Option Investor

Daily Newsletter, Sunday, 8/2/2015

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Stuck In A Trading Range

by James Brown

Click here to email James Brown

The stock market spent most of last week in recovery mode, especially after an ugly start on Monday morning (July 27th). That was thanks to another crash in the Chinese Shanghai stock market. Last Monday the Shanghai index plunged -8.5% for its biggest one-day drop in more than eight years. To put that into perspective, Art Cashin, the Director of Floor Operations for UBS Financial Services, said the Shanghai's drop was the equivalent of the Dow Industrials falling -1,485 points in a single day.

Fortunately traders were in a buy-the-dip mood on Tuesday and the U.S. market delivered a three-day bounce. All the major indices managed gains for the week. Transports delivered a big bounce with a +3.9% gain. Housing stocks performed even better with a +4.0% rally. Crude oil continued to sink with oil falling -2.7% for the week to $46.86 a barrel. It was the fifth weekly decline for oil. The commodity is down -21% for the month of July, the biggest one-month drop since 2008.

Economic Data

We had a lot of economic data to digest last week. Pending home sales fell -1.8% in June when analysts were expecting a +1% gain. The Case-Shiller 20-city Home Price index rose +4.4% in May. That is a less than expected but it follows a +5% rise the prior month.

Consumer sentiment is slipping and this is potentially negative for the economy. The Conference Board's Consumer Confidence Index fell to a 10-month low with a drop to 90.9 in July. June's reading was adjusted from 101.4 to 99.8. The University of Michigan's Consumer Sentiment survey was also revised lower with the final July reading adjusted from 93.3 to 93.1. That's down from June's 96.1, which was a six-month high.

Durable goods orders rose +3.4% in June, which was above expectations. The Chicago PMI also came in better than expected with a rise from 49.4 in June to 54.7 in July. This is the first rise in three months and puts the Chicago PMI back into positive territory (above 50.0).

The Commerce Department delivered a mixed outlook on U.S. GDP growth. They revised Q1 growth higher from negative -0.2 to +0.6%. Yet Q2 growth was adjusted to +2.3%, which was less than expected. That puts the 2015 first half growth at +1.5%.

The Employment Cost Index (ECI) made headlines on Friday. This measures civilian employee compensations. The first quarter saw the ECI rise +0.7%. Economists were expecting Q2 to rise +0.6%. Instead the Q2 number was only +0.2%. That's the lowest reading on record going back 33 years. The lack of wage growth could be viewed as another factor that might delay the Federal Reserve from raising rates in September.

Overseas Economic Data

Looking at last week's economic data overseas we're going to turn first turn East. Japan reported their household spending in June plunged -3.0% for the month. That's down from +2.4% the prior month and down -2.0% from a year ago. Retail sales in June were also below down with a drop from +3.0% to +0.9%. In positive news Japan said their industrial production for June rose +0.8%, which was better than expected and a significant improvement from last month's -2.1%. Their construction orders for June surged +15.4%.

We did not see a lot of economic data out of China. Investors were focused on the Chinese stock market instead. As I mentioned earlier last Monday was painful with a -8.5% plunge. There were 75 declining stocks for every 1 advancing stocks. It probably would have been worse but hundreds of stocks didn't even open for trading on Monday. Supposedly the culprit behind the sell-off was new worries that the government's support for the market may not be as strong as promised. The sell-off continued on Tuesday with a -5% plunge in the Shanghai index but a bounce narrowed Tuesday's loss to -1.7% by the closing bell. The Chinese market rebound +3.4% on Wednesday but this was followed by a -2.2% drop on Thursday and a -1.1% decline on Friday.

The Eurozone reported their July CPI rose +0.2%. That was in-line with expectations. Their core-CPI was up +1.0%. Eurozone unemployment was unchanged at 11.1%. Spain reported a mixed bag of results with retail sales for June coming in below estimates at +2.3%. Spain's Q2 GDP growth was +1.0% quarter over quarter and +3.1% year over year.

Germany reported their retail sales for June fell -2.3%. That was significantly below expectations. French consumer spending was also below estimates at +0.4% for the month.

The situation with Greece continues to simmer in the background. The country's leaders have restarted negations with the Troika (EU, ECB, and IMF) over its third bailout since 2010. A recent Reuters article suggested Greece might ask for an initial 24 billion euros to support its banks and pay its upcoming debt payments. Unofficially some EU leaders said the talks are off to a good start. However, by the end of the week the IMF was putting up resistance. News reports on Friday suggested the IMF might pullout of Greece debt talks if they do not include debt relief (debt forgiveness), which is something the EU leaders claim cannot be done since it goes against EU treaties. A Greek newspaper said leaders hope to conclude talks by mid August.

Major Indices:

The S&P 500 index managed a +1.16% gain for the week and a +2.0% gain for the month of July. Yet the big cap index remains stuck in its 2,040-2,130 trading range. Year to date the S&P 500 is up +2.2%.

Last week saw the S&P 500 test technical support at its simple 200-dma and bounce. If we're going to trade technicals then Friday's decline has produced a small bearish engulfing candlestick reversal pattern, which would suggest a decline in the week ahead.

The only levels we need to watch at the moment is the bottom of the range at 2040 and resistance near 2130.

chart of the S&P 500 index:

The NASDAQ composite bounced off technical support near its rising 100-dma and ended the week with a +0.78% gain. The index is up +2.8% for the month of July and year to date it is up +8.3%.

The 5,160 area could be short-term resistance. Above that the July highs near 5,230 are resistance. I'd still look for support at 5,00 and 4,900.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index fell to new five-month lows with an intraday spike down on Tuesday morning. Fortunately the index reversed and is now up four days in a row. The $RUT managed a +1.0% gain for the week. I'm worried that the index is currently in a new trend of lower highs and lower lows that started with the reversal from its June peak.

If I'm right about the new trend then the 1,250-1,255 area should be short-term resistance. Support could be around the 1,200 area.

Year to date the $RUT is up +2.8%.

chart of the Russell 2000 index

Economic Data & Event Calendar

It's a brand new month and that means lots of economic data. We'll get the ISM and ISM services indices. The ADP employment number will hint at the BLS jobs report on Friday. Analysts are estimating +215,000 jobs for the ADP report and +220,000 for the government's nonfarm payroll data.

- Monday, August 03 -
Eurozone manufacturing PMI
Personal Income & Spending
ISM index
Auto and truck sales

- Tuesday, August 04 -
Factory Orders

- Wednesday, August 05 -
Eurozone services PMI
ADP Employment Change Report
ISM Services index

- Thursday, August 06 -
Bank of England interest rate meeting

- Friday, August 07 -
Bank of Japan meeting
Nonfarm payrolls (jobs) report
Unemployment rate

Additional dates to be aware of:

Sept. 7th - Markets closed for Labor Day holiday
Sept. 17th - FOMC meeting, policy update, economic forecasts
Sept. 17th - Fed Chairman Yellen press conference

Looking Ahead:

As we look at the week ahead all eyes will be on the nonfarm payrolls report due out Friday morning. Analysts want to see the latest jobs number in hopes of discerning if the Fed will raise rates in September or postpone the next rate hike out to December or even wait until 2016. If the jobs data is significantly above estimates then suddenly traders will worry about a rate hike in September.

There is no FOMC meeting in August and Federal Reserve Chairman Janet Yellen is not going to attend annual economic symposium in Jackson Hole, Wyoming, this year. The symposium is sponsored by the Federal Reserve Bank of Kansas City and runs August 27-29th. This could produce a vacuum of information between now and the next FOMC meeting in September.

We are still in the middle of Q2 earnings season although the worst is behind us. After almost 1,300 companies reporting last week we'll see nearly 1,000 companies report earnings this week. While the general consensus on earnings seems to be not as bad as expected we are still seeing plenty of individual stocks implode on their results.

I mentioned last week that the calendar is not in the bulls' favor. August and September are typically the worst two months of the year for stocks. According to the Stock Trader's Almanac the month of August, since 1950, sees the S&P 500 index trade down -0.1%. Yet the last five years have seen the S&P 500 deliver an average decline of -2.5% in August.

Another negative for the market is market breadth. We have mentioned this issue before. The stock market's strength has been fueled by fewer and fewer stocks. Only a handful of big caps account for the market's gain because the averages are market-cap weighted. According to Oppenheimer Asset Management's technician Ari Wald, the market breadth hasn't been this poor since 2007. Yet according to Bloomberg, market breadth hasn't been this bad in almost 15 years. If the handful of stocks that have been supporting the market start to rollover we could see the broader averages accelerate to the downside.

Lately the investor sentiment numbers have been oscillating back and forth but last week they took a turn for the worse. The latest survey of the American Association of Individual Investors (AAII) saw bullish sentiment collapse from 32.5% down to 21.1%. Bearish sentiment surged to 40.7%. This is a two-year high for bearish sentiment. Meanwhile bullish sentiment just marked its 18th week in a row below the long-term average of 38.2%. It's the longest streak below average since July 2012.

Now you could argue that this surge in bearish sentiment is actually a contrarian indicator suggesting we're near a potential market bottom. Another interesting signal could be the surge in short interest. According to research done by Markit the amount of short interest in the S&P 500 stocks hit two and a half year highs. If stocks were to breakout higher this could be fuel for a short squeeze.

I am reiterating my comments from last week. The S&P 500 index remains stuck in a major trading range. We're facing the two worst months of the year for stocks. We could see anxiety over a Fed rate hike in September rise over the next six weeks. I would not be in a rush to launch new long-term bullish positions. However, if we see a close above 2,135 on the S&P 500, then my market bias will be a lot more optimistic.

~ James


Portfolio Update

by James Brown

Click here to email James Brown

Current Portfolio

Portfolio Comments:

Stocks recovered from Monday's (July 27th) spike lower but the rebound began to stall on Thursday. Equities were looking weak on Friday ahead of the weekend.

We closed half of our UA position on Monday, July 27th.

DATA and HBI were stopped out. Thankfully we had already taken some money off the table on the DATA trade when we exited half the position on June 29th (+26.5%).

I have updated the stop loss on ADBE, HSIC, ITB, and SBUX.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.

New Plays

Tug-Of-War Continues

by James Brown

Click here to email James Brown

- New Trades -

Editor's Note:

(August 02, 2015)

The tug-of-war between the bulls and bears continues. The S&P 500 index has been stuck churning sideways since March. In tonight's market commentary I outline my concerns about launching new positions. Thus I'm not adding any new trades tonight. However, Q2 earnings season does present an opportunity.

CVS and DIS, already on our watch list, both report their Q2 earnings results this week. We have a buy-the-dip entry trigger on both of them and could be triggered this week.

Tonight I have added CLX and MSFT to the watch list. As long-term traders they both have potential and we're using the 2017 call options.

I've also updated my radar screen below:
(I would not launch positions prior to earnings on these trading ideas below)

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself. In no particular order:

EXPE, INTU (earnings Aug. 20th), HAIN (earnings: late August), FDS, JNPR, ROST (e: late August), HRL (e: Aug. 19th), HD (e: Aug. 18th), XON (e: August), CAKE, GILD, IBB, AMGN, TSN (e: Aug. 3rd)

Play Updates

Beware The Earning Report Landmines

by James Brown

Click here to email James Brown

Editor's Note:

It was a volatile week thanks to a tsunami of earnings news. The week ahead could be volatile as earnings continues combined with the rush of monthly economic reports.

Closed Plays

DATA and HBI were stopped out.

We exited half of our UA position on Monday, July 27th.

Play Updates

Apple Inc. - AAPL - close: 121.30

08/02/15: I'm officially worried about our AAPL trade. Shares did not participate in the market's midweek bounce. The stock underperformed on Friday with a -0.8% decline.

Technically AAPL produced a bearish engulfing candlestick reversal pattern two weeks ago, on the weekly chart. Last week's decline confirms the breakdown. Yet shares still have support near $120.00 and hopefully at its simple 200-dma, currently at $120.75.

No new positions at this time.

Trade Description: November 2, 2014:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $633 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit f $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $133 target. Yet we do not want to chase AAPL here. The stock is up $12 from its October low. We do want to be ready if shares see a pullback.

Tonight I am suggesting a buy-the-dip trigger to buy calls at $103.50 with a stop loss at $98.90. (We amended the buy-the-dip trigger to $111.00 on Nov. 30th).

- Suggested Positions -
DEC 09, 2014 - entry price on AAPL @ 110.19, option @ 9.55
symbol: AAPL160115C120 2016 JAN $120 call - current bid/ask $8.55/8.70

07/22/15 Big gap down as the market reacts to AAPL's earnings
06/20/15 AAPL underperformed the broader market this past week. Shares look like they could break support in the $125 area
04/27/15 AAPL crushes earnings estimates (again)
04/12/15 new stop @ 118.00
03/01/15 Caution: AAPL could be poised for a pullback. Consider taking profits now and then re-enter this trade later.
02/22/15 new stop @ 114.00
02/15/15 new stop @ 109.50
12/09/14 triggered on gap down at $110.19, trigger was $111.00
11/30/14 raise the buy-the-dip entry trigger to $111.00
11/16/14 raise the buy-the-dip entry trigger to $108.00
Adjust the strike price to the 2016 Jan $120 call.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 118.00
Play Entered on: 12/09/14
Originally listed on the Watch List: 11/02/14

Adobe Systems - ADBE - close: 81.99

08/02/15: ADBE bounced twice near support at $79.00 last week. The big bounce on Thursday pushed shares into positive territory for the week. Yet the rally stalled at resistance near $83.00 again.

Tonight we are moving the stop loss to $77.65.

I would wait for a close above $83.00 before considering new bullish positions.

Trade Description: May 3, 2015:
ADBE is in the technology sector. According to the company's website, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe® Creative Cloud® software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

The company's most recent earnings report was March 17th. Results were $0.44 a share, which was five cents better than expected. Revenues were up +10.9% to $1.11 billion, also above expectations. The company continues to see success with their subscription model and added 517,000 new creative cloud subscriptions, a +28% improvement from a year ago.

Technically the stock is in a long-term up trend. Shares just spent the last few weeks consolidating sideways and looks ready for the next move higher. A rise past $78.00 would generate a new buy signal on the point & figure chart.

I am suggesting we wait for ADBE to close above $77.75 and then buy calls the next morning with a stop loss at $71.85. More conservative investors may want to wait for ADBE to close over short-term resistance at $80.00 as an alternative entry point for bullish positions.

- Suggested Positions -
MAY 15, 2015 - entry price on ADBE @ 80.00, option @ 4.60
symbol: ADBE160115C85 2016 JAN $85 call - current bid/ask $4.00/4.15

08/02/15 new stop @ 77.65
06/28/15 new stop @ 74.75
06/20/15 new stop @ 73.90
05/15/15 trade begins. ADBE opens at $80.00
05/14/15 triggered. ADBE closed @ $79.43, above our trigger of $77.75
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 77.65
Play Entered on: 05/15/15
Originally listed on the Watch List: 05/03/15

Activision Blizzard, Inc. - ATVI - close: 25.79

08/02/15: ATVI garnered bullish analyst comments last week. Two different firms upped their price target on ATVI to $30.00. Yet this was not enough to keep the rally going. After three up weeks in a row ATVI posted a decline. Fortunately traders bought the dip near its 50-dma.

Investors may want to wait for a close above $26.50 before considering new bullish positions.

ATVI has earnings coming up on August 4th.

Trade Description: May 24, 2015:
Consumer spend more money on video games than they do at the movie theater. ATVI is the biggest with annual sales of $4.58 billion. Electronic Arts (EA) is hot on its heels with revenues of $4.52 billion a year.

ATVI is home to some of the biggest franchises in video game history. According to the company, "Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty , Call of Duty Online, Destiny , Skylanders, World of Warcraft , StarCraft , Diablo, and Hearthstone: Heroes of Warcraft. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world."

Investors have been pretty forgiving when it comes to ATVI's recent earnings reports. On February 5th they beat the bottom line estimate but missed the revenue number. Revenues were down -2.6% from a year ago. ATVI blamed currency headwinds for the revenue miss since half of their sales are outside the U.S. and represent a significant chunk of their profits. Plus, the video game business is prone to lumpy quarters as sales rise and fall on new releases and expansions. Management lowered their Q1 and 2015 guidance.

ATVI just reported its Q1 results on May 6th. Earnings per share fell -15.7% from a year ago to $0.16 but that was actually 9 cents better than expected. Revenues fell again, this time down -8.9%. Management lowered their Q2 guidance but they raised their fiscal 2015 earnings guidance above Wall Street estimates. That was enough to send shares of ATVI higher. A few analysts have commented that ATVI's 2015 guidance is too conservative.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, commented on his company's quarterly results, "...This deepening level of engagement with a widening base of players across our franchises is what drove another successful quarter. We delivered better-than-expected Q1 results, increased our 2015 non-GAAP revenue outlook to $4.425 billion and earnings per share outlook to $1.20. Last quarter, on a non-GAAP basis, we delivered record higher-margin digital revenues of over half a billion dollars a Q1 record on an absolute basis and an all-time high on a percentage basis."

There were a number of headlines about how ATVI's Warcraft MMORPG saw its subscriber numbers fall from 10 million to 7.1 million in the last quarter. Investors don't seem to care. The Warcraft game is a cash cow but it's 11 years old. Investors could be looking forward.

ATVI said their new Destiny sci-fi shooter game and the Blizzard's fantasy card game have more than 50 million registered players (between them) with over $1 billion in sales.

ATVI also has several new titles coming out. They're on the verge of releasing "Heroes of the Storm", which will take on the current category champion "League of Legends" for the MOBA-style video game. More than ten million people have already signed up for the Heroes beta. ATVI has announced the next iteration of their Call of Duty franchise (CoD), which will be "Call of Duty: Black Ops III", which is another major cash-generating franchise. ATVI is also launching a new game called "Overwatch" and they'll release a new version of "Guitar Hero", which had 40 million players at its peak.

Currently shares of ATVI are up three weeks in a row and look a little bit overbought. Broken resistance near $24.00 should be significant support. Tonight I am suggesting a buy-the-dip trigger at $24.25 with a stop loss at $21.85.

- Suggested Positions -
JUL 21, 2015 - entry price on ATVI @ 26.25, option @ 2.23
symbol: ATVI170120C30 2017 JAN $30 call - current bid/ask $1.73/1.83

07/21/15 Trade begins. ATVI opens at $26.25
07/20/15 ATVI closed @ $26.25, above our trigger of $26.15
07/12/15 new entry strategy: Wait for a close above $26.15, then buy calls
Use the 2017 Jan $30 call
06/28/15 adjust the entry trigger to $23.75 and the stop to $21.85.
06/21/15 move the stop loss to $22.85
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 23.65
Play Entered on: 07/21/15
Originally listed on the Watch List: 05/24/15

Dunkin' Brands Group - DNKN - close: 53.89

08/02/15: Last Monday the market plunged in reaction to a market crash in China. DNKN fell to new relative lows but the damage was limited. Unfortunately DNKN did not participate (much) in the U.S. market's midweek bounce. Shares essentially closed unchanged on the week. A new price target upgrade to $62 didn't seem to help.

No new positions at this time.

Trade Description: May 31, 2015:
Investors appear to be in the mood for donuts this year. Shares of DNKN are significantly outperforming the broader market with its stock up about +26% year to date versus the S&P 500's +2.3% gain.

The company is in the services sector. According to the company, "Founded in 1950, Dunkin' Donuts is America's favorite all-day, everyday stop for coffee and baked goods. Dunkin' Donuts is a market leader in the hot regular/decaf/flavored coffee, iced coffee, donut, bagel and muffin categories. Dunkin' Donuts has earned the No. 1 ranking for customer loyalty in the coffee category by Brand Keys for nine years running. The company has more than 11,300 restaurants in 37 countries worldwide. Based in Canton, Mass., Dunkin' Donuts is part of the Dunkin' Brands Group, Inc. (DNKN) family of companies."

DNKN also owns the Baskin Robbins franchise, which has more than 7,500 retail locations in almost 50 countries.

The company seems to be undergoing a turnaround in its earnings results. Back in December shares plunged on an earnings warning when management lowered their 2015 guidance. When they reported their Q4 results in February they missed by a penny with revenues in-line (+5.5%). Their donut store comps were +1.4% but their ice cream store comps were +9.3%. Management raised their dividend +15% and announced a $700 million stock buy back program.

Results improved significantly in the first quarter of 2015. Analysts were expecting a profit of $0.35 a share on revenues of $180.7 million. DNKN reported earnings of $0.40 a share, which is a +21% improvement from a year ago. Margins improved 310 basis points to 47.1%. Their revenues rose +8.1% to $185.9 million, above estimates. Their donut store comps improved to +2.7% while their ice cream store comps hit +8.0%. Management raised their 2015 earnings estimates above Wall Street's consensus.

The stock soared to new all-time highs following this earnings report in late April. Since then shares have seen a correction but investors have bought the dip. Analysts have begun to raise their price targets. The point & figure chart is very bullish with a long-term target of $78.00. Currently shares of DNKN are hovering below resistance in the $54.00 area. Tonight I am suggesting we wait for DNKN to close above $54.25 and buy calls the next morning.

- Suggested Positions -
JUN 24, 2015 - entry price on DNKN @ 54.83, option @ 1.60
symbol: DNKN160115C60 2016 JAN $60 call - current bid/ask $0.75/1.10

07/19/15 new stop @ 51.85
06/24/15 Trade begins. DNKN opens at $54.83
06/23/15 DNKN closed at $54.96, above our trigger of $54.35
06/21/15 adjust entry trigger to a close above $54.35
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 51.85
Play Entered on: 06/24/15
Originally listed on the Watch List: 05/31/15

Facebook, Inc. - FB - close: 94.01

08/02/15: FB snapped a three-week winning streak as shares encountered some profit taking following the company's Q2 earnings report. Results were announced on July 29th. FB beat estimates on both the top and bottom line. Revenues were up +39% from a year ago. These results sparked a wave of bullish analyst comments, upgrades, and new price targets (many in the $115 range). Traders sold the news anyway and FB dipped toward short-term technical support at its 20-dma (near $92.00 at the time). I am not convinced the post-earnings depression is over and would not be surprised to see FB slide into the $90-92 zone again before finding a bottom.

No new positions at this time.

Earlier Comments: March 22, 2015:
Facebook probably needs no introduction. It's the largest social media platform on the planet. As of December 31st, 2014 the company reported 1.19 billion monthly active users and 890 million daily active users. If FB were a country that probably puts them as the third most populous country on the planet (behind India and China).

This past week 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.

The announcement combined with a broad market rally helped fuel a +7% gain in FB's stock last week. FB's market cap has risen past $230 billion making it the tenth largest company in the S&P 500.

Growth has been phenomenal. According to IBD, FB's Q4 earnings were up +69% form a year ago. Revenues were up +49%. Wall Street is expecting FB's profit to rise +12% in 2015 and +32% in 2016.

Technically shares of FB have broken out from a very significant consolidation pattern. The point & figure chart is bullish and forecasting at $96.00 target. I think it will go higher. After a five-day run we do not want to chase it here. I'm suggesting a buy-the-dip entry trigger at $82.00 with a stop loss at $74.75.

- Suggested Positions -
APR 01, 2015 - entry price on FB @ 81.00, option @ 4.92
symbol: FB160115C90 2016 JAN $90 call - current bid/ask $9.65/9.80

07/26/15 new stop @ 88.85
07/20/15 Planned exit to sell half. FB opened @ $95.85.
Our 2016 call option opened at $11.01 (+123.7%)
07/19/15 plan on exiting half of our FB call option on Monday (July 20th) to lock in potential gains.
07/19/15 new stop @ 87.45
06/28/15 new stop @ 78.45
04/23/15 Q1 earnings report
04/01/15 triggered @ 81.00
03/29/15 move the buy-the-dip trigger from $82.00 down to $81.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 88.85
Play Entered on: 04/01/15
Originally listed on the Watch List: 03/22/15

General Dynamics - GD - close: 149.11

08/02/15: GD delivered a strong performance with shares rising more than $6.00 last week. Shares popped following their Q2 report on July 29th. Earnings of $2.27 per share was 22 cents above estimates. Revenues were up +5.5% to $7.88 billion, also above expectations. GD management raised their 2015 guidance.

The stock hit new all-time highs midweek. I suspect GD will see some profit taking following the big gap higher on Wednesday morning.

No new positions at this time.

Trade Description: July 12, 2015:
The last time we had GD in the newsletter was back in November 2014. Shares have spent the last seven months building a massive consolidation in the $130-146 range. The stock could be poised for a major breakout higher.

GD is considered part of the industrial goods sector. The company is a huge aerospace and defense company. They have four significant segments: aerospace, combat systems, information systems, and marine systems (ships and submarines). The defense industry in the U.S. has been saddled with significant budget cuts due to the 2011 sequestration deal that will shave $500 billion from U.S. defense spending from 2012 through 2021. The industry has managed to thrive in spite of these budget cuts.

GD has beaten Wall Street's earnings estimates seven quarters in a row. They're also beating analysts revenue estimates as well. Margins have been steadily improving.

The world isn't getting any safer and the major defense contractors have been working on boosting their overseas sales just in case the U.S. decides to cut defense spending again. Considering the current state of world affairs with a growing military rival in China, a new cold war brewing with Russia, and an openly hostile ISIS, defense spending should stay healthy.

I mentioned earlier that GD had consolidated sideways for the last seven months. Today it's on the verge of a bullish breakout higher. The point & figure chart is already bullish and forecasting at $175.00 target.

Friday's intraday high was $146.98. I am suggesting we wait for GD to close above $147.00 and then buy calls the next morning with a stop loss at $141.75.

- Suggested Positions -
JUL 16, 2015 - entry price on GD @ 148.00, option @ 2.85
symbol: GD160115C160 2016 JAN $160 call - current bid/ask $2.55/2.70

07/16/15 trade begins. GD opens at $148.00
07/15/15 Triggered. GD closed at $147.25, above our $147.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 141.75
Play Entered on: 07/16/15
Originally listed on the Watch List: 07/12/15

Henry Schein, Inc. - HSIC - close: 147.98

08/02/15: Shares of HSIC ricocheted between resistance at $150.00 and technical support at its 50-dma (near $144.00) last week.

The company reported earnings on Thursday morning. Results were in-line with estimates at $1.46 per share. Revenues slipped below expectations. Guidance was in-line. Shares rallied and ended the week with a gain.

Tonight we are adjusting our stop loss to $141.75. No new positions at this time.

Trade Description: July 12, 2015:
HSIC has been relatively resistant to the market's ups and downs lately. That's a good thing considering some of the recent volatility in stocks.

HSIC is in the services sector. They're part of the medical equipment industry. According to the company, "Henry Schein, Inc. is the world's largest provider of health care products and services to office-based dental, animal health and medical practitioners. The Company also serves dental laboratories, government and institutional health care clinics, and other alternate care sites. A FORTUNE 500 Company and a member of the S&P 500 and NASDAQ 100 Indices, Henry Schein employs more than 18,000 Team Schein Members and serves more than one million customers.

The Company offers a comprehensive selection of products and services, including value-added solutions for operating efficient practices and delivering high-quality care. Henry Schein operates through a centralized and automated distribution network, with a selection of more than 100,000 branded products and Henry Schein private-brand products in stock, as well as more than 150,000 additional products available as special-order items. The Company also offers its customers exclusive, innovative technology solutions, including practice management software and e-commerce solutions, as well as a broad range of financial services.

Headquartered in Melville, N.Y., Henry Schein has operations or affiliates in 30 countries. The Company's sales reached a record $10.4 billion in 2014, and have grown at a compound annual rate of approximately 16 percent since Henry Schein became a public company in 1995.

HSIC has managed to beat Wall Street estimates the last couple of quarters. Revenue growth has been negatively impacted by foreign currency headwinds but they're still seeing growth. Analysts are only forecasting +3.3% revenue growth in 2015 but they expect that to almost double in 2016 to +6.4%.

Technically the stock looks bullish with a breakout from a major consolidation pattern back in June. The point & figure chart shows a quadruple top breakout buy signal with a $195.00 target.

Shares of HSIC have been churning sideways in the $142-146 range the last couple of weeks. If it can breakout we want to be ready. Tonight I am suggesting a trigger to buy calls if HSIC can close above $146.50.

- Suggested Positions -
JUL 14, 2015 - entry price on HSIC @ 147.00, option @ 3.90
symbol: HSIC160115C155 2016 JAN $155 call - current bid/ask $3.50/3.90

08/02/15 new stop @ 141.75
07/14/15 trade begins. HSIC opens at $147.00
07/13/15 HSIC closed @ $146.53, above our trigger of $146.50
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 141.75
Play Entered on: 07/14/15
Originally listed on the Watch List: 07/12/15

iShares US Home Construction ETF - ITB - close: 28.43

08/02/15: The ITB displayed relative strength last week. The market's drop on Monday didn't have much impact on the ITB, which held near support around the $27.00 area. When the market bounced ITB surged and is now up four days in a row. More importantly the ITB has broken out past resistance in the $28.25 area.

No new positions at this time.

We are adjusting the stop loss to $26.75.

Earlier Comments: January 11, 2015:
The ITB is an exchange traded fund that mimics the Dow Jones U.S. Select Home Construction Index. The top 12 holdings are DHI, LEN, PHM, TOL, NVR, HD, TPH, LOW, RYL, SHW, KBH and MTH.

This index has been stuck in a trading range for years. That looks like it's about to change. Have you looked at a chart of the 10-year bond yield lately? Bond yields are going lower. That's going to pressure mortgage rates lower and that's bullish for home sales. This past week saw 30-year mortgage rates dip below 3.6%. That's a 19-month low.

If that wasn't enough of a tailwind President Obama wants to help. On January 7th the White House announced plans to reduce the government mortgage insurance premiums in an effort to boost home ownership. Another positive for the homebuilders is the U.S. Federal Reserve. We just had two fed governors come out last week saying they think the Fed should hold off on raising rates. The longer the Fed waits to start raising rates the better it will be for homebuilders.

Currently the ITB appears to be breaking out past major resistance and closed at multi-year highs. I'd like to see a little bit more follow through. Tonight I'm suggesting we wait for the ITB to close above $27.00 and then buy calls the next morning with a stop loss at $23.95.

- Suggested Positions -
FEB 11, 2015 - entry price on ITB @ 27.09, option @ 1.70
symbol: ITB160115C30 2016 JAN $30 call - current bid/ask $0.85/1.00

08/02/15 new stop @ 26.75
07/12/15 new stop @ 25.90
06/28/15 last week new home sales surged to their best levels since early 2008
06/15/15 the NAHB confidence survey hits 9-month highs
05/31/15 the ITB is not performing well. Investors may want to consider an early exit.
03/01/15 new stop @ $25.45
02/11/15 trade begins. ITB opens at $27.09
02/10/15 ITB closes at $27.10, above our trigger at $27.00
Option Format: symbol-year-month-day-call-strike

Current Target: ITB @ TBD
Current Stop loss: 26.75
Play Entered on: 02/11/15
Originally listed on the Watch List: 01/11/15

Lions Gate Entertainment - LGF - close: 39.18

08/02/15: LGF displayed relative strength. Shares held support at $37.00 and then rebounded to a new all-time high by week's end.

More conservative investors may want to raise their stop loss before LGF reports earnings on August 6th. I am not suggesting new positions at this time. Let's wait and see how the market reacts to their earnings results.

Trade Description: July 19, 2015:
Have you ever wanted to trade the hype on a particular movie release? We might be able to do just that with LGF.

LGF is in the services sector. According to the company, "Lionsgate is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, new channel platforms, video games and international distribution and sales. Lionsgate currently has more than 30 television shows on over 20 different networks spanning its primetime production, distribution and syndication businesses, including such critically-acclaimed hits as the multiple Emmy Award-winning Mad Men and Nurse Jackie, the broadcast network series Nashville, the syndication success The Wendy Williams Show, the hit series Orange is the New Black, the critically-acclaimed drama Manhattan and the breakout series The Royals."

What that company description neglects to mention is the Hunger Games franchise. LGF makes the movies for the extremely popular franchise and the fourth and final movie is due to hit the U.S. market in November this year. Shares of LGF will likely rally into November as hype builds for the "Hunger Games: Mockingjay - Part 2" movie.

The stock already looks bullish with a rally from its May lows. Today shares are hovering near significant resistance in the $38.00 area and a breakout here should launch the next leg higher.

Tonight I am suggesting an intraday trigger to buy calls on LGF when shares hit $38.50. More conservative traders may want to use an alternative entry strategy and wait for a close above $38.25 instead. However, the most recent data listed short interest at 18% of the 99.0 million share float. A breakout past resistance near $38.25 could spark some short covering and we could miss our entry point.

I want to warn readers that LGF is scheduled to report earnings on August 6th. This is a risk should the company warn or miss estimates. Currently the point & figure chart is forecasting at $52.00 target. We will plan on exiting prior to the movie's release date in November.

- Suggested Positions -
JUL 23, 2015 - entry price on LGF @ 38.50, option @ 2.15
symbol: LGF160115C40 2016 JAN $40 call - current bid/ask $2.45/2.70

07/23/15 LGF hit our intraday trigger at $38.50
Option Format: symbol-year-month-day-call-strike

Current Target: to be determined
Current Stop loss: 34.65
Play Entered on: 07/23/15
Originally listed on the Watch List: 07/19/15

MasterCard Inc. - MA - close: 97.40

08/02/15: MA reported its Q2 results on July 29th. Earnings of $0.85 per share met expectations. Revenues were relatively flat, only up +0.9% to $2.39 billion. Although if you back out the impact of the rising dollar then revenues were up +7%.

Shares of MA initially saw a spike down on Wednesday morning, following its earnings report, but the stock bounced in a big way and tagged a new high by session's end. The rally continued on Thursday.

More conservative traders may want to raise their stop loss (maybe near $92.00). We are keeping our stop at $89.75 for now. The $100.00 mark could be round-number resistance.

I am not suggesting new positions at this time.

Trade Description: May 3, 2015:
We are adding MA back to the watch list. Here's our recent watch list play description from April:

Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.

Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone."

MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.

The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.

Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.

Recently MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.

"Despite a mixed global economy, we delivered solid results for the quarter and for the full year in 2014," said Ajay Banga, president and CEO, MasterCard. "This year is off to a good start with several new wins, as well as renewals of some important customer agreements, with more in the pipeline. Looking ahead, we will continue to be at the forefront of our industry by driving payment innovation with solutions such as MasterPass, and by increasing electronic payments usage globally as demonstrated by our significant expanded acceptance footprint across Africa."

Shares of MA look like a potential trade again. The company recently reported earnings on April 29th. The beat estimates on the bottom line with a profit of $0.89 per share. Revenues were only up +2.7% to $2.23 billion, which was below expectations. Part of the challenge were currency headwinds.

Wall Street seems to think that MA will do well in spite of the tough business environment. The spike higher on April 22nd was news that the country of China was going to open up their market to foreign companies. Previously companies like MA and Visa could only do business in China by partnering with a domestic firm (China UnionPay). Now the Chinese government is opening up the bank card-clearing market to foreigners. This is huge. The Chinese market for this business was $6.8 trillion in transactions last year. Now MA gets a chance to compete for its share of this business.

Shares of MA still have resistance near $93.00. We want to see MA close above $93.25 and then buy calls the next morning with a stop loss at $88.00.

- Suggested Positions -
MAY 11, 2015 - entry price on MA @ 93.48, option @ 5.95
symbol: MA160115C95 2016 JAN $95 call - current bid/ask $6.40/6.60

07/10/15 EU files charges against MA regarding excessive fees
06/21/15 new stop @ 89.75
05/11/15 trade begins. MA opens at $93.48
05/08/15 triggered with a close @ $93.51 (above $93.25)
Option Format: symbol-year-month-day-call-strike

Current Target: MA @ TBD
Current Stop loss: 89.75
Play Entered on: 05/11/15
Originally listed on the Watch List: 05/03/15

Nike, Inc. - NKE - close: 115.22

08/02/15: NKE displayed relative strength last week. Traders bought the dip on Monday's market decline near $111.00. Shares reversed higher and tagged new all-time highs by Friday.

NKE remains overbought with shares up nine weeks in a row. Eventually NKE will see some profit taking. More conservative traders might want to raise their stop loss.

Our call option has more than doubled in value. Investors may want to take some money off the table now.

I am not suggesting new positions at this time.

Earlier Comments: March 29, 2015:
In Greek mythology Nike is the winged goddess of victory. It's an appropriate brand name for the American athletic wear giant. Nike is the 800-pound gorilla in the industry with annual sales of more than $30 billion.

If you're not familiar with 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 company's most recent earnings report was March 19th, after the closing bell. NKE reported its Q3 2015 results. Analysts were expecting a profit of $0.84 a share on revenues of $7.62 billion. NKE delivered a profit of +0.89 a share or +16% from a year ago. Revenues were up +7% to $7.46 billion. However, if you back out the currency headwinds, their revenues were up +13%.

The company reported sales growth across every geographical region. Their gross margins improved 140 basis points to 45.9 percent. Management said their online sales are soaring. Nike.com saw its revenues jump +42% last quarter.

The current quarter is NKE's 2015 Q4 (March-July) and the company said orders for Q4 in North America are up +15%, which is above analysts' estimates of +11.6%. Orders from China are up +11%, also above estimates. In the company's earnings release NKE said, "As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent."

One big concern is the U.S. dollar. Sales in Europe were up +21% but when you factor in euro weakness and dollar strength that sales growth drops to +10%. The strength in the U.S. dollar is a major headwind but after NKE's Q3 results Wall Street feels that the company is managing the currency impact very well. The company is forecasting low double digit sales growth in the current quarter.

Wall Street applauded the results and shares of NKE gapped open higher on March 20th to hit all-time highs. There was a parade of bullish analyst comments. Several firms raised their price target on NKE. Here's a brief list of new price target: $106, $110, $115, $116.00. The point & figure chart is more optimistic as it is forecasting at $125.00 target.

Shares of NKE have seen some profit taking, which isn't a surprise considering the market's recent decline. However, now that NKE has filled the gap, traders jumped in to buy the dip. The stock looks poised to breakout past round-number resistance at $100.00 (again). Tonight I am suggesting investors wait for NIKE to close above $101.00 and then buy calls the next morning with a stop loss at $94.45.

- Suggested Positions -
MAY 11, 2015 - entry price on NKE @ 102.42, option @ 4.20
symbol: NKE160115C110 2016 JAN $110 call - current bid/ask $9.00/9.20

07/19/15 new stop @ 107.75
07/12/15 new stop @ 104.25
07/05/15 new stop @ 103.25
06/28/15 new stop @ 102.25
06/25/15 NKE beats earnings and revenue estimates
06/21/15 new stop @ 99.50
06/07/15 new stop @ 97.85
05/31/15 NKE down last week on rumors it might be involved in the FIFA scandal
05/11/15 trade begins. NKE opens at $102.42
05/08/15 Triggered with a close @ $102.44 (above 102.00)
05/03/15 move the stop loss from 95.75 to 97.45
04/12/15 Strategy update: adjust the trigger to a close above $102.00 and the stop loss to $95.75 (from a close above $101.00 and a stop at $94.45)
Option Format: symbol-year-month-day-call-strike

Current Target: NKE @ TBD
Current Stop loss: 107.75
Play Entered on: 05/11/15
Originally listed on the Watch List: 03/29/15

Starbucks Corp. - SBUX - close: 57.93

08/02/15: The rally in SBUX has been hard to kill. There was no serious attempt at profit taking following the company's earnings report. Traders have continued to buy the dips. SBUX ended the week at a new all-time closing high.

Shares are still overbought and due for a correction. We already sold half of this position to lock in a potential gain days ago so I'm going to leave the stop loss relatively wide. Tonight we'll adjust the stop to $53.75, just below the 50-dma near $54.00.

Trade Description: April 26, 2015:
SBUX shares are soaring to new all-time highs.

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +26%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pops. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

That whole scenario just happened again on Friday with the company delivering exceptional growth. SBUX reported its Q2 (2015) on April 23rd. Earnings of $0.33 a share were in-line with estimates. Revenues were up +17.8% to $4.56 billion, slightly above expectations. It was their strongest growth in four years. Customers are responding well to new drink options and an updated food menu. They're also developing new delivery options, mobile pay options, and alcoholic drinks available at select locations.

Worldwide same-store sales grew +7%. This was significantly above estimates. It also marked the 21st consecutive quarter where SBUX's comparable store sales were +5% or more.

The company issued mixed guidance. The stronger dollar is having an impact. They see fiscal 2015 results in the $1.55-1.57 range. That compares to Wall Street estimates for $1.57 per share. However, the company's revenue estimates are more optimistic. They're forecasting +16-18% sales growth into the $19.1-19.4 billion zone compares to analysts' estimates of $19.1 billion.

The stock market applauded SBUX's results and shares popped to new highs. We do not want to chase it. Shares will likely fill the gap from Friday morning. Tonight I am suggesting a buy-the-dip trigger at $50.00. More nimble traders may want to consider a trigger closer to $49.70 instead.

- Suggested Positions -
APR 28, 2015 - entry price on SBUX @ 50.00, option @ 1.59
symbol:SBUX160115C55 2016 JAN $55 call - current bid/ask $4.80/4.95

08/02/15 new stop @ 53.75
07/26/15 new stop at $53.25
Investors may want to exit now and lock in potential gains
07/23/15 SBUX reports earnings above estimates.
07/19/15 new stop @ 51.85
06/29/15 Sold half, SBUX gapped down. Option exit $2.67 (+67.9%)
06/28/15 Sell half of our call position on Monday, June 29, to lock in a potential gain
06/21/15 new stop @ 49.65
06/07/15 new stop @ 49.25
05/31/15 new stop @ 48.25
04/28/15 triggered @ 50.00
Option Format: symbol-year-month-day-call-strike

Current Target: SBUX @ TBD
Current Stop loss: 53.75
Play Entered on: 04/28/15
Originally listed on the Watch List: 04/26/15

Under Armour, Inc. - UA - close: 99.33

08/02/15: After big gains the prior week we decided last weekend to take some money off the table. Our plan was to exit half of our position on Monday, July 27th, at the opening bell. UA opened lower at $95.23 thanks to a global market sell-off. The option opened at $10.50 (a +133.3% gain).

Fortunately for us traders bought the dip and UA surged to new all-time highs. UA ended the week testing potential round-number, psychological resistance at the $100.00 mark. Shares are short-term overbought and I would expect a pullback here. Since we have already exited half our position I'm going to keep our stop loss relatively wide and leave it at $89.00 for now. More conservative traders may want to up their stop closer to $95.00 instead.

No new positions at this time.

Trade Description: June 14, 2015:
UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitness platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

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

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

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

UA management raised their outlook again. They expect 2015 operating income to improve +13-to-15%. UA expects 2015 revenues to rise +23% to $3.78 billion. The stock has rallied sharply into its earnings report and shares suffered some post-earnings depression with a -$12.00 drop (-13.6%) in the next two weeks. The price target upgrades continued but UA spent most of May consolidating sideways inside a narrow range. Finally on June 5th shares of UA broke out past multiple layers of resistance on another upgrade. The stock was upgraded to a "buy" with a $91 price target. Since then UA has been digesting its gains in a sideways consolidation between what should be support at $80 and short-term resistance near $82.00.

Tonight I am suggesting we wait for UA to close above $82.25 and then buy calls the next morning with a stop loss at $75.90.

FYI: I am listing the 2016 calls but investors may want to consider the 2017 January calls if you're willing to pay for the time premium.

- Suggested Positions -
JUN 17, 2015 - entry price on UA @ 83.06, option @ 4.50
symbol: UA160115C90 2016 JAN $90 call - current bid/ask $12.90/13.40

07/27/15 Sold half @ the open. Option exit $10.50 (+133.3%)
07/26/15 new stop @ 89.00, EXIT half or our UA calls on Monday, July 27th, to lock in a potential gain
07/19/15 new stop @ 82.40
07/12/15 new stop @ 79.75
06/28/15 new stop @ 78.90
06/17/15 trade begins: UA opens at $83.06
06/16/15 Triggered: UA closed at $82.78, above our trigger at $82.25
Option Format: symbol-year-month-day-call-strike

Current Target: UA @ TBD
Current Stop loss: 89.00
Play Entered on: 06/17/15
Originally listed on the Watch List: 06/14/15


Tableau Software - DATA - close: 104.74

08/02/15: It seems we can't have an earnings week without at least one stock imploding. Last week it was DATA.

The stock had been trading near all-time highs. DATA reported earnings on July 29th. Wall Street was expecting a profit of $0.05 per share on revenues of $141 million. DATA delivered $0.07 per share. Revenues grew +65% to $149.9 million. This is a beat on both the top and bottom line. Management even raised their Q3 and 2015 guidance above analysts' estimates. Yet this wasn't enough. The stock was crushed as traders sold the news. Shares of DATA fell -23% intraday and closed down -10.7% on July 29th. Our stop was hit at $112.75.

I'm glad we exited half this position back on June 29th to take some money off the table.

- Suggested Positions -
APR 27, 2015 - entry price on DATA @ 100.00, option @ 12.10
symbol: DATA160115C110 2016 JAN $110 call - exit $8.50 (-29.7%)

07/29/15 stopped out
07/12/15 new stop @ 112.75
06/29/15 Sell half of position. DATA opens lower at $115.40
2016 Jan $110 call exit $15.31 (+26.5%)
06/28/15 Plan on selling 1/2 of option position on Monday, June 29
06/14/15 new stop @ 109.00
06/07/15 new stop @ 104.85
05/24/15 new stop @ 102.75
05/17/15 new stop @ 97.40
05/10/15 new stop loss @ 94.75
05/08/15 the stock soars to new highs in reaction to earnings and a couple of upgrades.
05/07/15 DATA delivered better than expected earnings and raises guidance above Wall Street expectations
04/27/15 triggered @ $100.00
Remember, this is a higher-risk trade. Consider small positions to limit risk.
Option Format: symbol-year-month-day-call-strike


Current Target: To Be Determined
Current Stop loss: 112.75
Play Entered on: 04/27/15
Originally listed on the Watch List: 04/26/15

Hanesbrands Inc. - HBI - close: 31.03

08/02/15: As of Thursday's close HBI was looking pretty good. The stock was poised to breakout past key resistance in the $34.80 area. Unfortunately shares cratered on Friday following its earnings results out on Thursday night.

Q2 earnings of $0.50 per share were in-line with estimates. Revenues were up +13.4% to $1.52 billion, which was below expectations. Management lowered their 2015 revenue guidance, which was the main reason behind Friday's drop.

Shares gapped open lower on Friday at $31.18, which immediately closed our play since the stop was $31.25. HBI fell to $29.47 before paring its losses. The bid on our 2016 call vanished at the open.

- Suggested Positions -
JUN 17, 2015 - entry price on HBI @ 33.04, option @ 1.85
symbol: HBI160115C35 2016 JAN $35 call - exit $0.15 (-91.8%)

07/31/15 stopped out on gap down at $31.18
07/19/15 HBI might report earnings on July 23rd, no confirmation yet
06/28/15 new stop @ 31.25
06/17/15 trade begins. HBI opens at $33.04
06/16/15 triggered. HBI closed @ $33.06, above our trigger at $33.00
Option Format: symbol-year-month-day-call-strike


Current Target: To Be Determined
Current Stop loss: 31.25
Play Entered on: 06/17/15
Originally listed on the Watch List: 06/14/15


Consumer Goods & Tech Titans

by James Brown

Click here to email James Brown

New Watch List Entries

CLX - The Clorox Company

MSFT - Microsoft Corp

Active Watch List Candidates

CVS - CVS Health Corp

DIS - The Walt Disney Co.

New Watch List Candidates:

The Clorox Company - CLX - close: 111.94

Company Info

Clorox is not just a bleach and cleaners company. They also make food and personal care items. Actually they make a lot more. Shares have been marching to the beat of their own drum and ignored much of the market's recent volatility. CLX is currently up +7.4% year to date, which beats the S&P 500's +2.2% gain.

CLX is in the consumer goods sector. According to the company, "The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with about 7,700 employees worldwide and fiscal year 2014 sales of $5.5 billion. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol cleaners; Liquid Plumr clog removers; Poett home care products; Fresh Step cat litter; Glad bags, wraps and containers; Kingsford charcoal; Hidden Valley and KC Masterpiece dressings and sauces; Brita water-filtration products and Burt's Bees natural personal care products. The company also markets brands for professional services, including Clorox Healthcare, HealthLink, Aplicare and Dispatch infection control products for the healthcare industry. More than 80 percent of the company's brands hold the No. 1 or No. 2 market share positions in their categories."

Earnings have been pretty strong when you consider the negative impact of currency fluctuations on a big multi-national like CLX. On February 4th CLX announced its Q2 report and beat Wall Street estimates on both the top and bottom line. Management raised their 2015 guidance and their revenue guidance.

Their Q3 report, on May 1st, was a little bit softer. Earnings of $1.08 per share missed estimates by 2 cents. Revenues were up +2.6% to $1.4 billion but that was above expectations. Management raised their outlook again for their full year 2015 guidance.

I suspect CLX will report healthy earnings again on August 3rd. Results come out before the opening bell. Analysts are expecting a profit of $1.37 per share.

The global economy seems to be slowing down but consumers will continue to buy consumer goods products from the likes of CLX. On top of that CLX has a decent dividend yield (currently 2.8%), which should keep it attractive to investors. Tonight I am suggesting we wait for shares of CLX to in the $112.75-114.00 range and buy calls the next morning with an initial stop loss at $105.75. This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for CLX to close in the $112.75-114.00 range
Then buy calls the next morning.

BUY the 2017 Jan $120 call (CLX170120C120) current ask $5.30

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

Chart of CLX:

Originally listed on the Watch List: 08/02/15

Microsoft Corp. - MSFT - close: 46.70

Company Info

Microsoft is a technology titan. They were founded in 1975. Today they have grown into a behemoth in multiple industries.

A few of MSFT's businesses include: computer operating system software, Microsoft Office, Windows Phone operating system, Xbox gaming business, Xbox live subscriptions, Commercial software business includes Windows Server, Microsoft SQL server, Visual Studio, and more. They also own Skype. The company has jumped headfirst into cloud computing

This focus on cloud has changed the way MSFT now describes itself. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company has been getting a lot of press lately for its Windows 10 launch. The software went live on July 29th. MSFT is offering it for free to consumers who have Windows 7 or 8. In the first 24 hours over 14 million copies were downloaded. Reviews of the new operating system have been positive, many claiming it is a major upgrade from Windows 8.

Barron's recently published a bullish article on MSFT. The author suggested that MSFT is moving toward a subscription model. Adobe Systems (ADBE) has seen huge success moving from an upfront license fee for their software to a monthly subscription model. MSFT appears to be moving more and more toward this model. Although as I mentioned earlier you can download an upgrade to Windows 10 for free (currently available in 190 countries). The Barron's article also suggested that MSFT is cheap with a 2.7% dividend yield and trading at 16x trailing free cash flow vs. the S&P 500 average of 20x free cash flow.

MSFT's most recent earnings report was July 21st. It was the company's fiscal Q4 report. Earnings of $0.62 per share beat estimates of $0.57. Revenues were down -5% to $22.18 billion, but that was still above estimates. Currency headwinds were a big negative last quarter. Highlight was its commercial cloud computing revenues, which surged +88% (almost 100% if you account for currency headwinds).

MSFT management guided lower, which would normally be the kiss of death for the stock price. However, the reaction to their lowered guidance was minor. Shares of MSFT a couple of points and found support. That's in spite of a rough week for the market two weeks ago. Now investors are buying the dip and shares appear to have produced a tradable bottom. The point & figure chart is still bullish and forecasting at $67.00 target.

Tonight I am suggesting we buy calls on MSFT if the stock can close in the $47.50-48.50 range. Wait for the stock to close in this window and then buy calls the next morning. This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for MSFT to close in the $47.50-48.50 range
Then buy calls the next morning with a stop loss at $43.75.

BUY the 2017 Jan $50 call (MSFT170120C50) current ask $3.10

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

Chart of MSFT:

Originally listed on the Watch List: 08/02/15

Active Watch List Candidates:

CVS Health - CVS - close: 112.47

08/02/15: The rally continues for shares of CVS. The stock is up four weeks in a row and up seven out of the last eight weeks. I'm expecting shares to see some profit taking after the company reports earnings on August 4th.

Currently our buy-the-dip trigger is $107.00. If not triggered by next weekend we'll re-evaluate our entry point strategy.

Trade Description: July 19, 2015:
Healthcare stocks have been strong performers this year. CVS is no exception with the stock up +14% year to date.

According to the company, "CVS Health is a pharmacy innovation company helping people on their path to better health. Through its 7,800 retail pharmacies, nearly 1,000 walk-in medical clinics, a leading pharmacy benefits manager with more than 70 million plan members, and expanding specialty pharmacy services, the company enables people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs."

Their most recent earnings report was May 1st. CVS announced its Q1 results were $1.14 per share. That beat estimates by six cents. Revenues were up +11% to $36.33 billion, also above estimates. CVS did lower their Q2 guidance but left their 2015 forecast unchanged.

Wall Street loves a deal and CVS has been busy making deals. On May 21st the company announced they were buying Omnicare (OCR) for $12.7 billion. OCR is a pharmacy benefits provider to seniors citizens. This deal is expected to close by the end of 2015. CVS believes OCR will add 20 cents in earnings to their fiscal 2016. CVS CEO Larry Merlo commented on the deal, "The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel. It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients."

CVS didn't stop there. On June 15th they announced a deal to buy all of the pharmacies inside Target stores (TGT). Here's an excerpt from the company's press release explaining the Target pharmacy deal:

CVS Health to acquire Target's pharmacy and clinic businesses for approximately $1.9 billion. Through this agreement, CVS Health will acquire Target's more than 1,660 pharmacies across 47 states and operate them through a store-within-a-store format, branded as CVS/pharmacy. In addition, a CVS/pharmacy will be included in all new Target stores that offer pharmacy services. Target's nearly 80 clinic locations will be rebranded as MinuteClinic, and CVS Health will open up to 20 new clinics in Target stores within three years of the close of the transaction. The new clinics will be part of CVS/minuteclinic's plan to operate 1,500 clinics by 2017. In addition, CVS Health and Target plan to develop five to 10 small, flexible format stores over a two-year period following the deal close, which will each be branded as TargetExpress and include a CVS/pharmacy.
Wall Street also reacted positively to the Target pharmacy news.

Rival pharmacy operator WBA reported earnings on July 9th that beat estimates by 15 cents and WBA raised their guidance. That should bode well for CVS who reports earnings on August 4th.

Shares of CVS are trading at all-time highs near $110. We don't want to chase it here. Tonight I am listing a buy-the-dip entry trigger to jump in on a pullback. Prior to the July rally the June high was $106.88. I'm suggesting a buy-the-dip trigger at $107.00.

Buy-a-dip trigger: $107.00, start with a stop loss at $103.40.

BUY the 2016 Jan $115 call (CVS160115C115)

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

Originally listed on the Watch List: 07/19/15

The Walt Disney Co. - DIS - close: 120.00

08/02/15: DIS also kept its rally alive with another weekly gain. The stock has been challenging resistance at the $120.00 level and managed to close at this level on Friday. The stock looks very overbought and I expect shares to see some profit taking after they report earnings on August 4th. Currently our buy-the-dip is $113.55.

Trade Description: June 28, 2015:
Scrooge McDuck isn't the only one with a wealth of riches these days. Long-term investors in DIS have been rewarded with big gains in recent years. From Mickey Mouse to the thousands of characters owned by Marvel to Pixar, everything DIS touches has turned to gold lately.

Disney is an American icon. The company is over 90 years old. They have grown into a massive content generating giant. Today DIS runs five business segments. Their media networks include broadcast, cable, radio, publishing, and digital businesses headlined by their Disney/ABC television group and ESPN Inc. DIS' parks and resort business includes Disneyland, Disneyworld, plus theme parks in Tokyo, Paris, Hong Kong, Shanghai, and a cruise line.

The company's products division licenses the company's horde of names, characters, and intellectual property to a wide range of products. They've also jumped into the online world with their Disney Interactive division. Last but not least is the Walt Disney Studios segment. Disney started making movies 90 years ago. Today their studio business includes Disney animation, Pixar Animation, Disneynature, Disney Studios Motion Pictures, Disney music group, Touchstone Pictures, and Marvel Studios.

Their movie business has been a money maker over the years with huge hits like the Pirates of the Caribbean franchise, Tangled, Wreck-it Ralph. In 2013 they released the animated film "Frozen", which has turned into the largest grossing animated movie of all time. Pixar has a stable of successful movies that have grossed almost $9 billion. DIS is also mining gold in Marvel Entertainment's library of over 8,000 characters of comic book history. Marvel had two big hits in 2014 Captain America: Winter Soldier and Guardians of the Galaxy. Their 2015 Avengers: Age of Ultron was also a big winner at the box office grossing more than $1.3 billion worldwide. Of course not every Disney movie crushes it. Their recent Tomorrowland was a big disappointment and they could lose more than $100 million on the film.

Back in 2012 Disney purchased Lucasfilm and all the Star Wars properties from George Lucas for $4 billion. The company is busy filming the next three episodes of the Star Wars franchise. The next Star Wars film it titled "The Force Awakens." It will be episode seven in the franchise. The movie doesn't hit theaters until December 2015 but analysts are already predicting that "The Force Awakens" will generate $1.2 billion at the global box office.

DIS management loves movie franchises because they can fuel years of sequels, park rides, and merchandise. The approach seems to be working. Revenues and net income have hit all-time highs for five consecutive quarters. Their 2015 Q1 results saw earnings per share up +23% to $1.27. Their Q2 results saw earnings grow +14% to $1.23 per share. Their domestic theme parks showed a strong surge in both attendance and in customer spending. Analysts are forecasting DIS earnings to grow +17% this year.

The recent success of movie "Jurassic World", which was produced by Universal (not a Disney company), has generated even more excitement for DIS' upcoming Star Wars films. Jurassic World has broken all sorts of records and was the fastest movie to reach $1 billion in global box office sales. This has analysts expecting even bigger numbers from Star Wars. The next Star Wars film: "The Force Awakens" (episode seven), doesn't hit theaters until December 2015.

Morgan Stanley analyst Benjamin Swinburne is forecasting "Force Awakens" to do almost $2 billion in box office sales. This could boost DIS' bottom line by more than $1 billion. Plus the merchandising associated with Star Wars will bring a bountiful harvest for DIS too. Consumers spend close to $3 billion a year on licensed toys, clothing, and similar merchandise. The Star Wars movies will rake in the money in this category. DIS plans to release a Star Wars movie every year between now and 2020 (six more movies).

The stock surged to new all-time highs back in early May after its Q2 earnings report. Shares followed that rally with a six-week consolidation allowing DIS to digest its gains. A couple of weeks ago DIS started to rally again and broke through major resistance in the $112.00 area. Today the stock is at all-time highs.

Credit Suisse recently upped their price target to $130. Meanwhile the point & figure chart is bullish and forecasting at long-term target of $160.00.

We want to be ready to take advantage of weakness in DIS due to any broader market sell-off. Just because stocks might plunge on the Greece debt story doesn't mean DIS' business is going to change. Any dip near support should be a buying opportunity. Tonight I am suggesting a buy-the-dip trigger at $111.00. We'll start with a stop loss at $107.00.

You could definitely play the 2016 calls but tonight I'm listing the 2017s.

Buy-the-Dip trigger @ $113.55 (use a stop at $107.00)

BUY the 2017 Jan $125 call (DIS170120C125)

07/12/15 adjust the trigger to $113.55
07/05/15 move the trigger to $112.00
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 06/21/15