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Newsletter

Daily Newsletter, Sunday, 8/23/2015

Table of Contents

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

Leaps Trader Commentary

Summertime Stock Shock

by James Brown

Click here to email James Brown

Concerns over a slow-down in China turned to fear and anxiety last week. The aftershocks of China's recent devaluation of the yuan has transformed into a tsunami of selling for equity markets. Last week's widespread sell-off culminated into a painful spike lower on Thursday and Friday. It was the worst one-week decline for the U.S. market since 2011. Nothing was spared with every sector posting declines. Money was rushing into the safety of bonds, which drove the yield on the 10-year U.S. bond down to 2.05%. The yield on a German 10-year bond is down to 0.56%.

There was a lot of talk about a market correction. Typically a correction is a -10% (or more) pullback from the highs. Let's look at the damage from last week.

Index/Sector Last Week From its Highs Year to Date
S&P 500 Index -5.77% -7.5% -4.27%
NASDAQ Composite -6.78% -9.8% -0.6%
NASDAQ-100 -7.36% -10.3% -0.92%
Russell 2000 -4.6% -10.7% -3.98%
Dow Jones Industrials -5.8% -10.1% -7.65%
 
Semiconductors (SOX) -8.3% -22.5% -15.76%
Dow Jones Transports -5.3% -14.5% -13.8%
KBW Banking Index -6.7% -9.2% -1.7%
Biotech Index (BTK) -6.5% -15.0% +9.5%

Regular readers know I don't really follow the Dow Jones Industrial Average ($INDU) since it is only 30 stocks. However, on Friday, CNBC noted that the $INDU closed at its absolute low of the day two days in a row, which is the first time that has ever happened. It's also in correction territory (-10%) for the first time since 2011. The last time the $INDU fell more than -500 points was August 2011.

Volatility Index (VIX)

Another market record was made with the volatility index (a.k.a. the VIX). The VIX is also known as the fear gauge. When investors panic they buy more put options and that drives the VIX higher. Friday's market collapse produced a +46% surge in the VIX to 28.0. The VIX is up more than +100% in the month of August. According to CNBC the VIX has never doubled within a one-month time span before.

A long-time market maxim goes like this, "When the VIX is low it's time to go. When the VIX is high it's time to buy." Essentially when the VIX is low it represents investor complacency and warns of a potential top. When the VIX is high, which means above 20, it is supposed to signal a short-term market bottom and thus a potential entry point to buy. Unfortunately the whole VIX is low thing has not worked in years. We've seen it hover in the 10 to 12 range for months and months and is generally worthless. The only use seems to be the "VIX is high" part of the mantra. Often, but not always, when the VIX spikes to extremes it can signal the market is near a short-term bottom - emphasis on "near" a bottom and not necessarily "the" bottom.

Chart of the Volatility Index (VIX)

Worries about China have been pushing the commodity space lower for months. Combine that with a dollar that is up for the year and it's a one-two punch that has pushed the CRB commodity index to multi-year lows. Last week the CRB plunged -5.5% and closed at 13-year lows on Friday.

Chart of the CRB Index (CRB)

One commodity in particular has been a real anchor for the commodity index and that is crude oil. Two weeks ago we saw crude oil fall -3.8%. This past week oil dropped another -4.39%. Oil is now down -25% for the year and down about -60% from its 2014 highs. These are lows not seen since early 2009 during the worst of the bear market. WTI oil briefly traded below $40.00 a barrel on Friday and settled just above $40.00. As of Sunday night oil futures were trading near $39.80 a barrel. Last week's drop was the eighth weekly loss in a row - the longest losing streak since 1986.

This oil weakness is killing energy stocks. The oil index fell -8.7% last week and is down -18% year to date. The oil service stocks plunged -7.7% last week and they are down -22% for the year. Eventually oil is going to bounce but it will likely be a bear-market bounce. That means a very sharp, rip-your-face-off kind of rally that quickly fails.

Market Internals & Currency Declines

There is no way to sugar coat it. Last week was ugly. You might call it a perfect storm. That's what Andrew Frankel, co-president of Stuart Frankel & Co thinks. In a recent Reuters article Frankel said, "You're definitely witnessing a perfect storm in terms of China timing, people on vacation that affects liquidity, and you've got a lot of questions on the Fed and people are obviously focused on oil."

Normally trading volume in August is pretty low. A lot of market participants are on vacation before school starts in September (I know that some schools have already started). The fact is a lot of senior staff in Wall Street is out of town and that leaves a skeleton crew to man the trading desk. There was no shortage of volume on Friday.

This past Friday was an option expiration, which probably boosted volumes. According to BATS Global Markets, the average volume this month has been in the 6.75 billion shares a day range for all of the U.S. exchanges. Friday's selling frenzy saw volume surge to 10.6 billion shares traded. On the NYSE for every one stock that closed higher there were six stocks that declined. On the NASDAQ exchange there were 2.5 stocks in the red for every 1 stock that managed a gain. Friday's session was the first time in four years that the S&P 500 did not have any 52-week highs. The last time that happened was when the U.S. saw its credit rating downgraded.

Global markets are still reacting to China's devaluation, which a few pundits are starting to see as a desperate move to boost their exports and economic growth. Other countries have started devaluing their currencies to stay competitive. Vietnam just devalued their currency (dong) for the third time in 2015. Kazakhstan decided to remove the peg on their currency (tenge) and it fell -22%. Other countries that saw big declines in their currency last week include: Russia, Belarus, several African nations, Mexico, Turkey, and Columbia. The MSCI Emerging Market index was hammered lower with a -5.7% decline last week. It was the biggest weekly drop since May 2012.

Economic Data

Economic data in the U.S. continues to be mixed. The regional Philadelphia Fed survey improved from 5.7 to 8.3, which was better than expected. Yet the New York Empire State manufacturing survey plunged from +3.9 to -14.9, which was way, way below expectations. The new order component dropped from -3.7 to -15.7. The shipment component fell from +8.2 down to -13.8.

The latest round of data on the residential housing market was bullish. The NAHB housing market index, which is a confidence survey among builder, improved from 60 to 61, which hasn't been this high since November 2005. Existing home sales rose for the third month in a row and hit their highest levels since 2007.

The monthly housing starts saw their June reading revised higher from 1.174 million to an annual rate of 1.204 million. July's reading was 1.206 million. The single-family home component surged +12.8% to 782,000. This is the strongest pace for single-family home starts since December 2007. Unfortunately the building permits data slipped from June's 1.337 million pace down to 1.119 million in July.

The monthly Consumer Price Index (CPI) rose +0.1%, which suggest there is no inflation in the U.S. That's bad news for the Federal Reserve that wants to see inflation reach 2.0%. Speaking of the Fed the FOMC minutes from the last meeting fueled a lot of uncertainty around the Fed's next rate hike. According to the minutes, members of the committee did not have any conviction on raising rates. They express worries about the labor market, lack of inflation, and economic struggles overseas, especially in China.

Overseas Economic Data

Last week was all about China (again). The latest reading on the Caixin manufacturing PMI fell from 47.8 to 47.1 in August. The Caixin was previously named the HSBC flash China PMI. Unfortunately, the August reading is a 77-month low. Numbers below 50.0 suggest economic contraction. Another disappointing data point was car sales. China is the largest auto market in the world now. Auto sales in China are expected to decline for the first time in 17 years.

Investors and analysts are keeping a very close eye on the Chinese Shanghai index. Last week was a roller coaster ride for Shanghai investors. Check out last week's moves for the Shanghai index:

Monday +0.7%
Tuesday -6.2%
Wednesday +1.2% (but it was down -5% intraday)
Thursday -3.4%
Friday -4.2%

The Shanghai index lost -11.2% for the week and is down -32% from its June 2015 highs. That means the Chinese market is now in a bear market (more than -20% from its highs).

Looking across the East China Sea to Japan we see that Japanese exports rose +7.6% from a year ago, which is bullish. Their manufacturing PMI for August rose from 51.2 to 51.9, although this actually missed estimates. Unfortunately Japan's GDP fell into negative territory for the first time in three quarters with their Q2 GDP estimate coming in at -0.4%. That's down from +1.1% growth. The Japanese NIKKEI index ended the week at 3 1/2 month lows.

Europe did not have a good week either. All the major averages posted losses for the week and Friday was the worst one-day drop in four years. The Eurozone's preliminary manufacturing PMI for August was unchanged at 52.4. Germany's manufacturing PMI for August improved from 51.8 to 53.2. Numbers above 50.0 suggest economic growth. This economic news was lost in the shuffle as stocks reacted to overseas seas declines. The Stoxx Europe 600 index, which tracks 600 companies across 18 EU members, and includes small cap, medium, and large cap stocks, fell -3.3% on Friday and is down -6.5% for the week. The Stoxx 600 is in correction territory with a -13% drop from its April highs.

There is a new wrinkle with the situation in Greece. The country has finalized its third financial bailout in the last five years. They have actually started receiving bailout money from the new $85 billion bailout, that should last the next three years. Greek Prime Minister Alexis Tsipras announced he has resigned on Thursday. That means the country will be forced to have snap elections again. These new elections are scheduled for September 20th. This appears to be a calculated move by Tsipras who would like to be re-elected with a new mandate from the people.




Major Indices:

The S&P 500 index lost -5.77% for the week. It's now down -4.27% year to date. Friday's drop snapped a 213 trading session record. What record you ask? According to the Wall Street Journal, the S&P 500 went 213 session without falling more than -5% from its highs. It was the longest streak in 11 years. Back in 2004 the S&P 500 managed to go 219 sessions.

Friday's -3.18% plunge sliced through potential support at 2,040 and the 2,000 level. It even closed just below the December 2014 lows near 1,972. CNBC's Steve Grasso, who is also Director of Institutional Sales at Stuart Frankel & Co. Inc. believes that if the S&P 500 does not hold the 1,970 level then the next support level should be 1,920. A drop to 1,920 would be a -10% correction for the S&P 500. That's as good a place as any to look for support. Now that the S&P 500 has broken down the 2,000 level and 2,040 are new resistance levels.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite fell -6.78% for the week. It was the worst weekly drop in more than five years. That erased its gains for the year. It's very close to a -10% correction as well. The big cap NASDAQ-100 index is already in correction territory, down -10.3% from its highs.

The NASDAQ composite's plunge past 4,800 is significant. The 4,800 level should have offered some support and the NASDAQ sliced right through it. It's hard to say where the next support level is. It could be 4,600. It's probably keep an eye on the 4,500-4,600 area as likely support. Now broken support at 4,800 and 4,900 is overhead resistance.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index lost -4.6% for the week. However, the $RUT's performance on Friday is noteworthy with a -1.3% decline versus a -3% drop in the large cap indices. The $RUT managed to hold support near the 1,150 level. Now there is no guarantee this 1150 region will hold up on Monday but it will be really interesting if it does.

If the 1,150 level fails the next support area could be the 1,080-1,100 region.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead is relatively quiet for economic data. The U.S. Q2 GDP estimate will make headlines but it's unlikely to change too much. Currently analysts are expecting a rise from the first estimate of +2.3% to almost +3.0%, which seems a little too optimistic.

The Federal Reserve's annual conference in Jackson Hole, Wymoning begins this week. It lasts three days and concludes on Saturday the 29th. Fed Chairman Janet Yellen is not expected to be there.

- Monday, August 24 -
...nothing significant...

