 30.4%. Bearish investors rose +4.5% to 36.1%. This is the 20th week in a row that bullish sentiment has been under the long-term average of 38%. According to AAII the bullish sentiment reading has been under 40% for 24 weeks in a row, which hasn't happened since 1994.

My outlook on the market hasn't changed. Big picture the markets could be stuck churning sideways until the Fed's next meeting on September 17th. This has to be one of the most anticipated FOMC meetings in years thanks to expectations for a rate hike after years of rates near zero. I suspect the biggest risk is a short-term taper tantrum. It's possible that investor sentiment sours ahead of the mid September fed meeting. If market participants are worried the economy isn't strong enough to handle a rate hike then stocks could sink.

There are a few pockets of strength in the market. I do see opportunity for LEAPS traders. Yet I want to remind readers that August and September are normally tough on stocks with a history of disappointing performances.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was a volatile week for stocks. Yet by Friday's closing bell the major indices were almost unchanged for the week. The same holds true for most of our active candidates.

Our plan was to exit half of our Nike (NKE) call play on Monday, August 10th. Our exit on the 2016 Jan. $110 NKE call was $8.95 (+113.0%).

AMBA and DNKN were stopped out.

I have updated the stop loss on ADBE and GD.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Stocks Recover From A Surprise Yuan Devaluation

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(August 16, 2015)

The U.S. market still can't seem to make up its mind on which direction it wants to go.

The central bank of China surprised the global markets by devaluing the currency. This fueled fears of a currency war and definitely intensified worries over the health of the Chinese economy. Yet worries over China's currency moves didn't seem to last very long. Investors bought the dip on Wednesday. The S&P 500 remains stuck in the middle of its multi-month trading range.

I am not adding any new trades tonight. We need to be patient and make the market produce an entry point. August and September are typically weak for stock market gains. I suspect the major indices will just churn sideways until the September 17th FOMC meeting. Investors will wait to see if the Fed raises rates or delays the first rate hike in years.

That does not mean there are no opportunities. Tonight I've added two new candidates to the watch list: DHR and GT .

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself. In no particular order:

GIS, CAKE, SYK, LGF, FL, LEN, CRM, CHD, JBLU, MLM,



Play Updates

Virtually No Escape

by James Brown

Click here to email James Brown

Editor's Note:

Almost none of our active candidates were able to escape the market's volatility last week. Fortunately, like the major indices, most saw a sharp rebound on Wednesday afternoon and were essentially unchanged for the week by Friday.

AMBA graduated from our watch list to the active play list. Unfortunately shares didn't cooperate and quickly reversed lower.


Closed Plays


AMBA and DNKN hit our stop loss.



Play Updates


Adobe Systems - ADBE - close: 86.12

Comments:
08/16/15: Bullish analyst comments from multiple firms helped lift shares of ADBE last week. The stock displayed relative strength and broke out past resistance to close at new all-time highs. Tonight we will raise the stop loss to $79.00.

FYI: ADBE has earnings coming up on September 17th.

Trade Description: May 3, 2015:
ADBE is in the technology sector. According to the company's website, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe® Creative Cloud® software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

The company's most recent earnings report was March 17th. Results were $0.44 a share, which was five cents better than expected. Revenues were up +10.9% to $1.11 billion, also above expectations. The company continues to see success with their subscription model and added 517,000 new creative cloud subscriptions, a +28% improvement from a year ago.

Technically the stock is in a long-term up trend. Shares just spent the last few weeks consolidating sideways and looks ready for the next move higher. A rise past $78.00 would generate a new buy signal on the point & figure chart.

I am suggesting we wait for ADBE to close above $77.75 and then buy calls the next morning with a stop loss at $71.85. More conservative investors may want to wait for ADBE to close over short-term resistance at $80.00 as an alternative entry point for bullish positions.

- Suggested Positions -
MAY 15, 2015 - entry price on ADBE @ 80.00, option @ 4.60
symbol: ADBE160115C85 2016 JAN $85 call - current bid/ask $6.40/6.55

08/16/15 new stop @ 79.00
08/02/15 new stop @ 77.65
06/28/15 new stop @ 74.75
06/20/15 new stop @ 73.90
05/15/15 trade begins. ADBE opens at $80.00
05/14/15 triggered. ADBE closed @ $79.43, above our trigger of $77.75
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 79.00
Play Entered on: 05/15/15
Originally listed on the Watch List: 05/03/15


Activision Blizzard, Inc. - ATVI - close: 28.68

Comments:
08/16/15: ATVI spent last week consolidating sideways after big gains the prior week. Shares essentially closed flat, down 10 cents for the week.

If the market breaks down I would expect ATVI to fill the gap with a dip toward $26.00-26.50. If not, then ATVI could be setting up for a breakout past short-term resistance in the $29.20 area.

This is a long-term trade with the 2017 calls. We're going to keep our stop loss relatively wide.

No new positions at this time.

Trade Description: May 24, 2015:
Consumer spend more money on video games than they do at the movie theater. ATVI is the biggest with annual sales of $4.58 billion. Electronic Arts (EA) is hot on its heels with revenues of $4.52 billion a year.

ATVI is home to some of the biggest franchises in video game history. According to the company, "Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty , Call of Duty Online, Destiny , Skylanders, World of Warcraft , StarCraft , Diablo, and Hearthstone: Heroes of Warcraft. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world."

Investors have been pretty forgiving when it comes to ATVI's recent earnings reports. On February 5th they beat the bottom line estimate but missed the revenue number. Revenues were down -2.6% from a year ago. ATVI blamed currency headwinds for the revenue miss since half of their sales are outside the U.S. and represent a significant chunk of their profits. Plus, the video game business is prone to lumpy quarters as sales rise and fall on new releases and expansions. Management lowered their Q1 and 2015 guidance.

ATVI just reported its Q1 results on May 6th. Earnings per share fell -15.7% from a year ago to $0.16 but that was actually 9 cents better than expected. Revenues fell again, this time down -8.9%. Management lowered their Q2 guidance but they raised their fiscal 2015 earnings guidance above Wall Street estimates. That was enough to send shares of ATVI higher. A few analysts have commented that ATVI's 2015 guidance is too conservative.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, commented on his company's quarterly results, "...This deepening level of engagement with a widening base of players across our franchises is what drove another successful quarter. We delivered better-than-expected Q1 results, increased our 2015 non-GAAP revenue outlook to $4.425 billion and earnings per share outlook to $1.20. Last quarter, on a non-GAAP basis, we delivered record higher-margin digital revenues of over half a billion dollars a Q1 record on an absolute basis and an all-time high on a percentage basis."

There were a number of headlines about how ATVI's Warcraft MMORPG saw its subscriber numbers fall from 10 million to 7.1 million in the last quarter. Investors don't seem to care. The Warcraft game is a cash cow but it's 11 years old. Investors could be looking forward.

ATVI said their new Destiny sci-fi shooter game and the Blizzard's fantasy card game have more than 50 million registered players (between them) with over $1 billion in sales.

ATVI also has several new titles coming out. They're on the verge of releasing "Heroes of the Storm", which will take on the current category champion "League of Legends" for the MOBA-style video game. More than ten million people have already signed up for the Heroes beta. ATVI has announced the next iteration of their Call of Duty franchise (CoD), which will be "Call of Duty: Black Ops III", which is another major cash-generating franchise. ATVI is also launching a new game called "Overwatch" and they'll release a new version of "Guitar Hero", which had 40 million players at its peak.

Currently shares of ATVI are up three weeks in a row and look a little bit overbought. Broken resistance near $24.00 should be significant support. Tonight I am suggesting a buy-the-dip trigger at $24.25 with a stop loss at $21.85.

- Suggested Positions -
JUL 21, 2015 - entry price on ATVI @ 26.25, option @ 2.23
symbol: ATVI170120C30 2017 JAN $30 call - current bid/ask $3.10/3.25

08/09/15 new stop @ 24.90
08/04/15 ATVI beats estimates on both the top and bottom line and raises guidance.
07/21/15 Trade begins. ATVI opens at $26.25
07/20/15 ATVI closed @ $26.25, above our trigger of $26.15
07/12/15 new entry strategy: Wait for a close above $26.15, then buy calls
Use the 2017 Jan $30 call
06/28/15 adjust the entry trigger to $23.75 and the stop to $21.85.
06/21/15 move the stop loss to $22.85
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 24.90
Play Entered on: 07/21/15
Originally listed on the Watch List: 05/24/15


CVS Health - CVS - close: 107.67

Comments:
08/16/15: CVS delivered a lackluster performance. Shares are virtually flat for the week. On the plus side CVS is holding support in the $106.75 area. On the downside CVS has spent the last two weeks building a bearish trend of lower highs.

If CVS breaks below $106.50 the next stop is probably $105.00. Below that is our stop loss at $103.40.

I am not suggesting new positions at this time.

Trade Description: July 19, 2015:
Healthcare stocks have been strong performers this year. CVS is no exception with the stock up +14% year to date.

According to the company, "CVS Health is a pharmacy innovation company helping people on their path to better health. Through its 7,800 retail pharmacies, 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."

Their most recent earnings report was May 1st. CVS announced its Q1 results were $1.14 per share. That beat estimates by six cents. Revenues were up +11% to $36.33 billion, also above estimates. CVS did lower their Q2 guidance but left their 2015 forecast unchanged.

Wall Street loves a deal and CVS has been busy making deals. On May 21st the company announced they were buying Omnicare (OCR) for $12.7 billion. OCR is a pharmacy benefits provider to seniors citizens. This deal is expected to close by the end of 2015. CVS believes OCR will add 20 cents in earnings to their fiscal 2016. CVS CEO Larry Merlo commented on the deal, "The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel. It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients."

CVS didn't stop there. On June 15th they announced a deal to buy all of the pharmacies inside Target stores (TGT). Here's an excerpt from the company's press release explaining the Target pharmacy deal:

CVS Health to acquire Target's pharmacy and clinic businesses for approximately $1.9 billion. Through this agreement, CVS Health will acquire Target's more than 1,660 pharmacies across 47 states and operate them through a store-within-a-store format, branded as CVS/pharmacy. In addition, a CVS/pharmacy will be included in all new Target stores that offer pharmacy services. Target's nearly 80 clinic locations will be rebranded as MinuteClinic, and CVS Health will open up to 20 new clinics in Target stores within three years of the close of the transaction. The new clinics will be part of CVS/minuteclinic's plan to operate 1,500 clinics by 2017. In addition, CVS Health and Target plan to develop five to 10 small, flexible format stores over a two-year period following the deal close, which will each be branded as TargetExpress and include a CVS/pharmacy.
Wall Street also reacted positively to the Target pharmacy news.

Rival pharmacy operator WBA reported earnings on July 9th that beat estimates by 15 cents and WBA raised their guidance. That should bode well for CVS who reports earnings on August 4th.

Shares of CVS are trading at all-time highs near $110. We don't want to chase it here. Tonight I am listing a buy-the-dip entry trigger to jump in on a pullback. Prior to the July rally the June high was $106.88. I'm suggesting a buy-the-dip trigger at $107.00.

- Suggested Positions -
AUG 04, 2015 - entry price on CVS @ 107.00, option @ 2.45
symbol: CVS160115C115) 2016 JAN $115 call - current bid/ask $2.12/2.24

08/04/15 CVS hit our buy-the-dip trigger at $107.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 103.40
Play Entered on: 08/04/15
Originally listed on the Watch List: 07/19/15


Facebook, Inc. - FB - close: 94.42

Comments:
08/16/15: FB was not immune to the market's volatility. Shares dipped to a new four-week low before bouncing near $91 on Wednesday. FB seems to be struggling with short-term resistance near $95.00 and closed relatively unchanged for the week.

No new positions at this time.

Earlier Comments: March 22, 2015:
Facebook probably needs no introduction. It's the largest social media platform on the planet. As of December 31st, 2014 the company reported 1.19 billion monthly active users and 890 million daily active users. If FB were a country that probably puts them as the third most populous country on the planet (behind India and China).

This past week the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

The announcement combined with a broad market rally helped fuel a +7% gain in FB's stock last week. FB's market cap has risen past $230 billion making it the tenth largest company in the S&P 500.

Growth has been phenomenal. According to IBD, FB's Q4 earnings were up +69% form a year ago. Revenues were up +49%. Wall Street is expecting FB's profit to rise +12% in 2015 and +32% in 2016.

Technically shares of FB have broken out from a very significant consolidation pattern. The point & figure chart is bullish and forecasting at $96.00 target. I think it will go higher. After a five-day run we do not want to chase it here. I'm suggesting a buy-the-dip entry trigger at $82.00 with a stop loss at $74.75.

- Suggested Positions -
APR 01, 2015 - entry price on FB @ 81.00, option @ 4.92
symbol: FB160115C90 2016 JAN $90 call - current bid/ask $10.00/10.15

07/26/15 new stop @ 88.85
07/20/15 Planned exit to sell half. FB opened @ $95.85.
Our 2016 call option opened at $11.01 (+123.7%)
07/19/15 plan on exiting half of our FB call option on Monday (July 20th) to lock in potential gains.
07/19/15 new stop @ 87.45
06/28/15 new stop @ 78.45
04/23/15 Q1 earnings report
04/01/15 triggered @ 81.00
03/29/15 move the buy-the-dip trigger from $82.00 down to $81.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 88.85
Play Entered on: 04/01/15
Originally listed on the Watch List: 03/22/15


General Dynamics - GD - close: 151.61

Comments:
08/16/15: Traders bought the dip in GD near short-term support in the $147.65 area. The stock rebounded to close up for the week and near all-time highs.

Tonight we are raising the stop loss to $144.75.

No new positions at this time.

Trade Description: July 12, 2015:
The last time we had GD in the newsletter was back in November 2014. Shares have spent the last seven months building a massive consolidation in the $130-146 range. The stock could be poised for a major breakout higher.

GD is considered part of the industrial goods sector. The company is a huge aerospace and defense company. They have four significant segments: aerospace, combat systems, information systems, and marine systems (ships and submarines). The defense industry in the U.S. has been saddled with significant budget cuts due to the 2011 sequestration deal that will shave $500 billion from U.S. defense spending from 2012 through 2021. The industry has managed to thrive in spite of these budget cuts.

GD has beaten Wall Street's earnings estimates seven quarters in a row. They're also beating analysts revenue estimates as well. Margins have been steadily improving.

The world isn't getting any safer and the major defense contractors have been working on boosting their overseas sales just in case the U.S. decides to cut defense spending again. Considering the current state of world affairs with a growing military rival in China, a new cold war brewing with Russia, and an openly hostile ISIS, defense spending should stay healthy.

I mentioned earlier that GD had consolidated sideways for the last seven months. Today it's on the verge of a bullish breakout higher. The point & figure chart is already bullish and forecasting at $175.00 target.

Friday's intraday high was $146.98. I am suggesting we wait for GD to close above $147.00 and then buy calls the next morning with a stop loss at $141.75.

- Suggested Positions -
JUL 16, 2015 - entry price on GD @ 148.00, option @ 2.85
symbol: GD160115C160 2016 JAN $160 call - current bid/ask $3.20/3.50

08/16/15 new stop @ 144.75
07/16/15 trade begins. GD opens at $148.00
07/15/15 Triggered. GD closed at $147.25, above our $147.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 144.75
Play Entered on: 07/16/15
Originally listed on the Watch List: 07/12/15



Henry Schein, Inc. - HSIC - close: 145.10

Comments:
08/16/15: We had a close call with our HSIC trade. The market's big drop on Wednesday morning pushed HSIC down to $142.23. Fortunately shares bounced near short-term support at their July lows around $142.00 and its 150-dma. Unfortunately HSIC still has a three-week trend of lower highs.

No new positions at this time.

Trade Description: July 12, 2015:
HSIC has been relatively resistant to the market's ups and downs lately. That's a good thing considering some of the recent volatility in stocks.

HSIC is in the services sector. They're part of the medical equipment industry. According to the company, "Henry Schein, Inc. is the world's largest provider of health care products and services to office-based dental, animal health and medical practitioners. The Company also serves dental laboratories, government and institutional health care clinics, and other alternate care sites. A FORTUNE 500 Company and a member of the S&P 500 and NASDAQ 100 Indices, Henry Schein employs more than 18,000 Team Schein Members and serves more than one million customers.

The Company offers a comprehensive selection of products and services, including value-added solutions for operating efficient practices and delivering high-quality care. Henry Schein operates through a centralized and automated distribution network, with a selection of more than 100,000 branded products and Henry Schein private-brand products in stock, as well as more than 150,000 additional products available as special-order items. The Company also offers its customers exclusive, innovative technology solutions, including practice management software and e-commerce solutions, as well as a broad range of financial services.

Headquartered in Melville, N.Y., Henry Schein has operations or affiliates in 30 countries. The Company's sales reached a record $10.4 billion in 2014, and have grown at a compound annual rate of approximately 16 percent since Henry Schein became a public company in 1995.

HSIC has managed to beat Wall Street estimates the last couple of quarters. Revenue growth has been negatively impacted by foreign currency headwinds but they're still seeing growth. Analysts are only forecasting +3.3% revenue growth in 2015 but they expect that to almost double in 2016 to +6.4%.

Technically the stock looks bullish with a breakout from a major consolidation pattern back in June. The point & figure chart shows a quadruple top breakout buy signal with a $195.00 target.

Shares of HSIC have been churning sideways in the $142-146 range the last couple of weeks. If it can breakout we want to be ready. Tonight I am suggesting a trigger to buy calls if HSIC can close above $146.50.

- Suggested Positions -
JUL 14, 2015 - entry price on HSIC @ 147.00, option @ 3.90
symbol: HSIC160115C155 2016 JAN $155 call - current bid/ask $2.70/3.30

08/02/15 new stop @ 141.75
07/14/15 trade begins. HSIC opens at $147.00
07/13/15 HSIC closed @ $146.53, above our trigger of $146.50
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 141.75
Play Entered on: 07/14/15
Originally listed on the Watch List: 07/12/15


iShares US Home Construction ETF - ITB - close: 28.71

Comments:
08/16/15: Our ITB trade is looking a lot healthier thanks to another big bounce this week. Shares of this ETF have actually closed at new multi-year highs. Unfortunately, if recent history is any guide, after big gains the ITB will immediately reverse lower. Let's hope this week is an exception. We'll get the NAHB housing index on Monday, which is a sentiment survey among homebuilders. The results could influence trading in the ITB.

The relative strength looks great but I would hesitate to launch positions because the ITB has trouble posting two up weeks in a row lately.

No new positions at this time.

Earlier Comments: January 11, 2015:
The ITB is an exchange traded fund that mimics the Dow Jones U.S. Select Home Construction Index. The top 12 holdings are DHI, LEN, PHM, TOL, NVR, HD, TPH, LOW, RYL, SHW, KBH and MTH.

This index has been stuck in a trading range for years. That looks like it's about to change. Have you looked at a chart of the 10-year bond yield lately? Bond yields are going lower. That's going to pressure mortgage rates lower and that's bullish for home sales. This past week saw 30-year mortgage rates dip below 3.6%. That's a 19-month low.

If that wasn't enough of a tailwind President Obama wants to help. On January 7th the White House announced plans to reduce the government mortgage insurance premiums in an effort to boost home ownership. Another positive for the homebuilders is the U.S. Federal Reserve. We just had two fed governors come out last week saying they think the Fed should hold off on raising rates. The longer the Fed waits to start raising rates the better it will be for homebuilders.

Currently the ITB appears to be breaking out past major resistance and closed at multi-year highs. I'd like to see a little bit more follow through. Tonight I'm suggesting we wait for the ITB to close above $27.00 and then buy calls the next morning with a stop loss at $23.95.

- Suggested Positions -
FEB 11, 2015 - entry price on ITB @ 27.09, option @ 1.70
symbol: ITB160115C30 2016 JAN $30 call - current bid/ask $0.80/1.05

08/02/15 new stop @ 26.75
07/12/15 new stop @ 25.90
06/28/15 last week new home sales surged to their best levels since early 2008
06/15/15 the NAHB confidence survey hits 9-month highs
05/31/15 the ITB is not performing well. Investors may want to consider an early exit.
03/01/15 new stop @ $25.45
02/11/15 trade begins. ITB opens at $27.09
02/10/15 ITB closes at $27.10, above our trigger at $27.00
Option Format: symbol-year-month-day-call-strike

Current Target: ITB @ TBD
Current Stop loss: 26.75
Play Entered on: 02/11/15
Originally listed on the Watch List: 01/11/15


MasterCard Inc. - MA - close: 97.89

Comments:
08/16/15: So far so good. MA managed a gain for the week after traders bought the dip on Wednesday at its rising 50-dma. On Friday JPMorgan raised their price target on MA from $97 to $111.

Shares of MA look poised to challenge resistance in the $99.00 area soon and could hit new all-time highs.

I am not suggesting new positions at this time.

Trade Description: May 3, 2015:
We are adding MA back to the watch list. Here's our recent watch list play description from April:

Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.

Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone."

MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.

The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.

Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.

Recently MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.

"Despite a mixed global economy, we delivered solid results for the quarter and for the full year in 2014," said Ajay Banga, president and CEO, MasterCard. "This year is off to a good start with several new wins, as well as renewals of some important customer agreements, with more in the pipeline. Looking ahead, we will continue to be at the forefront of our industry by driving payment innovation with solutions such as MasterPass, and by increasing electronic payments usage globally as demonstrated by our significant expanded acceptance footprint across Africa."

Shares of MA look like a potential trade again. The company recently reported earnings on April 29th. The beat estimates on the bottom line with a profit of $0.89 per share. Revenues were only up +2.7% to $2.23 billion, which was below expectations. Part of the challenge were currency headwinds.

Wall Street seems to think that MA will do well in spite of the tough business environment. The spike higher on April 22nd was news that the country of China was going to open up their market to foreign companies. Previously companies like MA and Visa could only do business in China by partnering with a domestic firm (China UnionPay). Now the Chinese government is opening up the bank card-clearing market to foreigners. This is huge. The Chinese market for this business was $6.8 trillion in transactions last year. Now MA gets a chance to compete for its share of this business.

Shares of MA still have resistance near $93.00. We want to see MA close above $93.25 and then buy calls the next morning with a stop loss at $88.00.

- Suggested Positions -
MAY 11, 2015 - entry price on MA @ 93.48, option @ 5.95
symbol: MA160115C95 2016 JAN $95 call - current bid/ask $6.70/6.80

08/09/15 new stop @ 91.75
07/10/15 EU files charges against MA regarding excessive fees
06/21/15 new stop @ 89.75
05/11/15 trade begins. MA opens at $93.48
05/08/15 triggered with a close @ $93.51 (above $93.25)
Option Format: symbol-year-month-day-call-strike

Current Target: MA @ TBD
Current Stop loss: 91.75
Play Entered on: 05/11/15
Originally listed on the Watch List: 05/03/15


Microsoft Corp. - MSFT - close: 47.00

Comments:
08/16/15: Investors were also in a buy-the-dip mood with MSFT. Shares rebounded off its six-week trend of lower highs (also near its 50-dma at the time). The stock was showing a tad bit more strength on Friday with a +0.5% gain. It didn't hurt that during the week MSFT received another "buy" upgrade and a new $55.00 price target.

At this time I would wait for another close above $47.50 before considering new bullish positions.

Trade Description: August 2, 2015:
Microsoft is a technology titan. They were founded in 1975. Today they have grown into a behemoth in multiple industries.

A few of MSFT's businesses include: computer operating system software, Microsoft Office, Windows Phone operating system, Xbox gaming business, Xbox live subscriptions, Commercial software business includes Windows Server, Microsoft SQL server, Visual Studio, and more. They also own Skype. The company has jumped headfirst into cloud computing

This focus on cloud has changed the way MSFT now describes itself. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company has been getting a lot of press lately for its Windows 10 launch. The software went live on July 29th. MSFT is offering it for free to consumers who have Windows 7 or 8. In the first 24 hours over 14 million copies were downloaded. Reviews of the new operating system have been positive, many claiming it is a major upgrade from Windows 8.

Barron's recently published a bullish article on MSFT. The author suggested that MSFT is moving toward a subscription model. Adobe Systems (ADBE) has seen huge success moving from an upfront license fee for their software to a monthly subscription model. MSFT appears to be moving more and more toward this model. Although as I mentioned earlier you can download an upgrade to Windows 10 for free (currently available in 190 countries). The Barron's article also suggested that MSFT is cheap with a 2.7% dividend yield and trading at 16x trailing free cash flow vs. the S&P 500 average of 20x free cash flow.

MSFT's most recent earnings report was July 21st. It was the company's fiscal Q4 report. Earnings of $0.62 per share beat estimates of $0.57. Revenues were down -5% to $22.18 billion, but that was still above estimates. Currency headwinds were a big negative last quarter. Highlight was its commercial cloud computing revenues, which surged +88% (almost 100% if you account for currency headwinds).

MSFT management guided lower, which would normally be the kiss of death for the stock price. However, the reaction to their lowered guidance was minor. Shares of MSFT a couple of points and found support. That's in spite of a rough week for the market two weeks ago. Now investors are buying the dip and shares appear to have produced a tradable bottom. The point & figure chart is still bullish and forecasting at $67.00 target.

Tonight I am suggesting we buy calls on MSFT if the stock can close in the $47.50-48.50 range. Wait for the stock to close in this window and then buy calls the next morning. This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for MSFT to close in the $47.50-48.50 range
Then buy calls the next morning with a stop loss at $43.75.

BUY the 2017 Jan $50 call (MSFT170120C50) current ask $3.10

- Suggested Positions -
AUG 05, 2015 - entry price on MSFT @ 47.98, option @ 4.00
symbol:MSFT170120C50 2017 JAN $50 call - current bid/ask $3.20/3.35

08/05/15 trade begins. MSFT opens at $47.98
08/04/15 MSFT closed at $47.54, inside our $47.50-48.50 entry range
Option Format: symbol-year-month-day-call-strike

Current Target: MSFT @ TBD
Current Stop loss: 43.75
Play Entered on: 08/05/15
Originally listed on the Watch List: 08/02/15


Nike, Inc. - NKE - close: 114.36

Comments:
08/16/15: Last week I was worried that NKE could see some profit taking. The plan was to exit half of our call position on Monday morning, August 10th, to lock in a potential gain. The stock opened higher at $115.39. I'm glad we were able to take some money off the table because NKE proved to be volatile with a plunge to $110.65 during Wednesday's market weakness.

I am not suggesting new positions at this time.

Earlier Comments: March 29, 2015:
In Greek mythology Nike is the winged goddess of victory. It's an appropriate brand name for the American athletic wear giant. Nike is the 800-pound gorilla in the industry with annual sales of more than $30 billion.

If you're not familiar with 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."

The company's most recent earnings report was March 19th, after the closing bell. NKE reported its Q3 2015 results. Analysts were expecting a profit of $0.84 a share on revenues of $7.62 billion. NKE delivered a profit of +0.89 a share or +16% from a year ago. Revenues were up +7% to $7.46 billion. However, if you back out the currency headwinds, their revenues were up +13%.

The company reported sales growth across every geographical region. Their gross margins improved 140 basis points to 45.9 percent. Management said their online sales are soaring. Nike.com saw its revenues jump +42% last quarter.

The current quarter is NKE's 2015 Q4 (March-July) and the company said orders for Q4 in North America are up +15%, which is above analysts' estimates of +11.6%. Orders from China are up +11%, also above estimates. In the company's earnings release NKE said, "As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent."

One big concern is the U.S. dollar. Sales in Europe were up +21% but when you factor in euro weakness and dollar strength that sales growth drops to +10%. The strength in the U.S. dollar is a major headwind but after NKE's Q3 results Wall Street feels that the company is managing the currency impact very well. The company is forecasting low double digit sales growth in the current quarter.

Wall Street applauded the results and shares of NKE gapped open higher on March 20th to hit all-time highs. There was a parade of bullish analyst comments. Several firms raised their price target on NKE. Here's a brief list of new price target: $106, $110, $115, $116.00. The point & figure chart is more optimistic as it is forecasting at $125.00 target.

Shares of NKE have seen some profit taking, which isn't a surprise considering the market's recent decline. However, now that NKE has filled the gap, traders jumped in to buy the dip. The stock looks poised to breakout past round-number resistance at $100.00 (again). Tonight I am suggesting investors wait for NIKE to close above $101.00 and then buy calls the next morning with a stop loss at $94.45.

- Suggested Positions -
MAY 11, 2015 - entry price on NKE @ 102.42, option @ 4.20
symbol: NKE160115C110 2016 JAN $110 call - current bid/ask $8.60/8.80

08/10/15 Planned exit to sell half. NKE opened @ $115.39
Sold half: 2016 Jan $110 call (bid) $8.95 (+113.0%)
08/09/15 new stop @ 109.40, Exit HALF of our position on Monday, Aug. 10th to lock in a potential gain
07/19/15 new stop @ 107.75
07/12/15 new stop @ 104.25
07/05/15 new stop @ 103.25
06/28/15 new stop @ 102.25
06/25/15 NKE beats earnings and revenue estimates
06/21/15 new stop @ 99.50
06/07/15 new stop @ 97.85
05/31/15 NKE down last week on rumors it might be involved in the FIFA scandal
05/11/15 trade begins. NKE opens at $102.42
05/08/15 Triggered with a close @ $102.44 (above 102.00)
05/03/15 move the stop loss from 95.75 to 97.45
04/12/15 Strategy update: adjust the trigger to a close above $102.00 and the stop loss to $95.75 (from a close above $101.00 and a stop at $94.45)
Option Format: symbol-year-month-day-call-strike

Current Target: NKE @ TBD
Current Stop loss: 109.40
Play Entered on: 05/11/15
Originally listed on the Watch List: 03/29/15


Starbucks Corp. - SBUX - close: 57.10

Comments:
08/16/15: SBUX has experienced some profit taking in the last couple of weeks. Shares fell from $59.30ish down to $54.95 during the market's spike lower on Wednesday. That's a -7.3% pullback. Fortunately traders bought the dip at SBUX's rising 50-dma.

More conservative traders may want to bump their stop closer to Wednesday's low just in case the stock rolls over again.

I am not suggesting new positions at this time.

Trade Description: April 26, 2015:
SBUX shares are soaring to new all-time highs.

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +26%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pops. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

That whole scenario just happened again on Friday with the company delivering exceptional growth. SBUX reported its Q2 (2015) on April 23rd. Earnings of $0.33 a share were in-line with estimates. Revenues were up +17.8% to $4.56 billion, slightly above expectations. It was their strongest growth in four years. Customers are responding well to new drink options and an updated food menu. They're also developing new delivery options, mobile pay options, and alcoholic drinks available at select locations.

Worldwide same-store sales grew +7%. This was significantly above estimates. It also marked the 21st consecutive quarter where SBUX's comparable store sales were +5% or more.

The company issued mixed guidance. The stronger dollar is having an impact. They see fiscal 2015 results in the $1.55-1.57 range. That compares to Wall Street estimates for $1.57 per share. However, the company's revenue estimates are more optimistic. They're forecasting +16-18% sales growth into the $19.1-19.4 billion zone compares to analysts' estimates of $19.1 billion.

The stock market applauded SBUX's results and shares popped to new highs. We do not want to chase it. Shares will likely fill the gap from Friday morning. Tonight I am suggesting a buy-the-dip trigger at $50.00. More nimble traders may want to consider a trigger closer to $49.70 instead.

- Suggested Positions -
APR 28, 2015 - entry price on SBUX @ 50.00, option @ 1.59
symbol:SBUX160115C55 2016 JAN $55 call - current bid/ask $4.45/4.55

08/02/15 new stop @ 53.75
07/26/15 new stop at $53.25
Investors may want to exit now and lock in potential gains
07/23/15 SBUX reports earnings above estimates.
07/19/15 new stop @ 51.85
06/29/15 Sold half, SBUX gapped down. Option exit $2.67 (+67.9%)
06/28/15 Sell half of our call position on Monday, June 29, to lock in a potential gain
06/21/15 new stop @ 49.65
06/07/15 new stop @ 49.25
05/31/15 new stop @ 48.25
04/28/15 triggered @ 50.00
Option Format: symbol-year-month-day-call-strike

Current Target: SBUX @ TBD
Current Stop loss: 53.75
Play Entered on: 04/28/15
Originally listed on the Watch List: 04/26/15


Under Armour, Inc. - UA - close: 100.25

Comments:
08/16/15: Shares of UA have been relatively resilient. The stock has found support in the $96.00 area two weeks in a row. The rebound from Wednesday's low has pushed UA back above the $100 level. The stock is less than two points away from an all-time high.

While I am optimistic on UA I am still cautious on the broader market. More conservative traders might want to adjust their stop closer to Wednesday's low of $95.85.

No new positions at this time.

Trade Description: June 14, 2015:
UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitness platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it's actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA reported their 2014 Q4 results on February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

There was a steady stream of analysts raising their price targets on UA after its February earnings report. The company's most recent earnings report was April 21st when UA announced Q1 results. After raising guidance back in February the company reported earnings of $0.05 per share, which was in-line with Wall Street's new estimates. Revenues were up +25.4% to $804.9 million, which beat expectations.

UA management raised their outlook again. They expect 2015 operating income to improve +13-to-15%. UA expects 2015 revenues to rise +23% to $3.78 billion. The stock has rallied sharply into its earnings report and shares suffered some post-earnings depression with a -$12.00 drop (-13.6%) in the next two weeks. The price target upgrades continued but UA spent most of May consolidating sideways inside a narrow range. Finally on June 5th shares of UA broke out past multiple layers of resistance on another upgrade. The stock was upgraded to a "buy" with a $91 price target. Since then UA has been digesting its gains in a sideways consolidation between what should be support at $80 and short-term resistance near $82.00.

Tonight I am suggesting we wait for UA to close above $82.25 and then buy calls the next morning with a stop loss at $75.90.

FYI: I am listing the 2016 calls but investors may want to consider the 2017 January calls if you're willing to pay for the time premium.

- Suggested Positions -
JUN 17, 2015 - entry price on UA @ 83.06, option @ 4.50
symbol: UA160115C90 2016 JAN $90 call - current bid/ask $13.90/14.50

08/09/15 new stop @ 93.25
07/27/15 Sold half @ the open. Option exit $10.50 (+133.3%)
07/26/15 new stop @ 89.00, EXIT half or our UA calls on Monday, July 27th, to lock in a potential gain
07/19/15 new stop @ 82.40
07/12/15 new stop @ 79.75
06/28/15 new stop @ 78.90
06/17/15 trade begins: UA opens at $83.06
06/16/15 Triggered: UA closed at $82.78, above our trigger at $82.25
Option Format: symbol-year-month-day-call-strike

Current Target: UA @ TBD
Current Stop loss: 93.25
Play Entered on: 06/17/15
Originally listed on the Watch List: 06/14/15




CLOSED Plays


Ambarella, Inc. - AMBA - close: 108.62

Comments:
08/16/15: Last weekend we added AMBA to the watch list. I listed it as an aggressive, higher-risk trade because shares can be volatile. Well that didn't work out for us given the market's volatility last week.

AMBA did rally as expected and we were triggered on August 10th with a close above $118.00. The traded opened on Tuesday. Then the market's big drop on Wednesday morning saw shares of AMBA slice through support near $110 and its 50-dma. Our stop was hit at $109.00. AMBA has not recovered since then.

- Suggested Positions -
AUG 11, 2015 - entry price on AMBA @ 117.27, option @ 12.70
symbol: AMBA160115C130 2016 JAN $130 call - exit $8.80 (-30.7%)

08/12/15 Stopped out. AMBA hits our stop at $109.00
08/11/15 Trade begins. AMBA @ 117.27
08/10/15 triggered with a close above $118.00, AMBA @ $118.21
-This is an aggressive, higher-risk trade-
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 109.00
Play Entered on: 08/10/15
Originally listed on the Watch List: 08/09/15


Dunkin' Brands Group - DNKN - close: 52.43

Comments:
08/16/15: The correction in DNKN continued last week with shares falling past their June lows. The stock dipped toward $51.00. Our stop loss was hit at $51.85 on August 11th.

- Suggested Positions -
JUN 24, 2015 - entry price on DNKN @ 54.83, option @ 1.60
symbol: DNKN160115C60 2016 JAN $60 call - exit $0.50 (-68.7%)

08/11/15 stopped out
07/19/15 new stop @ 51.85
06/24/15 Trade begins. DNKN opens at $54.83
06/23/15 DNKN closed at $54.96, above our trigger of $54.35
06/21/15 adjust entry trigger to a close above $54.35
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 51.85
Play Entered on: 06/24/15
Originally listed on the Watch List: 05/31/15



Watch

Industrials & Consumer Goods

by James Brown

Click here to email James Brown


New Watch List Entries

DHR - Danaher Corp.

