Option Investor
Newsletter

Daily Newsletter, Monday, 11/16/2015

Table of Contents

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

Market Wrap

Global Market Proves Resilient

by Thomas Hughes

Click here to email Thomas Hughes
Global markets prove resilient in the wake of last week's Paris terror attacks.

Introduction

The global markets proved resilient in the wake of last week's terror attacks. What might have become a global rout in other times turned into a rally which pushed US markets up more than 1%. Asian indices were the only to post real losses, greater than -1%, and these largely in knee-jerk reaction to the news. European indices fell at their open, then regained the losses and wavered just above break even for the rest of the day.

Early trading here at home was steady, there was no indication of the rally we would see later in the day. Futures indicated a mildly positive open for most of the morning but weakened after the Empire Manufacturing data. The survey shows manufacturing declined in the region along with some deterioration in labor. There was a little business news in the early hours but focus was firmly on events in Paris. One bit, Marriott's purchase of Starwood hotels, is noteworthy if only because many of the newly acquired hotels are in the EU.

Market Statistics

Our markets opened with small losses, in the range of -0.1%, and did not fall much further. Support was present just below the opening levels and began to lift the market within the first two minutes of trading. There was no surge of bullish behavior, just a steady stream of buying that kept the indices holding steady or slightly above last week's closing prices. This steady sideways action carried through into the lunch hour when something changed.

Starting about 11:45AM the market began to rally. All the major indices picked up a bid and began a steady march higher. The rally continued into the end of the day, leaving the indices at the days highest levels.

Economic Calendar

The Economy

Very little economic data today, one release, and it is not positive. The Empire State Survey Of Manufacturing came in at a disappointing -10.7. This is down from last month's -14 but slightly worse than the expected -9. Within the report new orders, shipping and labor all showed contraction, if at a slower pace than before. Labor remains the biggest concern, forward outlook is positive but tepid at best.

Moody's Survey Of Business Confidence fell again, making the 11th straight week of decline. The survey reading remains high by historical comparisons but it as at a new low relative to the recovery. The four week moving average is now at levels not seen since spring of 2014. According to Mark Zandi slowing global economies and volatility in the financial market is to blame.


According to Factset 463, 92.6%, of the S&P 500 has reported earnings so far this season. There are 16 scheduled for this week, 2 of which are Dow components. The blended rate for earnings growth is now -1.8%. This is an improvement of -0.1% from last week and -3.2% from the start of the season, driven by upside surprises in 8 of the 10 sectors. We may see the blended rate come up a little more over the next week or two but it will likely remain below 0% and probably below -1% for the quarter. This will make it the first back to back quarter of earnings decline since 2009.

Estimates for the 4th quarter have also risen since last week. The gain is small, from -3.8% to -3.7%, but a move in the right direction. So far 63 companies have issued negative guidance for the quarter. Full year 2015 earnings growth is projected to come in just below 0 at -0.3% but this will likely rise by the end of the year. We can expect 4th quarter earnings to come in near 0% by end of the season which will lift full year totals into growth, if barely. 2016 growth expectations remain strong at 8.2% but have fallen again.

Energy continues to be the laggard and doing the most damage to headline earnings growth. The energy sector is posting a decline near -57% for the 3rd quarter and is expected to post declines greater than -64% for the 4th quarter. On an ex-energy basis third quarter growth swings into positive territory, 4.37%, and in the 4th quarter, 1.6%.

There is a lot of data due out this week, the FOMC minutes perhaps the most heavily watched. Tomorrow look out for TIC flows, CPI, Industrial Production and the Home Builder Index. Wednesday is Housing Starts and Building Permits along with the FOMC minutes. Thursday is weekly jobless claims, Philly Fed and Leading Indicators. Friday there are no releases. I am expecting to see weakness in manufacturing and possibly in industrial production with signs of strength in the housing and labor data.

President Obama gave some remarks at a press conference while at the G20 meeting. He says ground US ground troops aren't the answer in Syria and stands firm on his policy in the region. France's president Hollande spoke before both houses of parliament stating France was at war and calling for tighter border control in the EU and a coalition to fight ISIS. France is already bombing ISIS targets in Syria which could easily lead to wider spread violence in the region. Hollande also asked parliament for more authority in order to pursue the war on terror.

The Oil Index

Oil prices got a pop from global tensions in respect to the Paris bombings. The flip side is that a more focused approach to ISIS could result in a calmer region, maybe, if ISIS can be contained. Price for WTI rose nearly 1% in early trading, fell back to break even, and then rallied back to the early high and higher, closing with a gain greater than 3.5%.

It's possible that short covering played a part in today's action. Risk has reentered the oil market and could prop up prices into the short term, giving plenty of reason to close out short positions. The caution is that supply/demand imbalance remains; when fear subsides, price will retreat back to fundamentals, whatever they are at the time. At that time a reexamination of supply and demand expectations will be warranted and could change outlook. If there is no sign of supply slackening, or demand picking up the shorts could come back in force. Until then I'm fundamentally bearish, watching the bounce to see what happens.

Energy was one of today's leading sectors. The Oil Index made a nice move up, about 2%, confirming support at 1,150. This level may prove strong enough to hold but that remains to be seen, the indicators are still bearish and have only begun to show signs of support. The indicators, along with the index failure to break above the short term moving average, suggest that today's rally may be short lived if it continues at all. A break above the moving average driven by rising oil prices, if only fear induced, could take it back to retest recent highs near 1,250. A fall below support at 1,150 has a first target near 1,120 and longer term target near 1,000.


The Gold Index

Gold prices held steady in today's action. Surprisingly, there was no mass flight to safety, perhaps because the fundamental picture is still leaning toward a stronger dollar. Gold gained about a tenth of a percent in the early hours of trading and only fell from there. Price slowly slipped throughout the day, leaving gold nearly unchanged from last week's close as trader try to decide what the bombings mean for economic growth and central bank policy. The consensus; Expectations for the ECB to increase QE have risen, the reason being they will need to combat perceived slowing due to the crisis. Expectations for the FOMC to raise rates have fallen, due to risk from the global economy, but only very slightly.

Looking past the bombings there is economic data on tap this week that could move the market as well, primarily the FOMC minutes and CPI data. The minutes are important in terms of outlook and how strongly the Fed thinks we need a rate hike, the CPI because it's inflation data and could force the Fed's hand. Support is now just below $1080 with resistance possible at $1100, a break either way could see prices move $30 - $50 in the near term.

The gold miners tried to rally today but the move fizzled along with gold prices. The Gold Miners ETF created a very small black candle, another spinning top, just above the long term low and last week's closing price. The indicators are bearish and showing weakness relative to the current low, although momentum is waning in the near term, so a test of the lows still looks likely. However, the ETF may continue to consolidate over the next few days provided there is no major movement in gold prices. Support is near $13.00, first target for resistance is the short term moving average.


In The News, Story Stocks and Earnings

Early news included the purchase of Starwood hotels by Marriott. The deal is worth more than $12 billion dollars and result in a hotel chain with more than 30 brands, 5,000 hotels and over 1.1 million rooms. Immediate concerns center on how heightened alert status in Europe will impact business where many of Starwood's properties are located. Shares of both companies fell, Marriott by as much as 3.5%, but Marriott at least was able to regain the losses and more.


Department store operator Dillard's reported earnings before the opening bell and did not please investors. The company beat on earnings but reported lower than expected revenue and -4% decline in comp store sales. Sales and profits are both down from the same period last year while margins are on the rise, calling the companies ability to compete into question. Shares of the stock fell sharply in early trading, more than -7.5%, and closed at a new 4 year low.


Urban Outfitters reported after the bell but that news was overshadowed by another announcement which came before the bell. Urban Outfitters is going to buy the Vetri Family of restaurants which includes Pizzeria Vetri. It's hard to see how but Urban Outfitters CEO sees synergy in the two businesses and that they strive to bring customer satisfaction. Shares of the stock responded by shedding more than -7% during the day, and then sold off another -5% when earnings were released.


The retailers have been getting hit pretty hard over the past week. The sector is reporting much weaker than expected earnings and casting a shadow on hopes of a consumer driven recovery. Last week the Retail Sector Spyder XRT fell to 4 year lows. Today, the sector was able to bounce back from those lows but set a new low in the process. The indicators are bearish so a test of the long term support is likely, near $41.75. A break below this level could take the ETF down as much as $5 in the near to short term.


The Indices

The market rallied today but not all sectors saw gains. The airlines for one were hard pressed by fears of global violence and helped to cut gains in the transportation index. The Dow Jones Transportation Index gained only 0.52% in today's action, less than half the other major indexes, and remains below the short term moving average. The index is ranging between 7,750 and 8,250 and looks like it might pull back to test support near the lower end of it. Both indicators are pointing lower although neither are showing much strength so any downside we see from here may be minimal.


The S&P 500 made the largest gains in today's session, just under 1.5%. The broad market created a strong white candle that closed at the high of the day. The move confirms support along the long term up trend line and my support line at the 2,020 level. The indicators remain bearish so support could be tested again but for now it appears to be fairly strong. If the bounce continues next resistance is near the 2,075 level with support along the trend line should the index fall back below the moving average.


The Dow Jones Industrial Average made the second largest gain in today's session, 1.38%. The blue chips also created a strong white candle with no upper shadow. Today's move confirms support at 17,200 and could result in further upside. The indicators remain bearish, consistent with a pull back to support, but are weak and and not indicative of a deeper correction so this could be the bottom. First upside target is 17,600 with next target 18,000 should the bounce continue without consolidation.


The NASDAQ Composite made the third largest gain in today's session, 1.15%. The tech heavy index is confirming support with a strong white candle but the move was halted at the short term moving average. The indicators are bearish and pointing lower so further testing of support is possible if not likely. The caveat for the bears out there is that downside momentum is very weak and more consistent with pull back than with correction. A break below support would be bearish and could take the index down as far 4,800 in the near term and 4,500 in the short.


It really is amazing the market did not sell off today. Today's action may show a resilience in the market, or the lack of sell-off could possibly be due to the fact we have just come out of a deep, Geo-politically driven, market correction.

The attacks in France are shocking in the least and could lead to widespread conflict at worst, two situations that have sparked deep sell-offs in the past so I do not think we are out of the woods just yet. In between those two extremes are repercussions to the EU and global economy that could affect central bank policy, GDP growth and corporate earnings.

It is unclear exactly what is going to happen with ISIS and Syria. France is already bombing targets and it is certain others will get involved. The question is who. Maybe Russia,maybe us, although Obama pledges no boots on the ground and it doesn't look likely NATO will get involved. What is certain is that this subject will dominate headlines for the foreseeable future and could drive day to day volatility.

There is also economic data to consider. There is a lot of key data this week; housing, manufacturing and labor, any of which could move the market. All of which will affect FOMC rate hike speculation. Good data is good for the economy, but bad in terms of rate hikes. Bad data is bad for the economy and good in terms of rate hikes.

Options expiration may play a part in this week's action as well. The market has made some impressive moves since last expiration day that could result in unwinding of positions and market volatility later in the week.

With all this going on it may be easy to lose sight of the long term outlook, which remains positive. The near term is hazy and that is not likely to change any time soon. Looking past the current geo-political and market turmoil earnings growth returns, as does more robust GDP growth. The thing to remember is that times of uncertainty and market pull back like this are usually buying opportunities and that is what this looks like to me. I remain a bull and looking to buy on the dips.

Until then, remember the trend!

Thomas Hughes


New Plays

Potential Short Squeeze Candidate

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Natural Health Trends Corp. - NHTC - close: 53.72 change: +2.26

Stop Loss: 49.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 16, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 379 thousand
New Positions: Yes, see below

Company Description

Trade Description:
If you're looking for relative strength then NHTC could be your stock. It's been a rocky ride so far in 2015 with big swings both up and down. Right now NHTC is on an upswing. Shares have rallied +168% from its August 2015 low near $20.00. The stock is up +369% year to date.

NHTC is in the consumer goods sector. According to the company, "Natural Health Trends Corp. (NHTC) is an international direct-selling and e-commerce company operating through its subsidiaries throughout Asia, North America, and Europe. The Company markets premium quality personal care products under the NHT Global brand."

The company's earnings and revenue growth has been significant. They reported their Q2 results on July 28th. Earnings nearly doubled from $0.49 a year ago to $0.98. Revenues soared almost +104% to $69.7 million. At the time management raised their dividend +33% to $0.04 a share and announced a $15 million stock buyback program.

In the middle of October NHTC pre-announced strong Q3 revenues. They reported their Q3 results on October 27th. Earnings soared from $0.42 a year ago $1.18 a share. Revenues hit a record $80.8 million, up +154% from a year ago. Their number of active members increased +24% to 94,700 from the prior quarter. Management then raised their dividend to $0.05.

NHTC hit new multi-year highs at $55.45 in early November. Since then shares have spent the last two weeks consolidating sideways in the $50-54 zone. The stock weathered last week's market decline pretty well. If shares breakout higher NHTC could see a short squeeze. The most recent data listed short interest at 19% of its very small 7.3 million share float.

Tonight we are suggesting a trigger to launch bullish positions at $54.30. I am suggesting small positions. Shares can be volatile. We should consider this a higher-risk, more aggressive trade.

Trigger @ $54.30 *small positions to limit risk*

- Suggested Positions -

Buy NHTC stock @ $54.30

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

Buy the JAN $60 CALL (NHTC160115C60) current ask $4.30
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Surge On Monday

by James Brown

Click here to email James Brown

Editor's Note:
The Monday morning sell-off, in reaction to the Paris attack, did not materialize. Instead the market rebounded. A bounce in crude oil helped fuel gains in the energy stocks.


Current Portfolio:


BULLISH Play Updates

Microsoft Inc. - MSFT - close: 53.77 change: +0.93

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -1.5%
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:
11/16/15: The market's big bounce today helped MSFT rebound off its rising 20-dma. Shares added +1.75%, outperforming the NASDAQ composite (+1.15%). I would be tempted to launch new bullish positions on a rally past $54.25.

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


Paychex, Inc. - PAYX - close: 53.36 change: +1.00

Stop Loss: 51.25
Target(s): To Be Determined
Current Gain/Loss: +0.4%
Entry on November 11 at $53.15
Listed on November 09, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.3 million
New Positions: see below

Comments:
11/16/15: Traders bought the dip with a vengeance on Monday. Shares of PAYX surged +1.9% to set a new multi-year closing high. More conservative traders may want to start raising their stop loss.

Trade Description: November 9, 2015:
Last week the Bureau of Labor Statistics announced that the nonfarm payroll (jobs) report for October showed a gain of +271,000. That was way above expectations. The separate household survey showed a gain of +320,000 jobs. This pushed the unemployment rate down to 5.0%, the lowest reading since early 2008. Many believe that the U.S. has now reached full employment. Do you know what that means? It means more Americans working. That means more paychecks to be delivered and more HR services to be handled.

PAYX is in the services sector. According to the company, "Paychex, Inc. (PAYX) is a leading provider of integrated human capital management solutions for payroll, HR, retirement, and insurance services. By combining its innovative software-as-a-service technology and mobility platform with dedicated, personal service, Paychex empowers small- and medium-sized business owners to focus on the growth and management of their business. Backed by more than 40 years of industry expertise, Paychex serves approximately 590,000 payroll clients across 100 locations and pays one out of every 15 American private sector employees."

PAYX earnings have been slowly and consistently creeping higher. Revenues have been rising about 8% the last couple of quarters. This company's most recent earnings report was September 30th. They beat estimates on both the top and bottom line, which helped fuel another rally in the stock.

PAYX management has been very consistent about paying a dividend. PAYX now sports a dividend yield of 3.7%. That could draw more and more income investors looking for a safe company to buy.

A recent article on Forbes.com, by Brett Owens, noted that "demand for payroll outsourcing (60% of Paychex's latest quarterly revenue) will grow at a 3.9% compound annual rate between 2013 and 2018. HR outsourcing (40% of revenue) is on a stronger tear, with a projected 12.3% yearly gain in the same period" (source)

We like PAYX's relative strength. Shares are up +14.2% year to date. That compares to a +1.0% gain in the S&P 500 and a +7.6% rally in the NASDAQ. The NASDAQ composite is up +18% from its August low but PAYX is up +26.7%. The rally in PAYX has produced a buy signal on the point & figure chart, which is also forecasting a long-term target at $72.00.

On Friday PAYX found short-term support near $53.00. Tonight we are suggesting a trigger to launch bullish positions at $53.15.

- Suggested Positions -

Long PAYX stock @ $53.15

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

Long JAN $55 CALL (PAYX160115C55) entry $0.80

11/11/15 triggered @ $53.15
Option Format: symbol-year-month-day-call-strike


U.S. Concrete, Inc. - USCR - close: 57.12 change: -2.72

Stop Loss: 55.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 14, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 220 thousand
New Positions: Yes, see below

Comments:
11/16/15: USCR displayed some surprising relative weakness on Monday. The stock did not participate in the market's widespread rally. Instead shares plunged -4.5% to testing short-term support in the $56.50 area.

Currently our suggested entry point to launch bullish positions is $60.65.

Trade Description: November 14, 2015:
USCR looks like a very impressive relative strength trade. This is a small cap stock. The small cap Russell 2000 index is down -4.6% year to date. Shares of USCR are up +110%.

They are part of the industrial goods sector. USCR is in the building materials business. According to the company, "U.S. Concrete serves the construction industry in several major markets in the United States through two business segments: ready-mixed concrete and aggregate products. The Company has 139 standard ready-mixed concrete plants, 16 volumetric ready-mixed concrete facilities, and 12 producing aggregates facilities. During 2014, U.S. Concrete sold approximately 5.7 million cubic yards of ready-mixed concrete and approximately 4.7 million tons of aggregates."

The U.S. economy is only growing around +2% yet construction spending has rebounded to multi-year highs. A recent interview with the CEO of USCR revealed that they are benefitting from the building boom in several U.S. markets. According to the CEO their outlook is very healthy for the next two years. If President Obama signs the current highway spending bill it could provide an additional boost with multi-year funding for USCR.

Another bonus to being a U.S. based and domestically focused small cap company is how the rising dollar should not be a currency headwind for the company.

Earnings growth for USCR has been significant. Their Q1 report came out in May this year. The company blew away the estimates with revenues up +17%. Their Q2 numbers were even better. USCR crushed the numbers again with revenues up +35.7%.

USCR's most recent earnings report was November 5th. The company announced their Q3 results. Wall Street was looking for a profit of $1.10 a share on revenues of $282.3 million. USCR said earnings surged +85% from a year ago. Gross margins were up +310 basis points to 16.7%. Their revenues roared +49.4% to $295.11 million.

William J. Sandbrook, President and Chief Executive Officer of U.S. Concrete, stated,

"The third quarter marked another quarter of significant improvement in revenue, adjusted EBITDA and earnings per share reflecting solid execution on our core growth objectives. This sustained improvement is a strong validation of our entire operating strategy across our attractive construction material categories. During the quarter we grew our organic operations in all of our key regions, including Texas. Our ongoing consolidation efforts, established leadership positions, and focus on high barrier-to-entry projects allowed us to remain disciplined with our price, as evidenced by ready-mixed concrete prices increasing year-over-year for the 18th straight quarter. This pricing success, combined with our increasingly vertically integrated positions, delivered higher material spreads and very favorable incremental margins on our scalable platform. Additionally, during the quarter we further strengthened our vertically integrated capabilities with the addition of three strategic aggregate operations within key markets. As we look forward, we are encouraged by our prospects for further improvement as we continue to advance our long-term growth strategy."
Technically the stock is in a bullish up trend. Traders have been consistently buying the dips. The broader market retreated this past week while USCR managed to close nearly unchanged for the week (-20 cents). The point & figure chart is bullish and forecasting at $72.00 target. USCR appears to have short-term resistance at $60.50. Tonight we are suggesting a trigger to launch bullish positions at $60.65.

Trigger @ $60.65

- Suggested Positions -

Buy USCR stock @ $60.65

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




BEARISH Play Updates

Denny's Corp. - DENN - close: 9.61 change: -0.04

Stop Loss: 10.25
Target(s): To Be Determined
Current Gain/Loss: +2.9%
Entry on November 10 at $9.90
Listed on November 05, 2015
Time Frame: 4 to 8 weeks
Average Daily Volume = 527 thousand
New Positions: see below

Comments:
11/16/15: DENN is still sinking. Shares did not participate in the market's big bounce today. The stock slipped to $9.52 before paring its losses. DENN ended the day down another -0.4%.

No new positions at this time.

Trade Description: November 5, 2015:
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.

- Suggested Positions -

Short DENN stock @ $9.90

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

Long DEC $10 PUT (DENN151218P10) entry $0.55

11/14/15 new stop @ 10.25
11/10/15 triggered @ $9.90
Option Format: symbol-year-month-day-call-strike


CarMax Inc. - KMX - close: 55.02 change: +1.04

Stop Loss: 57.25
Target(s): To Be Determined
Current Gain/Loss: -0.5%
Entry on November 13 at $54.75
Listed on November 12, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 1.8 million
New Positions: see below

Comments:
11/16/15: KMX did follow the market higher on Monday. Shares spiked down to $53.46 and then bounced to a +1.9% gain on the session. The $55.00-56.00 zone should be resistance. Wait for this bounce to stall or reverse before considering new bearish positions.

Trade Description: November 12, 2015:
The labor market in the U.S. is healthy. The October jobs report came in above estimates at +271,000 jobs. Wages are actually rising. You would think this would be bullish for consumer spending. Unfortunately the demand for used cars seems to be slowing down.

KMX is in the services sector. According to the company, "CarMax, a member of the FORTUNE 500 and the S&P 500, is the nation's largest retailer of used cars. Headquartered in Richmond, Va., we currently operate 151 used car stores in 76 markets. The unique CarMax consumer offer allows customers to shop for vehicles the same way they shop for items at other 'big-box' retailers. We provide low, no-haggle prices; a broad selection of CarMax Quality Certified vehicles; and superior customer service. During the fiscal year ended February 28, 2015, we retailed 582,282 used vehicles and we sold 376,186 wholesale vehicles at our in-store auctions."

It looks like low interest rates has fueled huge demand for new cars. Last month the number of new cars sold in the U.S. hit ten-year highs with an annual pace of 18.24 million units. This is probably stealing market share from the used car market. Looking at KMX's last couple of earnings reports both their comparable store unit sales and their quarterly revenues have come in below estimates. Keep in mind that used car sales are still seeing growth but growth is slowing. That's hurting KMX's stock price since they are the largest retailer of used cars.

This stock peaked in April this year. KMX set a lower high in June. Since then shares have been stuck in a bearish trend of lower highs and lower lows. KMX is now in a bear market (down -26% from its 2015 high) and currently testing support near $55.00.

If KMX breaks key support at $55.00 it could signal the next major leg down. I wouldn't be surprised to see a drop toward $50 or even the late 2014 lows in the $44 region. Tonight we are suggesting a trigger to launch bearish positions at $54.75. Please note this is going to be a relatively short-term trade. KMX has earnings coming up in mid December. We will plan to exit prior to their announcement.

- Suggested Positions -

Short KMX stock @ $54.75

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

Long JAN $52.50 PUT (KMX160115P52.5) entry $2.00

11/13/15 triggered @ $54.75
Option Format: symbol-year-month-day-call-strike


Lululemon Athletica - LULU - close: 45.24 change: +0.19

Stop Loss: 48.25
Target(s): To Be Determined
Current Gain/Loss: +4.3%
Entry on November 12 at $47.25
Listed on November 11, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.9 million
New Positions: see below

Comments:
11/16/15: LULU dipped to a new 2015 low ($43.87) but shares managed to rebound. The stock closed up +0.4%, which underperformed the broader market's +1.5% gain.

No new positions at this time.

Trade Description: November 11, 2015:
Disappointing earnings guidance and rising competition have been tough on shares of LULU. It doesn't help that expectations for this holiday season are falling.

LULU is in the consumer goods sector. According to the company, "lululemon athletica inc. (LULU) is a yoga-inspired athletic apparel company with products that create transformational experiences for people to live happy, healthy, fun lives. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback."

LULU's most recent earnings report was September 10, 2015. The company beat the bottom line estimate by a penny. Revenues were up +16% from a year ago and came in above estimates. Comps showed strength with a +11% improvement on a constant dollar basis. However, management spoiled the news by drastically lowering their Q3 estimates below Wall Street expectations. The stock was crushed on this outlook.

LULU is facing a few challenges. The biggest challenge is rising competition. The athleisure trend in apparel has been around for a while now but everyone is trying to cash in on it. That includes heavyweights like Under Armour and Nike. Nike plans to almost double its sales in women's apparel by 2020. You can bet they plan on stealing some market share from its smaller rivals like LULU. LULU also has competition from other apparel stores like the Gap (with all of its various labels) and Victoria's Secret. If rising competition wasn't enough LULU has also raised their prices, which could further drive consumers toward lower cost alternatives.

Bigger picture the outlook for holiday spending this year is wilting. In the last couple of weeks multiple analyst firms have released reports that consumers will spend less time in stores (lower traffic). Plus, retail sales growth is expected to fall from last year, especially on apparel.

Technically LULU is in another bear market. The stock is down -32% from its 2015 highs. Shares have a bearish trend of lower highs as investors keep selling the rallies. Now LULU has fallen to short-term support in the $47.40-47.50 area.

My biggest concern is the elevated short interest. The most recent data listed short interest at 27% of the 110 million share float. That many shorts can make this stock volatile as weak hands could panic on any bounce. Of course longer-term the bears are probably right on LULU until the story changes. Readers may want to trade the put options to limit their risk. Tonight we are suggesting a trigger to launch bearish positions at $47.25. Plan on exiting prior to LULU's earnings report in mid December.

- Suggested Positions -

Short LULU stock @ $47.25

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

Long DEC $45 PUT (LULU151218P45) entry $2.40

11/14/15 new stop @ 48.25
11/12/15 triggered @ $47.25
Option Format: symbol-year-month-day-call-strike


Skechers U.S.A. Inc. - SKX - close: 25.37 change: -0.03

Stop Loss: 27.65
Target(s): To Be Determined
Current Gain/Loss: +13.7%
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:
11/16/15: It is very encouraging to see SKX fail to participate in the market's broad-based rally today. Shares essentially hovered near round-number support at $25.00. The stock remains oversold so it could bounce. More conservative investors may want to take some money off the table now at current levels.

No new positions at this time.

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

11/14/15 new stop @ 27.65
11/11/15 new stop @ 29.05
11/05/15 triggered @ $29.40
Option Format: symbol-year-month-day-call-strike


Seagate Technology - STX - close: 34.30 change: +1.23

Stop Loss: 36.25
Target(s): To Be Determined
Current Gain/Loss: +4.3%
Entry on November 11 at $35.85
Listed on November 10, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 4.9 million
New Positions: see below

Comments:
11/16/15: I cautioned readers in my prior update that STX was oversold and likely due for a bounce. The market's big rebound today helped fuel a +3.7% bounce in STX. Keep an eye on the $35.00 level and $36.00 level, which could be short-term resistance.

No new positions at this time.

Trade Description: November 10, 2015:
A slowdown in PC sales is killing STX's performance. Share are significantly underperforming the broader market. The company's stock is down -45% year to date.

STX is part of the technology sector. According to the company, "Seagate creates space for the human experience by innovating how data is stored, shared and used." That doesn't tell us much. Visiting their website you can learn that "Seagate is the global leader in data storage solutions, developing amazing products that enable people and businesses around the world to create, share and preserve their most critical memories and business data." Essentially STX makes hard drives and data storage for both personal and business use. This includes desktop storage, laptop storage, backup solutions, data recovery, cloud computing storage, and a lot more.

Unfortunately for investors the earnings picture has been disappointing. STX management issued an earnings warning on October 15th as they reduced their guidance for Q1 earnings and revenues. You can see the drop in their stock price on the 15th.

STX reported their 2016 Q1 earnings on October 30th. Net income fell -63.6% from a year ago. Earnings came in at $0.54 a share, which was three cents below estimates. Revenues plunged -22.7% to $2.92 billion, which matches the levels they warned about two weeks prior. STX said their gross margins contracted from 28.1% to 24.2%.

Management knew the quarter was going to be bad so they tried to soften the bad news by announcing a +17% jump in their dividend just prior to their earnings announcement. The news didn't seem to help. Their 2016 Q2 guidance did not help either as management lowered their revenue forecast below analysts' estimates. Wall Street has been reducing their ratings and their price target on the stock in reaction to the company's lowered forecast.

I could see dividend investors looking a STX as a potential buy. The plunge in the stock price has driven the dividend yield up to 6.9%. Yet who wants to buy a stock for their dividend and watch your capital evaporate?

Technically STX is in a bear market. Shares displayed relative weakness today with a -4.5% decline and a drop to new multi-year lows. The point & figure chart is already bearish and forecasting at $26.00 target. If STX trades below $36.00 it will produce a new triple-bottom breakdown sell signal on its P&F chart. Tonight we are suggesting a trigger to launch bearish positions at $35.85.

- Suggested Positions -

Short STX stock @ $35.85

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

Long JAN $35 PUT (STX160115P35) entry $1.93

11/14/15 new stop @ 36.25
11/11/15 new stop @ 37.25
11/11/15 triggered @ $35.85
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 19.75 change: -2.21

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +9.5%
2nd position Gain/Loss: +31.9%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: to be determined
Average Daily Volume = 50 million
New Positions: see below

Comments:
11/16/15: The market's big bounce today hammered the volatility indices lower. The VIX dropped -9.5%. The VXX fell -10%.

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

11/07/15 adjust exit target to $16.65
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