Option Investor

Daily Newsletter, Saturday, 8/8/2015

Table of Contents

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

Market Wrap

American Express, Too Little, Too Late

by Jim Brown

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American Express (AXP) came close to rescuing the Dow from a losing streak of seven consecutive days but could not beat the clock. Late day news about an activist shareholder prompted a $5 gain in AXP worth 36 Dow points but it was not enough to lift the index back into positive territory.

Market Statistics

Around 1:PM Bloomberg broke the story that activist firm ValueAct Capital Management had amassed a 13 million share stake worth about $1 billion. AXP has a market cap of $80 billion so ValueAct has a hard road ahead to really influence the company's direction. To put this in perspective there are more than 15 stockholders that own more than 10 million shares. Berkshire Hathaway owns 151 million and Vangard 52 million. More than 85% of the shares are held by institutions and mutual funds. The $5 spike on Friday was probably overdone.

ValueAct said it had held discussions with AXP and the credit card company said it always welcomes suggestions from investors. ValueAct manages about $18 billion and targets companies that it views as temporarily mispriced.

The economic numbers on Friday weighed on the market as the potential for a September rate hike increased.

The Nonfarm Payrolls did something very unusual. The headline number came in exactly as expected at +215,000 new jobs. That number had jumped around over the last week but settled at 215,000 after the disappointing ADP Employment report on Wednesday.

The headline number declined from 260K in May and 231K in June. Those numbers were revised higher by a minor amount totaling +14,000 jobs.

The managed unemployment rate was steady at 5.3%. The broader U6 measure of unemployment declined slightly from 10.5% to 10.4% or 26.1 million workers. The number of part time workers unable to find full time work declined from 6.5 million to 6.35 million. Those not in the labor force rose by 144,000 to a record high at 93.77 million or 62.6%, which is a 38-year low. At the beginning of 2008 that number was 80 million. The labor force rose by 69,999 to 250.876 million. The separate Household Survey showed a gain of +101,000 jobs.

The average hourly earnings rose +0.2% (+5 cents) after no gain in June. The average workweek rose by a miniscule 0.1 to 34.6 hours.

Private payrolls increased +193,000 jobs. The healthcare/education sector added +37,000, business services +40,000, leisure/hospitality added +30,000 and government jobs rose +5,000.

Lackluster wage growth is a factor of too many people out of work. With 26.1 million people unemployed or underemployed there are too many applicants for any available job and employers do not have to offer higher wages to attract candidates. Without wage growth, those working will not be increasing spending and those 26.1 million under/unemployed are living on government payments of some sort or family support and that limits their spending. Until wages rise, inflation will not increase materially due to slow consumption. Analysts do not expect wage growth to accelerate until mid 2016.

The payroll number was what normally would be called a Goldilocks number but that was the problem. It was not strong enough to be encouraging for the economy and not weak enough to cause any economic fears. However, it was exactly in line with what the Fed wants to see and increased the chances of a rate hike in September. The three-month average job gain is now +235,000 and the Fed speakers have said they want to see consistent gains over 200,000.

In a post payroll survey on Friday 16 of 17 analysts now believe we will see a rate hike in September. The lone abstainer was Jon Hatzius from Goldman Sachs. He believes the mediocre economics other than the payroll numbers will keep the Fed on hold until December. With the ECB and IMF asking the Fed not to hike until mid 2016 because of the slow growth in the rest of the world the December meeting could be a compromise between the Fed's desire to hike in 2015 and their desire to be socially acceptable to those other banks.

The Fed Funds Futures are now showing more than a 60% chance of a September rate hike of 25 basis points. There are conflicting views on whether it will be a one-and-done hike just to get the ball rolling or whether it will be the first of three over the next 6-9 months. The Fed is expected to delay further hikes once they get to 75 basis points. Currently the stated Fed funds rate is "0.0% to 0.25%" or 0.125%. If the Fed hikes 25 basis points as expected that would mean they would have to state a rate at 37.5 basis points to get away from the current "range" quotation. That also gives the Fed the opportunity to hike again in December with a "token" hike of 12.5 basis points to bring the target rate back to .50% and an even number to facilitate future quarter point hikes.

Larry McDonald, head of U.S. Macro Strategy at SocGen, warned Friday that trouble is coming. He said the Fed was facing the potential of an impending recession from what he called the seven-year itch. Since the 1950s for every two-term president, the economy entered a recession beginning in the seventh year of the president's term. This occurred during the terms of Eisenhower, Nixon, Regan, Clinton and Bush. The markets declined -50% in the Eisenhower recession, Nixon -26%, Regan -48%, Clinton -56%, Bush -56% and McDonald is suggesting a -56% decline for the Obama recession. Obviously, there are numerous analysts that object to this forecast. Goldman Sachs recently predicted a continued bull market through 2018.

McDonald's team found that the election cycle in year eight caused significant economic uncertainty. Candidates began to present their plans for spending cuts and government restructuring and that upsets the status quo from the prior 7 years. McDonald pointed out that government spending was 28% of GDP in 2000. That has risen to 37% of GDP today and that is not sustainable.

He also pointed out that the Fed has had a zero interest rate policy for six years. That is the longest period of accommodation in recent history and the Fed has never unwound low rates without upsetting the market. Since 2008 there has been more than $21 trillion of economic stimulus including $4 trillion from the Fed and $17 trillion in deficit spending by federal, state and local governments in an effort to jump start the economy. That pace is also unsustainable. Since 2008 more than $56 trillion in debt has been created. A rising interest rate policy will negatively impact that debt. Full Interview

I am only presenting his analysis as one view of the market and the economy. I am not claiming he is right or wrong but Societe Generale is not a small company. Back in January, McDonald also warned that the rising dollar was creating tremendous systemic risk. In the Q2 earnings cycle we have seen the impact of that dollar strength and a Fed rate hike will only push the dollar higher. Investors should always listen to all market views so that they are fully informed if market conditions change.

Another contrary view came from Bill Gross. Employment is only one factor in the Fed raising rates. The other is inflation. They are currently targeting 2%. On Friday, Gross warned that the global economy was "dangerously close to deflationary growth." Once there is a "whiff of deflation, things tend to reverse and go badly."

Gross pointed to the CRB Commodity Index, which is not just at a cyclical low but is now lower than the 2009 financial crisis low. He said the commodity markets tell a truer story of what is happening in the global economy because they are subject to real-time supply and demand. Everything has plunged because of China's economic decline and rising gluts in markets is further depressing prices. Do not trust China's 7% GDP number but focus on the lack of demand for commodities that point to much slower economic activity in China.

With commodity prices falling sharply it will be hard for inflation to rise. However, Gross does believe the Fed will hike rates by 25 basis points in September. He said the Fed really wants to move in 2015 despite a change in posture by the Bank of England that voted 8-1 to keep its rates unchanged and suggested they would not consider a move until mid 2016. That was more dovish than the prior vote at 7-2 with expectations for a 2015 hike. The global economy is not healthy.

While analysts may be expecting a rate hike next month the bond market is looking the other way. Yields on the ten-year treasury declined -2.64% to 2.175% on Friday. If bond investors were expecting a rate hike, the yields would be going higher.

However, one analyst said this was actually prompted by flight from high-yield ETFs, which are imploding. Money coming out of the high-yield market is looking for a temporary safe haven and that turned out to be the ten-year treasury. Money is fleeing the high-yield market because of worries over increasing default risk and the potential for a rate hike.

Over the last six years, the high-yield ETF has had a positive correlation to the S&P-500. That correlation is breaking down with the HYG now trading below the S&P on a relative basis. Analysts are mixed on what this means for the market but most suggest any further breakdown in the HYG would negatively impact the S&P.

The Dollar Index rallied to a new four-year high at the open on the payroll numbers but then crash back to a three day low on profit taking and risk that the jobs number was not strong enough to push the Fed to hike in September. Yes, every market sector seemed to have a different view of how the payroll numbers would impact the Fed. That is what makes a market.

Now that we have moved into the forecasting phase for the Q3 GDP the Atlanta Fed has begun their GDPNow series for this quarter. The initial forecast is for 1.0% growth. That is hardly enthusiastic and the Fed has to be fully aware of the implications of a 1% quarter at this point in the economic cycle. This would be the counterweight to the expectations for a Fed hike in September. This number will change as the economic reports for the July period begin to appear but I would be surprised if there was a sudden rise. Note that the average forecast from the private sector is 3.2% growth. Good luck with that!

The Atlanta Fed's GDPNow was dead on with its real-time forecasts for GDP for Q1 (0.6%) and Q2 (2.3%). If they are right about the Q3 GDP and it stays at the 1% level we will not be talking about a rate hike but may be talking about the potential for QE4.

I apologize for all the wonky economic analysis today but that was moving the market.

The calendar for next week does not have a lot that will interest investors. The retail sales for July on Thursday is the most important piece of data and the rest of the reports are filler. The producer price index on Friday is probably the next most important.

After the close on Friday, First Business Financial Services (FBIZ) announced a 2:1 split. The stock is thinly traded with only 4.34 million shares outstanding. I would not expect a tradable split run.

In stock news, Intel (INTC) was downgraded from buy to hold at Drexel Hamilton and the price target cut from $40 to $30. The firm cited declining visibility in the PC and server markets. Intel has said the slowing of processor sales and the difficulty of advancing the technology has delayed the introduction of the newer technology. Intel debuted the 15-nanometer chips in 2015 and expects to release its first 10 nm chips in late 2016. However, IBM announced they were going to release 7 nm chips in 2017 or early 2018. Despite the monumental increase in difficulty in continuing to reduce the size of the pathways on the chips the battle continues.

For comparison, Intel's Core I7 14 nm chips have roughly 1.9 billion transistors. The 7 nm chips will have roughly 20 billion transistors. That is a monster jump in capability and it appears IBM will be the first to make that leap.

Intel shares declined only fractionally on the downgrade.

Elsewhere in the chip sector Nvidia (NVDA) posted earnings of 34 cents that beat estimates for 21 cents. Revenue rose +4.5% to $1.15 billion and also beat estimates for $1.01 billion. The company raised current quarter revenue guidance to $1.18 billion compared to analyst estimates for $1.1 billion. Nvidia said demand was soaring for high performance graphics chips designed for the high end gaming market. Gamers will always upgrade. They always want the best and each version of a new video game has higher end graphic requirements. There are several hundred million gamers and they upgrade their PCs regularly to get the best performance possible. The company is also seeing orders increase for graphics chips used in cars.

Sales in the graphic chip business rose +9% according to Nvidia. Gartner Inc reported separately that PC sales declined -9.5% in Q2. Apparently Nvidia has the right chips at the right time. Pixar just licensed a suite of Nvidia technologies in a multi-year agreement to speed up graphics rendering in GPUs and other parallel computing architectures.

Michael Kors (KORS) reported earnings of 87 cents compared to estimates for 75 cents. However, they guided for the current quarter for earnings in a range of 86-90 cents and revenue of $1.07 billion and analysts were expecting 98 cents on revenue of $1.11 billion. That would have been an instant disaster but they upgraded the full year forecast. Kors said it would earn between $4.40-$4.50 for the year and well over the $4.26 estimate. Revenue of $4.75 billion would also exceed the $4.66 billion estimate. Nomura reiterated a buy rating. Cowen & Co reiterated an outperform rating. BB&T upgraded them from hold to buy. Piper Jaffray cut them from hold to sell.

Herbalife (HLF) continued its two-day gain after the company posted earnings of $1.24 compared to estimates for $1.11. Revenue also beat. The company raised guidance for the current quarter to a range of $1.00-$1.10 compared to analyst estimates for $1.01. Revenue was also hiked over analyst estimates.

Sales in China are sparking the gains. Sales rose +38% with new representatives rising +40% to the highest level seen in years. The company also had strong sales gains in Russia and Korea but experienced sharp declines in Venezuela because of the economic turmoil in that country.

Stamps.com (STMP) soared +28% after posting earnings of 97 cents. Total revenue was up +41% to $48.4 million. Mailing and shipping gross margins were 80.8% and total margins 79.5%. They raised full year guidance to a range of $170-$190 million, up from $165-$180 million. Earnings guidance rose from $2.55-$2.95 to $3.10-$3.50. Shares hit a new historic high on 6 times the normal volume. There must have been a lot of shorts.

Technical service company Engility Holdings (EGL) saw a 38% spike in its shares after posting earnings of 51 cents and beating by 5 cents and raising guidance. They announced a contract worth up to $200 million to supply systems engineering and integration services to the US Air Force GPS division. They also won a $35 million contract for radar engineering, support and logistics for the Naval Surface Warfare Center. Their conference call was very bullish.

Cheniere Energy (LNG) shares rose +6% after Carl Icahn announced an 8% stake of 19.4 million shares worth more than $1 billion. In a filing with the SEC he called the company "undervalued" and said his team plans to have discussions with the board about operations, capital expenditures, financing and executive compensation. They may also push for a seat on the board. Cheniere has one of the highest paid CEOs in the USA. Charif Souki has rescued Cheniere from disaster more than once and the majority of his compensation is in shares. I am a fan of Cheniere Energy as they will be the first to actually export LNG from the USA. Their first of 11 trains under construction will begin exports late this year. They have long-term 20 year contracts to sell liquefied natural gas as LNG to overseas buyers who pay up to six times the cost of gas in the USA.

After the bell, Berkshire Hathaway (BRK.A) reported earnings of $2,442 per class A share, down -37%, to $4.01 billion. Analysts were expecting $3,038 per share. Revenue rose +3% to $51.37 billion. Net investment and derivative gains fell -94% to $123 million, down from $2.06 billion. Earnings from insurance fell -39% to $939 million and included a $38 million loss. The Geico car insurance unit caused the decline with underwriting gains falling -87%. Accident losses cost more than premiums received and Berkshire is raising premiums as a result.

The BNSF railroad saw profits rise +5% to $963 million despite lower shipments of oil, coal, fertilizer, etc. Berkshire ended the quarter with $66.59 billion in cash. The Berkshire B shares declined $2 in afterhours.

Depomed (DEPO) shares rallied 9% after the company sent an open letter to Horizon (HZNP) CEO Timothy Walbert. Reportedly Walbert had offered to raise the bid for Depomed, currently $33 and all stock, to include a 25% cash component. However, Walbert has not yet made a formal proposal to confirm that conversation.

The Depomed CEO, James Schoeneck, posted an analysis to the company website on Friday showing that Depomed would contribute 33% to 35% to the combined company's revenue in 2016 and 2017. He said Depomed shareholders are entitled to an ownership interest that is commensurate with the Depomed contribution. Apparently, this was a "put up or shut up" letter and analysts believe this represents a step forward in the acquisition process. Depomed had previously charged that Horizon announced the offer before there was an agreement to drive up its own stock price and increase the value of the offer.

The Biotech sector was responsible for a significant portion of the Nasdaq decline over the last two days. In those two days the sector fell -5% from the Wednesday high. There were several high profile earnings misses from biotech stocks and the sector imploded. The 100-day average has been support since last October and that failed last week. Previously investors that bought that support were rewarded. This time the jury is still out.

Halliburton (HAL) and Schlumberger (SLB) have moved into the banking business. The service companies have been hurt by the drop in the active rig counts and they have billions in equipment currently parked and not in use. They have come up with a "frac now, pay later" plan for producers. In some cases, they are acting as lenders with a note arrangement where they do the work on credit and expect to get paid at some point in the future when prices improve. There is also a rumor they have negotiated for a portion of the well's production until the cost of the frac job has been paid.

Halliburton is using part of the $500 million in capital investment from BlackRock in order to fund the work. Halliburton saw its Q2 profits fall from more than $500 million to only $54 million because of the slowdown in the fracking business. Halliburton will not say how many clients are taking advantage of this financing citing confidentiality. Schlumberger said it had eight onshore "refracking" clients. That is a new program being developed by Schlumberger to restart older wells that have seen production decline significantly. EOG and Anadarko both said the refracking technology needs improvement. Apparently the Schlumberger technology is a work in progress. Chesapeake and Devon Energy said they have been refracking and they are happy with the results.

Both HAL and SLB need some help. Their shares are headed for 52-week lows.

Crude oil collapsed with a $3 loss for the week to come very close to the March low at $42. Fears of rising production, slowing demand and the strong dollar were to blame. Refiners will begin to shut down for maintenance in about two weeks as summer driving demand fades. Inventories will begin to rise again as we enter the post summer low demand period. However, refinery utilization was at the high for the year last week at 96.1%. Refiners are building up supplies going into the Labor Day holiday and ahead of their switch over to winter fuel blends.

Active rigs rose +10 last week to 884 with oil rigs rising +6 to 670. Gas rigs rose +4 from their 18-year low to 213. The most surprising was the gain of +4 offshore rigs to 38. The recent low was 27 in mid June, down from more than 60 in December.

If rigs continue to rise, it is going to weigh on crude prices. Production in the U.S. has not declined significantly, only -145,000 bpd from the June highs. If production were to level off here or even climb the price of crude would fall sharply.


Short squeeze ahead! With the Dow down seven consecutive days there has to be a short squeeze of several hours to several days in our future. Markets simply do not go up or down continuously without a reversal to relieve the pressure.

Despite the current decline the Dow is only down -2.5% for the year while the Nasdaq is still up +6.5% and the S&P +1%. We are not yet in a correction but more than likely a portfolio restructuring process ahead of the September rate hike. It could turn into a correction but we are a long way off from that becoming a reality. The S&P has not even broken the lows from the prior week at 2063.

The 200-day average at 2073 was broken by -5 points intraday but came back in the afternoon after the American Express news broke and triggered some short covering. I would not count on it as support next week. The 2063-2065 lows from July 27th are the key. If we make a lower low, the odds are good we are going to also break the 2044 low from early July. While a rebound from that level would be nice, I would not count on it. You can set up a short-term trade if we begin to rebound from that vicinity but I would be quick on the exit trigger if the rebound rolls over.

There is a short squeeze in our future. You can count on it so do not get too bearish in your positions. I would look to sell any bounce rather than pile into bearish positions at this level.

The Dow was down for seven consecutive days but the Bullish Percent Index only declined -1%. This suggests the decline is more of a Dow decline than a market decline at this point. If this index breaks below 50% it could decline in a hurry. There are a lot of stocks right on the borderline between a bullish and bearish chart.

The Dow chart is again the most bearish. Support failed, resistance held, and Friday's close was a six-month low. More than half the Dow stocks are in correction and several others are close behind. The 50-day average is only 23 points away from closing below the 200-day average in what is called the death cross.

The next material support level is the range between 17,050-17,150 and the December-February lows. There is also the 17,130 support from July 2014. We really need for those supports to hold because the next level to test is the October lows back in the 16,000 range. We do not want to go there!

The Dow is in unsupported space and the path of least resistance is still down.

The Nasdaq lost -85 points for the week. That is remarkable when you consider it was down more than -100 points intraday on Thursday alone. Support at 5000 was close to being tested on Friday with the low at 5006. The 100-day average at 5036 was broken severely intraday but the rebound to close at 5043 put that support back into play. However, at this point I would not count on it. The big six Nasdaq stocks are no longer leading the market higher. Once the profit taking in those six is over then a new rebound may appear.

Apple firmed and was fractionally positive for the last two days at $115. Google is stuck on support at $660 but the intraday ranges are narrowing. That suggests a breakout in the near future but the direction is still uncertain. Netflix actually lost $3 on Friday but also remains stuck to the recent highs. There is lots of intraday volatility but the battle between buyers and sellers is not over.

Gilead finally cracked with the biotech sell off and shares fell from $120 to $114. Amazon fell from $540 to close at $522 and a two-week low. The selling was not heavy and I do not think it is over. Biogen struggled for 8 days to recover from $300 to $340 but most of those gains were erased over the last two days with a close at $309 on Friday.

The key level to watch next week is 5000 followed by 4950 and 4900. The 150-day average is 4958 and there converging support levels at 4900. Resistance would be Thursday's intraday high at 5062 and then 5100.

The Nasdaq cumulative advance/decline line is plunging toward levels not seen since October. The big caps may still be holding up the index but the number of declining stocks is accelerating. The percentage of Nasdaq stocks over their 200-day average has declined to 43.12%.

The Nasdaq 100 remains the best-looking chart simply because the tech big caps have been pulling the market higher. Support at 4485 was tested on Friday and uptrend support at 4520 captured the close. Until the big cap tech stocks breakdown completely the market still has a chance of recovery.

The small cap Russell 2000 chart is trouble. The Russell closed below multiple levels of support and could easily decline to 1150. The intraday low was exactly 1200 and that is the last line of defense before falling off the cliff. The support at 1206 was broken intraday but the index rebounded to cling to that level at the close.

Despite more than half the stocks in the S&P being in correction territory, the broader market is holding its gains. The Vanguard Total Stock Market Index ETF (VTI) remains locked in the sideways pattern and above support at $106. This ETF represents 3,814 stocks and is the broadest market indicator. We are not in a correction until this index breaks down.

If you want logic don't look in the stock market. Despite the longest consecutive streak of Dow declines since 2011 the bullish sentiment rose in the AAII Investor Sentiment Survey. Bullish sentiment rose +3.2% and bearish sentiment declined -9%. Neutral sentiment rose +5.8%.

Before your brain explodes on this seemingly contradictory data I will tell you that the survey cuts off on Wednesdays. This data is before the Nasdaq declined -100 points intraday on Thursday. I expect the survey published next Wednesday to be significantly different.

  This is the 19th consecutive week that bullish sentiment has been below its historical average of 38.8%. This is the longest streak since July 2012.

There is a short squeeze in our future. It may be Monday or later in the week but you can bet it is coming. The Dow is too oversold to continue much lower without either a downside capitulation event or a short squeeze or both.

As I stated earlier I would view a rebound as a potential entry point for new short plays or puts. The worry over a potential Fed rate hike with the economy growing at 2% or less and inflation actually declining is going to weigh on the markets. Be prepared for some additional volatility in both directions.

If you did not get the posts I made to the Option Investor Facebook page last week on Apple, Disney and Netflix, please like our page so you will receive the posts on specific stock events this coming week.

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Random Thoughts

Gold has declined for seven consecutive weeks. That is the longest losing streak since 1999. The recent range has been between $1,080 and $1,100 but the closer we get to a Fed rate hike the lower it is going to go. The strong dollar is killing the price along with low industrial demand. Gold coins are flying off the shelves at the U.S. Mint and the Canadian Mint. They cannot keep coins in stock. The same is true with silver coins. Gold is down -9% since the recent $1,205 high in June. Most analysts believe we will see $1,000 and some are expecting $980.

The first republican debate on Fox News drew a record shattering 24 million viewers. That was the highest number for any news show ever and the highest non-sports cable show ever. The "happy hour" debate with the 7 lowest ranked candidates drew 6.1 million viewers making it the third highest viewed primary debate ever on cable. Considering it started at 5:PM ET that is a huge rating.

In the 2012 election cycle, the most watched debate drew 7.63 million on ABC in December 2011. In the 2008 cycle the most watched was debate was 7.35 million on ABC on January 5th.

Investing turned out to be much harder than farming in China. Since the end of June 24 million new investors have already closed out their trading accounts. The number of retail investor accounts soared from almost none in early 2014 to 75 million at the end of June. The CICC said the number dropped to 51 million at the end of July.

Bank of America Merrill Lynch's Steven Suttmeier took a look at what happens when the S&P 500 fails to perform above its long-term average through the first half of the year. Source

A lackluster 2H tends to follow a lackluster 1H
The average S&P 500 return for the first half of the year (1H) going back to 1928 is 3.65%. The 1H 2015 return of 0.20% is well below average and a lackluster second half of the year (2H) tends to follow a sub-par 1H. The average 2H return is 3.90% with the S&P 500 up 66.7% of the time, but when 1H is below average, 2H is up 57.1% of the time with an average return of only 1.42%. When the 1H return is above average, the average 2H return is 6.22% with the market up 75.6% of the time.

This is a really good article about the economic forecast as projected by the Economic Research Council Institute (ECRI) and their Weekly Leading Index. It conflicts strongly with the Fed's forecast. I am not going to try and reproduce it here because there are several charts and they become unreadable if I shrink them down to fit this page. This is worth a read! Fed Collision Course

Monetary stimulus does not always work. The Bank of Japan said it was going to maintain its stimulus program at $640 billion a year. However, the Japanese economy contracted at an annual rate of -2% last quarter and inflation is on a path to turn negative. Negative inflation is called deflation and it is a lot harder to correct than inflation.

Apple is in the middle of its longest correction since the invention of the iPod. Apple hit its closing high of $133 on February 23rd. In the 164 days that have followed Apple shares are down -13.89%. Since the release of the iPod in October 2001 the stock has rallied roughly 10,000% from low single digits to that $133 level. Prior to this correction, the longest period was 124 days from February 2011 through June 2011.

China linked hackers attacked the systems of Sabre Corp (SABR), the travel reservations system created by American Airlines. Sabre was spun off from American in 2000. Chinese hackers previously targeted the systems of United Continental in early June. China has also been blamed for the attack on the Office of Personnel Management where personal information on 22 million people was stolen.

Intruders attacked a Pentagon email system used by the Joint Chiefs of Staff forcing the military to take it offline for up to two weeks to "cleanse" it of hacker code. The intrusion occurred around July 25th and appeared to be orchestrated by Russian state hackers. NBC news said the Russians were behind the "sophisticated cyber intrusion" which affected about 4,000 personnel. The attack came from a "spear-phishing" attack where someone inside the network clicked on a bogus link in a social media account that immediately collected information covering thousands of accounts and within a minute distributed that information to thousands of locations on the Internet.

In April Russian hackers broke into the Pentagon's unclassified network as well as the State Department and White House in the months prior to that attack.


Enter passively and exit aggressively!

Jim Brown

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"Age is a question of mind over matter. If you don't mind, it doesn't matter."

Leroy Robert Satchel Paige (1906-1982)


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Index Wrap

Rallies On A 'Short Leash'!

by Leigh Stevens

Click here to email Leigh Stevens

Retreats back to prior Closing lows hold more or less for now. Buying into prior chart/technical 'support' is normally a good idea, but it then takes actual sustained BUYING to see major index advances above prior rally peaks. As highlighted in my last week's comments, the Market has been in relatively narrow trading range over the past 9+ months in terms of the S&P 500 (SPX) Index; i.e., between 2050 and 2125. This isn't all that much in the major trend as there were 67 prior months of a gigantic SPX advance.

For a time I've been commenting on the S&P 500 Volatility Index (VIX) daily chart but nothing much is happening with VIX, as the Market continues to see mostly low volatility. I may resume a commentary on VIX when it actually makes much of a move. The lack of strong conviction on the part of would be buyers in a lackluster summer Market, coupled with limited selling/shorting, means that implied volatility is also not seeing big swings.

There's not much more to say about this Market from a technical standpoint. The Dow is weak and on long-term charts, its major up trendline suggests support in the 17000 area. Major support in the S&P 500 (SPX) comes in starting at 2050, extending to the low-2000 area.

Major support in the Nasdaq Composite (COMP) begins well under current levels, beginning around 4830, extending next to 4550; Friday COMP Close: 5043.

Bullish sentiment fell this past week into the beginnings of what are typically 'oversold' readings, which normally implies that traders may be getting 'too' bearish in their expectations. In this Market it may take prolonged bearishness before my sentiment indicator would suggest potential for a sustained rebound. Stay tuned on that!



The S&P 500 (SPX) chart is mixed in that the trend continues sideways. The prior Closing low has held for now, in the area of a 2/3rds retracement of SPX's July rally. I was confident that the early-July low was a tradable bottom and a good-sized rally followed. The next rally was short lived and I can't pretend to know what upside there is from the Friday Close at 2077. Perhaps back to the 2100-2110 area, which I've highlighted as current resistance.

Near support may have been reached at Friday's 2068 low, but prior chart analysis suggests 2065 as near support, extending to the 2052-2050 area. 2050 as noted in my initial bottom line comments above is a big deal, as a decisive downside penetration of 2050, particularly on a weekly Closing basis, would dip below the low end of SPX's 9-month trading range.

The S&P is not yet back to a 'fully' oversold reading in terms of the 13-day Relative Strength Index (RSI), but my 'sentiment' readings are showing a bearish 'extreme' on a rolling 5-day moving average basis. I have to go back to the important mid-October (2014) low to find as much trader bearishness on a 5-day basis, which in a contrarian sense may suggest a near-term rally. Stay tuned!


The S&P 100 (OEX) has the same 'mixed' sideways trending pattern as SPX. The 915 area again offered technical support as it had previously, although the intraday lows carried further given stop-loss selling and follow through bearishness from Thursday's rout. I liked the 915 area as a buy point before but this time wonder how far a rally, if any, from this area might carry this time.

The Market viewed technically is 'working off' the long-term overbought condition resulting from the 2009-2014 monster rally.

I've highlighted near support at 915, extending to the 910 area, with 900 as long-term weekly chart support, although a dip to as low as the 875 area would not pierce OEX's longer-term up trendline (not shown).

Near term resistance is seen at 930, extending to 935. No trading suggestions this week.


The Dow 30 (INDU) is otherwise these days appropriately called the 'dogs of the Dow'. You have to search hard for INDU components ones that are more or less resisting selling pressures; e.g., CSCO, GS, HD, JPM, NKE, PFE (mostly), UNH, and V. That's 8 bullish patterns of 30, which isn't a lot to write home about, unless these are the only stocks you own currently!

Financial stocks are well represented (JPM + GS) as a quarter of these aforementioned 8 still-bullish. Energy stocks of the Dow, CVX and XOM continue to get hammered, unsurprisingly given the slide in oil prices. It's a tough time to be a monster cap company but the small cap Russell ain't doing so well either!!

INDU can be represented as trading within a downward price channel as seen below. Support is highlighted as 17280, extending to 17200. Major support, based on the weekly chart uptrend channel (not shown) intersects currently in the 17000 area. It could take a further decline to this area to finish with the selling and portfolio weeding out process going on.

Resistance is suggested at 17500, with next resistance in the 17700-17760 area. INDU has fallen back into an 'oversold' RSI reading, at least on my 'default' 13-day setting. That plus a NYC subway token will get you into the downtown A train but may not get us a rally in the lagging sagging Dow 30!


The Nasdaq Composite (COMP) is holding up relatively well. While the retreat from the 5150 area did not lead to a new Closing low for the recent downswing, COMP did get a little closer briefly to the milestone 5000 level.

Initial technical support looks like it may again be found in the 5010-5025 zone representing the important 62-66% retracement zone, with next support at 5000, extending to around 4965.

Resistance is highlighted at 5100, extending to 5150-5175. COMP is not back to an oversold RSI extreme, but my (CPRATIO) 'sentiment' indicator is just entering that territory.

I suspect that there will be a further fall in bullishness or conversely, further bearishness among traders, before this Market is ready to mount a sustained rally overall; not just in the tech-heavy COMP and NDX.


Old saying about the rising or lowering tide raising or lowering ALL boats applies even to love affair with the big cap Nasdaq 100 (NDX) and all things internet and tech oriented.

NDX took a tumble, but is holding up the best of the major indexes. Note that tech bellwether CSCO, as mentioned above in my discussion of Dow stocks, remains in an uptrend. Evidence of 'relative strength' with the big cap Nas 100 is its 'mere' 50% retracement of its July rebound on a Close-only basis. A retracement of around half or 50% is a fairly typical retracement in stocks that are in uptrends.

A deeper 62-66 percent retracement could carry to technical support highlighted in the 4460 area, with support extending to around 4435. 4400 begins fairly major support, which extends to the July lows at 4344-4350. I doubt that NDX will see 4400 again, not unless NDX tech darlings get hit hard down the road. AAPL pierced key $120 support, but hasn't fallen like a stone either to date.

Overhead resistance is seen at 4550-4570, extending to the 4600 area. A sustained rally above 4600, with support on pullbacks to this level, is needed to suggest potential for another crack at 4700. Stay tuned! This August doesn't look like it's going to buck the seasonal bearish tendency in stocks, unlike last year.


The Nasdaq 100 tracking stock (QQQ) is of course going to follow the NDX so the outlook for a fast recovery rally is uncertain. Only the support and resistance levels need translating to QQQ.

Initial overhead resistance is at 111-11.4, with a next and pivotal overhang at 113.

Support is noted at 109.4, although immediate support may be found at 110 if the week ahead gets off to a more bullish start. Fairly major support begins at 108, extending to 107.4. 106 is major support.

No trading suggestions. I'd be looking at long positions if 108 was reached but that doesn't seem like an attainable downside target in the coming week. There's that big upside gap that would get 'filled in' at 108. Stay tuned on that!


The Russell 2000 (RUT) is trending lower within a broad downtrend channel currently. Anticipated support is highlighted at 1200, extending to 1190.

Near resistance is comes in 1240, extending to 1253-1260. RUT is oversold again in terms of the 13-day Relative Strength Index or RSI.

The Russell Index has also again reached my lower 'oversold' envelope line, set at 2.5 percent under the centered 21-day moving average. The last dip to implied 'support' at this lower envelope line resulted in a rally, but it was only for 30 points before RUT got slammed again.

From the 1200 area, upside might be to 1240 again but I'm not excited by the prospects of that bet if it could be realized. If I could buy calls at 1200 and risk to RUT 1185 it isn't a bad risk to reward if 1240 or higher is realized, but it's relatively small ball trading so to speak. Buying RUT puts at the last UPSIDE envelope extreme above 1290 was nicely profitable assuming an exit on this last dip!


New Option Plays

Four Quarters Of Lowered Guidance

by James Brown

Click here to email James Brown


Tupperware Brands - TUP - close: 57.15 change: -1.52

Stop Loss: 59.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 489 thousand
Entry on August -- at $---.--
Listed on August 08, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: Yes, see below

Company Description

Trade Description:
The Tupperware brand has been around for over 60 years. Yet the current version of the company was founded in 1996. They went public the same year. The stock market's huge rally off the 2009 bear-market lows saw shares of TUP surge from $11.00 per share to $97 by December 2013. Unfortunately that was the peak. TUP's stock has been sinking ever since.

TUP is in the consumer goods sector. According to the company, "Tupperware Brands Corporation is the leading global marketer of innovative, premium products across multiple brands utilizing a relationship-based selling method through an independent sales force of 2.9 million. Product brands and categories include design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware brand and beauty and personal care products through the Avroy Shlain, BeautiControl, Fuller Cosmetics, NaturCare, Nutrimetics and Nuvo brands."

It's easy to see why investors are selling TUP. The company has lowered its guidance four quarters in a row. The outlook seems to be getting worse. Revenues fell -5.2% in Q4 2014. They reported their 2015 Q1 results on April 22nd. TUP beat estimates but revenues were down -12%. They managed to beat the bottom line estimate in their Q2 report (July 22nd) but revenues were down -12.7%. Currently TUP management is expecting 2015 revenues to fall -10% to -11% from 2014.

The reaction to its Q2 results and lowered forecast sparked a sharp decline that pushed TUP to multi-year lows. There has been almost no oversold bounce. TUP tried to bounce last week and traders sold it pretty quick.

Shares displayed relative weakness on Friday with a -2.59% decline and a new multi-year closing low. The point & figure chart is bearish and forecasting at $44.00 target. Tonight we are suggesting a trigger to buy puts at $56.50. I'm listing the September puts but investors may want to go further out and give TUP even more time. There's no telling where the bottom might be.

Trigger @ $56.50

- Suggested Positions -

Buy the SEP $55 PUT (TUP150918P55) current ask $1.25
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 Slipped Again After Friday's Jobs Number

by James Brown

Click here to email James Brown

Editor's Note:

The July nonfarm payroll number was in-line with estimates and that fueled concern that the Federal Reserve could raise rates in September. Continued weakness in commodities also undermined investor confidence. The major U.S. indices posted declines across the board.

Prepare to exit our AAP play on Monday at the closing bell.

Current Portfolio:

CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 173.75 change: +1.01

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: +17.1%
Average Daily Volume = 1.0 million
Entry on July 23 at $170.25
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 13th
New Positions: see below

08/08/15: Traders bought the dip in AAP twice near $171.55 on Friday. The stock should rally if the market would cooperate. Shares managed to outperform the major indices on Friday with a +0.58% gain. Unfortunately we are almost out of time. AAP is scheduled to report earnings this week on August 13th (Thursday). Tonight I am suggesting we exit this trade on Monday, at the closing bell (August 10th).

Trade Description: July 18, 2015:
If you listen to financial media long enough you will eventually hear pundits talk about "bulletproof stocks". AAP just might be a bulletproof stock. The company has lowered its earnings guidance three quarters in a row and yet traders continue to buy the stock. Today AAP is hovering at all-time, record highs.

AAP is part of the services sector. According to the company, "Headquartered in Roanoke, Va., Advance Auto Parts, Inc., the largest automotive aftermarket parts provider in North America, serves both the professional installer and do-it-yourself customers. As of January 3, 2015, Advance operated 5,261 stores and 111 Worldpac branches and served approximately 1,325 independently owned Carquest branded stores in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. Advance employs approximately 73,000 Team Members."

There seems to be a divergence in the U.S. We are half way through 2015 and new car sales are surging. Dealers have already sold more than 8.5 million vehicles and the industry is on pace to challenge the all-time record of 17.4 million autos in one year. Yet the age of the average car on the road continues to climb. Next time you're stuck in traffic and all you see is a river of cars, bear in mind that the average car is now 11.4 years old. It's forecasted to 11.7 years old by 2019. Americans are keeping their car longer and longer (because most can't afford a new car). That's really good news for car part sales.

I mentioned AAP's earnings guidance earlier. AAP has actually missed Wall Street's bottom line estimates the last two quarters in a row. They have lowered their guidance three quarters in a row. On May 21st AAP reported its Q1 results of $2.39 per share. Revenues were up +2.3% to $3.04 billion. They lowered their fiscal year 2015 earnings guidance from $8.35-8.55 per shares down to $8.10-8.30. Analysts were expecting $8.51. AAP seems to be having a few issues digesting its acquisition of General Parts International, which took place in 2014.

Normally when a company lowers guidance the stock gets crushed. Yet traders keep buying the dips in AAP. Looking at the AAP's recent announcements there is an knee-jerk reaction gap down in their stock price and then shares of AAP immediately rebound. It's happened multiple times. You have to like that kind of resilience. You could say AAP is almost bulletproof.

The stock has been trading off technical support as it climbed from its May 2015 lows. Last week's breakout past resistance near $165.00 is very bullish. The point & figure chart is forecasting at $193.00 target. Odds are AAP will rally up to its earnings report on August 13th. We want to exit prior to the announcement.

- Suggested Positions -

Long AUG $175 CALL (AAP150821C175) entry $3.50

08/08/15 prepare to exit on Monday at the closing bell
08/01/15 new stop @ 169.75
07/25/15 new stop @ 165.85
07/23/15 triggered @ $170.25
Option Format: symbol-year-month-day-call-strike


Accenture plc. - ACN - close: 103.74 change: +0.64

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.1%
Average Daily Volume = 2.3 million
Entry on July 31 at $103.35
Listed on July 30, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/08/15: ACN displayed relative strength on Friday. Traders bought the dip near its rising 10-dma and shares rallied +0.6% versus a widespread decline in the market.

More conservative traders may want to raise their stop loss. I am not suggesting new positions at this time.

Trade Description: July 30, 2015:
Sometimes slow and steady wins the race. Patient investors have been rewarded in ACN. The stock is up +290% from its 2009 lows. Sales and earnings have also improved. From 2010 to 2014 ACN has seen revenues rise +38% and net income soar +54%. Year to date ACN is up +14%. The S&P 500 index is only up +2.4%.

ACN is in the technology sector. They're considered part of the information technology services industry. According to the company, "Accenture is a global management consulting, technology services and outsourcing company, with more than 336,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world's most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014."

A recent article on Investopedia.com noted that ACN is on a buying spree. "Since the beginning of 2015, Accenture has acquired nine other companies: smart grid company Structure, supply chain analytics company Gaspo, strategy consulting companies Axia and Javelin, Salesforce consulting services provider Tquila UK, digital design company Reactive Media, and digital solutions companies Agilex, Brightstep, and PacificLink Group. All of these acquisitions should strengthen Accenture's position in IT services against rivals like IBM and Infosys."

Last year ACN's earnings progress seemed to slow. Last September they reported their Q4 results that missed estimates by two cents. They beat the revenue number but guided lower. In December they beat analysts' estimates on both the top and bottom line but guided lower again. Guidance improved somewhat with ACN's 2015 Q2 report in March where the company beat estimates and guided in-line.

Their most recent report was June 25th when the company announced its 2015 Q3 results. Earnings were $1.30 per share, which was seven cents above estimates. Revenues were relatively flat (+0.4%) at $7.77 billion but that was significantly above expectations. New bookings last quarter were $8.5 billion. North American sales rose +12% on a local currency basis. Europe sales were up +7% while the rest of the world saw sales rise +13%. Management reaffirmed their fiscal year 2015 guidance and expect new bookings to be $33-to-$35 billion for the year.

The stock has been popping on its recent earnings reports. Then shares fade lower until they hit the long-term up trend and investors buy the dip. The up trend seems to be getting stronger. ACN recently broke out past round-number resistance at $100.00 and managed to hold this level during last week's market sell-off. Now ACN is poised to hit new highs. Tonight we're suggesting a trigger to buy calls at $103.35.

- Suggested Positions -

Long SEP $105 CALL (ACN150918C105) entry $1.60

07/31/15 triggered @ $103.35
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co - DIS - close: 109.35 change: +0.80

Stop Loss: 106.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.9 million
Entry on August -- at $---.--
Listed on August 05, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

08/08/15: Media stocks, specifically companies with cable TV businesses, were hammered lower this week. The industry lost more than $50 billion in market value in just two days. According to Forbes, investors are suddenly afraid of a major shift in consumer habits. TV and cable TV is losing viewers more rapidly than expected as more and more consumers view content online and thus "cutting the cord" with their cable TV providers. ESPN, with its dominant position in sports TV, was considered relatively bulletproof to this phenomenon but comments from DIS management this past week showed that even ESPN is not immune. That's the immediate fear. Investors reacted with a knee-jerk reaction to sell stocks like DIS and VIAB.

We still think the sell-off in DIS is way overdone. Shares managed to outperform the broader market on Friday with a +0.73% gain. Our suggested entry point to buy calls is unchanged at $111.65. More aggressive traders might want to consider jumping in early with a rally past $110.25 instead.

Trade Description: Disney on Sale, Buy Now

Disney (Nyse:DIS) reported earnings last night and beat the street with earnings of $1.45 compared to estimates for $1.42. Today shares are down -$11 to $110 and erasing 85 points off the Dow. This is a major buying opportunity.

Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There are no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

Analysts are claiming Disney shares could add 25% before the end of December because of their strong movie schedule and coming attractions. The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof.

Disney Movie Schedule (partial)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 29, 2016 - "Captain America: Civil War"
June 17, 2016 - "Finding Dory"
Dec. 16, 2016 - "Star Wars Anthology: Rogue One"
May 26, 2017 - "Star Wars: Episode VIII"
June 16, 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
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"

Disney was recently upgraded with a new price target of $150. The drop to $110 on Wednesday is a buying opportunity. Shares have risen from $90 in February to $122 on Tuesday. The $110 level is major support and should be bought. This is right at the 100-day average.

Tonight we are suggesting a trigger to buy calls at $111.65 with an initial stop loss at $106.85.

Trigger @ $111.65

- Suggested Positions -

Buy the OCT $115 CALL (DIS151016C115)

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


Starbucks Corp. - SBUX - close: 57.20 change: -0.03

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 7.2 million
Entry on August -- at $---.--
Listed on August 06, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

08/08/15: Traders bought the dip in SBUX a little bit sooner than expected. We were hoping to buy a dip at $56.00 but SBUX bounced at $56.51 on Friday.

We are leaving our buy-the-dip trigger at $56.00 active. That way if stocks retreat again on Monday we could be triggered. However, just in case SBUX displays relative strength and rallies we are adding a second trigger to buy calls at $57.65 too (or if you're willing to endure some intraday volatility you could launch positions on Monday morning instead of waiting for SBUX to hit one of these triggers).

Trade Description: August 6, 2015:
Investors seem spooked today. There was widespread selling and a lot of the profit taking was focused on recent winners. Tim Seymour, managing partner at Triogem Asset Management, said traders were "cutting their flowers and keeping their weeds" today. SBUX looks like one of those cut flowers and we want to be ready to catch it when it stops falling.

Here is tonight's trade 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.

SBUX is having a great 2015 so far with the stock up +39% (that's after today's -3.0% decline), outperforming the broader market. The stock accelerated following its Q1 2015 earnings results in January and again when they reported in April.

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.

The stock has been extremely resilient until today. We suspect that today's decline will see some follow through lower but investors will likely buy the dip at SBUX's up trend. Shares should find support in the $56.00 area. Tonight we are listing a buy-the-dip entry trigger at $56.00. We'll try and limit our risk with a stop loss just below the 50-dma (start at $54.40).

Buy-the-dip trigger @ $56.00 or buy on a rally at $57.65

- Suggested Positions -

Buy the OCT $60 CALL (SBUX151016C60)

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.

08/08/15 Added a second entry trigger to buy calls at $57.65 (in addition to our buy-the-dip trigger at $56.00)
Option Format: symbol-year-month-day-call-strike


Stryker Corp. - SYK - close: 100.94 change: -0.38

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -42.5%
Average Daily Volume = 1.1 million
Entry on July 29 at $102.15
Listed on July 28, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/08/15: We had a close call with our SYK trade on Friday. Shares were in sell-off mode Friday morning but managed to bounce at $99.88 around 10:30 a.m. Our stop loss is at $99.85.

SYK did post a loss for the week and snapped a four-week winning streak. I am not suggesting new positions at this time but we are not giving up on SYK yet.

Trade Description: July 28, 2015:
The healthcare sector has consistently delivered a strong bullish performance for the last three years in a row. When you think of healthcare you might think health insurance providers. They are not the only healthcare stocks in rally mode. Tonight's candidate is in the medical equipment and supplies industry.

According to the company, "Stryker is one of the world's leading medical technology companies and together with our customers, we are driven to make healthcare better. The Company offers a diverse array of innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine, which help improve patient and hospital outcomes. Stryker is active in over 100 countries around the world."

Late last year the company's earnings growth was lackluster at best but the company has turned things around the last couple of quarters. SYK reported their Q1 results on April 21st. They beat the bottom line estimate. Revenues were only in-line with estimates. Yet management raised the low-end of their 2015 sales and earnings guidance. You can see the reaction to the stock price in April.

Their most recent earnings report was July 23rd. Wall Street was expecting Q2 earnings of $1.17 per share on revenues of $2.41 billion. SYK beat both estimates with earnings growth of +11% to $1.20 per share. Revenues were up +2.9% to $2.43 billion. On a constant currency basis their sales were up +7.6%.

SYK management raised their organic growth forecast to +5.5% to +6.5%. They raised both their Q3 and 2015 earnings forecast above analysts' estimates. SYK now expects full year earnings in the $5.06-5.12 range versus consensus estimates at $5.03 per share. Analyst reaction has been positive with several price target upgrades into the $107-110 range. The point & figure chart is bullish and currently forecasting at $111.00 target.

We like how SYK displayed relative strength last week and resisted most of the market's sell-off (prior to their earnings report). The better than expected Q2 results launched SYK to new all-time highs. Traders bought the dip this morning and today is a new all-time closing high for SYK. Tonight we are suggesting a trigger to buy calls at $102.15.

- Suggested Positions -

Long SEP $105 CALL (SYK150918C105) entry $1.13

08/01/15 new stop @ 99.85
07/29/15 triggered @ $102.15
Option Format: symbol-year-month-day-call-strike


Teva Pharmaceuticals - TEVA - close: 70.32 change: -0.11

Stop Loss: 67.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
Average Daily Volume = 5.4 million
Entry on August 04 at $70.25
Listed on August 03, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/08/15: Traders bought the dip around two o'clock on Friday afternoon and TEVA pared its loss to 11 cents. Looking at the intraday chart I would use a rally past $70.60 as a new entry point to buy calls.

Trade Description: August 3, 2015:
The combination of M&A news and improving earnings results has been a win-win for shares of TEVA. The stock recently soared to new all-time highs on some key headlines in the last several days.

TEVA is in the healthcare sector. They're part of the drug manufacturing industry. According to the company, "Teva Pharmaceutical Industries Ltd. is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions to millions of patients every day. Headquartered in Israel, Teva is the world's largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area. In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. Teva integrates its generics and specialty capabilities in its global research and development division to create new ways of addressing unmet patient needs by combining drug development capabilities with devices, services and technologies. Teva's net revenues in 2014 amounted to $20.3 billion."

TEVA's most recent earnings report was July 27th. Analysts were expecting a profit of $1.29 per shares for TEVA's Q2 results. The company delivered $1.43 per share. Revenues fell -1.5% to $4.97 billion but that was actually better than expected. TEVA's management then raised their 2015 guidance from $5.05-5.35 per share to $5.15-5.40 compared to Wall Street's estimate at $5.21.

If beating earnings and raising guidance wasn't enough to drive the stock higher TEVA also announced major acquisition news. TEVA had been trying to buy British drug firm Mylan (MYL) with an unsolicited bid. Meanwhile MYL is trying to buy Perrigo (PRGO). MYL didn't seem interested in being acquired by TEVA and actually adopted a poison pill strategy to make it less attractive to hostile takeovers.

On July 27th TEVA announced they had dropped their bid for MYL and instead announced a deal to buy Allergan's (AGN) generic drug business for $40.5 billion. TEVA will pay $33.75 billion in cash and $6.75 billion in stock, giving AGN a 10% stake in TEVA. They expect the deal to close in the first quarter of 2016.

According to a Reuters article, "Teva, which will gain a portfolio of more than 1,000 products, forecast a double-digit boost to adjusted earnings per share in 2016 and a more than 20 percent benefit in years two and three after closing the deal. It expects cost synergies and tax savings of $1.4 billion annually by the third anniversary from efficiencies in operations, manufacturing, and sales and marketing."

Wall Street applauded the deal with AGN and shares of TEVA soared from $62 to $72 in a single day.

TEVA has continued its M&A with another story out today. This morning, before the opening bell, TEVA announced it will purchase a 51% stake in a privately-held, genomic-analysis company, Immuneering Corporation. According to the press release "Immuneering uses advanced proprietary techniques to identify hidden signals and biological insights across an array of genetic, genomic, and proteomic data that can direct research for enhanced discovery, development and clinical success." The two companies have worked together before. Financial terms were not disclosed.

The AGN deal has gotten Wall Street's seal of approval. Several analyst firms have upgraded TEVA since then with multiple price target upgrades including: $82 from Deutsche Bank, $82 from Argus, $85 from RBC, $85 from Morgan Stanley, $86 from Citigroup. Just today J.P.Morgan restarted coverage on TEVA with an "overweight" and an $82 target. The point & figure chart is bullish and forecasting a long-term target of $98.00 for TEVA.

Shares of TEVA saw a $4.00 pullback but traders have started buying the dip. We want to hop on board if this bounce continues. Tonight we're suggesting a trigger to buy calls at $70.25.

- Suggested Positions -

Long SEP $70 CALL (TEVA150918C70) entry $2.02

08/04/15 triggered @ $70.25
Option Format: symbol-year-month-day-call-strike


Under Armour, Inc. - UA - close: 97.93 change: -0.26

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
Average Daily Volume = 2.3 million
Entry on July 28 at $97.55
Listed on July 27, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/08/15: Thursday's profit taking in UA wasn't enough. Shares continued to sink on Friday and fell to $96.33 intraday. UA spent most of the day consolidating sideways inside the $96.50-98.00 zone. The fact that shares bounced on Friday and closed near their highs for the session is encouraging for Monday but I am not suggesting new positions at this time.

Trade Description: July 27, 2015:
UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitness platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it's actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA reported their 2014 Q4 results on February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

There was a steady stream of analysts raising their price targets on UA after its February earnings report. The company's most recent earnings report was April 21st when UA announced Q1 results. After raising guidance back in February the company reported earnings of $0.05 per share, which was in-line with Wall Street's new estimates. Revenues were up +25.4% to $804.9 million, which beat expectations.

UA management raised their outlook again. They expect 2015 operating income to improve +13-to-15%. UA expects 2015 revenues to rise +23% to $3.78 billion.

The company delivered a repeat performance when they did it again with their Q2 earnings on July 23rd. Analysts were expecting a profit of $0.05 per share on revenues of $761.7 million. UA beat both estimates with a profit of $0.07 per share. Revenues were up +28.5% to $783.5 million. Management raised their 2015 revenue guidance from $3.78 billion to $3.84 billion. That's above analysts' estimates of $3.83 billion.

Wall Street reacted to UA's Q2 report with a wave of price target upgrades. Several firms upped their target on UA into the $105-114 range. Naturally the stock rallied on this bullish earnings report and the analyst outlook. The stock soared past resistance near $90.00. More importantly UA has managed to maintain these gains in the face of a widespread market sell-off. We like that kind of relative strength.

Tonight we are suggesting a trigger to buy calls at $97.55. We'll try and limit our risk with an initial stop loss at $93.65.

- Suggested Positions -

Long SEP $100 CALL (UA150918C100) entry $2.66

08/06/15 new stop @ 95.65
08/01/15 new stop @ 94.65
07/28/15 triggered @ $97.55
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 63.30 change: +0.11

Stop Loss: 65.25
Target(s): To Be Determined
Current Option Gain/Loss: +56.9%
Average Daily Volume = 2.0 million
Entry on July 24 at $66.80
Listed on July 23, 2015
Time Frame: Exit PRIOR to earnings in late September
New Positions: see below

08/08/15: Most of the market traded lowered on Friday as investors reacted to the jobs data. Yet BBBY ignored the market's widespread decline. Shares just drifted sideways inside a narrow range.

More conservative traders may want to adjust their stop loss lower again. I am not suggesting new positions at this time.

Trade Description: July 23, 2015:
This year is not shaping up very well for bullish investors in BBBY. The stock is down -11.6% year to date. The trouble started with its earnings report back in January.

If you are not familiar with BBBY they are in the services sector. According to the company, "Bed Bath & Beyond Inc. and subsidiaries (the "Company") is a retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in store, online or through a mobile device.

The Company has the developing ability to have customer purchases picked up in store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, food service, healthcare and other industries.

Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. Shares of Bed Bath & Beyond Inc. are traded on NASDAQ under the symbol "BBBY" and are included in the Standard and Poor's 500 and Global 1200 Indices and the NASDAQ-100 Index. The Company is counted among the Fortune 500 and the Forbes 2000."

On January 8th BBBY reported its 2014 Q3 results. Earnings were in-line with estimates but revenues missed. Management lowered their same-store sales guidance. The stock plunged the next day. A few weeks later BBBY had managed to recover but the rally failed producing a bearish double top.

The trouble continued in April. BBBY had rallied up into its earnings report and then disappointed. Their 2014 Q4 results were in-line with estimates at $1.80 a share. Yet revenues missed estimates again. They lowered their Q1 guidance. The stock plunged the next day.

On June 24th BBBY reported earnings of $0.93 per share. That was down -1% from a year ago and a penny worse than expected. Revenues were only up +3% to $2.74 billion, which met expectations. Yet comparable store sales were +2.2% when Wall Street was expecting +2.5%. Management lowered their Q2 guidance. Guess what happened the next day? Yup, the stock dropped. Traders immediately sold the bounce and BBBY now has a clearly defined bearish trend of lower highs and lower lows. One has to wonder how bad would BBBY's Q1 results have been had the company not spent $385 million buying back stock last quarter?

In summary, BBBY has been missing Wall Street's revenue or earnings estimates the last three quarters in a row. They have warned twice and same-store sales are disappointing. Technically shares have broken down below multiple layers of support. The company is more of a home furnishing store so back to school season may not give them much of a boost. The point & figure chart is bearish and forecasting at $60.00 target. The last few days have seen some support near $67.00. We are suggesting a trigger to buy puts at $66.80.

- Suggested Positions -

Long NOV $65 PUT (BBBY151120P65) entry $2.55

08/06/15 new stop @ 65.25
08/01/15 new stop @ 66.25
07/25/15 new stop @ 67.65
07/24/15 triggered @ $66.80
Option Format: symbol-year-month-day-call-strike


Hess Corp. - HES - close: 55.92 change: -0.89

Stop Loss: 59.05
Target(s): To Be Determined
Current Option Gain/Loss: +47.2%
Average Daily Volume = 2.8 million
Entry on August 03 at $58.21
Listed on August 01, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/08/15: It looks like the oversold bounce in energy stocks is already rolling over. Crude oil fell yet again on Friday to close at new relative lows. Meanwhile, after a big bounce on Thursday, energy stocks rolled over. HES managed to trade up to $57.74 before reversing lower.

Tonight we are adjusting our stop loss on HES down to $59.05. No new positions at this time.

Trade Description: August 1, 2015:
The price of crude oil has fallen more than 50% in the last year. It's wreaking havoc on energy company earnings and revenues. Unfortunately the outlook is not very bullish. The global economy is stalling. China, the biggest buyer of commodities, is growing at multi-year lows. The U.S. is creeping along at +2% GDP growth while oil inventories in the U.S are near 80-year highs. The Middle East OPEC cartel is pumping a high-volume of oil, regardless of price declines, to maintain market share. OPEC is hoping to pressure the U.S. fracking industry out of business but it's not working. U.S. production remains resilient and near record highs.

If that wasn't enough the Federal Reserve is desperate to raise interest rates and would like to raise in September. Rising interest rates usually boost a country's currency. If the Fed does raise rates the U.S. dollar should rally even further. A rising dollar puts downward pressure on commodity prices. This paints a bearish picture for crude oil prices.

Given this outlook for crude we're adding a bearish play in the energy industry. HES is part of the basic materials sector. They explore and produce crude oil, NGL, and natural gas. The company operates in the United States, Denmark, Equatorial Guinea, Malaysia/Thailand, and Norway.

The plunge in oil prices has killed HES' revenues. They reported their 2014 Q4 results on January 28th this year and revenues were down -18.7%. Their Q1 report came out on April 29th and revenues fell -40%. On July 29th HES reported their Q2 results. Wall Street was expecting a loss of ($0.72) per share. HES came in better than expected with a loss of ($0.52) but that was a big drop from a profit of $1.38 a year ago. Revenues plunged -46% from $3.58 billion down to $1.93 billion.

The company is seeing strong production gains. Their Q2 production came in better than analysts expected at 391,000 barrels of oil equivalent per day. Yet this positive news couldn't outmatch the revenue declines. The oversold bounce in HES' stock failed pretty quickly. The long-term trend is down and the point & figure chart is forecasting at $52.00 target. We suspect HES is about to start on another leg lower. Tonight we're suggesting a trigger to buy puts at $58.65.

- Suggested Positions -

Long SEP $57.50 PUT (HES150918P57.50) entry $2.31

08/08/15 new stop @ 59.05
08/05/15 new stop @ 60.25
08/03/15 triggered on gap down at $58.21, trigger was $58.65
Option Format: symbol-year-month-day-call-strike


WESCO Intl. - WCC - close: 56.88 change: -1.32

Stop Loss: 59.35
Target(s): To Be Determined
Current Option Gain/Loss: +26.3%
Average Daily Volume = 592 thousand
Entry on August 05 at $58.40
Listed on August 04, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/08/15: The weakness in WCC accelerated again on Friday. Shares underperformed the broader market with a -2.2% decline. The stock is down five days in a row. We should expect an oversold bounce but I'd look for short-term resistance in the $58-59 area. Tonight we are adjusting the stop loss down to $59.35.

Trade Description: August 4th, 2015:
The combination of currency headwinds and a slowing global economy has created a rough environment for WCC's business. Revenues are falling and the strong dollar only makes it worse.

WCC is in the services sector. According to the company, WESCO International, Inc. (WCC), a publicly traded Fortune 500 holding company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating ("MRO") and original equipment manufacturers ("OEM") products, construction materials, and advanced supply chain management and logistic services. 2014 annual sales were approximately $7.9 billion. The Company employs approximately 9,400 people, maintains relationships with over 25,000 suppliers, and serves over 75,000 active customers worldwide. Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers and utilities. WESCO operates nine fully automated distribution centers and approximately 485 full-service branches in North America and international markets, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations.

Looking at some recent earnings reports from WCC the company has missed Wall Street's bottom line estimate three times in a row. Prior to their Q4 earnings report (January 29th), the company issued an earnings warning for their fiscal 2015 on December 17th.

WCC's Q1 report was April 23rd. They missed the EPS number by 10 cents. Revenues were only up +0.3% to $1.82 billion but that missed estimates. Mr. John J. Engel, WESCO's Chairman and Chief Executive Officer, stated, "We had a challenging start to the year where reduced demand in the industrial market, winter weather impacts, and foreign exchange headwinds weighed heavily on our results in the first quarter. While organic sales per workday grew 3%, sales momentum decelerated through the quarter. Gross margin was down versus prior year but was flat sequentially."

Following their Q1 report WCC management lowered their 2015 guidance again from $5.20-5.60 a share down to $5.00-5.40 per share.

The situation worsened in the second quarter. WCC reported its Q2 numbers on July 23rd. Analysts were expecting a profit of $1.15 per share on revenues of $1.97 billion. WCC only delivered $1.00 per share (a -15 cent miss) and revenues plunged -4.4% to $1.92 billion. The company said their normalized organic sales fell -3.0% and foreign exchange hit them for another -3.0%. They also suffered from falling margins while expenses rose. That's not a good recipe.

Following the Q2 numbers, Mr. Engel, stated, "Our second quarter sales declined 4% reflecting continued foreign exchange headwinds and weakness in the industrial market as well as a slow seasonal start in the non-residential construction market." Management lowered their 2015 forecast yet again. This time from $5.00-5.40 down to $4.50-4.90.

The forecast for WCC is bearish and the stock is getting hammered. Shares are trading at two-year lows. It's hard to say where the next support level is. The point & figure chart is forecasting at $44.00 target. Tonight we are suggesting a trigger to buy puts at $58.40.

- Suggested Positions -

Long SEP $55 PUT (WCC150918P55) entry $0.95

08/08/15 new stop @ 59.35
08/05/15 triggered @ $58.40
Option Format: symbol-year-month-day-call-strike