Option Investor

Daily Newsletter, Tuesday, 9/8/2015

Table of Contents

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

Market Wrap

What a Difference a Day Makes

by Jim Brown

Click here to email Jim Brown

Friday's fear of the weekend sell off turned into a monster short squeeze with the Dow opening up +340 points. Although the indexes weakened slightly by late morning, it was not enough to save the shorts and they began to frantically cover by late afternoon.

Market Statistics

The fear of an Asian market meltdown over the long weekend sent longs to the sidelines on Friday and apparently there was some serious shorting in progress as well. Some shorts covered into the Friday close but based on today's opening spike there were many more expecting that weekend Asian meltdown.

The Japanese market closed at a new seven-month low with a -2% decline but it did not impact the U.S. markets. The Shanghai Composite closed up +2.9% today despite some lousy trade data for August. The rebound in the Chinese market helped overcome the drag from Japan. China announced a new circuit breaker for the market that would halt trading on any large market swings.

There were only a couple economic reports in the U.S. and none that were market movers. The Manpower Employment Outlook showed a decrease in hiring plans for Q4. In Q3 20% of respondents said they were planning on hiring. For Q4 that number declined to 15%. Those planning on increasing employment fell from 24% to 21% and those planning on cutting positions rose from 4% to 6%. Those planning no changes rose 1 point to 71%. However, even though the number of firms planning on increasing employment declined slightly it still represents a positive trend.

The NFIB Small Business Optimism Index rose slightly from 95.4 to 95.9 in August. While that was the second consecutive gain, the index has not recovered the decline from the May high at 98.3. June saw a significant -4.2 point drop. The number of firms planning on increasing employment rose from 12% to 13%. The net number of respondents expecting the economy to improve fell from -4% to -6%. Those with current job openings rose from 25% to 29%.

The Federal Reserve Labor Market Conditions Index rose from 1.8 to 2.1 for August. That is the highest level since December and a rebound from the -1.0 low in March. The index is made up of 19 labor market indicators. There are an equal number of respondents that feel jobs are plentiful and those that feel jobs are hard to get. That is the first time since 2009 that the net was not negative with more feeling that jobs were hard to get.

Consumer credit rose +$19.1 billion in July compared to +$27.0 billion in June. This is a lagging data point and was ignored.

China's exports declined -5.5% in August and are now down -1.4% for the first eight months of 2015 and the decline is accelerating. At the same time imports declined -14% in August for the 10th consecutive monthly drop. The decline shows how much imports have slowed for commodities like copper, steel, aluminum, etc. A sales manager at Shanghai Steel Fashion Industrial Company, an exporter of prefabricated steel structures, said business declined -40% in August. The devaluation of the yuan has caused a sharp drop in China's foreign reserves by more than -$100 billion in August alone. Analysts believe the drop in the yuan was not enough to help China's exports. Analysts at Nomura say the pressure on China to devalue the yuan even further is now the strongest since 1994.

Late in the day, the World Bank warned the Fed not to raise rates until 2016 and said a rate hike could cause panic in the emerging markets. Now the IMF and World Bank have both warned the Fed not to hike.

China's inflation data is due out on Wednesday and Retail Sales on Saturday.

The economic reports on Wednesday are normally ignored.

The big event on Wednesday is the Apple product announcement. Apple shares rose $3 today ahead of the event. Typically, the actual announcement produces a decline in Apple shares in a sell the news event. Analysts expect the update on iPhone 6, news for the Apple TV and a monster 12.9 inch iPad for business users. The event begins at 1:PM on Wednesday.

Not to be outdone, Amazon (AMZN) is about to announce a $50 version of its Android Fire tablet. This will be a 6-inch screen and will be targeted at kids in middle class families. The overall game plan will be to bring in more consumers into the Amazon retail space. The Fire tablets have embedded retail advertising unless you pay extra to skip the ads. Amazon took a $170 million hit on the Fire phone but they are still plugging along on the various tablet models.

Amazon recently announced they were going to let Prime members download movies to watch offline. This is to better compete with Netflix and Hulu, which only let you stream programs when you have an Internet connection. They are billing it "anywhere, anytime viewing."

Disney (DIS) signed a deal with Amazon and Microsoft to offer their cloud based movie service on the devices from those firms. Disney already has deals with iTunes, Google Play and Vudu. Disney's "Movies Anywhere" launched in February 2014. Users can store their purchased Blue-ray and DVD purchases in the cloud and watch them anywhere on any device. Now Xbox users and Amazon Fire tablet and Fire TV users will be able to access the service through an app, which will also allow them to purchase new movies online. On Sept 15th, Disney Movies Anywhere will also be available on Roku and Android TV. This is a home run for Disney given their extensive catalog of movies available for purchase and viewing.

Apple is expected to announce an upgrade to Apple TV on Wednesday. All of these video streaming offerings are killing Netflix. All of these offerings add to the perception that Netflix is losing viewers. I said perception since there is no proof at this point. They continue to add customers every quarter but investors are racing to the exits.

Shares of Netflix declined another $4 today on worries that the streaming business is becoming a lot more competitive.

Alibaba (BABA) lost -5% after it lowered guidance for gross merchandise volume (GMV) due to weaker consumer spending in China. The company said GMV would grow in lower to mid-single digits compared to prior estimates. The AliExpress business is expected to slow to low double digits due to weakening currencies in markets such as Russia and Brazil. Alibaba has a lockup expiring on 1.2 billion shares on September 20th. This guidance will cause even more pressure ahead of the expiration.

After the bell, Yahoo announced that the IRS denied the company's application to spin off its Alibaba shares in a tax-free distribution into a company called Aabaco. While the IRS did not conclude definitively that the spinoff would trigger taxes under U.S. law, it declined to provide a ruling that it would be tax-free. In theory, Yahoo could continue with the split relying on an opinion from outside lawyers but that would be extremely risky. Yahoo said "work proceeds on the Aabaco spin-off plan. The company will continue to carefully consider the company's options, including proceeding with the spin-off transaction on the basis of an opinion of counsel."

The 15% stake in Alibaba is now valued at about $23 billion since BABA shares have declined -50% since their $119 high in November. The stake was worth more than $40 billion in January. Yahoo paid 40% in capital gains taxes in its prior BABA share sales. Yahoo paid $1 billion for 30% of Alibaba in 2005.

Alibaba shares were flat in afterhours but Yahoo (YHOO) shares declined to $29.75. You may remember the news after the close on Friday that the SVP, Global Controller and Chief Accounting Officer resigned unexpectedly and Friday the 11th will be his last day. The resignation with no notice and short fuse suggested there could be some problems at Yahoo. Now we know what they were.

JD.com (JD) is a competitor to Alibaba and lately it has shown some surprising growth, unlike Alibaba. In August, JD reported revenue that rose +61% to $7.4 billion and easily beat estimates. For comparison Alibaba reported a +28% rise in revenue to $3.26 billion and missed estimates. That was Alibaba's slowest revenue growth in four years.

Today JD announced a $1 billion stock buyback program using its excess cash. Shares spiked to $26 on the news but faded to gain +5% and close at $24.

MKM Partners upgraded shares of Micron (MU) to a buy from neutral with a $23 price target. The analyst said the risk reward has turned positive as we approach 2016 and valuations are attractive at 1 times "true" book value. MKM said there was a $5 billion opportunity over the next two years because the 3D Crosspoint memory breakthrough is undervalued and not recognized in other analyst notes. The new memory technology was announced in July. The analyst expects Micron to be rewarded with premium pricing and premium margins. Shares rallied $4% on the news. Since Micron is down from $36 in December to $17 today, that new price target of $23 is hardly a big upgrade. There is solid resistance at $20.

Bank of America (BAC) was upgraded from neutral to buy at Nomura with an $18 price target. Nomura said the bank was best positioned for the tough new CCAR capital rules. Shares rose +3% to $16.16.

Accenture (ACN) was upgraded from hold to buy at Argus Capital. They gave the stock a $108 price target with shares at $97. They said the company was executing well and expanding margins. Shares rose +3%.

FitBit (FIT) was upgraded to overweight by Morgan Stanley with a $58 price target. The broker said unit sales were up and they were realizing greater operating leverage. Shares rallied +11% to $35.46.

Constellation Brands (STZ) was downgraded from top pick to outperform at RBC Capital. This was a valuation call based on their $145 price target. Shares closed up +1% at $129. Since the market crash, they have seen strong support at $127. I would be a buyer over $130.

Deutsche Bank upgraded PNC Financial (PNC), US Bank (USB) and Wells Fargo (WFC) saying now is the time to buy regional banks. USB has the highest returns in the industry. Wells Fargo can capitalize on higher interest rates with its mortgage business and PNC management was continuing to cut costs.

Orbital ATK (OA) was upgraded to buy at Goldman Sachs with a $91 price target. Goldman said the company had multiple growth drivers and generated strong cash flow. I am a fan of OA. This is a good company with a strong government business. Shares rallied +5% on the news. The upgrade powered the entire sector with LMT, NOC and GD also posting strong gains.

GE gained +4% after the company won EU approval to acquire Alstrom's power business for $13.9 billion. They had to agree to sell some assets to avoid owning too large a share of the power business in France. This is the largest deal ever for GE. This combines the two largest manufacturers of power plant equipment and will help GE continue to move more into industrial manufacturing and away from finance. GE expects to save $3 billion in costs over the next two years. Alstrom has 500 gigawatts of installed power around the world and GE has 1,000 gigawatts.

Teco Energy (TE) rallied +25% on news they would be acquired by Canadian utility, Emera Incorporated. The acquisition price is $27.55 per share in cash. The deal is not expected to close until the middle of 2016. Investors can cash out now by selling the shares into the market at the closing price of $26.34 or hold on for the 68 cents in dividends and the additional $1.21 in cash at the close. Personally, I would take the money and run. You can make a lot more than $1.89 by reinvesting the $26.34 into some other stock over the next nine months.

Somebody knew about this deal in advance. Last week somebody bought 35,000 of the November $22.50 calls for a few cents each. Today they are worth $3.90. The owner of those calls should expect a visit by the SEC soon.

Crude oil declined to $44.52 early in the session but rallied sharply after JP Morgan raised demand estimates by +150,000 bpd for the rest of 2015. However, traders should have listened to the rest of the commentary. JPM said the "US supply decline has been insufficient to alter the price outlook." Also, "while part of the gains from the August lows have been erased we expect prices to continue to fall into quarter end."

China and the Asian region are key drivers to demand and recent economic indicators are suggesting demand growth could slow. "We expect downside from crude prices from current levels as the balance of probabilities favor lower prices in the weeks ahead as slowing demand growth, rising Middle East production and the seasonal dip in refinery crude runs add pressure to the crude markets." JPM is expecting WTI to average $47.50 well into 2016. They recommended shorting the December Brent crude futures.

WTI has held on to the $45 level since the prior week's short squeeze. However, that is not likely to continue as inventory levels begin to spike into the fall season.

Also providing positive sentiment for WTI this morning was a report out of Mexico that they would be willing to cut production along with OPEC if the cartel decided to try and manage prices in the future. This is BS since Mexico is in serious economic trouble because of the 50% decline in crude prices. They cannot afford to cut a single barrel and would likely "say" they are cutting but continue to produce at 100%. In other news, Russia talked down the idea from last week that they would be willing to cut production along with OPEC. No surprise there.


Today was an interesting day. It was a giant short squeeze after the second worst weekly loss this year. However, there was no race to the exits at the close. It was as though investors had turned off the consistently bad news from Asia and decided to just buy stocks. Only 12 stocks on the S&P-500 closed in negative territory.

After repeated days where early gains were sold and the market closed on its lows we actually saw the market close on its highs and the S&P futures are positive in the overnight session. That is also unusual. Recent trading days have seen the futures decline after the regular session. There is a lot of darkness before morning but that is an encouraging sign.

The S&P gained +48 points to close at 1,969. I mentioned in the weekend commentary that we could easily see a close at 1,971 or 1,871 on Tuesday depending on what happened in Asia. That upper guess came very close.

Unfortunately, the S&P has major resistance at 1,975 and 1,990 give or take a couple points. If we were to close above that 1,990 level this week, it would be a signal that the bottom is in and it could start a race back to the highs. Those are big IFs but entirely possible. Over the prior week, the S&P tested the 1,912 level twice over a four-day period and there were rebounds both times. Today's low was 1,927 and well above that support.

The Dow was powered by gains in all 30 stocks with major gains in some of the high dollar stocks that have the biggest impact on the Dow. Goldman +5.50, Boeing +4, etc. The majority of the Dow stocks were heavily shorted with only 5 Dow stocks having even a hint of a positive chart. That means a short squeeze found a lot of dry powder waiting in the Dow stocks.

It would be a waste of time to try and apply any form of rational thinking to the Dow rebound. It was not a case of investors suddenly deciding to buy Dow stocks. It was purely a short squeeze and nothing else.

Support is now 16,000 and resistance 16,500 and 16,666.

It was a similar case on the Nasdaq. The heavily shorted stocks were the biggest gainers and the index rebounded very close to resistance from the 31st at 4,830. The biotech sector was a big lift with nearly a +4% gain. The $BTK closed right at the resistance of the 200-day average.

The Nasdaq has decent resistance at 4,830 and then 4,900. Further gains this week will be a good indicator of investor sentiment.

The Russell 2000 posted decent gains but it was the weakest of the major indexes. This is due to the fact there were fewer shorts in the small caps. If the Russell can move above resistance at 1165, it could trigger some follow on buying and provide positive market sentiment.

Since 1990, the S&P has lost more than 1% in the first week of September 8 times. In 7 of those 8 years, the index finished the month lower with an average loss of -5%. Historically, the first 10-days of September are the best days of the month. Whether it is just a rebound from an oversold August or fund managers putting a little extra cash to work before the end of the quarter is unknown. The last 15 days of the month are normally ugly and lead to market bottoms in October, which is called the bear killer month.

I do not want to apply too much attention to historical patterns. Clearly there is nothing historical about the economic meltdown in China and potentially the first rate hike in nearly a decade. Every year stands on its own. I would like to think that the extreme volatility over the last three weeks has run its course and we will move higher from here. That may be wishful thinking but I can still wish for it. I still have a shopping list in case we do retest the lows. Be prepared for continued volatility in both directions.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Major Breakout Looks Imminent

by James Brown

Click here to email James Brown


Ingram Micro Inc. - IM - close: 27.54 change: +0.91

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 8, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 1.0 million
New Positions: Yes, see below

Company Description

Trade Description:
IM looks like it's about to breakout from a huge consolidation pattern.

The company operates in the services sector. According to the company, "Ingram Micro helps businesses fully realize the promise of technology® - helping them maximize the value of the technology that they make, sell or use. With its vast global infrastructure and focus on cloud, mobility, supply chain and technology solutions, Ingram Micro enables business partners to operate more efficiently and successfully in the markets they serve.

No other company delivers as broad and deep a spectrum of technology and supply chain services to businesses around the world. Founded in 1979, Ingram Micro's role as a leader and innovator in technology and supply chain services has fueled its rise to the 69th ranked corporation in the FORTUNE 500.

Ingram Micro amplifies the value of its position at the intersection of thousands of vendor, reseller and retailer partners by customizing and delivering highly targeted applications for industry verticals, business to business customers and commercial needs. From provisioning solutions for system integrators working at the heart of the network to offerings through the full lifecycle of mobile devices, SMB to global enterprise software and computing, point of sale to cloud services, professional AV to physical security-Ingram Micro is trusted by customers to have the expertise and resources to help them define and push the boundaries of what's possible.

The company supports global operations by way of an extensive sales and distribution network throughout North America, Europe, Middle East and Africa, Latin America and Asia Pacific."

The company's most recent earnings report was July 30th. Wall Street was expecting a profit of $0.54 per share on revenues of $10.9 billion. IM delivered $0.55 cents. Revenues were down -3.3% to $10.55 billion. However, if you back out the impact of currency headwinds then IM's results look a lot better. Negative currency translations shaved off -8% from their revenues.

IM management's guidance was a little soft but they announced the initiation of a $0.10 per share dividend and that they were boosting their stock buyback program by $300 million. The stock soared on this news. Shares rallied from $24.50 to $27.25 the next day.

IM was not immune to the market's late-August crash but investors bought the dip at support near its July lows. Shares have since erased the sell-off. Now IM is poised to breakout past resistance and what looks like a consolidation that started in early 2014.

A rally past $28.00 would generate a new buy signal on the point & figure chart. We want to jump in a little earlier. Tonight we are suggesting a trigger to open bullish positions at $27.85.

NOTE: I want to caution readers about the options. The spreads on most of IM's options are a little bit wide. Actually some of them are probably too wide. Be careful with the options.

Trigger @ $27.85

- Suggested Positions -

Buy IM stock @ $27.85

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

Buy the DEC $30 CALL (IM151218C30) current ask $1.10
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:

Point & Figure Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Rally Around The Globe

by James Brown

Click here to email James Brown

Editor's Note:
Investors were in a buying mood around the globe on Tuesday. All of the major market indices posted gains with the exception of Japan's NIKKEI. The U.S. delivered a +2.5% bounce following last week's sharp decline.

Current Portfolio:

BULLISH Play Updates

Keurig Green Mountain, Inc. - GMCR - close: 58.54 change: +0.16

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: +6.2%
Entry on August 31 at $55.10
Listed on August 29, 2015
Time Frame: Exit prior to earnings in November
Average Daily Volume = 2.6 million
New Positions: see below

09/08/15: Uh-oh! After a strong performance last week shares of GMCR underperformed today. The major market indices all rallied +2.5% while GMCR was virtually flat (just +0.2%). I have been warning readers that $60.00 could be resistance but the high today was only $59.07.

No new positions at this time. Readers may want to add a stop loss.

Trade Description: August 29, 2015:
When everyone has the same opinion on a stock sometimes shares will move the opposite direction.

It has not been a good year for GMCR. Shares are down -59% year to date and off -65% from its all-time high set on November 18, 2014 ($157.10). After months and months of declines GMCR could be poised for a big bounce.

If you're not familiar with GMCR they are in the consumer goods sector. When they launched their single-serving coffee brewer it changed the coffee world forever.

According to the company, "As a leader in specialty coffee, coffee makers, teas and other beverages, Keurig Green Mountain (Keurig) (GMCR), is recognized for its award-winning beverages, innovative brewing technology, and socially responsible business practices. The Company has inspired consumer passion for its products by revolutionizing beverage preparation at home and in the workplace. Keurig supports local and global communities by investing in sustainably-grown coffee and by its active involvement in a variety of social and environmental projects. By helping consumers drink for themselves, we believe we can brew a better world."

The company is suffering from heavy competition in the single-serving coffee/hot beverage pod business. The consumer market did not react well when GMCR introduced their Keurig 2.0 brewer, which was designed to only work with company-specific pods. They have also suffered multiple delays on introducing their Keurig Kold machine, which is a cold beverage machine similar to Sodastream.

The stock peaked in November 2014 right before its quarterly earnings report. They beat earnings and revenue estimates but management guided lower. GMCR has guided lower every quarter since then.

In February 2015 they reported earnings and revenues that missed estimates (and guided lower). In early May they reported earnings and revenues that missed estimates (and guided lower). On May 15th the stock sank after the company's presentation on its new Keurig Kold machine. Wall Street is worried that GMCR is pricing their Kold machine too high (around $300) when rival Sodastream's cold beverage maker is only $99.

GMCR's most recent earnings report was August 5th. They reported Q3 earnings of $0.80 per share, which actually beat estimates by a penny but revenues were down -5.2% to $970 million, which was a miss. Management lowered their Q4 guidance. The company said brewer machine sales were down -26%.

Management tried to soften the blow of this disappointing quarterly report and lowered guidance by announcing a $1 billion stock buyback program. The stock collapsed anyway with a plunge from $75 to $52.65.

Everything looks bearish for GMCR. So why are we suggesting a bullish trade? Basically GMCR's stock is so oversold that when it bounces it could see a big bounce. Wall Street analysts have been downgrading GMCR's stock and lowering price targets for the last several months. Everyone is so bearish that an unexpected rally could spark some serious short covering.

When the market collapsed on Monday, August 24th, GMCR fell from $50 to $45.25 but ended the day at $$51.30. That's right. GMCR actually ended Monday with a gain. Shares are now up five days in a row. The $55.00-56.00 area is resistance but a breakout could spark a rally toward $60-65 or its simple 50-dma (currently near $66.50). Technically, last week's bounce, has produced a bullish engulfing candlestick reversal pattern on GMCR's weekly chart. This pattern needs to see confirmation and we want to be ready if this rebound continues.

Friday's high was $54.46. Thursday's high was $54.61. Tonight we are suggesting a trigger to launch bullish positions at $55.10. More aggressive traders might want to consider jumping in early around the $54.75 area. GMCR can be very volatile. I do consider this an aggressive, higher-risk trade.

*small positions to limit risk* - Suggested Positions -

Long GMCR stock @ $55.10

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

Long NOV $60 CALL (GMCR151120K60) entry $3.07

08/31/15 triggered @ $55.10
Option Format: symbol-year-month-day-call-strike

Oshkosh Corp. - OSK - close: 40.76 change: +1.16

Stop Loss: 37.45
Target(s): To Be Determined
Current Gain/Loss: -3.6%
Entry on August 31 at $42.30
Listed on August 27, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.1 million
New Positions: see below

09/08/15: Traders bought the dip near support and OSK bounced with a +2.9% gain. I would be tempted to launch new bullish positions here. However, after the closing bell it was announced that rival Lockheed Martin (LMT) is protesting the Army vehicle contract just given to OSK. The fact that LMT is protesting is not a surprise considering the value and length of the contract (see trade description below).

I am not seeing a reaction in shares of OSK after hours but I would not be surprised to see the stock dip tomorrow morning on this protest news.

No new positions at this time.

Trade Description: August 27, 2015:
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.

- Suggested Positions -

Long OSK stock @ $42.30

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

Long 2016 Jan $45 CALL (OSK160115C45) entry $3.30

09/05/15 new stop loss @ 37.45
08/31/15 triggered @ $42.30
Option Format: symbol-year-month-day-call-strike

Starbucks - SBUX - close: 55.21 change: +0.93

Stop Loss: 51.15
Target(s): To Be Determined
Current Gain/Loss: +0.1%
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

09/08/15: SBUX added +1.7%, which underperformed the broader market on Tuesday. The rebound in SBUX stalled near its trend of lower highs and just below its 50-dma.

We are not giving up on SBUX but I would not launch new positions here.

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

08/29/15 new stop at $51.15
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

BEARISH Play Updates

Belden Inc. - BDC - close: 50.68 change: +1.73

Stop Loss: 51.75
Target(s): To Be Determined
Current Gain/Loss: -7.6%
Entry on September 04 at $47.11
Listed on September 3, 2015
Time Frame: Exit 4 to 6 weeks
Average Daily Volume = 388 thousand
New Positions: see below

09/08/15: The oversold bounce in BDC continued with a +3.5% gain. The close above its 10-dma and above its 50-dma is short-term bullish and bad news for us. If BDC sees any follow through tomorrow we could be stopped out at $51.75.

No new positions.

Trade Description: September 3, 2015:
Industrial stocks are not have a good year. Sector ETFs like the XLI and IYJ are both down about -8% to -9% year to date. BDC is in the industrial sector and shares have been crushed. The stock is down -39% for the year and down about -50% from its 2015 highs.

They are considered part of the electrical equipment industry. According to the company, "Belden Inc. delivers a comprehensive product portfolio designed to meet the mission-critical network infrastructure needs of industrial, enterprise and broadcast markets. With innovative solutions targeted at reliable and secure transmission of rapidly growing amounts of data, audio and video needed for today's applications, Belden is at the center of the global transformation to a connected world. Founded in 1902, the company is headquartered in St. Louis and has manufacturing capabilities in North and South America, Europe and Asia."

The company has a history of beating earnings estimates but revenues have been suffering. BDC reported their Q4 results in February this year. Q4 revenues were down -19%. BDC management lowered their revenue guidance.

They reported their Q1 results in late April. They beat the bottom line estimate but revenues missed with revenues falling -12%. Again the company lowered their guidance.

Q2 results were announced on July 29th and earnings beat estimates but revenues were down -3.2% and significantly below expectations. Once again BDC management lowered their guidance. This time they lowered both Q3 and 2015 guidance.

The market was relatively forgiving until the Q1 report on April 30th. Investors had finally had enough and sold BDC on its disappointing results. Shares flat lined for almost two months before breaking down. The stock collapsed on its earnings report in July. Now it's about to break down below its lows from last week when the market was crashing.

The path of least resistance is lower and the next major support level could be the $40.00 area. Shares have short-term support at $47.40. We are suggesting a trigger to launch bearish positions at $47.20.

NOTE: BDC does have options but the spreads are too wide to trade them.

- Suggested Positions -

Short BDC stock @ $47.11

09/04/15 trade opened on gap down at $47.11, trigger was $47.20
Option Format: symbol-year-month-day-call-strike

Ingersoll-Rand - IR - close: 53.89 change: +1.05

Stop Loss: 55.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 5, 2015
Time Frame: Exit
Average Daily Volume = 2.3 million
New Positions: Yes, see below

09/08/15: IR erased Friday's decline with today's +1.9% gain. The overall picture remains bearish. Our suggested entry point is $52.40.

Trade Description: September 5, 2015:
In the last week of August the second estimate on U.S. Q2 GDP growth was revised higher from +2.3% to +3.7%. Q3 GDP is expected to dip down to +1.5%. The good news is that the U.S. is still growing. The bad news is that much of the world is slowing down. Big companies that do a lot of business overseas are seeing their sales slow. That's in addition to the negative impact of currency headwinds.

Industrial stocks have suffered this year. Sector ETFs like the XLI and IYJ are down about -9% year to date. IR is in the industrial sector and it is underperforming its peers with a -16% decline in 2015.

Here's a brief description of the company, "Ingersoll Rand (IR) advances the quality of life by creating comfortable, sustainable and efficient environments. Our people and our family of brands-including Club Car®, Ingersoll Rand®, Thermo King® and Trane®-work together to enhance the quality and comfort of air in homes and buildings; transport and protect food and perishables; and increase industrial productivity and efficiency. We are a global business committed to a world of sustainable progress and enduring results."

That big drop on IR's daily chart was the market's reaction to their earnings report. Wall Street was expecting a profit of $1.23 a share on revenues of $3.69 billion. IR missed on both counts with a profit of $1.20 on revenues of $3.6 billion. Management lowered their guidance for the current quarter below analysts' expectations.

Technically the oversold bounce from this post-earnings drop didn't make it very far. Then the broader market started correcting lower in a violent fashion and shares of IR plunged to new 52-week lows. The oversold bounce from the late-August crash has already failed. This decline has generated an ugly sell-signal on the point & figure chart, which is forecasting at $36.00 target for IR.

Currently IR appears to have short-term support at $52.50. We are suggesting a trigger to launch bearish positions at $52.40.

FYI: IR will begin trading ex-dividend on September 9th. The dividend is $0.29 a share.

Trigger @ $52.40

- Suggested Positions -

Short IR stock @ $52.40

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

Buy the OCT $50 PUT (IR151016P50)

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

QUALCOMM Inc. - QCOM - close: 55.20 change: +0.91

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -1.4%
Entry on September 04 at $54.45
Listed on September 1, 2015
Time Frame: 4 to 6 weeks
Average Daily Volume = 12.5 million
New Positions: see below

09/08/15: QCOM gapped open higher and then spent the rest of the day drifting sideways. Investors are probably waiting to see what Apple (AAPL) announces tomorrow. Since QCOM is a part supplier for AAPL, the AAPL event tomorrow is potentially bullish (or bearish) for QCOM.

No new positions at this time. Let's see how QCOM performs tomorrow.

Trade Description: September 1, 2015:
There seem to be a ton of bulls shouting at everyone to buy QCOM even though the stock is in a bear market. QCOM peaked in early 2014 around $81-82 a share. Since then it has been a very bumpy decline lower.

The company is facing rising competition. More importantly some of that competition is coming from its own customers. QCOM has been a very dominant player in the mobile phone chipset market. Yet lately the company has been facing competition from mobile phone manufacturers choosing to use their own chips instead of QCOM's.

Almost half of QCOM's revenues come from two companies: Apple (AAPL) and Samsung. Both of these mobile phone makers have been slowly beefing up their own in-house chip design and production abilities. Earlier this year QCOM lost out when Samsung picked its own chip sets for a handful of new mobile phone models instead of QCOM's.

The rising competition is taking a bite out of sales. QCOM's earnings performance has been mixed over the last year. It tends to beat estimates on the bottom line but revenues have been disappointing. After a couple of quarters of revenue growth in the +7-8% range QCOM just reported Q3 revenues fell -14.3%, which was worse than expected. Another big challenge is management's guidance. QCOM has lowered its guidance the last four quarterly reports in a row!

The company has tried to soften the bad news by announcing a massive $15 billion stock buyback program but that was back in March this year. They promised to spent $10 billion on buybacks between March 2015 and March 2016. The big buyback has not stopped QCOM's stock from falling to new multi-year lows.

Bullish investors have tried to argue that QCOM might split up the company to unlock value. That was a very popular idea when activist investors Jana Partners got involved in QCOM. Jana is one of the reasons QCOM did such a big stock buyback earlier this year.

Right now the market's focus on China's weakness could be killing QCOM's stock. The company does a huge amount of business with China.

Meanwhile technically QCOM looks very weak. The point & figure chart is bearish and forecasting at $48.00 target. The oversold bounce from last week's lows appears to be rolling over. Today's intraday low was $54.69. We are suggesting a trigger to launch bearish positions at $54.45. We'll plan on exiting in the next four to six weeks.

Please note that I do want to offer one potential warning. Apple Inc. (AAPL) has a special event scheduled for September 9th. We do not know what AAPL will announce. If they happen to announce something that uses QCOM equipment then it could be a bullish catalyst for QCOM but that's probably a big "if" at the moment.

- Suggested Positions -

Short QCOM stock @ $54.45

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

Long OCT $50 PUT (QCOM151016P50) entry $0.96

09/04/15 triggered @ $54.45
Option Format: symbol-year-month-day-call-strike

iPath S&P500 VIX Futures ETN - VXX - close: 26.74 change: -2.58

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -22.6%
2nd position Gain/Loss: +7.8%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: Exit prior to October option expiration
Average Daily Volume = 50 million
New Positions: see below

09/08/15: The stock market's big bounce today sliced -10% off the VIX. The VXX responded with a -8.7% decline. If the market's rebound continues then the VXX should plunge.

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

Sept. 2nd - 2nd position (Double Down On The September 1st Spike)

Short the VXX @ $29.01

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

Long OCT $20 PUT (VXX151016P20) entry $0.78

09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike