Option Investor

Daily Newsletter, Sunday, 10/4/2015

Table of Contents

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

Leaps Trader Commentary

Not Immune To The Global Slowdown

by James Brown

Click here to email James Brown

It was another volatile week for the stock market. That seems to be a trend lately with big swings both directions. Last week the market plunged lower on Monday on continued worries over a global growth slowdown. The S&P 500 finally started to bounce on Tuesday after coming within four points of its August-correction lows (which is 1,867). There were a number of stories that moved the market including a sharp sell-off in Glencore, the end of the third quarter, and a big batch of economic reports including the monthly jobs data. The September jobs number was a huge miss but stocks reversed sharply higher fueled by short covering into the weekend.

The S&P 500 index fell -2.6% last Monday. It was a 98% down day for the 500 S&P components. Glencore (GLCNF), which is not an S&P stock, was a major weight on the market. Glencore is Swiss company. They are a giant in the commodity business. A very bearish analyst report suggested GLCNF's stock could plunge to zero if commodity prices remain depressed.

Shares of GLCNF fell -29% on Monday to close at $1.07 a share. There were big worries about GLCNF's $30 billion debt and if they could remain solvent. Folks were comparing Glencore to Lehman Brothers and worried that if Glencore failed it could undermine the whole system. The good news is that Glencore is not big enough to be a system-wide shock. Secondly Glencore outlined how they have plenty of credit and how they are in no danger of failing. Several analysts also defended the company. The stock manufactured a big bounce and actually closed the week with a gain (and a +42% bounce from close on Monday).

IMF Warning

The International Monetary Fund (IMF) made headlines last week. The IMF's managing director, Christine Lagarde, spoke midweek and shared her concerns about the global economy.

"The prospect of rising interest rates in the United States and China's slowdown are contributing to uncertainty and higher market volatility. There has been a sharp deceleration in the growth of global trade," she said. "And the rapid drop in commodity prices is posing problems for resource-based economies."

The good news had been the modest pick-up seen in developed countries, Lagarde said, but this was offset by the fifth year of declining growth rates in the emerging world.

"India remains a bright spot. China is slowing down as it rebalances away from export-led growth. Countries such as Russia and Brazil are facing serious economic difficulties. Growth in Latin American countries, in general, continues to slow sharply." Source: the Guardian

Lagarde warned that current IMF forecasts for global growth are too high. The IMF will need to downgrade their current forecasts for 2015 (+3.3%) and 2016 (+3.8%) due to the serious weakness in emerging markets. The world economy has slowed to its lowest level since the "Great Recession" of 2009.

Q3 Results

Wednesday was the end of 2015's third quarter. The S&P 500 lost -6.9%. It was the market's worst quarter since 2011. The NASDAQ composite fell -7.4%, which snapped its 10-quarter winning streak. The Dow Jones Industrial Average gave up -7.6% and posted its third consecutive quarterly loss for the first time since 2009. It was an especially ugly quarter for biotech stocks. The IBB biotech ETF, which tracks the NASDAQ biotech index, lost -17.8%, its worst performance since 2002.

Commodities also suffered significant declines. Gold lost almost 5% to mark its worst quarter since Q3 last year. It was also gold's fifth quarterly loss in a row. Meanwhile WTI crude oil plunged -24% in Q3, which helped drive energy stocks lower.

It's not just the U.S. International markets are also suffering. According to CNBC these markets are in correction mode (-10% or more): Switzerland, Italy, India, Canada, UK FTSE 100, France, STOXX Europe 600, Japan, and Spain. While the following markets are in bear-market territory (-20% or more): Portugal, Germany, Argentina, Brazil, Hang Seng, Russia, Greece, China Shanghai, China Shenzhen. CNBC Q3 results. Globally investors had a tough time as world markets lost $11 trillion in value during the third quarter.

If you had a rough quarter you are not alone. According to JP Morgan almost 70% of mutual funds underperformed their benchmarks in the third quarter. Evidently everyone owned a lot of healthcare stocks and the -11% drop in healthcare crushed everyone's results. Pros Underperform.

Economic Data

There was a parade of economic data last week. The Conference Board said their Consumer Confidence Index improved from 101.3 to 103.0 in September. The Case-Shiller 20-city Home Price index rose +5.0% in July. U.S. construction spending for July was revised down from +0.7% to +0.4% but August came in at +0.7%.

Consumers are still buying cars. The September estimate puts the seasonally adjusted annual rate (SAAR) at 18.03 million vehicles in the U.S. That's a +10% jump from a year ago and up +1.7% from August. It's the best year since July 2005. All of the major U.S. automakers reported strong sales in September. General Motors (GM), the largest, said sales rose +12%.

The Chicago PMI was a big disappointment with a drop from 54.4 in August to 48.7 in September. Meanwhile the national ISM manufacturing index fell from 51.1 to 50.2 in September. The economic slowdown overseas and the strong dollar is really hurting U.S. manufacturing. September's 50.2 reading was worse than expected and borders recession territory. Readings for the Chicago PMI and ISM are based on a scale with numbers below 50.0 mean economic contraction. The ISM reading at 50.2 is the lowest level since May 2013. Along these same lines the monthly factory orders showed another drop. August factory orders were down -1.7% for the month, which was worse than expected and the biggest monthly decline all year. It was also the tenth month in a row that factor orders retreated.

Monthly Nonfarm Payrolls (jobs) Report

The ADP National Employment Report on Wednesday was in-line with expectations at +200,000 jobs last month. This reasonably healthy ADP number set the market up for a shock when the Friday morning nonfarm payroll report was released. Economists were expecting September jobs to come in at +203,000 and they also expected the August number to be revised higher. Unfortunately job growth slowed significantly.

The government announced we only added +142,000 in September. Meanwhile the August report was revised lower from +173K to +136K. July's was also revised lower from +245K to +223K. Add up the downward revisions and the miss from September and job growth fell -180,000 jobs less than expected. It was not a good report.

