Option Investor
Newsletter

Daily Newsletter, Sunday, 9/27/2015

Table of Contents

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

Leaps Trader Commentary

Seasonal Weakness Right On Schedule

by James Brown

Click here to email James Brown

It was a rough week for the U.S. stock market with all the major indices posting losses. Monday's gain was the only positive session in the last seven trading days for the S&P 500. The index is down more than 6% for the quarter and headed for its worst quarterly performance in four years.

There were a ton of headlines last week from biotech weakness to the Pope visiting America, Speaker for the House John Boehner abruptly resigning, and Chinese President Xi Jinping visiting the U.S. That's on top of a handful of Federal Reserve members speaking and a high-profile speech by Fed Chairman Janet Yellen on inflation. Nothing seemed to slow the sell-off in stocks.

There are only three trading days left in the third quarter and 2015 gains are few and far between. The NASDAQ Composite, Dow Jones Industrials, S&P 500, and small cap Russell 2000 index are all negative for the year. Last week's decline pushed the transportation average to a -14% loss for 2015. The SOX semiconductor index is down -13.6% year to date. Banks managed a bounce last week but they're still down -5% for the year.

Crude oil eked out a small gain for the week but is down -15.5% for 2015. This has produced big declines for energy-related stocks. The oil index is down -21% for the year while the Oil Services index is down -22%.

Biotechs were getting a lot of negative attention last week. It started on Monday when presidential hopeful Hillary Clinton tweeted that she would introduce a new plan to prevent price gouging by specialty drug makers. This sparked a weeklong sell-off in biotechs. The NASDAQ Biotechnology index (NBI) plunged -4.9% on Friday and fell -13% for the week. It's now in bear-market territory (-20% or more from its highs). There are 144 components in the NBI and most of them have been seriously damaged in the last few weeks.

Investors can trade the NBI through the IBB biotech ETF.

Chart of the NASDAQ Biotech Index

Washington Politics

The surprising headline on Friday was Speaker of the House John Boehner's announcement that he was resigning. The Speaker has been under fire from conservatives in the Republican party for years. Now there is speculation on how his resignation would impact the budget battle brewing in congress (again). This coming Wednesday, September 30th (end of the third quarter), is the deadline to avoid a government shutdown.

Conservatives in the Republican party want a clause that eliminates federal funds for Planned Parenthood in the spending bill. Democrats oppose any such measure and President Obama has promised to veto any bill that defunds Planned Parenthood. It's possible that we might get past a shutdown this week only to see the threat of a government shutdown return on December 11th over the U.S. debt ceiling.

A temporary government shutdown is unlikely to have much impact on corporate earnings but it will probably be market negative for investor sentiment.

Economic Data

New home sales in the United States rose +5.7% in August. July's number was revised higher from an annual pace of 507,000 up to 522K. August' number was 552,000. That was 37,000 higher than expected and the best reading since February 2008.

Exiting home sales slipped to an annual pace of 5.31 million homes. While this was just a little less than expected it is still the sixth month in a row above five million units. Home price appreciation slowed from +6.5% a year to +4.7%.

Durable goods orders fell -2.0% in August while the July number was downgraded from +2.2% to +1.9%. The volatile transportation component fell -5.8%. Excluding transportation the durable goods number was flat, following a +0.4% gain in July.

The regional fed surveys continue to disappoint. The Richmond Fed index fell from zero to -5. The Kansas City fed survey improved from -9 to -8. These followed very negative results from the New York and Philadelphia fed survey's last week.

The Markit manufacturing PMI reading was unchanged at 53. Numbers above 50 suggest growth but at 53 this is the lowest reading since October 2013.

Last week saw the final adjustment on Consumer Sentiment for September. The headline number improved from 85.7 to 87.2 but it was still the third monthly decline in a row and a new 12-month low.

The big report at the end of the week was the final estimate on Q2 GDP growth. The government raised their estimate from +3.7% to +3.9%. That's a big improvement from the initial reading of +2.3%. It's also a nice jump from Q1's +0.6% gain. However, the boom could be short-lived. Right now the Atlanta Fed is forecasting Q3 GDP growth to fall back to +1.4% growth. The average analyst estimate is forecasting +2.5% Q3 GDP growth. The final Q2 number brings the first half of 2015 growth up to +2.25%.

Federal Reserve Rate Hike Dilemma

The Federal Reserve has been widely criticized for its failure to raise interest rates. Many believe the Fed missed their opportunity two weeks ago. For some the Fed has lost credibility while many more are frustrated with the Fed's confusing and often mixed messages with so many fed governors speaking on the subject. Jonathan Golub, RBC's chief U.S. market strategist, commented on the Fed's recent actions saying, "They took an unsettled situation and they just threw kerosene on that fire through all of their statements."

Federal Reserve Chairman Janet Yellen gave a speech on inflation this past week. Here is her summary at the end of the speech:

Given the highly uncertain nature of the outlook, one might ask: Why not hold off raising the federal funds rate until the economy has reached full employment and inflation is actually back at 2 percent? The difficulty with this strategy is that monetary policy affects real activity and inflation with a substantial lag. If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. In addition, continuing to hold short-term interest rates near zero well after real activity has returned to normal and headwinds have faded could encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability. For these reasons, the more prudent strategy is to begin tightening in a timely fashion and at a gradual pace, adjusting policy as needed in light of incoming data.

Conclusion
To conclude, let me emphasize that, following the dual mandate established by the Congress, the Federal Reserve is committed to the achievement of maximum employment and price stability. To this end, we have maintained a highly accommodative monetary policy since the financial crisis; that policy has fostered a marked improvement in labor market conditions and helped check undesirable disinflationary pressures. However, we have not yet fully attained our objectives under the dual mandate: Some slack remains in labor markets, and the effects of this slack and the influence of lower energy prices and past dollar appreciation have been significant factors keeping inflation below our goal. But I expect that inflation will return to 2 percent over the next few years as the temporary factors that are currently weighing on inflation wane, provided that economic growth continues to be strong enough to complete the return to maximum employment and long-run inflation expectations remain well anchored. Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter. But if the economy surprises us, our judgments about appropriate monetary policy will change.

Source.

Overseas Economic Data

Japan's QE program does not seem to be working yet. The country said their manufacturing PMI for September fell from 51.7 to 50.9. Numbers below 50.0 suggest economic contraction. Their national CPI (consumer inflation) only rose +0.2% for the month but it is down -0.1% year over year. That means Japan is seeing deflation for the first time in more than two years.

The market's are watching China now more than ever as investors worry the country's slowdown will impact the globe and the U.S. China has their own "Beige Book" modeled after the U.S. Beige Book. China's is a quarterly survey where the government survey's more than 2,100 companies across different sectors. The most recent China Beige Book shows that the country did indeed slowdown in the third quarter but there is no sign of an "impending collapse" in their growth.

Another troubling decline was China's PPI, a wholesale inflation gauge. The latest PPI fell -5.9%. This is the 42nd month in a row the PPI has declined, which is generating concerns about deflation.

Last week the Asian Development Bank downgraded their outlook on China's growth. They cut their forecast on Chinese growth from +7.2% to +6.8%. The official Chinese government forecast is still +7.0% for 2015.

One of the biggest headlines out of China last week was their preliminary September reading on the Caixin manufacturing PMI. This index fell from 47.3 to 47.0. Numbers below 50.0 suggest contraction and September's reading was a new 6-1/2 year low and marked the seventh monthly decline in a row.

Most of the headlines for China revolved around President Xi Jinping visiting the U.S. for a multi-day visit. Jinping met with Obama on Friday and the two agreed to a corporate espionage cyber warfare truce. I wouldn't bet on that agreement actually doing much. Both the U.S. and China have huge cyber spying and cyber warfare machines. They're not about to slowdown when it's so hard to prove an actual attack or hack came from an official government source.

Looking across the Atlantic Ocean to Europe there were not a lot of economic headlines. Most of the news was political or corporate. German car giant Volkswagen was the biggest story of the week. Last weekend it was unveiled that Volkswagen had installed a device on their diesel engine cars that would defeat U.S. emission testing and produce a fraudulent (passing) reading. Regulatory agencies around the world announced they will investigate. All the major car makers in Europe are now under scrutiny. The U.S. could levy significant fines against Volkswagen for the misconduct. The fines could run into the billions of dollars because we're talking millions of cars.

Shares of Volkswagen (VLKAY) plunged a combined -34% on Monday and Tuesday. The stock ended the week with a -29% drop. Volkswagen is busy firing people and trying to replace them with new leaders to show the world market that they're taking action.

This weekend the big story is an historic vote in Spain. The Catalonia region of Spain has been unhappy with the central government for years. This Sunday (today) the region held a vote to secede from Spain. The region saw record-breaking voter turnout. Exit polls suggest the separatists will win an absolute majority of nearly 79 seats in the 135-seat parliament. This will set the regional government of Catalonia on a collision course with Spain's central government, which does not want the area to secede. It could push Spain and the Eurozone into uncharted territory. source.




Major Indices:

The S&P 500 big cap index lost -1.37% for the week. It's now down more than -9% from its all-time high of 2,130 (set in May this year). According to Reuters the S&P 500 has gone 90 days without setting a new high, the longest stretch since August 2012.

Last week's decline was the second weekly loss in a row. That broke the S&P 500's trend of 10 alternating up and down weeks. The index's failure at short-term resistance near 1,950 doesn't bode well. The 1,900 level could still be support but odds are growing we'll see the S&P 500 test its August lows near 1,867. Year to date the index is down -6.2%.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ Composite had a rough week with a -2.9% decline. A plunge in the biotech sector weighed heavily on this index. Leadership in the big cap NASDAQ stocks is fading with more than 45% of the NASDAQ-100 stocks in bear-market territory.

The NASDAQ found new resistance in the 4,800 region this past week and Friday's failure definitely looks short-term bearish. The August low near 4,300 is another -8.2% drop from current levels.

Currently the NASDAQ is down -1.0% for the year and down -10% from its July high. That means the index is now in correction territory (again).

This weekend is the first time consumers can buy the new Apple (AAPL) iPhone 6S and 6S+. Analysts are expecting about 12 million phones sold this weekend. One analysts came out with a bullish forecast of 13-15 million units. If AAPL fails to hit the 12 million mark it could spark a sell-off in AAPL shares and that could drag the market lower.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index underperformed its big cap peers with a -3.5% drop for the week. It's now down -6.8% for the year. The $RUT looks headed for its August lows in the 1,100-1,105 region. A bounce there would look like a potential bullish double bottom pattern. A breakdown past 1,100 would definitely spell bad news for the broader market. The long-term weekly chart certainly looks bearish with the oversold bounce failing near prior support.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead is a busy one for the economic calendar. Obviously the biggest report will be the monthly jobs number. Economists are expecting the September nonfarm payroll number to be +203,000. That's an improvement from August' +173K.

There is speculation that a jobs number above +225,000 could be the catalyst for the Federal Reserve to raise rates in October. Speaking of the Federal Reserve there is going to be a herd of Fed officials speaking this week. The one to listen to will be Fed Chairman Yellen who speaks again this coming Wednesday.

- Monday, September 28 -
Personal Income & Spending
Pending Home Sales

- Tuesday, September 29 -
Case-Shiller 20-city Home Price Index
Consumer Confidence

- Wednesday, September 30 -
Chinese PMI data
Federal Reserve Chairman Janet Yellen speech
ADP Employment Change Report
Chicago PMI data
Deadline for U.S. Government to Avoid a Shutdown

- Thursday, October 01 -
Eurozone manufacturing PMI data
ISM Index
Construction Spending
Auto & Truck Sales

- Friday, October 02 -
Nonfarm payrolls (Jobs report) for September
Unemployment rate
Factory Orders

Additional dates to be aware of:

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:

A Spooky Q3 Earnings Season

Last week I noted that 90 of the S&P 500 companies had already warned about their Q3 earnings. That number has now jumped to more than 110 companies. Negative guidance has surged to 3.2 companies for every 1 company offering positive guidance. That's above the long-term average of 2.7 to 1, according to Thomson Reuters.

Overall forecasts are predicting a -3.9% drop in earnings from a year ago for the S&P 500. A lot of that is from the energy sector. Low oil prices will push energy companies to post an earnings drop of -65%. Revenues growth for the S&P 500 is expected to fall -3.3%. The strong dollar and a global economic slowdown will also play their part in depressing corporate results, especially for the S&P 500 companies who do a lot of business overseas.

Caterpillar scared the market on Thursday morning when the company lowered their 2015 guidance and announced plans to lay off 4,000 to 5,000 workers by the end of 2016. Total job cuts could hit -10,000 by 2018. CAT expects 2015 revenues to be $1 billion less than 2014's (about $48-49 billion) and will mark their third year in a row of falling sales. CAT's management also warned that 2016's revenues could be -5% less than 2015's. That would be the fourth year in a row of declining sales, which has never happened in the company's 90+ year history.

