Option Investor

Daily Newsletter, Saturday, 9/19/2015

Table of Contents

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

Market Wrap

Vote of Disapproval

by Jim Brown

Click here to email Jim Brown

Investors voted their disapproval on the lack of a Fed rate hike by cashing in all the gains they made over the prior four days. The Dow closed down -290 points to end with a 48-point loss for the week and erase the gains made on expectations of a rate hike.

Market Statistics

Traders had convinced themselves the Fed was serious about raising rates in September and that would have been a vote of confidence in the economy. Instead, the Fed turned into the global central banker and warned that events in China/Asia needed to be play out before the Fed would hike rates.

While the Fed's indecision rekindled the market uncertainty, it is not likely to last. Janet Yellen's comments left the October meeting on the table but now there is little or no chance of a rate hike in 2015. The Fed warned that lower commodity prices because of the economic weakness in Asia were depressing inflation. They are correct in that conclusion but the problem is not going to be rectified in the next four weeks.

Low commodity prices take months to be felt in consumer prices. The low commodity prices over the last six months are just now being seen in the CPI. The Consumer Price Index has declined for the last three months and went negative in August. This is the impact of declining commodity prices and those commodities are still declining. This means it will be months before the CPI begins to rebound and if the Fed is truly data dependent it will be months before they can hike rates.

I want to congratulate my friend Art Cashin for having it right all along. All year he has steadfastly stated his belief that the Fed will not hike in 2015. With many analysts arguing with his position that took some fortitude to stick to his conclusion in his appearances on CNBC. Good call Art!

With China in the tank and dragging the rest of the Asian markets lower, it should weigh on the Fed's decisions for the rest of the year and into 2016. Remember, the IMF, World Bank and the Bank of International Settlements all warned the Fed not to hike because of increasing weakness in the emerging markets. Analysts now believe the ECB could announce additional QE at their October 22nd meeting and that Japan's central bank will increase QE when they meet on October 30th. By not hiking, the Fed left the door open for those banks to further weaken monetary policy. If those events occur, the Fed will be trapped for an even longer period before they can raise rates.

With the average U.S. economic cycle between 5-7 years and this one already six years old; we could be in a recession ourselves before the Fed is able to hike rates. Many analysts believe the global economy is already headed into a recession that will become evident in 2016.

The Fed brought uncertainty back into the market and now we will have to agonize over the October and December meetings even though the potential for a hike at either meeting is less than 25% today.

Some analysts were blaming the Fed for taking on a third mandate in their actions. In addition to keeping inflation at a reasonable pace and ensuring full employment they were said to have taken on China's economic health as a mandate. However, the Fed's action/inaction based on global events is not new. Since 1970 there have been seven geopolitical events that caused a Fed reaction.

1973 Arab Oil Embargo
1979 Iranian Revolution, Oil Embargo
1981 Latin American Debt Crisis
1995 Mexican Debt Crisis
1997 Asian Currency Crisis
1998 Russian Debt Default, Long Term Capital Mgmt Collapse
2011 Greek Debt Crisis
2015 China Economic Decline, Yuan Devaluation

The economic reports in the U.S. on Friday were not important and were ignored by the market.

Next week there is a flurry of reports with several that will be watched but will not move the market unless the numbers are significantly different than expectations. The home sales reports for August are expected to be down because the selling season has passed. The Richmond Fed reports on Tuesday will be of interest but not market movers.

The GDP revision on Friday will be important. Because of a spike in inventories, the Q2 estimate rose to +3.7% growth in the last revision. It is not expected to change on Friday. However, the Q3 GDPNow from the Atlanta Fed is projecting only +1.5% growth for this quarter and less than half the last Q2 growth rate. This suggests the Q2 number could be out of line. After an anemic +0.68% print for Q1 and a +1.5% forecast for Q3 there is an anomaly in the Q2 spike. A lot of that came from an inventory buildup that will have a negative impact in quarters to come as that inventory is depleted.

The Japanese markets are closed until Thursday and could be a problem for the U.S. markets. The PMI in China could be a market mover on Wednesday.

Peabody Energy (BTU) announced a 1:15 reverse stock split to be made at the close on September 30th. This will reduce the outstanding shares from 278 million to only 19 million. This was done to avoid being delisted by the NYSE for trading under $1. While this will solve the listing problem, it will give them a higher stock price and shorts will gang up on Peabody again. Full Stock Split Calendar

The earnings cycle is starting to heat up as we near the end of Q3. The most watched event for next week is probably going to be Nike on Thursday. Nike depends on China for manufacturing but it also sells a lot of apparel in China. Analysts believe sales of big-ticket items in China have probably declined because of the economy/market but they do not believe it has had any impact on normal consumer goods. Apple's CEO Tim Cook said last week that sales of iPhones were booming in China. Thursday's earnings will be a clue for the rest of the earnings cycle.

Earnings estimates for Q3 are moving lower every day. So far, 91 S&P companies or nearly 20% have warned on Q3 results. S&P earnings are expected to decline -4.4% with revenue declining -2.9%. Much of that decline is driven by a horrendous -65% drop in the energy sector and a -10.5% drop in the materials sector. That is due to the decline in commodity prices. On the positive side consumer discretionary earnings are expected to rise +11.6%, financials +7.9% and healthcare +7.3%.

On Friday Barclays cut its earnings growth forecast for the S&P for 2015 to zero. They blame the stronger U.S. dollar and emerging market headwinds. They cut their earnings estimate for the S&P from $123 to $117 for 2015. In July, Goldman Sachs slashed its 2015 earnings outlook from $122 to $114 citing economic conditions and low oil prices.

Shares of Adobe Systems (ADBE) rallied in a bad market after the company reported earnings of 54 cents, a rise of +93%, on sales of $1.22 billion up +21%. Both numbers beat estimates of 50 cents and $1.21 billion. After initially declining -3% Thursday night after the release it appears investors reconsidered on Friday. The problem was what analysts thought was weak guidance. Adobe guided for the current quarter to 59 cents, up +64% on sales of $1.3 billion, up +21%. Analysts were expecting 64 cents and $1.36 billion.

The company has now converted the majority of users to the subscription model with 73% of revenue now coming from subscriptions. Jefferies raised the price target to $92, S&P Capital IQ to $82 and Pivotal research is targeting $95.

Linkedin (LNKD) shares rallied +3% to $203 on no news. On Wednesday, Brean Capital upgraded the shares from sell to hold saying most of their prior concerns had played out. The analyst raised the price target from $172 to $184. Something else must be in play here to send shares over $200 in a bad market. Facebook (FB) shares were also fractionally positive as were Twitter (TWTR) shares at +2%.

Facebook unveiled Signal, a discovery and curation feature for journalists to help them with their newsgathering process. Facebook said it would help journalists "source, gather and embed newsworthy content, across news, culture, entertainment, sports and more - all in one place." Signal is a clear attack on Twitter. Facebook said, "We have heard from journalists that they want an easy way to make Facebook a more vital part of their newsgathering with the ability to surface relevant trends, photos, videos and posts on Facebook and Instagram for use in their reporting."

The push into newsgathering will also provide more page views in their normal content flow as users click on articles interesting to them. Facebook already has "Instant Articles" in association with the New York Times and FB Newswire powered by Storyful. Twitter is also developing a news curation feature called Project Lighting. This will also be available to readers that are not Twitter users.

Portola Pharma (PTLA) soared +9% to $57 on no news. This was more than likely continued short covering after the company said on Tuesday its Annexa drug had been assigned the coveted FDA - Breakthrough Therapy classification. Andexanet Alpha is a recombinant protein designed to reverse the anticoagulant activity of Factor Xa inhibitors. I have no clue what that means in English but apparently investors were impressed. The company was also mentioned as a potential takeover target because of its pipeline of potential drugs.

Freeport McMoran (FCX) completed its $1 billion secondary offering announced on August 10th by selling 96.7 million shares. The company also announced it had filed a supplement to sell an additional $1 billion in shares through designated agents at market prices agreed to with the agents. The company reiterated its plan to spin off a minority interest in Freeport-McMoran Oil and Gas when market conditions warranted. This was previously announced but the collapse in oil prices kicked it to the back burner. Shares fell -10% on the news of the second $1 billion offering. I would bet the buyers of that first $1 billion offering were not too happy about another one just a couple weeks later.

La Quinta Holdings (LQ) saw its shares plunge -15% on Friday after the CEO unexpectedly resigned. He will be replaced on an interim basis by the CFO. The CEO Wayne Goldberg had been with the company 15 years. His non-compete only covers a four-month period and he received his full severance package of $7 million plus $11 million in vested shares. Citigroup cut the price target from $21 to $6 saying the departure was a "mystery" and a "further explanation" should be provided to assure investors. JPM cut their price target from $23 to $3. The company also lowered its guidance due to softness in Texas among other reasons.

Auto parts maker Johnson Controls (JCI) said it was cutting 3,000 workers as a cost reduction push. The company employs 130,000 globally. The cut is expected to save $250 million annually. The company said earlier it was spinning off its auto seating business and would sell another business that manages spaces for corporations. JCI currently makes car batteries, heating and air conditioning systems, instrument panels, door panels and floor consoles.

Chipmaker Qualcomm (QCOM) said it was cutting 1,300 jobs in San Diego and has already cut hundreds more in other states. Qualcomm said it had sent out 60-day notices as required, telling employees their last day would be November 20th. The company is supplying outplacement help and severance packages. The company also cut 130 jobs in San Francisco, 158 jobs in Boulder Colorado and 65 in Andover Mass. Previously Qualcomm said it was cutting 15% of its global workforce of about 31,300 employees over the next year. Watch out for a new 52-week low in the days ahead.

Alibaba (BABA) turned 1 year old on Friday. The Alibaba IPO was the largest ever on the NYSE with a valuation of $168 billion. The initial price was $68 and shares rose to $120 in November before slipping to trade under $60 in the August flash crash. The company has been fighting fraud allegations claiming many of the goods sold on the Taobao website were fake. Another report claimed vendors were paying people to leave positive feedback. Barron's published a very bearish article the prior week saying shares could fall another 50%. The paper said the integrity of its financial numbers was seriously doubted.

Alibaba has a 1.6 billion-share lockup expiring on Sunday. That is roughly 64.1% of all shares outstanding. Jack Ma has pledged he would prevent the majority of those shares from being sold. Further research shows that Softbank owns 800 million, Yahoo 384 million and founders 300 million. How many of those are in the 1.6 billion being released on Sunday is unknown but probably a lot. Those three groups of shares will not be coming to market since all are long-term holders.

Molson Coors (TAP) shares rallied for the third day on expectations the company will benefit from the Anheuser-Busch InBev acquisition of SABMiller. In order for the companies to merge they would likely have to divest some major assets and TAP would be the likely buyer. Molson Coors needs to bulk up as the various beverage companies continue to merge. Currently TAP is the 23rd largest global brewer. However, earnings for TAP are expected to decline in 2015 because of losing market share to companies like Constellation Brands and their wine and spirits offerings. With giants merging all around them there is always the possibility of somebody taking a run at acquiring TAP.

Volkswagen AG (VLKAY) is in serious trouble. It was announced on Friday the company intentionally installed software on diesel models from 2009-2015 that would provide incorrect readings to EPA testing equipment in order to pass the clean air requirements. Yes, INTENTIONALLY installed software to beat the tests. The EPA said 482,000 diesel cars sold between 2009-2015 had the illegal software. The EPA could fine Volkswagen up to $37,500 for each vehicle. That would be an $18 billion fine. The EPA said VW used hidden software, called a "defeat device," to turn on smog equipment only during testing. The EPA said it had notified Volkswagen of the discovery and the company must come up with a plan to recall those cars and remove the illegal software. Shares declined -4.5% on the news.

Apple (AAPL) shares were down only fractionally on Friday thanks to two headlines. It was learned that Apple's car project might be a lot farther along than previously expected. The Guardian said Apple executives met with the self-driving officials at the California Dept of Motor Vehicles to learn the regulations regarding self-driving cars.

The Apple car project, code named Titan, is headed by Steve Zadesky, a former Ford engineer and staffed by former Mercedes and Tesla employees. Apple has a standing offer for a large signing bonus to any Tesla employee that defects to Apple. Apple has been hiring auto engineers and executives for three years and are targeting a 1,000+ team. Development work is being conducted at a secret lab in Sunnyvale California. Numerous firms have been trying to uncover the details of the secret project and one by one, minor details are starting to be uncovered. There was a report on CNBC on Friday claiming the car could appear within weeks.

The second headline was a ruling in a court case between Apple and Samsung. An appeals court granted Apple an injunction against Samsung and the company will have to make changes to its phones if it wants to continue selling them in the USA. Samsung vowed to appeal again and the fight will continue. However, Apple has won every round to this point after being awarded $1 billion a couple years ago in this same patent case.

Crude prices spiked on Wednesday when inventories unexpectedly declined -2.1 million barrels. Traders were expecting the normal post Labor Day build in inventories. Also, the EIA report showed another decline in production from 9.135 mbpd to 9.117 mbpd. While that is not a big drop, it was the sixth consecutive week of declines after the 9.61 mbpd peak in April. That represents a production decline of -493,000 bpd in three months. Imports also declined about 270,000 bpd to 7.19 mbpd and well below the 8.04 mbpd in mid August.

The inventory decline and the drop in imports are only temporary and the normal seasonal refinery slowdown is beginning now. Over the next two months, we should see inventories increase significantly and prices decline.

OPEC recently predicted that oil prices would only rise $5 per year until hitting $80 in 2020 and $100 oil would not return until 2030-2040. The cartel said non-OPEC supplies would likely decline -1.0 mbpd by 2017 to 58.2 mbpd.

A year ago in November OPEC was projecting $177 oil by 2040 and saying the world will have to discover and produce another 21 mbpd over the next 25 years. Forecasts can change very quickly in both directions. This one seems almost comical today but a year ago it made perfect sense.

On Thursday, Japan's exports declined for a second month and increased fears that China's economic decline was worse than expected and was damaging the other Asian economies. That would reduce oil demand.

Nothing is ever guaranteed but the historical trend for oil prices over the next two months is negative.

Active rigs for the week ended on Friday declined -6 to 842 and another decade low. That is now -24 rigs below the 2009 low at 866. Oil rigs declined -8 to 644, down -965 from the 1,609 peak in September 2014. With oil rigs continuing to fall and producers going into cash conservation mode we should see production continue to fall.


The Dow declined -290 on Friday and the S&P -32. That brought both indexes back to where they started the week and right back into congestive support since the August crash. The S&P did not make it back to 1950 and support from last week so there is a minor cushion for Monday.

Historically a post Fed move occurs on the day after the announcement as investors on the wrong side of the decision square positions. Friday was also a quadruple expiration and that added to the volatility. September positions had to be closed and that spiked the volume to 10.96 billion shares. Declining volume was 4:1 over advancing while declining issues were 5:2 over advancing.

There were significant market on close orders at the NYSE and while we closed near the lows for the day, it would have been a lot worse if the orders had not paired up in the last few minutes of trading.

Trading was orderly and there was no fear. To illustrate the Dow declined nearly -300 points and the VIX gained only 1 point to 22.28. If there had been any real fear the VIX would have been a lot higher.

This suggests once the expiration pressures fade and trades are settled next week that the markets could rebound. However, Friday was still a reaction day and the real positioning for the end of the quarter will begin next week.

The forced selling caused by redemptions has depleted cash reserves held by managers. They may not have a lot of cash to put to work. However, the lack of a rate hike could energize some investors to put money back to work for the end of the year.

We really have to focus only on the charts and trade what the market gives us rather than what we expect to happen. The S&P rallied right into the resistance zone from 1990-2005 ahead of the FOMC announcement. The post meeting spike punched through that zone for only a few minutes and then crashed back to close at the low of the day. Friday was never in doubt and the S&P gapped down to 1,962 at the open and closed at 1,958. The short-term uptrend was broken but support at 1,950 is still in play. That is followed by 1,912.

Can we retest the lows from August? Absolutely, but at this point I doubt it. I will reconsider that question in my Tuesday evening commentary.

The Dow chart is identical to the S&P with a break through resistance on Wednesday afternoon, spike after the Fed and then collapse. Near term support is now 16,335 followed by 16,030. All 30 Dow stocks were negative but Nike was down only fractionally ahead of earnings on Thursday. Apple also held its ground after winning the ruling over Samsung and the self-driving car news.

The daily Dow chart is starting to look more like a continuation pattern rather than a potential rebound. The next two days will be critical for market sentiment. If the Dow dips to support and then retests resistance it should bring investors back into the market. If support fails, we could be in for a retest of the flash crash lows or even worse.

The Nasdaq dipped to 4826 at the open, rebounded +50 points to 4878 and then dipped back to 4825 at 1:30. Another small rebound appeared and back to close at 4827. Those three halts at what I will call the 4825 level is going to be the line in the sand for Monday. If that level holds, we should be in good shape. If it fails, I would look for look for interim support at 4795-4800 and then 4760.

I was encouraged by the strength in some of the biotechs and the social media stocks. Even Netflix failed to roll over and die with only a -$1.59 loss. Whether this is a preview of next week or just an expiration anomaly, we do not know.

I would be hard pressed to say the Nasdaq chart was bullish but at least it is not bearish. The majority of the rebound gains are still intact.

The Russell 2000 only gave back -1.46% on Friday and finished the week with a minor gain of 5 points. The Russell declined to prior resistance at 1165, which should now be support. There was a -2 point bleed right at the close to end the day at 1163 but close enough for me. This is the key level for the Russell. How it responds to 1165 next week will set the tone for the market.

I wrote earlier in the month that the first two weeks of September were normally positive and the last two weeks after the September option expiration were normally bearish. While I would like to hope for a rebound next week, I fear any gain could be fleeting. This is one of the most common historical trends in the market and now that the Fed has told us they are worried about the global economy, the warning could send some cautious investors to the sidelines. The S&P has only posted a weekly gain five times in the last 17 years.

If we do get an early week bounce, I would be very skeptical of any stall at resistance. September's end of quarter declines often lead to bottoms in October. Be prepared with a shopping list is we start heading back to the August lows.

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Random Thoughts

The AAII Sentiment Survey for the week ended on Wednesday showed a significant drop in bearish sentiment and a corresponding spike in neutral sentiment. Since the early part of the week was bullish, it is easy to understand the reasoning. Some of those respondents are probably wishing they had not been so quick to give up their bearish stance.

Russia's central bank bought 30 metric tons of gold in August. That is the biggest purchase since March when it purchased 30.5 metric tons. Holdings increased from 41.4 million ounces in July to 42.4 million at the end of August. They bought 13 tons in July and 24 tons in June. Russia is the 6th largest holder of gold and has more than tripled its hoard since 2005.

Why is Russia buying gold? Sanctions are hitting them hard and they could be storing up value in case of new sanctions in the future. However, Russia and China, both big gold buyers, are working on creating an alternative to the dollar and a gold backed currency would have immediate appeal and be a serious blow to the dollar.

Gold is also cheap today with prices at a six-year low. It is a good time to buy if you plan on holding a long time. Once the Fed starts hiking rates and the dollar spikes along with those hikes, the price of gold will decline assuming a lack of geopolitical headlines to move it higher.

Russia is calling America's bluff all over Europe and now in Syria, which was the poke in the eye to America. The U.S. and NATO are updating their battle plans in case Russia tries to annex a Baltic country. Unfortunately, the odds are not good. In 16 war game exercises with eight different teams at the Pentagon the U.S. and NATO were unable to defend the Baltics. Putin can walk in at any time and we cannot stop him with conventional weapons. Baltic Battle Plan Loses

On Friday, President Obama opened Cuba to trade from America by allowing company executives to travel freely to Cuba without restrictions. He also issued rules allowing exports of software and telecommunications equipment to the island. Companies will be able to establish subsidiaries to do business in Cuba. The new rules make it nearly impossible for any successor to undo the initiatives.

Under the new rules, companies like UPS and FedEx could have service from Cuba. Deere & Co could open showrooms for tractors. The new rules allow U.S. companies to hire Cubans, enter into joint ventures with Cuban companies and with the Cuban government and legally establish a physical presence in Cuba.

The new rules abolish the $2,000 per quarter limit to transfers made by U.S. residents to Cuba. The new rules go into effect on Monday.

China is buying about 500,000 bpd of crude oil in excess of its daily needs. The country is rapidly filling its strategic petroleum reserve and adding to the size of that reserve. Currently China has 218.9 million barrels of storage with about 200 million barrels currently stored. They are currently building another 132.3 million barrels of storage and have an additional 148.8 million barrels of capacity planned by 2020. When finished this will give them 500 million barrels of strategic reserves compared to the 700 million currently used by the USA. Their current 500,000 bpd filling program is helping to cushion the excess supply on the market. When Iran begins shipping oil again much of it will go to China and their filling rate could increase. They get a significant discount from Iran because of the low quality of their oil.

The White House is currently negotiating a truce with China over cyber security. Talks have been ongoing for a couple months and increased their urgency over the last several weeks with a goal of announcing a deal when Chinese President Xi Jinping visits Washington this Thursday.

The deal would be a commitment by both countries that each will not be the first to use cyber attacks to cripple the other's critical infrastructure during peacetime. It would NOT protect against attacks against U.S. companies, U.S. government and the military as we have seen in recent months.

Do we seriously believe that China will honor any agreement if they determine it is in their best interest to do otherwise? This is the equivalent of signing the nuclear deal with Iran that lets them self regulate their nuclear activities. Letting Iran take its own soil samples and send them to the IAEA for testing is beyond ridiculous. You have to wonder what exceptions will be in the U.S./Chinese cyber weapon agreement.

Hedge fund billionaire Ken Griffin bought three floors of the new 220 Central Park South condo tower under construction in Manhattan. He purchased 18,000 square feet that will contain the main living quarters and separate units for staff, household help and guests. The sales price for three floors was more than $200 million. Citadel is also rumored to have leased 200,000 square feet at 425 Park Avenue, an office tower under construction between 55th and 56th street. The lease rate would be $300 a foot according to a broker. If both deals close, it would break two records for the most expensive condo and the most expensive commercial space.

Griffin and his wife are going through a divorce and court records claim Griffin earns $100 million a month.

If you are disappointed that Griffin snapped up your ideal home, do not worry. There are more than 20 homes in the U.S. for sale for over $100 million each so shop on! $100 Million Homes

The week after option expiration in September has a terrible history. Since 1988 the Nasdaq has averaged a .9% decline and -1.46% decline for the Russell 2000. The S&P has only posted a weekly gain five times in the last 17 years. The last few days in the quarter typically follow the performance of the week after expiration. The chart below from the Stock Trader's Almanac shows the performance of the indexes since 1994. Septembers to Remember

Ryan Detrick posted another chart showing the next three weeks have been the worst weeks of the year since 2005. Worst Three Weeks


Enter passively and exit aggressively!

Jim Brown

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"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

Arthur Schopenhauer


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Index Wrap

A Bottom Seems Illusive

by Leigh Stevens

Click here to email Leigh Stevens

Stocks continue to be buffeted by various cross-currents related to future growth potential. My analysis suggests the Market won't see lower lows although timing for a sustained rally is harder to forecast.

While an apparent recovery rally is seeing a lot of fits and starts with significant volatility which makes any wide-spread 'recognition' of a bottom illusive; however, what may look like continued huge volatility of late isn't so much in context. The VIX S&P 500 (SPX) Volatility Index dipped under 20 the week before last (VIX ended Friday at 22), down from the VIX spike up to the 40 area in late-August.

I'm not suggesting in this whippy see-saw market what the exact TIMING might be for buying calls and other bullish trade strategies but do suggest that the LOWS for the current correction may be in. To that point, there is a 7-year uptrend price channel in SPX as seen below and the recent 1867 low touched support strongly suggested by SPX's long-term up trendline; a good-sized rebound from there did follow. I'm waiting for further signs that the major indexes have stabilized and continue to form an apparent bottom; such as with another retreat to SPX's up trendline or other 'basing' action.

Technically the Market remains in a long-term uptrend as suggested by very long-term weekly S&P 500 (SPX) chart seen below, covering the nearly 7 years of the current bull market. Note the recent SPX intraday low at 1867 and representing potential support by the initial rebound from the LOW end of the broad uptrend price channel. Note also, at the recent SPX low, the oversold 'extreme' reached with the 13-week Relative Strength Index or RSI.

The 7 year age of our current bull market may seem like an overly long time to have gone on by some but we've seen longer periods of rising stock prices such as in the 20 year bull market of 1980 to 2000. The 2003-2007 bull market was shorter than our current 7-year bull market of course.

A last point related to the long-term chart seen above delves into fundamental analysis and factors not just related to chart analysis. Bear markets almost always occur at or ahead of economic recessions. This is what Charles Dow's 100+ theory of market cycles is all about as so-called Dow Theory is an attempt to forecast an economic recession which is when bear markets happen.

There is no sign of a recession on the horizon although there's fear of the Fed tipping us into a slower growth period, China slowing down in a major way, Europe blowing up, etc. Fear is what happens when greed no longer holds sway and stocks hit the skids. As sure as the sun comes up every day, corrections eventually follow periods of rising stock prices. A key to trading/investing is assessing the dominant trend and buying into support (or selling into resistance in bear markets).

In my daily charts of the individual indices seen next below, I'd note the continued low bullish sentiment related to my Call-Put (CPRATIO) indicator displayed with the SPX and Nasdaq Composite charts. Not all bottoms are V-type bottoms; i.e., prices fall sharply to a low and then sharply rise again. However, a pattern of fits and starts to a recovery move seems to spook potential buyers. They might benefit from some study of technical analysis but this isn't necessarily a plug for MY (Essential Technical Analysis) book!



The S&P 500 (SPX) long-term chart is seen and analyzed above in my initial 'bottom line' commentary suggesting that the recent SPX intraday low fell almost exactly to support implied by SPX's long-term support/up trendline; not just the Index's multimonth, but its multiyear, up trendline. This pattern suggests that a significant bottom may be in place which doesn't also imply that it's up, up and away for SPX.

Resistance in the broad S&P is seen in the 2000 area, with fairly major resistance at the 2050 'breakdown' point, the low end of SPX's prior multimonth trading range.

Near support begins at 1950 at SPX's 21-day moving average, with support extending to 1939 at the green arrow. Next support is suggested at 1915, extending to 1900. I see good potential for substantial buying to come in on any retreat to the low-1900 area currently.

The RSI is now in a 'neutral' range in terms of measuring upside/downside momentum; the Relative Strength Index is a price momentum model. Bullish sentiment has mostly been at a low among traders as seen with the daily CBOT equities call to put ratio. As a 'contrarian' such readings at a minimum suggest that's little risk of a significant new down leg. Bearishness may need to get more extreme to suggest a sustained upside rebound.


The big cap S&P 100 (OEX) has seen a near-term bullish rebound after OEX got to an oversold extreme (below 20) in the 13-day Relative Strength Index (RSI). A major test of upside resistance would come in at the 'milestone' 900 level, the low end of the Index's prior trading range; i.e., what was support, once penetrated, tending to offer significant subsequent selling pressure(s). The 880 to 889 area is key near resistance.

Friday OEX fell to support implied by its 21-day moving average intersecting in the 860-861 area. I've highlighted green up arrow support at 850, extending to 840. Fairly significant support comes in at 840. Fairly major support is suggested around 820 in OEX. The 811 area is the current intersection of OEX's long-term support/up trendline seen on the weekly chart (not shown here).

No trading suggestions. I'm looking to see what buying interest comes in on further weakness which the chart pattern would suggest may be part of a 'bottoming' process.


The Dow 30 (INDU) remains bearish in its chart pattern. From an 'extreme' oversold RSI reading a rally developed after some of the Dow 30 that hadn't fallen off a cliff, and a few of dogs' of the Dow, rallied enough for a rebound back to resistance around 16800. Next resistance is seen at 17000.

Support is highlighted 16200, extending to 16000. There's a fair to strong possibility that INDU could head back to at the 16000 area and retest long-term trendline support there which I've pointed out previously.

Still bearish chart patterns in BA, CAT, CSCO, CVX, DD, IBM, INTC, JNJ, MMM, MRK, PG, possibly AAPL, TRV, UTX, WMT and XOM would suggest that downside pressures predominate still in the Dow.


The Nasdaq Composite (COMP) is bearish below 4900, which was the point that COMP broke decisively below its prior trading range. I've noted resistance at 4900, although Friday's trade suggested selling pressure coming in at the 4935-4960 area. Pivotal next resistance is suggested at the milestone 5000 level.

Near chart support probably begins at 4800, then in the 4760 area at the 21-day moving average, but key support and the one I've highlighted on the chart, comes in at 4700, extending to around 4630. I'd look at establishing bullish positions in key tech stocks and the big cap NDX if the broad COMP falls back into the 4700 to 4630 zone.

COMP's 13-day Relative Strength Index or RSI is back in neutral territory, no longer oversold, and not back to an 'overbought' area. I'm 'neutral' to bearish on the Composite with trade below 4900, which was COMP's breakdown point, the low end of its prior trading range.

Low bullish trader 'sentiment' suggests upside potential at some point as from a contrary opinion standpoint my CPRATIO indicator suggests the 'seeds of the opposite' happening from the majority view which generally has a terrible track record, not always but enough to have made me mostly a contrarian over the years.


The Nasdaq 100 (NDX) is mixed to bearish in its chart. A sustained advance above 4400 is needed to suggest that resistance at 4450-4500 could be tested. A move above 4500, with support seen on pullback to this level would suggest that NDX has resumed its prior upside momentum before NDX's recent substantial 'breakdown' and selling pressures below 4400.

Near support is suggested at the 21-day moving average, currently intersecting at 4263, extending to 4250. Next potential support comes in the 4200 area. Support should also be noted at 4000. Looking at the weekly chart (not shown) with major chart and trendline support is seen at 3800-3720.

A further pullback to 4250-4200 may be an area to stake out bullish positions with an exit point at 4150.


The Nasdaq 100 tracking stock's (QQQ) recent rally stopped at resistance implied by its previously broken up trendline, currently intersecting at 108.7 as noted as by the resistance down arrow. Near resistance is seen at 106.5.

Near support in QQQ looks to begin around 104, extending to 103.5; as seen with my green up arrow. Next support begins in the 102 area, extending to 101.5.

I see potential for the Q's to work somewhat lower such as back to its 21-day moving average intersecting around 104 with support extending to the 103.5 area.

The 104 to 102 price zone looks like an area to look at both covering short positions and buying QQQ. I'd stay away from options positions and not take the risk of WHEN the tracking stock mounts a sustained rally. We could see a 106 to 103.5-103 trading range ahead.


The Russell 2000's (RUT) chart is mixed to bearish. Its recent rebound stopped at the upper envelope line that reflects a value 2.5% above the 'centered' 21-day moving average which I use as a current suggestion of an upper resistance area.

Probably more importantly, RUT was approaching the 1200 level 'breakdown' point, where the Index fell off the cliff so to speak and accelerated its decline. I've noted near resistance at 1180, extending to 1200.

Near support comes in at 1140, extending to 1130-1125. Major support begins at 1100 and extends to the 1080 to 1050 price zone. A sustained move above 1220 would suggest renewed upside momentum. Absent that, or a pullback to the 1140 to 1125 support zone, I'm neutral on RUT offering much upside potential at this juncture.

No trading recommendations. I suggest letting the Russell 2000 Index establish further evidence of support and to see where buying interest comes in.


New Option Plays

A Bitter Performance

by James Brown

Click here to email James Brown


International Flavors & Fragrances Inc. - IFF - close: 105.17 chg: -2.41

Stop Loss: 108.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 470 thousand
Entry on September -- at $---.--
Listed on September 19, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: Yes, see below

Company Description

Trade Description:
Currencies moves and a slowing global economy appear to be souring IFF's performance.

IFF is considered part of the basic materials sector. According to the company, "International Flavors & Fragrances Inc. (IFF) is a leading global creator of flavors and fragrances used in a wide variety of consumer products. Consumers experience these unique scents and tastes in fine fragrances and beauty care, detergents and household goods, as well as beverages, sweet goods and food products. The Company leverages its competitive advantages of consumer insight, research and development, creative expertise, and customer intimacy to provide customers with innovative and differentiated product offerings. A member of the S&P 500 Index, IFF has more than 6,200 employees working in 32 countries worldwide."

Bulls could argue that emerging markets offer a lot of opportunity as the growing population of consumers demand more variety and flavors. Bears can argue that IFF faces a lot of competition around the globe and they're very vulnerable to currency moves. We can already see the impact of currency fluctuations in IFF's results.

Their Q4 results, announced Feb. 12th, were better than expected but revenues were only +4.7%. Their Q1 results, out May 12th, beat estimates by a thinner margin. Revenues were only up +0.6%. Their Q2 report came out on August 10th. Wall Street was expecting a profit of $1.36 a share on revenues of $776 million. IFF only delivered $1.29 a share with revenues down -2.6% to $767 million. Currencies are a big part of the issue here but the stock is not acting very healthy either.

On August 6th, 2015, the company announced they were raising their quarterly dividend by +20% to $0.56 a share. IFF should begin trading ex-dividend on Sept. 23rd. Management also announced a $250 million stock buyback through 2017. This news has not helped the stock price.

Investors seem to be selling the rally. Shares peaked in early 2015 and have made a trend of lower highs and lower lows. It looks like the trend of lower lows will accelerated. A few days ago IFF broke down under a major trend line of support on its long-term chart (see below). Tonight we are suggesting a trigger to buy puts at $104.45.

Trigger @ $104.45

- Suggested Positions -

Buy the NOV $100 PUT (IFF151120P100) current ask $2.55
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

Adjust Your Stop Loss!

by James Brown

Click here to email James Brown

Editor's Note:

Friday's widespread market decline suggests that investors are unhappy with the Fed's decision to not raise rates. The decision generates uncertainty and the market hates uncertainty. It's time to double check your stop loss placement. Monday could be another volatile session.

We have added or adjusted the stop loss on all of our plays.

Current Portfolio:

CALL Play Updates

Avago Technologies - AVGO - close: 127.59 change: -3.02

Stop Loss: $123.65
Target(s): To Be Determined
Current Option Gain/Loss: -51.4%
Average Daily Volume = 3.8 million
Entry on September 14 at $132.50
Listed on September 12, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/19/15: The stock market's drop on Friday helped push AVGO below support near $130.00. AVGO spent the afternoon hovering near $127 and eventually pared its loss to -2.3%. This breakdown is potentially bearish and we are adding a stop loss at $123.65.

No new positions at this time.

Trade Description: September 12, 2015:
It's been a while since we traded AVGO. The stock has seen some big moves this year. Shares peaked near $150 on June 1st and then spiked down toward $100 during the market's correction on August 24th.

If you're not familiar with AVGO they are in the technology sector. The company is part of the semiconductor industry. They make chips that speed up mobile phones while reducing interference. According to company marketing materials, "Avago Technologies is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing. Backed by an extensive portfolio of intellectual property, Avago products serve four primary target markets: wireless communications, wired infrastructure, enterprise storage, and industrial and other."

AVGO is probably best known as a part supplier to Apple Inc. (AAPL). AAPL's huge success with the iPhone 6 and 6+ has been a blessing for AVGO. Earnings and revenue growth is seeing significant momentum. Revenues were up +137% from a year ago during Q2 (reported May 28th) and up +36% during Q3 (reported Aug. 26th).

Another key event happened on May 28th. AVGO announced they were buying rival Broadcom (BRCM) for $37 billion. Wall Street applauded the news and shares of AVGO rallied on the announcement. The combined company will have revenues of $15 billion a year. The M&A news also sparked a handful of new price targets on AVGO in the $160-170-180 region. Currently the point & figure chart is bullish and forecasting at $185 target.

As a high-profile, momentum stock shares of AVGO are volatile. I am suggesting traders start with small positions to limit risk. The stock is breaking out through significant resistance in the $125-130 region. Friday's display of relative strength (+1.8%) is a good sign and the first close above $130.00 in about two months. The intraday high on Friday was $131.22. We are suggesting a trigger to buy calls at $131.55. I'm listing the October calls. You may want to consider January calls but we'll exit ahead of October option expiration.

*small positions to limit risk* - Suggested Positions -

Long OCT $140 CALL (AVGO151016C140) entry $3.70

09/19/15 new stop @ 123.65
09/14/15 triggered on gap open at $132.50, suggested trigger was $131.55
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co. - DIS - close: 102.84 change: -1.36

Stop Loss: $98.85
Target(s): To Be Determined
Current Option Gain/Loss: -36.5%
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

09/19/15: DIS was not immune to the market's decline on Friday but shares only fell -1.3% versus the S&P 500's -1.6% drop. Unfortunately the intraday reversal on Thursday combined with Friday's decline looks ugly for DIS. If the market continues to sink we could see DIS retesting the $100.00 level.

Tonight we are adding a stop loss at $98.85. No 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

09/19/15 new stop loss @ 98.85
09/12/15 a breakout past resistance near $105 could be a new bullish entry point.
09/09/15 caution - DIS produced a bearish engulfing candlestick reversal pattern
08/27/15 triggered on gap open at $101.35, suggested entry was $101.00
Option Format: symbol-year-month-day-call-strike


Electronic Arts - EA - close: 70.07 change: -0.99

Stop Loss: $67.35
Target(s): To Be Determined
Current Option Gain/Loss: -11.4%
Average Daily Volume = 3.1 million
Entry on September 17 at $70.75
Listed on September 16, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

09/19/15: EA retreated back toward the $70.00 level on Friday. Shares lost -1.39%. If this weakness continues the stock could dip toward its 10-dma (near $69.00) or what looks like stronger support near $68.00. I would hesitate to launch new positions at the moment. Let's see how EA performs on Monday.

Please note that tonight we are adding a new stop loss at $67.35.

Trade Description: September 16, 2015:
Believe it or not but consumers spent more money on video games than movies. One of the biggest video game makers out there is EA.

They are considered part of the technology sector. According to the company, "Electronic Arts (EA) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. In fiscal year 2015, EA posted GAAP net revenue of $4.5 billion. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims®, Madden NFL, EA SPORTS® FIFA, Battlefield®, Dragon Age® and Plants vs. Zombies®."

Earnings have managed to beat Wall Street estimates even as revenues declined in the last couple of quarters. EA reported its 2015 Q4 results on May 5th. Results of $0.39 a share beat estimates by 13 cents. Revenues were down -2% to $896 million but that beat expectations by a wide margin. Management announced a new $1 billion stock buy back program that will last between now and May 2017.

With the May Q4 report the company lowered its Q1 guidance. Three months later EA beat this lowered forecast. Earnings were $0.15 a share. That was 13 cents better than expected. Revenues fell -10% to $693 million but still ahead of analysts' expectations. The company lowered its Q2 guidance but raised its full year 2016 estimates.

Bigger picture EA has a lot of new products coming out in the next few months that should drive sales. One of them is a Star Wars game timed to hit the shelves ahead of the movie debut in December.

Technically the long-term trend is higher. Shares did suffer a painful $16 drop from its August high to August low but has already recovered half of it. Wall Street is bullish with new price target upgrades in the $82-85 region. The point & figure chart is bullish and forecasting at $82 target.

Today EA sits just below resistance at its simple 50-dma (near $70.50). We are suggesting a trigger to buy calls at $70.75.

- Suggested Positions -

Long DEC $75 CALL (EA151218C75) entry $3.15

09/19/15 new stop @ 67.35
09/17/15 triggered @ $70.75
Option Format: symbol-year-month-day-call-strike


Facebook, Inc. - FB - close: 94.40 change: +0.06

Stop Loss: $90.65
Target(s): To Be Determined
Current Option Gain/Loss: +438.1%
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

09/19/15: FB continues to hold up well. Shares gapped down on Friday morning but the stock rebounded. FB closed virtually unchanged which is definitely a sign of relative strength when the major indices are down -1.5% or worse.

Tonight we are adding a stop loss at $90.65. 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

09/19/15 new stop @ 90.65
09/16/15 More conservative traders will want to consider taking some money off the table before the Fed decision tomorrow afternoon
09/05/15 FB recently announced their WhatsApp service has hit 900 million people
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: 115.72 change: -1.62

Stop Loss: $113.35
Target(s): To Be Determined
Current Option Gain/Loss: +3.4%
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

09/19/15: Small caps fared a tiny bit better than the large caps on Friday. The IWM only fell -1.38% versus a -1.6% drop in the S&P 500. The action on Thursday and Friday definitely looks short-term bearish but the IWM has not yet broken the bullish trend of higher lows. Of course that does not mean the trend won't break on Monday.

We are adding a stop loss at $113.35 to try and reduce our risk. 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

09/19/15 new stop @ 113.35
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


Martin Marietta Materials, Inc. - MLM - close: 169.89 change: -6.04

Stop Loss: $166.85
Target(s): To Be Determined
Current Option Gain/Loss: -44.6%
Average Daily Volume = 855 thousand
Entry on September 03 at $170.46
Listed on September 2, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/19/15: Ouch! MLM was hammered on Friday. Shares erased about a week's worth of gains with a $6.00 plunge toward round-number support at $170.00. MLM closed on its low for the day and that's bearish for Monday morning. Tonight we are adding a stop loss at $166.85.

No new positions at this time.

Trade Description: September 2, 2015:
Industrial sector stocks have not had a good year. The IYJ industrial ETF is down -7.4%. The XLI industrial ETF is down -9.7% year to date. Yet shares of MLM are up +52.7% for 2015. (for the record the Dow Jones Industrial Average is down -8.3%).

If you're not familiar with MLM, here is a brief description, "Martin Marietta, an American-based company and a member of the S&P 500 Index, is a leading supplier of aggregates and heavy building materials, with operations spanning 32 states, Canada and the Caribbean. Dedicated teams at Martin Marietta supply the resources for the roads, sidewalks and foundations on which we live. Martin Marietta's Magnesia Specialties business provides a full range of magnesium oxide, magnesium hydroxide and dolomitic lime products."

If you look at a year-to-date chart of MLM then you probably noticed the huge rally in MLM back in February. That was a reaction to its 2014 Q4 results. Earnings were above expectations and revenues soared +57% from a year ago to $856 million, which was also above analysts' estimates.

The company also announced a 20 million share stock buyback program back in February. Now 20 million shares may not sound like much but MLM only has 67.48 million shares outstanding.

The stock spent the following eight weeks slowly drifting lower. It finally found support in the $135.00 area. Then suddenly MLM found its mojo again when the company reported its 2015 Q1 results on April 30th. The funny thing is MLM actually missed Wall Street estimates. Analysts were expecting a profit of $0.09-0.12 a share for the first quarter. MLM only delivered $0.07 but it was better than a loss of $0.47 a year ago. 2015 Q1 was the first time MLM had reported a profit in the first quarter since 2008.

MLM said revenues rose +61% from a year ago to $691.4 million. That too was below expectations but traders didn't care. Management said their margins improved 500 basis points. Business was strong enough they were able to raise prices +11%.

MLM's Q2 results, announced on August 4th, were not quite as good. The company missed estimates. Wall Street was expecting a profit of $1.60 per share on revenues of $1.01 billion. MLM only delivered $1.22 per share (relatively flat from a year ago) as revenues were up +37.7% to $921 million. Management did say their gross margins improved 350 basis points. They also provided a relatively optimistic outlook for the rest of 2015 and 2016 albeit without significantly raising their estimates.

The company said this year was the second wettest year in the last 100 years. A lot of companies postponed construction projects, which delayed sales for MLM. They expect this pent up demand to return.

Investors must have been in a forgiving mood because shares of MLM soared following this Q2 report. The stock delivered a string of all-time highs before collapsing during the stock market's recent correction. Shares fell from $175.00 to $$143.16 (at its intraday low on Aug. 24th) in just four days. That's a -$32.00 drop (a -18% correction).

Since that market correction MLM has rebounded back above previous resistance at $156 and $160. Shares were showing relative strength today with a +2.95% gain and a close above all its key moving averages. The point & figure chart has gone from bullish to bearish and back to bullish with a $197.00 target. The next hurdle could be potential round-number resistance at $170.00. Tonight we are suggesting a trigger to buy calls at $170.25.

- Suggested Positions -

Long OCT $175 CALL (mlm151016C175) entry $5.60

09/19/15 new stop @ 166.85
09/03/15 triggered on intraday gap at $170.46, suggested entry was $170.25
Option Format: symbol-year-month-day-call-strike


Noble Energy, Inc. - NBL - close: 32.33 change: -0.78

Stop Loss: $30.85
Target(s): To Be Determined
Current Option Gain/Loss: -28.6%
Average Daily Volume = 5.7 million
Entry on September 08 at $31.32
Listed on September 5, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/19/15: Crude oil underperformed on Friday with a big drop and that weighed on the energy stocks. NBL slipped -2.35% to close near short-term support in the $32.00 area.

Tonight we are adding a stop loss at $30.85. More conservative traders might want to use a stop closer to the 10-dma (currently near $31.50).

No new positions at this time.

Trade Description: September 5, 2015:
Unless you have been living under a rock the last several months then you already know that energy stocks have been crushed thanks to a plunge in crude oil prices. One side effect of this crash in energy stock is the potential for mergers and acquisitions as companies try and buy growth and assets while valuations are depressed.

According to the company, "Noble Energy (NBL) is a global independent oil and natural gas exploration and production company, with proved reserves of 1.7 billion barrels of oil equivalent at year-end 2014 (pro forma for the Rosetta acquisition). The company's diverse resource base includes core positions in four premier unconventional U.S. onshore plays - the DJ Basin, Eagle Ford Shale, Delaware Basin, and Marcellus Shale - and offshore in the U.S. Gulf of Mexico, Eastern Mediterranean and West Africa."

The bear market in oil stocks has pushed NBL down to five-year lows. Shares are hovering near round-number support in the $30.00 region. On Friday market watchers noted that someone bought 18,000 call options at the September $30 strike. That's rather unusual since there were only 863 contracts of open interest at that strike price. That got people talking that maybe there is a deal in NBL's future.

We are adding NBL as a very speculative bullish play. Tonight we are suggesting traders buy calls (October $32.50 strike) at the opening bell on Tuesday morning. However, we do not want to initiate positions if shares of NBL gap open more than $1.00 higher (or lower) on Tuesday.

- Suggested Positions -

Long OCT $32.50 CALL (NBL151016C32.5) entry $2.10

09/19/15 new stop @ 30.85
09/05/15 trade begins. NBL opens at $31.32
Option Format: symbol-year-month-day-call-strike


Post Holdings, Inc. - POST - close: 67.82 change: -1.91

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: -28.0%
Average Daily Volume = 1.0 million
Entry on September 03 at $66.55
Listed on August 29, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

09/19/15: POST spent most of last week soaring to new highs. That probably made it a target for profit taking on Friday. The stock underperformed with a -2.73% decline.

Tonight we are adjusting the stop loss up to $64.65. No new positions in POST at this time.

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.

- Suggested Positions -

Long OCT $70 CALL (POST151016C70) entry $2.43

09/10/15 new stop at $62.40
More conservative traders may want to exit early tomorrow morning
09/03/15 triggered @ $66.55
Option Format: symbol-year-month-day-call-strike


Constellation Brands Inc. - STZ - close: 127.35 change: -3.06

Stop Loss: $124.95
Target(s): To Be Determined
Current Option Gain/Loss: -48.8%
Average Daily Volume = 1.1 million
Entry on September 16 at $130.55
Listed on September 3, 2015
Time Frame: Exit PRIOR to Earnings on October 7th
New Positions: see below

09/19/15: STZ delivered another volatile session on Friday. The stock was tagging all-time highs on Wednesday and Thursday. The two-day reversal from Thursday's high erased the prior three day's worth of gains. Friday saw STZ close on its low for the day and that's normally bearish for the next trading session - in this case Monday morning.

If this weakness continues we'll likely see STZ slip toward the recent lows in the $125.50 area. We are adding a stop loss at $124.95.

No new positions at this time.

Trade Description: September 3, 2015:
Major beer brands have suffered from the boom in craft beers. Yet STZ's Corona and Modelo have seen significant growth, especially in the U.S. The company's earnings and revenue growth has fueled a rally in the stock that has outpaced the major marker indices.

STZ is in the consumer goods sector. According to the company, "Constellation Brands (NYSE:STZ and STZ.B) is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world`s leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company`s premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky.

Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,200 talented employees."

This past January STZ reported their fiscal year 2015 Q3 results that beat analysts' estimates on both the top and bottom line. Management raised their 2015 guidance. Their Q4 results were announced on April 9th. Earnings were up +37% from a year ago to $1.03 per share. That was 9 cents above estimates. Revenues were up +5% to $1.35 billion. Gross margins improved to 44%.

STZ said they're seeing strong demand for their Mexican beer brands Corona and Modelo. They're gaining market share in both the spirits and wine categories as well.

The company said 2015 sales were up +24% from the prior year to $6.03 billion. STZ's management guided in-line for fiscal 2016 and forecast earnings of $4.70 to $4.90 per share. That compares to 2015's profit of $4.17 per share (essentially +12% to +17.5% earnings growth).

STZ's most recent earnings report was July 1st. Wall Street was expecting a profit of $1.24 per share on revenues of $1.62 billion. STZ narrowly beat expectations with a profit f $1.26 per share. Revenues were up +7% to $1.63 billion. Management then raised their full-year 2016 earnings guidance from $4.70-4.90 to $4.80-5.00 a share.

The stock did not get much of a reaction from its earnings news or improved guidance. There was a brief spike higher but it didn't last. STZ spent almost the entire month of July consolidating sideways.

The technical picture changed in August. STZ began to rally and displayed impressive strength with a climb from its July 27th low near $115 to $130 by August 18th. Then STZ gave it all back in about three days as the U.S. market tanked. The sharp correction lower saw STZ plunge back toward support in the $114-115 area. What is shocking is how fast STZ has recovered. Buyers just poured into this stock and now STZ is testing its all-time highs near $130 again.

While the three-day crash is a bit terrifying the relative strength in STZ's rebound is impressive. I would consider this an aggressive, higher-risk trade due to STZ's volatility. Tonight we are suggesting a trigger to buy calls at $130.55. We'll exit prior to the October option expiration.

- Suggested Positions -

Long OCT $135 CALL (STZ151016C135) entry $2.05

09/19/15 new stop @ 124.95
09/16/15 triggered @ $130.55
Option Format: symbol-year-month-day-call-strike


Skyworks Solutions, Inc. - SWKS - close: 89.37 change: -1.37

Stop Loss: $85.45
Target(s): To Be Determined
Current Option Gain/Loss: -31.8%
Average Daily Volume = 4.0 million
Entry on September 17 at $92.55
Listed on September 15, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: see below

09/19/15: SWKS is generating some mixed signals. The breakout attempt above its 50-dma failed. That's bearish. Friday's decline left shares below their 200-dma and what should have been short-term support at $90.00. This is also short-term bearish. Traders bought the dip at its short-term, 10-dma. That's normally bullish.

I would hesitate to launch new positions. Let's see how SWKS fares on Monday. We are adding a new stop loss at $85.45.

Trade Description: September 15, 2015:
SWKS seems to be everywhere. They make semiconductor chips for just about every industry including aerospace, automotive, consumer electronics, wearables, and the Internet of Things. They have been called the leading wireless semiconductor company. They are probably best known for being a component supplier to Apple (AAPL) for their ubiquitous iPhones.

If you are not familiar with SWKS they are in the technology sector. According to the company website, "Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

The company is really cashing in on some major global trends including smart phones and smart(er) cars. Data suggests that over 90% of mobile phone users are still using 2G and 3G phones. That means SWKS should benefit as consumers upgrade to 4G phones. Meanwhile SWKS is also poised to benefit from the surging trend of interconnectivity in automobiles. One forecast estimates that 75% of automobiles in 2020 (about 70 million vehicles) will have Internet-connectivity. Today that number is only around 10 million cars.

The company's earnings growth has been phenomenal. They have beaten Wall Street's earnings and revenues estimates the last five quarters in a row. They have also raised their guidance the last five quarters in a row. Their 2014 Q4 report saw revenues up +50%. Their 2015 Q1 reported revenues were up +59% while earnings were up +88%. SWKS' Q2 report on April 30th delivered earnings growth of +85% on revenue growth of +58%. Results seemed to slow down a little bit with their Q3 report (announced July 23rd). Earnings were $1.34 per share (+61%) while revenues were up +38% to $810 million.

Analysts are bullish on the stock. SWKS has seen multiple price target upgrades in recent months with several in the $115-120-130 range. Out of 21 analysts the mean target is about $118 and the median target is $120 per share.

One factor that has analysts bullish on SWKS is the Apple iPhone upgrade cycle. There are 450 million iPhones in circulation but only 20-30% of consumers have upgraded to the 6 or 6+ models. When they do it should propel sales for SWKS.

If you're going to trade SWKS it is important to note that the stock is volatile. As a high-flying, high-growth, momentum name, shares of SWKS see a lot of movement. SWKS peaked near $113 in June, which was a +55% gain for the year. The stock began to correct lower and then finally capitulated with the market's crash on August 24th. SWKS hit an intraday low of $70.80, which was a -$40 drop or -37% decline from the intraday high in June. The bounce back to $91.60 is a +29% rebound off its August low. As of today, September 15th, SWKS is up +26% for the year. That compares to the NASDAQ composite, which is only +2.6% and the SOX semiconductor index, which is down -9% year to date.

The positive trend of higher lows over the last few weeks has produced a bullish breakout through significant resistance in the $90-91 area. This is where SWKS's 50-dma and 200-dma have converged. The stock just rallied through both moving averages with today's display of relative strength (+2.4%). Tuesday's intraday high was $91.86. We are suggesting a trigger to buy calls at $92.55.

- Suggested Positions -

Long NOV $100 CALL (SWKS151120C100) entry $4.03

09/19/15 new stop loss @ 85.45
09/17/15 triggered @ $92.55
Option Format: symbol-year-month-day-call-strike


The TJX Companies - TJX - close: 71.36 change: -1.18

Stop Loss: $69.85
Target(s): To Be Determined
Current Option Gain/Loss: -31.0%
Average Daily Volume = 3.0 million
Entry on September 03 at $72.05
Listed on August 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

09/19/15: TJX filled the gap from Thursday morning and ended the session with a -1.6% decline, which matched the S&P 500's loss. The stock should find support near $70 if this weakness continues. We are adding a new stop loss at $69.85.

No new positions at this time.

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.

- Suggested Positions -

Long 2016 Jan $75 CALL (TJX160115C75) entry $2.90

09/19/15 new stop @ 69.85
09/03/15 triggered @ $72.05
Option Format: symbol-year-month-day-call-strike


Vulcan Materials Co. - VMC - close: 98.95 change: -2.25

Stop Loss: $95.85
Target(s): To Be Determined
Current Option Gain/Loss: -30.6%
Average Daily Volume = 1.0 million
Entry on September 16 at $101.15
Listed on September 14, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: Yes, see below

09/19/15: Traders were selling their winners on Friday and VMC qualifies after hitting new highs the day before. The stock lost -2.2%.

Tonight we are adding a stop loss at $95.85. No new positions at this time.

Trade Description: September 14, 2015:
VMC and rival MLM are some of the best performing stocks this year. The S&P 500 index is down -5% year to date while VMC is up +51%. That's because the construction business in the U.S. has rebounded. VMC is a domestic company that primarily sells its building materials in the U.S.

According to the company, "Vulcan Materials Company is the nation's largest producer of construction aggregates-primarily crushed stone, sand and gravel-and a major producer of aggregates-based construction materials, including asphalt and ready-mixed concrete. Our coast-to-coast footprint and strategic distribution network align with and serve the nation's growth centers."

Looking at the last few earnings reports VMC has had some trouble meeting Wall Street's bottom line earnings estimates. However, they have been consistently beating on the revenue estimate. The last three quarters in a row have seen revenues come in better than expected. The most recent quarter (Q2) was reported on August 6th and revenues were up +13%.

The stock has seen multiple upgrades into the $106-110-111 region. The point & figure chart is bullish and forecasting at $115 target. The stock has displayed significant strength with its bounce off the late August lows (when the market corrected lower).

Today VMC is challenging round-number, psychological resistance at $100 and closed at new multi-year highs. The intraday high on September 9th was $101.00. We are suggesting a trigger to buy calls at $101.15.

- Suggested Positions -

Long NOV $105 CALL (VMC151120C105) entry $3.60

09/19/15 new stop @ 95.85
09/16/15 triggered @ $101.15
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Jack In The Box - JACK - close: 75.58 change: -1.44

Stop Loss: 78.45
Target(s): To Be Determined
Current Option Gain/Loss: -34.9%
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

09/19/15: JACK continued to underperform the market on Friday. Shares slipped -1.86% and they look poised to breakdown under support near $75.00 soon. Tonight we are adding a stop loss at $78.45.

I would be tempted to launch new positions on a drop below $75.00.

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

09/19/15 new stop @ 78.45
09/16/15 new stop @ 80.35
09/01/15 triggered on gap down at $76.88, suggested entry was $77.70
Option Format: symbol-year-month-day-call-strike


Tiffany & Co. - TIF - close: 79.35 change: -1.26

Stop Loss: $82.35
Target(s): To Be Determined
Current Option Gain/Loss: -26.4%
Average Daily Volume = 1.2 million
Entry on September 11 at $79.75-
Listed on September 9, 2015
Time Frame: Exit PRIOR to November option expiration
New Positions: see below

09/19/15: The market's widespread sell-off on Friday pushed TIF back toward its recent lows. Shares fell -1.5%. The intraday low on Friday was $78.90. I would buy puts again if shares traded below this level. Tonight we are adding a stop loss at $82.35.

Trade Description: September 9, 2015:
2015 has not been a good year for shares of TIF. The stock is down about -24% for the year thanks to a big drop in January and August. The August drop was painful with a -14% slide.

TIF is in the services sector. According to the company, "Tiffany is the internationally-renowned jeweler founded in New York in 1837. Through its subsidiaries, Tiffany & Co. manufactures products and operates TIFFANY & CO. retail stores worldwide, and also engages in direct selling through Internet, catalog and business gift operations."

On January 12th, 2015, TIF issued an earnings warning for 2015 and lowered guidance. Shares fell from about $103.50 to $90. TIF spent months churning sideways and the popped higher in May thanks to better than expected earnings results. Their Q1 results, reported May 27th, beat estimates by a wide margin and revenues came in better than expected in spite of a -5% slide from a year ago.

Three months later the company missed analysts' expectations. TIF reported their Q2 results on August 27th. Wall Street was looking for earnings of $0.91 a share on revenues of $1 billion. TIF said earnings fell -10% to $0.86 a share (a 5-cent miss). Revenues dropped -0.2% to $991 million.

The strong dollar is hurting their sales. Tourists coming to America are spending less in TIF's flagship stores. Management lowered their 2016 guidance. TIF now expects earnings to be -2% to -5% less than last year's $4.20 per share.

Analysts have been lowering their price targets in response to TIF's new guidance but shares are sinking faster than expected.

TIF is currently hovering near round-number support at $80.00. The breakdown in August was significant because TIF has broken below its long-term up trend dating back to the 2009 bear-market lows (see weekly chart below). If TIF breaks down below $80 the next support level could be $70.

- Suggested Positions -

Long NOV $75 PUT (TIF151120P75) entry $2.42

09/19/15 new stop @ 82.35
09/11/15 triggered @ $79.75
Option Format: symbol-year-month-day-call-strike