Option Investor

Daily Newsletter, Tuesday, 9/29/2015

Table of Contents

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

Market Wrap

Saved by the Bell

by Jim Brown

Click here to email Jim Brown

A spurt of buying at the bell lifted the Dow back into positive territory and avoided a negative close under 16,000. The Nasdaq was not so lucky as the biotech sector continued to be a drag.

Market Statistics

This was a very slow news day as the quarter draws to a close and companies are in their quiet period ahead of earnings. The indexes started off positive but faded as the day progressed. The biotech sector continued to be the drag on the Nasdaq and S&P but the rate of sector decline slowed slightly.

Several analysts reiterated buys on various biotech stocks and called the decline a buying opportunity. So far, investors have not taken that advice. Other analysts claim the sector has another 10% to fall.

The huge decline in the Asian markets failed to translate to declines in the USA. Japan declined -4% and China -2%. Europe was negative but not as bad as Asia.

The economic reports in the U.S. were positive but the big events start on Wednesday. The Consumer Confidence for September rose from 101.3 to 103.0 and the highest level since January's 103.8 reading. Analysts were expecting a decline to 98.0 with Moody's expecting a drop to 96.5. Falling gasoline prices were credited as the driver.

The present conditions component rose from 115.8 to 121.1. The expectations component declined slightly from 91.6 to 91.0. Those who felt jobs were plentiful rose from 21.7% to 25.1%. Those expecting an increase in income rose from 16.2% to 19.1%. Consumers planning on buying a car rose from 10.8% to 12.7%, prospective home purchasers rose from 4.4% to 6.3% and the highest level in 2015 but appliances purchasers declined from 49.5% to 48.0%.

The Texas Service Sector Outlook Survey for September rose from 2.1 to 3.6. Respondents generally saw conditions improving slightly. Texas has been hard hit by the energy decline and will not recover until the price of oil begins to rise. The future outlook component for the next six months rose only slightly from 9.7 to 9.8.

The big events begin tomorrow with the ADP Employment report for September. Expectations are for a gain of +191,000 jobs, up only 1,000 from August. The Nonfarm Payroll report on Friday is expected to show a gain of +203,000 jobs, up +30,000 from August. These reports will have a direct impact on the Fed meeting in October.

Janet Yellen will get another chance to hone her rate hike speech at 2:PM on Wednesday and China's PMI revision is due out after the market closes.

The national ISM Manufacturing on Thursday is also going to be important for the market. With regional manufacturing reports erratic with some showing declines, the national version will be important.

The speaker list for the Fed is very heavy this week with Friday the biggest single day schedule I have ever seen.

In stock news Keurig Green Mountain (GMCR) released its cold beverage maker called appropriately the Keurig Kold. The drink machine is not cheap at $369 with the individual drink capsules ranging from 99 cents to $1.25. This is significantly higher than the $100 Sodastream device. Available drinks include Coke, Diet Coke, Sprite and Fanta. Vitaminwater and energy drinks will be added next. Keurig expects to spend $100 million over the next year to market the new drink machine.

Keurig shares are down significantly from the $159 level it saw in November. Coke (KO) owns 16.8% of GMCR.

Apple (AAPL) sold a record 13 million iPhones over the weekend and saw an analyst upgrade today as well as positive mention by Carl Icahn. Sterne Agee initiated coverage on Apple with a $150 price target. Unfortunately, that did not help the stock. Apple shares declined -$3.38 after Google announced some new phones to compete with the iPhone and Google's phones start at $379.

The Nexus 5X has a 5.2-inch screen, 1920x1090 resolution, 2GB, a 12.3 megapixel rear camera, 5 megapixel front camera and 2,700 mAh battery. The Nexus 6P has a 5.7-inch screen, a full aluminum body, USB Type-C port that charges twice as fast as the iPhone. The resolution of 2560x1440 is also better than the 6S+ at 1920x1080. The starting price is $499 compared to $799 for the 6S+, the 6S at $649 and Samsung Galaxy S6 at $679.

Google also announced a high-end tablet with a detachable keyboard. The new Pixel C has a 10.2 inch touch screen with 32 GB of storage and starts at $499. The new tablet is based on the Android operating system rather than the Chrome operating system.

Google also updated its Chromecast device, which allows users to stream content from their tablet or phone to a non-smart TV. They introduced a second version that streams audio to any speaker with a $35 dongle that attaches to the speaker. You can stream music from any smartphone app such as Spotify to any connected speaker. Google has sold more than 20 million Chromecast video devices.

Google shares also declined along with the Nasdaq.

Chesapeake Energy (CHK) announced a layoff of 740 workers after the company reported a loss of more than $4 billion for Q2. The layoffs represent about 15% of their workforce. After the cuts, the company will employ about 4,000 workers. The CEO said in a letter to employees that the current energy environment represented a challenge for Chesapeake and the industry. The terminated employees will receive up to a full years pay depending on their age, pay level and years of service.

Chesapeake is only one of dozens of companies that have cut workers because of oil prices. Analysts estimate more than 100,000 workers have lost their jobs.

Commodities producer Glencore rebounded +17% after several banks came to their defense. On Monday shares fell -27% after an investment bank warned the company could fail because of its $30 billion in debt. Commodity prices are below the cost to produce them in many cases. Citigroup said there was nothing to worry about because Glencore had excellent banking relationships and the commodity crush would pass. Glencore said it was planning on reducing its debt in 2016 by more than $10 billion through planned asset sales.

The crash in Glencore helped to crush the European markets because of major margin calls when the stock fell more than 75% over just the last several weeks. Investors were forced to sell other shares to make up for losses in Glencore.

On Monday, GoPro (GPRO) announced a new $200 camera called the Hero+, which will fill a gap between the entry level Hero at $130 and the Hero+LCD at $300. The new camera can record 1080p video at 30fps compared to the more expensive version at 60fps. The company now has six cameras between $130 and $500. They also lowered the price of the Session camera by -$100 to $300 ahead of the holidays.

Sterne Agee initiated coverage with a price target of $45 compared to today's close at $30. The analyst said a smartphone would never be a competitor for a GoPro camera because it was not built for the same purpose and nobody will want to risk their $700 phone to take an action picture. He said, "Consumers don't just want an action camera. They want a GoPro camera." The name is synonymous with the market. The company is expected to launch the HERO5 camera series in 2016 along with a consumer drone product line. Shares rose fractionally on the news.

Tesla (TSLA) is set to deliver its first Model X to consumers this evening as CEO Elon Musk hands over the first set of keys to a lucky buyer in Fremont California. This will be the first time the company has two models in production at the same time. Tesla has not even released the final pricing on the Model X series but customers are still putting down deposits. More than 32,000 people have put down $5,000 to place an order. However, the fully loaded Signature Edition will cost about $132,000. The Model X has three rows of seats and will seat 7 adults.

The drawback to the SUV other than price is the gull wing doors. Those prevent a top mounted luggage rack for bikes, skis, etc. It also prevents parents from loading the car in some garages because of the space needed to open the doors. Tesla shares declined -1.78 today.

Casino stocks dove again after Macau's biggest junket promoter, Neptune Group, said it might have to halt or reduce operations if VIP gamers continue to avoid the region. Junket operators facilitate loans to VIP gamers and those customers accounted for 70% of Macau revenues. The junket operators said revenue had declined to a five-year low. While Neptune may not completely leave the Macau area their financial stress suggests many less capitalized junket operators could be pushed out of business. That would mean even less revenue for the casino operators like Wynn Resorts (WYNN) and Las Vegas Sands (LVS). Macau gaming revenues have been declining at about -35% per month over the same period in 2014.

Several weeks ago, there was a major theft by a junket operator at a Wynn casino. It was originally reported as $258 million but later reduced to $34 million. Stricter controls are also causing a slowdown in VIP trips.

Crude oil rose today as it does on nearly every Tuesday ahead of the inventory numbers from the API and EIA. After the bell tonight, the API reported a +4.6 million barrel gain in inventories for last week. These gains should now be common since we are out of the summer driving season and refineries are shutting down for maintenance. WTI declined to $44.91 after the report. The API numbers are not considered reliable and traders are more focused on the EIA inventories on Wednesday morning.


Last week somebody bought 50,000 contracts of the SPY June $186 puts at $1,100 each or roughly $55 million. Since then another 90,000 puts were purchased for the June $184 strike at $1,100 per contract or roughly $100 million. Either somebody knows something we do not or there are some really large portfolios that were hedged. The $55 million purchase would hedge about a $1 billion portfolio so double that for the 90,000 contracts.

As a portfolio hedge, the June premiums will decline slowly in case of a market rebound. If a typical market bottom is formed in early October and the market rebounds strongly the put owners can exit those positions with minimal losses in premium. If we did get another leg down in the market and those puts went deep into the money they could sell them for a profit to offset losses in the individual stocks.

While I understand the mechanics of this process, I am still concerned when I see put purchases this large. This requires a significant level of fear regarding a potential decline and confidence that a decline will recover. Otherwise, they could simply sell their positions and plan to buy the dip. Obviously, there may be tax concerns that could make selling the positions not a real option.

Can you imagine the look on the market makers face when he sees an order to buy 50,000 high dollar puts show up on his screen?

Goldman Sachs revised their yearend estimate for the S&P from 2,100 to 2,000. Tony Dwyer at Canaccord cut his yearend estimate from 2,340 to 2,150. Apparently, the bullish bias is fading.

There has been a lot of chatter in the last several days about a retest of the August lows at 1,867 and almost as much talk about the potential to retest the October lows at 1,820. The S&P declined to 1,871 today and only 4 points away from the August low. The rebound was lackluster and you would have expected a bigger bounce after coming that close to a successful retest. In most circles, a 4-point miss would have been good enough to trigger a flood of buyers. The lack of buyers is troubling.

This suggests there are lower lows ahead. However, tomorrow is the end of the quarter and there may have been a calendar consideration in the case of funds. The calendar is working against us in another way because of the historical trend of market lows in the first ten days of October. Portfolio managers may be thinking they can get a better price if they hold out for another week. There was also the worry over the ADP Employment report due out in the morning and the Nonfarm Payrolls on Friday. Why step in front of economic traffic if you do not have to?

All we need is one more of those big market flush days to knock the S&P down to 1,820. While that would be a convenient level for a rebound, it may not be the final level if the global economy is going to continue to decline. There is risk of a global recession or even deflation if commodities fail to find a bottom soon. That could turn this correction into a bear market with a drop to the 1,700 level. I am not predicting that but we need to be aware of the possibilities.

For tomorrow, resistance is 1,900 and support 1,867. Should either level be broken I would expect a continued move in that direction that could possibly be violent.

The Dow has already exceeded the October lows in the August dip back to the January 2014 levels at 15,350. Tuesday's dip under 16,000 was the low for the month the August low appears to be the target. The Dow got some unexpected help from upgrades to McDonalds and Johnson & Johnson. 3M is still gaining from its deal with AstraZenaca and an upgrade from Credit Suisse. The rest of the gains appeared to be limited short covering on the late day bounce.

The October low at 15,855 would be support but after the bigger plunge in August, it should have less influence on the index.

On the Nasdaq support at 4,500 was tested and pierced by 11 points before the end of day rebound began. This decline was due to the continue drop in the biotechs, which lost -1.4% for the day. Until the biotech sector finds a bottom the Nasdaq will continue to bleed points.

Once the 4,500 level breaks the next material support point is the August low at 4,292 and then the 4,130 level from October. This means the Nasdaq could see some seriously negative days if conditions do not change soon. Resistance is 4,600.

The Russell 2000 hit a milestone today with the dip to 1,082. This is support from January and May in 2014. All prior support levels are now well into the rearview mirror and a failure here targets 1,050. The Russell is the sentiment indicator for the market and it remains bearish. Any further decline could accelerate to bear market levels at 1,036 and a -20% decline. This could contaminate the other indexes and cause additional selling.

The possibility of continues weakness in biotechs from fund managers racing to capture their remaining gains, makes me bearish for the rest of the week. The seasonality of market lows in the first week of October is also a factor because investors may wait to see if they can get a better price next week.

The nearness of the Russell small caps to a bear market low is also a factor. This is the sentiment index for the market and sentiment is bearish.

All of these factors could be reversed in the blink of an eye with a major short squeeze but there is still considerable risk. I would be careful about loading up on a bunch of longs, or shorts, because market movement over the next 10 days could turn violent. Continue building your list for long term buys and put in orders at ridiculous prices. Sometimes you will be surprised at what you can buy during a volatility event.

However, sometimes the best trade is the one you don't make.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

No Bottom In Sight

by James Brown

Click here to email James Brown


Alibaba Group - BABA - close: 57.82 change: +0.43

Stop Loss: 61.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 15.8 million
Entry on September -- at $---.--
Listed on September 29, 2015
Time Frame: Exit PRIOR to earnings in November
New Positions: Yes, see below

Company Description

Trade Description:
BABA was the biggest IPO in history. After a rocket-ride higher shares peaked at $120.00 in November 2014. Today BABA is in bear market, down -51% from its peak. The stock is on pace for its fourth monthly loss in a row. The company's valuation has plunged $75 billion since May (currently at $143 billion). There doesn't appear to be any bottom in sight.

BABA is in the services sector. According to the company, "Alibaba Group's mission is to make it easy to do business anywhere. The company is the largest online and mobile commerce company in the world in terms of gross merchandise volume. Founded in 1999, the company provides the fundamental technology infrastructure and marketing reach to help businesses leverage the power of the Internet to establish an online presence and conduct commerce with hundreds of millions of consumers and other businesses."

Alibaba Group's major businesses include:

Taobao Marketplace (www.taobao.com), China's largest online shopping destination
Tmall.com (www.tmall.com), China's largest third-party platform for brands and retailers
Juhuasuan (www.juhuasuan.com), China's most popular online group buying marketplace
Alitrip (www.alitrip.com), a leading online travel booking platform
AliExpress (www.aliexpress.com), a global online marketplace for consumers to buy directly from China
Alibaba.com (www.alibaba.com), China's largest global online wholesale platform for small businesses
1688.com (www.1688.com), a leading online wholesale marketplace in China
Alibaba Cloud Computing (www.aliyun.com), a provider of cloud computing services to businesses and entrepreneurs
BABA's IPO last year was a huge event for Wall Street. They came to market with 320 million shares that priced at $68.00. BABA opened for trading at $92.70. Today the number of shares outstanding has ballooned to 2.48 billion and the number of shares in the float is over 1.6 billion (available for sale). The company just had a huge lock up expire last weekend so major shareholders are now able to sell.

Big momentum stocks like BABA draw a lot of attention because of the company's growth rate. BABA is still growing. The problem is that growth is slowing down.

BABA reported their Q4 report on May 7th. Earnings of $0.48 per share beat estimates by seven cents. Revenues were up +44.7% to $2.81 billion, which was above estimates. Their Q1 numbers were announced on August 12th. BABA only beat earnings by a penny with $0.59 a share. Revenues were up +28% to $3.26 billion but that missed expectations. BABA's management tried to soften the bad news by announcing a big $4 billion stock buyback program over the next two years.

The buyback news didn't work. Shares of BABA plunged on the earnings news. Wall Street is turning cautious on the stock. Bloomberg recently reported that 12 analysts have cut their BABA sales estimates for Q3 and Q4, the most important quarter of the year. Wall Street is now forecasting BABA sales growth to slow down to +27% in Q3 and +24% in Q4. This is the slowest pace of growth since BABA's IPO.

Why the bearish outlook? The answer could be the slowing Chinese economy. The country is suffering from a hard landing as Chinese growth sinks to its slowest pace in years. The biggest shopping day of the year is Singles Day on November 11th. This year BABA is facing tougher competition for the online shopping fest. Barron's recently argued that shares of BABA could fall another -50%. The point & figure chart is bearish and forecasting at $51 target.

The bearish trend of lower highs has pushed BABA's stock to record lows and below its IPO price of $68. As concerns over China's economy persist BABA could have much further to fall. Tonight we are suggesting a trigger to buy puts at $57.15. We will plan on exiting prior to BABA's earnings in November.

Trigger @ $57.15

- Suggested Positions -

Buy the NOV $55 PUT (BABA151120P55) current ask $3.20
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

A Disappointing Oversold Bounce

by James Brown

Click here to email James Brown

Editor's Note:

The market tried to mount an oversold bounce but stocks didn't get very far. The S&P 500 failed at round-number resistance near 1,900. Weakness in biotechs and healthcare continued to weigh on the market.

STZ hit our stop loss. ULTA has been removed.

Current Portfolio:

CALL Play Updates

Nike, Inc. - NKE - close: 119.67 change: -2.47

Stop Loss: 112.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.6 million
Entry on September -- at $---.--
Listed on September 28, 2015
Time Frame: Exit PRIOR to earnings in December
New Positions: Yes, see below

09/29/15: Shares of NKE continued to see profit taking on Tuesday in spite of another analyst upgrade this morning. We are expecting shares to dip toward support near $117.00. Our suggested entry point is $117.50.

Trade Description: September 28, 2015:
In the athletic footwear and apparel industry Nike is the 800-pound gorilla with annual sales of more than $30 billion. According to the company, "NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

The stock has been a great performer thanks to NKE constantly delivering better than expected results. Today shares of NKE are up +27% for 2015 versus an S&P 500 that is down -8.6%.

Looking at the last few quarters NKE has seen strong growth across all geographic categories. Their 2015 Q3 results were announced on March 19th. Earnings and revenues were better than expected. Sales were up +7% but on a currency neutral basis Q3 sales were +13%. Margins improved and their online sales soared. This trend has continued over the last six months.

NKE's 2015 Q4 results were announced on June 25th. Earnings were 15 cents above estimates while revenues beat expectations at $7.78 billion. On a reported basis sales were up +4.8% but on a currency neutral basis sales rose +13%. Global future orders, a key metric Wall Street watches for NKE, were up +2% but backing out currency headwinds future orders were up +13%, above estimates.

The trend of earnings beats continued with NKE's most recent report on September 24th (last week). Analysts were expecting a profit of $1.19 per share on revenues of $8.22 billion. NKE beat both estimates with a profit of $1.34 a share. Revenues were up +5.4% to $8.41 billion. Margins improved again thanks to a shift to higher-margin products and continued growth for online sales.

Management said revenues in Western Europe were up +14%. Emerging market sales were up +19%. North American sales rose +9% and future orders are up +15%. China was a bright spot as the great China region delivered sales growth of +30% and future orders are up +27%.

NKE's global future orders improved from +2% the prior quarter to +9%. Yet on a constant currency (neutral) basis their future orders are up +17%, which is significantly above analysts expectations.

This better than expected report and their bullish forecast for orders generated a parade of positive comments from Wall Street analysts. Several reiterated their "buy" rating or upgraded the stock. A few upgraded their price targets into the $140 area. The point & figure chart is bullish and forecasting a long-term target of $182.00.

Last week's earnings report saw NKE's stock pop to new highs near $125.00 a share. Today NKE saw some profit taking, down -2.28%. The broader market is sinking and this could drag on NKE. The stock is likely to fill the gap from Friday morning. Meanwhile prior resistance in the $117.00 area should be new support. We want to take advantage of any short-term weakness in NKE and buy a dip.

Odds are good NKE will decline toward the $117 region. Tonight we are suggesting a buy-the-dip entry trigger at $117.50. We'll start with a stop loss at $112.90.

Buy-a-dip Trigger @ $117.50

- Suggested Positions -

Buy the 2016 Jan $125 CALL (NKE150115C125) estimated entry in the $4 range

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

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

PUT Play Updates

Aon plc - AON - close: 88.40 change: -0.01

Stop Loss: 90.85
Target(s): To Be Determined
Current Option Gain/Loss: - 0.0%
Average Daily Volume = 1.2 million
Entry on September 23 at $88.65
Listed on September 22, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

09/29/15: AON briefly traded at a new 2015 low but shares bounced. The stock closed nearly unchanged on the session. A decline below today's low (87.58) could be used as a new entry point for bearish positions.

Trade Description: September 22, 2015:
A slowing global economy and negative currency winds have created a tougher environment for AON. Financial stocks in general have underperformed the broader market (-8%) and AON looks like it could play catch up with the group.

AON is in the insurance business. According to the company, "Aon plc is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise."

Management has managed to beat Wall Street's bottom line earnings estimate the last few quarters. However, they have been missing analysts' revenue estimates. Revenues have been falling faster than expected. Their Q4 results saw revenues drop to +3% growth. By Q1 revenues were down -3.4%. Their Q2 results, announced on July 31st, saw revenues decline -3.9%. As a global company the impact of negative currency headwinds does account for a lot of this revenue trouble. While some traders may want to write this off the situation could get worse as the U.S. dollar should rally when the Fed starts to raise rates.

Technically shares of AON look broken. The stock collapsed during the market's correction in late August. The oversold bounce failed pretty quickly. Now three weeks later the stock is starting to breakdown from this short-term consolidation pattern. The point & figure chart is already bearish and forecasting at $75.00 target. We are suggesting a trigger to buy puts at $88.65.

- Suggested Positions -

Long 2016 JAN $85 PUT (AON160115P85) entry $3.30

09/28/15 new stop @ 90.85
09/23/15 triggered @ $88.65
Option Format: symbol-year-month-day-call-strike

Caterpillar Inc. - CAT - close: 64.31 change: +0.52

Stop Loss: 65.85
Target(s): To Be Determined
Current Option Gain/Loss: +129.2%
Average Daily Volume = 5.8 million
Entry on September 22 at $71.12
Listed on September 21, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

09/29/15: CAT produced a bit of an oversold bounce today. The stock rallied +2.5% at its highs on Tuesday. It was a +3.7% bounce from yesterday's low. Gains had faded by lunchtime and CAT settled with a +0.8% gain for Tuesday.

No new positions at this time.

Trade Description: September 21, 2015:
The recent relative weakness in CAT has awarded the stock a spot in our bearish plays section.

The bear market in shares of CAT continues. Most of the big industrial names are down about -10% year to date. CAT is down -21% in 2015 and off about -35% from its 2014 highs. The company has seen business hurt by a multitude of factors.

If you're not familiar with CAT, a component of the Dow Jones Industrial Average, they are in the industrial goods sector. According to the company, "For 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2014 sales and revenues of $55.184 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three product segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment."

The earnings outlook has been somewhat volatile for CAT. On January 27, 2015, the stock collapsed to new 52-week lows after the company missed earnings estimates and guided lower for 2015. Three months later on April 23rd the company beat estimates on both the top and bottom line and management raised their 2015 guidance. Jump ahead three more months and on July 23rd CAT reported earnings that were in-line with expectations but revenues fell -13% to $12.3 billion. This was below analysts' revenue estimates. CAT's management lowered their 2015 guidance below Wall Street expectations. Naturally the stock plunged on this bearish outlook.

The company has been hurt by the crash in commodity prices. Low prices for coal, iron ore, and oil discourage production and thus the need for more equipment manufacturers like CAT and rival Joy Global. A few weeks ago CAT reported that worldwide sales were down -11% in July. That was actually an improvement from the -14% drop in June. Asia was hardest hit thanks to weakness in China. Joy Global just lowered their 2015 outlook a few days ago as they look ahead through the rest of 2015. CAT also expect a tough second half.

This morning, September 21st, CAT updated their worldwide sales numbers for August. Global sales fell -11% again. This followed a -11% drop in July. The Asia-Pacific region worsened from -25% to -29%. Latin America improved from -37% to -33%. North America was still at -5%. CAT also noted that oil and gas-related equipment sales were down -20%, and transportation was down -38%. These are pretty ugly numbers.

CAT is a global business. Currency translations are taking a big bite out of sales. Weakness in the euro, the Japanese yen, and the Brazilian real are all adding pressure. When the U.S. Federal Reserve eventually raises rates that should boost the dollar and only make the currency issue worse.

CAT's management has been trying to support their stock price with an accelerated stock buyback program of $1.5 billion. It doesn't seem to be working. Investors are selling every rally and CAT is in a clear down trend of lower highs and lower lows.

The most recent oversold bounce from short-term support at $72.00 failed near resistance at $76.00. Now CAT is about to breakdown under $72.00. Friday's intraday low was $71.61. Tonight we are suggesting a trigger to buy puts at $71.40.

- Suggested Positions -

Long NOV $70 PUT (CAT151120P70) entry $3.25

09/28/15 new stop @ 65.85
09/26/15 new stop @ 67.05
09/24/15 CAT warned. The company lowered its 2015 and 2016 forecast and announced thousands in job cuts.
09/22/15 triggered on gap down at $71.12, trigger was $71.40
Option Format: symbol-year-month-day-call-strike

Compass Minerals Intl. - CMP - close: 77.47 change: -0.36

Stop Loss: 79.55
Target(s): To Be Determined
Current Option Gain/Loss: - 9.4%
Average Daily Volume = 269 thousand
Entry on September 24 at $78.70
Listed on September 23, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

09/29/15: CMP continues to look weak. Shares settled near their lows for the session and underperformed the S&P 500 with a -0.46% loss today. I would consider new positions at current levels.

Trade Description: September 23, 2015:
Continued weakness in commodities is really started to weigh down the basic material stocks. CMP could be on the verge of a big breakdown.

CMP is in the basic materials sector. According to the company, "Compass Minerals is a leading provider of essential minerals that provide solutions to nature's challenges, including salt for winter roadway safety and other consumer, industrial and agricultural uses, and specialty plant nutrition minerals that improve the quality and yield of crops. The company produces its minerals at locations throughout the U.S. and Canada and in the U.K."

Looking at CMP's last few earnings reports their results have been mixed. They tend to beat Wall Street's estimate on the bottom line but revenues have been up and down. The most recent report (Q2) came out on July 27th. Revenues were down -1.6% from a year ago but that actually beat expectations. CMP's management has reaffirmed their full year guidance two quarters in a row but that hasn't stopped multiple analyst firms from downgrading their outlook for the stock.

Technically CMP has been churning sideways in the $79.00-86.00 trading range for about three months. A breakdown through the bottom of this range would also generate a new sell signal on the point & figure chart.

Tonight we are suggesting a trigger to buy puts at $78.70. Plan on exiting prior to CMP's earnings report in late October.

- Suggested Positions -

Long DEC $75 PUT (CMP151218P75) entry $3.20

09/28/15 new stop @ 79.55
09/24/15 triggered @ $78.70
Option Format: symbol-year-month-day-call-strike

Deckers Outdoor Corp. - DECK - close: 57.66 change: +0.91

Stop Loss: 60.25
Target(s): To Be Determined
Current Option Gain/Loss: -10.5%
Average Daily Volume = 775 thousand
Entry on September 24 at $58.28
Listed on September 23, 2015
Time Frame: Exit PRIOR to earnings
New Positions: see below

09/29/15: After plunging to new lows yesterday DECK managed a decent oversold bounce today. The stock rallied more than 4% off its morning lows today before trimming its gains.

No new positions at this time.

Trade Description: September 23, 2015:
Slowing sales and rising expenses is a dangerous recipe. Investors seem to have lost confidence in DECK with the stock down -35% year to date.

DECK is in the consumer goods sector. According to the company, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The Company's portfolio of brands includes UGG®, Teva®, Sanuk®, Ahnu®, and HOKA ONE ONE®. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 143 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

The stock was crushed in January 2015 with a plunge from $94 to $66. A big chunk of that decline was a reaction to their earnings (January 29th). DECK missed estimates on both the top and bottom line and lowered guidance.

Since then DECK has seen some improvement in earnings but their most recent report was still disappointing. DECK reported its 2016 Q1 results on July 30th. Wall Street was expecting a loss of ($1.50) per share on revenues of $213 million. DECK delivered a loss of ($1.43) a share. That beat estimates but it was still worse than the ($1.07) loss a year ago. Revenues were up +4.5% to $221 million. Unfortunately DECK said their expenses were up while margins contracted.

DECK management also offered soft Q2 guidance while bumping their full-year 2016 earnings estimates. Investors chose to sell. Their Q1 results saw Teva brand sales up +6.8% but Sanuk brand sales fell -7.0% while Ugg brand sales dropped -7.2%. The Ugg number is important since Ugg sales account for more than 50% of DECK's revenues.

It looks like the bears might be right about this one but I have to warn you this is starting to look like a crowded trade. The most recent data listed short interest at 20% of the 32.1 million share float. This raises the risk of a short squeeze. Consider small positions to limit risk.

Technically DECK is in a bear market. The trend of lower highs is pushing it lower. Today DECK just broke down below key support at the $60.00 level. The next support area could be the $50 region. Today's low was $58.77. I am suggesting a trigger to open bearish positions at $58.65.

- Suggested Positions -

Long NOV $55 PUT (DECK151120P55) entry $2.85

09/28/15 new stop @ 60.25
09/24/15 Trade begins on gap down at $58.28, trigger was $58.65
Option Format: symbol-year-month-day-call-strike

International Flavors & Fragrances Inc. - IFF - close: 101.09 chg: +0.50

Stop Loss: 105.05
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
Average Daily Volume = 470 thousand
Entry on September 23 at $104.45
Listed on September 19, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: see below

09/29/15: IFF recovered a tenth of yesterday's loss with a meager bounce today. I wouldn't be surprised to see the bounce continue tomorrow. The $104.00 area should be new resistance.

No new positions at this time.

Trade Description: September 19, 2015:
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.

- Suggested Positions -

Long NOV $100 PUT (IFF151120P100) entry $2.80

09/28/15 new stop @ 105.05
09/23/15 triggered @ $104.45
Option Format: symbol-year-month-day-call-strike

Laboratory Corp. Of America - LH - close: 106.86 change: -1.41

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +110.5%
Average Daily Volume = 1.0 million
Entry on September 25 at $114.25
Listed on September 24, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

09/29/15: It was another volatile session for LH. The stock rebounded from $105.77 at its lows to $109.95 at its highs. Shares settled with a -1.3% loss, underperforming the major indices.

No new positions at this time.

Trade Description: September 24, 2015:
Investor sentiment on LH seems to have soured. The stock is up +6.8% for the year but it's down more than -10% from its early August peak. LH's 2015 gains could vanish if shares break support.

LH is in the healthcare sector. According to the company, "Laboratory Corporation of America® Holdings, an S&P 500 company, is the world's leading healthcare diagnostics company, providing comprehensive clinical laboratory services through LabCorp Diagnostics, and end-to-end drug development support through Covance-Drug Development. LabCorp is a pioneer in commercializing new diagnostic technologies and is improving people's health by delivering the combination of world-class diagnostics, drug development and knowledge services. With combined revenue pro forma for the acquisition of Covance in excess of $8.5 billion in 2014 and more than 48,000 employees in over 60 countries, LabCorp offers innovative solutions to healthcare stakeholders. LabCorp clients include physicians, patients and consumers, biopharmaceutical companies, government agencies, managed care organizations, hospitals, and clinical labs."

LH has delivered decent results over the last four quarters. The company has beaten Wall Street estimates on the bottom line four quarters in a row. They have beaten analysts' revenue estimates three out of the last four quarters. Their most recent report was July 28th. LH announced their Q2 results with revenues up +49% thanks to its Covance acquisition. Management raised their 2015 guidance above Wall Street expectations.

Unfortunately the post-earnings rally did not last very long. Shares reversed under resistance near $130 and its 2015 highs. Since then traders have been selling the rallies and LH has a bearish trend of lower highs. Today LH underperformed the broader market with a -1.27% decline. The stock is poised to breakdown under support in the $114-115 region.

The August 25th low was $114.44. Tonight I am suggesting a trigger to buy puts at $114.25. The point & figure chart is bearish and forecasting a $102.00 price target but I see potential support in the $108-110 region. Don't be surprised to see a temporary bounce in that area.

- Suggested Positions -

Long NOV $110 PUT (LH151120P110) entry $2.85

09/28/15 new stop @ 112.25
09/25/15 triggered @ $114.25
Option Format: symbol-year-month-day-call-strike

Tiffany & Co. - TIF - close: 75.20 change: +0.32

Stop Loss: $77.55
Target(s): To Be Determined
Current Option Gain/Loss: +30.2%
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

09/29/15: TIF managed a minor bounce (+0.4%) and shares found resistance near $76.00 intraday.

No new positions at this time.

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

09/28/15 new stop @ 77.55
09/23/15 new stop @ 80.35
09/19/15 new stop @ 82.35
09/11/15 triggered @ $79.75
Option Format: symbol-year-month-day-call-strike


Constellation Brands Inc. - STZ - close: 123.50 change: -2.43

Stop Loss: $124.95
Target(s): To Be Determined
Current Option Gain/Loss: -82.9%
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

09/29/15: Yesterday's reversal in STZ continued and shares plunged -1.9%. The stock broke through significant support near $125.00 and its 50-dma. Our stop loss was hit at $124.95.

- Suggested Positions -

OCT $135 CALL (STZ151016C135) entry $2.05 exit $0.35 (-82.9%)

09/29/15 stopped out
09/19/15 new stop @ 124.95
09/16/15 triggered @ $130.55
Option Format: symbol-year-month-day-call-strike


ULTA Beauty - ULTA - close: 161.71 change: -2.65

Stop Loss: 164.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 900 thousand
Entry on September -- at $---.--
Listed on September 26, 2015
Time Frame: Exit PRIOR to November options expiration
New Positions: see below

09/29/15: The relative weakness in ULTA continued on Tuesday. Shares lost -1.6% and dipped toward support near $160.00 and its 100-dma.

More aggressive traders may want to consider buying calls from current levels and adjust their stop so it's below $160.00. We are choosing to drop ULTA as a candidate. The recent weakness has broken the bullish trend of higher lows.

Trade did not open.

09/29/15 removed from the newsletter, suggested entry was $170.50