The three-month moving average for the monthly job report has fallen to +167,000. That is significantly below the +200,000 a month the Federal Reserve would like to see. Currently the average monthly job report for 2015 is at +198K versus +260K in 2014. The average number of hours worked fell to 34.5 hours, which is not a good sign. Rising hours works normally precede strong job gains.

The unemployment rate was unchanged at 5.1%. Unfortunately that does not tell the whole story. Another 579,000 people left the workforce. That pushed the labor force participation rate from 62.6% to 62.4%, which is a low not seen since October 1977. A record 94.6 million Americans are not in the workforce.

Chart of the Labor Force Participation

The huge miss on the jobs report had an immediate impact on the Fed Funds Futures rate, which predicts when the Federal Reserve will raise rates. Fed heads have been talking up a potential rate hike at the October meeting for two weeks. Yet the Fed Funds Rate saw the odds of a hike in October plunge from 18% to 8% (and hit an intraday low of 2%). Odds for a rate hike in December fell from 47.5% to 28.2%. January dropped from 53.8% to 36.9% and March 2015 saw odds of a rate hike slip from 66.7% to 50.7%.

The Federal Reserve has been widely criticized for not raising rates at the September meeting. Suddenly it looks like they made the right call. We have falling jobs growth, U.S. manufacturing near recession territory, a strong dollar, weak commodities, and a global slowdown. If the situation doesn't improve soon there are some on Wall Street that believe the Fed might be talking QE4 to stimulate the economy instead of a rate hike. The yield on the 10-year U.S. bond fell to 1.99%, which suggest the bond market does not expect a rate hike any time soon.

The Atlanta Fed publishes a weekly forecast with their GDPNow estimate. Last week the GDPNow estimate saw Q3 growth estimates plunge from +1.8% to +0.9%.

Chart of the GDP Now estimate


Overseas Economic Data

Last week the Reserve Bank of India cut their main interest rate from 7.25% down to 6.75%. We will hear from more central banks in the week ahead.

China reported that their industrial profits plunged from -2.9% to -8.8% from a year ago. This fueled speculation that the Chinese government might add more stimulus to boost their economy. They probably need it. The official Chinese manufacturing PMI reading for September came in at 49.8 from 49.7. The final reading on the Caixin manufacturing PMI was 47.2. Numbers below 50.0 suggest economic contraction.

Japan sais their industrial production in August fell -0.5% while retail sales rose +0.8%. Both were below expectations. Japan's industrial production has fallen three months in a row. Household spending improved +2.5% in August. That was actually way above estimates. The Bank of Japan meets this week. A few days ago Bloomberg suggested the BoJ would not add any additional stimulus at this time.

Most of the economic data out of Europe was flat to down. The region is still suffering from deflationary pressures. The Eurozone said their CPI reading for September fell -0.1%, which was worse than expected. Eurozone PPI dropped -0.8%, down from -0.1%. It's down -2.6% from a year ago. The Eurozone's unemployment rate was unchanged at 11%. Their manufacturing PMI for September was also unchanged at 52.0. Germany's manufacturing PMI slipped 0.2 to 52.3. France's PMI inched higher to 50.6. Italy's declined from 53.8 to 52.7. Spain's fell as well with a drop from 53.2 to 51.7.

The week ahead will see headlines about Germany marking the 25th anniversary of their reunification. Meanwhile Portugal holds parliamentary elections today (Sunday, October 4th).

Major Indices:

Monday's big drop in the S&P 500 was its fifth decline in a row and its seventh out of the prior eight sessions. The index spent the rest of the week recovering with a four-day bounce. Friday's move was significant. The S&P 500 plunged -30 points at the open and then reversed higher into a +28-point gain (a 58-point rebound). The Dow Industrials saw a +458-point reversal higher.

The trader chatter on Friday doubted the strength of this bounce. Friday was the second day of a new month. Mutual funds had new money to put to work. A few buy programs kicked in on Friday. This probably sparked some short covering when there was no follow through lower on that huge jobs number miss.

The S&P 500 sits just above support/resistance at the 1,950 level. The 1,990, 2,000, and 2,020 levels are all overhead resistance. The simple 50-dma is falling and will add resistance to the 2,000 area. I would not be surprised to see the S&P 500 churn sideways in a wide range until the Q3 earnings season begins in a few days.

Optimistically the low on Tuesday (1,871) was close enough to the August-correction low (1,867) that investors might consider it a bullish double bottom.

Year to date the S&P 500 is down -5.2%.

5-day chart of the S&P 500 index:

Daily chart of the S&P 500 index:

The NASDAQ composite pierced the 4,500 level again but has staged a big rebound off its lows. Friday added 80 points thanks to the 155 point bounce off the Friday morning low.

The 4,800 to 4,950 area has a lot of potential resistance, especially around the 4,900 level. The 50-dma and 200-dma add extra technical resistance in that region. The bounce might continue on Monday but it may not get very far. Year to date the NASDAQ is only down -0.6%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) continues to underperform but it may have put in a short-term bottom last week. The $RUT fell to new 2015 lows last week. On the plus side the index found support near the 1,080 level. If this bounce continues it could make it up to the 1,140-1,160 area before encountering any serious resistance. Of course we need to bear in mind that the trend for the $RUT is still lower. The 1,160 to 1,200 region could be a serious challenge for the bulls.

Year to date the $RUT is down -7.5%.

chart of the Russell 2000 index

Economic Data & Event Calendar

The pace of economic data slows down this week. We will hear from a couple of central banks (Japan and England). The International Monetary Fund (IMF) will be making headlines and the organization will release their World Economic Outlook on Tuesday.

The U.S. Energy Information Administration will provide their Short-Term Energy Outlook. The market will also be listening for any clues from the multiple Fed presidents speaking this week.

In non-economic news the Nobel Prizes will be awarded throughout the week starting on Monday. The Nobel Peace Prize will be awarded on Friday.

- Monday, October 05 -
Eurozone PMI
ISM Services

- Tuesday, October 06 -
German Factory Orders
IMF World Economic Outlook
EIA release short-term energy outlook

- Wednesday, October 07 -
Bank of Japan interest rate decision

- Thursday, October 08 -
Bank of England rate decision
FOMC minutes from the last meeting
ECB minutes

- Friday, October 09 -
Import/Export prices
Wholesale inventory data

Additional dates to be aware of:

Oct. 28th - FOMC meeting
Nov. 26th - Thanksgiving holiday (markets closed)
Dec. 16th - FOMC meeting, new forecast Dec. 16th - Fed Chairman Yellen's press conference
Dec. 24th - Christmas Eve (market closes early)
Dec. 25th - Christmas (market closed)

Looking Ahead:

The last couple of weeks I have noted how earnings expectations continue to deteriorate. Wall Street is pretty bearish on earnings growth. If we are lucky expectations are too low and corporations will be able to deliver better than expected results. They key might be revenue growth and of course guidance for the rest of 2015 and into 2016. If guidance is too bearish it could further sour investor sentiment.

Investor Sentiment

Speaking of sentiment, it's already sour. The weekly survey by the American Association of Individual Investors (AAII) saw bullish sentiment fall -4.0% and neutral sentiment drop -7.2%. All of them defected to the bearish camp with bearish sentiment rising +11.2%.

Investor Sentiment Survey (AAII)

Source: AAII

Last week's +11.2% surge in bears is the biggest one-week move since early July. Bullish sentiment hit new multi-week lows. The long-term average is 38.75% for bullish sentiment. Last week marks the 27th week in a row that bulls have been below average. It's also a record-setting 31 weeks since bullish sentiment was above 40%.

Contrarians could argue this overwhelming bearishness is a buy signal. They might be right with over 70% of investors either bearish or neutral on the market.

Seasonal Weakness

We just finished the second week of the worst three weeks of the year. Last week wasn't that bad with a big bounce of Monday's lows. I'd like to say that if we can get past one more week that we will be in the clear but these historical trends are just crude sign posts. They are not guarantees. I would approach the next two weeks with caution. Odds are still good we could see the market bottom in the middle of October. The plan would be to use any temporary weakness in the next couple of weeks as an entry point to set us up for a fourth quarter rally.

Normally the S&P 500 averages a +2.6% gain in the fourth quarter and history says Q4 is positive 72% of the time. However, when the market is negative going into Q4 (like we are today) then the fourth quarter is actually negative 47% of the time with an average return of -0.7%. We can be optimistic but I would not blindly bet on a Q4 surge. With only three months left in the year a few Wall Street analysts have been downgrading their 2015 price targets for the S&P 500.

Q3 earnings season will be crucial in setting the tone for the next several weeks. If results are too low or if corporate guidance is too bearish then it could sabotage any Q4 rebound. Alcoa (AA) kicks off earnings season on October 8th.

The big takeaway from last week might be how the United States is not immune to the global economic slowdown. The negative Chicago PMI and disappointing industrial production numbers combined with a significantly worse than expected jobs report does not paint a very healthy picture for the U.S. economy.

~ James


Portfolio Update

by James Brown

Click here to email James Brown

Current Portfolio

Portfolio Comments:

The stock market staged a four-day bounce off its Monday and Tuesday lows. Yet money seems to be flowing into the safety of bonds as yields on the 10-year note drop back to 2%. Investors seem nervous and confused after a painful third quarter performance.

FB and RCL have joined the active play list.

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

Investors Doubt The Rally

by James Brown

Click here to email James Brown

- New Trades -

Editor's Note:

(October 4, 2015)

The U.S. market has surged into the fourth quarter of 2015 but investors don't seem to believe the rally.

The September jobs number was an ugly miss with both July and August reports revised lower. Yet stocks rallied on Friday. There was an initial sell-off but the reversal higher was impressive. If you listen to market pundits comment on Friday's move it was a mix of confusion and disbelief.

Overall investor sentiment is negative. The latest AAII survey showed a +11% surge in bearish sentiment. At the same time analysts are bearish on Q3 earnings. Wall Street likes to say a bull market climbs the wall of worry but right now the wall is looking pretty steep and investors seem nervous. We have negative earnings expectations, currency headwinds for major U.S. corporations, and China leading a global economic slowdown. Even the U.S. seems to be vulnerable to the economic decline given some disappointing economic headlines lately.

If I had a crystal ball to see the future I suspect it would show more volatility and weakness for stocks over the next one to two weeks before we bottom and rally through the rest of Q4. That could be wishful thinking on my part. The key will be Q3 earnings results and corporate guidance. The last three weeks of October are swamped with earnings results but we should have a good feel for the tone of earnings season by the 23rd of the month.

I am not adding any new trades tonight. Last week we saw both FB and RCL graduate from our watch list to the active trade section.

Tonight I am adding Costco (COST) and Hershey (HSY) as a watch list candidates.

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:


Play Updates

Stocks Recover From Monday's Plunge

by James Brown

Click here to email James Brown

Editor's Note:

It was another volatile week for stocks. Equities plunged on Monday, September 28th only to bounce the next day and follow through with a four-day rebound.

We had Facebook (FB) and Royal Caribbean (RCL) both graduate from our watch list to our active play list below.

Closed Plays

None. No closed plays this week.

Play Updates

Ambarella, Inc. - AMBA - close: $58.92

10/04/15: I am encouraged by AMBA's performance last week. The decline on Monday could have been worse. Shares produced a $5.00 bounce from its Tuesday lows. A close above round-number resistance at $60.00 would be encouraging.

I would be tempted to buy calls again if AMBA closes above $61.00.

Trade Description: September 8, 2015:
Shares of AMBA have come a long way from its IPO in October 2012 when the stock priced at $6.00 a share, below expectations. Even now, after a minus $55 drop from its 2015 highs the stock is still up +41% for the year.

AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in 2012. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. When GPRO held its IPO last year (2014) it drew attention to AMBA who makes the chips for the video processing in GPRO's cameras. Shares of GPRO saw a huge decline 2014 highs but shares of AMBA have continued to rally.

Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies. Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.

The company has seen tremendous earnings and revenue growth over the last couple of years. Their most recent earnings report was September 1st, 2015. Revenues were up +79% from a year ago to $84.2 million, which was above expectations. The stock sank because management offered soft guidance. When a high-flying, high-valuation stock like AMBA starts to see revenues slow down their valuations collapse.

After a -42% decline from its highs AMBA is probably still has a rich valuation and that's the biggest complaint about the stock price. Shares will likely maintain a high P/E for a long-time as growth will continue. The pullback is most likely a temporary slowdown.

While we are longer-term bullish on AMBA I suspect the sell-off isn't over yet. We want to take advantage of any volatility.

Momentum stocks like AMBA climb and climb and climb and then suddenly reverse. When momentum stocks reverse lower they often fall farther and further than we might normally expect. Today (Sept. 8th) the broader market delivered a widespread rally with the major indices up +2.5%. Yet AMBA lost ground, losing -0.5%. If shares breakdown under short-term support at $70.00 the next support level is probably $60.00.

Tonight I am listing AMBA as an aggressive, higher-risk trade. We want to use a buy-the-dip trigger at $62.00. Options are expensive because AMBA is so volatile. I suggest small positions to limit risk. We are not listing a stop loss at this time and will and one as the trade progresses.

I am listing the 2016 January calls. I'd like to buy the 2017 Januarys but they are very expensive.

Use small positions to limit risk - AMBA is a volatile stock!

- Suggested Positions -
SEP 24, 2015 - entry price on AMBA @ 61.00, option @ 5.40
symbol: AMBA160115C70 2016 JAN $70 call - current bid/ask $4.00/4.50

09/24/15 triggered @ $61.00
09/13/15 adjust the buy-the-dip trigger to $61.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 09/24/15
Originally listed on the Watch List: 09/08/15

The Clorox Co. - CLX - close: $116.93

10/04/15: CLX spent last week churning sideways in the $113-117 range. The stock bounced off its 50-dma. Friday's rally left shares at a new six-week high. If you were looking to buy a dip at $114.00 you got multiple chances.

On Thursday the company provided an update on their long-term strategy at their Clorox Analyst Day event. Their 2020 strategy includes growing net sales 3-5 percent annually. CLX wants to expand EBIT margin 25-50 basis points annually. They also plan to generate free cash flow of 10-12 percent of sales a year. You can view more information on their strategies here.

Trade Description: September 8, 2015:
Clorox is not just a bleach and cleaners company. They also make food and personal care items. Actually they make a lot more.

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.

Their most recent report was CLX's Q4 results on August 3rd. Earnings of $1.44 per share was seven cents above estimates. Revenues were up +4.0% to $1.56 billion, also better than expected. Management issued soft guidance, below Wall Street estimates, but the stock rallied anyway.

CLX has a strong, long-term up trend. Investors could seek safety in stocks like CLX if the global economy continues to struggle.

The stock market's correction saw CLX plunged back toward technical support near its 200-dma. Now the stock has been consolidating sideways in the $108-112 zone. I'd like to see CLX fill the gap ($112-114) before we launch positions. Therefore the plan is to wait for CLX to close above $114.25 and then buy calls the next morning.

This is a long-term trade. We're using the 2017 calls.

- Suggested Positions -
SEP 22, 2015 - entry price on CLX @ 113.65, option @ 5.25
symbol: CLX170120C125 2017 JAN $125 call - current bid/ask $4.00/6.00

09/27/15 new stop loss @ 105.85
09/22/15 Trade begins. CLX opens at $113.65
09/21/15 triggered. CLX closed @ $114.47, trigger was a close above $114.25
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 105.85
Play Entered on: 09/22/15
Originally listed on the Watch List: 09/08/15

Facebook, Inc. - FB - close: 92.07

10/04/15: FB is a watch list candidate that hit our suggested entry trigger last week. Monday's widespread market decline pushed FB down below round-number support at $90.00. The stock continued to sink on Tuesday and underperformed with a drop toward its rising 150-dma. The stock hit a low of $85.72. Our buy-the-dip trigger was $86.50. Right on cue FB began to bounce and shares are up three days in a row.

I am not suggesting new positions at current levels. If you missed our entry point I suggest staying on the sidelines and waiting for another pullback into the $86-88 area.

Trade Description: September 13, 2015:
We are bring FB back to the LEAPStrader newsletter. Cross your fingers and hope for a big dip!

Facebook probably needs no introduction. It's the largest social media platform on the planet. The company is quickly approaching 1.5 billion monthly active users. A couple of weeks ago they hit a new milestone - one billion people logged into Facebook in a single day.

The company continues to grow. In addition to their Facebook social media powerhouse they also own Facebook Messenger, WhatsApp, and Instagram. Their WhatsApp product is the largest messaging service on the planet with over 900 million monthly active users. Meanwhile FB's photo-sharing Instagram property has more than 300 million active users. The company has been ramping up their advertising efforts to slowly monetize Instagram. FYI: FB also owns Occulus Rift, the virtual reality company, but it's probably a few more years before VR goes mainstream.

Shares of FB have been incredibly volatile over the last few weeks. After surging to all-time highs in July following its earnings report the stock crashed in August. The market's correction lower sparked some extreme moves in FB with a plunge down to $72.00 on August 24th. This past week FB displayed relative strength and has rallied back above its 50-dma. However, I do not want to chase it here.

FB has already demonstrated that it can be volatile when the market sees big moves. If stocks sell-off on the Fed's decision this week we want to be ready to buy it on weakness. I view the $80-85 region as likely support. Tonight I am suggesting a buy-the-dip trigger at $85.00. If triggered we'll start this play with a stop loss at $79.75.

- Suggested Positions -
SEP 29, 2015 - entry price on FB @ 86.50, option @ 9.25
symbol: FB170120C100 2017 JAN $100 call - current bid/ask $11.45/11.75

09/29/15 Triggered @ $86.50
09/20/15 adjust the buy-the-dip trigger from $85.00 to $86.50
Option Format: symbol-year-month-day-call-strike


Current Target: To Be Determined
Current Stop loss: 79.75
Play Entered on: 09/29/15
Originally listed on the Watch List: 09/13/15

Lions Gate Entertainment - LGF - close: $38.65

10/04/15: LGF bounced at $35.60 on Tuesday and shares are now up $3.00 or +8.5% from its late September lows. It might be tempting to buy calls on this bounce but I am still suggesting investors wait for a close above $40.50 before initiating new bullish positions.

Trade Description: September 8, 2015:
If at first you don't succeed, try, try, try again. We tried trading LGF recently but we were shaken out thanks to the market's late August crash and LGF's spike to 2015 lows. Naturally the stock has recovered and is on the verge of a major breakout past resistance near $39-40.

What follows is an updated version of my original play description:

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.

LGF is also considered a takeover target. Everyone is scrambling for quality TV programming and LGF has the awards to prove it can deliver. Potential suitors include any of the major media companies. There are rumors that LGF could be a target by someone like AAPL who wants to jump into media creation or possibly NFLX, who just lost LGF's content when they failed to renew their contract with EPIX.

I am suggesting we wait for LGF to close in the $40.00-41.00 range. If shares close in this range then buy calls the next morning. No initial stop loss.

- Suggested Positions -
SEP 18, 2015 - entry price on LGF @ 39.61, option @ 4.50
symbol: LGF170120C45 2017 JAN $45 call - current bid/ask $2.80/5.00

09/18/15 Trade begins. LGF opens at $39.61
09/17/15 LGF closed at $40.06, inside our $40-41 entry range
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 09/18/15
Originally listed on the Watch List: 09/08/15

Royal Caribbean Cruises - RCL - close: 91.25

10/04/15: RCL is another watch list candidate that hit our buy-the-dip trigger. The plan was to buy calls on a dip at $90.00. It looks like we should have been more aggressive and used a lower entry point. RCL fell to $85.11 at Tuesday's low. The stock has seen a big bounce higher and the close above $90.00 and its 50-dma is bullish.

I would consider new positions now at current levels but more conservative investors might want to wait for RCL to close above $91.50 before initiating positions.

Trade Description: September 20, 2015:
If you are looking for stocks with relative strength then RCL fits the bill. Shares tagged new all-time highs last week and posted their third weekly gain in four weeks.

RCL is in the services sector. According to the company, "Royal Caribbean Cruises Ltd. is a global cruise vacation company that owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisieres de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 44 ships with an additional eight under construction contracts, and two under conditional agreements. They operate diverse itineraries around the world that call on approximately 480 destinations on all seven continents."

Barclays just upped their outlook on the cruise liners and believes the group is seeing improved strength in pricing. Meanwhile RCL has been cashing in on the growing trend of Chinese tourism. The recent change in ties between the U.S. and Cuba also represents a new opportunity for the cruise lines.

Technically RCL looks very bullish and the point & figure chart is forecasting at $121.00 target. Yet I don't want to buy it here. The market looks poised for a pullback. We will use a buy-the-dip trigger at $90.00. More conservative investors may want to hold out for a dip to $88.00 instead.

- Suggested Positions -
SEP 28, 2015 - entry price on RCL @ 90.00, option @ 6.30
symbol: RCL170120C110 2017 JAN $110 call - current bid/ask $5.80/6.35

09/28/15 triggered @ $90.00
Option Format: symbol-year-month-day-call-strike


Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 09/28/15
Originally listed on the Watch List: 09/20/15

Visa Inc. - V - close: 70.67

10/04/15: Last Monday was ugly for Visa. The market plunged but V broke support near $68.00 and its 200-dma. Fortunately traders bought the dip the very next session. Investors were in a buy-the-dip mood on Friday too when V tested its 200-dma on Friday morning and then bounced back into the green.

I am suggesting investors wait for a new close above $72.00 or more conservative investors can wait for a close above $72.75 before considering new bullish positions.

Trade Description: August 9, 2015:
The world is moving closer and closer to a cash-less society. Big payment processing companies like Visa and MasterCard will benefit from this transition.

According to the company, "Visa Inc. (NYSE:V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world's most advanced processing networks - VisaNet - that is capable of handling more than 56,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa's innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products."

It's important to note that V does not extend credit to consumers. There's no credit risk for bad loans here. V makes money on transactions. That business is booming.

On July 23rd V report its Q3 results, which were $0.74 per share. That beat estimates by 16 cents. Revenues were also higher than expected at $3.52 billion, up +11.5%. Management offered strong guidance and upped their EPS estimates into the mid teen percentage range. Long-term V is expected to grow earnings at almost 15%.

One of the big stories to come out of V's recent earnings report was news of a merger brewing. Visa is talking to former subsidiary Visa Europe. Estimates suggest the price target could be in the $15-20 billion range. Wall Street is positive on the deal and Visa expects it would add to earnings in fiscal 2017.

Another reason to be bullish on Visa is the fact that China recently opened its market to foreign companies to participate in clearing domestic bank card transactions. Previously only Chinese companies could do this. Now giants like V and MasterCard can compete in a market valued at more than $6.8 trillion. Considering V's expertise in this field we should expect them to grab a healthy chunk of the market.

Shares of V recently surged to new all-time highs and traded above $76 per share. After four up weeks in a row V posted a loss last week. Technically it produced a bearish engulfing candlestick reversal pattern on its weekly chart. If shares do correct lower we want to take advantage of the pullback. Broken support near $70.00 should be support. Tonight we are suggesting a buy-the-dip trigger at $70.50.

- Suggested Positions -
AUG 24, 2015 - entry price on V @ 64.16, option @ 2.76
symbol: V170120C80 2017 JAN $80 call - current bid/ask $4.30/4.60

08/30/15 Remove the stop loss
08/24/15 triggered on gap down at $64.16, suggested entry was a buy-the-dip trigger at $70.50.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 08/24/15
Originally listed on the Watch List: 08/09/15


Ready For A Q4 Rally

by James Brown

Click here to email James Brown

New Watch List Entries

COST - Costco Wholesale

HSY - The Hershey Company

Active Watch List Candidates

AAPL - Apple Inc.

CRM - Salesforce.com

DHI - DR Horton Inc

DIS - Walt Disney Co.

FIS - Fidelity National Info. Services

OA - Orbital ATK Inc.

SBUX - Starbucks Corp.

Dropped Watch List Entries

FB and RCL graduated to our active play list.

New Watch List Candidates:

Costco Wholesale - COST - close: 145.86

Company Info

After five years of solid gains the rally in COST peaked in the $155 area in early 2015. The stock has spent the last several months in a massive consolidation that could be coming to an end.

If you're not familiar with COST they are in the services sector. The company runs a membership warehouse business that competes with the likes of Sam's Club (a division of Wal-Mart). According to the company, "Costco currently operates 686 warehouses, including 480 in the United States and Puerto Rico, 89 in Canada, 36 in Mexico, 27 in the United Kingdom, 23 in Japan, 12 in Korea, 11 in Taiwan, seven in Australia and one in Spain. The Company plans to open up to an additional 16 new warehouses (including one relocation to a larger and better-located facility) prior to the end of its fiscal year on August 30, 2015. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico."

Revenue growth has been lackluster this year. COST has managed to beat Wall Street estimates on the bottom line but the revenue number has been soft. Their most recent quarterly report was announced on September 29th. Earnings were up +10% from a year ago to $1.73 a share. That beat estimates. Yet COST said their Q4 revenues were virtually flat (+0.7%) to $35.78 billion. That missed expectations. Comparable store sales were up +2% in the U.S. but down -10% in Canada.

A lot of COST's revenue troubles have come from lower oil, which has pushed gas prices lower. The big drop in gas prices cuts their revenue growth. Plus the stronger dollar hurts their foreign sales. The company continues to expand its presence in the U.S. and overseas. Management plans to launch 12 new warehouses this quarter. Overall COST plans to build 32 new stores in the next 12 months, including its first store in France.

The stock looks poised to breakout past its July, August, and September highs and make a run at its 2015 highs. We suspect COST is going to grab more investor attention as we approach the holiday shopping season. The stock tends to see a rally from September into Black Friday (the day after Thanksgiving).

COST has resistance in the $147.00 area. The August intraday high was $147.59 while the August closing high was $146.89. Tonight I am suggesting we wait for COST to close above $147.60 and buy calls the next morning. More conservative traders may want to wait and make sure COST closes above $148.00 instead since a close above this level would generate a new buy signal on the point & figure chart.

Wait for COST to close above $147.60, then buy calls the next morning (stop loss at $139.75)

BUY the 2017 Jan $160 call (COST170120C160)

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

Chart of COST:

Originally listed on the Watch List: 10/04/15

The Hershey Company - HSY - close: 94.31

Company Info

Not many companies make it past 100 years old. HSY is looking good for being 120 years old. The recent action in the stock suggest HSY has found a bottom.

If you are not familiar with HSY here's a description from the company, "The Hershey Company (HSY), headquartered in Hershey, Pa., is a global confectionery leader known for bringing goodness to the world through its chocolate, sweets, mints and other great-tasting snacks. Hershey has approximately 22,000 employees around the world who work every day to deliver delicious, quality products. The company, which has more than 80 brands around the world that drive over $7.4 billion in annual revenues, includes such iconic brand names as Hershey's, Reese's, Hershey's Kisses, Jolly Rancher and Ice Breakers. Hershey is focused on growing its presence in key international markets while continuing to build its competitive advantage in North America. Additionally, Hershey is poised to expand its portfolio into snacking categories beyond confectionery, finding new ways to bring goodness to people everywhere."

Thus far 2015 has been a bit disappointing. On June 19th the company issued an earnings warning and lowered their 2015 guidance below analysts' estimates. On August 7th they reported earnings. EPS beat expectations but revenues missed. Guidance was in-line with the prior lowered forecast. The stock dropped on both occasions but the sell-off didn't get very far before investors bought the dip in HSY. On the plus side HSY said their gross margins are improving.

HSY has a large, relatively safe domestic business in the U.S. The Q4 should be positive given all the holidays. HSY should see a seasonal uptick in sales. The company is also trying to expand overseas with a focus on China. Their recent acquisition in China has been fraught with troubles but expectations have already been reduced. The Chinese business disappointment has already been priced into HSY's stock price.

Wall Street opinion is mixed. Analysts are forecasting five-year earnings growth of +8% for HSY. JP Morgan seems optimistic since they just upgraded the stock and their price target. The point & figure chart is bullish and forecasting at $104.00 target. I think HSY can go a lot higher.

HSY saw a slow and steady correction from its all-time highs near $110 set in January this year. Shares have been building a base in the $87-94 range for months. Currently HSY appears to have major resistance in the $94-96 area but a breakout would signal the next leg higher. Tonight I am suggesting investors wait for HSY to close above $97.00 and then buy calls the next morning.

Wait for HSY to close above $97.00, then buy calls the next morning (stop loss at $89.75)

BUY the 2017 Jan $110 call (HSY170120C110)

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

Chart of HSY:

Originally listed on the Watch List: 10/04/15

Active Watch List Candidates:

Apple Inc - AAPL - close: 110.38

10/04/15: AAPL underperformed the broader market last week. The stock did find some short-term support in the $108 area but AAPL's rebound lagged behind the market.

Currently we have a buy-the-dip trigger to buy calls at $101.00. We are going to stick to that plan for now. More aggressive investors may want to consider a breakout entry strategy if AAPL can close above resistance near $117.00.

Trade Description: September 13, 2015:
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 $651 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.

Earnings growth has been significant as consumer snapped up the iPhone 6 and 6+. The company expects the iPhone to be a major driver as only 20-25% of their user base has upgraded. This past week AAPL held their annual event in September and introduced several upgrades.

AAPL has unveiled new stuff for their smartwatch, they introduced the iPhone 6s and 6s+, they introduced a new, larger iPad that's being called the iPad Pro. The company also introduced a new Apple TV system. They also unveiled a new leasing program for their iPhones.

Normally consumers buy iPhones through their wireless carrier. This past week AAPL announced a deal where consumers could lease their phone from Apple for $32.00 a month and get a free upgrade every year. For the iPhone fanatics it's probably a great deal.

The 2015 holiday shopping season will be here sooner than you expect and AAPL stands to benefit from their parade of new products announced last week. Yet I don't want to buy AAPL at current levels. Odds are good that stocks could sell-off following the FOMC decision this coming Thursday. We want to take advantage of any temporary weakness in shares of AAPL.

Tonight I am listing a buy-the-dip trigger at $101.00. No initial stop loss but investors might want to consider a stop under the August 24th low ($92.00).

We will re-evaluate our entry strategy next weekend after seeing how the market reacted to the Fed meeting.

Buy-the-dip trigger at $101.00
No stop, initially

BUY the 2017 Jan $120 call (AAPL170120C120) (estimated entry $8-to-$12)

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

Originally listed on the Watch List: 09/13/15

Salesforce.com - CRM - close: 73.93

10/04/15: CRM tested technical support at its simple 200-dma (near $68) and bounced. Shares delivered a pretty big bounce thanks to M&A rumors. Speculation is growing that IBM or Microsoft (MSFT) might need to buy a fast growing company like CRM. This fueled a rally toward resistance near $74.00 in CRM.

I am not giving up on a buy-the-dip trigger at $65.25. However, if CRM continues to rally I don't want to miss too much of it. The stock has additional resistance at $76.00. Tonight we will add a second trigger to buy calls if CRM can close above $76.25 (see below for details).

Trade Description: September 20, 2015:
If you're looking for a long-term bullish candidate CRM definitely fits. Founded in 1999 and headquartered in San Francisco the company has become a huge player in the cloud computing industry.

CRM is part of the technology sector. According to the company, "Salesforce is the world's #1 CRM company. Our industry-leading Customer Success Platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in cloud, social, mobile and data science technologies with the Customer Success Platform."

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. The company's most recent quarter was announced August 20th. Analysts were expecting Q2 results of $0.17 a share on revenues of $1.6 billion. CRM beat both estimates with a profit of $0.19 as revenues grew +23.5% to $1.63 billion. Management raised their Q3 and full year 2016 revenue guidance.

Technically the stock is in a long-term up trend and the point & figure chart is forecasting an $85.00 target. Considering where we are on the calendar and the fact that the next three weeks tend to be the worst weeks of the year for stocks, I am suggesting a buy-the-dip trigger. Wait for CRM to dip to $65.25 and then buy calls.

Buy-the-dip trigger: $65.25, initial stop loss $59.00

BUY the 2017 Jan $75 call (CRM170120C75)

- or -

Breakout trigger: Wait for CRM to close above $76.25
Then buy calls the next morning (no stop)

BUY the 2017 Jan $85 call (CRM170120C85)

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


Originally listed on the Watch List: 09/20/15

DR Horton Inc. - DHI - close: 29.73

10/04/15: DHI came very close to hitting our entry trigger last week. The plan was to buy calls on a dip at $28.50. The stock kept finding support in the $28.55 area. Friday's low was $28.54 and shares rebounded back into the green.

I am adjusting our buy-the-dip trigger from $28.50 down to $27.75. If the market rolls over then DHI might test technical support at the 200-dma. However, I am also adding a second trigger. If this rally continues we want to jump on board. Wait for DHI to close above $30.65 and then buy calls the next morning.

Trade Description: September 13, 2015:
Believe it or not but homebuilders have been some of the market's better performers this year. The group is up about 15% year to date. DHI has outperformed its peers with a +24% gain in 2015. The stock is poised to breakout past resistance near $32.00 and hit new multi-year highs.

If the Federal Reserve does announce a rate hike on Thursday it could spark a temporary sell-off in the homebuilders. I want to be ready to buy the dip in DHI. The stock should have support in the $27.00-28.00 area. Tonight I am suggesting a buy-the-dip trigger at $28.50 and we'll list a stop loss at $25.75.

Buy-the-dip trigger at $27.75
Initial stop loss at $25.45

- or -

Wait for DHI to close above $30.65 and then buy calls the next morning

BUY the 2017 Jan $35 call (DHI170120C35)

10/04/15 Add a second trigger - a close above $30.65 as another entry to buy calls
10/04/15 adjust the buy-the-dip trigger from $28.50 to $27.75 and move the stop loss down to $25.45.
Option Format: symbol-year-month-day-call-strike


Originally listed on the Watch List: 09/13/15

The Walt Disney Co. - DIS - close: 103.00

10/04/15: DIS showed relative strength with a bounce from $98 to $103 last week. The stock looks poised to test resistance in the $105.00 area.

Currently we have a buy-the-dip trigger at $91.50. If the market rolls over we could definitely see DIS test its August lows. However, if the market doesn't roll over then we need an alternative plan. The 200-dma is near $106.00. I am adding a secondary trigger. Wait for DIS to close above $106.50 and then buy calls the next morning (use a different strike, see below).

Trade Description: September 27, 2015:
If investors continue to sell DIS we want to be ready to buy the dip near support.

DIS has been a big cap superstar with strong, steady gains off its 2011 lows. That changed in August this year. DIS has seen a very sharp and painful correction and it looks like an opportunity.

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

We think this pullback in the stock is way overdone. Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There were no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

(sidenote - The advertising environment for television should also improve in 2016 thanks to the U.S. presidential election.)

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

Analysts are claiming Disney shares could add 25% before the end of December because of their strong movie schedule and coming attractions. The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof.

Disney Movie Schedule (partial list)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 2016 - "Captain America: Civil War"
June 2016 - "Finding Dory"
Dec. 2016 - "Star Wars Anthology: Rogue One"
May 2017 - "Star Wars: Episode VIII"
June 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Content is still king and DIS rules. They're going to make a hoard of money off their Star Wars movies but that's just the tip of the iceberg. There will be tons of money made on merchandising from toys, clothing, video games, and just about everything else under the sun they can slap a Star Wars logo on.

The stock's correction from $121 was abrupt. DIS quickly fell from correction territory to bear-market territory in just a few days. Now the oversold bounce seems to have stalled under resistance near $105 and its 200-dma. The action this last week has DIS threatening to breakdown under round-number support at $100.00. If that happens investors could overreact and send DIS back toward its August lows near $90.00. We want to be ready to catch it near the August lows. Tonight I am suggesting a buy-the-dip trigger at $91.50.

Buy-the-dip trigger: $91.50
No stop loss (initially)

BUY the 2017 Jan $100 call (DIS170120C100)

- or -

Wait for DIS to close above $106.50,
Then buy calls the next morning, No stop loss (initially)

BUY the 2017 Jan $120 call (DIS170120C120)

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

Originally listed on the Watch List: 09/27/15

Fidelity National Info. Svcs. - FIS - close: $68.35

10/04/15: FIS has tested support near $66 and started to bounce. Last week's action looks like a potential bullish reversal but I am suggesting patience. Wait for shares to close above $71.00.

Trade Description: September 8, 2015:
We are adding FIS as a relative strength trade. The stock has been marching higher for years. Shares are outpacing the broader market this year with a +9.0% gain year to date.

FIS is in the technology sector. According to the company, "FIS is a global leader in banking and payments technology as well as consulting and outsourcing solutions. With a long history deeply rooted in the financial services sector, FIS serves more than 14,000 institutions in over 130 countries. Headquartered in Jacksonville, Fla., FIS employs more than 42,000 people worldwide and holds leadership positions in payment processing and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial industry, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500 Index."

FIS just recently announced it was acquiring financial software maker SunGard Data Systems for $9.1 billion in cash and stock. SunGard was about to go public and FIS gobbled them up. The combined company will have $9.2 billion in annual revenues and over 55,000 employees.

The big spike higher on FIS' daily chart was the market's reaction to this acquisition news. Shares of FIS filled the gap during the market's correction lower. Now traders are back to buying FIS. The point & figure chart is bullish and forecasting at $92.00 target.

Tonight I am suggesting we wait for FIS to close above $71.00 and then buy calls the next morning. We will start with a stop loss at $64.75.

Breakout trigger: Wait for a close above $71.00
Then buy calls the next morning with a stop loss at $64.75

BUY the 2016 Jan. $75 call (FIS160115C75)

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

Originally listed on the Watch List: 09/08/15

Orbital ATK, Inc. - OA - close: $74.31

10/04/15: OA dipped to technical support at its simple 200-dma and bounced. We are still on the sidelines waiting for a new high.

Currently our suggested entry point is a close in the $81.00-83.00 range.

Trade Description: September 8, 2015:
If you read the news it seems like the world is an increasingly dangerous place to live. Defense companies like OA are seeing their business strengthen.

OA is part of the industrial goods sector. According to the company, "Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. Headquartered in Dulles, Virginia, Orbital ATK employs more than 12,000 people in 18 states across the United States and in several international locations."

Their most recent earnings report was August 6th. OA reported its Q2 results of $1.28 per share. That is +16% improvement from a year ago and 26 cents above estimates. Revenues were up +7% to $1.13 billion, also better than expected.

David W. Thompson, Orbital ATK's President and Chief Executive Officer, commented on his company's results, "Orbital ATK reported excellent second quarter financial results characterized by better-than-expected revenue and very strong earnings. These results benefited from outstanding new orders, as well as continued solid operational execution on our major programs. As a result, we are increasing the company's outlook for sales and earnings this year and expanding our previously-announced capital deployment program as well.

Management raised their full year 2016 earnings to $4.60-4.80 a share and forecasted revenues in the $4.425-4.50 billion range. This is above Wall Street estimates of $4.51 a share on revenues of $4.41 billion.

Argus upgraded the stock and boosted their OA price target to $95.00. A Goldman Sachs analyst also upgraded the stock. Goldman said OA has "multiple unique exposures to drive faster than average 3-year growth."

The sell-off during the market's crash on August 24th was ridiculous. OA plunged from $75 to $56 in the blink of an eye and has since recovered. Moves like that are more than a little unnerving. Investors may want to use small positions to limit risk. The August peak was about $81.00. I am suggesting we wait for OA to close in the $81.00-83.00 range and then buy calls the next morning. No initial stop on this trade.

Technically this isn't a LEAPS trade. OA doesn't have LEAPS. The farthest options available is the 2016 Februarys.

Breakout trigger: Wait for OA to close in the $81.00-83.00 range
Then buy calls.

BUY the 2016 Feb. $85 call (OA160219C85)

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

Originally listed on the Watch List: 09/08/15

Starbucks Corp. - SBUX - close: 58.08

10/04/15: Last week's rebound in SBUX looks pretty strong. Our buy-the-dip strategy at $52.00 might be wishful thinking at this point. Tonight I am adding a second entry trigger. SBUX has resistance near $59.00 (actually $59.30). I am suggesting we wait for SBUX to close above $60.00 and buy calls the next morning (with a different option strike, see below)

Trade Description: September 20, 2015:
It's time to bring SBUX back to the LEAPStrader newsletter.

Here is an updated trade description on SBUX:

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

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

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

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

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

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

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

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

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

SBUX continues to serve up strong earnings and revenue growth too. The fourth quarter of 2014 saw a huge jump in SBUX gift cards. One out of every seven Americans received a SBUX gift card. SBUX has been reporting very strong overseas sales growth and consistently healthy same-store sales growth globally.

Shares were very steady performers for much of 2015 and then during the market's correction in late August the stock just collapsed. It was shocking to see SBUX erase six month's worth of gains in just a few days. Of course it bounced back almost as fast. Tonight I want to use SBUX's volatility to our advantage. If the market declines over the next couple of weeks SBUX might be unfairly punished. The $50-52 area should be support. We want to use a buy-the-dip trigger at $52.00.

Buy-the-dip trigger: $52.00, no initial stop loss.

BUY the 2017 Jan $60 call (SBUX170120C60)

- or -

Wait for SBUX to close above $60.00,
Then buy calls the next morning (no initial stop)

BUY the 2017 Jan $70 call (SBUX170120C70)

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


Originally listed on the Watch List: 09/20/15