Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/30/2015

Table of Contents

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

Market Wrap

Another Negative Quarter

by Keene Little

Click here to email Keene Little
An oversold bounce today did not prevent a negative month or a negative 3rd quarter. This makes three negative quarters in a row for the DOW, a relatively rare event, and that raises more questions about whether or not we've started a bear market cycle.

Today's Market Stats

The 3rd quarter came to an end today and the bulls tried to reduce the loss for both the month and quarter but it would have taken a rally of nearly 500 points for the DOW to just breakeven for the month. But with the loss for the 3rd quarter it makes it three in a row, which hasn't happened since the 1st quarter of 2009 (the market bottom). That doesn't necessarily indicate we've had a significant turn in the market this year, from bull to bear, but it's certainly another warning sign, which follows the break of the uptrend lines from 2009 back in July-August.

Three quarterly losses in a row is a big deal if only because it doesn't happen very often. In the DOW's 119-year history it's happened only 20 times, including the current 3-quarter stretch, and in the past 40 years it's happened only three times, including this year. The losses accelerated as the year progressed, starting with a loss of only -0.3% for Q1 and then -0.9% for Q2 before dropping harder with a loss of -7.6% for Q3. But this is hardly the longest streak -- the loss into March 2009 was 6 straight quarters, which matched the previous longest stretch into the second quarter of 1970 (early in the previous secular bear market, which we've been in since 2000).

Today started with a big gap up after rallies in the Asian markets lifted the futures market and then helping this morning's upbeat mood was the ADP employment report. It came in at +200K, which is the number that was expected and it was a slight improvement from the 186K in August (revised slightly lower from the originally reported 190K). This points to the probability that Friday's NFP report will at least be in line with expectations.

Today's bounce looks like a quick short-covering rally in a continuing downtrend. That could of course change if the bounce develops some legs but at the moment it looks like just another bounce that gave the bears another opportunity to get short. Resistance held and as long as that remains true we should continue to look for lower prices.

Countering this morning's ADP report was the Chicago PMI, which has now dropped into contraction territory with the reading for September at 48.7, dropping from 54.4 in August and much worse than the expected 52.9. The big drop in the Production Index, from 59.0 to 43.6, is the largest one-month decline since February and is now lower than any time since July 2009. New orders and the order backlogs continue to shrink, which points to even weaker numbers in the coming months.

With more evidence of a slowing economy it becomes harder and harder for the bulls to argue the market should be higher. The quick fade off this morning's spike up provided more evidence that the bears' argument for lower prices is scaring more investors out of the market. But there was clearly an effort to trim the losses for September and the indexes were able to close at/near their highs for the day. If there is any upside follow through Thursday morning it could start to scare the bears away.

The SPX weekly chart continues to look bearish because of the spike down from August followed by a choppy consolidation. But the current week is showing a bullish hammer candlestick at support (price-level support near 1885), which could of course change since we've still got two days of trading to see how it finishes. A test of the August low with a bullish hammer, if it holds, would embolden the bulls to do some buying but if support doesn't hold we'll probably see SPX drop down to its October 2014 low, near 1820, and potentially down to its February 2014 low, near 1738. The wave pattern for the decline from July is not clear enough to rely on but one possibility looks for two equal legs down, which points to 1755. So we've got some downside targets to watch for in case the market continues to head lower. But a rally above price-level S/R near 1985 would have me feeling less bearish and above price-level support near 2040 would have me looking for new highs.

S&P 500, SPX, Weekly chart

The daily chart below shows a bear flag pattern for the bounce off the August low. SPX dropped below the bottom of the flag pattern (uptrend line from August 24 - September 24) on Monday and today it made it back up to the broken line, near 1919. A rally much above 1920 would leave a head-fake breakdown, which would be bullish, whereas a decline from here would leave a back-test followed by a bearish kiss goodbye.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1981
- bearish below 1871

The 60-min chart below shows more clearly the uptrend line from August and how this morning's quick high was a back-test of the broken uptrend line. It pulled back and tried again into the close. The bulls need to see a gap up over resistance while the bears need to see an immediate selloff. I think following the initial move Thursday morning could see a tradeable move, even if for only a day trade. A rally above last Friday's high near 1953 would be a bullish move, which would point to a minimum upside target near 1998 (and potentially a back-test of the 50-dma next week) and possibly up to 2025 or higher.

S&P 500, SPX, 60-min chart

The DOW has a very similar setup as SPX but its bear flag pattern is slightly different. I've drawn the uptrend line from August 24th through Tuesday's low and a parallel line is attached to the August 28th high. A larger a-b-c bounce off the August low would be achieved with another leg up, potentially to the 17300 area, before heading back down. A rally above its downtrend line from July-August, currently near 16715, would be a bullish sign but for now the larger pattern continues to suggest lower prices.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,100
- bearish below 15,942

There are no strong technical clues for the tech indexes and I'm left scratching my head for some ideas as to where it's more likely to go from here. It's currently trading around price-level S/R near 4119, which is its September 2014 high and where it was finding support back in December 2014 through January 2015. But other than that I don't have a good feel for what will happen next.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4309
- bearish below 4053

The RUT has been weaker than the other indexes, being the first to break below its August low, but it's the one that has the best setup for a higher bounce. The bounce off price-level support near 1080 is a good setup for a bounce at least up to its downtrend line from July, currently near price-level S/R near 1152. The downtrend line drawn from its June high through the September 17th high is closer to the 50-dma near 1176. There is a way to consider the decline from June to yesterday's low to be the completion of a 5-wave move, which sets it up for a much higher bounce and therefore bears should be playing defense here. I'd like to see an impulsive rally off yesterday's low (it's just a 3-wave bounce correction so far) before turning bullish so we have no clear setup at the moment. Add in the uncertainty in front of Friday's NFP report and it's probably a good time to stay flat and watch for a bit longer.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1150
- bearish below 1080

The 30-year yield (TYX) is sitting on support and which way it goes from here should help us figure out the likely direction of the stock market. If TYX gives up price-level support near 2.85% (yesterday's close was 2.855 and today's was 2.88) it will likely break down much further. A bond rally could mean money is rotating from the stock market into the bond market.

30-year Yield, TYX, Daily chart

There's very little to add to the above commentary when I look at the other indexes for clues. The SOX looks like the tech indexes while the banks and trannies look like the blue chips. Several indexes rest on support and therefore it's important for the bulls to keep up the buying pressure over the next couple of days. Continued selling from here would leave just another oversold bounce correction before heading lower.

The U.S. dollar is working its way back up toward its downtrend line from March-August, currently near 97.54, where I'm expecting it to reverse back down for one more leg inside a descending wedge pattern off the March high. Once the pattern completes I'm expecting another rally in the dollar next year. If it rallies above its August 2nd high at 98.42 it would become more immediately bullish.

U.S. Dollar contract, DX, Weekly chart

Last week gold made it back up to its downtrend line from January-May and was again rejected, just as it was in August. The drop back below price-level S/R near 1142 is also bearish and I continue to look for lower prices for gold. It takes a rally above 1195 (two equal legs up from July) before I'd turn more bullish.

Gold continuous contract, GC, Weekly chart

The whole time gold was trying to bounce off its July low I was watching silver to see if it supported the idea that the metals would head higher. But silver was stuck below its price-level S/R near 15.25, as can be seen on its weekly chart below. It was also being held down by its downtrend line from October 2012 - July 2014, currently near 15.30. As long as silver remains below its September 13th high at 15.43 I'll stay bearish the poor man's gold. A rally above 16 and its 50-dma would have me less bearish.

Silver continuous contract, SI, Daily chart

Following the spike up off the low on August 24th into the high on August 31st oil has been consolidating in a contracting pattern, which fits best as a bullish continuation pattern. Another equal leg up points to 55.29 if it starts up from here and then I think it would turn back down from there in a larger contracting pattern (this one being a bearish continuation pattern in the larger pattern).

Oil continuous contract, CL, Daily chart

Thursday will be busy for economic reports but the potentially market-moving ones will be at 10:00 -- the ISM index will be important because of the concern that it too could show contraction with a drop below 50 (following today's Chicago PMI report). Construction spending is also expected to slow but the bulls will need to see it stay above contraction territory.

Economic reports and Summary

Conclusion

Today's bounce looks like an oversold bounce and nothing more bullish than that. But most rallies start this way and we'll have to see if the bulls can get some follow through on Thursday. The RUT is currently showing the most bullish setup and therefore if the RUT rallies it would be a good sign for the bulls. SPX rallied up to trendline resistance and therefore it needs to rally in order to prevent a bearish kiss goodbye following the bounce up to a back-test. Based on where the indexes are located I think the initial move Thursday morning will see follow through and therefore trading in that direction (even if for only a day trade) should work.

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

Keene H. Little, CMT

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


New Plays

This Tech Stock Looks Broken

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Synchronoss Technologies - SNCR - close: 32.80 change: -0.60

Stop Loss: 35.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 30, 2015
Time Frame: Exit PRIOR to earnings in late October
Average Daily Volume = 603 thousand
New Positions: Yes, see below

Company Description

Trade Description:
SNCR is a technology company with strong revenue growth and yet investors have been selling the stock anyway.

SNCR is considered part of the application software industry. According to the company, "Synchronoss Technologies, Inc., is the mobile innovation leader that provides cloud solutions and software-based activation for connected devices across the globe. The company's proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world."

SNCR has been consistently beating Wall Street's earnings expectations. The last three quarters in a row SNCR has delivered bottom line and top line growth above expectations. 2014's Q4 revenues were up +34.7%. 2015 Q1 sales rose +34.9% and Q2 sales rose +33.2%. Yet with strong results like these the stock is down -21.6% year to date and down -36% from its 2015 high.

Technically SNCR had been churning sideways in a wide consolidation pattern for months. It broke down from this consolidation in August when the broader market corrected lower. When the market produced a big bounce off its August lows SNCR did not participate.

Several days ago shares of SNCR collapsed on worries that they might lose their cloud-storage contract with Verizon (VZ). Several analysts defended SNCR and said the drop was a buying opportunity. Both SNCR and VZ said their contract has not changed and was good until 2018. Yet the oversold bounce from this story only lasted one day. Traders have been selling SNCR on every rally.

There is a risk that SNCR is a takeover target. Back in June and July there were rumors that SNCR was exploring a sale of the company. There were also stories that private equity might be interested in taking SNCR private. Yet this acquisition risk has not generated any new buying interest in the stock. Investors are bearish and the most recent data listed short interest at 17.7% of the 38.0 million share float. That's enough to raise the risk of a short squeeze.

Tonight I am suggesting bearish positions if SNCR trades at $32.40 or lower. We want to use small positions to limit our risk. Investors might want to stick to put options to really limit risk.

Trigger @ $32.40

- Suggested Positions -

Short SNCR stock @ $32.40

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

Buy the NOV $30 PUT (SNCR151120P30) current ask $1.90
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

Market Ends Q3 On A Strong Note

by James Brown

Click here to email James Brown

Editor's Note:
Stocks rallied around the world today. All the major Asian markets were higher. Europe delivered big gains. The U.S. followed suit with a widespread bounce.

The U.S. market still posted significant losses for the third quarter with the S&P 500 down -7%.

The GNC trade was triggered today.


Current Portfolio:


BULLISH Play Updates

JetBlue Airways - JBLU - close: 25.77 change: +0.58

Stop Loss: 22.45
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 28, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 8.8 million
New Positions: Yes, see below

Comments:
09/30/15: Investors were in a buy-the-dip mood on Wednesday. I suspect a lot of it was end of quarter window dressing and short covering. JBLU managed to outperform the major indices and its peers with a +2.3% bounce. It's worth noting that the rebound failed at short-term resistance near $26.00. We are not giving up on our buy-the-dip entry strategy.

Our suggested entry point is $24.05.

Trade Description: September 28, 2015:
Crude oil prices have been depressed for months but airline tickets didn't really start falling until a couple of months ago. The average ticket is now down -6% from a year ago. That sounds like bad news for the airline companies. However, the drop in oil has slashed their fuel costs. Most airlines are spending 40% less on fuel than they were a year ago. That's a massive boost to their bottom line.

JBLU is part of the services sector. According to the company, "JetBlue is New York's Hometown Airline®, and a leading carrier in Boston, Fort Lauderdale-Hollywood, Los Angeles (Long Beach), Orlando, and San Juan. JetBlue carries more than 32 million customers a year to 90 cities in the U.S., Caribbean, and Latin America with an average of 900 daily flights."

The International Air Transport Association (IATA) recently issued a press release stating that customer demand for air travel remains strong. Global passenger traffic for July was up +8.2% from a year ago and an improvement above the +5.5% jump in June.

JBLU jus reported their August numbers, which saw traffic increase +6.7% as capacity rose +8.3%. The company did state that their passenger revenues per available seat mile (PRASM), a key metric for the airlines, did fall -3% in August but that was negatively impacted by a late Labor Day holiday this year. JBLU expects their Q3 PRASM to be relatively flat from a year ago (but still at a healthy pace).

Wall Street remains optimistic on JBLU. Analysts have been raising their earnings estimates on the company, which is usually a good sign. Plus JBLU has garnered some new price targets, one at $28 and another at $32. The point & figure chart is forecasting at $47.50 target.

JBLU hit multi-year highs several days ago and has been relatively resistant to the market's weakness. That changed today when investors were selling everything during the market's widespread decline. We want to take advantage of any temporary weakness in JBLU if this decline continues. Prior resistance near $24.00 should be new support. Tonight I am suggesting a trigger to launch bullish positions if JBLU trades at $24.05.

Buy-the-dip Trigger @ $24.05

- Suggested Positions -

Buy JBLU stock @ $24.05

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

Buy the NOV $25 CALL (JBLU151120C25)

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


Ingram Micro Inc. - IM - close: 27.24 change: +0.82

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -2.2%
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:
09/30/15: Semiconductor stocks soared on Wednesday. The SOX index added +3.8%. Shares of IM almost kept pace with a +3.1% rally. Shares are back above short-term resistance in the $27.15 area. The next hurdle for the bulls is the September highs near $28.00.

No new positions at this time.

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




BEARISH Play Updates

Bristow Group, Inc. - BRS - close: 26.16 change: +0.03

Stop Loss: 28.75
Target(s): To Be Determined
Current Gain/Loss: +5.6%
Entry on September 25 at $27.70
Listed on September 24, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 553 thousand
New Positions: see below

Comments:
09/30/15: BRS ignored the market's big rally today. Shares simply drifted sideways. This is a win for the bears but I would not start new positions.

Trade Description: September 24, 2015:
The collapse in crude oil hasn't not just hurt the energy producers but also the oil services company that support the energy sector. This has driven BRS to five-year lows.

BRS is part of the basic materials sector. According to the company, "Bristow Group Inc. is a leading provider of helicopter services to the worldwide offshore energy industry based on the number of aircraft operated and one of two helicopter service providers to the offshore energy industry with global operations. The Company has major transportation operations in the North Sea, Nigeria and the U.S. Gulf of Mexico, and in most of the other major offshore oil and gas producing regions of the world, including Australia, Brazil, Canada, Russia and Trinidad."

The prolonged drop in oil prices has forced most energy companies to cut their capex budgets and expenses. That means less demand for oil services like BRS. The company has missed Wall Street's earnings estimates and lowered guidance the last three quarters in a row.

On February 5, 2015, BRS lowered their 2015 guidance from $4.70-5.20 down to $4.05-4.45 compared to estimates of $4.92 per share. On August 6th BRS lowered their 2016 guidance to $3.10-3.75 versus Wall Street estimates of $4.01 per share.

Unfortunately there appears to be no end in sight for the downturn in energy and crude oil. BRS could have much farther to fall. The last couple of days have seen shares of BRS breakdown below their prior September low. Today's intraday low was $27.83. I am suggesting a trigger to launch small bearish positions at $27.70. We want to start with small positions since BRS is already oversold (there is nothing stopping it from getting a lot more oversold).

*small positions to limit risk* - Suggested Positions -

Short BRS stock @ $27.70

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

Long DEC $25 PUT (BRS151218P25) entry $2.10

09/28/15 new stop @ $28.75
09/25/15 triggered @ $27.70
Option Format: symbol-year-month-day-call-strike


GNC Holdings - GNC - close: 40.42 change: +0.32

Stop Loss: 42.25
Target(s): To Be Determined
Current Gain/Loss: -1.7%
Entry on September 30 at $39.75
Listed on September 29, 2015
Time Frame: Exit prior to earnings at the end of October
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
09/30/15: The market's midday dip was strong enough to push GNC to new lows. Shares hit our entry trigger at $39.75. Unfortunately GNC followed the market higher this afternoon. Shares closed up +0.79% and back above the $40.00 level.

Our trade is open but I would hesitate to launch new positions at this time. Today's intraday low was $39.65. You could wait for a new drop below this level. Nimble traders could watch and wait for this bounce to rollover as an alternative entry point. There is potential resistance in the $41.00 area.

Trade Description: September 29, 2015:
Tougher competition, increased government scrutiny, and changing consumer habits have not been a good recipe for shares of GNC. The stock is down -14.6% in 2015 and poised to hit new lows.

GNC is in the services sector. According to the company, "GNC Holdings, Inc. - headquartered in Pittsburgh, PA - is a leading global specialty health, wellness and performance retailer. The Company's foundation is built on 80 years of superior product quality and innovation. GNC connects customers to their best by offering a premium assortment of vitamins, minerals, herbal supplements, diet, sports nutrition and protein products. This assortment features proprietary GNC - including Mega Men®, Ultra Mega®, Total Lean®, Pro Performance®, Pro Performance® AMP, Beyond Raw®, GNC Puredge®, GNC GenetixHD®, Herbal Plus® - and nationally recognized third party brands.

GNC's diversified, multi-channel business model generates revenue from product sales through company-owned retail stores, domestic and international franchise activities, third party contract manufacturing, e-commerce and corporate partnerships. As of June 30, 2015, GNC had more than 9,000 locations, of which more than 6,700 retail locations are in the United States (including 1,067 franchise and 2,304 Rite Aid franchise store-within-a-store locations) and franchise operations in more than 50 countries."

GNC faces multiple issues. This year there have been negative headlines for the supplement industry. Testing showed that multiple supplements at various retailers were filled with bogus ingredients. Companies like Wal-mart, Target, Walgreens, and GNC have all come under fire for selling the fraudulent products. This will likely increase government scrutiny for supplements in general.

GNC also faces an issue with changing consumer habits. While most of Americans are overweight and out of shape there is a growing trend of healthier eating. Consumers want to know what they are putting in their bodies. That means less pills and more raw fruits and veggies, especially organic ones.

The biggest challenge could be tough competition. Online rivals can provide supplements at cheaper prices than GNC's retail stores. Best Buy (BBY), the consumer electronics store, has faced this issue for years with consumers coming into a Best Buy store, shopping around, and then going home and buying the product online from Amazon.com for less money and getting it delivered. GNC faces the same issue.

GNC's earnings have struggled. Their Q1 report, announced April 30th, missed estimates. GNC missed on both the bottom line profit estimates and the revenue estimate. Revenues were down -0.6% and same-store sales plunged -4.1%. Management lowered their 2015 guidance following this report.

GNC's Q2 results were not much better. They missed on both the top and bottom line again. Earnings only grew +2.6% from a year ago. Revenues were virtually flat with a +0.5% gain. Same-store sales fell -2.8%.

The stock rallied anyway because management said they would focus on more franchised stores. This news seemed to have sparked some short covering. Shares of GNC soared from $42 to $50 in just a few days but the rally reversed. Now the stock is trading at new 2015 lows. The company's announcement on August 4th to boost their stock buyback program by an additional $500 million did not help the stock very much.

GNC is in a bear market and poised to break major support at the $40.00 level. The point & figure chart is bearish and forecasting at $33.00 target. Tonight I am suggesting a trigger to launch bearish positions at $39.75.

- Suggested Positions -

Short GNC stock @ $39.75

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

Long NOV $37.50 PUT (GNC151120P37.5) entry $1.60

09/30/15 triggered @ $39.75
Option Format: symbol-year-month-day-call-strike


Hornbeck Offshore Services - HOS - close: 13.53 change: -0.40

Stop Loss: 14.75
Target(s): To Be Determined
Current Gain/Loss: +11.1%
Entry on September 22 at $15.22
Listed on September 21, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 925 thousand
New Positions: see below

Comments:
09/30/15: It was a good day for HOS bears. The stock ignored the big bounce in the oil services industry and the rest of the energy stocks. Instead HOS continued to fall and underperformed the market with a -2.8% decline.

Cautious investors might want to move their stop loss closer to the $14.25 area.

No new positions at this time.

Trade Description: September 21, 2015:
HOS has been crushed over the last couple of years and there appears to be no end in sight.

HOS is part of the basic materials sector. They're in the oil equipment and services industry. According to the company, "Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore service vessels primarily in the Gulf of Mexico and Latin America. Hornbeck Offshore currently owns a fleet of 66 vessels primarily serving the energy industry and has eight additional ultra high-spec Upstream vessels under construction for delivery through 2016."

The energy sector has been hurt by the bear market in crude oil. The sell-off in crude started in June 2014. Yet the sell-off in HOS started in late 2013, more than six months before crude oil turned lower. Falling oil prices make it unprofitable for companies to do a lot of drilling offshore, which is significantly more expensive than normal drilling methods. Today there are only 31 active offshore oil rigs. That's down from 66 offshore rigs a year ago.

HOS management seems to be doing a good job in slashing expenses. They have managed to beat Wall Street's estimates on the bottom line number. Yet HOS has been unable to stop the plunge in revenues. Last quarter revenues fell -20% from a year ago.

Moody's just downgraded HOS' credit rating and changed their outlook to negative. Here is an excerpt from the Moody's press release,

"Hornbeck benefits from the scale and quality of its fleet, and good liquidity, but its credit metrics will continue to be negatively impacted by the very challenging environment facing the offshore sector through 2017" said Sreedhar Kona, Moody's Senior Analyst. "The negative outlook reflects our expectation of continued deterioration in the utilization of offshore supply vessels and their day rates"
The bearish conditions in the energy sector are not secret. Investors have been selling the rallies. Bears have piled on HOS with short interest at 33% of the small 25.5 million share float. That does raise the risk of a short squeeze.

Technically the trend is down. It was just a few days ago that Goldman Sachs outlined their worst-case scenario that saw crude oil falling to $20 a barrel. It could take years for the world to work through the current supply glut that will keep oil prices depressed.

HOS' point & figure chart is forecasting at $12.00 target. Today HOS displayed relative weakness with a -4.3% decline. Tonight we are suggesting a trigger to launch bearish positions at $15.30. More conservative traders might want to wait for a breakdown below $15.00 before launching bearish positions.

*Due to the high short interest I am suggesting small positions to limit risk*

*small positions to limit risk* - Suggested Positions -

Short HOS stock @ $15.22

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

Long DEC $15 PUT (HOS151218P15) entry $2.15

09/28/15 new stop @ 14.75
09/22/15 triggered on gap down at $15.22, suggested entry was $15.30
Option Format: symbol-year-month-day-call-strike


Helmerich & Payne, Inc. - HP - close: 47.26 change: -0.58

Stop Loss: $49.35
Target(s): To Be Determined
Current Gain/Loss: +4.9%
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:
09/30/15: HP, another energy-related stock, shrugged off the rebound in energy names. The early morning rally failed at $49.05 and the stock reversed into a -1.2% decline.

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

09/28/15 new stop @ 49.35
09/19/15 new stop @ 54.35
09/10/15 triggered @ $49.70
Option Format: symbol-year-month-day-call-strike


Intl. Paper Company - IP - close: 37.79 change: +0.40

Stop Loss: 39.65
Target(s): To Be Determined
Current Gain/Loss: + 5.2%
Entry on September 22 at $39.85
Listed on September 19, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 2.9 million
New Positions: see below

Comments:
09/30/15: IP's +1.0% bounce today snapped a nine-day losing streak. This oversold bounce may not be over yet. Look for short-term resistance near $39.00 and its 10-dma.

No new positions at this time.

Trade Description: September 19, 2015:
Over supply issues and currency headwinds are hurting IP's results.

IP is in the consumer goods business. According to the company, "International Paper (IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging along with uncoated papers and pulp. Headquartered in Memphis, Tenn., the company employs approximately 58,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2014 were $24 billion."

The last few earnings reports have seen IP beat Wall Street's bottom line estimate but that was mainly due to cost cutting. Revenues have been slowing down. Their 2014 Q4 revenues were only up +1.6%. Q1 revenues fell -3.6%. Their most recent report saw Q2 revenues fall -3.6%. The last two quarters saw revenues come in below analysts' expectations.

IP's management did manage to slash selling and administrative costs by almost -8% last quarter. Unfortunately their international packaging, consumer packaging, and printing papers businesses all saw sharp sales declines.

Dividend investors might be drawn to this stock. IP currently has a yield near 4%. Is it worth buying a big yield when the stock has fallen -30% from its 2015 highs and shows no signs of stopping? A Bank of America analysts said their previously bullish thesis for IP doesn't work anymore. Over supply issues in the containerboard industry remain a trouble spot.

The stock is bearish with a clear trend of lower highs and lower lows. Today shares are poised to breakdown under round-number support at $40.00. We are suggesting a trigger to launch bearish positions at $39.85.

- Suggested Positions -

Short IP stock @ $39.85

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

Long 2016 Jan $40 PUT (IP160115P40) entry $3.00

09/28/15 new stop @ 39.65
09/24/15 Caution - the big intraday bounce is a potential warning for bears
09/22/15 triggered @ $39.85
Option Format: symbol-year-month-day-call-strike


Murphy Oil Corp. - MUR - close: 24.20 change: -0.22

Stop Loss: 25.35
Target(s): To Be Determined
Current Gain/Loss: +5.7%
Entry on September 23 at $25.65
Listed on September 22, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 2.4 million
New Positions: see below

Comments:
09/30/15: The market's big bounce today allowed MUR to bounce 22 cents. That was enough to erased yesterday's losses. I'm still cautious after the big volume on yesterday's move. Keep an eye on the $25.00 level for resistance.

No new positions at this time.

Trade Description: September 22, 2015:
The outlook for crude oil continues to worsen. We are bringing MUR back to the Premier Investor newsletter.

Here's an updated trade description:

The crash in crude oil prices in the second half of 2014 was pivotal turning point for the U.S. energy industry. Suddenly the booming oil and gas sector had its future being questioned with the price of oil now unprofitable for many drillers. Oil has managed a bounce from its 2015 lows while many of the oil and gas producers are still seeing their stocks decline.

MUR is in the basic materials sector. According to the company, "Murphy Oil Corporation is an independent exploration and production company with a strong, oil-weighted portfolio of global offshore and onshore assets. Exploration activities are focused in four main regions: Deepwater Gulf of Mexico, the Atlantic Margin, Southeast Asia and Australia."

The company reduced its 2015 capex outlook by -33% when they reported their 2014 Q4 results back in January. MUR's Q1 results came out in May. Profits evaporated with MUR delivering a loss of ($1.11) per shares versus a profit of $0.96 a year ago.

Management is trying to prop up their floundering stock price. On May 20th the company announced an accelerated stock buyback program of $250 million. This is part of a previously announced $500 million repurchase program from August 2014. The buyback doesn't seem to be working.

Goldman Sachs downgraded MUR to a "sell" in late May. Nearly a month later UBS has also downgraded MUR to a "sell". The UBS analyst expressed concern that MUR's production would likely decline in 2015 and 2016 since the company has cut back on investment. (edit: UBS later pulled its "sell" rating after MUR reported earnings on July 30th). Soon other analysts jumped on the downgrade bandwagon. Morgan Stanley and Oppenheimer have both downgraded MUR in the last several weeks. The Oppenheimer analyst expressed concern that MUR would face a significant cash flow deficit and would need to fund operations through cash on hand and additional debt.

MUR's most recent earnings report on July 30th did beat Wall Street estimates but the company posted a loss of $0.48 per share versus estimates for a loss of $0.54.

Shares of MUR have continued to race lower with investors selling every rally. The trend of lower highs and lower lows has pushed MUR to levels not seen since early 2004. The point & figure chart is bearish and forecasting a long-term target of $12.00. I see potential support at $20.00. The September 11th low was $25.77. Tonight we are suggesting a trigger to launch bearish positions at $25.65.

- Suggested Positions -

Short MUR stock @ $25.65

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

Long 2016 JAN $25 PUT (MUR150115P25) entry $2.40

09/29/15 Caution - today might be a short-term bottom
09/28/15 new stop @ 25.35
09/23/15 triggered @ $25.65
Option Format: symbol-year-month-day-call-strike


QUALCOMM Inc. - QCOM - close: 53.73 change: +1.30

Stop Loss: 54.25
Target(s): To Be Determined
Current Gain/Loss: +1.3%
Entry on September 04 at $54.45
Listed on September 1, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 12.5 million
New Positions: see below

Comments:
09/30/15: Semiconductor-related stocks were strong performers today. The SOX index rallied +3.8%. QCOM added +2.4% but shares failed to breakout past resistance at the $54.00 level.

No new positions at this time. Let's wait and see if QCOM reverses at $54.00 again.

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

09/28/15 new stop @ 54.25
09/23/15 QCOM's breakdown below support at $54.00 is bearish
09/12/15 new stop @ 56.65
09/04/15 triggered @ $54.45
Option Format: symbol-year-month-day-call-strike


Scripps Networks Interative - SNI - close: 49.19 change: +1.05

Stop Loss: 50.55
Target(s): To Be Determined
Current Gain/Loss: -1.0%
Entry on September 28 at $48.70
Listed on September 26, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 1.3 million
New Positions: see below

Comments:
09/30/15: SNI participated in the market's widespread rally today. Shares added +2.1% and look like they could challenge the $50.00 level soon. Wait for this bounce to stall or reverse before initiating new bearish positions.

Trade Description: September 26, 2015:
The television media space is extremely competitive. Investors have really started to worry about the future of broadcast television. There are very significant trends with younger consumers watching less and less TV. Plus there is a growing trend of consumers "cutting the cord" with their cable company and choosing to watch most of their content online, on their tablet, or on their smartphone. These concerns have depressed some stocks in the media industry. Less TV watching means weaker advertising dollars for TV content.

SNI is in the services sector. According to the company, "Scripps Networks Interactive (SNI) is one of the leading developers of engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company's lifestyle media portfolio comprises popular television and Internet brands HGTV, DIY Network, Food Network, Cooking Channel, Travel Channel and Great American Country, which collectively engage more than 190 million U.S. consumers each month. International operations include TVN, Poland's premier multi-platform media company; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel, the first pan-regional TV food network in Asia; and lifestyle channel Fine Living. The company's global networks and websites reach millions of consumers across North and South America, Asia, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com."

SNI's earnings performance has generally been okay. Looking at the last three quarters SNI has beaten analysts' bottom line estimates. Management did warn and lowered their 2015 guidance back in February. However, SNI raised their guidance with their most recent quarterly report in early August.

The bullish view on SNI is the stock's valuation. It is cheaper than its peers in the television industry. Plus, management sees stronger revenues for 2015. However, this is not translating into strength for the stock. When SNI reported its better than expected earnings and raised guidance in early August traders sold the news and shares broke down to new lows.

Bears can argue that SNI's expansion into Europe will mean more currency risk as the dollar rises. Plus, fundamental traders might be concerned about the company's debt more than doubling from $1.5 billion to $3.44 billion in the last year. Moody's Investor Service recently downgraded SNI's credit rating to Baa3 due to SNI's surge in debt. Shorts seem to be winning the day with SNI in a bear market.

Technically SNI peaked with a huge bearish double top in the $86 region in the late 2013-to mid 2014 time frame. Since then shares have plunged with a bearish pattern of lower highs and lower lows. Short interest is currently at 18.5% of the 73.4 million share float. This past week saw SNI breakdown under short-term support near $51.00. Now the stock is flirting with a breakdown below round-number support at $50.00.

The intraday low on Thursday was 48.80. I am suggesting a trigger to launch bearish positions at $48.70.

- Suggested Positions -

Short SNI stock @ $48.70

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

Long NOV $45 PUT (SNI151120P45) entry $0.95

09/28/15 new stop @ $50.55
09/28/15 triggered @ $48.70
Option Format: symbol-year-month-day-call-strike


Sohu.com Inc. - SOHU - close: 41.30 change: +0.68

Stop Loss: 42.75
Target(s): To Be Determined
Current Gain/Loss: -0.7%
Entry on September 24 at $41.03
Listed on September 23, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 607 thousand
New Positions: see below

Comments:
09/30/15: SOHU added +1.6%. Shares look like they could test prior support and what should be new resistance at the $42.00 level soon. I'd watch for a failed rally near $42.00 as our next entry point.

Trade Description: September 23, 2015:
China's economy is slowing down. Earlier today the country said their manufacturing growth fell to six-year lows. This slowdown is being felt throughout the economy, including the technology space and Internet companies.

SOHU is considered part of the technology sector. I'd consider them a Chinese Internet stock. According to the company, "Sohu.com Inc. is China's premier online brand and indispensable to the daily life of millions of Chinese, providing a network of web properties and community based/web 2.0 products which offer the vast Sohu user community a broad array of choices regarding information, entertainment and communication. Sohu has built one of the most comprehensive matrices of Chinese language web properties and proprietary search engines, consisting of the mass portal and leading online media destination www.sohu.com; interactive search engine www.sogou.com; developer and operator of online games www.changyou.com/en/ and leading online video website tv.sohu.com .

Sohu corporate services consist of online brand advertising on its matrix of websites as well as bid listing and home page on its in-house developed search directory and engine. Sohu also provides multiple news and information service on mobile platforms, including Sohu News App and mobile news portal WAP.Sohu.com. Sohu's online game subsidiary, Changyou.com (CYOU) has a diverse portfolio of popular online games , such as Tian Long Ba Bu, one of the most popular massively multi-player online ('MMO') games in China, as well as a number of mobile games. Changyou also owns and operates the 17173.com Website, a leading game information portal in China. Sohu.com, established by Dr. Charles Zhang, one of China's internet pioneers, is in its nineteenth year of operation."

Looking at SOHU's recent earnings reports the company has been beating estimates on the bottom line but business is slowing down. SOHU has guided lower three of the last four quarterly reports. Their most recent earnings report was July 27th when SOHU announced their Q2 results.

Wall Street expected a loss of ($0.81) per share on revenues of $479.5 million. SOHU delivered a loss of just ($0.37) while revenues grew +23% to $493.6 million. Unfortunately management lowered their guidance again. SOHU expects Q3 revenues to come in the $470-500 million range. That's below analysts' estimates of $530 million. SOHU is also forecasting Q3 earnings in the minus $0.55 to minus $0.80 per share versus Wall Street's estimate for minus $0.39. This is SOHU's lowest revenue growth in the last three years.

Technically the stock is in a bear market with a -40% drop from its June highs (SOHU is down -21% year to date). The stock has been trading with a bearish trend of lower highs. Now SOHU is poised to breakdown under significant support in the $42 area. A drop below $41.00 would generate a new triple-bottom breakdown sell signal on its Point & Figure chart. Tonight I am suggesting a trigger to launch bearish positions at $41.35. If shares break down the next support level could be the $35 region.

FYI: Investors should be aware that SOHU has been rumored to be an acquisition target or a target to be taken private. That's our biggest risk. The cheaper this stock gets the more attractive it might become as a target. However, this is just speculation and it may never happen.

- Suggested Positions -

Short SOHU stock @ $41.03

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

Long DEC $35 PUT (SOHU151218P35) entry $2.00

09/28/15 new stop @ $42.75
09/24/15 triggered on gap down at $41.03, trigger was $41.35
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 25.63 change: -1.26

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -17.5%
2nd position Gain/Loss: +11.7%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: Exit prior to October option expiration
Average Daily Volume = 50 million
New Positions: see below

Comments:
09/30/15: The market's big bounce today shaved off -8.6% from the volatility index. The VXX reacted with a -4.6% decline.

We have less than three weeks left on our October options.

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