GT - Goodyear Tire & Rubber Co.


Active Watch List Candidates

CELG - Celgene Corp.

STZ - Constellation Brands Inc.

V - Visa Inc.


Dropped Watch List Entries

AMBA graduated to our play list.



New Watch List Candidates:

Danaher Corp. - DHR - close: 90.92

Company Info

DHR is outperforming most of its peers in the industrial sector with a +6% gain in 2015. The stock is only a couple of points away from a new all-time high. The company is undergoing significant changes that should propel the stock higher over the next 12 months.

Officially DHR is in the industrial goods sector but that will eventually change. According to the company, "Danaher is a global science and technology innovator committed to helping its customers solve complex challenges and improving quality of life around the world. Its family of world class brands have leadership positions in some of the most demanding and attractive industries, including health care, environmental and industrial. The Company's globally diverse team of 71,000 associates is united by a common culture and operating system, the Danaher Business System. In 2014, Danaher generated $19.9 billion in revenue and its market capitalization exceeded $60 billion."

That's the company today. By the end of 2016 the company is splitting itself in two. First we have to discuss DHR's acquisition of Pall Corp. (PLL). On May 13th DHR announced they were acquiring PLL for $13.6 billion in cash. The company claims this will save $300 million in synergies over the next five years. DHR is also buying a company with very strong margins (above 50%). Critics claim that DHR is paying too much for PLL but Wall Street seems mostly pleased with the news and some analysts are calling it a "transformational" deal.

Speaking of transformations, at the same time DHR announced they were splitting in two. The new Danaher will be a "A science and technology growth company united by common business model characteristics, including significant recurring revenue and an attractive margin profile. The company will retain the Danaher name. Collectively, its businesses generated approximately $16.5 billion in revenues (including Pall Corporation, which Danaher has signed an agreement to acquire), in their most recently completed fiscal years."

The spin-off company will be called "NewCo". This will be a "diversified industrial growth company with market leading positions, strong brand names and tremendous free cash flow generation. NewCo's businesses generated approximately $6.0 billion in revenues in the most recently completed fiscal year."

You can read more details about the spin-off here on the DHR website.

Wall Street loves M&A and they love spin-offs. Any plan that might unlock shareholder value is normally applauded. Shares of DHR could see a run up into the event, which should happen by the end of 2016.

Technically the stock has been showing relative strength and holding up well considering the market's recent volatility. Tonight I am suggesting a buy-the-dip trigger to buy the 2017 calls if DHR trades down to $88.50. We'll start this play with a stop loss at $84.50. This is a long-term trade but we'll plan on exiting the calls before DHR actually splits into two companies. I am not setting a target tonight but I noticed the point & figure chart is forecasting a $121.00 target.

FYI: If DHR does not correct any deeper than investors might want to consider buying calls on a breakout past $93.00 as an alternative entry.

Buy-the-dip trigger at $88.50, start with a stop at $84.50

BUY the 2017 Jan $100 call (DHR170120C100) current ask $6.20

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

Chart of DHR:

Originally listed on the Watch List: 08/16/15


The Goodyear Tire & Rubber Company - GT - close: 32.31

Company Info

GT has been rolling higher this year. The stock is up +13% year to date versus an S&P 500 that's only up about +1.6%. Shares are on the verge of breaking out to new multi-year highs.

If you're not familiar with GT they are in the consumer goods sector. According to the company, "Goodyear is one of the world's largest tire companies. It employs about 67,000 people and manufactures its products in 50 facilities in 22 countries around the world. Its two Innovation Centers in Akron, Ohio and Colmar-Berg, Luxembourg strive to develop state-of-the-art products and services that set the technology and performance standard for the industry."

The company has been delivering on the earnings front and has beaten Wall Street's bottom line earnings estimates five quarters in a row. Their most recent report was July 29th when GT announced their Q2 results. Earnings were $0.84 per share, which beat estimates by seven cents. Revenues were down -10% from a year ago to $4.17 billion but that actually came in better than expected. The drop in revenue is virtually all due to unfavorable currency headwinds.

With the exception of currency issues, GT seems to have a lot of tailwinds. Management said they had an exceptional quarter with their North American business, which saw a +54% surge in income. During the conference call GT management said they are seeing multiple factors that are bullish for their business. First is the healthy automobile sector. U.S. auto makers are on track to sell more than 17 million vehicles this year. At the same time American consumers seem to be driving more with more miles driven in the last several reporting periods. That's thanks to generally low unemployment. More miles driven means more wear and tear on tires, which will need to be replaced sooner. Plus, GT is benefitting from lower commodity costs, which boosts their margins.

Investors seem to have caught on. GT may not be in the fast lane but they're definitely cruising. Traders took advantage of the June-July correction. Shares of GT just produced a bullish double bottom near support in the last two months. Now the stock is on the verge of breaking out past its May-June highs. The point & figure chart is bullish and forecasting a long-term target at $48.00.

Tonight we are suggesting investors wait for GT to close above $33.00 and then buy calls the next day with a stop loss at $29.45.

Breakout trigger: Wait for a close above $33.00, then buy calls the next morning with a stop loss at $29.45

BUY the 2017 Jan $35 call (GT170120C35) current ask $4.00

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

Chart of GT:

Originally listed on the Watch List: 08/16/15


Active Watch List Candidates:



Celgene Corp. - CELG - close: 129.24

Comments:
08/16/15: Biotech stocks underperformed last week. The group is down three of the last four weeks. CELG performed better than its peers by managing a minor gain for the week. I am not giving up on buy-the-dip strategy for CELG so we will wait. Our suggested entry point is a dip at $121.00.

Trade Description: August 9, 2015:
Love them or hate them the biotech stocks get a lot of attention. Investors are always looking for the next big thing. When the right biotech story comes along these stocks can sprint higher. Unfortunately a lot of the smaller biotech stocks are binary trades. You either win big or lose big. There is no middle ground. Instead of rolling the dice on a smaller biotech you could choose an established company with real revenues like CELG.

According to their press release, "Celgene Corporation, headquartered in Summit, New Jersey, is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of novel therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation."

What makes CELG so attractive is the company's pipeline. Developing drugs is an expensive business. A lot of older firms are buying other companies for their pipeline. Meanwhile CELG is developing a very strong pipeline. You can view the company's current progress on this webpage.

Earnings results have generally been strong although there was a hiccup earlier this year. Looking at CELG's recent earnings history they beat estimates on both the top and bottom line last October and management guided higher. Then in January 2015 CELG issued a positive earnings warning and guided higher two weeks before their next report. When they did report in late January CELG still beat estimates on the bottom line.

On April 30th CELG beat estimates again but their revenue number came in below estimates. That's because analysts were expecting revenues to be better than the +20% growth CELG reported with sales of $2.08 billion. Management also guided lower and the stock plunged toward technical support at its 200-dma. That proved to be a buying opportunity as CELG rallied off its moving average a few days later.

In mid July CELG issued another positive earnings surprise two weeks before its scheduled announcement. The stock soared (gapped higher) on this news. When they reported their Q2 results on July 23rd CELG still beat estimates by two cents. Revenues were up +21.6% to $2.28 billion.

According to Investors.com, CELG's long-term forecasts suggest sales and profits will grow at strong double-digit percentages through 2019. According to analyst firm Piper Jaffray, CELG is "positioned to be the next major mover among the large-cap biotech stocks." Out of seventeen analysts, the median price target on CELG is $155.00. Currently the highest estimate is $190. The point & figure chart is forecasting a long-term target of $201.00.

This past week traders were selling biotech stocks. CELG followed them lower and is now more than $10.00 off its closing high. I suspect this correction continues and we want to be ready to take advantage of the pullback.

Broken support near $120-121 should be support. Tonight we are suggesting an intraday, buy-the-dip trigger at $121.00. If triggered we will start with a stop loss at $114.75.

Buy-the-dip trigger at $121.00, start with a stop at $114.75

BUY the 2016 Jan $130 call (CELG160115C130)

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

Originally listed on the Watch List: 08/09/15


Constellation Brands Inc. - STZ - close: 128.01

Comments:
08/16/15: STZ displayed significant relative strength last week with a surge to new highs. Tonight I am adjusting our buy-the-dip trigger on STZ from $122.00 to $123.50.

Trade Description: August 9, 2015:
We recently had STZ on our watch list but the trade never opened. Shares were stuck in a trading range from $115 to $122. STZ has finally broken out and we are adding it back to the watch list.

Here's my previous play 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."

This past January STZ reported their fiscal year 2015 Q3 results that beat analysts' estimates on both the top and bottom line. Management raised their 2015 guidance. Their Q4 results were announced on April 9th. Earnings were up +37% from a year ago to $1.03 per share. That was 9 cents above estimates. Revenues were up +5% to $1.35 billion. Gross margins improved to 44%.

STZ said they're seeing strong demand for their Mexican beer brands Corona and Modelo. They're gaining market share in both the spirits and wine categories as well.

The company said 2015 sales were up +24% from the prior year to $6.03 billion. STZ's management guided in-line for fiscal 2016 and forecast earnings of $4.70 to $4.90 per share. That compares to 2015's profit of $4.17 per share (essentially +12% to +17.5% earnings growth).

STZ's most recent report was July 1st. Wall Street was looking for a profit of $1.24 per share on revenues of $1.62 billion. STZ beat estimates with a profit of $1.26 per share. Sales were up +6.9% to $1.63 billion. If you account for currency headwinds their revenues were up +8%. Management raised their fiscal year 2016 earnings guidance from $4.70-4.90 to $4.80-5.00.

After languishing near the bottom half of its trading range for the majority of July shares of STZ finally resumed its long-term up trend. The stock has recently broken out past major resistance near $122.00. Tonight I am suggesting a buy-the-dip trigger at $122.00 since broken resistance should be new support.

Buy-the-dip trigger at $123.50, start with a stop loss at $117.75

BUY the 2017 Jan $130 call (STZ170120C130)

08/16/15 adjust the buy-the-dip trigger from $122.00 to $123.50
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 08/09/15


Visa Inc. - V - close: 74.22

Comments:
08/16/15: Shares of Visa closed virtually flat for the week after bouncing off its Wednesday lows. It's worth noting that the bounce has stalled at its 10-dma and two-week trend of lower highs. The correction may not be over yet. I was surprised Visa didn't see a bigger boost when JPMorgan upgraded their price target on V to $85.00.

Tonight we are leaving our entry strategy unchanged. Wait for a dip and buy calls at $70.50.

Trade Description: August 9, 2015:
The world is moving closer and closer to a cash-less society. Big payment processing companies like Visa and MasterCard will benefit from this transition.

According to the company, "Visa Inc. (NYSE:V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world's most advanced processing networks - VisaNet - that is capable of handling more than 56,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa's innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products."

It's important to note that V does not extend credit to consumers. There's no credit risk for bad loans here. V makes money on transactions. That business is booming.

On July 23rd V report its Q3 results, which were $0.74 per share. That beat estimates by 16 cents. Revenues were also higher than expected at $3.52 billion, up +11.5%. Management offered strong guidance and upped their EPS estimates into the mid teen percentage range. Long-term V is expected to grow earnings at almost 15%.

One of the big stories to come out of V's recent earnings report was news of a merger brewing. Visa is talking to former subsidiary Visa Europe. Estimates suggest the price target could be in the $15-20 billion range. Wall Street is positive on the deal and Visa expects it would add to earnings in fiscal 2017.

Another reason to be bullish on Visa is the fact that China recently opened its market to foreign companies to participate in clearing domestic bank card transactions. Previously only Chinese companies could do this. Now giants like V and MasterCard can compete in a market valued at more than $6.8 trillion. Considering V's expertise in this field we should expect them to grab a healthy chunk of the market.

Shares of V recently surged to new all-time highs and traded above $76 per share. After four up weeks in a row V posted a loss last week. Technically it produced a bearish engulfing candlestick reversal pattern on its weekly chart. If shares do correct lower we want to take advantage of the pullback. Broken support near $70.00 should be support. Tonight we are suggesting a buy-the-dip trigger at $70.50.

Buy-the-dip Trigger at $70.50, start with a stop at $66.25

BUY the 2017 Jan $80 call (V170120C80)

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

Originally listed on the Watch List: 08/09/15