Option Investor

Daily Newsletter, Monday, 9/14/2015

Table of Contents

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

Market Wrap

Three Days Till The Fed

by Thomas Hughes

Click here to email Thomas Hughes
There are only three days left until the September FOMC meeting and possible rate hike announcement. . . and the market is waiting.


It's Fed week once again and like all such the market is wound up in anticipation. After months, years, of speculation we are only three days away from the next chance at an interest rate hike and indication of economic health. This week is bound to be volatile. Adding to chances of volatility will be a round of economic data and options expiration on Friday.

There was some international news to affect early trading. Chinese Factory Output fell, adding to fears of slowdown, but were offset by a surge in Retail Sales. Asian indices fell, as did those in Europe, led by the Shang Hai Index -2.67%. The Japanese Nikkei fell -1.6% while those in Europe hovered closer to break-even levels.

Market Statistics

No economic data was released today and there were no market moving earnings reports. Futures trading was indicating a positive open at the earliest part of the pre-market session. By 8AM this had changed, the indices had fallen to break-even levels and were pushing negative territory going into the open. At the open trading began near to break-even levels and then moved down from there, the S&P 500 posting a loss near -11 at the low of the morning.

The early low held and produced a bounce which carried the indices sideways into the lunch hour. Between 12:00 and 2:00 support along the low was tested, eventually producing another bounce. The second bounce of the day was short lived, the market quickly retreat back to today's support levels where a second consolidation resulted in a third bounce. The third bounce occured just before the close of the day and left the indices near the bottom of today's range.

Economic Calendar

The Economy

As mentioned, no official US economic data today but there is quite a bit this week. Tomorrow is Retail Sales, Empire Manufacturing, Industrial Production and Business Inventories. Wednesday is TIC Flows, CPI and the Housing Index. Thursday is Jobless Claims, Housing Starts, Building Permits, Philly Fed Survey and the September FOMC Meeting. Friday wraps it up with the Leading Indicators. Obviously, the FOMC Meeting is the most likely market mover of the week, although the week as a whole is fairly significant in the rate hike cycle outlook.

Moody's Survey Of Business Confidence fell -0.9% to 41.9 in the last week. According to the summary from Mark Zandi it reflects a softening in outlook for present conditions due to recent turbulence in the financial markets. On the positive side confidence remains near long time highs and showing particular strength in the US. Sales, hiring and business investment have been areas of strength all year and continue to be so now.

Another earnings season is fast approaching and it is not expected to be any better than last. According to FactSet the current expectation for 3rd quarter earnings growth among S&P 500 companies is -4.4%. This is down from -1% at the beginning of the last reporting season. Last quarter expectations hit a low near -4.8% but outperformed with a net decline of -0.7%. Based on the four year averages we can expected the 3rd quarter to improve from -4.4% to near 0% by the end of the season. There are four companies left to report for the 2nd quarter, they report this week. Alcoa officially kicks off the new season October 8th.

Energy is going to be the big drag on earnings again. The energy sector is expected to show earnings declines greater than -60, followed by -12% decline in the Materials Sector. Ex-energy S&P 500 earnings growth is positive at 6.9%, well ahead of the ex-energy final for the 2nd quarter. Next year revenue and earnings growth is expected to return with full year 2016 growth at 10.2%.

Telecom, Consumer Staples, Financials and HealthCare are the only sectors expected to show increases in earnings. Healthcare is the laggard of those four with estimated growth near 7.5%. Last quarter the Healthcare Sector had similar expectations and blew them away, more than doubling them by the end of the season, and could be set up to do so again.

The Oil Index

Oil prices fell -1.40% in today's session. Supply and production remain high despite falling US rig counts and rumors of international efforts to stabilize prices. Rumors of efforts to curb supply issues helped support prices over the past two weeks but so far have not resulted in any change to fundamentals. Weak Chinese data is also helping depress demand expectations so it looks like oil could continue to move lower. Today's action took WTI below $44.

The Oil Index fell -1.5% in today's action. The index is setting a new three week low with weakening indicators. Stochastic has already turned over, MACD is about to make the bearish crossover, and is pointing to a retest of the recent low near 1,020. Earning expectations for the energy sector is not good for the coming season and could result in a test of the low or a new low, depending on how oil trades between now and when the big companies report, about 6 weeks from now. However, the long term outlook for the energy sector is a return to earnings growth in 2016 so any weakness remains a potential buying opportunity for long term positions.

The Gold Index

Gold prices rose in today's session but are holding near the 1 month low. Trading was choppy but hovered between $1105 and $1110. Gold seems to be stabilizing just above the $1100 support level going into the FOMC meeting with price tied to their decision and how it affects dollar value. The biggest risk is that the Fed will raise rates and strengthen the dollar, a move that will likely send gold back below $1100. Should the Fed not raise rates gold could spike to $1150 or higher but I think any such move would be short lived, rates will get raised sooner or later. Economic data released tomorrow and Wednesday could add to volatility.

The Gold Miners ETF GDX lost nearly a full percent in today's session and is flirting with a new all-time closing low. The miners are now trading at support levels set and tested in August as gold was setting its lows. The ETF is now positioned to bounce or move lower, dependent on direction in gold prices. Since many of the miners have already set new lows on an individual basis it looks like the rest will soon follow. Support for the ETF is $13.00, a break below here could take it to $12.00 or lower.

In The News, Story Stocks and Earnings

Apple gained more than 1.25% after news they were on target to break all-time iPhone sales records hit the market. A separate report stating sales of wearable devices such as the Watch were going to triple this year over last helped to spur the move. Apple is now trading above the short term moving average for the first time since it began its descent two months ago. Shares are also trading above my support/resistance line at $115.50. The indicators are bullish and gaining strength so this move may not be over, we are going into the fall/holiday shopping season. Upside targets are near $120 and $125 should today's move hold. Support is just below today's closing price in the range between $110 and $115.

Alibaba made big headlines today. A big story from Baron's over the weekend, outlining the many ways in which the Chinese based online retailer is misrepresenting itself to share holders, was met by a lengthy response from Alibaba's. The story basically calls Alibaba a fraud but is nothing more than any one else has said at one time or another. Regardless, the Baron's story shook investor confidence and sent the stock down more than -3%. It is now trading just above the long term low with bearish indicators. $60 could prove to be support but it looks like it will be tested.

Oracle reports earnings on Wednesday. I like to use it as a benchmark, its roughly half-way between the end of one earnings season and the next. The software giant is expected to report a decline in year over year and quarter to quarter earnings, in the range of $0.50. Cloud computing is expected to outperform but not enough to offset weakness in software sales. The stock lost -1% in a move confirming resistance at the short term moving average. The stock has been below the average for three months and is now consolidating just beneath it, ahead of earnings. Weak earnings, particularly weaker than expected calendar 4th quarter outlook, could send it back to $35. A break above the moving average could go to $40.

The Indices

The indices fell in today's session but not hard. Today's action was no fear driven sell-off, merely an orderly retreat to support levels ahead of what could be an historical FOMC meeting. The move was led by the Dow Jones Transportation Average and a loss of -0.45%. The transports created a very small black candle sitting just above 8,000 and on the short term moving average. Today's action appears to be another in a slow wind up from the recently hit bottom that could result in a sharp move in the near future. The indicators are bullish but may have topped out, which along with a convergence with the recent low, suggest a test of that low is possible if not likely. Support target is about 250 points lower, along 7,750, with resistance equidistant near 8,250.

The S&P 500 made the second largest decline, -0.41%. The broad market also created a small bodied black candle but one that formed well below the short term moving average. It also formed below the long term trend line and comes with indicators that are bullish, but weaker than those on the transports. Today's action is near the point of a triangle pattern/wind-up that has been forming since hitting bottom last month. A retest of the bottom or support near 1,900 is likely although long term outlook remains bullish. Resistance is just above the current level in the range of 1,950 to 1,980 with a break above the trend line consistent with the long term trend.

The Dow Jones Industrial Average posted the next smallest decline, -0.38%. The blue chips created a small bodied black candle well below the short term moving average and potential resistance at the 16,500 level. The indicators are bullish but very weak, they give more indication of range bound trading than anything else. This, combined with a convergence between the most recent low and a strong bearish MACD peak, suggest a test of the low is very likely.

The NASDAQ Composite made the smallest decline, -0.34%. The tech heavy index created a small bodied candle just above the 4,800 support line and below the short term moving average. The indicators are bullish but showing signs of near term resistance that could cap forward movement at the moving average. I'm still looking for a retest of support, possible as low as 4,250, based on convergence with MACD, failing to break above the moving average could lead to that event. Long term outlook remains bullish but near term volatility is likely.

The summer is over, many of the near term fears that drove summer trading are gone, the market has corrected, the FOMC meeting is here once again and it is options expiration week to boot. I think it needless to say that this week could be volatile.

The FOMC meeting is the focus of much speculation and will likely spark a significant market move, one aided and enhanced by unwinding options positions. This unwind could lead to violent moves in either, or both, direction and result in the retest of support hinted at by the indices.

Regardless of two quarters of weak earnings growth the economy, according to the data, is back on track and growing. The FOMC may raise rates, and it may scare near term traders, but if they do raise them it will be an affirmation of economic strength and not a a sign of impending doom. I'm waiting for the meeting, and the smoke to clear once the statement is released, but I am still bullish on the market and anticipate a rally into the end of the year.

Until then, remember the trend!

Thomas Hughes

New Plays

This Stock's Bearish Momentum Continues

by James Brown

Click here to email James Brown

Editor's Note:

Additional Trading Ideas:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:

Bullish ideas: BECN, RDUS, PRTA, HRB



Westlake Chemical Corp. - WLK - close: 50.61 change: -0.67

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 14, 2015
Time Frame: Exit prior to earnings in November
Average Daily Volume = 732 thousand
New Positions: Yes, see below

Company Description

Trade Description:
We are adding WLK as a bearish momentum play. Shares are down -48% from their all-time high in 2014. They're down about -35% from the 2015 high and off -17% year to date. The S&P 500 is only down -5% in 2015.

WLK is in the basic materials sector. According to the company, "Westlake Chemical Corporation is a manufacturer and supplier of petrochemicals, polymers and building products with headquarters in Houston, Texas. The company's range of products includes ethylene, polyethylene, styrene, propylene, caustic, VCM, PVC resin and PVC building products, including pipe and specialty components, windows, and fence." Products include "the tires we ride on, the plastic wrap that keeps our meats and produce fresh, the pipes that are essential to ensuring clean water, the frames that secure our windows and doors."

Earnings and revenues have been all over the map lately. Their Q4 results announced in February missed the bottom line estimates. Revenues were up +19% but they missed analysts estimates. Q1 results came out in May . Earnings missed by an even wider margin this time and down -6.7% from a year ago. Revenues also missed. Yet their most recent earnings report (Q2) came out on August 4th. Earnings were $1.41 a share, which was much better than expected. Revenues were up +18% to $1.19 billion, also above expectations.

Unfortunately for shareholders traders used the early August rally as a chance to sell. The oversold bounce of round-number support near $50.00 has already failed. Today WLK is poised to breakdown under this key support level at $50. If this level breaks the next support area could be $40.00. The point & figure chart is bearish and forecasting at $33 target. Tonight we are suggesting a trigger to open bearish positions at $49.75.

Trigger @ $49.75

- Suggested Positions -

Short WLK stock @ $49.75

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

Buy the 2016 Jan $45 put (WLK160115P45) current ask $2.85
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

Markets Mellow On Monday

by James Brown

Click here to email James Brown

Editor's Note:
The stock market's Monday morning gains faded. All of the major indices posted minor declines by the closing bell after a relatively quiet session.

CDW hit our entry trigger.

Current Portfolio:

BULLISH Play Updates

CDW Corp. - CDW - close: 41.06 change: -0.04

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

09/14/15: CDW tagged a new high this morning. It was enough to hit our suggested entry point at $41.20. Unfortunately gains faded by the closing bell. Tonight I'd wait for a new rally past $41.25 before initiating new positions.

Trade Description: September 12, 2015:
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.

- Suggested Positions -

Long CDW Stock @ $41.20

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

Long DEC $45 CALL (CDW151218C45) entry $1.15

09/14/15 triggered @ $41.20
Option Format: symbol-year-month-day-call-strike

Keurig Green Mountain, Inc. - GMCR - close: 59.35 change: -1.55

Stop Loss: 55.85
Target(s): To Be Determined
Current Gain/Loss: +7.7%
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

09/14/15: GMCR encountered some profit taking with a -2.5% decline on Monday. The stock should find short-term support at the simple 10-dma currently near $58.25. Our stop loss is at $55.85. More conservative traders might want to raise their stop higher.

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

Ingram Micro Inc. - IM - close: 27.45 change: -0.25

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -1.4%
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

09/14/15: IM did not see any follow through on Friday's rally. Instead shares faded lower and underperformed the broader market with a -0.9% decline today. 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

Starbucks - SBUX - close: 56.29 change: -0.24

Stop Loss: 51.15
Target(s): To Be Determined
Current Gain/Loss: +2.1%
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

09/14/15: SBUX's early morning gains faded but shares did find support near $56.00, which is good news. After looking at the intraday chart I am suggesting a rally past $56.40 before considering new bullish positions.

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

Helmerich & Payne, Inc. - HP - close: 49.01 change: -0.34

Stop Loss: $55.15
Target(s): To Be Determined
Current Gain/Loss: +1.4%
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

09/14/15: Most of the market was in rally mode this morning. HP was moving the opposite direction with a spike down to new relative lows. Shares pared their loss by the close. The sharp intraday bounce makes me a little cautious on tomorrow. No new positions at this time.

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

QUALCOMM Inc. - QCOM - close: 54.31 change: -0.35

Stop Loss: 56.65
Target(s): To Be Determined
Current Gain/Loss: +0.3%
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

09/14/15: QCOM is inching closer to a bearish breakdown below support near $54.00. Wait for the break before considering new bearish positions.

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

Restaurant Brands Intl. - QSR - close: 36.98 change: -0.39

Stop Loss: 39.25
Target(s): To Be Determined
Current Gain/Loss: -0.4%
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

09/14/15: QSR underperformed the market with a -1.0% decline. The stock is in the process of breaking down under key support at $37.00 again. Today's low was $36.89. Look for a new drop beneath this level or a drop below Friday's $36.65 as our next entry point for 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

iPath S&P500 VIX Futures ETN - VXX - close: 26.05 change: +0.01

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -19.4%
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

09/14/15: It was a pretty quiet day for stocks. The VIX managed a +4.5% gain but the VXX closed virtually unchanged on the session.

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