Option Investor
Newsletter

Daily Newsletter, Thursday, 9/3/2015

Table of Contents

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

Market Wrap

Positive Data Supports Market

by Thomas Hughes

Click here to email Thomas Hughes
A round of positive economic data helped support the market while we await tomorrows NFP, the last major employment report before the September FOMC meeting.

Introduction

A round of positive data helped to support the market today. News from Challenger, the jobless claims report and ISM Services suggest that labor markets remain stable and that the US economy is still expanding.

Early morning news was focused on the data, as well as the ECB meeting and press conference. Asian markets were quiet, China is closed for a two day government holiday and will reopen on Monday. Japan was able to bounce back from recent lows, if only marginally, and close with a gain of 0.48%. European shares were able to post a nice rally, spurred on by comments from Mario Draghi that have renewed hopes of additional QE measures.

In the official statement the ECB lowered its EU GDP and inflation growth targets for the next 3 years. In comments following the release Draghi said that downside risks have reappeared despite ongoing asset purchases and that that program could be increased. No changes to current policy were made, rates were held at current levels. In other news from the EU PMI came in at 54.3, the highest level in 4 years.

Market Statistics

Futures trading indicated a positive open for equities all morning. The trade spiked following the release of data and the ECB statements but did not hold the highs going into the opening bell. After the open the indices waffled for a moment and then began a steady climb that took them to the highs of the day by 11AM. Once the early high was hit the market began to sell off in a slow and steady decline that took the indices back to the low of the day by 1:10PM.

A small bounce formed once the low of the day was hit. This lasted for about an hour but did not rally take hold. The afternoon high was hit around 2:30PM at which time the market began to fall back once more. A new low was hit late afternoon, just below break even levels, but these levels too did not hold. Another small bounce, going into the close of the day, carried most indices back into positive territory .

Economic Calendar

The Economy

The Challenger, Grey & Christmas report on planned lay-offs was released in the early morning. The report shows a -61% decline in planned lay-off's from last month's 4 year high. This month the number of lay-offs was reported as 41,286 and is +2.9% higher that this same time last year. On a year to date basis 2015 lay-offs are now at 434,554, 31% higher than last year at this time. Retail led this month with planned lay-off's totaling 9,601, most of which are due to the bankruptcy of grocery chain A&P. Low oil prices were blamed for 3,808 job losses bringing the total to 82,268 for the year. This is still a little less than expectations which called for energy related losses in the range of 90,000.

Now, if we back out job losses related to energy the year to date total drops down to 352, 256 and only +6% from last year (don't forget that last year there were less than 5,000 jobs lost in the energy sector, -93% less than this year).

There are some other things to consider when looking at the year to date job loss numbers. One, many of last months proposed lay-offs are in government/military and are scheduled over the next 2-3 years. Another is that a sizable portion of this years cuts are also due to major lay-offs in the tech sector, namely by Hewlett Packard and Microsoft, and have been largely anticipated and/or telegraphed by the respective companies.


Initial claims for unemployment made a surprise gain of +12,000 to reach 282,000. Last week's figure was revised lower by -1,000. The 4 week moving average gained 3,250 to reach 275,500. This is the highest level for the average in four weeks but it and the headline number remain near the long term low and consistent with ongoing labor market health. On a not adjusted basis claims rose by 1.7% versus the drop of -2.4% predicted by the seasonal factors. Pennsylvania and New York led with increases of 1,875 and 832 while Kansas and California posted the largest declines in claims, -1,473 and -1,302.


Continuing claims shed -9,000 from a downward revision of -3,000 to hit 2.257 million. This is the 8th week of continuing claims coming in around 2.3 million and just off the long term low. It looks like continuing claims have leveled off, at least for now, and have not shown an impact from the past month's rise in initial claims.

The total number of Americans receiving unemployment benefits is 2.210 million, a rise of 3,050 from last week's report. This number continues to trend near long term lows and, along with the rest of this week's labor data, suggests that the NFP will be steady at least. ADP was a little below expectations and could indicate the same for the NFP. Expectation is in the range of 215,000.


The NFP will be an important number not only as a sign of economic recovery but also as an indication of what to expect at the FOMC meeting. Also of importance will be the unemployment rate, and hourly earnings. The labor data so far suggest that a rate hike is due, if not overdue, while inflation data remains tame. The caveat is that there are growing signs of wage inflation, mentioned in several earnings reports this past go round, that could show up in this month's report. Consensus for hourly earnings is +0.2%, steady from last month.

The services sector ISM numbers were releases at 10AM. The August reading of 59% is firmly expansionary but reflects a mild slow down from the previous month's reading of 60.3%. Within the report all segments remained positive and expansionary if somewhat slowed from last month. Business activity came in at 63.9%, New Orders came in at 63.4% and Employment is at 56%. These readings are the 73rd consecutive month that Business Activity has been expansionary, and the 18th consecutive month of positive gains for employment. Prices paid are also expansionary but have declined to 50.8%.

The Oil Index

Oil prices tried to stage a rebound today but were not able to hold their gains. Positive US data and hopes for renewed EU QE may have been the cause for the early rally but supply/demand fundamentals remain unchanged. Yesterday's build in US crude stockpiles underscores that position and the impending nuclear agreement with Iran will only increase global supply. WTI end the day near break even with Brent falling by a half percent.

The Oil Index tried to post a rally today as well, and like the underlying commodity was not able to hold the gains. Today's action was centered around the 61.8% retracement line and created a relatively small bodied candle with long upper shadow indicating some resistance above the retracement line. The indicators, however, are bullish and suggest that further testing of resistance is likely with a possible move up to the short term moving average and/or my resistance line near 1,170. However, looking at the MACD over the longer term, the most recent bear peak is significantly large, convergent with the recent low and a retest of that low. If oil prices fall, and/or the index is not able to move above current resistance at the retracement level (near 1,115), then a move down to the recent low near 1,020 is likely.


The Gold Index

Gold prices fell in today's action as data and ECB outlook has strengthened the dollar. Despite the gain in dollar value gold prices remain above $1,120. Gold prices continue to be influenced by data and FOMC speculation and will likely experience more volatility over the coming weeks. Near term support targets are near $1110 with long term targets near $1080. Resistance target is $1130 and then above that near $1150. Without inflation present it looks like gold has nowhere to go but down. Economic data is strengthening the dollar, the FOMC is expected to strengthen it more (if not this meeting then at a meeting real soon) and today's news from the ECB may only increase the effect. Not to mention ongoing QE from the BOJ as well as any currency moves put forth by the PBOC.

The gold miners tried to stage a rally in the early portion of the day but fell back in afternoon trading. The miners ETF GDX ended the day with a loss near -1.75% but is basically flat for the past week. The indicators have rolled into what looks like a potentially strong bearish signal, in line with the ongoing down trend in gold stocks, that could take the ETF down to recent lows near $13 or lower.


In The News, Story Stocks and Earnings

Joy Global, maker and servicer of surface mining equipment, reported earnings before the bell. The company reported a miss, -26% below estimated, driven by "one of the most challenging (business environment) seen in decades". Along with the miss on earnings Joy reported a -31% decline in bookings, a -16% decline in services bookings and a -10% decline in net sales over the same period a year ago. Along with the drop in commodity pricing the shift away from coal is having an impact on business. Execs lowered guidance as well, to a range around $1.80, far below consensus estimates in the range of $2.50. Shares of the stock lost more than -15% and set a new 6 year low.


Verizon announced an increase to its dividend this morning before the market opened. The company raised the quarterly dividend by 2.7% to $0.565, or $2.26 per share annually. This is the 9th year that Verizon has raised its dividend in some way and, based on earnings expectations for the next quarter, may not be the last. The telecommunications, according to data from FactSet, is expected to lead earnings growth in the 3rd quarter and the full year with increases of over +18% and +16.9%. Shares of the stock gained more than 2% on an intra-day basis but gains were capped at the short term moving average.


Campbell's Soup Company reported an earnings beat on revenue slightly below expectations. The company reported adjusted earnings of $0.43 versus the expectation for $0.42. Fourth quarter sales came in -9% lower than the fourth quarter of last year but were negatively impacted by a calendar shift which decreased the number of weeks in the quarter by 1 compared to last year's fiscal fourth quarter. Along with the report execs reaffirmed guidance in a range of $2.53-$2.58, a nickel above consensus. Shares of the stock dropped in the pre-market session, gapped lower, moved lower to test support but rallied off the low to close with a gain greater than 1.5%.


Medtronic, a global leader in medical devices, released earnings before the bell and beat on the top and bottom line. Despite the beat company execs reaffirmed guidance in a tight range around current consensus. Shares of the stock were able to open strong but fell back during the day. Shares were down -2.25% with strong bearish momentum by close of the day.


The Indices

The market tried to rally and extend yesterday's bounce from support but was not able to hold the gains. Most indices tested previous support/resistance lines in today's session, lines that capped gains and sent them back to near term support. Today's action was led by the Dow Jones Industrial Average which gained 0.14%. The blue chips created a doji candle with long upper shadow that may become a shooting star/pin bar type candle if confirmed. This candle often precedes a decline and could result in a full retest of recent lows. The indicators remain bearish and consistent with such a test, in particular MACD which is convergent with the recent low. Support target is just below yesterday's open near 16,000 with resistance just above today's candle near 16,575.


The S&P 500 made the 2nd biggest gain, 0.12%, and also created a possible pin bar doji. Today's action crossed above my resistance line at 1,960 and the recently broken long term trend line, where bullish action was capped and reversed. This confirms resistance at the trend line and is accompanied by bearish indications. Bearish MACD momentum is in declining but it remains convergent with the recently set low and suggestive of a retest of the low. Stochastic is moving lower in both the near and short term, also suggestive of lower prices. Resistance is the bottom of the trend line, near 1,960, with support targets near 1,900 and just below that near 1,875.


The Dow Jones Transportation Average made the smallest gain, 0.07%, and also created a pin bar like doji. The difference here is that is a small doji, including the upper shadow, and may in fact be just a spinning top. Also, where the first two are testing resistance levels, this index has not yet reached resistance, next target will be the short term moving average. The indicators are consistent with a possible retest of support, MACD is convergent with the recent low and stochastic is still moving lower, but yesterday's candle appears to be confirming support at/near the 7,750 level.


The NASDAQ Composite is the only index of the four majors that did not close in the green. The tech heavy index flirted with lower prices for most of the day, after an initial push higher, and closed with a loss of -0.35%. Today's candle is small bodied but confirms the presence of resistance, at least on a technical basis, at the November 2014 all time high near 4,800. The indicators are mixed, bearish MACD has declined to near zero and stochastic has begun to move higher, but are consistent with a possible move lower to retest support with a target near 4,500.


It looks like the indices have hit a bottom and begun to bounce higher, but is also looks like the lows, or at least support, will be tested again before/if the bull market will resume. I remain bullish into the long term, on earnings and the economy, but with 3rd quarters earnings expectations weakening like they are it is very possible we have not seen the low of this correction.

There are lots of worries weighing the market down and most, if not all, will still be here next week so there is significant risk of continued downside. Of them all only the FOMC rate hike time-line has any hope of being resolved in the near future and its effect on the market is highly questionable. In between now and then there will be plenty of headlines to move the market up or down, whichever way the wind is blowing.

Tomorrow could be a big day, the NFP is coming out and could easily move the market. A strong number is good for economic expansion and ordinarily bullish, but at this time would also help cement the idea of a September rate hike and possibly bearish in the near term. Longer term I stand by my opinion that a rate hike is overdue and would be a sign of US economic health.

The market will be closed on Monday because of the Labor Day holiday so tomorrow's trading will have an extra twist to it as market participants position for the long weekend.

Until then, remember the trend!

Thomas Hughes


New Plays

Consistently Lowering Guidance

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Belden Inc. - BDC - close: 47.56 change: -0.17

Stop Loss: 51.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 2, 2015
Time Frame: Exit
Average Daily Volume = 388 thousand
New Positions: Yes, see below

Company Description

Trade Description:
Industrial stocks are not have a good year. Sector ETFs like the XLI and IYJ are both down about -8% to -9% year to date. BDC is in the industrial sector and shares have been crushed. The stock is down -39% for the year and down about -50% from its 2015 highs.

They are considered part of the electrical equipment industry. According to the company, "Belden Inc. delivers a comprehensive product portfolio designed to meet the mission-critical network infrastructure needs of industrial, enterprise and broadcast markets. With innovative solutions targeted at reliable and secure transmission of rapidly growing amounts of data, audio and video needed for today's applications, Belden is at the center of the global transformation to a connected world. Founded in 1902, the company is headquartered in St. Louis and has manufacturing capabilities in North and South America, Europe and Asia."