- Tuesday, August 25 -
Case-Shiller 20-city home price index
New Home Sales
Consumer Confidence survey

- Wednesday, August 26 -
Durable Goods Orders

- Thursday, August 27 -
U.S. Q2 GDP estimate
Pending Home Sales
Jackson Hole, Wy. Federal Reserve conference

- Friday, August 28 -
Personal Income & Spending
University of Michigan Consumer Sentiment (August)
Jackson Hole, Wy. Federal Reserve conference

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 Federal Reserve's FOMC meeting in September is the next major event on the horizon. Two weeks ago just about everyone thought the Fed would raise rates in September. Today those expectations have plunged. The slow-down in China is serious business and the global economy seems to be getting worse. Meanwhile there is virtually no inflation in the U.S. and the U.S. economic is expected to slowdown in the third quarter with the Atlanta fed forecasting +1.3% growth (that's actually up from its estimates the prior week). Today estimates for the Fed to raise rates in September have fallen into the 24% to 35% range. December odds are at 60%.

Market Corrections

Let's talk about market corrections. If you didn't hear enough about them on Friday we will probably get an earful in the coming week. As you know a bear market is a -20% drop from the highs. A correction is a decline from -10% to -19%. Of the 500 S&P companies, 330 of them (66%) are down -10% or more, according to CNBC on Friday. Another source said 39% are in a correction and 31% are in a bear market, which would suggest 70% of the S&P 500 is down -10% or more. Apple (AAPL), arguably the most influential stock in the U.S. market, hit bear market territory on Friday with a drop to -20.4% from its closing high. AAPL is not alone. About 40% of the S&P technology index is in bear market territory.

Market technician Carter Worth talked about market corrections on CNBC's futures now show. According to Mr. Worth, the S&P 500 index has seen a correction of -5% or more 212 times since 1927. The median drawdown was -8.25% while the average pullback was -12.5%. Currently the S&P 500 is only down -7.6% so according to Carter the S&P 500 still has farther to fall.

The S&P 500 has gone an astonishing 1,426 calendar days since its last -10% pullback. It got really close in October 2014 with a -9.8% decline before bouncing. It's worth noting that the market sees a -5% pullback about once every 3 1/2 months. Yet there have only been about 27 corrections of -10% or more since the end of WWII (1945). The average pullback for these 27 corrections was -13.3% and they tended to bottom out around three months.

An Aging Bull Market

History is no guarantee of future results but it can be a helpful frame of reference. Currently the U.S. is still in a bull market. It's actually the fourth longest bull market in the last 85 years. The average bull market lasts about 165 weeks. The current bull market for the S&P 500 is about 336 weeks old (almost 6 1/2 years). I'm not saying the bull market is dead but it's definitely been due for a correction.

From the bear-market low of March 9th, 2009:

The S&P 500 index hit an all-time high of 2,130 on May 21st (+215%).

The NASDAQ composite surged to an all-time high of 5,218 on July 20th (+311%).

The small cap Russell 2000 index hit an all-time high of 1,295 on June 23rd (+277%).

The Dow Jones Industrial Average peaked at 18,312 on May 19th (+180%).

My outlook for the week ahead is cautious. I expect another spike down on Monday morning but traders will eventually step in and buy it.

~ James


"The one fact pertaining to all conditions is that they will change." ~ Charles Dow, 1900






Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks were hammered lower around the globe last week. The U.S. market fell almost -6%. The Chinese market plunged -11%. A hurricane of worry over China's economy and if the Fed might raise rates too soon fueled the decline.

ADBE, CVS, FB, HSIC, MA, MSFT, NKE, SBUX, and UA were stopped out.

CELG, DHR, and STZ have joined the active play list.

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

Don't Be A Hero

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(August 23, 2015)

Last week I was complaining that the U.S. market couldn't make up its mind and was stuck in a sideways trading range. Well worry no longer. It took a few days but the effects of the Chinese yuan devaluation are rippling through the global markets. The results have not been pretty.

The Chinese market plunged -11% last week. European stocks suffered their worst weekly decline in four years. The American markets followed suit. The S&P 500 lost -5.7%.

Once the market broke down on Friday morning it produced a cascade. The selling was undiscerning and washed across all the major indices and sectors.

The Dow Jones Industrial Average, the small cap Russell 2000 index, and the large cap NASDAQ-100 index are all in correction territory with -10% declines from their highs. The NASDAQ composite and the S&P 500 might be right behind them.

The major U.S. indices closed on their low for the session on Friday. That does not bode well for Monday morning. S&P futures are negative as of Sunday night and suggest a spike lower at the open.

On a short-term basis the market is oversold and due for a bounce. However, stocks can always get more oversold. While I think this breakdown represents opportunity I am suggesting caution. We do not have to be the hero trying to catch the market's falling knife.

If you read my market wrap tonight then you already know that market corrections usually take about three months to play out. Considering historical trends and where we are on the calendar it would not surprise me to see the market decline and eventually bottom in October this year. However, that's just speculation at this point.

No new positions at this time. Let the dust settle. We'll see what survives and re-evaluate next week.



Play Updates

The China Syndrome

by James Brown

Click here to email James Brown

Editor's Note:

Stocks suffered a little China Syndrome last week. No, I'm not referring to the 1979 American movie with Jane Fonda, Jack Lemmon, and Michael Douglas. Instead the market suffered from increasing worries that the Chinese economy is slowing down a lot faster than expected.

The big sell-off triggered several stop losses but it also triggered a few buy-the-dip trades.

CELG, DHR, and STZ have all graduated to our active play list.


Closed Plays


It was a very ugly week for stocks. Actually the worst week for the U.S. market in four years.

ADBE, CVS, FB, HSIC, MA, MSFT, NKE, SBUX, and UA were all stopped out.



Play Updates


Activision Blizzard, Inc. - ATVI - close: 27.22

Comments:
08/23/15: ATVI fell more than $2.00 from its recent highs. If the market sell-off continues we could see ATVI fill the gap from early August. More conservative investors may want to raise their stop loss. I am looking for short-term support at the 50-dma near $26.24.

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 $2.58/2.78

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


Celgene Corp. - CELG - close: 119.05

Comments:
08/23/15: Biotech stocks were hit hard last week with significant profit taking. Shares of CELG plunged toward support in the $120 area. We had CELG on the watch list with a buy-the-dip trigger at $121.00, which the stock hit on Friday.

At this time I would wait for signs of a bounce, maybe a rally back above $121.00, before considering new positions. Nimble traders could cross their fingers and hope for a dip in the $115-116 range and try to buy calls there. Our stop loss is at $114.75.

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.

- Suggested Positions -
AUG 21, 2015 - entry price on CELG @ 121.00, option @ 7.15
symbol: CELG160115C130 2016 JAN $130 call - current bid/ask $6.10/6.45

08/21/15 triggered. Buy-the-dip entry point at $121.00
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 114.75
Play Entered on: 08/21/15
Originally listed on the Watch List: 08/09/15


Danaher Corp. - DHR - close: 86.95

Comments:
08/23/15: DHR is another watch list candidate that has graduated to an active play. We had DHR listed with a buy-the-dip trigger at $88.50. Our trade was opened with Friday's gap down at $88.25. If this market weakness continues we could see DHR test support near $86.00 and its 200-dma. Nimble traders could try and buy calls on a bounce near its 200-dma.

Trade Description: August 16, 2015
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.

- Suggested Positions -
AUG 21, 2015 - entry price on DHR @ 88.25, option @ 5.50
symbol: DHR170120C100 2017 JAN $100 call - current bid/ask $3.80/5.90

08/21/15 Triggered on gap down at $88.25, suggested entry was a dip at $88.50
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 84.50
Play Entered on: 08/21/15
Originally listed on the Watch List: 08/16/15


General Dynamics - GD - close: 145.17

Comments:
08/23/15: The Thursday-Friday market crash erased all of GD's gains for the week. Actually it erased the last 2 1/2 week's worth of gains. The close below $146.00 and its 50-dma is short-term bearish. I'm worried that GD will hit our stop loss at $144.75 on Monday morning.

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 $2.20/2.50

08/23/15 Caution - GD could hit our stop at $144.75 on Monday morning
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



iShares US Home Construction ETF - ITB - close: 28.55

Comments:
08/23/15: Homebuilders were in rally mode last week, prior to the market's big drop. The main homebuilder ETFs like the ITB and XHB had broken out to new multi-year highs. The ITB is only down about 16 cents for the week and shares found support near its prior highs. That's the good news. However, if the market continues to sink I expect the ITB to follow. Look for support in the $27.50 region. A dip or a bounce near $27.50 could be a new entry point.

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 $1.00/1.20

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


Constellation Brands Inc. - STZ - close: 123.11

Comments:
08/23/15: When traders panicked on Friday they sold everything including their winners. STZ had spent the prior three weeks surging from one new high to another. Friday's drop (-4.3%) erased the prior week's worth of gains.

We had STZ on the watch list with a buy-the-dip trigger at $123.50, which was tagged on Friday. If you're still looking for an entry point the $122.00 level should be support. I would be tempted to buy calls on a dip or a bounce near $122.00.

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.

- Suggested Positions -
AUG 21, 2015 - entry price on STZ @ 123.50, option @ 11.60
symbol: STZ170120C130 2017 JAN $130 call - current bid/ask $9.10/11.40

08/21/15 triggered at $123.50
08/16/15 adjust the buy-the-dip trigger from $122.00 to $123.50
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 117.75
Play Entered on: 00/00/15
Originally listed on the Watch List: 08/09/15




CLOSED Plays


Adobe Systems - ADBE - close: 78.87

Comments:
08/23/15: The two-day market plunge saw ADBE Fall from $85 to under $79.00. Shares hit our stop loss at $79.00 on Friday. The next level of support could be the 200-dma near $77.00.

- Suggested Positions -
MAY 15, 2015 - entry price on ADBE @ 80.00, option @ 4.60
symbol: ADBE160115C85 2016 JAN $85 call - exit $3.45 (-25.0%)

08/21/15 stopped out
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

Chart

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


CVS Health - CVS - close: 102.21

Comments:
08/23/15: CVS sliced through multiple layers of support with a -3.6% plunge on Friday. Shares finally bounced after tagging their 200-dma. Our stop loss was hit at $103.40.

- Suggested Positions -
AUG 04, 2015 - entry price on CVS @ 107.00, option @ 2.45
symbol: CVS160115C115) 2016 JAN $115 call - exit $1.53 (-37.5%)

08/21/15 stopped at $103.40
08/04/15 CVS hit our buy-the-dip trigger at $107.00
Option Format: symbol-year-month-day-call-strike

Chart

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: 86.06

Comments:
08/23/15: FB was unable to escape the market's widespread sell-off. Our stop loss was $88.85. Unfortunately shares gapped open lower at $87.52 on Friday morning.

I would keep FB on your watch list. The $82-85 area should offer some support.

- Suggested Positions -
APR 01, 2015 - entry price on FB @ 81.00, option @ 4.92
symbol: FB160115C90 2016 JAN $90 call - exit $6.35 (+29.0%)

08/21/15 stopped out on gap down at $87.52
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

Chart

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


Henry Schein, Inc. - HSIC - close: 138.10

Comments:
08/23/15: HSIC was another victim to the market's two-day plunge. Shares cut through support near $140 and its 200-dma. We actually had our stop at $141.75. HSIC gapped down on Friday at $140.82. The next support level appears to be the $135-136 area.

- Suggested Positions -
JUL 14, 2015 - entry price on HSIC @ 147.00, option @ 3.90
symbol: HSIC160115C155 2016 JAN $155 call - exit $1.65 (-57.6%)

08/21/15 stopped out on gap down at $140.82
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

Chart

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


MasterCard Inc. - MA - close: 90.68

Comments:
08/23/15: Ouch! Last week's decline in MA erased the prior three month's worth of gains. Shares fell through several layers of support. Our stop loss was hit at $91.75.

- Suggested Positions -
MAY 11, 2015 - entry price on MA @ 93.48, option @ 5.95
symbol: MA160115C95 2016 JAN $95 call - exit $3.80 (-36.1%)

08/21/15 stopped out
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

Chart

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: 43.07

Comments:
08/23/15: Big cap stocks were crushed on Friday and MSFT underperformed with a -5.6% decline. Shares hit our stop loss at $43.75. If this market weakness continues it could push MSFT down toward support near $40.00.

- Suggested Positions -
AUG 05, 2015 - entry price on MSFT @ 47.98, option @ 4.00
symbol:MSFT170120C50 2017 JAN $50 call - exit $2.28 (-43.0%)

08/21/15 stopped out @ 43.75
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

Chart

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: 106.87

Comments:
08/23/15: The profit taking last week hit NKE especially hard on Friday with a -4.8% plunge. Shares sliced through support levels and hit our stop at $109.40 on Friday.

I'd keep NKE on your radar screen. The $105 and $100 levels could be support.

FYI: We sold half our NKE position on Aug. 10th to lock in a potential gain.

- Suggested Positions -
MAY 11, 2015 - entry price on NKE @ 102.42, option @ 4.20
symbol: NKE160115C110 2016 JAN $110 call - exit $6.05 (+44.0%)

08/21/15 stopped out @ 109.40
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

Chart

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: 52.84

Comments:
08/23/15: SBUX has been one of the best performing stocks in the S&P 500 this year. Naturally when investors panicked and started selling stocks SBUX was on their list. Shares fell from $58 to $52.60 in three days. Our stop loss was hit on Friday at $53.75.

I would keep SBUX on your radar screen. The $50.00 level might offer some round-number support.

FYI: We sold half of our SBUX trade on June 29th to lock in a potential gain.

- Suggested Positions -
APR 28, 2015 - entry price on SBUX @ 50.00, option @ 1.59
symbol:SBUX160115C55 2016 JAN $55 call - exit $2.80 (+76.1%)

08/21/15 stopped out
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

Chart

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: 90.03

Comments:
08/23/15: It was a rough week for UA. The last two sessions erased $10 or -10% from the stock price. Our stop loss was hit at $93.25 on Friday.

I would definitely keep UA on your radar screen. The $80-85 area should offer some support and might be a new entry point for bullish positions.

FYI: We sold half of our UA trade on July 27th to lock in a potential gain.

- Suggested Positions -
JUN 17, 2015 - entry price on UA @ 83.06, option @ 4.50
symbol: UA160115C90 2016 JAN $90 call - exit $9.63 (+114.0%)

08/21/15 stopped out
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

Chart

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



Watch

Market Weakness Triggers New Entry Points

by James Brown

Click here to email James Brown


New Watch List Entries


None, no new watch list candidates



Active Watch List Candidates

V - Visa Inc.


Dropped Watch List Entries


CELG, DHR, and STZ have all graduated to our play list.

GT has been removed.



New Watch List Candidates:

No new watch list candidates tonight.

The stock market's big drop last week was ugly but it presents a buying opportunity. We had three watch list candidates (CELG, DHR, and STZ) all graduate to our active play list on Friday's market plunge.

Active Watch List Candidates:



The Goodyear Tire & Rubber Company - GT - close: 29.28

Comments:
08/23/15: The market's big drop last week sent GT from multi-year highs back down toward its July lows.

The double-bottom near $29.00 in July could be support again. However, tonight I am cutting GT loose as a candidate. Shares underperformed last week, falling more than -10% in just three days. We can do without that kind of relative weakness.

Trade did not open.

08/23/15 removed from the watch list, suggested entry was a close above $33.00

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


Visa Inc. - V - close: 71.19

Comments:
08/23/15: Believe it or not but Visa held up reasonably well. Shares only lost about -4% for the week. We have a buy-the-dip trigger at $70.50 and odds are good that V will hit that trigger in the week ahead. More conservative investors may want to wait. We could get an even lower entry point near $68.00 if the market sell-off continues.

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