Option Investor

Daily Newsletter, Tuesday, 8/11/2015

Table of Contents

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

Market Wrap

Currency War

by Jim Brown

Click here to email Jim Brown

China fired the first shot in what could be a global currency war by devaluing their currency -1.9% overnight. That was the biggest drop in more than 20 years. Now the rest of the emerging markets will be pressed to devalue in order to remain competitive.

Market Statistics

This was the biggest one-day drop in the yuan since China ended the dual-currency system in January 1994. The PBOC said this was a one-time adjustment and future changes would be more aligned with supply and demand. They said the yuan exchange rate will now be quoted by market-makers "who will have to consider the prior day's closing spot rate, foreign-exchange demand and supply, as well as changes in major currency rates." This is a major change from the official government fix in a very narrow band. It effectively will allow the value of the yuan to trade on a market value basis.

China is currently suffering from the deepest economic decline since 1990. The government is struggling to maintain a grip on the financial system as the economy crumbles. The recent efforts to shore up the stock market showed they really had no grasp of the magnitude of the problem. Now that ineptitude is on display in the broader market. The yuan declined -1.8% to close at 6.3231 to the dollar in Shanghai.

Over the weekend, China said July exports fell -8.9% and imports declined -8.6%. China maintains the economy is still growing at a 7.0% GDP but the drop in commodity demand as well as those trade numbers above suggests reality is a lot worse.

By reducing the value of their currency, it will make their exports cheaper and increase demand. It also makes imports more expensive and will slow demand. This is the real problem. The emerging markets are very intertwined in the import/export arena. By devaluing the yuan it means South Korea, Taiwan, Singapore, Malaysia, etc will be forced to devalue their currencies to compete with China. Basically China fired the first shot in a currency war and now we could see a race to the bottom as other countries try to remain competitive by weakening their own currencies.

There is a serious worry that Japan will further weaken the yen in order to compete by increasing the $640 billion in annual QE.

Bloomberg Chart Source

In the bigger picture, this will increase deflationary pressures all around the world. This one move will probably not keep the Federal Reserve from hiking rates in September but future rate hikes will depend on the intensity of the currency war at that time and the strength of the dollar.

In addition to the drop in the yuan the Chinese government is expected to lower interest rates again this quarter, which will be the fifth cut over the last year, and lower lender reserve requirements to put more money into circulation.

One factor not getting much play today is the future of the yuan as a global reserve currency. China has been trying to get the yuan accepted by the IMF as a reserve currency equal to the dollar, euro, mark, franc and pound. Getting the yuan accepted by the IMF would be a major gain for China and a blow to the other currencies. Since a large portion of global trade is in goods flowing to and from China it would immediately make the yuan a more accepted currency and reduce the dependence on the dollar and others in world trade.

In order to be accepted by the IMF as a reserve currency the yuan must be "freely usable" and the exchange rate cannot be fixed. The IMF recently told China the yuan had to be more flexible in order to be considered. Apparently, China is moving in that direction with this daily market oriented fixing process. Mohamed El-Erian believes this is a play on getting the yuan accepted as a reserve currency with Special Drawing Rights (SDR with the IMF. Analysts believe the acceptance of the yuan as a SDR reserve currency could see more than $1 trillion flow into yuan denominated assets. That is a huge move since it means $1 trillion would flow out of other reserve currencies like the dollar.

"IF" the yuan is actually going to be allowed to float the direction of that initial float is not likely to be higher. China has kept the yuan artificially high for years. That means a sudden change to a floated currency could see that artificial support eroded over the next few months. It is like a stock that had a major buyer building a position at some specific dollar amount. As long as that buyer continues to buy at that level the stock will remain flat. Once that buyer completes his position the market will take over and shares will be able to seek their own level. China is stepping away from supporting the yuan but it is not likely to be a one-day event. They will probably continue to manage the price by intervening in the currency markets by purchasing the yuan if the market value begins to slip. They cannot keep this up forever but it may prevent any sudden swings over the next few weeks.

However, according to Mark Chandler from Brown Brothers, in the offshore markets the yuan continued to decline overnight by another -2%. Depending on how they fix the price at the open on Wednesday (9:PM tonight) there could be another big decline in the yuan and another ripple effect in emerging market currencies. This yuan news may linger for the rest of the week as the price finds its level in the market.

Not that anyone was watching but there were some positive economics this morning. The Wholesale Trade report for June showed a gain of +0.9% in wholesale inventories. This was well over the estimates for +0.4% and the +0.6% in the May report. Nondurable inventories rose +2.3% while durable goods rose only +0.1%. Durable goods sales declined -1.1% while nondurable sales rose +1.2%. This report could influence a small bump in the Q2 GDP.

The Productivity and Costs report for Q2 showed a rise in hourly output for nonfarm businesses of +1.35% after two quarters of declines. Q1 was revised higher from -3.1% to -1.1% and Q4 declined -2.2%. Compensation per hour rose +1.8%. Manufacturing output per hour rose +2.5% with compensation per hours up only +0.2%.

The NFIB Small Business Survey showed that the optimism index rose from 94.1 to 95.4 for July. Seven of the ten components advanced. This small gain only recovered a minor part of the -4.2 point decline in June. The earnings trends component declined from -17 to -19 and a four-month low. Those expecting the economy to improve rose from -9 to -4 and a slight improvement although still negative. That means a net -4% expect the economy to decline. Hypothetically that would look like 52% expected a decline and 48% expected it to improve. Only the net number is shown.

There are no economic reports of note for Wednesday. The retail sales report for July on Thursday morning is the most important report for the week followed by the PPI on Friday.

The Chinese devaluation crushed dozens of stocks that derive a large portion of their revenue from China. Leading the list with a -$6.20 decline was Dow component Apple (AAPL). That erased 48 points from the Dow and completely obliterated the +$4.25 gain from Monday. YUM Brands (YUM) lost -5% because they derive a majority of their income from stores in China. I think that is overdone since they source their food from inside China to sell in China. The only impact will be repatriating the profits in dollars.

BHP Billiton (BHP) gets 35% of its income from China and shares fell -5%. Rio Tinto (RIO) get 38% of its revenue from China and shares declined -4%. Micron (MU) gets 20% of its revenue there and declined -5%. Wynn Resorts (WYNN) gets 70% of its revenue from China and declined -4.3%.

GoPro (GPRO) was crushed with a -9% loss. I do not know their percentage of Chinese revenue but China is a big market for their high dollar cameras. This will raise the price of those cameras and slow sales.

One stock that did not decline was Google (GOOGL). Late Monday Google announced it was restructuring into a holding company format with the main company called Alphabet. Google shares will still be publicly traded and earnings will be broken out from the other Alphabet companies. Under the Google umbrella will be Google Search, Google Play, YouTube, Google Maps, Android and Google AdSense. Those are the components that make money.

Under the Alphabet banner will be Google Capital, Google X, Google Fiber, Google Nest, Google Ventures and Calico among other things like self driving cars and moonshots. These are the companies that don't make any money.

Google has been criticized a lot in the past for lumping all the "toy" projects in with the revenue generators like Google search. It is hard to know how much Google is really worth since a lot of the expenses were coming from the toys.

Starting in Q4 the Google companies related to search and Android will be broken out from the rest of the Alphabet operations. This will allow Google to be valued based on the market metrics rather than a guess at what the entire bag of tricks was worth.

Shares are still going to trade under the GOOG and GOOGL symbols. All shares of Google will automatically convert into an equal number of shares of Alphabet and retain the same rights. The ticker symbols do not change.

Analysts believe this will enable Alphabet to acquire new businesses and spin off existing ones as needed. They also believe this will increase spending for "revolutionary" ideas while Google itself pays the bills.

Analysts were quick to upgrade the company and provide new price targets.

Cowen & Co, outperform rating, raised target from $775 to $840.

Susquehanna, initiated with a "positive" rating, price target $800.

William Blair, outperform, no target mentioned.

Cantor Fizgerald, buy rating, price target $720.

Deutsche Bank, buy rating, target raised from $780 to $840.

Goldman Sachs, kept at neutral, price target $660.

Morgan Stanley, neutral, target $650.

Pivotal research, hold, target $620.

Pacific Crest, overweight, price target $745.

Stifel, upgrade to buy, increased target to $850.

Earnings were muted today with only a couple high profile companies. Symantec (SYMC) reported earnings of 40 cents on $1.5 billion in revenue. Analysts were expecting 43 cents and $1.52 billion. The company also announced it was selling the Veritas information management business to The Carlyle Group for $8 billion in cash. They expect to receive about $6.3 billion in net proceeds that will be put back to work in their core businesses. Symantec has previously announced plans to split into two companies later this year. The company also announced a $1.5 billion increase in its share buyback program. Those shares are 7% cheaper today after the post earnings sell off.

Fossil (FOSL) slumped -4% in the regular session before reporting earnings after the bell. Shares declined another -6% in afterhours after reporting an earnings beat but a revenue miss. The company also lowered guidance for full year revenue to a range of -1% to +3% growth.

ICU Medical (ICUI) reported an earnings beat after the bell on Monday. Earnings of 97 cents beat estimates of 69 cents. The company raised full year guidance to a range of $3.49-$3.69 with revenue at $327.5 million. Shares spiked +18% on the news.

Zebra Technologies (ZBRA) was mauled by the bears after reporting earnings that missed estimates. Zebra posted earnings of $1.05 compared to estimates for $1.18. Revenue of $890 million beat estimates for $885 million. The company guided for Q3 earnings of $1.23 and analysts were expecting $1.41. Shares fell -24% on the news.

There are two high profile earnings events for Wednesday. Alibaba (BABA) will report before the open and options volatility suggests a $6 post earnings move. The consensus estimate is for earnings of 57 cents. Alibaba still has a 1.2 billion-share lockup expiring on September 20th. I would short any big post earnings rally.

Cisco Systems (CSCO) will report after the bell. The consensus estimate is for earnings of 56 cents.

Crude prices declined -4% on the China headlines and news from OPEC. The cartel said they produced 31.5 million barrels per day in July, up +100,700 bpd from June. This is the highest level since the Iranian sanctions were tightened in 2012. Saudi Arabia said it cut production in July but third party sources show they produced 10.352 mbpd. Iraq raised production by 46,700 bpd to 4.074 mbpd. Angola raised production 39,700 bpd to 1.777 mbpd. Iran, a country that is theoretically constrained on exports increased production 32,300 bpd to 2.861 mbpd.

Going the other direction was Libya declining -37,800 bpd to 373,000 bpd. They have the capability to produce 1.3 million bpd if they could end the civil war.

OPEC increased its demand outlook for 2016 by 100,000 bpd to 94 mbpd. They expect 2016 demand to grow by 1.3 mbpd compared to an increase of 1.5 mbpd in 2015. OPEC said rising demand in the coming months should gradually reduce the imbalance in supply and demand. The cartel said supplies from outside OPEC are expected to rise 90,000 bpd in 2015 and then decline -40,000 bpd in 2016. Non-OPEC suppliers are expected to raise output by 960,000 bpd in 2015 to 57.46 mbpd.


Ignore today. This was a headline generated panic that has no real bearing on the overall market. While the yuan cloud will hang over the global economy for several weeks the net impact to the U.S. economy will be minimal. Some companies will see lower earnings in future quarters because of the currency translation issue but life will go on.

In the weekend newsletter, I suggested a short squeeze was imminent. We saw that on Monday and the rebound on the major indexes was right to resistance. Today's decline ended at 1:PM with the Dow down -263 points. The reversal was not strong but it was broad. I looked at hundreds of individual charts and the vast majority had decent rebounds in the afternoon.

Today was the perfect opportunity for the bears to take control and they could not push the S&P below Friday's close. Intraday the Monday gains were erased but the rebound from 2077 showed me that buyers were ready and sellers lacked enough conviction to press to a new low.

This was a headline day and nothing more. If the S&P can push back over 2100 and maybe even test 2110 in the coming days then the seller onslaught has been broken. However, as we have seen numerous times over the last several months the markets cannot seem to mount a credible rally other than a one-day short squeeze.

Assuming there are no new headlines overnight I would expect another short squeeze at the open on Wednesday. Obviously, that can be halted by numerous factors but none are visible as I write this commentary.

Resistance is 2100 and 2110 with support at 2077.

The Dow was dragged lower to a -263 point intraday loss by Apple, Goldman, Disney, Caterpillar and 3M. I do not know why Goldman was in that mix of Chinese casualties but it did contribute to the losses.

The Dow declined to 17,350 before managing a +55 point rebound. The Dow remains the weakest index and should continue that performance because nearly all the components are international and will be further hurt by the rising dollar and decline in emerging market currencies. More than half of the Dow components are in correction territory.

Resistance remains 17,600-17,775 and support at 17,300.

The 50-day average crossed below the 200-day on Tuesday. That is called the "death cross" and it an age old sell signal. Time will tell.

The Nasdaq nearly retraced to Friday's low of 5,006 with a low today of 5,013. The afternoon rebound recovered 25 points to end with a -65 point loss. As long as the support at 5,000 remains unbroken the market will eventually recover. A break below that level could trigger a new wave of selling.

Resistance remains 5,100.

The Russell 2000 was a duplicate of the other indexes. The lows of the day were equal to the close on Friday and the afternoon rebound recovered about one-third of the losses. As long as the 1,200 level holds on any further retests we should be fine. Should that level break the next support is 1,150.

The afternoon rebound suggests we could see additional bargain hunting on Wednesday. Should that occur the ranges from Friday and Monday should control our fate. Resistance is strong at 2100-2110 on the S&P and 17,600-17,775 on the Dow.

In the weekend commentary I suggested using any short squeeze as an entry point for short positions. The gap down open today would have been very profitable for anyone following that recommendation. If we return to those resistance levels and fail again I would repeat that strategy. There is no reason for the market to move significantly higher in the short-term.

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Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Record Profits and Relative Strength

by James Brown

Click here to email James Brown


Lennox Intl. - LII - close: 121.43 change: +0.44

Stop Loss: 117.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 427 thousand
Entry on August -- at $---.--
Listed on August 11, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Record profits and relative strength have made a recipe for new highs in LII. Shares have been outperforming the market with a +27% gain year to date.

LII is in the industrial goods sector. According to the company, "Lennox International Inc. is a global leader in the heating, air conditioning, and refrigeration markets."

The company has beaten Wall Street's earnings estimates in three of the last four quarterly reports. Although according to the IBD, LII's Q3 earnings miss was the first drop in three years.

LII's most recent report was July 20th when they announced their Q2 results. Earnings were up +22% from a year ago to $1.84 per share, which was three cents above estimates. Revenues improved +3.3% to $992.5 million, also better than expected. Management raised their full year 2015 earnings guidance.

LII's Chairman and CEO Todd Bluedorn offered bullish comments on his company's performance,

"Lennox International posted record profits in the second quarter with margin expansion across all three of our businesses. Total segment profit margin for the company expanded 120 basis points from the prior-year quarter to a record 13.5%. In our Residential business, we hit record revenue, margin and profit levels. Residential revenue was up 6% at constant currency, and margin expanded 190 basis points to 18.0%. In Commercial, segment profit reached new highs while revenue and margin set second-quarter records. Commercial revenue was up 10% at constant currency, and margin expanded 80 basis points to 17.0%. North America national account business resumed growth as expected, with revenue up high single-digits, and we continued to see success in non-national account business with mid-teens revenue growth. In Refrigeration, revenue was up 4% at constant currency, driven by high single-digit growth in North America. Refrigeration margin ticked up 10 basis points to 7.2%, including headwinds from negative foreign exchange and the mid-2014 repeal of the carbon tax on refrigerant in Australia."
The stock market rewarded LII shareholders with a huge pop from about $107 to $116 on this earnings news. Shares have been very resilient since this earnings announcement. Investors have been buying the dips and LII has avoided a lot of the market's volatility.

Yesterday LII managed to breakout from its post-earnings sideways consolidation and rally past resistance near $120.00. LII displayed relative strength again today. The point & figure chart is bullish and forecasting at $136.00 target. Tonight we are suggesting a trigger to buy calls at $121.60.

Trigger @ $121.60

- Suggested Positions -

Buy the SEP $125 CALL (LII150918C125) current ask $1.65
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

Chinese Currency Devaluation Fuels Slowdown Fears

by James Brown

Click here to email James Brown

Editor's Note:

Overnight the Chinese government surprised the global markets by devaluing their currency. The yuan saw its biggest one-day drop in several years. This rattled the market as it reinforced fears of a hard landing for China's economy.

GPRO has been removed.

We have added another entry trigger to the DIS trade.

Current Portfolio:

CALL Play Updates

Accenture plc. - ACN - close: 103.58 change: -1.62

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

08/11/15: Stocks reversed lower on Tuesday and ACN followed with a -1.5% decline. Shares settled on short-term support at the simple 10-dma. If shares don't bounce here we can look for potential support near $102.00.

More conservative traders may want to raise their stop loss.

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: 108.00 change: -3.00

Stop Loss: see below
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 October option expiration
New Positions: Yes, see below

08/11/15: Shares of DIS were hammered pretty good today. The stock gave back most almost double yesterday's bounce. We don't see any good reason for the relative weakness. However, if this pullback continues we want to take advantage of it. Tonight we are adding a secondary entry point.

We're adding a buy-the-dip trigger at $106.00. With this entry point we'll adjust the stop loss to $103.00 and the option strike to the October $110 call.

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, stop @ $106.85

- Suggested Positions -

Buy the OCT $115 CALL (DIS151016C115)

- or -

Buy-the-dip Trigger @ $106.00, stop @ $103.00

- Suggested Positions -

Buy the OCT $110 CALL (DIS151016C110)

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: 56.35 change: +0.08

Stop Loss: 54.40
Target(s): To Be Determined
Current Option Gain/Loss: +9.5%
Average Daily Volume = 7.2 million
Entry on August 10 at $56.00
Listed on August 06, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

08/11/15: The stock market's big drop today temporarily pushed SBUX below its trend line of support. Fortunately shares bounced at $55.24 and ended the day back in positive territory.

If you're still looking for an entry point I suggest waiting for a rally past $56.60.

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).

- Suggested Positions -

Long OCT $60 CALL (SBUX151016C60) entry $0.63

08/10/15 triggered on a dip at $56.00
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: 101.82 change: -0.37

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -20.4%
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

08/11/15: SYK fell enough this morning to fill the gap higher from yesterday. Once the gap was filled shares began to bounce and trimmed their loss to just -0.3% versus the S&P 500's -0.95% loss.

No new positions at the moment.

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: 69.60 change: -0.20

Stop Loss: 67.45
Target(s): To Be Determined
Current Option Gain/Loss: -22.8%
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

08/11/15: TEVA did a pretty good job at ignoring the market's big drop today. Shares continued to drift sideways in a relatively narrow range.

I am not suggesting new positions at this time.

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: 99.10 change: +0.34

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +16.5%
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

08/11/15: Like SYK above, UA shares filled the gap from Monday morning and began to bounce. Shares managed to show relative strength with a +0.3% gain on the day most of the market was down.

No 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: 63.84 change: -0.16

Stop Loss: 65.25
Target(s): To Be Determined
Current Option Gain/Loss: +43.1%
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

08/11/15: Don't be fooled by the decline in BBBY today. Shares actually displayed some relative strength. BBBY only lost -0.25% versus the NASDAQ's -1.27% drop.

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: 57.89 change: -0.55

Stop Loss: 59.05
Target(s): To Be Determined
Current Option Gain/Loss: -4.3%
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

08/11/15: Another big drop in crude oil weighed on energy stocks this morning. Yet HES managed to pare its losses by the closing bell. I suspect that we could see HES rallied into the $58.50-59.00 zone before rolling over again.

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

Tupperware Brands - TUP - close: 55.63 change: -2.10

Stop Loss: 59.35
Target(s): To Be Determined
Current Option Gain/Loss: +22.2%
Average Daily Volume = 489 thousand
Entry on August 11 at $56.50
Listed on August 08, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

08/11/15: The sell-off in TUP resumed with a -3.6% plunge to new multi-year lows. Our trigger to buy puts was hit at $56.50. Broken support in the $56.50-57.00 area should now be new overhead resistance.

Trade Description: August 8, 2015:
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.

- Suggested Positions -

Long SEP $55 PUT (TUP150918P55) entry $1.35

08/11/15 triggered @ $56.50
Option Format: symbol-year-month-day-call-strike

WESCO Intl. - WCC - close: 57.26 change: -0.76

Stop Loss: 59.35
Target(s): To Be Determined
Current Option Gain/Loss: +5.3%
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

08/11/15: WCC kept pace with the market's decline and fell -1.3%. Hopefully this ends the oversold bounce but I would hesitate to launch new positions at the moment.

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


GoPro, Inc. - GPRO - close: 59.13 change: -5.61

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 6.2 million
Entry on August -- at $---.--
Listed on August 10, 2015
Time Frame:
New Positions: see below

08/11/15: Wow! Talk about your dramatic reversals. Yesterday GPRO ended the session poised to breakout to new six-month highs. Today shares collapsed with a -8.6% plunge and a breakdown below support near $60.00.

Why did GPRO fall so sharply today? The best excuse was China's currency devaluation. This makes GPRO's already expensive cameras even more expensive and thus will likely impact sales in China.

It is possible that this is just a one-day, knee-jerk overreaction. GPRO might be worth keeping on your radar screen and watch it the rest of this week. Tonight we are removing GPRO as an active candidate.

Trade did not open.

08/11/15 removed from the newsletter, suggested entry was $65.55