Option Investor
Newsletter

Daily Newsletter, Saturday, 10/10/2015

Table of Contents

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

Market Wrap

Best Week in 2015

by Jim Brown

Click here to email Jim Brown

A rally broke out while everyone was looking for a new low and the Dow gained +612 points for the week. However, the real news is the +1,144 point gain in eight days from the September 29th low at 15,942.

Market Statistics

Friday was really quiet with the markets opening slightly higher and then fighting off some midday weakness to end the day with minor gains. I see that as bullish since nobody was taking profits from the big rebound ahead of the weekend. With the bond market closed on Monday there was the potential for a stock hiccup next week.

Friday was also light on economics with nothing to really move the market. Import prices for September declined -0.1% after a -1.6% decline in August. Export prices declined -0.7% after a -1.4% decline the prior month. The numbers would have been worse but petroleum prices rose +1.1% after a -11.8% drop in August.

Wholesale inventories rose +0.1% for August after a -0.3% in July. The internal components were unremarkable and the report was ignored.

The calendar heats up next week with the bond market closed on Monday for Columbus Day. The equity markets will be open but trading volume will be light.

Wednesday has the Fed Beige Book with the update on economic conditions in each of the 12 Fed regions. Normally this is just informational and neutral for the market. However, with payrolls declining and regional manufacturing reports weakening, we could see the conditions in the Fed regions also worsening.

Thursday has the Philly Fed Manufacturing Survey. This is a proxy for the next ISM Manufacturing report and the most important regional report of the month. Expectations are for a slight improvement to zero after falling into contraction in September.

The Producer Price Index (PPI) and Consumer Price Index (CPI) will be inspected for evidence of inflation. The Fed did not hike rates in September because many of the Fed heads were concerned about the falling inflation. These reports will tell us if inflation is still declining. Since oil prices have rebounded in the last two weeks the next pair of reports in November should show an increase in inflation but for this week the reports for September are probably still going to show a decline.

The U.S. debt ceiling was hit several weeks ago. The Treasury is implementing "special operations" to continue paying the bills until the ceiling is raised. Treasury Secretary Jack Lew said the government will run out of money on or about November 5th. On November 18th, more than $14.2 billion in social security payments are due. Congress will need to resolve its problems and raise the debt ceiling by mid November to avoid a crisis. Some analysts believe this can be extended until early December but the date to worry about is November 18th.


Global Payments (GPN) announced a 2:1 split along with earnings and the stock rocketed higher. GPN has gained +$18 since the Tuesday evening announcement. The spike was on earnings and not the split but that news helped juice the earnings short covering. Full Stock Split Calendar


Tesla (TSLA) shares shorted out on Friday with another $6 decline after Barclays cut them to sell. The analyst lowered his price target from $190 to $180 but it was the sell rating that powered the decline. Shares closed at $220. Several brokers have lowered estimates on the company since the Model X debut last week. The general consensus is that the Model X is too expensive and deliveries will be too slow to reach production targets. They claim the car is too well made and the extra attention to detail is causing production delays. Earlier in the week Robert Baird downgraded Tesla from outperform to neutral on the Model X price.

Elon Musk took some shots at Apple last week. The company had been hiring away Tesla engineers to work on the new Apple car project. Musk called Apple the "Tesla graveyard." "They hire the engineers we fire. If they can't make it at Tesla they go to work for Apple." He warned that making cars was a lot more difficult than making phones. A couple weeks ago, he poked fun at Toyota and their fuel cell technology calling it "fool cell technology." Bloomberg reported earlier this year that Tesla had hired more engineers from Apple than anywhere else.

Tesla shares could be headed back to $180 ahead of earnings on Nov 4th. With delivery estimates in doubt the company could lower the forecast again with earnings.


Gap (GPS) shares fell -5% after the company reported ugly same store sales comps. Overall, global sales were flat after a 3% decline in the year ago quarter. However, Banana Republic sales fell -10% compared to a 2% rise a year ago. Old Navy sales rose +4% after a 1% gain in the comparison quarter. This compares to comps from competitor Limited Brands (LB) which rose +9%.


If you have been trying to trade Netflix, I hope you were quick on the trigger. On Monday shares rose +$5, down -$4 on Tuesday, up +6 on Thursday and down again on Friday. Earnings are next Wednesday and the last several cycles have not been kind to investors.

Over the last four years, the reactions to the Q3 earnings report have been disastrous.

Q3-2014 -19%
Q3-2013 -9%
Q3-2012 -11%
Q3-2011 -34%

However, every earnings report in 2015 has been followed by a huge spike.

Q4- Jan +18%
Q1- Apr +21%
Q2- Jul +18%

This year Netflix has already seen a -28% drop from the $129 high in August to the $93 low in September. That could mean the downside risk has been eliminated but I would not count on it. If you are holding a profitable position on Netflix, it may be wise to close it on Tuesday. The options market is expecting a 15% move in Netflix shares after earnings. Based on Friday's close that means a potential drop to $100 or a spike to $130. Choose the right direction and you have a big winner. Choose wrong and you have zero.


Twitter (TWTR) was still on an upward trajectory at the close but that may not last. Twitter announced a new video advertisement feature. Publishers are no longer restricted to uploads from mobile devices using the mobile app. Advertising videos can now be uploaded fro desktops and that suggests the quality of the advertising videos will quickly improve. Twitter will also put pre-roll ads in front of the videos and collect 30% of ad sales.

Twitter's new Moments product is being met with rave reviews and that helped push shares higher after Jack Dorsey was officially named the permanent CEO.

After the close Re/Code said Twitter was planning company-wide layoffs next week. The company employs 4,100 people in 35 offices around the world. There was no news of how many people would be impacted. Shares declined about $1 in afterhours trading.


Apple (AAPL) announced it is increasing the reach of Apple Pay and Starbucks (SBUX), KFC and Chili's Grill will accept the payment service. Apple Pay only accounts for 1% of all retail transactions in the U.S. because of the slow rollout of the payment service. Starbucks own mobile payment app accounts for 20% of all transactions in the coffee shop. The company said it still plans on making all popular payment methods available to customers. Their U.K. stores have been accepting Apple Pay for several months.

Chili's is owned by Brinkers (EAT) and the company said it plans to offer Apple Pay at 930 of the stores nationwide by Spring. Yum! Brands (YUM), owner of KFC, plans to offer Apple Pay at all its stores by spring.

Apple pulled ad-blocking apps from its webstore saying the apps could resell user data with browsing history. Conspiracy theorists claim Apple is doing this because advertising is a big source of revenue that they do not want to see diminished.

Starbucks shares rallied to a new high on the news. Apple shares gained +2.62 on the news but stalled right at prior resistance at $112.



International Paper (IP) said it had agreed to sell its 55% ownership in a joint venture partnership for coated board in China. The sale will remove $400 million in debt from IP's balance sheet and they will receive $23 million from their partner. IP said rather than create a new business to sell in China they were going to sell their globally competitive products made in U.S. and Russia. Shares rallied +5% on the news.


Helen of Troy (HELE) shares spiked +7% after the company reported earnings of $1.12 compared to estimates for $1.03. Revenue of $369.1 million easily beat estimates for $338.6 million. HELE manufactures housewares and beauty products.


Supermicro Computer (SMCI) shares fell -15% after the company warned that revenues would be in the range of $529-$530 million compared to prior guidance of $520-$580 million. Earnings are now expected to be 44-45 cents compared to prior guidance of 49-59 cents. The blamed stronger seasonal effects along with weakness from Europe and Asia. I am sad to see them experiencing weaker sales. They make the best servers in the market in my opinion. We have used them at Option Investor for the last 15 years. Every computer we have is a Supermicro. When the best company is seeing product weakness we can bet Hewlett Packard and others are going to be weak as well.

In related news, research firm Gartner Inc, said PC shipments fell -7.7% in Q3 to 73.7 million units. Research firm International Data Corp, said shipments fell -10.8% to 71 million units. Gartner said the launch of Windows 10 had minimal impact on PC sales as most users opted to upgrade existing PCs.


There were some random analyst moves on other stocks on Friday. Mizuho initiated coverage on Valeant Pharma (VRX) with a neutral rating. Allergan (AGN) and Jazz Pharma (JAZZ) were initiated with a buy rating.

Needham cut the price target on Yahoo (YHOO) from $550 to $40 but kept its buy rating.

Morgan Stanley (MS) initiated coverage on Ciena (CIEN) with an equal-weight rating and price target of $25. Shares closed at $22.75.

After the bell additional news broke about a potential acquisition of EMC by Dell. The new deal could value EMC at close to $55 billion. Dell is planning on paying cash for most of the acquisition but would then issue a tracking stock for the 20% of VMWare that EMC does not own. Reportedly, Dell is offering EMC up to $33 per share but some news reports are as low as $27.50. Dell is only a $23 billion company. This will require a lot of debt to complete and Dell already has $12 billion in debt on its books. Shares rallied to $29 in afterhours trading. VMWare (VMW) shares were unchanged.


Earnings kick off in volume next week with 30 S&P companies reporting. The highlights will be Intel, Netflix and the flurry of major banks. Netflix will be the most watched because of the potential for a major post earnings move.

S&P Capital IQ is now expecting a -5.1% decline in earnings for Q3 and the first decline since Q3-2009. Excluding energy, earnings growth would be +2.8%. That is down from the +3.4% estimate a week ago. The revenue outlook has improved to a -1.1% decline, up from a -2.3% decline last week. This would be the third consecutive quarter with a revenue decline.


The energy sector provided a large part of the market lift last week. The Oil Service Index ($OSX) rallied +12.4% and the Oil Index ($XOI) gained +9%. Crude oil rallied +8.5%.


WTI crude rallied to trade over $50 intraday on Friday after Russia launched 26 cruise missiles from the Caspian Sea to hit rebel targets in Syria. Four of them reportedly malfunctioned and crashed in Iran. Tensions between Russia and Turkey, the USA and NATO continue to rise. It is only a matter of time before there is an incident regarding Russia.

Crude prices rose despite an inventory build of 3.1 million barrels on Wednesday. Refinery utilization declined more than 2% to 87.5% and suggests inventories will continue to build in the weeks ahead. Production rose +76,000 bpd but it was ignored.

On Friday the Baker Hughes rig count declined another -14 rigs to 795 and a decade low. Oil rigs declined -9 to 605, down -1,004 from the peak. Gas rigs declined -6 to 189 and a new 18-year low.



Markets

Market sentiment changed dramatically last week. The S&P powered through the resistance band from 1990-2005. However, it came to a dead stop at the September high at 2,020 on Friday. The actual high on Friday was 2,020.13 so the rejection was immediate.

If the S&P can manage to punch through that 2,020 level next week the next material resistance is 2,100. That would be a significant move of +3% after the index already gained +3.3% last week.


There is considerable congestion from 2040-2125 so it is hard to single out one particular area as material resistance other than 2,100. The risk is that the S&P rallies to near the prior highs and then weak earnings and economics causes funds to begin taking profits.

The fiscal year end for most mutual funds is October 31st. They need to complete their restructuring before then in order to plan for the distributions and tax statements before the calendar year end. Since the August flash crash probably caused a lot of unplanned selling there is not likely to be a lot of tax loss selling heading into month end. It is more likely that funds will be putting money back to work in window dressing their portfolios for the fiscal year end.

With the S&P posting the best weekly gain of 2015 there is the potential for some profit taking early in the week. Energy stocks are over extended and due for a rest. The bank earnings are not expected to be good and that could also be a cloud on the markets.


The Dow sprinted past resistance at 16,750 and 16,933 to close at a seven-week high. That is a 1,144-point gain from the low on September 29th. If the Dow can move over 17,130, there is a solid range of congestion beginning at 17,500 through 18,165. It would take a lot of cooperation and positive earnings from the 30 Dow stocks to keep that move going. Since most of the Dow stocks are international companies they will all face significant currency headwinds and most will probably miss on the revenue component.

Multiple Dow components report earnings next week with Intel, JP Morgan, GE, Wells Fargo, Johnson & Johnson and Goldman Sachs on the calendar. Each will have an opportunity to move the index and the direction may not be up.



The Nasdaq stopped right on resistance at 4,835 on Friday after a +2.6% gain for the week. The Nasdaq Composite and the Nasdaq 100 ($NDX -2.4%) posted the smallest gains of the major indexes. The biotech sector continues to drag the Nasdaq lower and semiconductor stocks added to the weakness on Friday.

Earnings from Intel and Netflix could weigh on the Nasdaq early in the week. The big flurry of Nasdaq reporters occurs the following week.

Support has formed in the 4715-4740 range and immediate resistance is 4,835 and then 4,900.



The Russell 2000 small cap index posted the second largest gain for the week at +4.6% to come to a stop right on resistance at 1,165. If that level can be broken, the resistance at 1194-1200 could be a challenge. That is a psychological level and the beginning of significant congestive resistance all the way to 1,275. I would love to see the small caps take the lead because it would mean the fear was leaving the market.


The index with the biggest gain for the week was the most unlikely. The Dow Transports gained +4.82% despite the sharp +8.5% rise in oil prices. The airlines were responsible for the gains with UAL up +6.6% on Friday, DAL +2.7%, JBLU +3.3% and American +6.7%. They all reported positive guidance for September revenue miles. Load factors were up, margins were up and revenue passenger miles rose +7.2% at American. The airline bought back 6% of its stock in Q3.

The Transports came very close to breaking over short-term resistance at 8,260 and did break the downtrend from March.


I am encouraged that the normal October trend with market lows in the first ten days of the month did not appear. This may be the beginning of a normal Q4 rally but quite a few professional traders are recommending we short the rally.

This is normal. When a rebound occurs from extremely bearish conditions it takes a few days for the traders to change their mindset. They are still focused on the decline and where they thought the market was headed rather than the rebound. As we move over the various resistance levels those traders will become converts.

There is always the possibility they are right but at this point I continue to believe we should trade what we see rather than what we expected to see. Continuing to hold a bias contrary to market direction can be financially destructive.

We are well over that solid resistance at 1,950 and again at 2,000 and those were critical levels. Buy the dips until proven wrong.


If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

Random Thoughts


There was a huge change in sentiment for the week ended on Wednesday. Bearish sentiment declined -11.7 and bullish sentiment rose +9.4. This is what we should have expected from the rebound in the markets.



Lawrence Summers, Treasury Secretary from 1999-2001 and economic adviser to President Obama in 2009-2010, is warning of a global recession. Inflation is well under the target of 2% in all the developed countries and interest rates are near zero in those same countries with no chance of a material increase in the foreseeable future. The global economy is barely getting by despite the low interest and most areas are declining. The Fed funds futures are only projecting a 1% rate as of the end of 2017 and that could be optimistic. If a global recession does take hold, the central banks have no tools to combat the problem. They cannot lower rates any farther with short-term rates in many countries now negative. QE has not been effective as proven in Japan. Full Story

The bond market has lost confidence in global central banks. Despite hundreds of interest rate cuts, rates at zero or below and trillions of dollars in QE, the bond market outlook for inflation is approaching the lows seen during the financial crisis. Central bank efforts in the major economies are failing. The bond market is losing faith in central banks and that means a "risk off" mentality in the equity markets. Despite all their efforts, inflation is continuing to decline. That shows they have lost control. Central Banks Lose Credibility

Bank of America warned that QE has gone too far and the removal of QE, if it ever happens, is going to be a very rough ride. Buckle Up


China's economy has turned significantly negative over just the last two months. Alcoa warned that automotive production, commercial building construction in China and sales of heavy trucks and trailers would fall much more than previously expected. In July, Alcoa did not even breakout the outlook for China because there was no reason.

Yum Brands reported dismal earnings that disappointed significantly because of "unexpected headwinds" in China. As recently as August 18th, the CEO said "same-store sales in China had turned significantly positive."

NuSkin slashed its Q3 revenue forecast because of a sudden decline in sales in China in Aug/Sep. In July, the company said it was "particularly" pleased with progress in China, where it generated "healthy sequential growth in both sales leaders and revenue." Something changed dramatically.

The IMF downgraded its China forecast to 6.2% growth in 2016 and several brokers are suggesting it could be less than 6%. China a Red Flag for Global Economy


The IMF cut its global growth estimates for 2015 once again and warned that downside risks to the economy appear "more pronounced." Global growth is now expected to be +3.1% and decline of -0.2% from the July forecast. They cited lower growth prospects for emerging economies, including China, and a decline in commodity prices as the reason for the revision. With lower commodity prices reducing capital flows to emerging markets and devaluations of their currencies the risks to the outlook are rising. IMF Cuts Global Growth Outlook Again


Liz Ann Sonders, chief investment strategist at Charles Schwab, turned neutral on stocks. Schwab manages $2.46 trillion for clients. She is worried that we are in an earnings recession and could be approaching an outright economic recession. Q3 earnings are expected to show a -5.1% decline. Q4 earnings, which at one point were expected to show +12% growth, are now expected to decline by -1%. Full year earnings growth is now expected to be negative. Sonders Neutral on Stocks, Fears Recession


The OPEC price war is heating up. Saudi Arabia cut the price on light-crude deliveries to Asia by -$1.70 per barrel. Previously they had been charging a premium of 10 cents a barrel on the rival Dubai benchmark crude and that cut takes them to a $1.60 discount to Dubai. Saudi also cut its price for heavy oil to the Far East by -$2 a barrel and -30 cents to the USA. The move came after Iran, Iraq and other Middle East countries cut prices to be lower than Saudi Arabia in an effort to gain market share. As these countries battle to be the lowest cost seller in the market it will continue to pressure WTI prices in the USA. The rebound last week was strictly short covering on Russia's entry into Syria and the decline in active rigs.


Deutsche Bank warned again that mortgage standards were tightening from what were already considered tight levels. "We believe this has been and will remain a drag on economic growth in the US and contribute to lower for longer interest rates." Average FICO scores required to get a conventional loan have risen from 720 to 750 in the first half of 2015. DB describes those as "very high, at the end of prime and nearing super prime." The FHA said the average FICO score in Q2 was 689 and FHA loans are at the lower end of the mortgage scale. Mortgage Requirements Rising


Jeff Hirsch of the Trader's Almanac, pointed out that the period from Halloween to Christmas has posted gains in 25 of the last 33 years. The average gain since 1982 has been 4.2%. The Almanac Trader said their best six months seasonal buy signal was triggered on October 5th. There have only been two losses in the last 12 years. Buy Signal Triggered

Over the last 21 years, the Dow has averaged a gain of +12.3% over the same period. If the trend holds true the Dow could be trading over 18,000 in the near future according to Hirsch. Dow Averaged 12.3% since 1994


Bespoke broke down the S&P-500 into ten groups of 50 stocks. They grouped them by the amount they lost from the May 21st high to the September 29 low. The stocks with the biggest losses rebounded an average of 15.4% over the last week. The stocks that lost the least in the market decline rebounded only +3.7%. EVERY group performed exactly as expected with each group of 50 that declined more than the prior 50, rebounding more than the stocks in the prior group. The worst performing stocks in the decline were the best performing stocks in the rebound.

Short covering was a big part of that rebound. Fund managers also bought the losers thinking the worst was over and the risk was negligible. They called it an "epic buy the losers rally."

Bespoke Investment Group Chart Source


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"The third-rate mind is only happy when it is thinking with the majority. The second-rate mind is only happy when it is thinking with the minority. The first-rate mind is only happy when it is thinking. "

A. A. Milne

 

subscribe now

 


New Plays

Positive Phase 3 Clinical Trial Data

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Intra-Cellular Therapies, Inc. - ITCI - close: 43.85 change: +1.72

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 10, 2015
Time Frame: Exit prior to earnings in November
Average Daily Volume = 850 thousand
New Positions: Yes, see below

Company Description

Trade Description:
Biotech stocks had a terrible third quarter with the group down almost -18%. ITCI was an exception with shares up +25% and that's after some serious profit taking from its mid-September highs. The story for ITCI might be strong enough that shares could ignore further weakness in the group.

You may not be familiar with ITCI since they have been a public company for less than two years. Here's a brief description of the company, "Intra-Cellular Therapies is developing novel drugs for the treatment of neuropsychiatric and neurodegenerative diseases and diseases of the elderly, including Parkinson's and Alzheimer's disease. The Company is developing its lead drug candidate, ITI-007, for the treatment of schizophrenia, bipolar disorder, behavioral disturbances in dementia, depression, and other neuropsychiatric and neurological disorders. ITI-007, a first-in-class molecule, is in Phase 3 clinical development for the treatment of schizophrenia. The Company is also utilizing its phosphodiesterase platform and other proprietary chemistry platforms to develop drugs for the treatment of Central Nervous System (CNS) disorders and other disorders."

It is their lead drug candidate, ITI-007, that fueled huge gains in the stock last month. Here's an excerpt from ITCI's website, "ITI-007 is in Phase 3 clinical trials as a first-in-class treatment for schizophrenia. Current medications available for the treatment of schizophrenia do not adequately address the broad array of symptoms associated with this CNS disorder. In addition, use of these current medications is limited by their substantial side effects. ITI-007 is designed to be effective across a wider range of symptoms, treating both the acute and residual phases of schizophrenia, with improved safety and tolerability." (If you would like more details check out their press release here.

Schizophrenia is a serious mental illness that affects more than 70 million people worldwide. The stock more than doubled on news of its successful Phase 3 clinical trial with shares surging from $26 to almost $60 in two days. That's because ITI-007 would be the first treatment for schizophrenia without significant side effects. Analysts are estimating that potential sales for ITI-007 could reach $6 billion a year in the U.S. and EU if approved by the FDA (and its European counterpart).

ITCI is also investigating if the treatment could help other mental illnesses like dementia, depression, and bipolar disorders.

The company's management was quick to capitalize on the good news. They issued a secondary offering of 6.9 million shares at $43.50 a share (about $300 million). Demand was strong enough that they sold 7.93 million shares and raised $345 million. They already had $204 million in cash. Together that bumps their war chest up to more than $500 million.

Gravity eventually took over and shares of ITCI retreated from $60 to $35 but investors have started buying the dips. Now ITCI is building on a bullish trend of higher lows. Shares appear to have short-term resistance at the $45.00 level. A breakout above $45.00 could be our entry point to hop on board the next leg higher.

Regular readers know that we consider biotech stocks aggressive, higher-risk trades. The right or wrong headline can send a stock soaring. ITCI is a great example with shares exploding higher on positive headlines in September. Tonight we are suggesting small bullish positions if ITCI can trade at $45.10. We will tentatively plan on exiting prior to ITCI's earnings report in early November.

Trigger @ $45.10 (small positions to limit risk)

- Suggested Positions -

Buy ITCI stock @ $45.10

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

Buy the NOV $50 CALL (ITCI151120C50) current ask $3.50
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Surge Into October

by James Brown

Click here to email James Brown

Editor's Note:
Traditionally the first week or two of October is weak for stocks but this year stocks are surging higher. The market just delivered its best one-week performance in years.

MTRX hit our entry trigger. SNCR was stopped out.


Current Portfolio:


BULLISH Play Updates

Bitauto Holdings - BITA - close: 32.89 change: +0.41

Stop Loss: 29.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 07, 2015
Time Frame: Exit prior to earnings in mid November
Average Daily Volume = 946 thousand
New Positions: Yes, see below

Comments:
10/10/15: BITA bounced off the $32.00 level on Friday and shares rallied to a +1.2% gain on the session. The short-term trend of higher lows is bullish and we expect a breakout to new relative highs soon. Our suggested entry point is $33.75.

Trade Description: October 7, 2015:
After a -75% plunge in BITA's stock price is all the bad news baked in? The stock hit a high of $95.00 in January 2015. When the U.S. stock market corrected in late August and spiked lower on August 24th, shares of BITA hit a low of $22.00. That's a -76% drop. Since then BITA appears to have found a bottom.

If you're not familiar with BITA they are a Chinese company. BITA is considered part of the technology sector. According to the company, "Bitauto Holdings Limited (BITA) is a leading provider of internet content and marketing services for China's fast-growing automotive industry. Bitauto manages its businesses in three segments: its advertising business, EP platform business, and digital marketing solutions business.

The Company's bitauto.com advertising business offers automakers and dealers a variety of advertising services through its bitauto.com website, which provides consumers with up-to-date new automobile pricing and promotional information, specifications, reviews and consumer feedback.

The Company's EP platform business provides web-based integrated digital marketing and customer relationship management (CRM) applications to new automobile dealers in China. The platform enables dealer subscribers to create their own online showrooms, list pricing and promotional information, provide dealer contact information, place advertisements and manage customer relationships to help them effectively market their automobiles to consumers.

The Company's taoche.com business provides listing services to used automobile dealers that enable them to display used automobile inventory information on the taoche.com website and partner websites. The Company provides advertising services to used automobile dealers and automakers with certified pre-owned automobile programs on its taoche.com website. The Company's digital marketing solutions business provides automakers with one-stop digital marketing solutions, including website creation and maintenance, online public relations, online marketing campaigns and advertising agent services."

The economic slowdown in China is major news and has been a market-moving headline for months. What investors might forget is that China is still growing. It's just the pace of growth is slowing down. That slowdown is very evident in the auto market. According to McKinsey & Company the Chinese auto market grew +24% between 2005 and 2011. Last year (2014) Chinese consumers bought 19.7 million cars. That looks like a short-term peak. After years of consistent growth the Chinese auto market will be lucky to hit low single-digit growth and might actually post a decline in sales.

Through August 2015 the Chinese auto market has only sold 12.78 million vehicles. September's numbers continued to sink with sales down -3.4% from a year ago. The full-year 2015 sales are on pace for a -2.6% decline. However, analysts are expecting growth in the Chinese auto market to slow down to +8% annually between now and 2020. That's still healthy, just slower than previous years.

Consumers are feeling the pinch with China's slowdown. Unfortunately an extremely volatile Chinese stock market this year has not helped consumer confidence. The good news is that the Chinese government is trying to stimulate their economy. Last month the government slashed their purchase tax on cars by 50% down to 5%. This new discount applies to cars with engines 1.6 liters or smaller. According to Bank of America that accounts for almost 70% of cars sold in China. Credit Suisse analysts believe this tax cut by the government could boost sales by three million units a year. The tax cut started on October 1st and lasts through the end of 2016.

Bearish investors on BITA could argue the stock is expensive. BITA does have a trailing P/E of 40. Yet bullish investors could argue that BITA is cheap with a forward P/E of 2.6. The company continues to see strong revenue growth.

BITA's last couple of quarters saw revenues surge +99.5% in Q1 and +92.5% in Q2. Management has been beating estimates on both the top and bottom line the last three quarters. The company is growing but they are trying to adjust to the economic slowdown. Management has lowered their guidance in two out of the last three quarters. Part of the problem is that last year was so good for the auto market the company faces really tough comparisons.

Their most recent earnings report was August 6th and BITA management lowered their earnings and revenue guidance. The company expects earnings per share to decline -25% to -32% from a year ago. They also expect sales growth to slow from the +92-95% range down to the +64-73% range. Yes, that's a big drop but it's still strong growth. Shares have already been punished for the lowered guidance. BITA fell -18% the very next day (August 7th).

The question I asked earlier was if all the bad news had already been priced into BITA's stock price? After spiking down to $22 in late August shares spent weeks consolidating sideways in the $25.00-28.00 region. This appears to have built a base which the stock is now bouncing from. The last several days has seen a change in the tone of trading with traders buying the dips. The point & figure chart is now bullish and forecasting at $49.00 target.

Today's intraday high was $33.59. Tonight we are suggesting a trigger to launch bullish positions at $33.75. Make no mistake, this is a higher-risk, more aggressive trade. Chinese stocks can be volatile. If this rally continues BITA could see some short covering. The most recent data listed short interest at nearly 10% of the small 20.3 million share float. I am suggesting small positions to limit risk or use the call option to limit risk.

Trigger @ $33.75 *small positions to limit risk*

- Suggested Positions -

Buy BITA stock @ $33.75

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

Buy the NOV $35 CALL (BITA151120C35)

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

chart:


Ingram Micro Inc. - IM - close: 29.24 change: -0.04

Stop Loss: 27.45
Target(s): To Be Determined
Current Gain/Loss: +5.0%
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:
10/10/15: After really big gains the first four days of the week shares of IM took a rest on Friday. The stock drifted sideways and closed virtually unchanged on the session.

More conservative investors may want to raise their stop loss again. 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

10/07/15 new stop @ 27.45
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

chart:


Mobileye N.V. - MBLY - close: 49.27 change: +1.38

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -1.0%
Entry on October 05 at $49.75
Listed on October 03, 2015
Time Frame: Exit prior to earnings in mid November
Average Daily Volume = 4.6 million
New Positions: see below

Comments:
10/10/15: MBLY spent last week churning sideways between technical support at its 10, 20, and 200-dma and overhead resistance at the $50.00 mark. Shares ended the week with a gain (+2.88%) and once again looks poised to breakout past $50.00.

I am suggesting traders wait for a rally above $50.00 before considering new bullish positions (consider using $50.15 or $50.25 as an entry trigger).

Trade Description: October 3, 2015:
The future of hands free driving is a lot closer than you might think. MBLY is leading the charge. Their technology is already in more than three million cars made by companies like BMW, General Motors, and Tesla.

What exactly does this technology do? DAS stands for driver assistance systems. Sometimes you might see it called ADAS for advanced driver assistance systems. This new technology helps drivers avoid collisions with other vehicles, pedestrians, bicyclists, and more while also alerting the driver to road signs and traffic lights.

The company website describes Mobileye as "a technological leader in the area of software algorithms, system-on-chips and customer applications that are based on processing visual information for the market of driver assistance systems (DAS). Mobileye's technology keeps passengers safer on the roads, reduces the risks of traffic accidents, saves lives and has the potential to revolutionize the driving experience by enabling autonomous driving."

MBLY said their technology will be available in 160 car models from 18 car manufacturers (OEMs). Further, Mobileye's technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016.

The company is already developing a system for autonomous driving or hands free driving. They currently plan to launch an autonomous system in 2016 that will work at highway speeds and in congested traffic situations.

MBLY stock came to market in August 2014. Demand was strong enough that they upped the number of shares available from around 27 million to 35.6 million shares. They raised the IPO price from the $22 range to $25. This valued MBLY at $5.3 billion. The first day of trading saw MBLY opened at $36.00. Two months later MBLY traded at $60.00.

It's easy to see why investors are optimistic on MBLY. Annual revenues have soared from $19.2 million in 2011 to $143.6 million in 2014. Their revenues last year rose +77% from 2013. Currently a poll of analysts by Thomson Reuters is forecasting sales to rise +50% in 2015 to $218.3 million. Earnings are forecasted to surge +95%.

MBLY's Q1 report was announced in May. Their Q1 earnings were $0.08 per share, which was a penny above estimates. Revenues were up +28% to $45.6 million, also above estimates.

Q2 results, announced August 6th, were better. Earnings were $0.10 a share, which was two cents better than expected. Revenues were up +56.7% to $52.8 million, above expectations.

Last year the New York Post ran an article discussing how the White House might generate a bullish tailwind for MBLY. The National Highway Traffic Safety Administration issued a research report that estimated ADAS type of technology could eliminate almost 600,000 left-turn and intersection crashes a year. They report also suggested that adding FCAM and lane departure technology on big vehicles like over the road trucks could reduce accidents with these huge vehicles by up to 25%. Following this report the White House said they would draft new rules that required this sort of tech in new vehicles.

A couple of weeks ago the U.S. Department of Transportation and IIHS announced that ten auto manufacturers had agreed to add autonomous emergency breaking to all new U.S. models as a standard feature. This should be a huge bonus for MBLY. The basic autonomous breaking system ranges from $120 to $350 per vehicle (FYI: the U.S. auto market is on pace to sell more than 18 million vehicles this year). MBLY has a history of winning 80 to 90 percent of ADAS contracts so this new push by the government and the auto industry's acceptance could mean billions to MBLY's bottom line going forward.

Naturally, with a high-profile, high-growth stock like MBLY there are critics. Bears point out that MBLY's valuations are sky high and they would be right. MBLY's trailing P/E is over 1,000 while it's forward P/E is about 65. Most of Wall Street seems bullish on MBLY as they can see the long-term growth outlook for MBLY. If this rally continues some of those shorts could panic and fuel a short squeeze. The most recent data listed short interest at 18% of the 163 million share float.

The stock looks ready to sprint higher after a healthy bounce off support. Tonight we are suggesting a trigger to launch bullish positions at $49.75. If triggered I would target a run into the $58-62 region. I am suggesting small positions as this is an aggressive, higher-risk trade. MBLY is a volatile stock. You may want to use the call options to limit your risk. More conservative traders may want to wait for MBLY to rally past $50.00 before initiating positions. Normally the $50.00 level would be round-number, psychological resistance. We're suggesting a trigger just below it since MBLY could move fast once it breaks out. It's worth noting that a rally past $50.00 will generate a new buy signal on the point & figure chart.

*small positions to limit risk* - Suggested Positions -

Long MBLY stock @ $49.75

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

Long NOV $55 CALL (MBLY151120C55) entry $2.30

10/05/15 triggered @ $49.75
Option Format: symbol-year-month-day-call-strike

chart:


Matrix Service Company - MTRX - close: 25.93 change: +1.16

Stop Loss: 22.45
Target(s): To Be Determined
Current Gain/Loss: +3.3%
Entry on October 09 at $25.10
Listed on October 08, 2015
Time Frame: Exit PRIOR to earnings in early November
Average Daily Volume = 272 thousand
New Positions: see below

Comments:
10/10/15: Our brand new trade on MTRX is off to a good start. The rally accelerated on Friday and shares surged past resistance at $25.00 to close up +4.6%. Our trigger to launch positions was hit at $25.10.

Trade Description: October 8, 2015:
After years of double-digit earnings and revenue growth MTRX ran into trouble last year. The stock peaked in June 2014 and plunged from $38 down to $17. It looks like MTRX's earnings trouble and stock price declines may have turned the corner.

MTRX is in the basic materials sector. According to the company, "Ranked as a Top 100 Contractor by Engineering News-Record, Matrix Service Company provides sophisticated design, engineering, and construction services to a diverse client base throughout North America. We offer a comprehensive EPC solution to a variety of end-markets with a focus on safety and superior service and quality." They service the "Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions and Industrial markets." The Company is headquartered in Tulsa, Oklahoma, with regional operating facilities in the United States and Canada.

MTRX's earnings results have struggled. They missed Wall Street estimates with their Q2 results (announced April 4th) and their Q3 results (May 7th). Management lowered their guidance with both reports. Fortunately the outlook improved in July.

On July 13th MTRX updated their guidance with numbers slightly above expectations. The stock soared on this news. Yet the stock did not see a lot of follow through higher. It wasn't until MTRX reported earnings on August 31st that the stock began to see any serious improvement.

MTRX's Q4 2015 results, announced August 31st, were $0.40 a share. That was 13 cents above estimates. Revenues were up +7.6% to $370.5 million. Guidance was good enough that the stock rallied past resistance. Shares spent the rest of September consolidating these gains.

Today it looks like the consolidation is over. After months of building a base in the $16-23 range MTRX is finally breaking out. Technically shares look better with the 50-dma and 200-dma beginning to curve upward as well. The point & figure chart is bullish and forecasting at $36.00 target.

MTRX just broke through resistance at the $24.00 level this week on above average volume. The $25.00 level is potential round-number resistance. Therefore we are suggesting a trigger to launch bullish positions at $25.10. Plan on exiting prior to MTRX earnings report in early November.

- Suggested Positions -

Long MTRX stock @ $25.10

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

Long NOV $25 CALL (MTRX151120C25) entry $2.05

10/09/15 triggered @ $25.10
Option Format: symbol-year-month-day-call-strike

chart:


Starbucks Corp. - SBUX - close: 60.07 change: +0.61

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +0.9%
Entry on October 08 at $59.55
Listed on October 05, 2015
Time Frame: Exit prior to earnings in very late October
Average Daily Volume = 8.5 million
New Positions: see below

Comments:
10/10/15: Investors were still pouring into SBUX on Friday with shares up another +1.0%. The stock essentially closed right at potential round-number resistance at $60.00. I would consider new positions at current levels. If you are nimble you could try and buy another dip near $59.30 (prior highs = new support).

Trade Description: October 5, 2015:
SBUX has delivered a strong rebound off last week's lows. Once again the stock looks like a bullish candidate.

We recently traded SBUX as a bullish candidate. What follows is an updated play description:

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

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

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

Five-Year Plan

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

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

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

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

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

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

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

Earnings results:

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

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

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

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

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

Technical Set Up

Traders bought the dip in SBUX at its rising 100-dma last week. The rebound has lifted SBUX to major resistance in the $59.00-59.30 area. A breakout here would mark new all-time highs. Tonight we are suggesting a trigger to launch bullish positions at $59.55. It is possible that the $60.00 level is round-number resistance so more conservative traders may want to wait for SBUX to close above $60.00 before initiating bullish positions.

We plan to exit prior to SBUX's earnings report in very late October. More aggressive investors might want to consider holding over the announcement.

- Suggested Positions -

Long SBUX stock @ $59.55

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

Long NOV $60 CALL (SBUX151120C60) entry $1.96

10/08/15 triggered @ $59.55
Option Format: symbol-year-month-day-call-strike

chart:




BEARISH Play Updates

AMAG Pharmaceuticals - AMAG - close: 40.06 change: +1.32

Stop Loss: 42.05
Target(s): To Be Determined
Current Gain/Loss: -7.1%
Entry on October 08 at $37.40
Listed on October 06, 2015
Time Frame: Exit PRIOR to earnings in late October
Average Daily Volume = 946 thousand
New Positions: see below

Comments:
10/10/15: Our aggressive bearish trade on AMAG is not seeing a lot of progress. Biotech stocks seem to be churning sideways. While AMAG's intermediate (three-month) trend is down the stock has spent the last several days churning sideways on either side of $40.00.

We will try and reduce our risk by lowering the stop loss a bit to $42.05. I am still suggesting traders wait for a new decline under $37.50 before considering new bearish positions.

Trade Description: October 6, 2015:
If you're looking for excitement then check out the biotech stocks. It has been a rough few months for the group. The IBB biotech ETF is down -25% from its July 2015 highs. AMAG has sprinted past its peers with a -49% plunge from its July peak. It is worth noting that the prior year (July 2014-July 2015) the stock was up more than +300%.

Here's a brief description of the company, "As a high-growth specialty pharmaceuticals company, AMAG Pharmaceuticals uses its business and clinical expertise to bring therapeutics to market that provide clear benefits and improve people's lives. Based in Waltham, Mass., AMAG has a diverse portfolio of products in the areas of maternal health, anemia management and cancer supportive care. AMAG continues to work to expand the impact of these and future products for patients by delivering on its aggressive growth strategy, which includes organic growth, as well as the pursuit of products and companies that align with AMAG's existing therapeutic areas or those that could benefit from its proven core competencies."

What makes AMAG different from most small biotech firms is that the company actually has sales. AMAG has seen strong revenue and margin growth. At the moment traders don't seem to care. Investors might be worried about competition. The FDA recently approved a generic version of AMAG's Makena treatment. Previously Makena (hydroxyprogesterone caproate) was the only drug approved by the FDA to reduce the risk of pre-term birth. This is bad news for AMAG since Makena represents 75% of its Q2 sales.

Now add more bad news with the biotech sell-off thanks to presidential hopeful Hillary Clinton tweeting about controlling drug prices to prevent price gouging. Plus there are new headlines about the Transpacific partnership (TPP) which is potentially bearish since it limits the exclusivity for new drugs on the market.

The biotech industry is under a lot of pressure and AMAG is underperforming its peers as investors sell the group. Technically AMAG has found short-term support in the $37.50-38.00 region the last few days. It looks like the stock is about to break down to new lows. Tonight we are suggesting a trigger to launch bearish positions at $37.40.

Please note that we want to use small positions to limit our risk. Trading biotech stocks is a risky business. The right or wrong headline can send an individual biotech stock gapping higher or lower. AMAG is definitely a higher-risk, more aggressive trade. There are already a lot of bears in the name. The most recent data listed short interest a 24.4% of the small 28.7 million share float. Investors could use AMAG options but the spreads are so wide the options are untradeable.

*small positions to limit risk* - Suggested Positions -

Short AMAG stock @ $37.40

10/10/15 new stop @ 42.05
10/08/15 triggered @ $37.40

chart:


iPath S&P500 VIX Futures ETN - VXX - close: 21.27 change: -0.01

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: +2.5%
2nd position Gain/Loss: +26.7%
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:
10/10/15: The VXX did not see a lot of movement on Friday. It tried to bounce but failed at the 22.00 level and retreated back toward unchanged.

If you're trading the options we are almost out of time. We are down to our last five trading days for the October options. Odds are these are going to expire worthless unless the VXX sees a big decline this week.

No new positions at this time.

Trade Description: August 24, 2015
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

(see VIX chart from the August 24th play description)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

- Suggested Positions -

Short the VXX @ $21.82

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

Long OCT $20 PUT (VXX151016P20) entry $2.93

Sept. 2nd - 2nd position (Double Down On The September 1st Spike)

Short the VXX @ $29.01

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

Long OCT $20 PUT (VXX151016P20) entry $0.78

09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike

chart:

Weekly chart:



CLOSED BEARISH PLAYS

Synchronoss Technologies - SNCR - close: 35.90 change: +0.24

Stop Loss: 35.75
Target(s): To Be Determined
Current Gain/Loss: -10.8%
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:
10/10/15: The oversold bounce in SNCR continued for a fifth day. Our stop was $35.75 but shares gapped open higher at $35.91, immediately ending our trade.

- Suggested Positions - small positions to limit risk.

Short SNCR stock @ $32.40 exit $35.91 (-10.8%)

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

NOV $30 PUT (SNCR151120P30) entry $1.90 exit $0.55 (-42.1%)

10/09/15 stopped out on gap open at $35.91
10/08/15 SNCR will likely hit our stop loss at $35.75 tomorrow
10/07/15 SNCR is not cooperating. Investors may want to adjust their stop loss lower
10/01/15 triggered @ $32.40
Option Format: symbol-year-month-day-call-strike

chart: