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Daily Newsletter, Saturday, 9/12/2015

Table of Contents

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

Market Wrap

Tick Tock

by Jim Brown

Click here to email Jim Brown

Friday's lackluster market traded in both positive and negative territory before a flurry of buying ahead of the close lifted it back to Thursday's highs. With China and Japan now old news, it was fear of the Fed that kept investors wary.

Market Statistics

Friday's lack of news and volume was more like a summer Friday than the middle of September. Market commentators everywhere were struggling to find something to talk about. The market call for the possibility of $20 oil by Goldman Sachs was the topic for the day because of its dramatic potential. I will cover that in depth later.

The Producer Price Index (PPI) for August gave the Fed something else to worry about at the meeting this week. Producer prices were flat compared to +0.2% in July and +0.4% gains in both May and June. Goods prices actually fell -0.6% after -0.1% in July and +0.7% in June. Core goods fell -0.2%. Intermediate goods declined -0.6% after a -0.2% drop in July. Intermediate unprocessed goods declined -4.4% after a -2.9% drop in July. Core unprocessed goods fell -10.6% after a -5.5% decline in July.

The trend is clear and inflation is dropping like a rock. Low oil prices are driving the declines but the drop in commodities in general is affecting the decline in inflation. Food prices rose or the overall numbers would have been worse. Driving food prices higher was a +23.2% jump in egg prices after the loss of more than 50 million chickens to the bird flu.

On a trailing 12 month basis producer prices have declined -0.7% because of the -4.0% decline in goods prices. Year over year prices have declined all year. With Goldman warning that $20 oil prices are possible in the coming months the Fed is fighting a losing battle to raise inflation. The Fed believes the drop in commodities is transitory but that transit period is looking longer every day.

Consumer sentiment for September declined -6.2 points from 91.9 to 85.7. Analysts expected 91.5 and this is the third consecutive monthly decline. It is also the lowest reading in 2015. Analysts believe the stock market volatility had a direct impact on the sentiment numbers.

The present conditions component declined from 105.1 to 100.3 for the third consecutive monthly decline. The expectations component declined from 83.4 to 76.4 and the third decline.

In September, 33% of respondents said their finances were worst than last year. That was an 8% increase from the prior month. This is why analysts believe the headline decline was market related. Another 46% of respondents said the U.S. was going to experience bad economic times over the next year.


There are a lot of economic reports out next week but the big news is on Thursday. The Philly Fed Manufacturing Survey is out in the morning followed by the Fed announcement and press conference in the afternoon.

The odds for a rate hike are about 50:50 if you believe the financial press. With the World Bank and the IMF warning the Fed not to hike until 2016 there is a decent chance they could pass. However, the Fed has been promising a hike for the last year and not doing it at the September meeting moves them to December in order to have a press conference after the rate hike.

The market is pricing in a hike. If there is no hike the Fed will lose a prime opportunity and have to go through the same pre meeting volatility at some point in the future. Personally, I think they will take this opportunity in order to get the first hike behind them and then target Q2-2016 for the next one.

The market may react positively since it is already factored into sentiment and getting it behind us would be a plus. This is like a child dreading a scheduled vaccination. They worry about the shot well in advance and once in the doctor's office the worry increases significantly. Once the shot is over, they are ready to run and play again. Within minutes, they have completely forgotten about the pain. The market has been kicking and dragging its feet on the way to the doctor's office for the last several weeks. Once past next Thursday the worry will be over and the market can relax again.


James Hardie Industries (JHX) announced a 5:1 stock split to be made at the close on September 21st. JHX only trades about 5,000 shares per day so this will not be a candidate for a split run. Stock Split Calendar


Early Twitter (TWTR) investor Chris Sacca, went on a twitter rant on Friday complaining about the lack of a CEO announcement. The rant was heavily pro co-founder Jack Dorsey and criticized the board for the lack of an announcement. Even before Dick Costolo resigned on July 1st the board had been looking for a new CEO. While the search drags on key employees have left, the stock has declined and the company is being left for dead. Sacca's 7-tweet rant captured a lot of attention but did not help the stock price. Shares were down 32 cents. However, we know there will eventually be a CEO named and their new products will begin to gain traction. It is only a matter of time before the stock rises or they are acquired.


Mattress Firm (MFRM) warned on guidance and the stock was crushed. The company said it now expects earnings of $2.30-$2.45 for the full year. That was down from prior forecasts of as much as $2.70. Shares fell -23% for the biggest one-day drop in its history. Shares of competitors Tempur Sealy International (TPX) fell -2.3% and Select Comfort (SCSS) fell -2.2% in sympathy. Mattress Firm blamed the slow sales on the decline in oil prices saying the 100,000 energy layoffs kept a lot of people out of stores. I think that was a convenient excuse rather than reality.


Unilever (UL) is now selling a single serve tea machine to compete with the Nestle Nespresso beverage maker. The device is called T.O. by Lipton and manufactured by Krups. The device will go on sale in France on Monday with distribution to expand in the coming months. It will not be cheap. The initial price will be about $200 with 10 tea capsules for about $5. Shares of UL were down fractionally and shares of competitor Green Mountain were up fractionally. I guess that means investors were not impressed with the new product.



Kroger (KR) shares rallied 5% after the company reported earnings of 44 cents that beat estimates for 40 cents. Revenue of $25.5 billion matched estimates. Kroger raised full year estimates from $1.95 to $1.98 per share. Kroger said it was expanding its online offerings and would be adding 20,000 workers.


Avon (AVP) lost another 15% on Friday after a -9.5% decline on Thursday. Shares spike Thursday morning on a rumor that Cerberus Capital and Platinum Equity might be taking a stake in the company. Shares briefly spiked nearly +25% on the news but immediately crashed after more details were known. The PE firms were reportedly going to inject funds through a PIPE acquisition (Private Investment in Public Equity) where the shares could be bought at a significant discount to the current market. Shares of Avon crashed because it suggested company finances were weak and they needed additional capital to survive the holiday season. Avon has been in a slump and the drop in foreign currencies has been painful. Brazil has been a serious drain on profits.


Chico's Fashion (CHS) is reportedly in talks to be acquired by a private equity firm. Reportedly, Sycamore Partners has made an offer while Chico's is still in talks with other bidders. The company hired Investment bank Peter Solomon to explore options. Sycamore has arranged $3 billion in debt financing for an acquisition. Shares spiked $2 to $17 in afterhours on Friday.


If you want a McRib sandwich, you have to look for it. The McDonalds McRib sandwich is now available for the once a year sales special. However, it will only be offered in about 8,000 of McDonald's 14,350 U.S. restaurants. That equates to about 55% compared to 75% in 2014. The McRib is only offered once a year because of the shortage of the main ingredient. The boneless McRib is a regional favorite with most of the buyers in the south. The company allows the stores to decide if they want to offer the boneless barbecue rib sandwich based on their prior sales.

In another menu change McDonalds is returning to its roots with the original egg McMuffin on an actual English Muffin. They are also replacing margarine with the real butter as a McMuffin ingredient. This is in addition to having breakfast items all day long. McDonalds is struggling to overcome the rising competition from other chains including Five Guys, Shake Shack, etc. Junk food lovers rejoiced and shares rose +$2 on the menu news.


Restoration Hardware (RH) reported earnings of 85 cents that beat estimates for 83 cents. Revenue rose +14% to $506.9 million and beat estimates. The company expects revenue to grow +16.2% for the year and earnings up +32%. The company raised guidance for the full year from $3.02-$3.15 to $3.06-$3.16. Analysts were expecting $3.11. Shares rallied +9% on the news.


Marvell Tech (MRVL) shares crashed -16% after the company said it had begun an internal investigation into its accounting and reported seeing weakening demand for personal computer parts. That was the biggest decline since 2002. The accounting review is focused on revenue recognition and whether the revenue was recognized sooner than it should have been. That would have made earnings appear better than they were. Susquehanna Financial said the stock was "unownable" during the investigation since years of earnings could be restated. The company posted a loss of $382.4 million, which included a charge of $394 million for pending litigation. Analysts were expecting a $12 million profit.


Zumiez (ZUMZ) shares fell -32% after reporting earnings of 12 cents that matched estimates. However, that was -60% below the year ago quarter. Same store sales fell -4.5% compared to +3.4% growth in the year ago quarter. Zumiez guided to a decline of 7-9% in sales in Q3 and revenue of $204 million. Analysts were expecting $224 million. They guided for earnings in the range of 27-31 cents and analysts were expecting 53 cents. The company is planning on opening 57 new stores in Q3 despite a sharp decline in sales at existing stores. Investors are running scared with revenue and profits declining.


You know you have entered the Twilight Zone when you read a headline that Microsoft may acquire Advanced Micro Devices (AMD). Advanced Micro is a failing semiconductor manufacturer that only exists because Intel needs somebody else in the market to keep from being called a monopoly. The tech site Fudzilla.com said the two companies were in serious talks about the acquisition. AMD products are seriously lagging the Intel processor family and there is almost zero hope of ever being competitive with Intel again.

Apparently, Microsoft is hoping to control the next round of Xbox development and having its own chip company could allow it to lower costs and increase the capability of the gaming console. Microsoft could also streamline the future of the Zen processors from AMD and put them in the Surface tablets.

There may actually be a growth path for AMD as a Microsoft subsidiary as strange as that idea may seem. Shares spiked 9% on the news.


Goldman Sachs (GS) created a flurry of arguments when they said crude prices could fall to $20 a barrel in the near future. Goldman's report said "Although oil prices have revisited the lows of last winter, this time both financial and fundamental metrics are much weaker. Forward demand expectations are lower as the emerging market economic outlook continues to deteriorate."

Goldman is not predicting a drop to $20 but they said that was their worst-case scenario. Goldman is expecting $45 oil for 2016, down from the prior forecast of $57. The doomsday scenario of $20 rocked the market but Goldman is known for making wild forecasts as part of its broad outlook. You may remember their $200 forecast in 2008.

Goldman said it was still unclear how the eventual supply adjustment will take place. However, we can say for certain that North American supply growth will slow down or even reverse given recent drilling and investment patterns. The U.S. has created such a backlog of drilled but uncompleted wells that future profit margins will be pressured. The drilled but unfracked wells are now called the "Fracklog."

A Reuters analyst pointed out that the top 50 U.S. producers have spent more than $200 billion in capex over the last two years and took on more than $150 billion in debt to do it. That debt will be coming due soon and they cannot pay it back on $40 oil. Shale producers rarely get the WTI price for their oil. Shale oil is superlight and very gaseous and does not produce the mix of products refiners want to sell. When combined with the high transportation expense from the various shale fields the actual price received is in the mid $30s per barrel. It is very hard to drill an $11 million well and make a profit at $35 oil.

Crude prices closed the week at $44.76, down -$1.22 for the week but they are on a downhill slide now that we are past Labor Day. Refineries are shutting down for seasonal maintenance and more than 2 million barrels per day will be offline at the peak of maintenance season. Refinery utilization has already declined from 96.1% for the week of August 7th to 90.9% today. That will continue down into the mid 80% range over the next several weeks. This means inventories will rise for the next 10-12 weeks and they are already near multi-decade highs.

From the middle of September 2014 until the peak in May 2015 crude inventories rose from 360 million barrels to nearly 490 million and 100 million barrels over the normal highs for that period. Today we are starting out that same period at 460 million and it is nearly inconceivable that we will not exceed that 490 million high from last year and possibly by a lot.

Goldman's worst-case scenario assumes we add the same 100+ million barrels as in 2014 and we run out of places to store the oil. Storage at the futures hub at Cushing Oklahoma peaked at a record 62.2 million barrels on April 17th and has only declined -5 million barrels ahead of the inventory accumulation season. Cushing has barely enough room to maintain operating capability and cannot absorb millions of extra barrels.

We may have seen a preview of things to come last week. U.S. production declined -83,000 bpd to 9.135 mbpd. That is -475,000 bpd below the June 5th peak at 9.61 mbpd. Production is suddenly beginning to decline at a rapid pace. However, because of the fracklog it will not decline quick enough to raise prices. Those wells have to be completed in a certain period of time or be plugged and abandoned.

The active rig count declined by -16 for the week ended on Friday and that was after a -13 rig decline the prior week. Active rigs at 848 are now at the cycle low and below the prior 857 low back in early July. They are also below the July 2009 low of 866. Active gas rigs declined -6 to 196 and a new 18-year low. Active oil rigs are 652 are still above the July low at 638 but a couple more weeks of decline should see that low broken.

Producers have given up on the Q3 rebound. Many put rigs back to work in July/August in expectations of a rise in prices. That rise did not happen except for the short squeeze two weeks ago and prices are now fading again. The mindset is no longer to try and squeeze a few more rigs into production but to cut every expense possible and go into conservation mode and try to live on existing cash flow until the cycle reverses. As inventory levels rise in the coming weeks I would expect to see prices decline at least back to the $40 level or lower.



Markets

Wednesday's rebound took the Dow and S&P right to resistance and those levels acted like an electric fence. The rally stopped dead on that resistance and was repelled instantly. On the negative side that showed exactly how many sellers were waiting at those key levels. On the positive side, the decline was not severe and we know exactly where to make our next trade decision. A break over those resistance levels would be a buy signal and another failure at those levels would be a sell signal.

Also positive is the pattern of higher lows on both the Dow and S&P. This suggests investors are buying the dips with an increasingly higher threshold. As long as we do not dip below the blue lines the rebound remains in play. A breakout over the red lines could attract a lot of buying interest and short covering.

For the S&P the resistance is strongest at 1,990 but last through 2,005. Support is now 1,939 followed by 1,912.




The high for the Dow on Wednesday was 16,664 with resistance at 16,666. That is almost a perfect test and failure. That is now the line in the sand for next week. A move over that level could move back over 17,000 before hitting significant resistance at higher levels.

The Dow stocks are still in the tank with only about five charts that could be considered buyable. The rest are either falling knives or they are basing in a sideways motion. However, the intraday Dow chart still shows the suggestion of a breakout in the coming days, Fed permitting.



The Nasdaq closed very near resistance at 4,835 and could be poised for a breakout as well. The Biotech sector continued to supply the gains but Amazon and Google were also leaders.

The chip sector remains weak and a drag on the tech index. Were it not for the AMD/Microsoft rumor on Friday the Semiconductor Index ($SOX) would have been negative rather than fractionally positive.

Apple (AAPL) closed at the highs of the week at $114.20 after a post announcement decline on Wednesday. The products are seeing mixed reviews but most believe the iPhone changed enough that consumers will want to upgrade. More than 70% of iPhone users are still on phones older than the iPhone 6 so there are plenty of faithful that could upgrade.




The Russell 2000 chart looks more like the Nasdaq with a close at 1,157 and just slightly under resistance at 1,165. With any positive headlines, the Russell could breakout over that resistance and possibly trigger a broader rally among the big caps.


At this point, I believe a Fed rate hike is priced in. There may be some immediate volatility if a hike is announced on Thursday but I think the market will shake it off very quickly and the next move will be higher. It will all depend on the forward guidance. If they emphasize as expected that the next hike will be well into the future then we could reach new highs before year-end. If they try to get cute and dangle the possibility of an October or December hike in the statement then all bets are off. If the market thinks there is any chance of a second hike in 2015 the bears will come out of the forest and the rest of September could be bleak.

If the Fed does not hike then the market will be left in limbo for another month. The vaccination will be postponed and the adolescent patient will continue to anguish over the eventual shot.

If the Fed were reading my comments, I would ask them to please hike this week and end the uncertainty. The market needs a firm direction rather than continuous Fedspeak that promises but never delivers.


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Random Thoughts




A year ago, ISIS warned that it could destabilize Europe by forcing 500,000 Syrians to migrate to Europe. To date more than 4.5 million Syrians and Iraqi's have fled their country to avoid the war and the terror that is ISIS. With more than one million walking into Europe the individual countries are being forced to accept more "refugees" whether they want to or not. An illegal alien that crosses borders and ends up in a country illegally receives no social service benefits. However, a refugee is immediately awarded a full slate of benefits from housing, welfare, food stamps, healthcare, etc. In Germany, this could add as many as 460,000 people to their social benefits programs. The amount of money Germany and the other European countries are going to have to spend to support this migrant flood is astronomical and this will burden an already marginal economy.

The EU Commission could mandate what benefits countries must provide to the migrants. That is the real name for them. If they were just refugees from the Syrian war they could have stayed in Turkey and be ready to go home once the fighting ends. They do not want to go home. They are looking for a new home and the rich European countries are being deluged with migrants while the poor countries with minimal social services are being avoided. If the Commission mandates a full slate of services to be provided by each country it could cause significant division between EU countries.

Several officials have proposed a "blue card" experiment. With all countries facing streams of migrants at their borders waiting for entry the government should allow everyone entry with only one catch. Anyone entering would have to sign an agreement to never be eligible for social benefits. You would immediately see how many people really wanted to migrate to seek a new opportunity and be a productive citizen and who was simply looking for the best handout. I am sure many entrance lines would evaporate once the new rules were explained.

In the U.S., about 51% of immigrant-led households receive at least one kind of welfare benefit, including Medicaid, food stamps, school lunches, housing assistance, etc. This compares to 30% for native-led households. If there are children in the household, the percentages rise to 76% for immigrant-led homes and 52% for native-born households.

This is not a defect of moral failing on the part of immigrants. Rather, unrestrained immigration, whether legal or illegal, allows a lot of less-educated immigrants to settle in the country and they only earn minimal wages and become eligible for a very generous welfare system.

Europe is facing a monstrous increase in their social service costs. This will require higher taxes and more facilities like hospitals and schools. I have not even discussed the problems of allowing another million plus Muslims into Europe and the fundamental assimilation problems that will occur.

Officials are worried that hundreds or even thousands of ISIS sympathizers and fighters are hidden in the migrant horde currently trying to infiltrate Europe. This is going to cause significant problems in the years ahead as those people spread their message to other Muslims in the communities where they settle.

Europe is facing an ISIS invasion only without guns. The migrants will drain their public coffers and cause challenges for generations to come.


Noted investor John Hussman expects a pullback in stocks of 40% to 55% to bring valuations back into line with historical levels. He is not predicting this in the next few weeks or months but at the end of the current market/economic cycle. He makes a good case for the current dip expanding into a bigger decline based on historical cycles. Don't Get Comfortable


The Energy Information Administration (EIA) is now predicting gasoline prices will decline to $2.03 per gallon by December. Gasoline has not been that low since the Great Recession in 2009. In 17 states, gasoline is already below $2 with six more states near that level. Unfortunately, low gasoline prices come with a catch. More than 86,405 jobs have been lost that are directly attributed to lower oil prices and more than 150,000 jobs have probably been lost in total because non energy jobs depend on workers employed in the energy sector. That includes waitresses, retail workers, service businesses like carpet cleaners, roofers, etc, that lose their jobs because energy workers lost their jobs and incomes.


Goldman said China spent more than $236 billion trying to support their declining equity markets. That is 3.5% of the total market value. The Shanghai Composite rallied +150% in 12 months only to lose -32% in just 18 trading sessions. The government has now declared they will prosecute short sellers and suspended new IPOs. Institutions and funds have been told to buy stocks and hold them. Selling is deemed "against the state" and will be dealt with. China will eventually learn that manipulating the market is a fool's game and it is best left to normal market forces.


Tomi Kilgore warned that a bearish "symmetrical triangle" on the Dow and S&P suggests a continuation of the decline with a target of 14,000-14,200 on the Dow. The triangles normally appear in the middle of a sharp selloff and are continuation patterns. That means the next breakout is more likely to break down and continue the decline. Personally, I view the charts differently but that is what makes a market. I also factor in the current news events and the macro picture rather than simply rely on a chart pattern. New Lows Ahead


David Bianco, chief U.S. equity strategist at Deutsche Bank, warned that earnings estimates for S&P companies might be too high. For every $5 decline in the price of oil, it reduces the net income for S&P companies by $7.5 billion or $1 per share. A 10% rise in the dollar cuts profits by about $20 billion or $2.50 per share. Every 25 basis point rise in the Fed funds rate cuts S&P earnings by 50 cents per share.

Bianco is expecting S&P earnings to come in at $128 in 2016, up from $120 in 2015. Because of the impact from oil and the dollar, earnings could decline to $125. Despite the reduction in his earnings forecast Bianco is still expecting the S&P to rise to 2,150 this year and 2,300 in 2016.


I received this from a reader. I have not heard about this in the press. Thank you Bob for the input.

Potential Drop in Microsoft Earnings

I see in the news that the Justice Department is pursuing Microsoft to access data stored on Microsoft servers in Ireland. Two judges have ruled in favor of the government, but Microsoft is appealing the rulings. If the government is prevails in the appeal, would that not send a message to all the tech companies that have data servers overseas that the data stored outside the US is now accessible? Should this occur, one could expect a serious slide in tech company earnings (and therefore stock prices) as both US and foreign investors decide they do not want US companies storing their sensitive data. Much like what happened to IBM after the Snowden revelations when companies abandoned IBM servers en masse over NSA snooping and IBM earnings took a huge hit. IBM sold their server business to Lenovo (pretty much in accordance with their plan to get out of the hardware business anyway), but Lenovo cannot sell the servers to US DoD or companies supplying servers to the US military. If companies and individuals decide they do not want the Justice Department reviewing their sensitive business data (instead of the NSA), there could be wholesale departure from large tech company products and migration to European companies, where data privacy is better protected.

This is all theoretical at the moment, but if Microsoft were to lose on appeal, I would expect a potential sell-off following a big earnings hit by not only Microsoft, but other big tech companies (Google, Amazon, et. al.) as people and companies decide they need to protect their data. Of course, if the data were encrypted, in theory it would be protected against review by the Justice Department, but one never really knows what the capabilities of real world encryption breaching algorithms are (not trying to wear a tin foil hat here, only remarking on what could be versus what is acknowledged ...). Trader's perceptions of the earnings hit, were it to occur, would constitute (let's say) a "gray swan", since a "black swan" would be by definition a totally unexpected event, while this one would be telegraphed.

We did see a major hit to IBM and other U.S. hardware manufacturers after Snowden. "Cloud" companies could be next since that information is relatively easy to obtain by a governmental spy agency. Encrypting all the information in the cloud is not practical since the higher grade encryption that would be necessary to defeat government (NSA) spying is too slow for the billions of terabytes of data stored in the cloud. It has to be encrypted going in and decrypted coming out and the computing overhead would be tremendous. Bob could be right that corporations could move away from the commercial cloud networks and into private clouds or European cloud services that ar enot subject to prying U.S. government eyes.


The AAII Investor Sentiment Survey for the week ended on Wednesday, surprised once again. Both bullish and bearish sentiment rose with neutral sentiment declining. Apparently the market is polarizing opinions but the opposite ends of the spectrum are almost dead even.



 

Enter passively and exit aggressively!

Jim Brown

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"There are no certainties in the markets. Otherwise, there would be no such thing as risk and no rewards. Nothing works all the time. Otherwise, it would never work in the first place."

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New Plays

This Tech Stock Is Outperforming Its Peers

by James Brown

Click here to email James Brown


NEW BULLISH Plays

CDW Corp. - CDW - close: 41.10 change: +0.35

Stop Loss: 37.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 12, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 1.1 million
New Positions: Yes, see below

Company Description

Trade Description:
Consistent earnings and revenue growth have helped drive shares of CDW to new all-time highs.

CDW is in the technology sector. According to the company, "CDW (NASDAQ: CDW) is a Fortune 500 company and a leading provider of integrated information technology (IT) solutions in the U.S. and Canada. We help our customer base of approximately 250,000 small, medium and large business, government, education and healthcare customers by delivering critical solutions to their increasingly complex IT needs. Founded in 1984, CDW employs more than 7,200 coworkers. In 2014, the company generated net sales of more than $12.0 billion.

Our broad array of offerings range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration. We are technology 'agnostic,' with a product portfolio that includes more than 100,000 products from more than 1,000 brands. We provide our products and solutions through our sales force and service delivery teams, consisting of more than 4,500 coworkers, including over 1,800 field sellers, highly skilled technology specialists and advanced service delivery engineers."

Recent quarterly reports have seen CDW beating Wall Street estimates on both the top and bottom line. Investors were very happy to see the company's most recent report on August 3rd. Earnings were up +20% from a year ago and revenues beat expectations. Management said they expect to grow +2-to-3% above the U.S. IT market in 2015.

Shares of CDW surged on its August 3rd report. When the market corrected sharply lower in late August shares of CDW actually weathered the storm relatively well. The stock filled the gap from its August 3rd earnings pop and then bounced. Now shares have broken through major resistance at $40.00.

Friday's high was $41.11. We are suggesting a trigger to open bullish positions at $41.20.

Trigger @ $41.20

- Suggested Positions -

Buy CDW Stock @ $41.20

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

Buy the DEC $45 CALL (CDW151218C45) current ask $0.80
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

Stocks Deliver Another Widespread Gain

by James Brown

Click here to email James Brown

Editor's Note:
The rebound off the market's August lows continued last week. Now we're down to three and a half trading days before the FOMC meeting. The Fed's decision will have a big impact on the market.

On Friday QSR hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Keurig Green Mountain, Inc. - GMCR - close: 60.90 change: +0.01

Stop Loss: 55.85
Target(s): To Be Determined
Current Gain/Loss: +10.5%
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:
09/12/15: The oversold bounce in GMCR continued last week. Shares plunged from almost $160 in November 2014 to almost $45 in August 2015. The stock reversed following the market's correction. Now GMCR is up three weeks in a row.

Thursday's session saw a breakout past round-number resistance at $60.00. On Friday GMCR took the day off to just chill out and drift sideways, closing almost unchanged on the session.

Considering GMCR's position on the chart, just below its 50-dma, readers may want to take some money off the table. Tonight we are adding a stop loss at $55.85. No new positions at this time.

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

09/12/15 new stop loss @ 55.85
08/31/15 triggered @ $55.10
Option Format: symbol-year-month-day-call-strike

chart:


Ingram Micro Inc. - IM - close: 27.70 change: +0.39

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -0.5%
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:
09/12/15: IM displayed relative strength on Friday with a +1.4% gain. The stock tested its high for the week near $27.90. I am suggesting readers wait for IM to breakout past $27.90 or better yet a rally past $28.00 before initiating new 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

chart:


Starbucks - SBUX - close: 56.53 change: +1.16

Stop Loss: 51.15
Target(s): To Be Determined
Current Gain/Loss: +2.5%
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:
09/12/15: SBUX looks great. Shares were almost as popular as their pumpkin spice latte on Friday. The stock outperformed the broader market with a +2.0% gain. More importantly shares have broken through resistance near $56.00 and its 50-dma.

I suggested waiting for a rally past $56.00 as a bullish entry point and we got it on Friday. I'd still consider new positions now at current levels.

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

chart:




BEARISH Play Updates

Helmerich & Payne, Inc. - HP - close: 49.35 change: -1.94

Stop Loss: $55.15
Target(s): To Be Determined
Current Gain/Loss: +0.7%
Entry on September 10 at $49.70
Listed on September 9, 2015
Time Frame: Exit prior to earnings in November
(option traders exit prior to October expiration)
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
09/12/15: HP was downgraded on Friday and that helped push the stock below support near $50.00. Shares underperformed the market with a -3.7% decline. These are new multi-year lows. I would consider new positions at current levels.

Trade Description: September 9, 2015:
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.

- Suggested Positions -

Short HP Stock @ $49.70

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

Long OCT $45 PUT (HP151016P45) entry $1.75

09/10/15 triggered @ $49.70
Option Format: symbol-year-month-day-call-strike

chart:


QUALCOMM Inc. - QCOM - close: 54.66 change: -0.67

Stop Loss: 56.65
Target(s): To Be Determined
Current Gain/Loss: -0.4%
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:
09/12/15: QCOM displayed relative weakness on Friday with a -1.2% decline. Shares remain inside the $54.00-56.00 trading range. I'd wait for a drop under $54.00 before considering new bearish positions. Tonight we are adding a stop loss at $56.65.

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

09/12/15 new stop @ 56.65
09/04/15 triggered @ $54.45
Option Format: symbol-year-month-day-call-strike

chart:


Restaurant Brands Intl. - QSR - close: 37.37 change: +0.02

Stop Loss: 39.25
Target(s): To Be Determined
Current Gain/Loss: -1.4%
Entry on September 11 at $36.85
Listed on September 10, 2015
Time Frame: Exit 4 to 6 weeks.
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
09/12/15: Our brand new trade on QSR is open. Shares displayed weakness on Friday morning and broke down below support near $37.00. Shares hit our suggested entry point at $36.85.

QSR did erase its losses to close virtually unchanged on Friday and that's a bit worrisome. Looking at the intraday chart I would wait for a new decline under $36.90 or a drop below Friday's low of $36.65 before initiating new bearish positions.

Trade Description: September 10, 2015:
The burger wars continue as McDonald's recently rejected Burger King's proposal for a "peace day" offering to create the McWhopper. More on the McWhopper in a moment. Most of the fast food or quick service stocks seem to be struggling and the group displayed relative weakness today.

QSR is in the services sector. According to the company, "Restaurant Brands International Inc. is one of the world's largest quick service restaurant companies with more than $23 billion in system sales and over 19,000 restaurants in approximately 100 countries and U.S. territories. Restaurant Brands International owns two of the world's most prominent and iconic quick service restaurant brands - TIM HORTONS® and BURGER KING®. These independently operated brands have been serving their respective guests, franchisees and communities for over 50 years."

A couple of weeks ago QSR's Burger King brand launched a short-lived PR campaign to raise aware for "Peace Day" on September 21st. Peace Day actually started back in 1999 and approved by the United Nations as a day of ceasefire and non-violence.

QSR took out a full-page ad in the New York Times and the Chicago Tribune on Wednesday, August 26th, proposing a ceasefire in the burger wars between McDonald's and Burger King. QSR claims they are trying to raise aware of Peace Day but it sure looks like a clever way to get a lot of publicity.

Just for fun you can see the ad campaign here:

QSR's McWhopper website: www.McWhopper.com
And this YouTube video (1:37 minutes) Burger King - McWhopper Proposal

McDonald's rejected the idea and suggested a simple phone call will do next time (instead of full page ads).
A simple phone call

The whole McWhopper story is just a sideshow and will not have any impact on QSR's business.

QSR's most recent earnings report (late July) came in better than expected. Earnings of $0.30 per share beat estimates by six cents. Revenues did fall -1.6% but at $1.04 billion it was better than expected. Both the Tim Horton and Burger King businesses saw mid-single digit comparable store sales gains on a constant currency basis. Shares of QSR rallied on this news but the surge ran out of gas in early August.

When the market corrected lower in late August shares of QSR just collapsed with a drop of -17.8% in less than three days. The oversold bounce in QSR failed at resistance near $40.00 and is 50-dma. Now shares are on the verge of breaking down below key support at $37.00.

If QSR breaks down the next support level could be the late 2014 low near $33.00. The point & figure chart is a lot more pessimistic and forecasting at $26.00 target. Tonight we are suggesting a trigger to launch bearish positions at $36.85.

- Suggested Positions -

Short QSR stock @ $36.85

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

Long OCT $35 PUT (QSR151016P35) entry $0.85

09/11/15 triggered @ $36.85
Option Format: symbol-year-month-day-call-strike

chart:


iPath S&P500 VIX Futures ETN - VXX - close: 26.04 change: -0.64

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -19.3%
2nd position Gain/Loss: +10.2%
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:
09/12/15: The VXX slowly faded lower throughout the session on Friday. It's down -11% for the week.

Odds are good that the VIX and thus the VXX remains elevated the next few days as traders try to position themselves ahead of the FOMC meeting's announcement on Thursday afternoon (Sept. 17th). That afternoon and Friday could be really exciting as the market reacts to the Fed's decision to raise rates or postpone the first rate hike in years.

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

chart:



CLOSED BULLISH PLAYS

Oshkosh Corp. - OSK - close: 39.27 change: -0.30

Stop Loss: 38.85
Target(s): To Be Determined
Current Gain/Loss: -8.2%
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:
09/12/15: OSK has not been cooperating the last few days. We have been slowly raising our stop loss. Shares pierced technical support at the 50-dma again on Friday and also hit our stop loss at $38.85.

- Suggested Positions -

Long OSK stock @ $42.30 exit $38.85 (-8.2%)

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

2016 Jan $45 CALL (OSK160115C45) entry $3.30 exit $1.60 (-51.5%)

09/11/15 stopped out
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

chart:



CLOSED BEARISH PLAYS

Ingersoll-Rand - IR - close: 55.00 change: +0.71

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: see below

Comments:
09/12/15: We are cutting IR loose. Shares have begun to rally. Traders bought the dip twice near $54.00 in the last couple of days. It seems unlikely that shares are going to hit our entry trigger at $52.40 any time soon. Tonight we are removing it.

Trade did not open.

09/12/15 removed from the newsletter, suggested entry was $52.40

chart: