Option Investor

Daily Newsletter, Thursday, 8/27/2015

Table of Contents

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

Market Wrap

Who's Slowing?

by Thomas Hughes

Click here to email Thomas Hughes
Fear of global woe helped send the market into correction, but newly released data does not support a US economic slow down.


Global growth is weak, China is slowing, emerging market are iffy, the EU and Japan both sluggish, a combination that has helped to send international indices into corrective mode. The only thing is, our economy is still expanding, still building momentum and the newly released GDP revision supports it. Now that the market is bouncing the question is, is this a dead cat bounce or the beginning of another rally.

Futures had been positive all morning but gained strength after the release of today's data. The rebound which began in our market yesterday carried into Asia, where indices gained an average of 3%, and swept the globe. European indices were also carried higher, gaining 3% across the board.

Market Statistics

Our indices were indicated to open about a half percent higher before today's data was released and extended that to near a full percent afterward. Strength persisted into the opening bell and saw the indices gain that full percent within the first few minutes of trading. The next hour saw them move more or less sideways, until about 10:30, when the bulls took charge and drove them higher. By 11:15 all the majors indices were flirting with 2% gains.

Mid afternoon was a bit of a roller coaster ride. After reaching early highs, the market began to rollover and reduced today's gain from 2% down to 1%. At one point it looked as if all of today's gains would be erased but the bulls were able to regain control. Later afternoon action saw the indices march back up to the early high where they held, leaving our indices with gains in the range of 2%-2.5%.

Economic Calendar

The Economy

The 2nd estimate for 2nd quarter GDP was released at 8:30AM. The estimate was revised higher from 2.3% to 3.7%, after rising 0.6% in first quarter. The estimate was raised due to increased amounts of fixed investments and business inventories along with strength in PCE, exports and local government spending.

Initial claims for unemployment fell by -6,000 from last week's unrevised figure. This is contrary to an expectation for a slight gain and remains near the long term low. The four week moving average gained 1,000, also from an unrevised figure, to hit 272,000. On a a not adjusted basis claims fell by -1% versus a rise of +1.2% as predicted by the seasonal factors. Michigan and Kansas led with increases of 1297 and 1244, Illinois and Pennsylvania led with declines of -1486 and -1166.

Continuing claims gained 13,000 from an upward revision of +2,000 to last week's number. This week continuing claims is 2.269 million and still trending near the long term lows. The four week moving average fell, shedding -250. Continuing claims remain near long term lows and consistent with a healthy labor market.

The total number of Americans receiving is 2.207 million. A little odd since this is less than the number of continuing claims, but makes sense when you remember that continuing claims are "seasonally adjusted" while total claims are not. The non adjusted of continuing claims is only 2.1 million. In any event, this is the fifth week of decline in total claims which is trending near the long term low and consistent with ongoing recovery. All in all, the jobless claims data supports ongoing health in the labor market and expectations of decent numbers in next week's NFP and Unemployment reports.

Pending Home Sales was released at 10AM and helped rally the bulls to new intra-day highs. Pending sales rose by 0.5%, a little weaker than expected, but still a solid number. This is the 6th month of gain out of 7, June saw a slight decline, and leads existing home sales by a month or two. This brings the year over year gain to +7.4% over last year. However, on a not adjusted basis pending sales fell by -11.5% from last month. Despite this drop the not adjusted year over year total is still +7.2% over last year. Based on this number we can expect to see existing home sales continue to rise into the next month or two.

The Oil Index

Oil prices surged today, gaining more than 10% on an intra-day basis, to trade above $42 (WTI). This move is likely short covering and near term profit taking and not a reversal in prices. Crude prices have gotten a little support from hurricane season, Chinese stimulus hopes and positive US economic data but underlying supply/demand fundamentals are unchanged. There was a draw of US stockpiles, as reported yesterday, but this does little to alter the fact that supply and production remain high, actual demand and demand expectations are low and unchanged.

The energy sector got a lift from today's snap back in oil prices. The Oil Index itself gained over 5% on the news and closed near the high of the day. Prices have begun to snap back from the low set at the end of last week but hit resistance today. Resistance is the 61.8% retracement line and will likely get tested again in the least. The indicators are bearish at this time but mixed in their message. MACD momentum is convergent with the recently set low suggesting that it will be hit again, if not surpassed, while stochastic is divergent from that same low suggestive of support and an overextended market. Oil prices are leading, if they remain up the index could test or break resistance near 1120, if they fall back to their low the index will likely retest its low as well. I remain bullish on this index into the long term as expectations for oil prices in 2016 are near $50 average, and earnings growth is expected to return to the sector as early as the 1st quarter of 2016.

The Gold Index

Gold prices held steady around $1120 in today's session, shedding about $2 from yesterday's settlement price. The metal has retreated from its recent high and is now sitting on potential support, just above a small consolidation zone set earlier this month. Prices are stuck in a tug-of-war between sooner-rate-hike versus later-rate-hike speculation, all driven by economic data and dollar values. Inflation remains absent from the picture so I expect gold will remain tied to FOMC outlook for now. Until inflation shows up rate hikes and strengthening dollar value will continue to provide resistance.

The gold miners were able to trade higher despite the small drop in gold prices. The miners ETF GDX rose more than 5% on an intra-day basis and closed near the top of the daily range. This move highlights support at the $13 if not confirming it. However, the indicators have rolled over into a bearish signal, in line with the prevailing trend, so caution is due... if this is the bottom there will be other entry points. A break below support would be a new all time low for this ETF and could add downward pressure to the sector.

In The News, Story Stocks and Earnings

Dollar General reported before the bell. The discount savings store reported $0.95 per share, beating estimates by a penny and improving profits over last year's comparable quarter by more than 10%. Operating profits are up, margins are up, sales are up nearly 8% and comps are up. What is not up is guidance which was reaffirmed in a range just below consensus. Shares of the stock responded by shedding more than 5% and closing with a loss greater than -3%. Today's session was choppy and volatile, leaving long shadows on both ends of today's candle. The indicators are weakening and convergent with lower prices.

Tiffany's reported a bust. The high end jewelry retailer reported $0.81 per share versus expectations of $0.90. Along with this comes a down beat outlook that helped to send shares down by nearly -3% in pre-market action. The stock gapped down at the open, setting a new low, but buyers stepped in to provide support. Shares had moved into the green at one point during the day but were not able to hold it into the close.

Smucker's reported before the bell too. The maker of delicious jams and jellies beat earnings expectations and reaffirmed guidance at the high end of its previous range. The beat is due in part to an acquisition made earlier in the year and also in part to the launch of Dunkin brands K-cups for Keurig coffee makers. Shares of the stock gained more than 6.5% on the news and are approaching resistance at the long term high.

Zoe's Kitchen, an often not talked about fast casual restaurant, reported before the bell and beat expectations by a penny. The company reported $0.05 per share driven by the opening of 7 new stores and a 5.6% increase in comp store sales. Company execs were also able to raise guidance due to strength in the quarter. Shares of the stock gained nearly 4% in a move that looks set to move up to resistance near $40.

The Indices

The indices moved higher in another day of wild trading. The size of the gains is significant, as is the mid day swoon and late day recovery. Today's action was led by the NASDAQ Composite which gained 2.45% and created another long white candle. The tech heavy index also broke above a potential resistance line near 4,800 with targets set on 5,000. The indicators are rolling over in line with the current bounce with stochastic making a bullish crossover and pointing to higher prices. Next target, near 5,000, is coincident with the underside of the long term trend line and could provide significant resistance.

Next in line is the S&P 500 with a gain of 2.43%. The broad market index created a long white candle, not quite as long as yesterday and closed near the high of the day, above potential resistance. The indicators are not yet rolling over so this bounce is a little questionable however strong it looks now. Next target is near 2,020 and then 2,050 upon a break. This bounce is in line with the underlying trend and forward expectations so could easily move up to test the current all time high.

The Dow Jones Transportation Average made the third largest gain in today's session, 2.40%. The index created a long white candle with no upper shadow, closing at the high of the day. Today's action carried it above recently broken support at 7,750 with indicators consistent with a bounce from support. MACD is still bearish so another test of support is very possible. Stochastic is also still moving lower, although %K is on the verge of making a crossover, supporting the idea of retesting support.

The Dow Jones Industrial Average made the smallest gain in today's session, only 2.27%. Despite coming in last the blue chips made a long white candle and extended the support bounce begun yesterday. The indicators are mixed with strong bearish momentum, declining, and stochastic creating a bullish crossover so it looks like a move up to next resistance is very possible. This target is near 17,200 and could be reached in only 2-3 days of trading if action continues as it has so far this week.

It looks like the bounce is on but the question remains, is it a recovery or a dead cat bounce? The indicators have yet to confirm the move and there is still significant resistance levels to overcome so the risk of dead cat bounce is very present. On the flip side, this move is quite strong, supported by trends in the economy and led by earnings expectations so could easily reach resistance, break through and move on to test current all time highs. In either event it looks likely the market will continue to move higher into the near term, provided a negative headline does not jump out and knock the bulls off of their feet.

There is not much in the way of data or earnings on the schedule for tomorrow to get in the way. On the data front look out for Personal Income And Spending as well as Michigan Sentiment. Income and Spending are both expected to rise by 0.4%, Michigan Sentiment to gain a tenth and rise to 93. The real risks at this time are global news, oil prices and FOMC talk. Next week will be another big one, I think. There is lots of data, and the Jackson Hole conference starts this weekend.

Finally, we've got about four weeks until the FOMC meeting and a possible rate hike. This alone could keep stocks range bound and below resistance targets.

Until then, remember the trend!

Thomas Hughes

New Plays

Driving Over Its Competitors

by James Brown

Click here to email James Brown


Oshkosh Corp. - OSK - close: 41.51 change: +0.40

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 27, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.1 million
New Positions: Yes, see below

Company Description

Trade Description:
The future looks a little brighter for OSK after a big contract win from the U.S. military. OSK has been making vehicles for the military for over 90 years. Earlier this year (January) the military tested new prototypes for a new Humvee design from the likes of Lockheed Martin, AM General, and OSK. This week the Wall Street Journal reported that OSK had won the contract.

OSK is in the consumer goods sector. According to the company, "Oshkosh Corporation is a leading designer, manufacturer and marketer of a broad range of specialty access equipment, commercial, fire & emergency and military vehicles and vehicle bodies. Oshkosh Corporation manufactures, distributes and services products under the brands of Oshkosh®, JLG®, Pierce®, McNeilus®, Jerr-Dan®, Frontline®, CON-E-CO®, London® and IMT®. Oshkosh products are valued worldwide in businesses where high quality, superior performance, rugged reliability and long-term value are paramount."

The new Humvee contract is a big deal. The Pentagon has been cutting back on spending the last few years. This new contract could last 25 years. OSK won with its design that is lighter in weight, providers greater range, and better protection against mines and roadside bombs. Officially the vehicle is called a Joint Light Tactical Vehicle (JLTV).

The initial contract is valued at $6.75 billion for 17,000 vehicles. It could be extended out to year 2040 since the U.S. army wants to buy almost 50,000 new JLTVs for itself and about 5,500 for the Marines. The overall program could be worth $30 billion over 25 years.

OSK's revenues last year were only $6.2 billion so this is a nice boost.

Technically shares of OSK appear to have produced a bullish double bottom. The stock market's spike lower on Monday morning pushed OSK toward its late July lows. This week's rebound in the market has seen OSK breakout past resistance near $40.00 and its 50-dma. This reversal higher has produced a new buy signal on the point & figure chart, which is forecasting a long-term $63.00 target.

Today's high was $42.21. Tonight we are suggesting a trigger to launch bullish positions at $42.30.

Trigger @ $42.30

- Suggested Positions -

Buy OSK stock @ $42.30

- (or for more adventurous traders, try this option) -

Buy the 2016 Jan $45 CALL (OSK160115C45) current ask $3.10
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

In Play Updates and Reviews

Oil's Surge Boosts Market Rally

by James Brown

Click here to email James Brown

Editor's Note:
Crude oil delivered its biggest one-day rally in over six years. WTI oil gained +10% today. This fueled a big oversold bounce in most of the energy names.

CLR, MRO, MU, and WLL were all closed today.

SBUX hit our bullish entry trigger.

Current Portfolio:

BULLISH Play Updates

Starbucks - SBUX - close: 55.95 change: +1.99

Stop Loss: None. No stop loss at this time.
Target(s): To Be Determined
Current Gain/Loss: +1.5%
Entry on August 27 at $55.15
Listed on August 25, 2015
Time Frame: Exit prior to earnings in October
Average Daily Volume = 8.0 million
New Positions: see below

08/27/15: Big cap stocks have been leading the rally with the S&P 500 and NASDAQ composite both up +2.4%. Today SBUX outpaced its peers with a +3.6% gain. Shares also rallied past resistance near $55.00 and its 50-dma. Our trigger to launch bullish positions was hit at $55.15.

Trade Description: August 25, 2015:
The sell-off in shares of SBUX is a bit ridiculous. The Thursday-Friday-Monday sell-off in the market saw SBUX fall from $57.59 to $42.05. That was a -27% drop in less than three days. The company's fundamentals didn't deteriorate -27%. The recent market turmoil presents an opportunity to buy SBUX. Jump to the bottom of this play description for details.

Here's a little bit about SBUX and the company's performance:

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.

Earnings results:

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.

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 trend of earnings pops continued in July with shares gapping up to new all-time highs following its Q2 report on July 23rd. Earnings were $0.42 per share, a penny above estimates. Revenues were up +17.5% to $4.88 billion, just a hair above expectations. Global same-store sales were up +7% and their non-GAAP operating margin improved 100 basis points to 19.5%. Management is still guiding 2015 revenues to rise +17% in the $19.1-19.4 billion range.

Recent Sell-off & Entry Point

The recent stock market bloodletting saw SBUX breakdown below a multitude of support levels. The weakness on Monday morning was just ridiculous. SBUX opened on Monday, August 24th near technical support at its 200-dma and then it plunged to $42.05. The stock bounced back to $50 by the closing bell. The rebound struggled today but SBUX displayed relative strength with a +1.48% gain versus a -1.35% drop in the S&P 500 and a -0.4% decline in the NASDAQ.

If the stock market continues to sink we want to take advantage of the weakness in SBUX and launch bullish positions on a dip near its 200-dma. Today the simple 200-dma is at $48.04. We will set our entry trigger at $48.00. We are starting this play without a stop loss. More conservative investors might want to wait on launching positions since the next few days could be volatile for the broader market (SBUX included).

- Suggested Positions -

Long shares of SBUX @ $55.15

- (or for more adventurous traders, try this option) -

Long NOV $57.50 CALL (SBUX151120C57.5) entry $2.00

08/27/15 Triggered @ $55.15
08/26/15 Entry point adjustment - move the buy-the-dip trigger from $48.00 to $50.00. Plus, add a secondary trigger to open bullish positions at $55.15.
Option Format: symbol-year-month-day-call-strike

Wayfair Inc. - W - close: 41.74 change: -1.31

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 26, 2015
Time Frame: Exit
Average Daily Volume = 1.0 million
New Positions: Yes, see below

08/27/15: Uh-oh! The action in W was terrible today. The rally failed at short-term resistance on its 10-dma this morning. Shares of W reversed lower into a -3.0% decline. That's pretty ugly when you consider the rest of the market is in rally mode. I could not find any news to explain today's relative weakness.

If shares do not improve tomorrow then we'll likely remove W as a candidate. For the moment our strategy is unchanged. Our suggested entry point is $45.15.

Trade Description: August 26, 2015:
Tonight's new candidate has been outperforming the market and could see a short squeeze. Year to date W is up +116% and shows no signs of slowing down.

According to the company, "Wayfair Inc. offers an extensive selection of home furnishings and decor across all styles and price points. The Wayfair family of brands includes:

Wayfair.com, an online destination for all things home
Joss & Main, an online flash sales site offering inspiring home design daily
AllModern, a go-to online source for modern design
DwellStudio, a design house for fashion-forward modern furnishings
Birch Lane, a collection of classic furnishings and timeless home decor
Wayfair is headquartered in Boston, Massachusetts, with additional locations in New York, Ogden, Utah, Hebron, Kentucky, Galway, Ireland, London, Berlin and Sydney."

Shares of W came to market with an IPO in October 2014 and priced at $29.00. They opened at $36.00 and spiked up to $39.43 on the first day of trading. The IPO excitement faded and shares didn't find a bottom until about $17.00 in December 2014.

Revenue Growth

The company seems to be growing at a tremendous pace. Their first earnings report as a public company was November 10th, 2014. Revenues soared +41.7% to $336.2 million. Their direct retail business surged +57%. W said their gross profit was $79.0 million versus $58.6 million a year ago.

Additional 2014 Q3 highlights included the number of active customers for their direct retail business rose +61% to $2.9 million year over year. Their LTM Net revenue per active customer increase $342 or +8.6% year over year and +3.0% from the second quarter of 2014.

W reported their Q4 results on March 4, 2015. The company delivered a loss of ($0.18) per share, which was 10 cents better than expected. Revenues were up +38.4% to $408.6 million, above expectations. Management raised their Q1 guidance significantly above Wall Street estimates.

The company beat expectations again with their Q1 report on May 11th. Results were a loss of ($0.23) per share. Revenues accelerated with a +52% gain to $424.4 million.

The earnings beats kept coming when W reported its Q2 results on August 12th. Analysts were forecasting a loss of ($0.29) per share on revenues of $438.4 million. Wayfair delivered a loss of ($0.15) per share. Revenues roared +66.5% to $491.8 million. Management said their number of active customers was up +53.5% from a year ago to four million. Repeat customer orders hit 56%. Orders delivered shot up +80%.

Big Potential

Following their Q1 results back in May the company's CEO talked about their future. On their Q1 conference call the CEO noted that their potential markets are huge. Estimates suggest that spending in their industry will hit $264 billion in the U.S. and $308 billion in Europe by 2018 (a combined total of $572 billion market).

Bears will argue that W's valuations are outrageous. They're probably right. The recent rally in the stock has bumped the company's market cap to $3.6 billion. At the same time analysts are expecting W to operate at a loss for the next two fiscal years. On a short-term basis the market doesn't seem to care. If this rally continues W could see a short squeeze.

A few months ago in an interview one of the co-founders said that together the two co-founders own between 40% and 50% of the stock. The current float is only 30.1 million shares, which is relatively small. The most recent data listed short interest at 57% of the float.

Recent Strength

Shares of W soared to all-time highs in mid-August following its better than expected earnings and revenues. The stock market's recent crash bought the stock back to earth but investors bought the dip near support in the $40 area and its rising 50-dma. The recent bounce near $40.00 looks like a bullish entry point. However, the market remains volatile. We would like to see some follow through higher in shares of Wayfair. Therefore tonight we are listing a trigger to open bullish positions at $45.15. I do consider this a more aggressive, higher-risk trade due to W's volatility.

Trigger @ $45.15

- Suggested Positions -

Buy shares of W @ $45.15

- (or for more adventurous traders, try this option) -

Buy the NOV $50 CALL (W151120C50)

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

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

BEARISH Play Updates

iPath S&P500 VIX Futures ETN - VXX - close: 24.71 change: +0.59

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -13.2%
Entry on August 25 at $21.82
Listed on August 24, 2015
Time Frame: 2 or 3 weeks
Average Daily Volume = 50 million
New Positions: see below

08/27/15: Stocks closed up on the session but it was another volatile day for the markets with big intraday swings.

I am not suggesting new positions on the VXX at this time.

Trade Description: August 24, 2015
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

(see VIX chart from the August 24th play description)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

- Suggested Positions -

Short the VXX @ $21.82

- (or for more adventurous traders, try this option) -

Long OCT $20 PUT (VXX151016P20) entry $2.93

08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike


Continental Resources - CLR - close: 29.62 change: +2.52

Stop Loss: 29.65
Target(s): To Be Determined
Current Gain/Loss: +0.7%
Entry on August 21 at $29.85
Listed on August 20, 2015
Time Frame: Exit 6 to 9 weeks
Average Daily Volume = 3.4 million
New Positions: see below

08/27/15: Crude oil saw its biggest one-day rally in more than six years with a +10% surge back above $42 a barrel.

This rally in oil fueled big gains across the energy sector. Shares of CLR rallied +9.29%. Our stop was hit at $29.65.

- Suggested Positions -

Short CLR @ $29.85 exit $29.65 (+0.7%)

- (or for more adventurous traders, try this option) -

DEC $28 PUT (CLR151218P28) entry $3.40 exit $3.30 (-2.9%)

08/27/15 stopped out
08/24/15 new stop @ 29.65
08/21/15 triggered @ $29.85
Option Format: symbol-year-month-day-call-strike


Marathon Oil Corp. - MRO - close: 15.97 change: +1.32

Stop Loss: 15.55
Target(s): To Be Determined
Current Gain/Loss: +12.6%
Entry on August 14 at $17.80
Listed on August 13, 2015
Time Frame: Exit
Average Daily Volume = 7.8 million
New Positions: see below

08/27/15: MRO has been extremely oversold. I was suggesting readers take money off the table last night.

Today's huge rally in oil fueled a +9% gain in MRO. The stock hit our stop loss at $15.55. I do find it interesting that the rally stalled right at technical resistance on its descending 10-dma.

- Suggested Positions -

Short MRO stock @ $17.80 exit $15.55 (+12.6%)

- (or for more adventurous traders, try this option) -

OCT $17 PUT (MRO151016P17) entry $1.03 exit $2.17 (+110.7%)

08/27/15 stopped out
08/24/15 new stop @ 15.55
08/22/15 new stop @ 17.05
08/19/15 new stop @ 18.15
08/17/15 began trading ex-dividend today ($0.21)
08/14/15 triggered @ $17.80
Option Format: symbol-year-month-day-call-strike


Micron Technology - MU - close: 15.67 change: +1.25

Stop Loss: 15.65
Target(s): To Be Determined
Current Gain/Loss: -2.0%
Entry on August 20 at $15.35
Listed on August 18, 2015
Time Frame: Exit prior to earnings in late September.
Average Daily Volume = 28.4 million
New Positions: see below

08/27/15: Semiconductor stocks were showing relative strength today with the SOX index up more than +3%. Yet MU sprinted past its peers with a +8.6% surge. MU rallied past short-term resistance near $15.40 and hit our stop loss at $15.65.

- Suggested Positions -

Short MU stock @ $15.35 exit $15.65 (-2.0%)

- (or for more adventurous traders, try this option) -

OCT $15 PUT (MU151016P15) entry $1.26 exit $1.04 (-17.5%)

08/27/15 stopped out
08/24/15 new stop @ 15.65
08/22/15 new stop @ 16.15
08/20/15 Triggered on gap down at $15.35, suggested entry was $15.85


Whiting Petroleum - WLL - close: 16.75 change: +2.05

Stop Loss: 16.25
Target(s): To Be Determined
Current Gain/Loss: +18.1%
Entry on August 03 at $19.85
Listed on August 01, 2015
Time Frame: Exit PRIOR to earnings
Average Daily Volume = 7.1 million
New Positions: see below

08/27/15: WLL is another beaten down energy stock that exploded higher on oil's big bounce today. Shares gapped higher and surged to a +13.9% gain on the session. Our stop was hit at $16.25.

- Suggested Positions -

Short WLL stock @ $19.85 exit $16.25 (+18.1%)

- (or for more adventurous traders, try this option) -

SEP $20 PUT (WLL150918P20) entry $2.05 exit $4.20 (+104.9%)

08/27/15 stopped out
08/24/15 new stop @ 16.25
08/22/15 new stop @ 18.05
08/05/15 new stop @ 20.35
08/05/15 new stop @ 21.25
08/03/15 triggered @ $19.85
Option Format: symbol-year-month-day-call-strike