Option Investor
Newsletter

Daily Newsletter, Thursday, 10/1/2015

Table of Contents

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

Market Wrap

Rocky Start For Fourth Quarter

by Thomas Hughes

Click here to email Thomas Hughes
The market struggled for direction on the first day of the fourth quarter.

Introduction

The market struggled for direction today, the first day of the fourth quarter of 2015. Although there was plenty of news nothing seemed to inspire much action. There were quite a few economic releases and a statement from Fed president Lockhart but investor eyes remain glued to tomorrow's NFP report and its impact on FOMC outlook. All signs point to at least a decent NFP number and a possible rate hike before the end of the year.

Asian indices started the quarter off on a largely positive note although new Chinese PMI data still shows an economy in contraction. The good news is that the number was a little better than expected so helped relieve some fear of declining momentum. European indices began the day in positive territory but were not able to hold the gains. Disappointing, although still expansionary, PMI data may have been the cause. The German DAX led declines with a loss of -1.57%.

Market Statistics

Our indices were indicated to open higher for most of the early session. Futures trading was not strong, there were no huge moves indicated, but they were pointing higher. Economic data released before and after the opening bell was largely positive but had little effect; labor data remains steady, auto sales are strong, the housing recovery is expanding as is manufacturing although momentum is waning.

The indices opened in positive territory but the bulls were not able to hold the gains. Sellers took control within the first few minutes and drove the indices back to break even levels and lower. Morning action was choppy but trend lower until intra-day bottom around noon. Some sideways action followed, until about 1:30PM, when the bulls were able to regain control and the indices rebound from their lows. The rally lasted until late afternoon and took the indices back into positive territory. The last hour of trading saw the indices falter once again but for the most part they were able to close even or better than yesterday's closing prices.

Economic Calendar

The Economy

The Challenger, Gray & Christmas report on planned lay-off's was released first. It shows that planned lay-off's increased by 43% over last month. This is a 93% increase over this same time last year and brings the 3rd quarter total up to 205,759 and the largest quarterly total since 2009. On a quarterly basis the 3rd quarter total is up 40% from from the 2nd quarter and 75% from the 3rd quarter of 2014. The year to date total is now 493,431, well above last years pace.

Now, to get a little perspective. More than 50% of last month's lay-off's are reported by one company, Hewlett Packard, as part of their ongoing restructuring program. These cuts are massive, but not unexpected as Meg Whitman has said repeatedly over the past year that more cuts were coming. On a year to date basis the tech sector, led by HPQ and Microsoft, are the second biggest contributor to cuts, 58,874. The largest contributor is the energy sector, also largely expected, coming in at 72,708 compared to less than 5,000 job cuts last year. Together these two sectors have contributed more than 25% of all job cuts this year. This is not to say that high job cuts are not something to be worried about, just that the pace of job cuts does not necessarily show weakness in the job market, just weakness in two sectors, and in two specific companies.


Initial Claims for unemployment rose by 10,000, slightly ahead of expectations, to hit 277,000. Last week's number was not revised. The four week moving average fell, losing -1,000, to hit 270,750. On a not adjusted basis claims fell by -1.8%, less than than -5.4% predicted by the seasonal factors. Despite the small gain claims remain near the long term lows where they have been trending for more than 6 months. On a state by state basis California had the biggest increase in claims, +3,725, while Wisconsin had the largest decrease in claims, -278.

Continuing Claims fell in this week's data, shedding -53,000 to hit 2.191 million. This is the lowest level for adjusted continuing claims since 11/11/2000. Last week's figure was revised higher by 2,000. The four week moving average fell, hitting 2.235 million. Needless to say continuing claims numbers are good this week and are another sign that labor markets were gaining strength going into September.

Total Claims fell by -2,996 to hit 1.985 million, another new low. Total claims have now made their second new low in two weeks and are -8% lower than they were last year at this time. Based on this and the other employment data I'd have to say it looks like hiring has been steady if not actual job creation. ADP came in at 200K earlier this week and shows steady, stable and almost strong private sector employment. The NFP is expected to come in around 200K as well and could provide an upside surprise. Unemployment is expected to hold steady at 5.1%.


ISM Manufacturing came in at 50.2. This is below expectations for 50.6 and last month's reading of 51.1 but is above the 50 level and shows some expansion in the sector. It is also the 33rd consecutive month of expansion in the manufacturing sector. Within the report all segments declined except New Export Orders which held steady.

Construction Spending was released at 10AM and came in hotter than expected. August Construction Spending rose 0.7% over the July figure, consensus estimate was near 0.5%. The year over year gain in spending is 13.7%. These numbers are pretty good and consistent with trends in housing. Low inventory, upward pressure on prices and buyer traffic are leading to increases in spending, which in turn is helping to drive the labor market, and the consumer.

Auto Sales were released throughout the day but were strong right from the start. All of the major manufacturers produced better than expected sales led by a 26% increase reported by Ford. GM sales rose by 12%, Toyota rose by 16.2%, Chrysler Fiat rose by 14% and even VW sales rose, by 0.6%. Total sales came in well above expectations at 18.17 million units, a high since mid 2005.

Federal Reserve Bank of Richmond president Lockhart made some comments today. The one that sticks out is that an October rate hike is possible because consumer spending warrants it. Another one I like mentioned the market and how it might doubt the FOMC's resolve.

The Oil Index

Oil prices tried to catch a bid today and gained over 2% in early trading. A basket of near term fears helped to lead the market higher but the gains could not be held. In no particular order Hurricane Joaquin, fighting in Syria, China PMI data, US auto sales and labor data and gave reason for oil to rise either on fear or thoughts of rising demand. With the storm and intensified activity in Syria there is a real risk of fear entering the oil market and driving up prices. If and until then, no real sign of diminished global capacity or rising demand.

The Oil Index gained on the rise in oil prices but like the underlying commodity, could not hold all of it's gains. The index extended its bounce from support but met resistance at the short term moving average, where it was halted. The index is in a rapidly narrowing range between support along the 1,020 level and short term moving average with weak indicators. Momentum seems to be settling down after hitting low last month and retesting that low this week but stochastic is still pointing lower so this retest may not yet be over. Long term outlook for oil prices, EIA says average $53 in 2016, up $4 from 2015, and outlook for earnings in the sector lead me to think we are at or nearing a bottom. The 1,020 is key at this point, a drop below here could lead to more pain in the sector, for now it is support and expected to hold, resistance is near 1,100.


The Gold Index

Gold held steady today but near the 2 week low. Prices traded with a few dollars of $1,112 all day, with a spike during the early morning following the release of data. Gold is hovering near the middle of the 3 month range and just above support levels at $1100. Price is tied to data and the dollar, tomorrow's NFP could be a big mover as it will, maybe, help cement when the rate hike is going to come. It will at least help to strengthen the dollar on economic health and potentially send gold lower.

The gold miners continue to trend sideways while gold prices are stuck in their range. The Gold Miners ETF GDX doing the same. Today the ETF lost -2.33% but is more or less flat over the last few weeks. The ETF appears to be settling down to support for another test or possible break through. Stochastic is already rolled over and pointing lower and MACD is very weak and retreating to the zero line so a retreat to support looks very likely. Where it goes from there will depend on gold prices, and of course data and the Fed.


In The News, Story Stocks and Earnings

Micron Technologies reported after the bell. The chip make beat on the top and bottom lines surprising just about everyone. The beat came on strong demand for its chips and sent the stock shooting higher in after hours trading.


Twitter was in the news today too. The board is expected to announce Jack Dorsey as CEO at any minute, an action which is calling their credibility into question. The issue of course is due to issues with Dorsey and his role as the CEO of Square. Regardless, I don't get Twitter to begin with, I don't use it and don't really understand what the point is. The news did not reassure investors either, shares fell more than -8% in today's session.


Growth story Dunkin Donuts announced it was closing 100 stores today in the pre-market session. Along with this announcement the company also lowered sales growth outlook for the US to 1% from an analyst consensus near 2.5%. Analysts suggest that the company expanded too aggressively an is not able to compete in some markets. Shares of the stock fell more than -12% on the news to trade just above the 12 month low.


The Indices

Today's action was mild compared to what we have seen lately but a little volatile just the same. Today's ranges were greater than 1% and saw the indices trade from one extreme to the other and back again, led by the Dow Jones Transportation Index. The transports were one of the indices able to close in the green, and did so with a gain of 0.60%. This move is an extension of a support bounce which began earlier this week, today's candle also tested support at yesterday's close. The indicators remain bearish, MACD is below the zero line and stochastic %D is moving lower, but there are signs support has been met, and that momentum may be shifting back to the upside. Support may be tested again but if holds could result in a move back to the recent high near 8,250. Support is indicated near 7,750 with first target resistance along the short term moving average.


The S&P 500 made the 2nd largest gain in today's session, 0.2%. The broad market created a small bodied candle with long lower shadow indicative of support near 1,900. Today's move extends and helps to confirm the bounce from which began two days ago but indicators remain mixed so it is possible the test of support is not over. Should the market find its legs this bounce could take the index back up to the 2,000 level with possible resistance near 1,950 and the short term moving average.


The NASDAQ Composite made the smallest gain in today's session. The tech heavy index gained 0.15% in a move that created a doji candle touching support. This is the 2nd day of gains for the index after hitting my support target Tuesday morning with indicators confirming this bounce. Although there is sign of near term strength short term indications remain bearish so support could easily be hit again, if not my lower target near 4,300. For now, support is indicated between 4,500 and 4,600. A move up from here could take the index 4,750 or the recent high near 4,900.


The Dow Jones Industrial Average was the only major index to close in the red. The blue chips lost -0.08% and created a candle with long upper and lower shadows. This is indicative of support near 16,000, but also of resistance near the short term moving average, near 16,500, but mostly of indecision. Near term fears are holding the market down while longer term outlook is supporting. The indicators are mixed but the most positive of all four of these indices. Momentum is bullish and rising, although it is weak, while stochastic is on the verge of a weak bullish crossover... a combination that makes the index looks as the market wants to move higher. The problem is resistance is just above the current levels, at the top of today's range, if it can break above there next target is 17,000.


The market has reached support, possibly, and looks like it wants to move higher. We've gotten past the government shut down, for now, and have only data, the Fed, earnings, global economic strength and the debt ceiling to worry about. Tomorrow's NFP report could spark a continuation of the bounce begun earlier this week but there is resistance, primarily due to aforementioned issues, that needs to be broken. So long as current trends hold this correction we're in should soon reverse, if it hasn't already.

The market has begun to retest support near the August bottom. Support has kicked in a little higher than I would have thought, which, along with current indications, suggests that the test of support may not be over despite the bounce we've seen so far this week. It might, but it might not and without a definitive test its hard to say for sure the correction is over. Until we get that definitive test, or move to the upside, I remain bullish in the long term, careful and optimistic in the near term.

Until then, remember the trend!

Thomas Hughes


New Plays

Underperforming Its Peers

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Belden Inc. - BDC - close: 45.57 change: -1.12

Stop Loss: 48.51
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 01, 2015
Time Frame: Exit prior to earnings (late October or early November)
Average Daily Volume = 394 thousand
New Positions: Yes, see below

Company Description

Trade Description:
Industrial stocks are not have a good year. Industrial sector ETFs like the XLI and IYJ are both down about -10% to -12% year to date. BDC is in the industrial sector and shares have been crushed. The stock is down -42% for the year and down about -52% from its 2015 highs.

BDC is considered part of the electrical equipment industry. According to the company, "Belden Inc. delivers a comprehensive product portfolio designed to meet the mission-critical network infrastructure needs of industrial, enterprise and broadcast markets. With innovative solutions targeted at reliable and secure transmission of rapidly growing amounts of data, audio and video needed for today's applications, Belden is at the center of the global transformation to a connected world. Founded in 1902, the company is headquartered in St. Louis and has manufacturing capabilities in North and South America, Europe and Asia."

The company has a history of beating earnings estimates but revenues have been suffering. BDC reported their Q4 results in February this year. Q4 revenues were down -19%. BDC management lowered their revenue guidance.

They reported their Q1 results in late April. They beat the bottom line estimate but revenues missed with revenues falling -12%. Again the company lowered their guidance.

Q2 results were announced on July 29th and earnings beat estimates but revenues were down -3.2% and significantly below expectations. Once again BDC management lowered their guidance. This time they lowered both Q3 and 2015 guidance.

The market was relatively forgiving until the Q1 report on April 30th. Investors had finally had enough and sold BDC on its disappointing results. Shares flat lined for almost two months before breaking down. The stock collapsed on its earnings report in July.

The path of least resistance is down and the next major support level could be the $40.00 area. The point & figure chart is forecasting at $39.00 target. If BDC happens to break $40 then there is no telling where the bottom is. The stock displayed relative weakness today (-2.39%) and looks ready to begin the next leg lower.

Trigger @ $44.85

- Suggested Positions -

Short BDC stock @ $44.85

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

A Soft Start To Q4

by James Brown

Click here to email James Brown

Editor's Note:
Traders bought the dip midday but the afternoon rebound was a little anemic. The major indices closed mixed on the session. It was a soft start to the fourth quarter.

Tomorrow morning could be volatile as the market reacts to the September jobs number.


Current Portfolio:


BULLISH Play Updates

JetBlue Airways - JBLU - close: 26.23 change: +0.46

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:
10/01/15: JBLU displayed relative strength today with a +1.7% gain. The rally stalled right at its simple 10-dma. We are not giving up on our buy-the-dip strategy. The first 10 to 14 days of October tend to be weak. Be patient and wait for the dip.

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: 26.90 change: -0.34

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -3.4%
Entry on September 09 at $27.85
Listed on September 8, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
10/01/15: IM filled the gap from yesterday morning and then bounced. Unfortunately shares still posted a -1.2% loss on the session. IM is back below short-term resistance in the $27.15 area.

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: 25.29 change: -0.87

Stop Loss: 28.75
Target(s): To Be Determined
Current Gain/Loss: +8.7%
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:
10/01/15: BRS spiked higher at the open this morning. Shares made it to $27.37 before reversing lower. The selling pressure resumed and BRS plunged to a -3.3% loss on the session. BRS is now testing round-number support at $25.00.

No new positions at this time. More conservative traders might want to move their stop closer to today's high.

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: 40.28 change: -0.14

Stop Loss: 42.25
Target(s): To Be Determined
Current Gain/Loss: -1.3%
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:
10/01/15: GNC did not see a lot of movement today. Shares managed to tag a new 2015 low and then bounce. The lack of follow through on the declines is a potential warning signal.

Tonight I am suggesting we hold off on launching new positions. Let's see how GNC fares tomorrow.

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: 13.34 change: -0.19

Stop Loss: 14.75
Target(s): To Be Determined
Current Gain/Loss: +12.4%
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:
10/01/15: HOS saw an oversold bounce this morning but the rally failed at technical resistance at the descending 10-dma. Shares reversed into a -1.4% decline and a new low.

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: 46.86 change: -0.40

Stop Loss: $49.35
Target(s): To Be Determined
Current Gain/Loss: +5.7%
Entry on September 10 at $49.70
Listed on September 9, 2015
Time Frame: Exit prior to earnings in November
(option traders exit prior to October expiration)
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
10/01/15: HP's early morning gains faded. Shares underperformed the major indices with a -0.84% 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: 38.35 change: +0.56

Stop Loss: 39.65
Target(s): To Be Determined
Current Gain/Loss: + 3.8%
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:
10/01/15: The oversold bounce in IP picked up some momentum today. Shares added +1.4%. The stock is nearing what should be resistance at the simple 10-dma near $38.80.

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: 23.65 change: -0.55

Stop Loss: 25.35
Target(s): To Be Determined
Current Gain/Loss: +7.8%
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:
10/01/15: It was another good day for MUR bears. The stock's attempt at a bounce failed at round-number resistance at the $25.00 level. MUR reversed into a -2.2% decline.

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: 53.18 change: -0.55

Stop Loss: 54.25
Target(s): To Be Determined
Current Gain/Loss: +2.3%
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:
10/01/15: There was no follow through on QCOM's bounce. The rally reversed beneath resistance near $54.00. Shares fell -1.0% on the session.

No new positions at this time.

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


Synchronoss Technologies - SNCR - close: 32.70 change: -0.10

Stop Loss: 35.75
Target(s): To Be Determined
Current Gain/Loss: -0.9%
Entry on October 01 at $32.40
Listed on September 30, 2015
Time Frame: Exit PRIOR to earnings in late October
Average Daily Volume = 603 thousand
New Positions: see below

Comments:
10/01/15: Our new bearish play on SNCR is open. The market's late-morning decline saw SNCR sink to new relative lows. Shares hit our suggested entry point at $32.40. However, like the broader market, SNCR bounced off its intraday lows. Traders may want to wait for SNCR to trade below today's low of $32.30 before initiating new positions.

Trade Description: September 30, 2015:
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 small 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.

- Suggested Positions - small positions to limit risk.

Short SNCR stock @ $32.40

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

Long NOV $30 PUT (SNCR151120P30) entry $1.90

10/01/15 triggered @ $32.40
Option Format: symbol-year-month-day-call-strike


Scripps Networks Interative - SNI - close: 48.42 change: -0.77

Stop Loss: 50.55
Target(s): To Be Determined
Current Gain/Loss: +0.6%
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:
10/01/15: Good news! There was no follow through on yesterday's bounce in SNI. Shares reversed and underperformed the broader market with a -1.5% decline today.

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: 41.96 change: +0.66

Stop Loss: 42.75
Target(s): To Be Determined
Current Gain/Loss: -2.3%
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:
10/01/15: Caution - our bearish trade on SOHU could be in trouble. Asian markets were in rally mode today and that may have given SOHU a boost. Shares rallied up to $42.49 before paring its gains. If this bounce continues tomorrow we could see SOHU hit our stop loss at $42.75.

No new positions at this time.

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: 25.34 change: -0.29

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -16.1%
2nd position Gain/Loss: +12.7%
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:
10/01/15: The U.S. market ended mixed on Thursday but the volatility index fell another -7.9%. The VXX only lost -1.1%.

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