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Daily Newsletter, Tuesday, 10/20/2015

Table of Contents

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

Market Wrap

Climbing the Earnings Mountain

by Jim Brown

Click here to email Jim Brown

Earnings reports continue to be a drag on the market but lackluster volume suggests there is no conviction in either direction. IBM subtracted about 60 points from the Dow but United Technology and Travelers added +48 so the net result was a -13 point loss for the day.

Market Statistics

IBM posted its 14th consecutive quarter of revenue declines with hardware revenue falling -40%. Earnings beat the street by 4 cents but revenue of $19.28 billion missed estimates for $19.62 billion. They also guided lower for future quarters. Shares fell -$8.58 on the news to drag the Dow lower. Berkshire Hathaway lost more than $500 million on IBM's decline.


Rescuing the Dow from a bad day were Travelers (TRV) and United Technology (UTX). Travelers closed near a new high at $109 after reporting operating earnings of $2.93 per share that beat the consensus estimate by 32.6% and up +12.3% over the comparison quarter. Revenue of $6.8 billion beat estimates for $6.6 billion. The company bought back 7.3 million shares in the quarter to raise the total to 21.5 million year to date. They have $4.3 billion in outstanding authorizations.


United Technology (UTX) reported earnings of $1.67 that easily beat estimates for %$1.54. However, revenue of $13.788 billion missed estimates for $14.593 billion. Aerospace orders rose +8% at Pratt & Whitney division. The company sold its Sikorsky unit to Lockheed Martin for $9 billion in cash and that is expected to close this year. UTX authorized a new $12 billion stock buyback program, in addition to the existing $6 billion authorization, using the proceeds from the Sikorsky sale. The company expects to buy back $16 billion in shares through 2017. Shares rallied +4% on the news.


Sonic (SONC) reported earnings of 43 cents that beat by a penny but revenue of $175.3 million missed estimates for $176.5 million. The CEO said McDonald's "all day breakfast" was no big deal. "We have been doing all menus, all day, forever." He said made to order food with menu options that crossed all meal schedules would always beat fast food from a rigid menu. When customers are offered choices, they are happy to buy your food. Same store sales were up +4.9%. Shares rose +8% on the news.


Harley Davidson (HOG) ran off the road after reporting earnings of 69 cents that missed estimates for 78 cents. Revenue of $1.14 billion also missed estimates for $1.21 billion. Harley lowered guidance for shipments in 2015 from 276,000-281,000 to 265,000-270,000. Harley sold over 52.4% of all motorcycles sold in the USA, down from 56.3% a year ago. The company is planning on an unspecified number of job cuts in an effort to lower costs. In July, the company issued a recall for 312,000 of its most popular motorcycles. Competition is coming from Polaris owned Indian Motorcycles. Shares crashed -14% on the news.


After the bell, Yahoo (YHOO) reported earnings of 15 cents that missed estimates for 17 cents. Revenue of $1.23 billion missed estimates for $1.26 billion. Shares were volatile after the report but settled near unchanged after the company said it signed a search advertising deal with Google. Google will provide Yahoo with search ads, while Yahoo can select which search queries it sends to Google.

Yahoo's CEO said the Alibaba spinoff was on track to take place in January. Yahoo cut its revenue guidance from $1.2 billion to $1.16 billion. Unfortunately, analysts were expecting $1.33 billion. Search revenue rose +2% to $870 million but traffic acquisition costs soared from $54 million to $223 million. They are being forced to buy more traffic rather than produce it organically.


Chipotle Mexican Grill (CMG) reported earnings of $4.59 that missed estimates for $4.64. Revenue of $1.22 billion barely beat estimates for $1.21 billion. Same store sales rose +2.6% compared to estimates for +2.5%. Operating margin fell -50 basis points to 28.3% and they opened 53 stores in the quarter. For the full year, they are now predicting 215-225 new stores compared to prior guidance of 190-205. They continue to blame the earnings problems to supply challenges of getting high quality ingredients. After a severe shortage of pork earlier in the year they are now offering carnitas in 90% of the stores and expect to raise that back to 100% in Q4. Chipotle share fell -$50 in afterhours. While researching these earnings I found this. Enjoy! Double the size of a Chipotle burrito for free.


VMWare (VMW) reported earnings of $1.02 on revenue of $1.67 billion. Analysts were expecting $1.00 on revenue of $1.66 billion. While the results were technically a beat, shares declined -$3.50 after the report. Bookings, a measure of future results, rose only +3%. Analysts were expecting an 11% increase. VMWare said it would form a new cloud computing business with EMC that would be marketed under the Virtustream brand. It will be 50% owned by VMWare and 50% by EMC. We learned last week that EMC would be bought by Dell for $67 billion. EMC owns 80% of VMWare.


Intuitive Surgical (ISRG) reported earnings of $5.24 compared to estimates for $4.26. This was a monster beat on earnings but revenue of $589.7 million barely nudged over estimates for $583.7 billion. Shares rose +$37 in afterhours.


With 71% of the S&P beating on earnings and only 50% on revenue, we are in a revenue recession. This is not a one-quarter event. In Q1 revenue declined -2.9%. In Q2 it fell -3.4%. Q3 is now forecast to decline -3.4% and Q4 is expected to decline -1.8% but that number is still falling.

If revenue is declining and earnings are to rise, then companies have to continue cutting costs. That only works in the short term. You cannot cut your way to profitability forever. Eventually revenue must rise or profits must fall.

With earnings under pressure in Q3 and currently expected to decline -4.1% this could be the quarter where trouble begins. Since we are already in a revenue recession, the advent of a profit recession could trigger a significant market decline. I am not predicting it this week but the long-term outlook is worsening. The earnings and revenue forecast for Q3 is the worst EVER for not being in an economic recession. Can an economic recession be that far away?

Two Dow components report on Wednesday. Those are American Express and Boeing. We will also hear from SanDisk (SNDK) and more about its acquisition talks with Western Digital (WDC). Ebay, Texas Instruments and Biogen round out the list of high profile companies. Thursday is the big day and there is sure to be some post earnings volatility.


The only material economic report for today was New Residential Construction for September. Housing starts rose +6.5% from 1.126 million to 1.206 million and +17.5% higher than the same period in 2014. However, permits declined -5% to 1.103 million. Starts in the Northeast rose +25.7% and +25.4% in the West. The South suffered a slowdown with a rise of only +0.6%. The Midwest saw starts decrease -12.2%. This report was ignored by the market.

There are no major reports due out on Wednesday.


If you do not live in a cave, I am sure you heard that Disney released the trailer for the new Star Wars movie, "The Force Awakens," that opens on December 18th. Along with the trailer, the advance ticket sales began and set records worldwide. Trailer: The Force Awakens

AMC Entertainment sold out more than 1,000 shows in the first few hours. Fandango sold more than 8 times as many tickets as it did for the prior record holder "The Hunger Games." Ticket demand crashed several online ticket sales websites including Fandango and MovieTickets.com. Analysts are expecting $250 million in ticket sales for the opening weekend. The movie will air on 5,500 screens. It will also be offered in RealD and Imax 3D.

Morgan Stanley is expecting global revenue of $1.95 billion for the Force compared to $2.8 billion for Avatar and $2.2 billion for Titanic.

Disney has already said there will be two additional episodes and a couple of spinoff movies based on Star Wars characters and events. Disney has an incredibly full calendar of movies due out over the next several years. Here is a "partial" list. There are another 10 from late 2017 through 2019 that do not have firm titles or dates. After the acquisition of Pixar, Marvel, Lucas Films and Star Wars, Disney has a constant stream of cash cows coming in the future.

Oct 16th, 2015 - "Bridge of Spies"
Nov 25th, 2015 - "The Good Dinosaur"
Dec. 18th, 2015 - "Star Wars: Episode VII - The Force Awakens"
Jan 29th, 2016 - "The Finest Hours"
Mar 4th, 2016 - "Zootopia"
April 15th, 2016 - "The Jungle Book"
May 6th, 2016 - "Captain America: Civil War"
May 27th, 2016 - "Alice: Through the Looking Glass"
June 17, 2016 - "Finding Dory"
July 1st, 2016 - "The BFG"
Aug 12th, 2016 - "Pete's Dragon"
Nov 4th, 2016 - "Doctor Strange"
Nov 23rd, 2016 - "Moana"
Dec. 16, 2016 - "Star Wars Anthology: Rogue One"
Mar 17th, 2017 - "Beauty and the Beast"
April 14th, 2017 - "Ghost in the Shell"
May 4th, 2017 - "Guardians of the Galaxy II"
May 26, 2017 - "Star Wars: Episode VIII"
June 16, 2017 - "Toy Story 4"
Mid 2017 - "The Incredibles 2"
July 17th, 2017 - "Pirates of the Caribbean"
Late 2017 - "Thor: Ragnarok"
Early 2018 - "Frozen 2"
May 4, 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 3, 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"


Amazon (AMZN) said it was planning on hiring 100,000 workers for the holidays. That is a 25% increase from 2014. This is in addition to the 25,000 regular, new full time workers it just hired. Walmart is adding 60,000. Target is hiring 70,000. Macy's is adding 85,000 temporary workers.

Amazon has expanded same day delivery to 12 cities for Prime customers. Reportedly, the number of Prime subscribers is exploding as Amazon adds additional benefits to the membership besides free two-day shipping. Amazon earnings are Thursday.


Apple shares surged $2 to close over resistance at $112 after CEO Tim Cook made positive comments about multiple products. He said he would not reveal the exact numbers but they shipped a lot of watches in Q1, even more in Q2 and shipped an even larger number in Q3.

He said the new Apple TV would change TV viewing forever. It would be a foundation on which the company planned to build as it "modernized" the medium. Orders for the fourth generation Apple TV will open on Oct 26th with shipments starting on Oct 30th.

Cook said Apple Music now had 6.5 million paying subscribers and 8.5 million on free trial. While acknowledging there were challenges he said the 15 million current users was a good starting point for future growth. Apple earnings are next Tuesday.


Tesla (TSLA) shares lost -7% after Consumer Reports said the Model S was rated "worse than average" in reliability. Just a couple months ago, the consumer company gave the Model S a rating of 103 out of a possible 100 on drivability and broke the Consumer Reports rating system. Since then the consumer company surveyed 1,400 Model S owners who detailed an array of complicated maladies with the drive train, power equipment, charging equipment and center console view screen. They also complained about body and sunroof squeaks, rattles and leaks. As the cars age there are more complaints about the electric motors, charging systems and batteries that will not hold a charge.

Since Tesla has always held the highest rating for consumer satisfaction, the new report crushed the stock and the news could be a serious headwind for Tesla in the months ahead. Having a near perfect reputation was a big selling point for the high dollar cars.


Ferrari (RACE) priced its IPO after the close at $52 and the high end of the range. The company will raise $894.4 million with the sale of 17.2 million shares. For the six-months ended in June, the company had revenue of $1.6 billion and profits of $140 million. Rapid Ratings gave Ferrari 77 out of 100 for financial health based on 70 individual measures. The average rating for a U.S. company is 64.4.

Yum Brands (YUM) announced today it was spinning off Yum China in 2016 as expected after announcing the addition of activist investor Keith Meister to the board last week. He had lobbied for the spinoff. Yum China will become a franchisee of U.S. based Yum Brands. Yum China generated more than half the revenue and profit for Yum Brands but it has been challenged by food issues that caused consumers to stay away. Same store sales in China rose only +2% last quarter.

If Yum China, which will be run by Micky Pant in China, can resolve the lingering food issues the growth could skyrocket. They will open 700 new stores in China this year to total 7,500 and will eventually have 20,000 locations. Currently Yum Brands has 41,000 total stores and opens about 2,000 a year. The last food issue came from a supplier that shipped out of date meat to the Chinese stores. Before that, the bird flu caused consumers to avoid chicken restaurants.

The greater growth will come from Yum China but Yum Brands will become more stable once the Chinese stores are no longer causing extreme volatility in the earnings. Yum Brands said it was planning on selling the majority of the company owned stores to raise cash for expansion and would be 95% franchisee owned by the end of 2017. The spinoff is expected to be tax-free. Yum shares rose slightly on the news.


Markets

Volume was weak at 5.9 billion shares and buying interest was minimal. The momentum stocks were the hardest hit. If you are familiar with the FANG acronym, today the market was defanged. That stands for Facebook, Amazon, Netflix and Google. Those are the big cap tech stocks that kept the Nasdaq alive for months when the broader market was in distress. All of those stocks declined today.

This is concerning since you would expect those stocks to be on the fund manager shopping list for window dressing going into their fiscal year end on October 31st. Winners get bought and losers get sold.

The very low volume and almost dead even advancing/declining stocks was the only consolation prize. There was no conviction from buyers or sellers. The S&P gave back less than 3 points and the Dow lost only 13. That is hardly a negative day.

The S&P came within a fraction of touching the resistance at 2,040 before pulling back -10 points from the intraday high. Even with that drop, the close at 2,030 was still well over prior resistance at 2,020.

Since there was very little damage despite several large drops in high profile stocks, I think we are still in a buy the dip market.


The Dow retained its positive bias despite the huge drop in IBM, thanks to the big gains in UTX and TRV. Even Apple posted a decent gain on the Tim Cook comments. The Dow needs to pause to consolidate and we could get that on Wednesday when only two Dow components report. The big day is Thursday with four Dow reporters. After Friday, 18 Dow components will have reported earnings.

Resistance remains the beginning of congestion at 17,500 and all the way to 18,165. If we do move higher, it will not likely be in multiple triple digit sprints.



The Nasdaq moved +9 points over resistance at 4,900 intraday but could not hold it with the FANG stocks in decline. That level remains resistance but the close at 4,880 is well within range where a good day in the market could catapult us over that resistance level.

The big gain in ISRG after the close has pushed the Nasdaq futures into positive territory by +9 points. That could be erased by morning but it is a good start after a negative move today.



The Russell 2000 remains stuck under resistance at 1,165 but at least it is trying to break out. The intraday high was 1,169. If we do eventually see a breakout by the small caps, I think the large cap indexes will sprint higher.


We missed a good opportunity today for a decent dip on the IBM disaster. To end the day basically flat and with the futures positive overnight it confirms my belief that we are still in a "buy the dip" market until proven wrong.

Anything is of course possible but the market is not giving in to negative events. The earnings forecasts were too bearish and the slightly better results are providing support for the market.

However, we are eventually going to have to pay the piper for the current revenue recession. You cannot watch revenue decline forever without fundamentals eventually forcing a price correction. I think we are safe until the end of October but once into November we need to be more cautious.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Industry Sentiment Hits 10-year Highs

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Lennar Corp. - LEN - close: 51.82 change: +1.39

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 20, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 2.8 million
New Positions: Yes, see below

Company Description

Trade Description:
Rents are soaring. Mortgage rates are low. The labor market is relatively healthy. This has been fueling a stable environment for the homebuilders. The latest National Association of Homebuilders sentiment index hit ten-year highs. The September reading for the NAHB index was 64. That was above the 62 estimate and a level not seen since October 2005.

David Crowe is the NAHB Chief Economist. According to Crowe, "This upward momentum shows that our industry is strengthening at a gradual but consistent pace. With firm job creation, economic growth and the release of pent-up demand, we expect housing to keep moving forward as we start to close out 2015."

LEN is in the industrial goods sector. According to the company, "Lennar Corporation, founded in 1954, is one of the nation's largest builders of quality homes for all generations. The Company builds affordable, move-up and retirement homes primarily under the Lennar brand name. Lennar's Financial Services segment provides mortgage financing, title insurance and closing services for both buyers of the Company's homes and others. Lennar's Rialto segment is a vertically integrated asset management platform focused on investing throughout the commercial real estate capital structure. Lennar's Multifamily segment is a nationwide developer of high-quality multifamily rental properties."

Earnings have been improving. LEN reported their Q2 results on June 24th. Results were $0.79 a share, which was 15 above estimates. Revenues soared +31.6% to $2.39 billion, above estimates. Home deliveries were up +21%. New orders were up +18%. Their backlog of homes rose +18%.

These bullish trends continued in LEN's fiscal third quarter. The company reported on September 21st. Earnings were $0.96 per share, which was 17 cents above estimates. Revenues were up +23.7% to $2.49 billion, also better than expected. Deliveries rose +16%. New orders were up +10%. The number of homes in the backlog rose +13% (to 8,250) while the value of their backlog surged +22%.

The stock has been consolidating sideways the last few months but LEN appears to be bouncing off its long-term up trend. The current bounce is testing short-term resistance at $52.00. Tonight we are suggesting a trigger to open bullish positions at $52.25. This is a multi-week trade that could last the rest of the year.

Trigger @ $52.25

- Suggested Positions -

Buy LEN stock @ $52.25

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

Buy the 2016 JAN $55 CALL (LEN160115C55) current ask $1.61
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 Drift Lower On Earnings News

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market's early gains faded and stocks began to drift lower as investors digested disappointing earnings news. The major indices all posted minor declines.

HBI hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Bitauto Holdings - BITA - close: 33.39 change: +0.79

Stop Loss: 29.90
Target(s): To Be Determined
Current Gain/Loss: -1.1%
Entry on October 13 at $33.75
Listed on October 07, 2015
Time Frame: Exit prior to earnings in mid November
Average Daily Volume = 946 thousand
New Positions: see below

Comments:
10/20/15: BITA can't seem to make up its mind on a direction. After underperforming the market yesterday shares displayed relative strength today with a +2.4% gain.

No new positions at this time.

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.

*small positions to limit risk*- Suggested Positions -

Long BITA stock @ $33.75

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

Long NOV $35 CALL (BITA151120C35) entry $2.50

10/13/15 triggered @ $33.75
Option Format: symbol-year-month-day-call-strike


Ingram Micro Inc. - IM - close: 29.02 change: -0.06

Stop Loss: 27.85
Target(s): To Be Determined
Current Gain/Loss: +4.2%
Entry on September 09 at $27.85
Listed on September 8, 2015
Time Frame: Exit prior to earnings on October 29th
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
10/20/15: IM is still consolidating sideways in the $28.50-29.50 range.

After hours the company announced they were buying a Brazilian company, Grupo ACAO, for $300 million. The deal is expected to be "mildly accretive to 2016 earnings".

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

10/15/15 new stop @ 27.85
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


Intra-Cellular Therapies, Inc. - ITCI - close: 43.37 change: -0.55

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -3.8%
Entry on October 12 at $45.10
Listed on October 10, 2015
Time Frame: Exit prior to earnings in November
Average Daily Volume = 850 thousand
New Positions: see below

Comments:
10/20/15: The IBB biotech etf plunged -3.1% on Tuesday. ITCI managed to limit the damage to -1.25%. More conservative investors may want to add a stop loss under support near $38.00.

No new positions at this time.

Trade Description: October 10, 2015:
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.

(small positions to limit risk) - Suggested Positions -

Long ITCI stock @ $45.10

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

Long NOV $50 CALL (ITCI151120C50) entry $3.80

10/12/15 triggered @ $45.10
Option Format: symbol-year-month-day-call-strike


Mobileye N.V. - MBLY - close: 47.03 change: -2.15

Stop Loss: $46.45
Target(s): To Be Determined
Current Gain/Loss: -5.5%
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:
10/20/15: MBLY was hammered today. This may be a reaction to a big drop in Tesla (TSLA) shares. TSLA was dealing with two negative stories. First was TSLA's model S rating being downgraded by Consumer Reports. Second there were some negative comments about TSLA's auto-pilot feature for their cars, which likely impacted shares of MBLY.

Shares of MBLY underperformed with a -4.3% decline and a close under technical support at the 200-dma. The low today was $46.89. If MBLY sees any follow through lower we could see it hit our stop loss at $46.45.

No new positions.

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

10/19/15 Traders keep selling the breakouts past $50.00
10/15/15 MBLY looks ready to breakout past resistance at $50.00
10/12/15 new stop @ 46.45
10/05/15 triggered @ $49.75
Option Format: symbol-year-month-day-call-strike


Starbucks Corp. - SBUX - close: 60.88 change: -0.09

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +2.2%
Entry on October 08 at $59.55
Listed on October 05, 2015
Time Frame: Exit prior to earnings on October 29th
Average Daily Volume = 8.5 million
New Positions: see below

Comments:
10/20/15: SBUX rallied this morning and briefly traded at another new all-time high. The rally faded and shares closed virtually unchanged with a minor decline on the session.

No new positions at this time. We plan to exit prior to earnings on Oct. 29th.

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


Wayfair Inc. - W - close: 45.38 change: +0.47

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: +10.3%
Entry on October 16 at $41.15
Listed on October 15, 2015
Time Frame: Exit PRIOR to earnings on November 10th
Average Daily Volume = 1.1 million
New Positions: see below

Comments:
10/20/15: It was another volatile day for shares of W but shares managed to recover and close up on the session. Cautious analyst comments this morning sparked a -6.4% plunge. W dipped to short-term support at $42.00 and bounced. The stock produced a +9.8% bounce off its intraday low before setting with a +1.0% gain on the day.

Tonight I am raising the stop loss to $39.85. More conservative traders may want to move their stop closer to $42.00 instead.

Trade Description: October 15, 2015
W displayed relative strength today and just closed above resistance. Shares could be poised for some serious short covering.

According to the company, "Wayfair Inc. offers an extensive selection of home furnishings and decor across all styles and price points. The Wayfair family of brands includes:

Wayfair.com, an online destination for all things home
Joss & Main, an online flash sales site offering inspiring home design daily
AllModern, a go-to online source for modern design
DwellStudio, a design house for fashion-forward modern furnishings
Birch Lane, a collection of classic furnishings and timeless home decor
Wayfair is headquartered in Boston, Massachusetts, with additional locations in New York, Ogden, Utah, Hebron, Kentucky, Galway, Ireland, London, Berlin and Sydney."

Shares of W came to market with an IPO in October 2014 and priced at $29.00. They opened at $36.00 and spiked up to $39.43 on the first day of trading. The IPO excitement faded and shares didn't find a bottom until about $17.00 in December 2014.

Revenue Growth

The company seems to be growing at a tremendous pace. Their first earnings report as a public company was November 10th, 2014. Revenues soared +41.7% to $336.2 million. Their direct retail business surged +57%. W said their gross profit was $79.0 million versus $58.6 million a year ago.

Additional 2014 Q3 highlights included the number of active customers for their direct retail business rose +61% to $2.9 million year over year. Their LTM Net revenue per active customer increase $342 or +8.6% year over year and +3.0% from the second quarter of 2014.

W reported their Q4 results on March 4, 2015. The company delivered a loss of ($0.18) per share, which was 10 cents better than expected. Revenues were up +38.4% to $408.6 million, above expectations. Management raised their Q1 guidance significantly above Wall Street estimates.

The company beat expectations again with their Q1 report on May 11th. Results were a loss of ($0.23) per share. Revenues accelerated with a +52% gain to $424.4 million.

The earnings beats kept coming when W reported its Q2 results on August 12th. Analysts were forecasting a loss of ($0.29) per share on revenues of $438.4 million. Wayfair delivered a loss of ($0.15) per share. Revenues roared +66.5% to $491.8 million. Management said their number of active customers was up +53.5% from a year ago to four million. Repeat customer orders hit 56%. Orders delivered shot up +80%.

Big Potential

Following their Q1 results back in May the company's CEO talked about their future. On their Q1 conference call the CEO noted that their potential markets are huge. Estimates suggest that spending in their industry will hit $264 billion in the U.S. and $308 billion in Europe by 2018 (a combined total of $572 billion market).

Bears will argue that W's valuations are outrageous. They're probably right. The recent rally in the stock has bumped the company's market cap to $3.6 billion. At the same time analysts are expecting W to operate at a loss for the next two fiscal years. On a short-term basis the market doesn't seem to care about W's valuation. If this rally continues W could see a short squeeze.

A few months ago in an interview one of the co-founders said that together the two co-founders own between 40% and 50% of the stock. The current float is only 30.2 million shares, which is relatively small. The most recent data listed short interest at 79% of the float.

Shares of W have been consolidating sideways beneath resistance at the $40.00 level for about two weeks. Today shares displayed relative strength with a +3.0% gain and a close above resistance. Tonight we are suggesting a trigger to launch bullish positions at $41.15 (hopefully W does not gap too far past our trigger tomorrow). We will plan on exiting prior to W's earnings report on November 10th.

- Suggested Positions -

Long W stock @ $41.15

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

Long NOV $45 CALL (W151120C45) entry $2.80

10/20/15 new stop @ 39.85
10/16/15 triggered @ $41.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

AMAG Pharmaceuticals - AMAG - close: 35.07 change: -3.28

Stop Loss: 41.05
Target(s): To Be Determined
Current Gain/Loss: +6.2%
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:
10/20/15: Our patience with AMAG appears to be paying off. The IBB biotech ETF underperformed the market with a -3% decline today. Shares of AMAG collapsed with a -8.5% drop to new 2015 lows. The key was a breakdown below support in the $37.50 area, which should now be new resistance.

No new positions at this time.

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

10/20/15 AMAG breaks down below support with a drop to new 2015 lows
10/17/15 new stop @ 41.05
10/10/15 new stop @ 42.05
10/08/15 triggered @ $37.40


GNC Holdings - GNC - close: 40.69 change: -0.23

Stop Loss: 42.55
Target(s): To Be Determined
Current Gain/Loss: -2.0%
Entry on October 14 at $39.90
Listed on October 13, 2015
Time Frame: Exit prior to earnings at the very end of October
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
10/20/15: GNC's rally attempt stalled at technical resistance at the 10-dma and 20-dma. Today's move looks like a new entry point to launch bearish positions.

Trade Description: October 13, 2015:
We want to take another swing at GNC. The bearish story for the stock has not changed and the oversold bounce has reversed.

Here's an updated trade description:
Tougher competition, increased government scrutiny, and changing consumer habits have not been a good recipe for shares of GNC. The stock is down -13.1% 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 the oversold bounce just failed near resistance in the $43.00 area. The point & figure chart is bearish and forecasting at $33.00 target. Tonight I am suggesting a trigger to launch bearish positions at $39.90.

This is a short-term trade. GNC has earnings coming up at the very end of October or early November. We plan to exit prior to the announcement.

- Suggested Positions -

Short GNC stock @ $39.90

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

Long NOV $40 PUT (GNC151120P40) entry $2.10

10/14/15 triggered @ $39.90
Option Format: symbol-year-month-day-call-strike


Hanesbrand Inc. - HBI - close: 27.77 change: +0.24

Stop Loss: 29.15
Target(s): To Be Determined
Current Gain/Loss: -1.5%
Entry on October 20 at $27.35
Listed on October 19, 2015
Time Frame: Exit PRIOR to earnings (see below)
Average Daily Volume = 3.4 million
New Positions: see below

Comments:
10/20/15: We expected HBI to fall this morning but what we didn't expect was the big rebound. Shares fell -3.4% this morning and hit our suggested entry point for bearish positions at $27.35 in the process. Unfortunately HBI bounced at $26.59 and rallied back into positive territory. This big intraday bounce is a warning signal if you're short.

The $28 to $30 area has a lot of overhead resistance but I am not suggesting new positions at this time.

Trade Description: October 19, 2015:
The long-term rally in HBI may have peaked. The stock surged more than +500% from the beginning of 2012 to its 2015 highs near $34.50. Now momentum has reversed.

HBI is in the consumer goods sector. According to the company, "HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in the Americas, Europe and Asia under some of the world's strongest apparel brands, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die/Nur Der, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company's low-cost global supply chain."

The upward momentum in shares of HBI had stalled in March this year. Shares tried and failed to breakout past the $34.50-35.00 zone several times between March and July. Then on July 30th HBI reported its Q2 earnings. Profits came in at $0.50 a share, which was in-line with estimates. Revenues were up +13.4% to $1.52 billion yet that missed estimates of $1.57 billion. Management provided soft guidance for the rest of 2015. The stock plunged the next two days.

Since their disappointing guidance in July investors have been selling the rallies in HBI. That has not stopped Wall Street from defending it. 12 of the 13 analyst firms that cover HBI are bullish on the stock. On September 17th shares of HBI popped after Goldman Sachs upgraded shares and gave it at $40 price target. Unfortunately for bullish investors the Goldman pop failed at resistance. Shares have continued to sink and now they're accelerating lower.

The weakness in HBI is a little bit surprising. The new TransPacific Partnership deal should be positive for apparel makers like HBI. Plus there was recent news that cotton prices are expected to decline through the rest of this year and into 2016. Traders don't seem to care about these potentially bullish tailwinds for HBI. The stock displayed significant relative weakness today with a -4.4% decline.

The market might be worried about HBI's relationship with Wal-Mart (WMT). Last week WMT surprised Wall Street by significantly lowering their earnings guidance. Now WMT is pressuring its suppliers, which could squeeze margins for companies like HBI. That's significant since WMT accounts for over 20% of HBI's sales.

Technically HBI is bearish. Shares have created a big bearish double top on the weekly chart (see below). More recently the rally attempts have failed at resistance near the 200-dma. The point & figure chart is bearish and forecasting at $20.00 target.

Today's low was $27.45. Tonight we are suggesting a trigger to launch bearish positions at $27.35. Please note that this is a short-term trade, which will probably last two or three weeks. HBI is due to report earnings in very late October or early November. There is no confirmed date yet but we plan to exit prior to HBI's announcement.

- Suggested Positions -

Short HBI @ $27.35

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

Long NOV $26 PUT (HBI151120P26) entry $0.65

10/20/15 triggered @ $27.35
Option Format: symbol-year-month-day-call-strike


CarMax Inc. - KMX - close: 56.95 change: +0.10

Stop Loss: 57.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.8 million
New Positions: Yes, see below

Comments:
10/20/15: KMX is not cooperating. Shares managed another gain when most of the market was edging lower. We are not giving up yet but if KMX doesn't move lower soon we will likely drop it as a candidate. Wait for the breakdown. Our suggested entry point is $54.75.

Trade Description: October 17, 2015:
Auto sales in the United States are surging and hit 10-year highs. So why are shares of KMX, a huge auto dealer, down -25% from its 52-week high?

KMX is in the services sector. According to the company, "CarMax, a member of the Fortune 500 and the S&P 500 and one of the Fortune '100 Best Companies to Work For' for 11 consecutive years, is the nation's largest retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 153 used car stores in 76 markets. The CarMax consumer offer features low, no-haggle prices, a broad selection of CarMax Quality Certified used vehicles and superior customer service. During the fiscal year ended February 28, 2015, the company retailed 582,282 used vehicles and sold 376,186 wholesale vehicles at its in-store auctions."

The major auto manufacturers report their vehicle sales every month. In early October they reported their September car sales and for the industry September sales were up a whopping +16% from a year ago. This has boosted the seasonally adjust annual rate (SAAR) for U.S. auto sales to 18.2 million, a ten-year high.

The Federal Reserve has kept their main interest near zero for years. Low interest rates have generated a boom in auto loans. Depressed oil prices have kept gasoline prices low. The combination has fueled huge consumer demand. Now that the Fed is looking to raise rates we could be near a potential peak in U.S. car sales. Analysts are starting to worry about consumer credit contraction in the auto space. As rates go up consumers can afford less car for the money and dealers make fewer sales.

Shares of KMX peaked in early April after Wall Street reacted to the company's 2014 Q4 earnings report. KMX beat estimates by five cents and revenues were up +14% to $3.51 billion, which was essentially in-line with estimates. Since that report KMX's sales have actually struggled to keep up with expectations.

Their 2015 Q1 report, announced in June, saw KMX beat the EPS estimate by one cent while revenues only rose +7% and missed expectations. Their Q2 report, announced September 22nd, beat the bottom line by three cents. Revenues rose +7.9% but again missed analysts' estimates.

Oppenheimer recently downgraded the stock. They see short-term headwinds for KMX. Plus the company is facing really tough comparisons to the second half of their fiscal 2014, which will be hard to beat.

Technically KMX is in a bearish trend of lower highs and lower lows. Investors have been selling the rallies. Now the stock is testing support in the $55.00-56.00 zone. Tonight we are suggesting a trigger to launch bearish positions at $54.75.

Trigger @ $54.75

- Suggested Positions -

Short KMX stock @ $54.75

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

Buy the 2016 Jan $50 PUT (KMX160115P50)

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


iPath S&P500 VIX Futures ETN - VXX - close: 18.95 change: +0.63

Stop Loss: None, no stop at this time.
Target(s): $16.25
Current Gain/Loss: +13.2%
2nd position Gain/Loss: +34.7%
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:
10/20/15: The market decline today was not very deep nor was it very widespread but the VXX still bounced with a +3.4% gain.

There is no change from my recent comments. 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

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

Short the VXX @ $29.01

10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
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