The company has a history of beating earnings estimates but revenues have been suffering. BDC reported their Q4 results in February this year. Q4 revenues were down -19%. BDC management lowered their revenue guidance.

They reported their Q1 results in late April. They beat the bottom line estimate but revenues missed with revenues falling -12%. Again the company lowered their guidance.

Q2 results were announced on July 29th and earnings beat estimates but revenues were down -3.2% and significantly below expectations. Once again BDC management lowered their guidance. This time they lowered both Q3 and 2015 guidance.

The market was relatively forgiving until the Q1 report on April 30th. Investors had finally had enough and sold BDC on its disappointing results. Shares flat lined for almost two months before breaking down. The stock collapsed on its earnings report in July. Now it's about to breakdown below its lows from last week when the market was crashing.

The path of least resistance is lower and the next major support level could be the $40.00 area. Shares have short-term support at $47.40. We are suggesting a trigger to launch bearish positions at $47.20.

NOTE: BDC does have options but the spreads are too wide to trade them.

Trigger @ $47.20

- Suggested Positions -

Short BDC stock @ $47.20

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks End Near Unchanged Ahead Of Jobs Data

by James Brown

Click here to email James Brown

Editor's Note:
Widespread gains overseas helped give stocks a boost this morning. Unfortunately the rally faded as investors wait for the August jobs report tomorrow, which could dictate the Fed's next move.

NDRM and NUVA have been removed.

LCI was closed on the gap open this morning.


Current Portfolio:


BULLISH Play Updates

Keurig Green Mountain, Inc. - GMCR - close: 57.43 change: +0.87

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: +4.2%
Entry on August 31 at $55.10
Listed on August 29, 2015
Time Frame: Exit prior to earnings in November
Average Daily Volume = 2.6 million
New Positions: see below

Comments:
09/03/15: GMCR continues to show relative strength. Most of the market closed unchanged on the session. GMCR managed a +1.5% gain. We could see it challenge resistance at $60 if the market rallies on tomorrow's jobs report.

Trade Description: August 29, 2015:
When everyone has the same opinion on a stock sometimes shares will move the opposite direction.

It has not been a good year for GMCR. Shares are down -59% year to date and off -65% from its all-time high set on November 18, 2014 ($157.10). After months and months of declines GMCR could be poised for a big bounce.

If you're not familiar with GMCR they are in the consumer goods sector. When they launched their single-serving coffee brewer it changed the coffee world forever.

According to the company, "As a leader in specialty coffee, coffee makers, teas and other beverages, Keurig Green Mountain (Keurig) (GMCR), is recognized for its award-winning beverages, innovative brewing technology, and socially responsible business practices. The Company has inspired consumer passion for its products by revolutionizing beverage preparation at home and in the workplace. Keurig supports local and global communities by investing in sustainably-grown coffee and by its active involvement in a variety of social and environmental projects. By helping consumers drink for themselves, we believe we can brew a better world."

The company is suffering from heavy competition in the single-serving coffee/hot beverage pod business. The consumer market did not react well when GMCR introduced their Keurig 2.0 brewer, which was designed to only work with company-specific pods. They have also suffered multiple delays on introducing their Keurig Kold machine, which is a cold beverage machine similar to Sodastream.

The stock peaked in November 2014 right before its quarterly earnings report. They beat earnings and revenue estimates but management guided lower. GMCR has guided lower every quarter since then.

In February 2015 they reported earnings and revenues that missed estimates (and guided lower). In early May they reported earnings and revenues that missed estimates (and guided lower). On May 15th the stock sank after the company's presentation on its new Keurig Kold machine. Wall Street is worried that GMCR is pricing their Kold machine too high (around $300) when rival Sodastream's cold beverage maker is only $99.

GMCR's most recent earnings report was August 5th. They reported Q3 earnings of $0.80 per share, which actually beat estimates by a penny but revenues were down -5.2% to $970 million, which was a miss. Management lowered their Q4 guidance. The company said brewer machine sales were down -26%.

Management tried to soften the blow of this disappointing quarterly report and lowered guidance by announcing a $1 billion stock buyback program. The stock collapsed anyway with a plunge from $75 to $52.65.

Everything looks bearish for GMCR. So why are we suggesting a bullish trade? Basically GMCR's stock is so oversold that when it bounces it could see a big bounce. Wall Street analysts have been downgrading GMCR's stock and lowering price targets for the last several months. Everyone is so bearish that an unexpected rally could spark some serious short covering.

When the market collapsed on Monday, August 24th, GMCR fell from $50 to $45.25 but ended the day at $$51.30. That's right. GMCR actually ended Monday with a gain. Shares are now up five days in a row. The $55.00-56.00 area is resistance but a breakout could spark a rally toward $60-65 or its simple 50-dma (currently near $66.50). Technically, last week's bounce, has produced a bullish engulfing candlestick reversal pattern on GMCR's weekly chart. This pattern needs to see confirmation and we want to be ready if this rebound continues.

Friday's high was $54.46. Thursday's high was $54.61. Tonight we are suggesting a trigger to launch bullish positions at $55.10. More aggressive traders might want to consider jumping in early around the $54.75 area. GMCR can be very volatile. I do consider this an aggressive, higher-risk trade.

*small positions to limit risk* - Suggested Positions -

Long GMCR stock @ $55.10

- (or for more adventurous traders, try this option) -

Long NOV $60 CALL (GMCR151120K60) entry $3.07

08/31/15 triggered @ $55.10
Option Format: symbol-year-month-day-call-strike


Oshkosh Corp. - OSK - close: 40.41 change: -0.45

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -4.5%
Entry on August 31 at $42.30
Listed on August 27, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.1 million
New Positions: see below

Comments:
09/03/15: The relative weakness in OSK today is a bit troubling. Shares lost -1.1% while most of the market closed near unchanged. OSK is nearing what should be support at $40.00.

More conservative traders may want to add a stop loss.
I am not suggesting new positions at this time.

Trade Description: August 27, 2015:
The future looks a little brighter for OSK after a big contract win from the U.S. military. OSK has been making vehicles for the military for over 90 years. Earlier this year (January) the military tested new prototypes for a new Humvee design from the likes of Lockheed Martin, AM General, and OSK. This week the Wall Street Journal reported that OSK had won the contract.

OSK is in the consumer goods sector. According to the company, "Oshkosh Corporation is a leading designer, manufacturer and marketer of a broad range of specialty access equipment, commercial, fire & emergency and military vehicles and vehicle bodies. Oshkosh Corporation manufactures, distributes and services products under the brands of Oshkosh®, JLG®, Pierce®, McNeilus®, Jerr-Dan®, Frontline®, CON-E-CO®, London® and IMT®. Oshkosh products are valued worldwide in businesses where high quality, superior performance, rugged reliability and long-term value are paramount."

The new Humvee contract is a big deal. The Pentagon has been cutting back on spending the last few years. This new contract could last 25 years. OSK won with its design that is lighter in weight, providers greater range, and better protection against mines and roadside bombs. Officially the vehicle is called a Joint Light Tactical Vehicle (JLTV).

The initial contract is valued at $6.75 billion for 17,000 vehicles. It could be extended out to year 2040 since the U.S. army wants to buy almost 50,000 new JLTVs for itself and about 5,500 for the Marines. The overall program could be worth $30 billion over 25 years.

OSK's revenues last year were only $6.2 billion so this is a nice boost.

Technically shares of OSK appear to have produced a bullish double bottom. The stock market's spike lower on Monday morning pushed OSK toward its late July lows. This week's rebound in the market has seen OSK breakout past resistance near $40.00 and its 50-dma. This reversal higher has produced a new buy signal on the point & figure chart, which is forecasting a long-term $63.00 target.

Today's high was $42.21. Tonight we are suggesting a trigger to launch bullish positions at $42.30.

- Suggested Positions -

Long OSK stock @ $42.30

- (or for more adventurous traders, try this option) -

Long 2016 Jan $45 CALL (OSK160115C45) entry $3.30

08/31/15 triggered @ $42.30
Option Format: symbol-year-month-day-call-strike


Starbucks - SBUX - close: 54.69 change: -0.57

Stop Loss: 51.15
Target(s): To Be Determined
Current Gain/Loss: -0.8%
Entry on August 27 at $55.15
Listed on August 25, 2015
Time Frame: Exit prior to earnings in October
Average Daily Volume = 8.0 million
New Positions: see below

Comments:
09/03/15: SBUX tried to rally this morning with a gap higher. Unfortunately the pop failed near $55.75 and its 50-dma. SBUX underperformed the major indices with a -1.0% decline for the day.

If the stock market sinks on the jobs data tomorrow we might see SBUX dip toward support near $52.00.

No new positions at this time.

Trade Description: August 25, 2015:
The sell-off in shares of SBUX is a bit ridiculous. The Thursday-Friday-Monday sell-off in the market saw SBUX fall from $57.59 to $42.05. That was a -27% drop in less than three days. The company's fundamentals didn't deteriorate -27%. The recent market turmoil presents an opportunity to buy SBUX. Jump to the bottom of this play description for details.

Here's a little bit about SBUX and the company's performance:

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.

Earnings results:

It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.

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

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

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

The trend of earnings pops continued in July with shares gapping up to new all-time highs following its Q2 report on July 23rd. Earnings were $0.42 per share, a penny above estimates. Revenues were up +17.5% to $4.88 billion, just a hair above expectations. Global same-store sales were up +7% and their non-GAAP operating margin improved 100 basis points to 19.5%. Management is still guiding 2015 revenues to rise +17% in the $19.1-19.4 billion range.

Recent Sell-off & Entry Point

The recent stock market bloodletting saw SBUX breakdown below a multitude of support levels. The weakness on Monday morning was just ridiculous. SBUX opened on Monday, August 24th near technical support at its 200-dma and then it plunged to $42.05. The stock bounced back to $50 by the closing bell. The rebound struggled today but SBUX displayed relative strength with a +1.48% gain versus a -1.35% drop in the S&P 500 and a -0.4% decline in the NASDAQ.

If the stock market continues to sink we want to take advantage of the weakness in SBUX and launch bullish positions on a dip near its 200-dma. Today the simple 200-dma is at $48.04. We will set our entry trigger at $48.00. We are starting this play without a stop loss. More conservative investors might want to wait on launching positions since the next few days could be volatile for the broader market (SBUX included).

- Suggested Positions -

Long shares of SBUX @ $55.15

- (or for more adventurous traders, try this option) -

Long NOV $57.50 CALL (SBUX151120C57.5) entry $2.00

08/29/15 new stop at $51.15
08/27/15 Triggered @ $55.15
08/26/15 Entry point adjustment - move the buy-the-dip trigger from $48.00 to $50.00. Plus, add a secondary trigger to open bullish positions at $55.15.
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

QUALCOMM Inc. - QCOM - close: 55.55 change: -0.31

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 1, 2015
Time Frame: 4 to 6 weeks
Average Daily Volume = 12.5 million
New Positions: Yes, see below

Comments:
09/03/15: QCOM briefly traded above technical resistance at its 10-dma this morning. The rally faded and shares settled with a -0.55% decline.

Our suggested entry point for bearish positions is $54.45.

Trade Description: September 1, 2015:
There seem to be a ton of bulls shouting at everyone to buy QCOM even though the stock is in a bear market. QCOM peaked in early 2014 around $81-82 a share. Since then it has been a very bumpy decline lower.

The company is facing rising competition. More importantly some of that competition is coming from its own customers. QCOM has been a very dominant player in the mobile phone chipset market. Yet lately the company has been facing competition from mobile phone manufacturers choosing to use their own chips instead of QCOM's.

Almost half of QCOM's revenues come from two companies: Apple (AAPL) and Samsung. Both of these mobile phone makers have been slowly beefing up their own in-house chip design and production abilities. Earlier this year QCOM lost out when Samsung picked its own chip sets for a handful of new mobile phone models instead of QCOM's.

The rising competition is taking a bite out of sales. QCOM's earnings performance has been mixed over the last year. It tends to beat estimates on the bottom line but revenues have been disappointing. After a couple of quarters of revenue growth in the +7-8% range QCOM just reported Q3 revenues fell -14.3%, which was worse than expected. Another big challenge is management's guidance. QCOM has lowered its guidance the last four quarterly reports in a row!

The company has tried to soften the bad news by announcing a massive $15 billion stock buyback program but that was back in March this year. They promised to spent $10 billion on buybacks between March 2015 and March 2016. The big buyback has not stopped QCOM's stock from falling to new multi-year lows.

Bullish investors have tried to argue that QCOM might split up the company to unlock value. That was a very popular idea when activist investors Jana Partners got involved in QCOM. Jana is one of the reasons QCOM did such a big stock buyback earlier this year.

Right now the market's focus on China's weakness could be killing QCOM's stock. The company does a huge amount of business with China.

Meanwhile technically QCOM looks very weak. The point & figure chart is bearish and forecasting at $48.00 target. The oversold bounce from last week's lows appears to be rolling over. Today's intraday low was $54.69. We are suggesting a trigger to launch bearish positions at $54.45. We'll plan on exiting in the next four to six weeks.

Please note that I do want to offer one potential warning. Apple Inc. (AAPL) has a special event scheduled for September 9th. We do not know what AAPL will announce. If they happen to announce something that uses QCOM equipment then it could be a bullish catalyst for QCOM but that's probably a big "if" at the moment.

Trigger @ $54.45

- Suggested Positions -

Short QCOM stock @ $54.45

- (or for more adventurous traders, try this option) -

Buy the OCT $50 PUT (QCOM151016P50)

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

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


iPath S&P500 VIX Futures ETN - VXX - close: 27.32 change: -0.15

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -25.2%
2nd position Gain/Loss: +5.8%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: Exit prior to October option expiration
Average Daily Volume = 50 million
New Positions: see below

Comments:
09/03/15: It was another volatile day for the VXX with a dip toward its 10-dma this morning.

This ETN could see another big move (either direction) tomorrow depending how the market reacts to the jobs report.

No new positions at this time.

Trade Description: August 24, 2015
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

(see VIX chart from the August 24th play description)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

- Suggested Positions -

Short the VXX @ $21.82

- (or for more adventurous traders, try this option) -

Long OCT $20 PUT (VXX151016P20) entry $2.93

Sept. 2nd - 2nd position (Double Down On The September 1st Spike)

Short the VXX @ $29.01

- (or for more adventurous traders, try this option) -

Long OCT $20 PUT (VXX151016P20) entry $0.78

09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

NeuroDerm Ltd. - NDRM - close: 23.10 change: -2.61

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 2, 2015
Time Frame: Exit
Average Daily Volume = 243 thousand
New Positions: see below

Comments:
09/03/15: Surprise! It looks like NDRM does not want to play with us. We added it last night with a suggested entry point to launch bullish positions at $26.65. Today biotech stocks were some of the worst performers. The IBB biotech ETF lost -2.1%. The BTK biotech index fell -1.85%. Yet NDRM plunged -10%. With that sort of relative weakness we are removing it as a candidate.

Trade did not open.

09/03/15 removed from the newsletter, suggested entry was $26.65

chart:


NuVasive, Inc. - NUVA - close: 51.69 change: -0.46

Stop Loss: 49.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 29, 2015
Time Frame: Exit 6 to 8 weeks (option traders exit prior to expiration)
Average Daily Volume = 592 thousand
New Positions: see below

Comments:
09/03/15: The early morning rally in NUVA failed at short-term resistance and the stock underperformed with a -0.88% decline.

We are giving up on NUVA and removing it as a candidate.

Trade did not open.

09/03/15 removed from the newsletter, suggested entry was $54.55

chart:



CLOSED BEARISH PLAYS

Lannett Co. - LCI - close: 55.81 change: +6.33

Stop Loss: 51.55
Target(s): To Be Determined
Current Gain/Loss: -26.7%
Entry on September 01 at $46.42
Listed on August 31, 2015
Time Frame: Exit 6 to 8 weeks (ahead of October option expiration)
Average Daily Volume = 858 thousand
New Positions: see below

Comments:
09/03/15: I warned readers last night that shares of LCI were going to gap higher this morning as the market reacted to its acquisition news.

We were stopped out when LCI opened at $58.80. Shares spiked up to $60.45 at its peak before settling near technical support at its 50-dma and 200-dma around $55.80.

- Suggested Positions -

Short LCI stock @ $47.25 exit $58.80 (-26.7%)

- (or for more adventurous traders, try this option) -

OCT $45 PUT (LCI151016P45) entry $5.00 exit $0.40 (-92.0%)

09/03/15 stopped out on gap higher
09/02/15 After hours LCI announces acquisition, stock surges +20%
09/01/15 triggered on a gap down at $46.42, suggested entry was $47.25
Option Format: symbol-year-month-day-call-strike

chart: