Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/9/2015

Table of Contents

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

Market Wrap

Another Gap, Another Reversal

by Keene Little

Click here to email Keene Little
Since the sharp decline into the August 24th low we've seen multiple large opening gaps and big price swings but the market hasn't gone anywhere since the low. Trying to figure out market direction day-to-day has only led to frustration and today was no different.

Today's Market Stats

Over the holiday weekend we received additional information that China was continuing to slow down and dramatically in some ways. That should have tanked the futures on Monday but instead they rallied, which set up the big gap up Tuesday morning. The Fed stepped in front of the bad news by putting San Francisco Fed chief John Williams out in front, talking about the difficulty the Fed will have raising rates. This was done with an interview with the WSJ's Jon Hilsenrath, who is the Fed's authorized "leaker." Before the interview it has been Williams who has consistently supported a rate hike, feeling the economy was strong enough to support it. But in the interview Williams said "There are some pretty significant -- and I would say have now grown larger -- head winds that have developed." That was Fed speak for "we don't think we can raise rates at this time."

The interview with Williams was all it took to ignite short covering in the futures market, which created a large gap up Tuesday morning. A price consolidation was then followed by a push higher in the afternoon and that was then followed by more another overnight rally in the futures. It was looking like it was going to be off to the races again as more short covering launched this morning's big rally but this time the sellers smacked it back down and the DOW's 200-point rally became a 200-point loss before today's close. Basically it was just a continuation of what we've seen for the past 10 trading days -- big price swings with large gaps in both directions, which has created a large-range sideways consolidation. This fits best as a bearish continuation pattern and I'm watching for price evidence to the contrary (but not seeing any yet).

Tonight I'll just jump into the charts since there's very little to discuss about the world economies and other factors that affect the market sentiment. It's been a roller coaster with so many reversals, which has made trading difficult. The only thing I can do at this point is recommend safety over aggressive trading. There are times to watch and wait and this is one of them. What to wait for is what I'll attempt to show tonight.

The DOW's weekly chart is not terribly helpful at this point as price cycles around the broken uptrend line from May 2009 - October 2011, currently near 16400 (arithmetic price scale). There's a wide support-resistance window between roughly 15300 and 17100, or perhaps a tighter one between 15300 and today's high near 16665 (and the August 28th high near 16670). The bulls will argue the choppy consolidation since August 24th is part of a bullish base building while the bears will argue the consolidation is just a bearish continuation pattern. I'm currently arguing the latter (with the bears) but either potential needs to be respected by both sides.

Dow Industrials, INDU, Weekly chart

The consolidation pattern off the August 24th low currently looks like an ascending triangle (rising lows, flat top) and we could see one more bounce up to the top of the triangle (16670) before heading for new lows. The wave count is not clear because of what looks like an outsize 4th wave correction following the August 24th low but the triangle fits well for a 4th wave and the pattern off the May high continues to support the idea that we'll see the market stair-step lower into November. But a rally above 17100 would at least turn the market neutral, if not bullish.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,100
- bearish below 15,980

The 60-min chart below shows the ascending triangle pattern, assuming that's what's playing out. It's possible the bounce correction has already finished with this morning's high and a break below last Friday's low near 16026 would be more immediately bearish (although the potential for just a deeper pullback before bouncing back up can't be ignored).

Dow Industrials, INDU, 60-min chart

The SPX daily chart below shows a different kind of triangle consolidation pattern that could play out for many weeks before dropping lower. This would be a tough pattern to trade so let's hope this one doesn't happen. It could also be a tighter ascending triangle like the DOW's and as long as price stays above last Friday's low near 1911 and the August 28th high near 1994 you want to be careful of the chop. A break of either of those levels could lead to a larger tradable move.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1994
- bearish below 1867

On August 28th NDX tagged price-level S/R near 4345 (with a high near 4341), which is the level that was resistance in November 2014 and support in April and July. It had broken with a big gap down on August 21st and that gap would be closed with a rally to 4385. But 4345 acted as resistance again this morning with the gap up and quick rally to almost 4353. That was followed by an immediate reversal back down and the big red candle looks bearish against price-level resistance, especially since an outside down day or what could be considered a key reversal day. If the bulls can turn it around and push it up a little higher we could see its August 21st gap closed at 4385 and its broken 200-dma back-tested near 4384. And if the buyers can do better than they did today and really juice the market higher (where's a Fed head and "no rate hike" when you need one?), we could see NDX up to its broken 50-dma, currently near 4446 and its broken uptrend line from 2012-2013-2014, which crosses the price projection where the 2nd leg of the bounce off the August 24th low would be 62% of the 1st leg, near 4464.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4385
- bearish below 4121

I'm using the RUT to track a pattern for lower prices with a stair-step move down into October (a common month for a major low). Notice that this morning's high for the RUT, near 1170, was a test of its broken uptrend line from October 2011 - October 2014 (arithmetic price scale). It's a good setup for lower lows if it drops below 1124 but continue to respect the potential for a higher rally.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1000
- bearish below 1000

While the stock market has been jumping around the past two weeks the bond market was at first chopping sideways but then bond prices sold off the past two days. That had rates rising and they acted like the stock market today, which had it looking like a rotation out of stocks and into bonds. TYX made it up to its broken uptrend line from January-April with this morning's gap up but it then sold off, leaving a bearish kiss goodbye. A reversal in bond yields to the downside (with a rally in bond prices) would support stock market bears.

30-year Yield, TYX, Weekly chart

The trannies were relatively strong today and I see the potential for another push higher to complete an a-b-c bounce off its August 24th low. The 2nd leg of the bounce, from September 1st, would be a cleaner 5-wave move with one more new high and the 3-wave bounce off the August 24th low would have two equal legs up at 8131. That would also be a test of its broken 50-dma, currently at 8136 and coming down. If you like to trade this index, such as with IYT, watch for this setup to get short if it plays out.

Transportation Index, TRAN, Daily chart

The U.S. dollar continues to stay choppy and that's one of the things that keeps me thinking it will stay stuck in a consolidation pattern for another 2 to 3 months. The downtrend line from March-August is currently near 97.85 and should hold as resistance if tested. The bottom of a descending wedge pattern is the trend line along the lows from May-August, is currently near 92.30 and that line should act as support if tested. Ideally we'll see the dollar push marginally higher before heading back down to the bottom of the wedge and finish close to the end of the year. That would do a nice job setting up a rally next year to new highs.

U.S. Dollar contract, DX, Daily chart

Gold broke down today from short-term price support at its August 26-27 lows, near 1117, and now looks like it will head lower sooner rather than later. If the bulls can turn this around and get gold above its August 24th high near 1170 that would be a bullish heads up. But the larger pattern is what suggests lower prices and down to around 1000 is the next target.

Gold continuous contract, GC, Daily chart

Oil's spike up from its August 24th low was impulsive and that suggests another leg up following the corrective pullback from August 31st. I'll continue to show the idea for a big sideways consolidation into next year (before heading lower) until the price pattern tells me otherwise.

Oil continuous contract, CL, Daily chart

Other than the PPI numbers and Michigan Sentiment on Friday, there's not much in the way of economic reports for the rest of the week that will move the market. It will continue to be more influenced by rumors and overseas events.

Economic reports and Summary

Conclusion

The stock market has been working hard to hold up off its August 24th lows. Following the comments from the Fed heads it's becoming more likely in the minds of many market participants that there will not be a rate hike this month. I've felt there was no chance of it happening and now with the admission of weakening economic numbers I don't believe the Fed will puts itself in a potentially embarrassing position of having to backtrack in a couple of months. It might be embarrassing to backtrack on their talk about raising rates but their easy out is to simply say the numbers have changed to the point where they can no longer support a rate hike at this time. That's far different from having to admit in a few months that they made a mistake when they raised rates. The Fed is all about saving face because once they lose the faith of the markets they've lost to battle to survive.

It's of course not so much the rate hike that bothers the market; it's more about the Fed changing their posture from supporting the market to one of letting the market flounder on its own. Most believe the market will not stay up without the Fed's help. Wait until they realize the Fed is really powerless and it's only the belief in the Fed (kind of like belief in the good faith of the U.S. government to back its fiat money) that kept the market heading higher.

With multiple large gaps in both directions and reversals of reversals following corrective price action (3-wave moves), it's been a rough time to trade. You had to be in position to enjoy the market gaps (good luck choosing that direction) and then you had to be quick to take profits following the gap, especially if in long options since premium quickly deflates once the gap move completes. From an EW perspective, it looks like a 4th wave correction following the August 24th low and 4th waves are notorious for being choppy and whippy. The only ones to consistently make money during these corrections are the brokers. I've been saying it's a good time to be flat because of the known difficulty trading these patterns. It's possible the bounce correction has finished but if the triangle pattern shown for the DOW (on its 60-min chart) is correct, we'll see one more bounce up before heading lower. I lean bearish, either from here or after another bounce attempt but the bulls can always pull another surprise attack. Trade carefully if you can't stand being on the sidelines.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Plays

Poised To Hit Multi-Year Lows

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Helmerich & Payne, Inc. - HP - close: 50.66 change: -2.29

Stop Loss: $55.15
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 9, 2015
Time Frame: Exit prior to earnings in November
(option traders exit prior to October expiration)
Average Daily Volume = 413 thousand
New Positions: Yes, see below

Company Description

Trade Description:
The bear market in crude oil has crushed shares of HP, an oil driller. The stock has fallen from its 2014 highs near $118.00 down to $50.00.

HP is in the basic materials sector. According to the company, "Helmerich & Payne, Inc. is primarily a contract drilling company. As of July 30, 2015, the Company's existing fleet includes 342 land rigs in the U.S., 40 international land rigs, and 9 offshore platform rigs. In addition, the Company is scheduled to complete another 12 new H&P-designed and operated FlexRigs, all under long-term contracts with customers. Upon completion of these commitments, the Company's global fleet is expected to have a total of 394 land rigs, including 373 AC drive FlexRigs."

You have to give HP's management team credit for slashing expenses. The company managed to turn out an adjusted profit of $0.27 a share in the third quarter during a very tough period for the industry.

HP reported its Q3 results on July 30th. Wall Street was only expecting $0.14-to-0.17 per share. Revenues still fell -30% from a year ago to $659 million but that was much better than expected.

Unfortunately for HP the oil market has not recovered. After a huge bounce from its August lows the price of oil has begun to slide. Global oil production is still near record highs while consumption has been weak. An economic slowdown in China and much of the world is hurting demand for oil.

If oil prices stay depressed it's going to hurt business for drillers. The sell-off in HP's stock price has boosted the dividend yield to 5.2%. The current dividend is about $2.75 a year. Rival driller Transocean (RIG) recently cut their dividend. Slower business for drillers could lead HP to reduce its dividend too, which should send the stock lower.

Technically shares of HP are in a bear market and hovering near support at $50.00. A breakdown below $50 could spark a drop toward the next support level around $40.00. The point & figure chart is bearish and forecasting at $38.00 target. Tonight we are suggesting a trigger to launch bearish positions at $49.70.

Trigger @ $49.70

- Suggested Positions -

Short HP Stock @ $49.70

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

Buy the OCT $45 PUT (HP151016P45) current ask $1.60
option price is a current quote and not a suggested entry price.

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Traders Sell The Rally

by James Brown

Click here to email James Brown

Editor's Note:
Widespread gains overseas fueled a spike higher at the opening bell. Unfortunately U.S. investors sold the rally and the market reversed lower.

BDC hit our stop loss.

IM hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Keurig Green Mountain, Inc. - GMCR - close: 58.59 change: +0.05

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: +6.3%
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:
09/09/15: GMCR held up pretty well today. Shares almost tagged resistance at $60.00 and closed virtually unchanged on the session while the rest of the market sank -1.4%.

No new positions at this time. Readers may want to add a stop loss.

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


Ingram Micro Inc. - IM - close: 27.27 change: -0.27

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -2.1%
Entry on September 09 at $27.85
Listed on September 8, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
09/09/15: Our new play on IM is open. The market rally this morning pushed IM to new relative highs. The stock hit our suggested entry point at $27.85. Unfortunately, IM, like most of the market today, quickly reversed lower. IM ended the session with a -0.98% loss.

The intraday high was $27.89. I am suggesting investors wait for a rally past $27.90 before considering new bullish positions.

Trade Description: September 8, 2015:
IM looks like it is about to break out from a huge consolidation pattern.

The company operates in the services sector. According to the company, "Ingram Micro helps businesses fully realize the promise of technology® - helping them maximize the value of the technology that they make, sell or use. With its vast global infrastructure and focus on cloud, mobility, supply chain and technology solutions, Ingram Micro enables business partners to operate more efficiently and successfully in the markets they serve.

No other company delivers as broad and deep a spectrum of technology and supply chain services to businesses around the world. Founded in 1979, Ingram Micro's role as a leader and innovator in technology and supply chain services has fueled its rise to the 69th ranked corporation in the FORTUNE 500.

Ingram Micro amplifies the value of its position at the intersection of thousands of vendor, reseller and retailer partners by customizing and delivering highly targeted applications for industry verticals, business to business customers and commercial needs. From provisioning solutions for system integrators working at the heart of the network to offerings through the full lifecycle of mobile devices, SMB to global enterprise software and computing, point of sale to cloud services, professional AV to physical security-Ingram Micro is trusted by customers to have the expertise and resources to help them define and push the boundaries of what's possible.

The company supports global operations by way of an extensive sales and distribution network throughout North America, Europe, Middle East and Africa, Latin America and Asia Pacific."

The company's most recent earnings report was July 30th. Wall Street was expecting a profit of $0.54 per share on revenues of $10.9 billion. IM delivered $0.55 cents. Revenues were down -3.3% to $10.55 billion. However, if you back out the impact of currency headwinds then IM's results look a lot better. Negative currency translations shaved off -8% from their revenues.

IM management's guidance was a little soft but they announced the initiation of a $0.10 per share dividend and that they were boosting their stock buyback program by $300 million. The stock soared on this news. Shares rallied from $24.50 to $27.25 the next day.

IM was not immune to the market's late-August crash but investors bought the dip at support near its July lows. Shares have since erased the sell-off. Now IM is poised to breakout past resistance and what looks like a consolidation that started in early 2014.

A rally past $28.00 would generate a new buy signal on the point & figure chart. We want to jump in a little earlier. Tonight we are suggesting a trigger to open bullish positions at $27.85.

NOTE: I want to caution readers about the options. The spreads on most of IM's options are a little bit wide. Actually some of them are probably too wide. Be careful with the options.

- Suggested Positions -

Long IM stock @ $27.85

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

Long DEC $30 CALL (IM151218C30) entry $1.15

09/09/15 triggered @ $27.85
Option Format: symbol-year-month-day-call-strike


Oshkosh Corp. - OSK - close: 39.82 change: -0.94

Stop Loss: 38.85
Target(s): To Be Determined
Current Gain/Loss: -5.9%
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:
09/09/15: I cautioned readers last night that OSK might be weak this morning in reaction to rival Lockheed filing a protest about OSK's recent contract win with the U.S. army. OSK actually opened slightly higher thanks to the broader market's pop at the open. When the market turned south OSK underperformed. The S&P 500 lost -1.38% while OSK ended the day with a -2.3% decline.

Tonight we are raising the stop loss to $38.85. No 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

09/09/15 new stop @ 38.85
09/05/15 new stop loss @ 37.45
08/31/15 triggered @ $42.30
Option Format: symbol-year-month-day-call-strike


Starbucks - SBUX - close: 54.69 change: -0.52

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:
09/09/15: SBUX briefly traded above its 50-dma this morning but the rally failed at $56.00. Shares followed the market decline this afternoon. SBUX ended the session off -0.9% and near its low for the day. The nearest support could be the $53-54 region.

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

Ingersoll-Rand - IR - close: 54.26 change: +0.66

Stop Loss: 55.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 5, 2015
Time Frame: Exit
Average Daily Volume = 2.3 million
New Positions: Yes, see below

Comments:
09/09/15: IR displayed some unusual activity this morning. The stock gapped higher at $54.51 and then saw a spike to $63.67. At first this looked like an errant trade. However, there appeared to be several trades. IR was jumping from the $55-56 area to $61-63 back and forth a few times all at the 09:30:58 a.m. mark this morning. This was likely to lower than usual volume today. We can likely blame the high-frequency trading machines for this super fast volatility.

Currently we are still on the sidelines. Our suggested entry point is $52.40.

Trade Description: September 5, 2015:
In the last week of August the second estimate on U.S. Q2 GDP growth was revised higher from +2.3% to +3.7%. Q3 GDP is expected to dip down to +1.5%. The good news is that the U.S. is still growing. The bad news is that much of the world is slowing down. Big companies that do a lot of business overseas are seeing their sales slow. That's in addition to the negative impact of currency headwinds.

Industrial stocks have suffered this year. Sector ETFs like the XLI and IYJ are down about -9% year to date. IR is in the industrial sector and it is underperforming its peers with a -16% decline in 2015.

Here's a brief description of the company, "Ingersoll Rand (IR) advances the quality of life by creating comfortable, sustainable and efficient environments. Our people and our family of brands-including Club Car®, Ingersoll Rand®, Thermo King® and Trane®-work together to enhance the quality and comfort of air in homes and buildings; transport and protect food and perishables; and increase industrial productivity and efficiency. We are a global business committed to a world of sustainable progress and enduring results."

That big drop on IR's daily chart was the market's reaction to their earnings report. Wall Street was expecting a profit of $1.23 a share on revenues of $3.69 billion. IR missed on both counts with a profit of $1.20 on revenues of $3.6 billion. Management lowered their guidance for the current quarter below analysts' expectations.

Technically the oversold bounce from this post-earnings drop didn't make it very far. Then the broader market started correcting lower in a violent fashion and shares of IR plunged to new 52-week lows. The oversold bounce from the late-August crash has already failed. This decline has generated an ugly sell-signal on the point & figure chart, which is forecasting at $36.00 target for IR.

Currently IR appears to have short-term support at $52.50. We are suggesting a trigger to launch bearish positions at $52.40.

FYI: IR will begin trading ex-dividend on September 9th. The dividend is $0.29 a share.

Trigger @ $52.40

- Suggested Positions -

Short IR stock @ $52.40

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

Buy the OCT $50 PUT (IR151016P50)

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


QUALCOMM Inc. - QCOM - close: 54.32 change: -0.88

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: +0.2%
Entry on September 04 at $54.45
Listed on September 1, 2015
Time Frame: 4 to 6 weeks
Average Daily Volume = 12.5 million
New Positions: see below

Comments:
09/09/15: Today's Apple Inc. event failed to impress investors. Both AAPL and QCOM ended lower on the session. QCOM's morning rally failed beneath the $56.00 level and shares ended with a -1.59% decline.

A drop below $54.00 could be used as a new bearish entry point.

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.

- Suggested Positions -

Short QCOM stock @ $54.45

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

Long OCT $50 PUT (QCOM151016P50) entry $0.96

09/04/15 triggered @ $54.45
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 27.35 change: +0.61

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -25.3%
2nd position Gain/Loss: +5.7%
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:
09/09/15: U.S. market volatility refuses to die. The sharp intraday reversal off the morning low was ugly. I am surprised the VIX and VXX did not see bigger gains today.

Tomorrow will likely see more stock market weakness so we could see the VXX rally toward its recent highs. 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 BEARISH PLAYS

Belden Inc. - BDC - close: 50.68 change: +0.00

Stop Loss: 51.75
Target(s): To Be Determined
Current Gain/Loss: -9.8%
Entry on September 04 at $47.11
Listed on September 3, 2015
Time Frame: Exit 4 to 6 weeks
Average Daily Volume = 388 thousand
New Positions: see below

Comments:
09/09/15: Our BDC trade almost survived Wednesday's volatile session. The market's pop higher this morning failed to lift BDC to $51.75. However, early this afternoon shares did see a very, very brief spike higher and BDC hit $51.78 before reversing lower. Our trade was stopped out at $51.75.

- Suggested Positions -

Short BDC stock @ $47.11 exit $51.75 (-9.8%)

09/09/15 stopped out @ $51.75
09/04/15 trade opened on gap down at $47.11, trigger was $47.20
Option Format: symbol-year-month-day-call-strike

chart: