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Daily Newsletter, Thursday, 11/5/2015

Table of Contents

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

Market Wrap

Bears Fighting to Make a Top

by Keene Little

Click here to email Keene Little
Coming into this week we had a setup for minor new highs to finish the rally off the September lows. Off Tuesday's highs we might have the start to something more bearish but at the moment the bulls are fighting to keep it from happening and they could be successful for another new high.

Today's Market Stats

Today was a relatively quiet day and many indexes finished with a doji, which indicates indecision. As I'll get into with the charts, the patterns for the indexes are not clear which way this week's consolidation will lead to and today's dojis reflects that. I suspect we'll get an answer to the question "what's next?" on Friday, but at the moment both sides are staring at each other waiting for the first one to blink.

The morning started off relatively flat and other than the techs being a little weaker than the others, the market finished flat. It was basically a day of waiting to get through tomorrow morning's pre-market NFP report before either side is willing to take new positions. As you can see in the table above, most were interested in taking positions off the table, which had the advance-decline line and volume both finishing negative for the day. We had another good setup for a reversal off Tuesday's highs but so far the pattern for the pullback is inconclusive. It's a coin toss as to which way the market is likely to head the next few days and assuming the market will react to the NFP report tomorrow morning I suspect we'll get our answer right away.

Expectations for tomorrow's NFP report are for an improvement over August and September, which saw job growth at 136K and 142K, resp. That was a significant slowdown from an average of 243K in the period May-July and now economists are predicting 180K for October. That would help bolster the Fed's desire to raise rates in December.

Part of the reason for higher job growth expectations in October is because of the low unemployment rate and the low initial unemployment claims. That has economists thinking August and September were artificially low and we'll see a rebound in November-December. The trouble with these two metrics is that it's very different this time -- these are not normal times and using the past to predict what will happen this time could get economists in trouble. Nearly 16 million people say they want a job but can't find one, which is a very high number considering we're six years into an economic recovery. On top of that the labor participation rate is now at 62.4%, a number last seen nearly 40 years ago in 1977. Using the past to predict how the economy will perform this time is what has the Fed flummoxed in trying to figure out why their "incentive" programs haven't worked.

It was a quiet day for the markets so I'll jump right into a review of the charts, starting with the granddaddy index, the Wilshire 5000, which the SPX closely aligns with. The weekly chart below shows the rally from the August/September lows and back up to its broken uptrend line from October 2011 - October 2014, currently near price-level S/R near 22000, which is where it rallied up to on Tuesday. A back-test here is a setup for the bears if a bearish kiss goodbye is left behind.

Wilshire 5000 index, W5000, Weekly chart

The daily chart below shows this week's price action with the test of its broken uptrend line and price-level resistance. Wednesday's red candle was the bearish kiss goodbye but today's low was a test of its recovered 200-dma near 21760. The bulls need to defend this morning's low from breaking since that would tilt things in favor of the bears. But if the buyers step back in and drive the index to a new high for this rally, the next upside target would be its broken uptrend line from December 2014, near 22200 next week. Just be careful of a quick new high on news (NFP report), if it happens, since it could spin around and sell off, leaving a bull trap and frustrated bears in its wake.

Wilshire 5000 index, W5000, Daily chart

Key Levels for W5000:
- bullish above 22000
- bearish below 21013

The SPX daily chart below shows the same pattern as the W5000 and on Wednesday it broke below its uptrend line from September 29th, the first warning sign that a top could be in place. But the pullback into this morning's low is not enough to give us a good idea whether or not the top is in place, one that will lead to at least a larger pullback. If could instead press a little higher before starting a larger pullback/decline. There's a projection near 2121 for an a-b-c bounce pattern off the August low, where the c-wave would be 162% of the a-wave, and there's the July 20th high near 2133 so keep an eye on price action at either of those levels if reached.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2121
- bearish below 2075

A trend line along the highs from August 28 - September 17 (not shown on the daily chart above but is shown on the 60-min chart below) acted as support at this morning's low. This followed this morning's back-test of its broken uptrend line from September 29th, so we've got the battle of the trend lines at the moment. A drop below this morning's low at 2090 would be a stronger indication the rally from September has finished and then we'll need to see how the pullback/decline develops in order to help determine whether we should expect a multi-week choppy consolidation or the start of a much stronger decline (to break the August low) into December. That determination will help manage a short position (manage it tightly or let it run).

S&P 500, SPX, 60-min chart

This week's rally for the DOW got it back above its broken uptrend line from October 2011 - October 2014 (green bold line on its daily chart below) and that's a bullish move. This morning's pullback was a test of that trend line and it held, which keeps it bullish. Short-term bearish divergences (for all the indexes) suggests any new highs from here could be short-lived but further upside still needs to be respected. But yesterday's decline had the DOW breaking its uptrend line from September 29th and this morning's quick high was a back-test of the broken line. Again, we have a battle of the trend lines and we wait to see who will win the battle. Back above this morning's high at 17929 would be at least short-term bullish while a break below this morning's low at 17779 would likely kick off at least a multi-week pullback correction, if not something more bearish.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,978
- bearish below 17,555

This week the Nasdaq once again pushed above its March 2000 high at 5132.52, which it last did in June and July (and one last stab on August 5th before collapsing into the August 24th low. Tuesday's high was just above 5163 but it's been struggling to hold onto 5132. Today's low was 5098 but then the afternoon rally pushed it back up to 5132.54, where it was stopped and it closed at 5127.54. At the moment it's obviously tough resistance, again, and the bulls need to see a weekly close above that level to at least keep things bullish for a little longer. The Nasdaq also accomplished two equal legs up for its bounce off the August low by hitting 5155.79 so the pieces are in place for the resumption of the decline off the July high. All the bears need is some proof of a reversal, which we do not have yet.

Two equal legs up for NDX's bounce off its August low is near 4717, which was also achieved with this week's high at 4737 on Wednesday, and then it closed near 4717. It also made it up to its trend line along the highs from August 28 - September 17. It hit the line on Tuesday, pulled back a little, and then hit it again on Wednesday. It's now struggling to hold onto support at its July high near 4694. I can't argue against another push higher but the oscillators on all time frames suggest bulls need to be very careful here.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4732
- bearish below 4600

The RUT is one of the indexes I've been watching closely for clues that the rally is not over yet but could instead get one more leg up to complete it. But the first thing the bulls need to do is break resistance at its broken uptrend line from October 2011 - October 2014, currently near 1193, and where it's been stalled this week. A back-test followed by a bearish kiss goodbye could prompt some stronger selling. The last back-test looked like a bullish breakout at its September 17th high but it immediately collapsed back down the following day. We could see something similar if an effort is made to rally up to the 200-dma, about 15 points higher at 1215.83, and then a collapse back down, especially if the rally was news related, such as Friday morning's NFP report. The first sign of trouble would be a decline below the October 28th high near 1179 and then confirmed bearish below the October 30th low near 1160.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1198
- bearish below 1159

One reason why I'm wondering about the RUT is because of a rising wedge pattern for the leg up from October 27th, which ideally needs another leg up to complete the pattern. I show this depiction on its 60-min chart below and a rally above Tuesday's high near 1196 would point to a move up to 1215, possibly by next Monday. But a drop below its October 28th high would negate the rising wedge pattern and suggest the high is already in place. We could get an early answer in the morning following the NFP report.

Russell-2000, RUT, 60-min chart

Looking to the bond market for clues for tomorrow, I see a similar setup as the stock market -- it's at an important inflection point and tomorrow's NFP report could kick it into either direction. The TNX daily chart below shows the 10-year yield has rallied up to a projection at 2.241%, which is where the bounce off the October 2nd low has two equal legs up for what counts as another a-b-c bounce correction to its decline. But that will hold true only if bond yields start back down on Friday, otherwise we could see TNX rally up to its downtrend line from 2007-2013, near 2.38%. A rally in yields (selloff in bond prices) would be supportive of a stock market rally. But a turn back down from here could start the next larger decline in yields, which would suggest the Fed will be forced to sit tight and not raise rates. That's the way I'm leaning (I think the Fed has effectively boxed itself in) but we'll get another clue early tomorrow morning.

10-year Yield, TNX, Daily chart

The banks were relatively strong today, possibly in anticipation that the NFP report will support the Fed's desire to raise rates in December, which helps the banks' profitability. But today's rally once again was stopped by its broken uptrend line from October 2011 - January 2015. You can see how many times this trend line has been back-tested since breaking in August. It's obviously resistance but we could still get another leg up to the projection shown on its chart at 75.74. That was the 2nd leg of a 3-wave bounce correction off the August low and it would be 162% of the 1st leg up. That projection lines up with the 62% retracement of its July-August decline, at 75.87, so it would make an interesting setup for a reversal if it makes it up to that area. In the meantime, the broken up-trend line is resistance until proven otherwise (with a weekly close above the line, near 74.55.

KBW Bank index, BKX, Daily chart

Last week the U.S. dollar broke its downtrend line from March, near 97.10, back-tested it this week and rallied higher yesterday, giving us the impression the dollar is in breakout mode. Some of this might be in anticipation of the Fed raising rates in December but the dollar's rally is at risk of failing here. Last week I had pointed out the potential for the dollar to rally to 98.19, which is the projection for where it would have two equal legs for an a-b-c bounce off its August 24th low (sound familiar?). Yesterday's high was 98.15 and today's high is 98.24 and it has hit its price projection at the top of a parallel up-channel for its bounce. The pieces are in place for a reversal back down and I'm wondering if the NFP report will be the catalyst. If so then it would mean a disappointing NFP report, which would have many traders thinking the Fed will not be able to raise rates. I don't think the dollar is ready for a stronger rally yet (in 2016, yes, but not yet) but we'll know more tomorrow.

U.S. Dollar contract, DX, Daily chart

Gold had turned traders bullish again as it rallied off its July low but it turned into just another 3-wave bounce correction that topped out on October 15th at its downtrend line from October 2012 - January 2015. The past three weeks have seen a strong decline and this week's break of price-level S/R near 1142 is bearish. The next support level is near 1090, the 50% retracement of the 2001-2011 rally but I don't think it will hold. MACD rolling over from the zero line is typically a strong sell signal that indicates the downtrend will continue. I think we'll see gold down to 1000, if not lower, before we can start thinking about a longer-term position in gold ownership. From a short-term perspective, gold looks ready for a bounce correction, perhaps back up to the 1142 area, before continuing lower.

Gold continuous contract, GC, Weekly chart

Silver's rally ran into trouble last week at its 50-week MA and its downtrend line from July 2014 - May 2015, both near 16. This week it has dropped back down below price-level S/R near 15.25 and will likely test 2006-2010 price-level S/R near 14.65 next. Assuming silver breaks down, which I think it will, I'll be looking for it to drop to the $12 area.

Silver continuous contract, SI, Weekly chart

Oil has been struggling to get off support at 44.33, which is a downside Fib projection for the 2nd leg of its decline from 2005, where it equals 62% of the 1st leg down (2008-2009). It's still just a guess on my part but I've been expecting to see oil consolidate around this level ever since its low last January. That means another leg up for its bounce off the August low, ideally up to 55.75 where it would have two equal legs up from July, and then back down in a continuing sideways consolidation pattern. I'll change the pattern to reflect expectations as price dictates. It should be noted that the commodity index has already broken below its 2009 low and is now down to its 2001 low, which for oil would mean down to $17. I have no idea if oil will ever see that price again but I do expect oil to drop lower next year.

Oil continuous contract, CL, Daily chart

The big report coming out before the bell tomorrow is the Nonfarm Payroll report and it's expected to show improvement over September's numbers. Wednesday's ADP report was in line with expectations and a little less than September's so with higher expectations for the NFP there could be a disappointing reaction if the number comes in much less than expected. Or would that be a good thing since it would help keep the Fed at bay? With the Fed's direct involvement in the markets for the past many years it's become more difficult trying to figure out how the market will react to economic numbers, especially during a time when the market is waiting for the Fed to make a move.

Economic reports and Summary

Conclusion

The CNN Fear & Greed indicator (Fear & Greed) has moved back toward Extreme Greed and is now higher than it's been since February. That's when a high for the market led to stagnation until the sharp drop in August. So a high greed reading is not necessarily bearish but it's a time for bulls to be more cautious than usual. The indicator can clearly go higher, as it did in 2013 and 2014 but again, it's a warning sign. Based on the price pattern and the strong likelihood we'll get at least a multi-week pullback correction, if not a much stronger decline back down to the August lows, the high greed reading is that much more of a warning sign. If the indexes do push a little higher tomorrow and Monday I suspect this indictor will also push higher, maybe up to 80.

CNN Fear & Greed indicator

We know the market is overbought and overloved but that's not stopping the bulls from continuing to buy, even if it's with less strength than earlier in the rally. We know the market can remain overbought with extreme bullish sentiment for much longer than seems possible so we have to keep that in mind. I expect the market to at least give us a multi-week choppy pullback into the end of the year and the bearish interpretation of the pattern calls for a strong decline (below the August lows) into the end of the year. I think upside is limited and riskier than looking for a shorting opportunity. Topping processes can be very frustrating when looking to get short and this one is no different, especially considering how bearish it was looking in August.

But bulls can't get complacent here and bears need to exercise patience. A rally following tomorrow morning's NFP report would likely mean another new high and very likely the final one (on news). But a selloff would start to strengthen the bearish pattern that calls for a decline to kick into gear at any time. Only after we see how the pullback/decline develops will we get a better idea about whether to expect a choppy consolidation/pullback or to instead expect a stronger sharp decline back down to the August lows. I suspect by this time next week, probably sooner, we'll have a good idea about what to expect.

Good luck and I'll be back with you next Wednesday. And remember, the coming year is likely to be a volatile one, which will present us traders with some very good trading opportunities in both directions. Having another set of eyeballs watching the market with you, offering trading ideas and things to look for and watch out for, is a resource that you should take advantage of, especially since the offer below more easily gives you the opportunity to make back your subscription cost with just one good trade.

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Keene H. Little, CMT

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


New Plays

Investors Have Soured On This Stock

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Denny's Corp. - DENN - close: 10.23 change: -0.22

Stop Loss: 10.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 05, 2015
Time Frame: 4 to 8 weeks
Average Daily Volume = 527 thousand
New Positions: Yes, see below

Company Description

Trade Description:
Wall Street seems to have soured on restaurant stocks. The group has been underperforming and this stock is accelerating lower.

DENN is in the services sector. According to the company, "Denny's is the franchisor and operator of one of America's largest franchised full-service restaurant chains, based on the number of restaurants. As of July 1, 2015, Denny's had 1,696 franchised, licensed, and company restaurants around the world with combined sales of $2.7 billion including 108 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curacao, Puerto Rico, Dominican Republic, El Salvador, Chile and New Zealand, and 160 company operated restaurants in the United States."

The stock rallied in early August on its earnings report but that proved to be a bull-trap. The breakout past resistance near $12.00 didn't last. When the market corrected lower in August, shares of DENN plunged toward its 200-dma and the $11.00 level. Shares spent the next eight weeks churning sideways with investors selling the rallies near resistance.

This week DENN reported their Q3 earnings report. The company delivered a profit of $0.11 a share. Revenues were up +5.8% to $123.8 million. These were in-line with estimates. Actually revenues were just slightly above expectations. The company's guidance was in-line with analysts estimates. Evidently these results were not good enough as shares of DENN plunged on the news.

The stock has broken down below multiple layers of support. Now shares are on the verge of breaking through round-number support at $10.00. If shares to trade below $10.00 it should generate a new sell signal on the point & figure chart. Tonight we are suggesting a trigger to launch bearish positions at $9.90.

Trigger @ $9.90

- Suggested Positions -

Short DENN stock @ $9.90

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

Buy the DEC $10 PUT (DENN151218P10) current ask $0.40
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

The Market Treads Water Ahead Of Jobs

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market spent Thursday's session churning sideways. Investors are waiting to see the October nonfarm payroll jobs report, out tomorrow morning. There are only two jobs reports between now and the Federal Reserve's next meeting in December. If jobs are strong, the Fed could use it as an excuse to raise rates.

CCL and DSW hit our stop losses.

SKX hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Delta Air Lines - DAL - close: 50.54 change: -0.12

Stop Loss: 47.75
Target(s): To Be Determined
Current Gain/Loss: -1.3%
Entry on October 23 at $51.23
Listed on October 22, 2015
Time Frame: Exit prior to earnings in early January
Average Daily Volume = 9.8 million
New Positions: see below

Comments:
11/05/15: The prospects for DAL and the airline industry remain encouraging. Yet the rally in DAL has stalled. Shares are just not moving. We are giving up DAL as a trade. Tonight we are adjusting our exit plan. Prepare to exit tomorrow (Friday) at the closing bell.

- Suggested Positions -

Long DAL stock @ $51.23

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

Long 2016 JAN $55 CALL (DAL160115C55) entry $1.25

11/05/15 prepare to exit tomorrow (Friday) at the closing bell
10/23/15 triggered on gap open at $51.23, suggested entry was $51.15
Option Format: symbol-year-month-day-call-strike


Eaton Corp. - ETN - close: 57.11 change: +0.92

Stop Loss: 53.45
Target(s): To Be Determined
Current Gain/Loss: -0.1%
Entry on November 03 at $57.15
Listed on November 02, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 3.4 million
New Positions: see below

Comments:
11/05/15: Last night I suggested that ETN might dip to $55.50 before rebounding. Today traders bought the dip near $56.00. ETN bounced and shares outperformed the broader market with a +1.6% gain.

If both the S&P 500 and ETN open positive tomorrow morning I would consider new bullish positions here.

Trade Description: November 2, 2015:
When a company reports bad news but the stock doesn't sink it could indicate shares have found a bottom. That appears to be the case for ETN.

ETN is in the industrial goods sector. According to the company, "Eaton is a power management company with 2014 sales of $22.6 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 99,000 employees and sells products to customers in more than 175 countries."

On October 19th ETN issued an earnings warning for their Q3 results. Surprisingly the stock rallied the next day. When ETN reported earnings on October 30th they still missed analysts' lowered estimates. Earnings were $0.97 a share, a -25% drop from a year ago. Revenues were down -9.2% to $5.2 billion, also under expectations. Negative currency headwinds account for -6% of its revenue decline.

The funny thing is ETN's stock rallied. The company said their business environment remains soft and the plan to boost their current restricting efforts. The rally has produced a bullish breakout in the stock above technical resistance at the 50-dma and above price resistance near $55.00. The point & figure chart has produced a triple-top breakout buy signal that is forecasting at $64 target.

Tonight we are suggesting a trigger to launch bullish positions at $57.15.

- Suggested Positions -

Long ETN stock @ $57.15

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

Long 2016 JAN $60 CALL (ETN160115C60) entry $0.75

11/03/15 triggered @ $57.15
Option Format: symbol-year-month-day-call-strike


Microsoft Inc. - MSFT - close: 54.38 change: -0.02

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -0.4%
Entry on November 04 at $54.60
Listed on November 03, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 35.4 million
New Positions: see below

Comments:
11/05/15: MSFT bounced off short-term support at $54.00 midday and managed to pare its losses to almost zero by the closing bell. The intraday high was $54.70. I'd wait for MSFT to rally above $54.75 before initiating new bullish positions.

Trade Description: November 3, 2015:
MSFT is more than just a software company. MSFT is in the technology sector. It is considered part of the business software industry. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company is run under three segments. They have their productivity and business processes segment. This includes commercial office software, personal office software, and more. One of their fastest growing segments is MSFT's Intelligent Cloud business, which includes their server software and enterprise services. Then they have their "More Personal Computing" segment. This includes their Windows operating software, MSN display advertising, Windows phones, smartphones, tablets, PC accessories, Internet search, and their Xbox platform.

The stock has been dead money for almost a year. MSFT peaked near round-number resistance at $50.00 back in November 2014. Shares channeled sideways between support at $40 and resistance at $50 for months. That changed last month.

MSFT reported its 2016 Q1 results on October 22nd. Analysts were expecting a profit of $0.59 a share on revenues of $21.04 billion. MSFT beat both estimates with a profit of $0.67 a share. Revenues came in at $21.66 billion. Their Intelligent Cloud segment saw sales rise +8% but it was actually +14% on a constant currency basis.

Shares of MSFT soared the next day with a surge to 15-year highs. The big rally is based on investors' belief that MSFT and its relatively new management is successfully transitioning away from declining PC sales and moving quickly towards the cloud (and mobile).

Normally I would hesitate to buy a stock like MSFT after a big gap higher. Too often stocks tend to fill the gap. However, shares of MSFT have been able to levitate sideways in the $52.50-54.50 zone as traders keep buying the dips. Odds are growing we could see MSFT rally toward its all-time highs near $60.00 a share from December 1999. The big gain in October produced a buy signal on the point & figure chart, which is now forecasting a long-term target of $82.00. Tonight we are suggesting a trigger to launch bullish positions at $54.60.

- Suggested Positions -

Long MSFT stock @ $54.60

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

Long 2016 JAN $55 CALL (MSFT160115C55) entry $1.54

11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike


Wayfair Inc. - W - close: 43.33 change: -1.18

Stop Loss: 42.40
Target(s): To Be Determined
Current Gain/Loss: +5.3%
Entry on October 16 at $41.15
Listed on October 15, 2015
Time Frame: Exit on Friday, Nov. 6th at the closing bell
Average Daily Volume = 1.1 million
New Positions: see below

Comments:
11/05/15: We are almost out of time on our W trade. The company reports earnings next Tuesday morning, before the opening bell. Right now our plan is to exit this trade tomorrow (Friday) at the closing bell. I am inching our stop loss up to $42.40.

- Suggested Positions -

Long W stock @ $41.15

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

Long NOV $45 CALL (W151120C45) entry $2.80

11/05/15 new stop @ 42.40, exit tomorrow at the close
11/04/15 new stop @ 41.85, plan on exiting Friday at the closing bell
10/20/15 new stop @ 39.85
10/16/15 triggered @ $41.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Skechers U.S.A. Inc. - SKX - close: 29.29 change: -0.71

Stop Loss: 32.05
Target(s): To Be Determined
Current Gain/Loss: +0.4%
Entry on November 05 at $29.40
Listed on November 04, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
11/05/15: Our brand new trade on SKX is now open. Right on cue the relative weakness in SKX continued and the stock broke down to new relative lows. Our trigger to launch bearish positions was hit at $29.40.

Trade Description: November 4, 2015:
Sometimes investors can get spoiled when a company is executing really well. When that company suddenly stumbles the reaction can be extremely painful. SKX definitely stumbled when they reported their Q3 results on October 22nd.

SKX is in the consumer goods sector. According to the company, "SKECHERS USA, Inc., based in Manhattan Beach, California, designs, develops and markets a diverse range of lifestyle footwear for men, women and children, as well as performance footwear for men and women. SKECHERS footwear is available in the United States and over 120 countries and territories worldwide via department and specialty stores, more than 1,200 SKECHERS retail stores, and the Company's e-commerce website. The Company manages its international business through a network of global distributors, joint venture partners in Asia, and 13 wholly-owned subsidiaries in Brazil, Canada, Chile, Japan, Latin America and throughout Europe."

SKX has turned in some impressive numbers this year. Back in April they reported their Q1 results, which beat estimates on both the top and bottom line. Revenues were up +40% from a year ago and hit a company record for quarterly sales. Three months later SKX did it again. They reported their Q2 results on July 29th. SKX beat estimates on both the top and bottom line. Revenues were up +36% from a year ago and another new record.

You can imagine the market's surprise when SKX reported their Q3 results on October 22nd and missed estimates on both the top and bottom line. Analysts were expecting a profit of $0.55 a share on revenues of $876 million. SKX only delivered $0.43 a share. Revenues were up +27% to $856 million. It was another record quarter for sales - their highest ever. Yet investors were suddenly worried about a slowdown in growth. There does seem to be a trend developing. Q1 revenues were +40%. Q2 was up +36%. Q3 +27%.

Prior to SKX's Q3 report the stock was up +150% year to date. The stock was up +400% from its 2014 lows. You could say the stock had gotten ahead of itself and suddenly investors hit the expectations reset button. Shares of SKX plunged -31% in one day (Oct. 23rd). Management said that negative foreign currency exchange rates in Brazil, Canada and Chile, combined with a slow domestic retail environment hurt results.

In SKX's Q3 press release they provided more details:

The Company's diluted earnings per share for the third quarter of 2015 was negatively impacted by several factors including foreign currency translation and exchange losses of $13.5 million, and increased deferred rent expenses of $3.5 million related to the new Fifth Avenue Skechers retail store, which opened during the third quarter, and a second Skechers location in Times Square, which just opened. Additionally, during the third quarter of 2015 diluted earnings per share were impacted by increased legal expenses of $5.0 million related to the settlement of personal injury lawsuits from the Company's toning footwear business; and $5.9 million in higher legal fees and associated costs primarily related to intellectual property litigation, which included the matter of Converse, Inc. v. Skechers U.S.A., Inc., which went to trial before the International Trade Commission in August of this year. The Company believes that most, if not all, of these legal matters will come to a conclusion by early next year. During the third quarter of 2015, these additional expenses reduced diluted earnings per share by $0.15.
Technically the big drop in shares of SKX has done a ton of damage. The point & figure chart is now forecasting a long-term target of $11.00 (I doubt SKX will get that low). It is significant that there has been almost no oversold bounce. SKX tried to bounce but it failed at its 200-dma. Now after consolidating sideways the last several days SKX is starting to breakdown again. Shares underperformed the market today with a -4.9% decline.

The intraday low on October 23rd was $29.55. Tonight we are suggesting a trigger to launch bearish positions at $29.40. I suspect the $25.00 level is potential round-number support and could make a good short-term target for the bears.

FYI: SKX had a 3-for-1 stock split on October 15, 2015.

- Suggested Positions -

Short SKX @ $29.40

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

Long 2016 JAN $25 PUT (SKX160115P25) entry $1.00

11/05/15 triggered @ $29.40
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 18.44 change: -0.38

Stop Loss: None, no stop at this time.
Target(s): $16.50
Current Gain/Loss: +15.5%
2nd position Gain/Loss: +36.4%
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:
11/05/15: The market's major indices retreated on Thursday yet volatility slipped lower as well. The VXX fell -2.0%.

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

11/02/15 adjust exit target to $16.50
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



CLOSED BULLISH PLAYS

Carnival Corp. - CCL - close: 52.90 change: +0.10

Stop Loss: 51.75
Target(s): To Be Determined
Current Gain/Loss: -4.8%
Entry on October 30 at $54.25
Listed on October 29, 2015
Time Frame: Exit prior to earnings in mid December
Average Daily Volume = 4.0 million
New Positions: see below

Comments:
11/05/15: CCL managed to eke out a small gain for the session. Unfortunately some volatility this morning closed our play. Shares unexpectedly gapped down at the opening bell at $51.66. That immediately triggered our stop loss (which was $51.75).

Our play is closed but I would keep CCL on your watch list. Another bounce off its 200-dma or a close above $55.00 might be alternative entry points for bullish positions.

- Suggested Positions -

Long CCL stock @ $54.25 exit $51.66 (-4.8%)

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

2016 JAN $55 CALL (CCL160115C55) entry $1.95 exit $1.10 (-43.6%)

11/05/15 stopped out on gap down at $51.66
11/03/15 new stop @ 51.75
11/02/15 Caution - CCL has produced a bearish engulfing candlestick reversal pattern (it needs to see confirmation).
10/30/15 triggered @ $54.25
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BEARISH PLAYS

DSW Inc. - DSW - close: 23.33 change: +0.74

Stop Loss: 23.05
Target(s): To Be Determined
Current Gain/Loss: +3.6%
Entry on October 27 at $23.90
Listed on October 26, 2015
Time Frame: Exit prior to earnings in late November
Average Daily Volume = 1.5 million
New Positions: see below

Comments:
11/05/15: DSW delivered an oversold bounce today. Shares gapped higher at $22.75 and rallied to a +3.2% gain on the session. Our stop loss was hit at $23.05, locking in a potential gain.

*small positions to limit risk* - Suggested Positions -

Short DSW stock at $23.90 exit $23.05 (+3.6%)

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

DEC $22.50 PUT (DSW151218P22.5) entry $0.90 exit $1.00 (+11.1%)

11/05/15 stopped out
11/04/15 new stop @ 23.05
11/03/15 After hours DSW announced a management change and reduced their guidance
Shares plunge after hours and will likely gap down tomorrow
10/27/15 triggered @ $23.90
10/27/15 DSW downgraded a 2nd time in as many days
Option Format: symbol-year-month-day-call-strike

chart: