Option Investor
Newsletter

Daily Newsletter, Sunday, 9/13/2015

Table of Contents

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

Leaps Trader Commentary

Will They Or Won't They

by James Brown

Click here to email James Brown

The stock market continues to ricochet between big gains and big losses. This past week delivered the best weekly performance since July. That followed the second worst weekly drop of the year. The market seems to be building this huge consolidation pattern ahead of this week's pivotal fed meeting.

All of the major U.S. indices posted gains with an average gain of +2% for the week. The NASDAQ displayed relative strength with a +2.9% gain. That's impressive considering the week was only four days long thanks to the Labor Day holiday on Monday. Banking stocks were up +2%. Semiconductors rose +3%. Transports fared better with a +3.3% bounce thanks in part to a drop in crude oil.

$20 Oil?

Crude oil fell -2.6% last week to less than $45.00 a barrel. This pressured oil-related stocks. The oil index was relatively flat (+0.05%) while oil service stocks fell -3.6%. The very influential investment banking giant Goldman Sachs made headlines with their call that crude oil could fall to $20 a barrel.

A few days ago Goldman lower their crude oil forecast for 2015 from an average of $52 a barrel down to $48. They also reduced their 2016 forecast from an average price of $57 a barrel to $45. However, they said their worst case scenario could see oil fall to $20.00 a barrel before the energy market finally removes the current conditions of oversupply. Goldman went on to say that "financial and fundamental metrics are much weaker. Forward demand expectations are lower as the emerging market economic outlook continues to deteriorate."

On a short-term basis oil could see more downward pressure. Oil refineries are closing down for seasonal maintenance and consumption of two million barrels a day will be temporarily postponed at the peak of maintenance. Refinery utilization has already declined from 96.1% for the week of August 7th to 90.9% today. That will continue down into the mid 80% range over the next several weeks. This means inventories will rise for the next 10-12 weeks and they are already near multi-decade highs.

$2 Gas?

One positive effect of low oil prices is cheaper gasoline. The Energy Information Administration (EIA) is forecasting gas prices will hit $2.00 a gallon by December. We haven't seen gas that low in years. Traditionally it is believed that low gas prices mean higher consumer spending as Americans spend the money they save on something else. However, the last time we saw a big decline in gas prices there was no significant surge in spending. The only real beneficiary were the gasoline and convenience store chains who did see an increase for in-store sales. The downside to cheaper oil and cheaper gas is energy-sector job layoffs.

Economic Data

It was a relatively quiet week for economic data. We only had two significant reports. The Producer Price Index (PPI) is a wholesale-level gauge on inflation. The August reading was flat after just a +0.2% rise in July. This followed +0.4% gains in May and June. For the Fed this is moving the wrong direction. They want to see inflation not deflation. Food prices rose +0.3% in August but that was due to a +32% spike in the price of eggs due to the bird flu epidemic ravaging the egg-laying chicken population.

The other report was the University of Michigan Consumer Sentiment index. The early reading for September saw a drop from 91.9 to 85.7. Analysts were expecting a slip to 91.5. September's early reading was the third monthly decline in a row and the lowest reading for the year.

Overseas Economic Data

China remains in the spotlight due to its hard landing, still in progress. Two weeks ago the country was making headlines when its official PMI and the Caixin PMI both posted big declines. The official PMI fell to 49.7, the lowest reading since August 2012. The Caixin PMI hit 47.3, the lowest since August 2009. Numbers below 50.0 suggest economic contraction. This past week the services PMI declined to 54. This is still in positive economic territory but it's moving the wrong way.

The slowing economic picture for China is still generating a lot of volatility in their stock market. Last Monday, when the U.S. was on holiday, the Shanghai index fell -2.6%. On Tuesday morning it dropped another -2.3% and then suddenly reversed higher to close up on the session. China's big reversal higher on Tuesday helped fuel stock market gains around the world.

Nearby the country of Japan said their core machinery orders for July fell -3.6% for the month. That was significantly less than expected. Meanwhile Prime Minister Shinzo Abe was re-elected and gains another three-year term to govern. Abe promised to lower corporate taxes rates by another 3%.

There was not a lot of economic data out of Europe last week. Most of the headlines were focused on Europe's immigrant crisis. Tensions are running high as tens of thousands of refugees and immigrants are flooding into Europe. Many are honestly seeking refuge from war-torn Syria. Others have been accused of merely looking for a better place to live, especially in European countries with a lot of welfare policies.

We will soon be hearing a lot more about Greece again. The country faces elections on September 20th. It will be their third election in the last eight months. Former Prime Minister Alexis Tsipras called for new elections after breaking his promise and giving into the Troika's demands for more austerity. He promptly resigned. However, he is running again and hopes to be re-elected with another mandate from the people. This time he faces a fight. His shenanigans over several months has turned off a lot of voters. His very, leftwing Syriza party is facing heavy competition from the conservative New Democracy party with a pre-European platform.




Major Indices:

The S&P 500's bounce last week pared its yearly loss to -4.8%. You can see on the intraday chart below that it is building a short-term trend of higher lows. Unfortunately this looks like nothing more than a big consolidation pattern after the big sell-off in August.

I would expect this consolidation to narrow as investors wait for the Fed's announcement on Thursday afternoon. The short-term resistance level to watch is 1,990-2,000.

Daily chart of the S&P 500 index:

Intraday chart of the S&P 500 index:

The NASDAQ outperformed its big cap rivals with a strong bounce last week but it too failed to get past short-term resistance. The 4,850-4,900 area is overhead resistance. The 200-dma near 4,915 could also be a new obstacle.

Soon you'll hear market pundits talking about a "death cross" on the NASDAQ composite. The 50-dma is falling and is poised to cross below the 200-dma by the end of the month. Historical data suggests that the "death cross" or dark cross is not a very reliable indicator although it might impact investor sentiment.

Year to date the NASDAQ is up +1.8%.

chart of the NASDAQ Composite index:

Intraday chart of the NASDAQ Composite index:

Investors should be cautious with the small caps. The short-term trend of higher lows is bullish but bigger picture for the Russell 2000 looks broken. There is a ton of resistance in the 1,170-1,220 range.

The $RUT is down -3.7% year to date.

chart of the Russell 2000 index

Intraday chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead is busy with economic data. We will get two regional Federal Reserve surveys (New York and Philadelphia). There will be new data on housing. However, everything will be completely overshadowed by the Federal Reserve's two-day meeting on Sept. 16-17th.

- Monday, September 14 -
Eurozone industrial production

- Tuesday, September 15 -
U.S. Retail Sales
New York Empire State manufacturing survey
Industrial Production
Business Inventories

- Wednesday, September 16 -
Eurozone CPI
Consumer Price Index (CPI)
NAHB housing market index
FOMC meeting begins

- Thursday, September 17 -
Housing starts and building permits
Philadelphia Fed regional survey
FOMC (day 2), policy update, economic forecasts
Fed Chairman Yellen press conference

- Friday, September 18 -
...nothing significant...

Additional dates to be aware of:

Sep. 25th - Q2 GDP estimate
Oct. 2nd - Nonfarm payrolls
Oct. 28th - FOMC meeting
Nov. 26th - Thanksgiving holiday (markets closed)
Dec. 16th - FOMC meeting, new forecast Dec. 16th - Fed Chairman Yellen's press conference
Dec. 24th - Christmas Eve (market closes early)
Dec. 25th - Christmas (market closed)

Looking Ahead:

Looking ahead the next several days will be all about the FOMC meeting and the aftermath of the Fed's decision to raise rates or not raise rates.

Fed Meeting

The Federal Reserve sets the benchmark interest rate, a.k.a. the federal funds rate, which is the overnight rate that banks lend to each other. It is considered the most influential interest rate since it impacts so many other interest rates and conditions throughout the economy.

The Fed has not raised rates since 2006. They have kept rates near zero since 2008. The idea that they could raise rates this week is significant. The fed funds rate has averaged 6% since 1971. Believe it or not but it hit 20% in 1980. Today the market is worried the Fed could raise rates from near zero (0.0%-to-0.25%) up to 0.5%. All of the market's angst seems a little silly given the long-term perspective.

Short-term traders do have reason to worry. Every time the Fed has begun a tightening cycle (raising rates) the stock market has sold off. Rising rates means higher borrowing costs and that impacts everyone from big corporations, government debt service, and to people buying homes, cars, and students loans. Rising rates tend to boost the dollar as well.

On a longer-term time frame stocks tend to rally as the Fed raises rates but then on a long enough time frame stocks always rally. During a rate hike cycle the stock market's performance is somewhat subdued with an average gain of +8%. However, according to Josh Brown, of Ritholtz Wealth Management, when the Fed finishes its rate hike cycle, a year later stocks outperform their long-term average with a +14.6% gain. The key note there is after the Fed finishes its rate hike cycle.

Today the fed wants to begin a new rate hike cycle. History would suggest stocks underperform but this time could be different. Today Europe and Japan are in the middle of huge QE programs. China has been adding stimulus to prop up their slowing economy. The U.S. economy is growing (albeit slowly) while most of the world is slowing down. The bullish case for stocks is that the Fed would only raise rates because they believe the U.S. economy is strong enough to endure it.

Odds of a Rate Hike

Depending on who you talk to the odds of the Fed raising rates seems to be about 50:50. Almost 49% of economists surveyed by Bloomberg expect the Fed to raise rates this week. However, futures traders only see a 28% chance the Fed raises rates this week. The Federal Funds Futures contracts have been a key signal for traders for years and it currently sits at 28%.

The Fed has been hinting at raising rates all year long. Many believe they need to do it now or lose face before the global markets. Others suggest the Fed had their opportunity months ago and missed it.

Mohamed El-Erian, chief economic adviser at Allianz SE, shared his thoughts on the Fed meeting this week:

"As the debate about whether the Federal Reserve will begin raising interest rates next week reaches fever pitch, each side is being forced to adopt so-called corner solutions, arguing for their respective position with mounting conviction. This is understandable given the demand for a definitive answer. But it also is unfortunate, because both camps fail to take account of some broader considerations that cloud any certainty." (source: Analyzing the Odds of a Fed Rate Increase )
Goldman Sachs is suggesting that the Fed will not raise rates because market conditions have already done the work for them. Goldman doesn't expect the Fed to raise until December or possibly 2016.
"The recent stock market sell-off, an increase in corporate borrowing costs and the rise of the dollar have contributed to a tightening of financial conditions roughly equivalent to three 25 basis-point hikes in the central bank's benchmark federal funds rate, according to a Goldman Sachs Group Inc. report published late Thursday in New York." (source: Tighter Conditions After Market Sell-Off Equates to Three Fed Hikes )
Check out more Wall Street opinions on the Fed meeting this week:

Wall Street Is Deeply Divided Over the Fed's Move Next Week Link

Making the Case for Raising Rates, and Raising Them Next Week Link

Fed Liftoff Has Futures and Economists at Odds for Next Week Link

A Confused Market

Stocks just had their best one-week rally in months. Yet investors are fearful. According to the American Association of Individual Investors the number of bearish investors rose 3.3% to 35.0%. At the same time bullish investors rose +2.3% to 34.6%. The long-term average is 38.7% bullish and only 30% bearish. The CNN Money Fear & Greed Index is suggesting that the market is showing "extreme fear" readings. This gauge is based on several factors you can view on their webpage: Fear & Greed index.

Chart of the Fear & Greed Index

You could make a case for stocks to sell-off no matter what the Fed does on Thursday. If they do raise rates the market could fall because investors are worried the Fed is starting a rate-rising cycle at the wrong time thanks to weak economic conditions around the globe. Both the International Monetary Fund (IMF) and the World Bank have urged the Fed to postpone raising rates until 2016. If they do not raise rates then stocks could fall because it means the Fed does not think the U.S. economy is strong enough to endure it.

No matter what your expectations for the Fed's decision on Thursday one thing is for sure - stocks will see a big move on Thursday afternoon and likely on Friday as well. The only question is whether that move is up or down.

~ James


Not-so-fun fact:

Trading is tough. According to a recent article on the WSJ website,

Stock picking is a dicey business, and in the first half of 2015, the majority of large-cap stock portfolio managers failed to beat the S&P 500's returns.

According to the S&P 500 Dow Jones Indices scorecard of actively-managed funds, 65.43% underperformed the S&P 500 for the 12 months ended June 30.

Looking back even further, their stock-picking ability looks even worse. Roughly 80% of large-cap managers failed to beat the S&P 500 over a five-year and a 10-year investment horizons. (Read more about it here.)





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The active play list looks a bit lonely. The good news is that we have reloaded the watch list. The market should see a big move between now and the end of Q3 (September 30th). One way or the other we'll see another entry point and add new plays to our active trade 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

Media Blitz In 3, 2, 1...

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(September 13, 2015)

The week ahead will be a 24-hour a day media blitz focused on the FOMC meeting. Stocks will likely churn sideways as traders wait for the Fed's decision on Thursday afternoon.

With so much uncertainty surrounding the Fed's decision I am not adding new trades tonight. However, I am adding three new candidates to the watch list ( AAPL, DHI, and FB ).

Plus we already have AMBA, CLX, FIS, LGF, and OA on the watch list.

One way or the other stocks should see a big move between now and the end of September (end of Q3).

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:

DIS, SBUX, UAL, RCL, STZ



Play Updates

Still Waiting On The Fed

by James Brown

Click here to email James Brown

Editor's Note:

Our current LEAPStrader play list is sparse thanks to the market's extreme volatility over the last few weeks.

Focus on our watch list for new play ideas.


Closed Plays



None. No closed plays this week.




Play Updates


Visa Inc. - V - close: 70.76

Comments:
09/13/15: Visa posted a gain for the week thanks to a gap higher on Tuesday morning and traders buying the dip on Thursday and Friday. Wednesday's session saw some profit taking after rival MasterCard (MA) offered soft 2016 profit guidance.

Shares of V have spent almost two weeks consolidating sideways in the $68-72 range. At this point I would wait for a close above $72.00 or above $72.75 before considering new bullish positions.

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.

- Suggested Positions -
AUG 24, 2015 - entry price on V @ 64.16, option @ 2.76
symbol: V170120C80 2017 JAN $80 call - current bid/ask $4.80/4.95

08/30/15 Remove the stop loss
08/24/15 triggered on gap down at $64.16, suggested entry was a buy-the-dip trigger at $70.50.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 08/24/15
Originally listed on the Watch List: 08/09/15




Watch

If The Fed Sparks Another Sell-off, Be Ready.

by James Brown

Click here to email James Brown


New Watch List Entries

AAPL - Apple Inc.

DHI - DR Horton Inc

FB - Facebook Inc.


Active Watch List Candidates

AMBA - Ambarella Inc.

CLX - Clorox

FIS - Fidelity National Info. Services

LGF - Lions Gate Entertainment

OA - Orbital ATK Inc.


Dropped Watch List Entries

None. No dropped candidates this week.



New Watch List Candidates:

Apple Inc - AAPL - close: 114.21

Company Info

Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $651 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

Earnings growth has been significant as consumer snapped up the iPhone 6 and 6+. The company expects the iPhone to be a major driver as only 20-25% of their user base has upgraded. This past week AAPL held their annual event in September and introduced several upgrades.

AAPL has unveiled new stuff for their smartwatch, they introduced the iPhone 6s and 6s+, they introduced a new, larger iPad that's being called the iPad Pro. The company also introduced a new Apple TV system. They also unveiled a new leasing program for their iPhones.

Normally consumers buy iPhones through their wireless carrier. This past week AAPL announced a deal where consumers could lease their phone from Apple for $32.00 a month and get a free upgrade every year. For the iPhone fanatics it's probably a great deal.

The 2015 holiday shopping season will be here sooner than you expect and AAPL stands to benefit from their parade of new products announced last week. Yet I don't want to buy AAPL at current levels. Odds are good that stocks could sell-off following the FOMC decision this coming Thursday. We want to take advantage of any temporary weakness in shares of AAPL.

Tonight I am listing a buy-the-dip trigger at $101.00. No initial stop loss but investors might want to consider a stop under the August 24th low ($92.00).

We will re-evaluate our entry strategy next weekend after seeing how the market reacted to the Fed meeting.

Buy-the-dip trigger at $101.00
No stop, initially

BUY the 2017 Jan $120 call (AAPL170120C120) (estimated entry $8-to-$12)

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

Chart of AAPL:

Originally listed on the Watch List: 09/13/15


DR Horton Inc. - DHI - close: 31.34

Company Info

Believe it or not but homebuilders have been some of the market's better performers this year. The group is up about 15% year to date. DHI has outperformed its peers with a +24% gain in 2015. The stock is poised to breakout past resistance near $32.00 and hit new multi-year highs.

If the Federal Reserve does announce a rate hike on Thursday it could spark a temporary sell-off in the homebuilders. I want to be ready to buy the dip in DHI. The stock should have support in the $27.00-28.00 area. Tonight I am suggesting a buy-the-dip trigger at $28.50 and we'll list a stop loss at $25.75.

We will re-evaluate our entry strategy next weekend after seeing how the market reacted to the Fed meeting.

Buy-the-dip trigger at $28.50
Initial stop loss at $25.75

BUY the 2017 Jan $35 call (DHI170120C35)

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

Chart of DHI:

Originally listed on the Watch List: 09/13/15


Facebook, Inc. - FB - close: 92.05

Company Info

We are bring FB back to the LEAPStrader newsletter. Cross your fingers and hope for a big dip!

Facebook probably needs no introduction. It's the largest social media platform on the planet. The company is quickly approaching 1.5 billion monthly active users. A couple of weeks ago they hit a new milestone - one billion people logged into Facebook in a single day.

The company continues to grow. In addition to their Facebook social media powerhouse they also own Facebook Messenger, WhatsApp, and Instagram. Their WhatsApp product is the largest messaging service on the planet with over 900 million monthly active users. Meanwhile FB's photo-sharing Instagram property has more than 300 million active users. The company has been ramping up their advertising efforts to slowly monetize Instagram. FYI: FB also owns Occulus Rift, the virtual reality company, but it's probably a few more years before VR goes mainstream.

Shares of FB have been incredibly volatile over the last few weeks. After surging to all-time highs in July following its earnings report the stock crashed in August. The market's correction lower sparked some extreme moves in FB with a plunge down to $72.00 on August 24th. This past week FB displayed relative strength and has rallied back above its 50-dma. However, I do not want to chase it here.

FB has already demonstrated that it can be volatile when the market sees big moves. If stocks sell-off on the Fed's decision this week we want to be ready to buy it on weakness. I view the $80-85 region as likely support. Tonight I am suggesting a buy-the-dip trigger at $85.00. If triggered we'll start this play with a stop loss at $79.75.

We will re-evaluate our entry strategy next weekend after seeing how the market reacted to the Fed meeting.

Buy-the-dip trigger at $85.00
Initial stop loss at $79.75

BUY the 2017 Jan $100 call (FB170120C100)

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

Chart of FB:

Originally listed on the Watch List: 09/13/15


Active Watch List Candidates:



Ambarella, Inc. - AMBA - close: $64.41

Comments:
09/13/15: AMBA had a rough week thanks to the free fall in shares of GoPro (GPRO). GPRO has fallen from $65.00 to $32.50 in the last five weeks. Last week's drop in GPRO pushed the stock to lows not seen since its IPO in mid 2014. Since GPRO is one of AMBA's biggest customers it's not surprising to see shares of AMBA slide too. Why the big slide? It seems that Wall Street was not impressed with GPRO's CFO presentation at an investor conference this past week.

Last weekend I suggested a buy-the-dip trigger at $62.00 since the $60.00 level should be support. Tonight I am adjusting that trigger down to $61.00. Remember - this is an aggressive trade. AMBA is a volatile stock. We want to start with small positions to limit risk.

Trade Description: September 8, 2015:
Shares of AMBA have come a long way from its IPO in October 2012 when the stock priced at $6.00 a share, below expectations. Even now, after a minus $55 drop from its 2015 highs the stock is still up +41% for the year.

AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in 2012. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. When GPRO held its IPO last year (2014) it drew attention to AMBA who makes the chips for the video processing in GPRO's cameras. Shares of GPRO saw a huge decline 2014 highs but shares of AMBA have continued to rally.

Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies. Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.

The company has seen tremendous earnings and revenue growth over the last couple of years. Their most recent earnings report was September 1st, 2015. Revenues were up +79% from a year ago to $84.2 million, which was above expectations. The stock sank because management offered soft guidance. When a high-flying, high-valuation stock like AMBA starts to see revenues slow down their valuations collapse.

After a -42% decline from its highs AMBA is probably still has a rich valuation and that's the biggest complaint about the stock price. Shares will likely maintain a high P/E for a long-time as growth will continue. The pullback is most likely a temporary slowdown.

While we are longer-term bullish on AMBA I suspect the sell-off isn't over yet. We want to take advantage of any volatility.

Momentum stocks like AMBA climb and climb and climb and then suddenly reverse. When momentum stocks reverse lower they often fall farther and further than we might normally expect. Today (Sept. 8th) the broader market delivered a widespread rally with the major indices up +2.5%. Yet AMBA lost ground, losing -0.5%. If shares breakdown under short-term support at $70.00 the next support level is probably $60.00.

Tonight I am listing AMBA as an aggressive, higher-risk trade. We want to use a buy-the-dip trigger at $62.00. Options are expensive because AMBA is so volatile. I suggest small positions to limit risk. We are not listing a stop loss at this time and will and one as the trade progresses.

I am listing the 2016 January calls. I'd like to buy the 2017 Januarys but they are very expensive.

Buy-the-dip at $61.00 *small positions*

BUY the 2016 January $70 call (AMBA160115C70)

09/13/15 adjust the buy-the-dip trigger to $61.00
Option Format: symbol-year-month-day-call-strike

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


The Clorox Co. - CLX - close: $109.84

Comments:
09/13/15: CLX briefly traded above resistance at $112.00 on Thursday and traders immediately sold it. The stock dipped back toward support near $108 and its 200-dma. We want to see CLX fill the gap and close above $114.25.

Trade Description: September 8, 2015:
Clorox is not just a bleach and cleaners company. They also make food and personal care items. Actually they make a lot more.

CLX is in the consumer goods sector. According to the company, "The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with about 7,700 employees worldwide and fiscal year 2014 sales of $5.5 billion. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol cleaners; Liquid Plumr clog removers; Poett home care products; Fresh Step cat litter; Glad bags, wraps and containers; Kingsford charcoal; Hidden Valley and KC Masterpiece dressings and sauces; Brita water-filtration products and Burt's Bees natural personal care products. The company also markets brands for professional services, including Clorox Healthcare, HealthLink, Aplicare and Dispatch infection control products for the healthcare industry. More than 80 percent of the company's brands hold the No. 1 or No. 2 market share positions in their categories."

Earnings have been pretty strong when you consider the negative impact of currency fluctuations on a big multi-national like CLX. On February 4th CLX announced its Q2 report and beat Wall Street estimates on both the top and bottom line. Management raised their 2015 guidance and their revenue guidance.

Their Q3 report, on May 1st, was a little bit softer. Earnings of $1.08 per share missed estimates by 2 cents. Revenues were up +2.6% to $1.4 billion but that was above expectations. Management raised their outlook again for their full year 2015 guidance.

Their most recent report was CLX's Q4 results on August 3rd. Earnings of $1.44 per share was seven cents above estimates. Revenues were up +4.0% to $1.56 billion, also better than expected. Management issued soft guidance, below Wall Street estimates, but the stock rallied anyway.

CLX has a strong, long-term up trend. Investors could seek safety in stocks like CLX if the global economy continues to struggle.

The stock market's correction saw CLX plunged back toward technical support near its 200-dma. Now the stock has been consolidating sideways in the $108-112 zone. I'd like to see CLX fill the gap ($112-114) before we launch positions. Therefore the plan is to wait for CLX to close above $114.25 and then buy calls the next morning.

This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for a close above $114.25
Then buy calls the next morning.

BUY the 2017 Jan. $125 call (CLX170120C125)

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

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


Fidelity National Info. Svcs. - FIS - close: $69.62

Comments:
09/13/15: FIS delivered a strong gain for the holiday-shortened week. Shares look poised to breakout past round-number resistance at $70.00 soon.

Our suggested entry point is a close above $71.00.

Trade Description: September 8, 2015:
We are adding FIS as a relative strength trade. The stock has been marching higher for years. Shares are outpacing the broader market this year with a +9.0% gain year to date.

FIS is in the technology sector. According to the company, "FIS is a global leader in banking and payments technology as well as consulting and outsourcing solutions. With a long history deeply rooted in the financial services sector, FIS serves more than 14,000 institutions in over 130 countries. Headquartered in Jacksonville, Fla., FIS employs more than 42,000 people worldwide and holds leadership positions in payment processing and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial industry, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500 Index."

FIS just recently announced it was acquiring financial software maker SunGard Data Systems for $9.1 billion in cash and stock. SunGard was about to go public and FIS gobbled them up. The combined company will have $9.2 billion in annual revenues and over 55,000 employees.

The big spike higher on FIS' daily chart was the market's reaction to this acquisition news. Shares of FIS filled the gap during the market's correction lower. Now traders are back to buying FIS. The point & figure chart is bullish and forecasting at $92.00 target.

Tonight I am suggesting we wait for FIS to close above $71.00 and then buy calls the next morning. We will start with a stop loss at $64.75.

Breakout trigger: Wait for a close above $71.00
Then buy calls the next morning with a stop loss at $64.75

BUY the 2016 Jan. $75 call (FIS160115C75)

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

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


Lions Gate Entertainment - LGF - close: $38.34

Comments:
09/13/15: Investors were buying the dip on Friday near a small converge of moving averages around the $37.50-37.75 area. We are waiting for a breakout to new highs.

Our suggested entry point is a close in the $40.00-41.00 range.

Trade Description: September 8, 2015:
If at first you don't succeed, try, try, try again. We tried trading LGF recently but we were shaken out thanks to the market's late August crash and LGF's spike to 2015 lows. Naturally the stock has recovered and is on the verge of a major breakout past resistance near $39-40.

What follows is an updated version of my original play description:

Have you ever wanted to trade the hype on a particular movie release? We might be able to do just that with LGF.

LGF is in the services sector. According to the company, "Lionsgate is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, new channel platforms, video games and international distribution and sales. Lionsgate currently has more than 30 television shows on over 20 different networks spanning its primetime production, distribution and syndication businesses, including such critically-acclaimed hits as the multiple Emmy Award-winning Mad Men and Nurse Jackie, the broadcast network series Nashville, the syndication success The Wendy Williams Show, the hit series Orange is the New Black, the critically-acclaimed drama Manhattan and the breakout series The Royals."

What that company description neglects to mention is the Hunger Games franchise. LGF makes the movies for the extremely popular franchise and the fourth and final movie is due to hit the U.S. market in November this year. Shares of LGF will likely rally into November as hype builds for the "Hunger Games: Mockingjay - Part 2" movie.

LGF is also considered a takeover target. Everyone is scrambling for quality TV programming and LGF has the awards to prove it can deliver. Potential suitors include any of the major media companies. There are rumors that LGF could be a target by someone like AAPL who wants to jump into media creation or possibly NFLX, who just lost LGF's content when they failed to renew their contract with EPIX.

I am suggesting we wait for LGF to close in the $40.00-41.00 range. If shares close in this range then buy calls the next morning. No initial stop loss.

Breakout trigger: Wait for LGF to close in the $40.00-41.00 range,
Then buy calls the next morning.

BUY the 2017 Jan. $45 call (LGF170120C45)

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

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


Orbital ATK, Inc. - OA - close: $78.45

Comments:
09/13/15: OA continues to look healthy. The stock is making progress as it climbs toward the August highs.

We want to see a breakout. Our suggested entry point is a close in the $81.00-83.00 range.

Trade Description: September 8, 2015:
If you read the news it seems like the world is an increasingly dangerous place to live. Defense companies like OA are seeing their business strengthen.

OA is part of the industrial goods sector. According to the company, "Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. Headquartered in Dulles, Virginia, Orbital ATK employs more than 12,000 people in 18 states across the United States and in several international locations."

Their most recent earnings report was August 6th. OA reported its Q2 results of $1.28 per share. That is +16% improvement from a year ago and 26 cents above estimates. Revenues were up +7% to $1.13 billion, also better than expected.

David W. Thompson, Orbital ATK's President and Chief Executive Officer, commented on his company's results, "Orbital ATK reported excellent second quarter financial results characterized by better-than-expected revenue and very strong earnings. These results benefited from outstanding new orders, as well as continued solid operational execution on our major programs. As a result, we are increasing the company's outlook for sales and earnings this year and expanding our previously-announced capital deployment program as well.

Management raised their full year 2016 earnings to $4.60-4.80 a share and forecasted revenues in the $4.425-4.50 billion range. This is above Wall Street estimates of $4.51 a share on revenues of $4.41 billion.

Argus upgraded the stock and boosted their OA price target to $95.00. A Goldman Sachs analyst also upgraded the stock. Goldman said OA has "multiple unique exposures to drive faster than average 3-year growth."

The sell-off during the market's crash on August 24th was ridiculous. OA plunged from $75 to $56 in the blink of an eye and has since recovered. Moves like that are more than a little unnerving. Investors may want to use small positions to limit risk. The August peak was about $81.00. I am suggesting we wait for OA to close in the $81.00-83.00 range and then buy calls the next morning. No initial stop on this trade.

Technically this isn't a LEAPS trade. OA doesn't have LEAPS. The farthest options available is the 2016 Februarys.

Breakout trigger: Wait for OA to close in the $81.00-83.00 range
Then buy calls.

BUY the 2016 Feb. $85 call (OA160219C85)

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

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