A terrible Q3 earnings season could spook investors and fuel another sell-off. However, there is also a chance that expectations are already so low that corporations will beat estimates. The market might see a relief rally because actual results were not as bad as expected. Earnings reports have already started but Q3 earnings season unofficially begins on October 8th, when Alcoa (AA) reports.

Bearish Investor Sentiment

Mark Hulbert, at Marketwatch.com, has noted that investor sentiment has turned very bearish. The Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI, measures sentiment. The latest reading has hit bearish extremes not seen since the top of the Internet bubble in early 2000. If you are a contrarian investor then this is actually a bullish signal but that doesn't mean buy stocks now. David Aronson analyzed the data to refine the readings and come up with a purified HNNSI result. "To be sure, the purified HNNSI's record low doesn't guarantee that the market will immediately rally. As Aronson also points out, sentiment often will hit its low before the market does. So, even if contrarian analysis is ultimately right about the current market, it could still be that the correction's ultimate low is ahead of us." You can read more about it here.

The CNN Money Fear & Greed index is also suggesting that investors remain very cautious on the market. They explain how they generate their fear & greed numbers here.

CNN Money Fear & Greed Gauge

Seasonal Weakness

I have been warning investors about the seasonal weakness in September. Last week I noted that the next three weeks (last week plus the next two) are the worst three weeks of the year. Lately the seasonal trends have been on the mark. According to the research team at the Stock Trader's Almanac the week ahead tends to average -1.2% decline for stocks. Don't despair. I do have some good news.

Right now the S&P 500 is on track to post losses in both August and September for the first time since 2011. However, Q3 weakness tends to precede a strong Q4 performance. That's because October is a "bear killer" month. October has a history of volatility. There have been several market crashes and big declines occur in October including 1929, 1978, 1979, 1987, 1997, and 2008. Yet over the last 20 years October has developed a habit of rebounding off its early weakness and delivering strong gains by the month's end.

That means the mid-October lows, that usually occur in the first 10 to 14 days of the month, could be our next buying opportunity for bullish positions. Of course nothing is guaranteed. This year the trend could be upset by the ongoing Federal Reserve rate hike uncertainty, the slowdown in China, uncertainty in Europe, a potential U.S. government shutdown, ...pick your poison. There are always exceptions.

I'm still optimistic that stocks could rally between now and year end but the next two or three weeks could be challenging. We may not have seen the low yet. If we are lucky then stocks will bounce off their August lows. If not then stocks will pierce the August low and the market could see another capitulation sell-off before reversing higher.

~ James

"The future ain't what it used to be." ~ Yogi Berra (1925-2015)




Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The market displayed widespread weakness with all of the major indices posting losses last week. It looks like the market correction is not over yet.

AMBA and CLX 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

We Could See An Entry Point Soon

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(September 27, 2015)

We are still in the middle of the worst three weeks of the year. The path of least resistance is lower. Odds are growing we will see the U.S. market retest its August lows.

I would not be in a rush to launch new bullish positions. However, we could see a bullish entry point in the middle of October (sometime in the next two weeks).

Take this time to identify stocks you want to own (or own long-term call options on) and wait for the pullback.

I am not adding any new trades tonight. Last week we saw both AMBA and CLX graduate from our watch list to the active trade section.

Tonight I am adding Disney (DIS) as a watch list candidate.

On the radar screen (below) I'd love to see a pullback in NKE and ATVI. Keep an eye on COST. The stock could be volatile following its earnings report.

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:

NKE, UA, ATVI, EA, STZ, CPB, VRSN, FL, DRI,
and COST (reports earnings on Sept. 29th)



Play Updates

Doubling Our Active Plays

by James Brown

Click here to email James Brown

Editor's Note:

Our current LEAPStrader play list remains very lean after the market's extreme volatility back in August but this past week we added AMBA and CLX after they both graduated from the watch list.

Use the LEAPStrader watch list for new trade ideas.


Closed Plays



None. No closed plays this week.




Play Updates


Ambarella, Inc. - AMBA - close: $58.36

Comments:
09/27/15: Ouch! It was a rough week for shares of AMBA. We were expecting the stock to pullback but AMBA exceeded our expectations with a -18% loss for the week.

One of AMBA's biggest customers, GoPro, garnered some negative attention with a bearish article by Barron's last weekend. GPRO's stock was hit on Monday but the sell-off stalled. Traders actually starting buying the dip in GPRO. It's possible that cautious investors are selling AMBA on worries about GPRO. Other than that I didn't see any specific headline that accounts for this relative weakness in AMBA.

We had AMBA on our watch list with a buy-the-dip trigger at $61.00. Shares hit our trigger on Thursday when the stock dipped to round-number support at $60.00 and bounced. Unfortunately Friday's decline (-8.6%) and breakdown below $60 looks pretty ugly.

I listed AMBA as an aggressive, higher-risk trade and it looks like the stock is going to put that to the test. Currently there is no stop loss on this trade but more conservative investors may want to reconsider and add a stop.

I am not suggesting new positions at this time. If AMBA doesn't bounce in the $57.50 area it could be headed for round-number support at $50.00.

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.

Use small positions to limit risk - AMBA is a volatile stock!

- Suggested Positions -
SEP 24, 2015 - entry price on AMBA @ 61.00, option @ 5.40
symbol: AMBA160115C70 2016 JAN $70 call - current bid/ask $4.10/4.50

09/24/15 triggered @ $61.00
09/13/15 adjust the buy-the-dip trigger to $61.00
Option Format: symbol-year-month-day-call-strike

Chart

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


The Clorox Co. - CLX - close: $116.24

Comments:
09/27/15: CLX is another watch list graduate and shares have continued to show relative strength.

The plan was to wait for CLX to fill the gap and close above resistance at $114.00. CLX met that requirement on Monday with the stock closing at $114.47. Our trade opened on Tuesday morning with the stock gapping down at $113.65. Fortunately traders bought the dip and shares rebounded to a new four-week high. Broken resistance near $114.00 should now be new support.

If you're looking for an entry point consider waiting for a dip near $114.00.

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.

- Suggested Positions -
SEP 22, 2015 - entry price on CLX @ 113.65, option @ 5.25
symbol: CLX170120C125 2017 JAN $125 call - current bid/ask $4.30/6.00

09/27/15 new stop loss @ 105.85
09/22/15 Trade begins. CLX opens at $113.65
09/21/15 triggered. CLX closed @ $114.47, trigger was a close above $114.25
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 105.85
Play Entered on: 09/22/15
Originally listed on the Watch List: 09/08/15


Lions Gate Entertainment - LGF - close: $38.12

Comments:
09/27/15: LGF was not immune to the market's widespread decline. The stock did find support near its mid September lows on Thursday. However, on the weekly chart, last week's decline has produced a bearish engulfing candlestick reversal pattern. This is a warning signal since it needs to be confirmed.

At this time I would wait for a close above $40.50 or even a close above the September high (so above $40.75) before initiating new bullish positions.

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.

- Suggested Positions -
SEP 18, 2015 - entry price on LGF @ 39.61, option @ 4.50
symbol: LGF170120C45 2017 JAN $45 call - current bid/ask $2.75/4.30

09/18/15 Trade begins. LGF opens at $39.61
09/17/15 LGF closed at $40.06, inside our $40-41 entry range
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 09/18/15
Originally listed on the Watch List: 09/08/15


Visa Inc. - V - close: 70.69

Comments:
09/27/15: Believe it or not but V eked out a gain for the week. That's impressive considering the market's sharp declines. Bigger picture V seems to be stuck churning sideways. There is no change from my prior comments.

I am suggesting investors wait for a new close above $72.00 or more conservative investors can wait for a close 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 $4.45/4.65

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

Content Is King

by James Brown

Click here to email James Brown


New Watch List Entries

DIS - Walt Disney Co.


Active Watch List Candidates

AAPL - Apple Inc.

CRM - Salesforce.com

DHI - DR Horton Inc

FB - Facebook Inc.

FIS - Fidelity National Info. Services

OA - Orbital ATK Inc.

RCL - Royal Caribbean Cruises

SBUX - Starbucks Corp.


Dropped Watch List Entries

AMBA and CLX graduated to our active play list.



New Watch List Candidates:

The Walt Disney Co. - DIS - close: 100.30

Company Info

If investors continue to sell DIS we want to be ready to buy the dip near support.

DIS has been a big cap superstar with strong, steady gains off its 2011 lows. That changed in August this year. DIS has seen a very sharp and painful correction and it looks like an opportunity.

Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off in DIS stock has continued thanks to a global market meltdown.

We think this pullback in the stock is way overdone. Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There were no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

(sidenote - The advertising environment for television should also improve in 2016 thanks to the U.S. presidential election.)

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

Analysts are claiming Disney shares could add 25% before the end of December because of their strong movie schedule and coming attractions. The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof.

Disney Movie Schedule (partial list)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 2016 - "Captain America: Civil War"
June 2016 - "Finding Dory"
Dec. 2016 - "Star Wars Anthology: Rogue One"
May 2017 - "Star Wars: Episode VIII"
June 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Content is still king and DIS rules. They're going to make a hoard of money off their Star Wars movies but that's just the tip of the iceberg. There will be tons of money made on merchandising from toys, clothing, video games, and just about everything else under the sun they can slap a Star Wars logo on.

The stock's correction from $121 was abrupt. DIS quickly fell from correction territory to bear-market territory in just a few days. Now the oversold bounce seems to have stalled under resistance near $105 and its 200-dma. The action this last week has DIS threatening to breakdown under round-number support at $100.00. If that happens investors could overreact and send DIS back toward its August lows near $90.00. We want to be ready to catch it near the August lows. Tonight I am suggesting a buy-the-dip trigger at $91.50.

Buy-the-dip trigger: $91.50
No stop loss (initially)

BUY the 2017 Jan $100 call (DIS170120C100) (estimated entry $7-$8)

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

Chart of DIS:

Weekly Chart of DIS:

Originally listed on the Watch List: 09/27/15


Active Watch List Candidates:



Apple Inc - AAPL - close: 114.71

Comments:
09/27/15: AAPL has spent the last several days churning sideways in the $112-117 range. Friday's rally attempt failed near $117. This Monday the stock could see some volatility as the market reacts to AAPL's sales over the weekend.

The new iPhone 6s and 6s+ hit the shelves this weekend. Analysts are estimating AAPL will sell 12 million units in the last three days. One analysts upped their estimate to the 13-15 million range. If AAPL fails to hit 12 million phones sold the stock could tank.

I'm still bullish on this stock between now and yearend. AAPL should have a very strong holiday shopping season this year. I am not giving up on our buy-the-dip strategy yet.

Trade Description: September 13, 2015:
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

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


Salesforce.com - CRM - close: 72.44

Comments:
09/27/15: CRM also displayed some relative strength last week. The stock is now up three weeks in a row. I'm not going to complain but we do want to see a correction first before CRM makes any significant progress higher.

Right now the plan is to buy a dip at $65.25. If CRM breaks through resistance near $76.00 we may have to adjust our entry strategy.

Trade Description: September 20, 2015:
If you're looking for a long-term bullish candidate CRM definitely fits. Founded in 1999 and headquartered in San Francisco the company has become a huge player in the cloud computing industry.

CRM is part of the technology sector. According to the company, "Salesforce is the world's #1 CRM company. Our industry-leading Customer Success Platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in cloud, social, mobile and data science technologies with the Customer Success Platform."

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. The company's most recent quarter was announced August 20th. Analysts were expecting Q2 results of $0.17 a share on revenues of $1.6 billion. CRM beat both estimates with a profit of $0.19 as revenues grew +23.5% to $1.63 billion. Management raised their Q3 and full year 2016 revenue guidance.

Technically the stock is in a long-term up trend and the point & figure chart is forecasting an $85.00 target. Considering where we are on the calendar and the fact that the next three weeks tend to be the worst weeks of the year for stocks, I am suggesting a buy-the-dip trigger. Wait for CRM to dip to $65.25 and then buy calls.

Buy-the-dip trigger: $65.25, initial stop loss $59.00

BUY the 2017 Jan $75 call (CRM170120C75)

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

Originally listed on the Watch List: 09/20/15


DR Horton Inc. - DHI - close: 30.64

Comments:
09/27/15: DHI experienced some selling on Monday and Tuesday but traders bought the dip multiple times in the $29.40 area. I still expect a deeper pullback. Wait for a dip to $28.50.

Trade Description: September 13, 2015:
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.

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

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


Facebook, Inc. - FB - close: 92.77

Comments:
09/27/15: The last few days have seen FB shares churn sideways in the $92-96 range. Friday's move has produced a bearish engulfing candlestick reversal pattern. I'm crossing my fingers that FB confirms the reversal. We want to buy the stock on a significant dip back toward support (current trigger $86.50).

I'm going to give FB another two weeks. If shares do not correct lower then we'll re-evaluate our entry point strategy.

Trade Description: September 13, 2015:
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 $86.50
Initial stop loss at $79.75

BUY the 2017 Jan $100 call (FB170120C100)

09/20/15 adjust the buy-the-dip trigger from $85.00 to $86.50
Option Format: symbol-year-month-day-call-strike

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


Fidelity National Info. Svcs. - FIS - close: $68.22

Comments:
09/27/15: FIS closed virtually flat on the week. We are still in a wait-and-see mode and would like to see FIS breakout higher and 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


Orbital ATK, Inc. - OA - close: $73.31

Comments:
09/27/15: The stock market's decline last week shaved a couple of dollars off OA. Shares might be headed for potential support near $70.00 and its 200-dma. If OA breaks down below $70 we'll likely remove it as a candidate. Currently 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


Royal Caribbean Cruises - RCL - close: 91.07

Comments:
09/27/15: Bingo! Right on cue RCL has delivered a pullback. A week ago RCL was hitting new highs. We wanted to buy calls on a dip. RCL is very close to tagging our buy-the-dip trigger at $90.00. More nimble traders may want to wait and see if RCL will dip into the $88-89 area and buy calls there instead. Alternatively, more conservative investors could wait for RCL to hit $90.00 and then buy a bounce (a move back above $91.00 would qualify).

I do have a new concern. Last week's action in RCL has produced a bearish engulfing candlestick reversal pattern on RCL's weekly chart. Cautious traders might want to wait and see if RCL confirms the reversal before initiating positions. However, I will point out that six weeks ago RCL produced a similar reversal pattern and confirmed it but the follow through lower didn't last very long.

Trade Description: September 20, 2015:
If you are looking for stocks with relative strength then RCL fits the bill. Shares tagged new all-time highs last week and posted their third weekly gain in four weeks.

RCL is in the services sector. According to the company, "Royal Caribbean Cruises Ltd. is a global cruise vacation company that owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisieres de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 44 ships with an additional eight under construction contracts, and two under conditional agreements. They operate diverse itineraries around the world that call on approximately 480 destinations on all seven continents."

Barclays just upped their outlook on the cruise liners and believes the group is seeing improved strength in pricing. Meanwhile RCL has been cashing in on the growing trend of Chinese tourism. The recent change in ties between the U.S. and Cuba also represents a new opportunity for the cruise lines.

Technically RCL looks very bullish and the point & figure chart is forecasting at $121.00 target. Yet I don't want to buy it here. The market looks poised for a pullback. We will use a buy-the-dip trigger at $90.00. More conservative investors may want to hold out for a dip to $88.00 instead.

Buy-the-dip trigger: $90.00, no initial stop loss.

BUY the 2017 Jan $110 call (RCL170120C110)

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

Originally listed on the Watch List: 09/20/15


Starbucks Corp. - SBUX - close: 57.99

Comments:
09/27/15: SBUX has continued to show relative strength. The stock is now up three weeks in a row. Shares almost tagged their all-time highs near $59.30 on Friday. I am not giving up on a buy-the-dip entry point. Let's give SBUX another week or two before adjusting our entry point strategy.

Trade Description: September 20, 2015:
It's time to bring SBUX back to the LEAPStrader newsletter.

Here is an updated trade description on SBUX:

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

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

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

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

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

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

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

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

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

SBUX continues to serve up strong earnings and revenue growth too. The fourth quarter of 2014 saw a huge jump in SBUX gift cards. One out of every seven Americans received a SBUX gift card. SBUX has been reporting very strong overseas sales growth and consistently healthy same-store sales growth globally.

Shares were very steady performers for much of 2015 and then during the market's correction in late August the stock just collapsed. It was shocking to see SBUX erase six month's worth of gains in just a few days. Of course it bounced back almost as fast. Tonight I want to use SBUX's volatility to our advantage. If the market declines over the next couple of weeks SBUX might be unfairly punished. The $50-52 area should be support. We want to use a buy-the-dip trigger at $52.00.

Buy-the-dip trigger: $52.00, no initial stop loss.

BUY the 2017 Jan $60 call (SBUX170120C60)

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

Originally listed on the Watch List: 09/20/15