Option Investor
Newsletter

Daily Newsletter, Thursday, 9/17/2015

Table of Contents

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

Market Wrap

Will They Ever Raise Rates

by Thomas Hughes

Click here to email Thomas Hughes
The FOMC left rates unchanged, they lowered their forecast, blamed it on global weaknesses and remain dependent on data.

Introduction

The FOMC meeting was a little bit of a let down. They did not raise interest rates. They also lowered their forecasts for inflation and the pace of interest rate hikes going out to 2018, not because of a weak US economy but because of global weaknesses and growth expectations. Regardless of their stated reasons, they remain data dependent and waiting on clearer signs of inflation.

According to the statement our own economy is expanding at a modest pace with improvements in labor, housing, household spending and business investment. The risk is that recent global economic and financial developments will put downward pressure on inflation and economic activity in the US. Lacker was the only dissenter, calling for 1/4 point hike.

Yellen tried once again to reassure the market. She stated, again, that policy would be accomodative long after the first rate hike. She also reiterated the point that the market should be more concerned with the pace of rate hikes, and not so much with when lift-off would occur.

Market Statistics

Trading was actually pretty calm all day. Asian indices were mixed, poor data from Japan sent Chinese indices down with fear of economic slowing and Japanese indices up on hopes of stimulus. EU indices were equally mixed but traded in a much narrower range. Futures trading for US indices indicated a flat open although this mornings economic data sent them briefly lower.

After the opening bell trading remained flat. The indices hugged break-even levels for most of the morning with a slight bias to the up-side. By early afternoon they were firmly in positive territory, about +0.25%, and held those levels going into the FOMC announcement at 2PM. The news caused a brief stir in the market, a quick drop followed by a short pop, but basically held steady near the highs of the day.

By 3PM the news had digested and Janet Yellen's press conference was well underway. At this time the bulls were able to push the indices up to new 3 week highs, near 1% higher for the day, although resistance was met. Resistance turned out to be strong and once touched, unleashed enough selling pressure to send the indices back to break even. By end of the day the indices were mixed with some negative and some positive but all little changed from yesterday.

Economic Calendar

The Economy

There was a lot of economic data this morning, more than usual, and all leading to a rate hike at some point in the future. First up is Housing Starts and Building Permits. Housing Starts came in a bit light at a 1.126 annualized rate. This is down -3% from July levels but up 16.6% on a year-over-year basis. Permits were strong at 1.17 million, up 3.5% from July and +12.5% from last year at this time. Completions fell -6.1% from the previous month but are up 3.3% from last year. The housing data show a steady year-over-year increase in activity and one that appears to be gaining momentum.

Initial Claims for unemployment fell -11,000 to 264,000 and an 8 week low. The four week moving average of claims also fell, shedding -3,250 to hit 272,000. Last week's data was unrevised. On a not adjusted basis claims fell -14.6% versus an expected -10.9% as predicted by the seasonal factors. Not adjusted claims are now at a new long term low and -18% below last years levels. Washington and Texas led with increases of 1,256 and 1,120 while New York and Oregon led with declines of -4,012 and -633.


Continuing Claims fell -26,000 from an upward revision of 3,000 to hit 2.237 million. The four week moving average also fell, -4,750, hitting 2.256 million. Together the two are trending just above the long term low, where they have been the last 6 months, and consistent with healthy labor markets.

Total claims also fell, shedding -46,723 to hit 2.106 and a 12 week low. Total claims levels are also trending just above the long term low and have been receding in recent weeks. This, along with receding levels of initial claims and continuing claims over the past three weeks, suggests that job markets may have strengthened going into September.


Philly Fed Survey data was released at 10AM and was a negative surprise, with a bit of a silver lining. The headline general activity index fell -6 versus an expected reading closer to +6. This is down from 8.3 in August and the lowest reading in over 2 years. The silver lining is in the individual component indices, the negative headline number attributed to recent market instability. The employment component came in at 10.2, double last month's reading, new orders rose to 9.4 from 5.8 and shipments, which fell, is still reading above 14. All together these show demand growth and support future economic expansion. The future looking gauge of the economy gained 1 point hitting 44 and the highest level since January.


The Oil Index

Oil trading was choppy today but held near $47. Yesterday's unexpected draw in US stock piles is helping to support prices but global demand outlook and over supply issues remain. The draw in Cushing supplies could be an indication that production levels and demand are coming back into line but it is only week of data, not a trend. Regardless, global supply remains high with weak demand growth.

The Oil Index tried to move higher in today's session but was met by resistance. The index gained more than 0.5% on an intraday basis but resistance at the short term moving average capped the gains. Once it fell back below the 61.8% retracement level it found increased resistance and was not able to regain the level. The indicators are bullish and on the rise so a retest of resistance looks probably but the move lacks strength. A break above the short term moving average, near 1,130, would find additional resistance near 1,180. Failure to break resistance could see the index retest recent lows.


The Gold Index

Gold got the expected boost from a no-rate-hike scenario and gained more than 1%. Spot gold gained more than $12 to trade above $1130 and looks like it could go as high $1150 before hitting major resistance. The move is sparked by weakening in the dollar due to lowered rate hike expectations and remains tied to that outlook.

The gold miners got a boost from rising gold prices and are moving up off of recently set lows. The gold miners ETF GDX gained nearly 3% in a move extending a bounce from recent support levels. The move created the second of two large white candles, broke the short term moving average and is accompanied by bullish crossovers in both indicators. Upside target is near $16 but dependent on gold prices. Support is near $13. These levels could present range limits for gold over the next 6-12 weeks, as we approach the final two FOMC meetings of 2015.


In The News, Story Stocks and Earnings

GM made headlines in early hours. The company settled criminal charges with government about its cover up of the ignition switch failures for $900 million and stipulations including third party oversight. The company also announced that is has so far spent $575 million settling civil cases related to the same. Shares of the stock gained more than 0.5% in today's session and reached a new 30 day high. The indicators are strong and on the rise with possible resistance at $32.50.


Rite Aid released earnings today and missed expectations. EPS missed consensus guidance for the full year was revised lower. The company now expects full year EPS in the range of $0.12 to $0.19, consensus is near $0.21. Shares of the stock sold off on the news in pre-market trading and gapped lower at the open. Selling pressure carried it lower throughout the day closing with a loss greater than 10%.


Adobe Systems reported after the bell. The software company reported record revenue and 21% revenue growth over last year. EPS of $0.54 was a little shy of expectations but forward outlook is positive. Company execs say they have a strong foundation for long term growth with momentum from the 3rd quarter expected to carry into the 4th , the bad news is that guidance is a little short of consensus. Shares of the stock initially rose 1.8% in after-hours trading but fell back to break even shortly after.


The Indices

The indices seemed to be unaffected by today's FOMC meeting but I am not convinced. The news did not spark any wild rallies or sell-off's but it did cause a little volatility. By end of day the market was little changed from yesterday with sign of resistance at current levels. Today's biggest gainer was the Dow Jones Transportation Average at 0.39%. The transports remain with an increasingly narrowing range and have now hit resistance. Today's candle tested resistance at 8,250 and was rejected. The move was not overly strong so resistance may be overcome. The indicators are bullish, strong and rising so a further test is likely. A break above 8,250 could take it up to 8,500. The short term moving average is first target for support should a pull back occur.


The Dow Jones Industrial Average matched the transports with a 0.39% move, but it was to the down side. The blue chips faded in late day trading as was not able to hold gains made earlier in the day. Today's candle has a small body but long upper shadow crossing the short term moving average, a sign of resistance. Indicators are bullish and rising so further testing of resistance is likely. A break above the short term moving average, near 16,740, could take it up to 17,200 before hitting next resistance. Support may be found at 16,500 but is more likely near 16,000.


The S&P 500 also fell in today's session, losing -0.26%. The broad market index created a candle similar to the industrials, likewise halted by resistance and closing below the short term moving average. The indicators are bullish and rising so further testing of resistance is likely but the move lacks strength at this time. Resistance is currently at 2,020 with potential support just below today's closing price.


The NASDAQ Composite closed with a gain although it too created a candle with an extremely long upper shadow. This shadow is a sign of resistance to higher prices and can precede a pull-back or sell-off. The index has been rising over the past few weeks and appears to be gaining strength. The indicators are both bullish and on the rise with strong MACD and stochastic %D crossing the upper signal line. This index is above its short term moving average with no immediate resistance although there is potential resistance in the 5,000 – 5,050 range.


The Fed had their meeting and made their announcement and nothing has changed. The economy is still on the path to full recovery, the rate hike is still imminent and global risks are still present. The only thing different is that forward outlook is diminished, it's still positive but less positive than before.

Something else that hasn't change, we still have the specter of economic data/Fed-Speak induced market volatility hanging over us. The market is going to be hanging on every data point and word spoken by a Fed member looking for signs of rate hike. There is only one data release tomorrow, the Leading Indicators, but it is options expiration day so there could be some wild action associated with that as options positions are unwound.

Now that the Fed meeting has passed the market can focus on earnings, at least for a little while. The coming quarter is largely expected to be poor, but also should begin to give us glimmers of the growth projected for the 4th quarter and next year. So long as this expectation is met I think the bottom is in for this correction. At least one positive comes from a lack of rate hike, lower dollar value. Lower dollar value is good for earnings among companies with international business.

Today's market action is little hard to read. On the one hand there are the indicators; they are on the rise and pointing to higher prices or at least a retest of resistance levels already tested. On the other are the candles; they show resistance to higher prices and could very well turn out to be pin-bar/shooting star doji's preceding another sell-off. I am still looking for some kind of test of support, maybe as far down as the recently set lows, based on convergences I've discussed before, but am bullish long term.

Until then, remember the trend!

Thomas Hughes


New Plays

After The Fed Meeting, What Now?

by James Brown

Click here to email James Brown

Editor's Note:

A recent poll showed that 50 percent of market participants were expecting the Fed to raise rates today.

Investors could not make up their minds on how they wanted to interpret the Federal Reserve's decision to not raise rates. The afternoon gains faded and stocks raced back toward unchanged on the session.

This looks like a failed breakout past resistance near 1,994-2,000 for the S&P 500. After several days of gains prior to the FOMC meeting it might be time for some profit taking, especially ahead of the weekend. S&P futures have already turned negative after hours tonight. I wouldn't be surprised to see some profit taking tomorrow.

We are not adding any new positions this evening.

S&P 500 intraday chart:

S&P 500 daily chart:




In Play Updates and Reviews

Uncertainty Reigns Following FOMC Announcement

by James Brown

Click here to email James Brown

Editor's Note:
Investors remain uncertain about the market and stocks erased their afternoon gains. The Fed postponed their rate hike and now traders are trying to digest the implications of this decision.

Biotech stocks displayed relative strength.
RDUS and ZFGN hit our bullish entry triggers.


Current Portfolio:


BULLISH Play Updates

CDW Corp. - CDW - close: 41.28 change: -0.54

Stop Loss: 37.85
Target(s): To Be Determined
Current Gain/Loss: +0.2%
Entry on September 14 at $41.20
Listed on September 12, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 1.1 million
New Positions: see below

Comments:
09/17/15: I am suggesting caution on our CDW trade. Shares displayed relative weakness with a -1.29% decline. More importantly today's move has generated a bearish engulfing candlestick reversal pattern. Further declines would confirm the reversal. More conservative traders may want to raise their stop loss but I do expect the $40.00 level to offer support.

No new positions at this time.

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: 57.19 change: -2.96

Stop Loss: 56.85
Target(s): To Be Determined
Current Gain/Loss: +3.8%
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:
09/17/15: The profit taking in GMCR resumed on Thursday. Shares were weak all day long and underperformed with a -4.9% decline. Odds are good we will see GMCR hit our stop loss at $56.85 tomorrow.

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

09/15/15 new stop @ 56.85
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: 27.59 change: -0.05

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -0.9%
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:
09/17/15: The stock market's post-FOMC meeting rally briefly pushed IM to a new seven-month high. Unfortunately the rally didn't last. IM plunged back to nearly unchanged on the session.

Today's high was $28.06. I'd use a rally past this level as a new bullish entry point.

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

09/15/15 Caution - IM did not participate in the market's rally today
09/09/15 triggered @ $27.85
Option Format: symbol-year-month-day-call-strike


Radius Health, Inc. - RDUS - close: 72.69 change: +2.77

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: +2.9%
Entry on September 17 at $70.65
Listed on September 15, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 811 thousand
New Positions: see below

Comments:
09/17/15: Biotech stocks displayed relative strength today. RDUS managed to outrun its peers with a +3.9% gain. The stock broke through resistance near $70.00 and hit our suggested entry point at $70.65. Now $70 should be new support.

Trade Description: September 15, 2015:
The allure of biotech stocks can be irresistible. RDUS is a good example. The company went public on June 6, 2014. Shares priced at $8.00 and opened at $8.03. The stock hit $84.00 in July this year. That's impressive for a 13-month return.

As a relatively new biotech stock you may not be familiar with RDUS. According to the company, "Radius is a science-driven biopharmaceutical company developing new therapeutics for patients with advanced osteoporosis as well as other serious endocrine-mediated diseases including hormone responsive metastatic breast cancer. Radius' lead development candidate is the investigational drug abaloparatide for subcutaneous injection, which is completing Phase 3 development for the reduction of fracture risk in postmenopausal women with severe osteoporosis. The Radius clinical portfolio also includes an investigational abaloparatide transdermal patch for potential use in osteoporosis and the investigational drug RAD1901 for potential use in hormone driven, or hormone resistant, metastatic breast cancer including breast cancer brain metastases."

You can review RDUS' pipeline on their website: pipeline link.

The market seems to be focused on RDUS' osteoporosis drug and its breast cancer treatment. That's not surprising since the potential market for both is huge. The osteoporosis drug is closest to being approved.

Today there are almost 500 million people who suffer with osteoporosis, where the body does not produce enough bone tissue. That number is poised to soar with an aging population in Europe, Asia, and the U.S. The market for treatment is already over $6 billion a year.

RDUS' management discussed their results after their Q2 earnings report in July. Their CEO said,

"The ACTIVExtend trial is the 24 month open label extension in which patients from the abaloparatide and placebo treated groups of the ACTIVE trial were placed on alendronate therapy for osteoporosis management. The ACTIVExtend six month study results exceeded our expectations. The group previously treated with abaloparatide had not additional new vertebral fractures during the first six months of the ACTIVExtend trial. Please remember, that from the start of the ACTIVE study, the abaloparatide treated patient showed a statistically significant 87% reduction in new vertebral fractures, the highest reduction ever reported in an osteoporosis trial and highly significant reductions in non vertebral fractures, clinical fractures and major osteoporotic fractures as compared to placebo. We believe that these results support our view that abaloparatide has the potential to represent a new treatment paradigm for patients at high risk of an osteoporotic fracture."
RDUS plans to submit an New Drug Application (NDA) to the U.S. FDA and submit an MAA to the EU later this year for their osteoporosis treatment. That could keep investor interest bullish on the stock as they await an FDA approval.

Technically RDUS saw a sharp correction of more than -$30.00 from its July high to the August intraday low. After a -37% decline RDUS has bounced with traders consistently buying the dips. Today the point & figure chart is bullish and forecasting at $79.00 target. The stock is hovering just below resistance at $70.00 and its simple 50-dma.

We are suggesting a trigger to open bullish positions at $70.65. I want to remind readers that biotech stocks can be volatile. This is an aggressive, higher-risk trade. The right headline can send RDUS soaring while the wrong headline could produce a crash. Use small positions to limit risk. RDUS does have options but they're too expensive to trade.

NOTE: do NOT open positions if RDUS gaps open past $72.00. We'll re-evaluate this trade if shares gap open too high.

*small positions to limit risk* - Suggested Positions -

Long RDUS stock @ $70.65

09/17/15 triggered @ $70.65


Starbucks - SBUX - close: 57.28 change: +0.02

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +3.9%
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:
09/17/15: SBUX, like most of the market today, saw its afternoon gains vanish. The stock closed virtually unchanged on the session. This is potentially a short-term top and I would not be surprised to see some profit taking tomorrow. The question is whether or not short-term support at $56.00 will hold or not.

No new positions at this time.

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

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

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

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

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

Five-Year Plan

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

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

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

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

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

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

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

Earnings results:

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

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

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

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

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

Recent Sell-off & Entry Point

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

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

- Suggested Positions -

Long shares of SBUX @ $55.15

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

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

09/16/15 new stop @ 54.75
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


Zafgen, Inc. - ZFGN - close: 43.76 change: +4.01

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: +8.5%
Entry on September 17 at $40.35
Listed on September 16, 2015
Time Frame: Exit 6 to 8 weeks
Average Daily Volume = 232 thousand
New Positions: see below

Comments:
09/17/15: Our brand new play on ZFGN is off to a stellar start. Biotech stocks displayed relative strength on Thursday but ZFGN was a bright spot among the group. Shares opened at $39.71 and then sprinted to a +10% gain on the session. Our entry to launch bullish positions was hit at $40.35.

No new positions at this time.

Trade Description: September 16, 2015:
Most of us have a few extra pounds hugging our waistline. Did you know that more than one third of adults in the U.S. is officially obese? That's the story from the Centers for Disease Control and Prevention. The danger of being too overweight can lead to higher rates of heart disease, diabetes, stroke, and even cancer. ZFGN wants to change that.

ZFGN is in the healthcare sector. According to the company, "Zafgen (ZFGN) is a biopharmaceutical company dedicated to significantly improving the health and well-being of patients affected by obesity and complex metabolic disorders. Zafgen is focused on developing novel therapeutics that treat the underlying biological mechanisms through the MetAP2 pathway. Beloranib, Zafgen's lead product candidate, is a novel, first-in-class, twice-weekly subcutaneous injection being developed for the treatment of multiple indications, including severe obesity in two rare diseases, Prader-Willi syndrome and obesity caused by hypothalamic injury, including craniopharyngioma-associated obesity; and severe obesity in the general population. Zafgen is also developing ZGN-839, a liver-targeted MetAP2 inhibitor, for the treatment of nonalcoholic steatohepatitis, or NASH, and abdominal obesity, as well as second-generation MetAP2 inhibitors. Zafgen aspires to improve the lives of patients through targeted treatments and has assembled a team accomplished in bringing therapies to patients with both rare and prevalent metabolic diseases."

Regular readers know that biotech stocks can be high-risk, high-reward trades. The right headline could send ZFGN soaring while the wrong one could see it gapping down at the opening bell. Odds are if the market is going to rally then biotechs tend to outperform as bullish investors swing for the fences and bet on a big return.

Shares of ZFGN priced at $16.00 when it IPO-ed on June 19, 2014. Shares opened at $20.00. Shares hit an intraday high near $55 in March this year. Since then ZFGN has been consolidating. The consolidation has taken a bit of a bullish bias with higher lows if we discount the market's plunge in August.

Today ZFGN is poised to breakout past major resistance at the $40.00 level. A breakout here could spark some short covering. The most recent data listed short interest at 15% of the very small 20 million-share float. The point & figure chart is already bullish with a quadruple top breakout buy signal and a $54.00 target. Tonight we are suggesting a trigger at $40.35 to launch bullish positions.

NOTE: ZFGN does have options but the prices and the spreads are outrageous. I would avoid them.

- Suggested Positions -

Long ZFGN stock @ $40.35

09/17/15 triggered @ $40.35




BEARISH Play Updates

Helmerich & Payne, Inc. - HP - close: 52.59 change: -0.26

Stop Loss: $55.15
Target(s): To Be Determined
Current Gain/Loss: -5.8%
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:
09/17/15: Crude oil did not see a lot of follow through on yesterday's rally. Neither did shares of HP and the stock erased its midday gains to close down -0.49%.

More conservative traders may want to lower their stop loss. 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: 54.98 change: -0.22

Stop Loss: 56.65
Target(s): To Be Determined
Current Gain/Loss: -1.0%
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:
09/17/15: It was encouraging to see the intraday rally in QCOM fail at resistance near $56.00. Shares settled with a minor -.3% decline. I am suggesting readers wait for a breakdown below support at $54.00 as our next entry point.

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

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

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

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

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

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

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

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

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

- Suggested Positions -

Short QCOM stock @ $54.45

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

Long OCT $50 PUT (QCOM151016P50) entry $0.96

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


Restaurant Brands Intl. - QSR - close: 37.46 change: +0.43

Stop Loss: 39.25
Target(s): To Be Determined
Current Gain/Loss: -1.7%
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:
09/17/15: QSR rallied up to short-term resistance near $38 and its 20-dma before paring its gains. Shares still managed to outperform the market with a +1.1% gain.

No new positions at this time.

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: 21.97 change: -0.12

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: - 0.7%
2nd position Gain/Loss: +24.3%
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:
09/17/15: The VXX plunged toward 20.00 and tagged its 50-dma at 20.12 before bouncing back to close virtually unchanged. If stocks see some profit taking tomorrow we can expect the VXX to rebound.

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


Westlake Chemical Corp. - WLK - close: 51.50 change: -1.19

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

Comments:
09/17/15: The intraday rally attempt in WLK failed. Shares underperformed the broader market with a -2.25% decline. If this weakness continues tomorrow WLK might see a breakdown to new relative lows.

Our suggested entry point is $49.75.

Trade Description: September 14, 2015:
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)

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