Option Investor

Daily Newsletter, Tuesday, 9/1/2015

Table of Contents

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

Market Wrap

Risk Off

by Jim Brown

Click here to email Jim Brown

Markets rolled over after hovering at resistance for two days. Japan, China and U.S. economics were blamed but it was more than likely just a normal correction continuation.

Market Statistics

The overnight sell off was started by news out of Japan. Capital spending by Japanese companies fell -1.8% in Q2. This reflects a slowdown in demand because of the first sales tax increase in 17 years. Corporate revenue and profits also fell an estimated -3.2% as the economy continued to deteriorate. Preliminary GDP estimates for Q2 showed a contraction of -6.8%. The revised estimates are due out next week. Mizuho Securities is predicting a decline of -7.9%. The prior week a report showed consumer spending declined -5.9% year over year for July. All of this negative data is coming from a country that is in the middle of a massive QE program and debt is now 230% of GDP.

The central bank has been buying 8-12 trillion yen in Japanese bonds every month and they have nearly exhausted the market supply. That equates to an average of $83 billion in QE purchases every month. The Mizuho Research Institute said the QE purchases could continue until 2020 in an unimaginable accumulation of debt. I have said multiple times in the past, "Japan is a bug in search of a windshield" and that windshield could be here sooner rather than later.

Obviously, with the economic data showing an accelerating decline in the economy the concerns are increasing over an eventual disaster. Since Japan is the third largest economy in the world, the implications are clear. If Japan's economy collapses, it will be a global event. The Federal Reserve will need to factor in the new Japanese forecast before they hike rates.

The Japanese Nikkei declined -3.84% on Monday and odds are good it will see new lows in the days ahead.

As if the Japanese data was not bad enough China's manufacturing sector fell into contraction with the government Purchasing Managers Index (PMI) falling from 50.0 to 49.7 for August. Government numbers are seen as questionable and having the official number fall into contraction is an admission that conditions are worse than reported. In a private survey by Markit/Caixin that is seen as more reliable the PMI declined from 47.8 to 47.3. That is a 6.5 year low and it is accelerating to the downside. Analysts are expecting China's GDP to grow by 6.4% rather than the official government projection of 7.0%. Some analysts are actually expecting the "real" GDP to be closer to 5% growth.

When the China PMI numbers were released, it was just one more weight on the overnight futures. The Shanghai Composite Index declined only -1.23%, which was remarkable since the Chinese government said it was no longer going to support the market. The month long effort to buy securities as a form of market support cost China's regulatory agency more than $200 billion and the market continues to make new lows. The regulator said it would focus on bringing parties to justice that were working against the government. Translated that means short sellers and any institution that is not holding the required number of securities mandated by government demands over the last month. The government has instructed firms, funds, large investors, etc to buy securities over the last month in an effort to support the market. Those efforts failed.

When the U.S. economic reports began to flow, they were not much help. The ISM Manufacturing for August declined from 52.7 to 51.1 for the second consecutive drop. That is the lowest reading since June 2013. New orders declined from 56.5 to 51.7 and production fell from 56.0 to 53.6. However, backorders rose slightly from deep in contraction territory at 42.5 to 46.5. That is the third consecutive month in contraction and is a good projection of what the headline number will look like in the months ahead. A lack of backorders suggests a weak manufacturing cycle.

New export orders declined from 48.0 to 46.5 and the fourth consecutive monthly decline. The strong dollar is reducing sales and with the emerging market currencies in free fall, it should only get worse.

Ten of the 18 manufacturing industries reported growth but six were in contraction with two neutral. Customer inventories rose a whopping +9 points to 53 and high inventory levels suggest a slowdown in customer sales and a potential drop in future orders. If customer inventories are too high because of slow sales they will not reorder. Eighteen percent of respondents said inventories were now too high compared to only 10% in July.

I warned about this report last week after several of the regional surveys showed unexpected declines into contraction territory. This ISM report is national and shows the manufacturing sector as a whole is weakening.

The Intuit Small Business Employment Index declined -0.02% and the first decline since 2011. That percentage equals a loss of -5,000 jobs by small businesses. The recent high was 0.13 in May, which declined to 0.11 in June and 0.04 in July. Small business employment has now declined for three consecutive months.

The Texas Service Sector Outlook Survey for August declined from 7.9 in July to 2.1 and a three-month low. The revenue component dropped nearly 10 points from 19.1 to 9.3. Employment declined from 10.1 to 6.1 and hours worked declined from 5.3 to 2.3. The index of future business activity (optimism) declined from 20.6 to 9.1.

On Monday, the Texas Manufacturing Outlook Survey dipped farther into contraction from -4.6 in July to -15.8 in August. New orders declined from barely positive at +0.7 to well into contraction at -12.5.

Clearly the economic conditions in Texas are slowing just as we have seen in New York and other Fed regions. While Texas manufacturing is contracting, the service sector is not yet into contraction but rapidly approaching that level. This is more than likely the result of the slowdown in the energy sector.

The only positive report for the day came from the auto sector. Sales for August rose to a seasonally adjusted annual rate of 17.8 million units. That is the highest rate since July 2005. Sales of light trucks rose to 57% and a ten-year high. This is undoubtedly a result of the lower gasoline prices convincing consumers to upgrade their class of vehicle. The light truck category includes models like surburbans, SUVs, etc. Sales of imported vehicles rose from 3.5 to 3.9 million. Chrysler had the biggest individual gain from 2.0 to 2.2 million units. Chrysler light truck sales rose +10% but auto sales declined -16% over August 2014. Overall, dealers sold 5% fewer imported cars but 28% more imported trucks. Overall 2015 sales are expected to exceed 17.1 million and the best year since 2001.

Wednesday will be a big day for economics. The ADP Employment will be the key in the morning and a material deviation from the forecast for 205,000 new jobs could dramatically impact the markets. A weak number could add to fears about the slowing U.S. economy. A strong number would increase the chances for a September rate hike. While the ADP number is not the official number the Fed watches it is a predictor of what to expect from the Nonfarm Payroll report on Friday. It is a preview of things to come.

The Fed Beige Book on Wednesday afternoon is another trouble spot. If conditions n the 12 Fed regions deteriorated over the last month then a September rate hike is probably off the table. Conversely if conditions improved, which would be a shock given the weak manufacturing reports, it would increase the chances for a rate hike.

One of the big stories for this week came from the oil sector. Crude oil rebounded from the prior week low of $37.75 to $49.30 at Monday's close for a 30% gain. The motive power that continued last week's short squeeze was talk about potential talks. Putin and Venezuelan president Maduro were going to meet in China on Wednesday to talk about stabilizing oil prices. Both Russia and Venezuela are large producers that have suffered significantly from the drop in oil prices. Venezuela is begging OPEC to call an emergency meeting to cut production. Since Venezuela cannot meet its current production quotas because of economic problems in the country, they want everyone else to cut production so prices will rise. Venezuela has nothing to lose and everything to gain. China is a major oil consumer and has loaned Venezuela billions of dollars which is being repaid with oil.

Nothing will come from the talks by those three countries. China is benefitting from the low oil prices because they are a big importer. It is not in China's best interest to see prices return to higher levels. Russia needs every dollar it can generate and is not going to cut production regardless of whether there is a joint agreement with OPEC to do so. Russia will claim it has cut and continue to pump at full speed. Remember, Russia did not invade Ukraine. Those Russian soldiers were on vacation according to Putin.

Crude prices collapsed -$4.04 or -8% during the regular session and WTI has declined another -$1.31 in the afterhour's session. Energy equities imploded with the rest of the market on the drop in crude prices.

Wynn Resorts (WYNN) declined another -5% after news that gaming revenue in Macau declined -35% in August. That is the 15th consecutive monthly decline. Wynn gets 72% of its revenue from Macau. WYNN shares closed at a new five-year low.

Netflix (NFLX) was knocked for a -8% loss despite Bank of America raising the price target to $133. The company said it was not renewing the content agreement with Epix when the deal expired at the end of September. The deal with Epix was not exclusive and the same movies were also available on other services. Starting on October 1st all the Epix movies will be available on Hulu. Netflix said it was going to allocate the money previously spent on the Epix content to developing additional original content for Netflix subscribers. Also, starting in 2016 Netflix will have exclusive rights to all the Disney content including Pixar, LucasFilm and Marvel productions. Think of the legions of children that will be downloading Star Wars movies for years to come.

This looks like another buying opportunity for Netflix investors. A drop to $101 would be a bargain.

GoPro (GPRO) hit a five-month low at $42.09 with a -6% drop on no news. The market correction is crushing all the momentum stocks that led the market to its recent highs. China could be a problem for GoPro because they do expect to sell a lot of cameras into that market. However, their manufacturing operations benefit from the cheaper yuan. It is hard to tell if the decline is over since the $38-$40 level was support in March. The low today was $42 and that could be a buy point for those traders that want to be early. I would buy it tomorrow with a stop loss at just under $38.

Ambarella (AMBA) reported earnings after the bell. The company reported earnings that rose +138% to 88 cents and beat estimates of 80 cents. Revenue rose +89% to $84.2 million. Analysts were expecting $81.7 million. However, the company guided for the current quarter to revenue of $90-$93 million, up +39% at the middle of that range. That was just short of analyst estimates for $92.3 million. The company said wearable camera revenue in Q3 would be down slightly because GoPro released their new model earlier than normal and pulled sales into the prior quarter. Historically that bump has come in Q3.

Last week there were rumors that Qualcomm (QCOM) may be considering entering the camera chip market and shares of AMBA declined sharply. Analysts said investors overreacted because neither Sony or Qualcomm could compete with Ambarella technology. Shares of AMBA declined to $81 in afterhours. I would look for a bottom to form in AMBA and I would be a buyer around $75.

The Biotech sector was a major drag on the Nasdaq the last two days after it failed at the resistance of the 200-day average. Biotechs have had a rocky period since the July high. Despite several mergers and attempted mergers it looks like investors are less excited than they were over the last year when the sector gained +83% from April 2014 through March 2015. I am sure the glory days will return but there needs to be some consolidation at this lower level in order to build a base.


Today's decline was textbook perfect for a rebound failure at resistance. Monday's lackluster session with a -115 point Dow decline was the actual failure. Today was a continuation that was accelerated because of the China/Japan headlines.

In theory, the rebound from the prior week's lows should have happened regardless of the headlines. We went from very oversold into a short squeeze relief rally and once that momentum faded we should have rolled over to begin the retest of the lows.

That is the typical pattern for an August/September correction. The process should take weeks to complete. However, the first two weeks of September normally have a positive bias. That could be erased by the pending FOMC meeting.

We always need to remember that historical trends are interesting to compare but they are never a guarantee. We need to trade what we see rather than what we expect to see. If the two happen to match then we should be happy campers.

Art Cashin has been warning for several weeks that cash on hand at mutual fund companies is at historic lows. That means a lot of redemptions will require the funds to sell stocks rather than redeem out of the cash balance. Art said if the decline today caused a lot of fund holders to put in redemption requests it will turn into market on close sell orders for Wednesday.

I would expect a lot of investors were shell shocked by last week's events. When the rebound occurred, they were calmed to some extent. When this week started out negative and then accelerated to the downside, it may have prompted quite a few to put in their redemption requests. Tomorrow afternoon we will see the results if that actually happened.

The S&P fell -58 points to close at 1,914 after hitting an intraday low of 1,903. The 1,920 level was seen as a potential support point and it held for a couple hours but finally collapsed near the close. Resistance is now around 1,928 and 1,940.

The lows from last week were 1,867 on Monday and Tuesday. We do not have to actually hit that low for a retest. Any decline and rebound from the 1,885 to 1,900 range would qualify and there may be some aggressive traders already placing their long bets in that range.

Tonight I am expecting a rebound at the open, assuming we are not hit by another round of negative headlines and that includes the ADP Employment report at 8:30. What happens after that opening rebound is going to be critical. I am sure the shorts loaded up again on today's decline and we could see another squeeze if there are no headlines to spoil the day.

All 30 Dow components were negative and most of the losses were big. The Dow was down nearly -550 points at 3:40 and was rescued by some market on close buy orders. The low was 15,979 or just slightly under 16,000. That 16,000 level should be decent support even though it was pierced last week. The high intensity plunge on Monday declined to 15,370 so we are nowhere near those lows. However, the closing low was 15,666 on Tuesday and that would be a support point.

There is nothing to prevent the Dow from continuing its decline. Half of the Dow stocks are in a bear market and most of the rest are down more than -10%. Until the individual stocks find their own support levels, the Dow should remain the weakest index. The Dow stocks are international companies and they have the most exposure to global economic weakness.

I would look for 15,780 to come back into play as minor support if the 16,000 level breaks.

The Nasdaq was crippled by some huge losses in the big cap momentum stocks. Google, Amazon, Netflix, Priceline, etc. The index lost -140 points and finished very close to its lows. There were no headlines specifically targeting tech stocks. There were simply more sellers than buyers and the momentum stocks were the ones getting sold.

Support is 4600, 4545 and 4500. Resistance would be the morning highs at 4715.

The small cap Russell 2000 had been the best performing index until today. The -2.7% decline was right in line with the big cap declines and there was no last minute buying in the small caps. They sold off from the open right through the close.

The decline back below 1150 is a sell signal and support may not appear until 1105 followed by 1050.

S&P futures are up slightly as I write this commentary and suggest a positive open. However, there is a lot of darkness before the dawn and anything can happen. Even if we do have a positive open we have seen market gains erased in minutes over the last two weeks. Because of the big decline today, I would expect some additional margin selling on Wednesday and we could have mutual fund selling at the close.

This rebound and fade scenario suggests we could retest the lows at some point in the weeks ahead. While that is not mandatory, it is typical for this calendar period. Remember to trade what you see rather than what you expect to see.

Investors with retirement accounts saw their net worth cut in half in the financial crisis. Then they were shocked again by the flash crash. Now the headlines are screaming global recession. I would not be surprised if a lot of potential retirees are calling in their sell orders to go to cash rather than face a potential 50% haircut once again. Be prepared for continued volatility in both directions.

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Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Rolling The Dice Again

by James Brown

Click here to email James Brown


Wynn Resorts Ltd. - WYNN - close: 70.99 change: -4.06

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.7 million
Entry on September -- at $---.--
Listed on September 1, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

Company Description

Trade Description:
We recently traded WYNN as a bearish play. The bounce from last week's lows stopped us out on Friday, which was unfortunate since WYNN has continued to show relative weakness and plunged to new multi-year lows this week. We believe WYNN still has much further to fall as the company's Macau-region revenues plunged -35% in August. The Chinese weakness shows no signs of slowing down.

What follows is an updated version of our bearish trade description for WYNN:

Updated Bearish Trade Description:

Casino stocks have been a bad bet this year. CZR, LVS, and MGM are all down for the year. One of the biggest losers in the group is WYNN. Shares of WYNN are down -52% in 2015. The bear market started last year. Shares of WYNN peaked just below $250.00 in early 2014 and now they're down -70% from the highs. The catalyst for this dramatic decline is a plunge in gaming revenues from Macau.

WYNN is in the services sector. According to the company, "Wynn Resorts, Limited, owns 72.2% of Wynn Macau, Limited (www.wynnmacaulimited.com), which operates a casino hotel resort property in the Macau Special Administrative Region of the People's Republic of China. The Company also owns and operates a casino hotel resort property in Las Vegas, Nevada.

Our Macau resort is a resort destination casino with two luxury hotel towers (Wynn Macau and Encore) with a total of 1,008 spacious rooms and suites, approximately 280,000 square feet of casino space, casual and fine dining in eight restaurants, approximately 57,000 square feet of retail space, and recreation and leisure facilities, including two health clubs and spas and a pool.

Our Las Vegas operations (Wynn Las Vegas and Encore) feature two luxury hotel towers with a total of 4,748 spacious hotel rooms, suites and villas, approximately 186,000 square feet of casino space, 34 food and beverage outlets featuring signature chefs, an on-site 18-hole golf course, meeting space, a Ferrari and Maserati dealership, approximately 96,000 square feet of retail space, two showrooms, three nightclubs and a beach club."

Problems in Macau

The problems started in June 2014. China launched a nationwide crackdown on corruption. This had a huge impact on how many government officials decided to vacation and gamble in Macau. The region also saw a drop in other high rollers not wanting to be seen tossing money around. Plus the Chinese government enacted harsh no-smoking rules in Macau. There was a direct impact on gambling revenues that is still being felt today.

WYNN reported its 2015 Q1 results on April 28th. Analysts were expecting a profit of $1.33 per share on revenues of $1.17 billion. The company delivered a profit of $0.70 (big miss) and revenues plunged -27.8% to $1.09 billion. Its Macau revenues were down -37.7%. Management also announced they were reducing their quarterly dividend.

We looked at playing WYNN as a bearish candidate back in June after several bearish analyst calls on the gambling companies with exposure to Macau. A Sterne Agee analyst noted that table-only gross gaming revenues in Macau were down -46% from a year ago in the first week of June. They estimate that June 2015 will see Macau gambling revenues fall -33% to -38%. June is on track to be the 13th monthly decline in gambling revenues and the tenth month in a row of double-digit declines.

A Susquehanna Financial Group analyst also warned that the region could suffer further declines. There are rumors of an complete smoking ban and there seems to be no let up on the government's anti-corruption efforts. Meanwhile a Wells Fargo analyst is forecasting June gambling revenues in Macau to plunged -30% to -40% to about $2 billion. This would be the lowest monthly total in more than four years.

The stock saw a big bounce in early July on an upgrade but the rally didn't last. WYNN reported its Q2 results on July 29th. Analysts were forecasting $0.97 per share on revenues of $1.07 billion. WYNN missed both estimates with a profit of $0.74 as revenues plunged -26% to $1.04 billion. Their Macau business saw revenues drop -35.8%.

Believe it or not but shares of WYNN saw a relief rally on this earnings news. Maybe investors were expecting even worse numbers. Yet the rally failed the very next day. That's because the situation in Macau hasn't changed.

I mentioned earlier that WYNN's Macau revenues for August fell -35% from a year ago. August is the 15th month in a row of declining revenues for the casino industry.

The recent headlines regarding the Chinese government's devaluation of their currency (the yuan) could be a clue that their economy is slowing down faster than expected. That's bad news for the casino business. If the Chinese economy is retreating it would seem unreasonable to expect a recovery in the gambling business.

Traders should note that WYNN can be a volatile stock. The most recent data listed short interest at 13% of the relatively small 80.8 million share float. It looks like bears have the right idea. It could be a long time before gambling recovers in Macau.

What to watch for:

I also want to warn readers that this is an aggressive trade for technical reasons. WYNN is extremely oversold. On the weekly chart (see below) the stock is nearing potential support at the bottom of its bearish channel. Now that channel does not guarantee a bounce. WYNN could break through it or it could follow the lower boundary. I do want investors to be aware of it.

The last few days have seen WYNN churn sideways in the $70-80 range. Tonight we are suggesting a trigger to buy puts at $69.85. Where WYNN bottoms is anyone's guess. The stock hasn't been this low since 2010. Looking at its trading in 2009 you could argue for potential support at $60, at $50, or $30. The bear-market bottom from early 2009 was near $15.00 a share. We are planning to exit prior to October option expiration. WYNN reports earnings in late October.

Trigger @ $69.85 *caution - WYNN is a volatile stock*

- Suggested Positions -

Buy the OCT $65 PUT (WYNN151016P65) current ask $3.40
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Plunge Around The Globe (Again)

by James Brown

Click here to email James Brown

Editor's Note:

The first trading day of September started on a sour note. The Japanese NIKKEI fell -3.8%. China's Shanghai dropped another -1.2%. European markets were down between -2.4% and -3.0%. Most of the U.S. fell about -3% today.

It appears to be the same old story. Worries about China's economy, an global economic slowdown, and if the Fed will raise rates in September were all used as excuses to sell.

Our new bearish play on JACK was triggered this morning.

Current Portfolio:

CALL Play Updates

The Walt Disney Co. - DIS - close: 99.51 change: -2.37

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -16.7%
Average Daily Volume = 8.5 million
Entry on August 27 at $101.35
Listed on August 24, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/01/15: The stock market suffered another rough day. Most of the market fell -3% or more. DIS managed to stall its losses at -2.3%. Unfortunately the close below the $100.00 mark is short-term bearish for DIS. The next support level could be $95.00.

Wall Street is probably under pricing the impact of DIS' new Star Wars properties. DIS spent $4 billion buying Star Wars from George Lucas. The first movie out this December (SW#7, The Force Awakens) is expected to do about $1.5 billion at the box office. An article from The Hollywood Report is forecasting the episode 7 could generate $5 billion in consumer merchandise sales. Now factor in that DIS has plans for another six Star Wars movies over the next decade.

I am not suggesting new positions at this time.

Trade Description: August 24, 2015:
We are bringing DIS back. The sell-off from its August high has been extreme. At its low today near $90.00 DIS was down -26% from its high. The retreat offers a lot of opportunity. Jump to the bottom of this play update for our entry point strategy.

Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off in DIS stock has continued thanks to a global market meltdown.

We think this pullback in the stock is way overdone. 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"

The four-week drop in DIS' stock has sent shares back to their 2015 lows. During the panic this morning investors bought the dip at round-number support near $90.00 (FYI: the February 2015 low was $90.06). When the market bounced DIS rallied more than +10% only to stall at round-number resistance at $100.00. DIS closed right in the middle of this $90-100 trading range today.

We want to be ready no matter what direction DIS moves. That's why we are listing two different entry point strategies.

Our first plan is to buy calls on a dip at $91.00 should DIS dip toward today's low. The second entry trigger is to buy calls on a breakout at $101.00 since the $100 level was resistance.

We are not listing a stop loss tonight. The market volatility has been extreme. The intraday moves in the market are a little ridiculous and nearly impossible to trade around if you're not glued to your screen and day trading. You can manage your risk by limiting your position size. We'll add a stop loss once the dust settles, likely in a couple of days.

- Suggested Positions -

Long OCT $105 CALL (DIS151016C105) entry $2.52

08/27/15 triggered on gap open at $101.35, suggested entry was $101.00
Option Format: symbol-year-month-day-call-strike

Facebook, Inc. - FB - close: 87.23 change: -2.20

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +271.4%
Average Daily Volume = 27.3 million
Entry on August 24 at $77.03
Listed on August 20, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/01/15: FB was not immune to the market's weakness today as shares fell -2.4%. The trading in FB was interesting. Shares gapped open lower at $86.85 and dipped to $86.50, which is where traders bought the dip. FB rallied back above $89.39 and essentially filled the gap from this morning. At that point FB rolled over and traded back down to Tuesday's low at $86.50 before paring its losses at the close.

It would appear that $86.50 is very, very short-term support. Below that I would look for potential support at $85.00.

No new positions at this time.

Trade Description:
Facebook needs no introduction. It is the largest social media platform on the planet. As of June 30th, 2015 the company reported 1.49 billion monthly active users and 968 million daily active users. If FB were a country that makes them the most populous country on the planet. China has 1.35 billion while India has 1.25 billion people.

Earlier this year (March) the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

Meanwhile business at FB is great. According to IBD, FB's Q4 earnings, announced in January, were up +69% from a year ago. Revenues were up +49%. The company released their Q1 results on April 22nd. Earnings were up +20% to $0.42 per share, which beat estimates. Revenues were up +41.6% to $3.54 billion in the first quarter.

FB's Q2 results, announced July 29th, were also better than expected. Earnings were $0.50 per share, which was three cents above estimates. Revenues surged +39% to $4.04 billion, above expectations. Daily active users were up +17%. Mobile daily active users were up +29%. Monthly actives were up +13%. Wall Street expects income to surge next year with +12% profit growth in 2015 but +32% profit growth in 2016.

FB continues to see growth among its niche properties. The company bought Instagram for $1 billion in 2012. Last late year Instagram surpassed Twitter with more than 300 million active users. FB is also a dominant player in the messenger industry with more than 600 million users on WhatsApp and 145 million users on Facebook Messenger.

FB has not yet started to truly monetize its WhatsApp and Messenger properties. It's just now starting to include ads in Instagram. Eventually, with audiences this big, FB will be able to generate a lot of cash through additional advertising. On the subject of Instagram advertising, FB just released the advertising API for the photo-sharing service in August 2015. The API or application programming interface will allow third-party marketers to plug into the system to buy advertising. Instagram could soon rival Google and Twitter for the online ad market. According to EMarketer, Instagram will surpass Google and Twitter for U.S. mobile display ad revenue by 2017.

Since we are talking about advertising, this year has seen FB jump into the video ad market with both feet and it's off to a strong start. FB claims that it's already up to four billion video views a day. They had 315 billion video views in Q1 2015. That's pretty significant. YouTube had 756 billion video views in Q1 but YouTube has been around for ten years (FYI: YouTube is owned by Google). FB has only recently focused on video.

Wall Street is growing more optimistic as FB develops its blooming video ad business, its Instagram business, and messaging properties. In the last several weeks the stock has seen a number of price target upgrades. Bank of America upped their FB price target from $95 to $105. Cantor Fitzergerald upped theirs to $100. Brean Capital raised theirs to $108. Piper Jaffray upgraded their FB target to $120.

After surging to new highs in mid July shares of FB had been consolidating sideways in the $92-99 zone. The stock broke down through the bottom of that trading range today with a -4.98% plunge toward technical support at the simple 50-dma. The broader market looks very vulnerable right now with the S&P 500, the NASDAQ composite, and the small cap Russell 2000 all piercing key support levels with today's sell-off. If this market weakness continues we want to take advantage of it.

Stocks tend to overreact to big market moves, especially to the downside. FB is no exception. When traders panic they sell everything. We want to be ready to buy FB when it nears support. Prior resistance near $85-86 should be new support. Tonight we are suggesting a buy-the-dip trigger to buy FB calls at $85.50. If triggered we'll start with a stop at $81.40, just below the simple 200-dma.

- Suggested Positions -

Long OCT $90 CALL (FB151016C90) entry $1.05

08/27/15 Zuckerberg announced that FB hit a new milestone - one billion people used FB in a single day.
08/24/15 Strategy Update = remove the stop loss. Expect more volatility
08/24/15 Trade opens. FB gapped down at $77.03.
08/22/15 Adjusted entry point. FB missed our buy-the-dip trigger at $85.50 by a few cents on Friday. We want to buy calls at the opening bell on Monday morning, August 24th.
Option Format: symbol-year-month-day-call-strike

iShares Russell 2000 ETF - IWM - close: 111.90 change: -3.30

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: -8.7%
Average Daily Volume = 31 million
Entry on August 25 at $114.05
Listed on August 22, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/01/15: The IWM just erased the Thursday and Friday gains from last week. The ETF gapped down at $113.11 and closed with a -2.8% loss. Shares look headed for the recent lows near $110.00-109.50.

No new positions at this time.

Trade Description: August 22, 2015:
Stocks are getting crushed. Worries about a slowing Chinese economy worsened this week. This China concern combined with uncertainty about the Federal Reserve raising rates was enough of a catalyst to spark a serious sell-off. The U.S. market just experienced its worst weekly decline in more than four years.

Friday's action looks like a capitulation sell-off. Volume soared. It was the heaviest volume day of the year. Most of that volume was down volume. The S&P 500 posted zero new highs on Friday. All ten sectors were in the red. The two-day (Thursday-Friday) decline has pushed all of the major U.S. indices into negative territory for 2015 (although the NASDAQ composite is only -0.6% year to date).

The Dow Jones Industrial Average and the NASDAQ-100 index are both in correction territory, which is a decline of more than -10% from its highs. The small cap Russell 2000 index also hit correction territory on Friday. The tone on Friday was fearful with the volatility index (VIX), a.k.a. the fear gauge, soaring +46% to a new high for 2015. One CNBC commentator described the action on Friday as investors just "puking" up stocks to get out of the market.

According to 18th century British nobleman Baron Rothschild, "The time to buy is when there's blood in the streets." We think Friday's market sell-off qualifies as a "bloody" day for stocks.

Did you notice that the Dow Industrials, the NASDAQ composite, and the S&P 500 were all down -3.1% (or worse) but the small cap Russell 2000 index was only down -1.3% on Friday? This relative strength is a reflection of investors' fears. If China is the bogeyman then no one wants big multi-nationals that do a lot of business overseas. Small cap companies tend to be more U.S. focused. They do less business overseas and should have less exposure to China or a rising U.S. dollar.

Tonight we are suggesting a bullish trade to buy calls on the IWM, which is the small cap Russell 2000 ETF. The afternoon peak on Friday was $116.66 for the IWM. We are suggesting a trigger to buy calls if the IWM trades at $116.85 or higher.

Please note that this is just a trade. We are not calling a bottom for the stock market. On a short-term basis stocks are very oversold and due for a bounce. The big cap indices (S&P 500, NASDAQ, and Dow Industrials) all closed on their low for the day. Normally that's a bearish indication for the next trading day. There is a very good chance that stocks see another spike lower on Monday morning before bouncing. That's one reason why we are suggesting a trigger to buy IWM calls on a bounce.

- Suggested Positions -

Long NOV $115 CALL (IWM151120C115) entry $4.15

08/25/15 Trade opened this morning. The IWM gapped higher at $114.05
08/24/15 Adjust Entry Strategy = new entry = buy IWM calls at the opening bell tomorrow (Tuesday, August 25th). No stop loss at the moment.
Previous entry trigger was $116.85
08/24/15 Adjust option strike = use the November $115 calls
Option Format: symbol-year-month-day-call-strike

Netflix, Inc. - NFLX - close: 105.79 change: -9.24

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -32.8%
Average Daily Volume = 8.0 million
Entry on August 27 at $114.94
Listed on August 25, 2015
Time Frame: Exit PRIOR to Earnings in October
New Positions: see below

09/01/15: Bullish analyst comments couldn't save shares of NFLX on Tuesday. Bank of America reiterated their "buy" rating on the stock and raised their NFLX price target from $121 to $133. Unfortunately the stock completely ignored this news.

NFLX gapped open lower at $109.35 and then fell to $103.82 intraday. The stock closed with a -8.0% decline (at $105.79). This was the worst one-day drop for NFLX since October 2014 (on a closing basis).

If this weakness continues the next level of support should be the $100 level.

No new positions at this time.

Trade Description: August 25, 2015:
Some of the market's best-loved stocks have been crushed in the last couple of weeks. NFLX is one of them but this big decline offers a big opportunity.

If you're not familiar with NFLX, here is a brief summary from the company, "Netflix is the world's leading Internet television network with over 62 million members in over 50 countries enjoying more than 100 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments."

NFLX is cashing in on a massive sea change in consumer media viewing habits. Traditional TV is dead. Cable is worried as more and more consumers "cut their cord" and only consume media on streaming services. NFLX is the leading streaming service in the world.

The company said their customers watched over 10 billion hours of streaming content in the first quarter of 2015. That is a +20% jump from a year ago. The company has been focused on building up their own original content creation and expanding overseas. Just this week NFLX announced a deal with Japanese company SoftBank that would bring NFLX to Japan. Softbank is a bit of a technology conglomerate with stakes in multiple companies. One of their biggest investments is an 80% stake in Sprint (S). NFLX also struck a deal with T-Mobile. There seems to be a trend here of consumers, Netflix, and their smart phones.

The carnage over the last several days has been brutal. Shares of NFLX have plunged from its recent highs above $125.00 to almost $85.00 during Monday's market crash. Today the stock bounced with a range of $101.52-107.88. There is no denying the volatility in NFLX's stock. However, multiple analysts have said that investors should buy the "market darlings" like NFLX during this sell-off. They believe stocks like NFLX will outperform in the next few weeks and over the next few months.

Prior to the market's crash over the last few days analysts were upgrading their price targets on NFLX into the $140 area.

Tonight we are listing two different entry triggers to buy calls.

NOTE: This is an aggressive, higher-risk trade. NFLX options are expensive and the stock is volatile. We are not listing a stop loss at this time. Traders can try and limit their risk by adjusting their position size.

If NFLX rallies from current levels then we want to buy calls if shares traded at $110.65. We'll use the November $120 call.

If NFXL sinks from current levels then we want to buy calls on a dip at $92.00. We'll use the November $100 call.

- Suggested Positions -

Long NOV $120 CALL (NFLX151120C120) entry $12.65

08/27/15 Trade is open. NFLX gapped higher at $114.94
08/26/15 removed the gap-open disclaimer on entry points for NFLX
Option Format: symbol-year-month-day-call-strike

Post Holdings, Inc. - POST - close: 64.66 change: -0.62

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on August -- at $---.--
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: Yes, see below

09/01/15: POST is still holding up reasonably well. The broader market fell -3.0% today. POST only fell -0.9% Shares are not that far away from new highs. Our suggested entry point to buy calls is $66.55.

Trade Description: August 29, 2015:
Shares of ready-to-eat cereal maker POST have shown surprising strength this month and the last few days during the market turmoil. POST is also poised to be one of the better performing stocks this year with a +57% gain year to date.

POST is in the consumer goods sector. According to the company, "Post Holdings, Inc., headquartered in St. Louis, Missouri, is a consumer packaged goods holding company operating in the center-of-the-store, private label, refrigerated and active nutrition food categories. Through its Post Consumer Brands business, Post is a leader in the ready-to-eat cereal category and offers a broad portfolio that includes recognized brands such as Honey Bunches of Oats(R), Pebbles(TM), Great Grains(R), Grape-Nuts(R), Honeycomb(R), Frosted Mini Spooners(R), Golden Puffs(R), Cinnamon Toasters(R), Fruity Dyno-Bites(R), Cocoa Dyno-Bites(R), Berry Colossal Crunch(R) and Malt-O-Meal(R) hot wheat cereal.

Post's Michael Foods Group supplies value-added egg products, refrigerated potato products, cheese and other dairy case products and dry pasta products to the foodservice, food ingredient and private label retail channels and markets retail brands including All Whites(R), Better'n Eggs(R), Simply Potatoes(R) and Crystal Farms(R). Post's active nutrition platform aids consumers in adopting healthier lifestyles through brands such as PowerBar(R), Premier Protein(R) and Dymatize(R). Post's Private Brands Group manufactures private label peanut butter and other nut butters, dried fruits, baking and snacking nuts, cereal and granola."

The earnings picture has improved significantly. Back in February 2015 POST reported its Q1 results that missed estimates by a wide margin. Yet the last couple of quarters the company has seen earnings and revenues soar. Their Q2 report said revenues were up +140%. Their Q3 results, announced on August 6th, reported revenue growth of +91%. Earnings were $0.27 per share, which was $0.20 better than expected. Management raised their full year guidance from $585-610 million up to $635-650 million. A lot of POST's revenue growth has been due to its aggressive acquisition strategy but Wall Street doesn't seem to care.

As a matter of fact, Wall Street has ignored POST's warnings about its egg supply. The company uses a lot of eggs and the U.S. egg-production industry has been hammered by an outbreak of Avian Influenza (AI). The last significant outbreak of AI was back in the early 1980s. According to CNN the current outbreak has been causing havoc since December 2014 and 35 million egg-laying hens have been killed. The price of eggs surged this summer but looks like it may have peaked.

Back in May this year POST warned that the outbreak had infected a significant portion of their company-owned flocks and 35% of their egg commitments could be impacted. Fortunately, a few weeks later they said the damage may be down to just 25% of their egg supply but they still expected a $20 million hit to earnings. The market doesn't seem to care.

Instead POST seems to be getting a boost from the crop outlook for the rest of 2015. The USDA raised their estimates for crop productions. The harvest this year could see record soybean numbers. Corn could produce the third largest crop on record. This is pushing commodity prices lower, which is a bullish tailwind for cereal makers like POST.

Shares of POST have been very strong this month. The market's reaction to their Q3 results produced a bullish breakout in POST with a rally past resistance near $55.00 and a surge to all-time highs. When the market crashed late last week and this past Monday, shares of POST did see a decline but it was minor compared to the rest of the market. POST didn't even dip to support at $60.00.

Today POST is surging. Shares are poised to breakout past their mid-August high. If that happens POST could see more short covering. The most recent data listed short interest at 19% of the 54.2 million share float. The point & figure chart is bullish and forecasting at $78.00 target. Tonight we are suggesting a trigger to open bullish positions at $66.55.

Trigger @ $66.55

- Suggested Positions -

Buy the OCT $70 CALL (POST151016C70)

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

Skechers USA Inc. - SKX - close: 136.52 change: -4.22

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on August -- at $---.--
Listed on August 27, 2015
Time Frame: Exit PRIOR to the 3-for-1 stock split in mid October
New Positions: Yes, see below

09/01/15: SKX kept pace with the market and lost -2.99% on Tuesday. If shares don't bounce off their 50-dma (currently near $132.50) then we may want to re-evaluate our entry point strategy. Should the market sell-off accelerate we might see SKX retesting $130.00.

For the moment our suggested entry point is $145.15 but let's be open minded about a potential buy-the-dip entry in the near future should this weakness persist.

Trade Description: August 27, 2015:
SKX seems to be doing everything right and investors have noticed. Shares are one of the best performing stocks this year. At its early August high near $160.00 a share SKX was up +190% for the year. Today SKX is only up +158% year to date. The company is growing faster than rivals Nike (NKE), Under Armour (UA), and Adidas.

SKX is in the consumer goods sector. According to the company, "SKECHERS USA, Inc., based in Manhattan Beach, California, designs, develops and markets a diverse range of lifestyle footwear for men, women and children, as well as performance footwear for men and women. SKECHERS footwear is available in the United States and over 120 countries and territories worldwide via department and specialty stores, more than 1,100 SKECHERS retail stores, and the Company's e-commerce website. The Company manages its international business through a network of global distributors, joint venture partners in Asia, and 12 wholly-owned subsidiaries in Brazil, Canada, Chile, Japan and throughout Europe."

Earnings have been great. SKX reported their Q1 results on April 22nd. Results of $1.10 per share beat estimates by nine cents. Revenues soared +40% to $768 million, above expectations. Their Q1 earnings were +80% higher from a year ago. These results were in spite of the West Coast port slowdown.

The winning results continued in the second quarter. SKX reported their Q2 results on July 29th and they were record-breaking for the company. Wall Street was expecting a profit of $1.01 per share on revenues of $740 million. SKX blew those numbers away with a profit of $1.55 per share. That's a +128% improvement from a year ago. Revenues were up +36.4% to $800 million.

Under Armour's revenues were up only +28% and Nike's were only up +5%. It probably helped that SKX was able to pass along a +9% increase in their average selling price.

Naturally management was bullish. David Weinberg, chief operating officer and chief financial officer, commented on his company's quarterly results, saying,

"Our record first half of 2015 follows a record 2014, and is a result of the universal demand for our wide assortment of diverse footwear collections for men, women and kids. At no other time in the history of our company have so many product lines resonated with consumers, giving us a broad base to continue to build upon and grow. With increased year-over-year backlogs at the end of June, strong incoming order rates and July sales, as well as the positive sell-through reports from wholesale and an additional 125 to 135 Company-owned and third-party-owned Skechers retail stores planned to open later this year, we believe that we will continue to achieve new sales and profit records through 2015. With $513.9 million in cash, inventories in line with sales, and improved efficiencies and capacity in both our North American and European distribution centers, we believe we are well prepared for our planned growth. We remain comfortable with the analysts' current consensus estimates for the back half of 2015."
Shares of SKX soared to new highs following their Q2 results. A month later, August 21st, SKX announced a 3-for-1 stock split. Here's a bit from their press release, the "Board of Directors has approved a three-for-one split of the Company's Class A and Class B common stock that will be distributed in the form of a stock dividend." The stock split is subject to shareholder approval. They're holding a shareholder meeting on September 24th, 2015. If approved the stock split should take place on October 16th.

Odds are pretty good that SKX could see a run up into its stock split. During the market's recent turmoil SKX managed to maintain its long-term up trend. Shares filled the gap from late July and bounced off support near $120.00. Today's high was $144.86. We are suggesting a trigger to buy calls if SKX trades at $145.15.

We will plan on exiting prior to the 3-for-1 split.

Trigger @ $145.15

- Suggested Positions -

Buy the OCT $150 CALL (SKX151016C150)

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

Stamps.com Inc. - STMP - close: 79.54 change: -2.80

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: -47.7%
Average Daily Volume = 222 thousand
Entry on August 31 at $83.55
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/01/15: STMP underperformed the market today. Shares fell -3.4% while the NASDAQ only slipped -2.9%. If STMP doesn't rebound soon we might see it retesting its recent lows near the $76.00 area. No new positions at this time.

Trade Description: August 29, 2015:
STMP is another stock showing significant relative strength this year. Shares were not immune to the market's recent sell-off. STMP fell about -14% but investors bought the dip near support. Even with the pullback STMP maintained its long-term up trend. The recent bounce has lifted STMP to a +73% gain year to date.

STMP is in the technology sector. They're considered part of the application software industry. According to the company, "Stamps.com is the leading provider of Internet-based mailing and shipping services to over 500,000 customers. Stamps.com's services enable customers to print U.S. Postal Service-approved postage with just a computer, printer and Internet connection, right from their homes or offices. The company has been the leader in transforming the world of mailing and shipping for small business owners, e-commerce sellers, high volume shippers, and enterprise organizations alike."

The company has been showing very strong earnings and revenue growth. They have beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row. Q4 revenues were up +29%. Q1 revenues were up +32%. Q2 revenues, announced on August 6th, were up +41% from a year ago to $48.4 million. Q2 earnings were $0.97 per share, which beat estimates by 26 cents. STMP management has raised their guidance two quarters in a row.

Ken McBride, Stamps.com's chairman and CEO, commented on his company's recent quarter, "We are pleased with our continued strong revenue and earnings growth this quarter. We achieved record performance across multiple financial and customer metrics including total revenue, core mailing and shipping revenue, non-GAAP earnings per share, paid customers and average revenue per paid customer. In addition, we saw continued growth across all of our business segments and we experienced positive contributions from our ShipStation and ShipWorks subsidiaries. We remain excited about our future prospects which led us to increase our guidance for 2015."

STMP raised their 2015 earnings guidance from $2.55-2.90 per share to $3.10-3.50. Wall Street estimates were around $2.90.

The market's reaction to the better than expected earnings, revenues, and bullish guidance launched STMP to levels not seen since early 2000. STMP closed at $88.25 on August 19th, just before the market's correction. The pullback in STMP saw shares decline to support near $75-76 and its rising 50-dma. You can see on the weekly chart that STMP did not break its long-term up trend. The point & figure chart has already reversed back into positive territory and is forecasting at $132.00 target.

Tonight we are suggesting a trigger to launch bullish positions at $83.55.

- Suggested Positions -

Long OCT $85 CALL (STMP151016C85) entry $4.30

08/31/15 triggered @ $83.55
Option Format: symbol-year-month-day-call-strike

The TJX Companies - TJX - close: 69.39 change: -0.93

Stop Loss: None. No stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.0 million
Entry on August -- at $---.--
Listed on August 26, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

09/01/15: TJX dipped to its simple 50-dma during today's market decline. Shares only lost -1.3% versus the S&P 500's -2.95% slide. I'm not giving up yet but if TJX doesn't improve soon we may drop it. Or we could watch for another bounce off its 200-dma as a potential alternative entry point.

Trade Description: August 26, 2015
Believe it or not but there are only 120 days until Christmas 2015. Most of us are just adjusting to school starting again but retailers are already planning for the 2015 holiday shopping season. Historically the time to buy retailers has been early fall (i.e. right now) and then sell on Black Friday (day after Thanksgiving). TJX could be a great way to play that seasonal trend.

TJX is in the services sector. According to the company, "The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of May 2, 2015, the end of the Company's first quarter, the Company operated a total of 3,441 stores in seven countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, and Austria, and three e-commerce sites. These include 1,126 T.J. Maxx, 987 Marshalls, 498 HomeGoods and 6 Sierra Trading Post stores, as well as tjmaxx.com and sierratradingpost.com in the United States; 239 Winners, 97 HomeSense, and 39 Marshalls stores in Canada; and 416 T.K. Maxx and 33 HomeSense stores, as well as tkmaxx.com, in Europe."

Just a couple of days before the market collapsed TJX reported its Q2 2016 earnings results (on August 18th). Wall Street was looking for a profit of $0.76 per share on revenues of $7.25 billion. TJX beat both estimates with a profit of $0.80 per share and revenues of $7.36 billion. Earnings were up +7% from a year ago and revenues were up +6.5%. Gross margins improved. Comparable-store sales improved from +3% a year ago to +6%. TJX said their customer traffic improved for the fifth quarter in a row.

Most retailers have not been doing so hot this year so TJX management was naturally optimistic given their strong results. Carol Meyrowitz, Chairman and Chief Executive Officer of The TJX Companies, Inc., commented on her company's quarter,

"We are extremely pleased that our momentum continued in the second quarter. Our 6% consolidated comparable store sales growth and 7% adjusted EPS growth significantly exceeded our expectations. It was great to see that comp sales were entirely driven by customer traffic - our fifth consecutive quarter of sequential traffic improvement - and that we had strong sales across all of our divisions. Our flexible model and ability to offer an eclectic, exciting merchandise mix at outstanding values continues to resonate with consumers in all of our geographies. We were also very pleased with our solid merchandise margins. We are proud of our strong comp sales, traffic increases and merchandise margins, all of which are core to a successful retail business. We enter the back half of the year in an excellent position to keep our momentum going and have many exciting initiatives planned. I am convinced that our gift-giving selections will be better than ever this year, and that our fall and holiday marketing campaigns will keep attracting more shoppers to our stores. Above all, we will be offering consumers amazing values every day! The third quarter is off to a solid start and we are raising our full year comp sales and earnings per share guidance. Today, we are a nearly $30 billion retailer with a clear vision for growth, a differentiated apparel and home fashions business, and world-class organization. Looking ahead, we are confident that we will achieve, and hope to surpass, our plans as we continue to bring value around the world and grow TJX to a $40 billion-plus company!"
TJX management did lower their Q3 guidance but they raised their full year 2016 EPS forecast. They also raised their 2016 comparable store sales estimate from +2-3% to +3-4%. It was the second quarter in a row that management raised their guidance.

The stock market's recent sell-off produced a correction in shares of TJX, which fell from its August high of $76.78 down to an intraday low of $67.25 on Monday morning. That is a -12.4% correction. Shares just happened to bounce near technical support at the simple 200-dma and its late July lows near $67.00. In spite of the sharp retreat the point & figure chart is still bullish and still forecasting at long-term $98.00 target.

Tonight we are suggesting a trigger to buy calls at $72.05. This is a relatively longer-term trade and hope to hold this position for several weeks.

Trigger @ $72.05

- Suggested Positions -

Buy the 2016 Jan $75 CALL (TJX160115C75)

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

PUT Play Updates

Jack In The Box - JACK - close: 77.01 change: -1.17

Stop Loss: 82.55
Target(s): To Be Determined
Current Option Gain/Loss: -10.2%
Average Daily Volume = 677 thousand
Entry on September 01 at $76.88
Listed on August 31, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/01/15: We were expecting weakness in JACK but shares dropped even faster than expected with a gap down at $76.88. Our trade was opened on the gap down.

Trade Description: August 31, 2015:
It's a burger-eat-burger world out there in the fast-food business. Jack in the Box is small fries compared to its larger rivals like McDonalds (36,258 locations) and Wendy's (6,515 locations). Let's not forget heavy weights like Taco Bell, Burger King, Subway, Dairy Queen, and a handful of pizza chains. JACK only has about 2,200 restaurants but it also has a secret weapon and that is the Qdoba Mexican Grill, a fast-casual restaurant with about 600 locations. Fast-casual restaurant rival Chipotle Mexican Grill has almost 1,800 locations.

Some of that intense competition being felt by McDonalds and Chipotle Mexican Grill is coming from Jack in the Box and its Qdoba brand, which is growing sharply. A majority of their Qdoba franchisees own multiple stores with 10, 20 even 40 stores common. Enterprising business owners don't open additional stores if the original stores are not working. To have so many owners with high numbers of stores suggests the franchise is consistently profitable.

To be profitable they need solid customer traffic, good food and decent margins. Shares of JACK have been one of the best performers on the S&P over the last couple of years because the company has been posting solid earnings and growth.

Customers are trending towards healthier foods and away from the mass produced burgers and fries at McDonalds. Did you know there are 19 ingredients in McDonalds fries? Surely you didn't think they were just potatoes and grease? This trend may not help the Jack in the box brand but it's good news for Qdoba. Restaurants like Qdoba and Chipotle are capitalizing on the healthy food craze.

Management is trying to be shareholder friendly. They have an active share buyback program and they reduced the share count by 10% over the last few quarters. In their Q2 earnings report (May 13th) the company raised their quarterly dividend by +50%.

JACK reported its Q1 2015 earnings on February 17th. Analysts were expecting a profit of $0.87 a share on revenues of $461.2 million. JACK delivered earnings of $0.93 a share. That's a +24% improvement from a year ago. Revenues were up +4.1% to $468.6 million, above estimates. Their operating margins improved 1% to 19.3%. Management raised their 2015 guidance.

The company did it again in May with their Q2 report. Estimates were for $0.66 per share on revenues of $356 million. JACK reported $0.69 per share with revenues up +5.0% to $358 million. That is a +35.2% earnings improvement from a year ago. Their consolidated restaurant operating margins improved 210 basis points to 20.6%. Plus, management raised their 2015 guidance again.

If we stopped right here the story for JACK looks pretty bullish. They definitely seem to be outgrowing their competition. However, the picture appeared to change in the third quarter.

It looks like growth slowed down a bit too much for the market's liking. JACK reported its Q3 earnings on August 5th. Earnings were $0.76 per share. That beat analysts' estimates by three cents. Revenues only rose +3.2% to $359.5 million, which was essentially in-line with estimates. JACK is still seeing strong same-store sales growth with Q3's SSS up +7.3% for their Jack in the Box brand and +7.7% for the Qdoba business. Management said they are only expecting +3.5-5.5% same-store sales growth for Jack in the Box and +5.0-7.0% growth for Qdoba in the fourth quarter.

Investors must have been expecting more from the company because they sold JACK after its earnings report. Shares corrected pretty fast with a -$10.00 drop in following week. JACK was trying to hold support near $85.00 and then the market collapsed. Last Monday saw shares of JACK plunge to an intraday low of $63.94. The oversold bounce just failed at its 10-dma.

Technically JACK looks broken. After incredible gains over the last couple of years JACK is now in a bear market. The peak in August was a lower high. The breakdown under major support near $85 and its 200-dma was bearish. Now JACK has broken one of its long-term trend lines of support. It looks like JACK has further to fall. Today's low was $78.00. Last Wednesday's low was $77.81. I am suggesting a trigger to buy puts at $77.70.

- Suggested Positions -

Long OCT $75 PUT (JACK151016P75) entry $2.84

09/01/15 triggered on gap down at $76.88, suggested entry was $77.70
Option Format: symbol-year-month-day-call-strike