Option Investor

Daily Newsletter, Saturday, 9/19/2015

Table of Contents

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

Market Wrap

Vote of Disapproval

by Jim Brown

Click here to email Jim Brown

Investors voted their disapproval on the lack of a Fed rate hike by cashing in all the gains they made over the prior four days. The Dow closed down -290 points to end with a 48-point loss for the week and erase the gains made on expectations of a rate hike.

Market Statistics

Traders had convinced themselves the Fed was serious about raising rates in September and that would have been a vote of confidence in the economy. Instead, the Fed turned into the global central banker and warned that events in China/Asia needed to be play out before the Fed would hike rates.

While the Fed's indecision rekindled the market uncertainty, it is not likely to last. Janet Yellen's comments left the October meeting on the table but now there is little or no chance of a rate hike in 2015. The Fed warned that lower commodity prices because of the economic weakness in Asia were depressing inflation. They are correct in that conclusion but the problem is not going to be rectified in the next four weeks.

Low commodity prices take months to be felt in consumer prices. The low commodity prices over the last six months are just now being seen in the CPI. The Consumer Price Index has declined for the last three months and went negative in August. This is the impact of declining commodity prices and those commodities are still declining. This means it will be months before the CPI begins to rebound and if the Fed is truly data dependent it will be months before they can hike rates.

I want to congratulate my friend Art Cashin for having it right all along. All year he has steadfastly stated his belief that the Fed will not hike in 2015. With many analysts arguing with his position that took some fortitude to stick to his conclusion in his appearances on CNBC. Good call Art!

With China in the tank and dragging the rest of the Asian markets lower, it should weigh on the Fed's decisions for the rest of the year and into 2016. Remember, the IMF, World Bank and the Bank of International Settlements all warned the Fed not to hike because of increasing weakness in the emerging markets. Analysts now believe the ECB could announce additional QE at their October 22nd meeting and that Japan's central bank will increase QE when they meet on October 30th. By not hiking, the Fed left the door open for those banks to further weaken monetary policy. If those events occur, the Fed will be trapped for an even longer period before they can raise rates.

With the average U.S. economic cycle between 5-7 years and this one already six years old; we could be in a recession ourselves before the Fed is able to hike rates. Many analysts believe the global economy is already headed into a recession that will become evident in 2016.

The Fed brought uncertainty back into the market and now we will have to agonize over the October and December meetings even though the potential for a hike at either meeting is less than 25% today.

Some analysts were blaming the Fed for taking on a third mandate in their actions. In addition to keeping inflation at a reasonable pace and ensuring full employment they were said to have taken on China's economic health as a mandate. However, the Fed's action/inaction based on global events is not new. Since 1970 there have been seven geopolitical events that caused a Fed reaction.

1973 Arab Oil Embargo
1979 Iranian Revolution, Oil Embargo
1981 Latin American Debt Crisis
1995 Mexican Debt Crisis
1997 Asian Currency Crisis
1998 Russian Debt Default, Long Term Capital Mgmt Collapse
2011 Greek Debt Crisis
2015 China Economic Decline, Yuan Devaluation

The economic reports in the U.S. on Friday were not important and were ignored by the market.

Next week there is a flurry of reports with several that will be watched but will not move the market unless the numbers are significantly different than expectations. The home sales reports for August are expected to be down because the selling season has passed. The Richmond Fed reports on Tuesday will be of interest but not market movers.

The GDP revision on Friday will be important. Because of a spike in inventories, the Q2 estimate rose to +3.7% growth in the last revision. It is not expected to change on Friday. However, the Q3 GDPNow from the Atlanta Fed is projecting only +1.5% growth for this quarter and less than half the last Q2 growth rate. This suggests the Q2 number could be out of line. After an anemic +0.68% print for Q1 and a +1.5% forecast for Q3 there is an anomaly in the Q2 spike. A lot of that came from an inventory buildup that will have a negative impact in quarters to come as that inventory is depleted.

The Japanese markets are closed until Thursday and could be a problem for the U.S. markets. The PMI in China could be a market mover on Wednesday.

Peabody Energy (BTU) announced a 1:15 reverse stock split to be made at the close on September 30th. This will reduce the outstanding shares from 278 million to only 19 million. This was done to avoid being delisted by the NYSE for trading under $1. While this will solve the listing problem, it will give them a higher stock price and shorts will gang up on Peabody again. Full Stock Split Calendar

The earnings cycle is starting to heat up as we near the end of Q3. The most watched event for next week is probably going to be Nike on Thursday. Nike depends on China for manufacturing but it also sells a lot of apparel in China. Analysts believe sales of big-ticket items in China have probably declined because of the economy/market but they do not believe it has had any impact on normal consumer goods. Apple's CEO Tim Cook said last week that sales of iPhones were booming in China. Thursday's earnings will be a clue for the rest of the earnings cycle.

Earnings estimates for Q3 are moving lower every day. So far, 91 S&P companies or nearly 20% have warned on Q3 results. S&P earnings are expected to decline -4.4% with revenue declining -2.9%. Much of that decline is driven by a horrendous -65% drop in the energy sector and a -10.5% drop in the materials sector. That is due to the decline in commodity prices. On the positive side consumer discretionary earnings are expected to rise +11.6%, financials +7.9% and healthcare +7.3%.

On Friday Barclays cut its earnings growth forecast for the S&P for 2015 to zero. They blame the stronger U.S. dollar and emerging market headwinds. They cut their earnings estimate for the S&P from $123 to $117 for 2015. In July, Goldman Sachs slashed its 2015 earnings outlook from $122 to $114 citing economic conditions and low oil prices.

Shares of Adobe Systems (ADBE) rallied in a bad market after the company reported earnings of 54 cents, a rise of +93%, on sales of $1.22 billion up +21%. Both numbers beat estimates of 50 cents and $1.21 billion. After initially declining -3% Thursday night after the release it appears investors reconsidered on Friday. The problem was what analysts thought was weak guidance. Adobe guided for the current quarter to 59 cents, up +64% on sales of $1.3 billion, up +21%. Analysts were expecting 64 cents and $1.36 billion.

The company has now converted the majority of users to the subscription model with 73% of revenue now coming from subscriptions. Jefferies raised the price target to $92, S&P Capital IQ to $82 and Pivotal research is targeting $95.

Linkedin (LNKD) shares rallied +3% to $203 on no news. On Wednesday, Brean Capital upgraded the shares from sell to hold saying most of their prior concerns had played out. The analyst raised the price target from $172 to $184. Something else must be in play here to send shares over $200 in a bad market. Facebook (FB) shares were also fractionally positive as were Twitter (TWTR) shares at +2%.

Facebook unveiled Signal, a discovery and curation feature for journalists to help them with their newsgathering process. Facebook said it would help journalists "source, gather and embed newsworthy content, across news, culture, entertainment, sports and more - all in one place." Signal is a clear attack on Twitter. Facebook said, "We have heard from journalists that they want an easy way to make Facebook a more vital part of their newsgathering with the ability to surface relevant trends, photos, videos and posts on Facebook and Instagram for use in their reporting."

The push into newsgathering will also provide more page views in their normal content flow as users click on articles interesting to them. Facebook already has "Instant Articles" in association with the New York Times and FB Newswire powered by Storyful. Twitter is also developing a news curation feature called Project Lighting. This will also be available to readers that are not Twitter users.

Portola Pharma (PTLA) soared +9% to $57 on no news. This was more than likely continued short covering after the company said on Tuesday its Annexa drug had been assigned the coveted FDA - Breakthrough Therapy classification. Andexanet Alpha is a recombinant protein designed to reverse the anticoagulant activity of Factor Xa inhibitors. I have no clue what that means in English but apparently investors were impressed. The company was also mentioned as a potential takeover target because of its pipeline of potential drugs.

Freeport McMoran (FCX) completed its $1 billion secondary offering announced on August 10th by selling 96.7 million shares. The company also announced it had filed a supplement to sell an additional $1 billion in shares through designated agents at market prices agreed to with the agents. The company reiterated its plan to spin off a minority interest in Freeport-McMoran Oil and Gas when market conditions warranted. This was previously announced but the collapse in oil prices kicked it to the back burner. Shares fell -10% on the news of the second $1 billion offering. I would bet the buyers of that first $1 billion offering were not too happy about another one just a couple weeks later.

La Quinta Holdings (LQ) saw its shares plunge -15% on Friday after the CEO unexpectedly resigned. He will be replaced on an interim basis by the CFO. The CEO Wayne Goldberg had been with the company 15 years. His non-compete only covers a four-month period and he received his full severance package of $7 million plus $11 million in vested shares. Citigroup cut the price target from $21 to $6 saying the departure was a "mystery" and a "further explanation" should be provided to assure investors. JPM cut their price target from $23 to $3. The company also lowered its guidance due to softness in Texas among other reasons.

Auto parts maker Johnson Controls (JCI) said it was cutting 3,000 workers as a cost reduction push. The company employs 130,000 globally. The cut is expected to save $250 million annually. The company said earlier it was spinning off its auto seating business and would sell another business that manages spaces for corporations. JCI currently makes car batteries, heating and air conditioning systems, instrument panels, door panels and floor consoles.

Chipmaker Qualcomm (QCOM) said it was cutting 1,300 jobs in San Diego and has already cut hundreds more in other states. Qualcomm said it had sent out 60-day notices as required, telling employees their last day would be November 20th. The company is supplying outplacement help and severance packages. The company also cut 130 jobs in San Francisco, 158 jobs in Boulder Colorado and 65 in Andover Mass. Previously Qualcomm said it was cutting 15% of its global workforce of about 31,300 employees over the next year. Watch out for a new 52-week low in the days ahead.

Alibaba (BABA) turned 1 year old on Friday. The Alibaba IPO was the largest ever on the NYSE with a valuation of $168 billion. The initial price was $68 and shares rose to $120 in November before slipping to trade under $60 in the August flash crash. The company has been fighting fraud allegations claiming many of the goods sold on the Taobao website were fake. Another report claimed vendors were paying people to leave positive feedback. Barron's published a very bearish article the prior week saying shares could fall another 50%. The paper said the integrity of its financial numbers was seriously doubted.

Alibaba has a 1.6 billion-share lockup expiring on Sunday. That is roughly 64.1% of all shares outstanding. Jack Ma has pledged he would prevent the majority of those shares from being sold. Further research shows that Softbank owns 800 million, Yahoo 384 million and founders 300 million. How many of those are in the 1.6 billion being released on Sunday is unknown but probably a lot. Those three groups of shares will not be coming to market since all are long-term holders.

Molson Coors (TAP) shares rallied for the third day on expectations the company will benefit from the Anheuser-Busch InBev acquisition of SABMiller. In order for the companies to merge they would likely have to divest some major assets and TAP would be the likely buyer. Molson Coors needs to bulk up as the various beverage companies continue to merge. Currently TAP is the 23rd largest global brewer. However, earnings for TAP are expected to decline in 2015 because of losing market share to companies like Constellation Brands and their wine and spirits offerings. With giants merging all around them there is always the possibility of somebody taking a run at acquiring TAP.

Volkswagen AG (VLKAY) is in serious trouble. It was announced on Friday the company intentionally installed software on diesel models from 2009-2015 that would provide incorrect readings to EPA testing equipment in order to pass the clean air requirements. Yes, INTENTIONALLY installed software to beat the tests. The EPA said 482,000 diesel cars sold between 2009-2015 had the illegal software. The EPA could fine Volkswagen up to $37,500 for each vehicle. That would be an $18 billion fine. The EPA said VW used hidden software, called a "defeat device," to turn on smog equipment only during testing. The EPA said it had notified Volkswagen of the discovery and the company must come up with a plan to recall those cars and remove the illegal software. Shares declined -4.5% on the news.

Apple (AAPL) shares were down only fractionally on Friday thanks to two headlines. It was learned that Apple's car project might be a lot farther along than previously expected. The Guardian said Apple executives met with the self-driving officials at the California Dept of Motor Vehicles to learn the regulations regarding self-driving cars.

The Apple car project, code named Titan, is headed by Steve Zadesky, a former Ford engineer and staffed by former Mercedes and Tesla employees. Apple has a standing offer for a large signing bonus to any Tesla employee that defects to Apple. Apple has been hiring auto engineers and executives for three years and are targeting a 1,000+ team. Development work is being conducted at a secret lab in Sunnyvale California. Numerous firms have been trying to uncover the details of the secret project and one by one, minor details are starting to be uncovered. There was a report on CNBC on Friday claiming the car could appear within weeks.

The second headline was a ruling in a court case between Apple and Samsung. An appeals court granted Apple an injunction against Samsung and the company will have to make changes to its phones if it wants to continue selling them in the USA. Samsung vowed to appeal again and the fight will continue. However, Apple has won every round to this point after being awarded $1 billion a couple years ago in this same patent case.

Crude prices spiked on Wednesday when inventories unexpectedly declined -2.1 million barrels. Traders were expecting the normal post Labor Day build in inventories. Also, the EIA report showed another decline in production from 9.135 mbpd to 9.117 mbpd. While that is not a big drop, it was the sixth consecutive week of declines after the 9.61 mbpd peak in April. That represents a production decline of -493,000 bpd in three months. Imports also declined about 270,000 bpd to 7.19 mbpd and well below the 8.04 mbpd in mid August.

The inventory decline and the drop in imports are only temporary and the normal seasonal refinery slowdown is beginning now. Over the next two months, we should see inventories increase significantly and prices decline.

OPEC recently predicted that oil prices would only rise $5 per year until hitting $80 in 2020 and $100 oil would not return until 2030-2040. The cartel said non-OPEC supplies would likely decline -1.0 mbpd by 2017 to 58.2 mbpd.

A year ago in November OPEC was projecting $177 oil by 2040 and saying the world will have to discover and produce another 21 mbpd over the next 25 years. Forecasts can change very quickly in both directions. This one seems almost comical today but a year ago it made perfect sense.

On Thursday, Japan's exports declined for a second month and increased fears that China's economic decline was worse than expected and was damaging the other Asian economies. That would reduce oil demand.

Nothing is ever guaranteed but the historical trend for oil prices over the next two months is negative.

Active rigs for the week ended on Friday declined -6 to 842 and another decade low. That is now -24 rigs below the 2009 low at 866. Oil rigs declined -8 to 644, down -965 from the 1,609 peak in September 2014. With oil rigs continuing to fall and producers going into cash conservation mode we should see production continue to fall.


The Dow declined -290 on Friday and the S&P -32. That brought both indexes back to where they started the week and right back into congestive support since the August crash. The S&P did not make it back to 1950 and support from last week so there is a minor cushion for Monday.

Historically a post Fed move occurs on the day after the announcement as investors on the wrong side of the decision square positions. Friday was also a quadruple expiration and that added to the volatility. September positions had to be closed and that spiked the volume to 10.96 billion shares. Declining volume was 4:1 over advancing while declining issues were 5:2 over advancing.

There were significant market on close orders at the NYSE and while we closed near the lows for the day, it would have been a lot worse if the orders had not paired up in the last few minutes of trading.

Trading was orderly and there was no fear. To illustrate the Dow declined nearly -300 points and the VIX gained only 1 point to 22.28. If there had been any real fear the VIX would have been a lot higher.

This suggests once the expiration pressures fade and trades are settled next week that the markets could rebound. However, Friday was still a reaction day and the real positioning for the end of the quarter will begin next week.

The forced selling caused by redemptions has depleted cash reserves held by managers. They may not have a lot of cash to put to work. However, the lack of a rate hike could energize some investors to put money back to work for the end of the year.

We really have to focus only on the charts and trade what the market gives us rather than what we expect to happen. The S&P rallied right into the resistance zone from 1990-2005 ahead of the FOMC announcement. The post meeting spike punched through that zone for only a few minutes and then crashed back to close at the low of the day. Friday was never in doubt and the S&P gapped down to 1,962 at the open and closed at 1,958. The short-term uptrend was broken but support at 1,950 is still in play. That is followed by 1,912.

Can we retest the lows from August? Absolutely, but at this point I doubt it. I will reconsider that question in my Tuesday evening commentary.

The Dow chart is identical to the S&P with a break through resistance on Wednesday afternoon, spike after the Fed and then collapse. Near term support is now 16,335 followed by 16,030. All 30 Dow stocks were negative but Nike was down only fractionally ahead of earnings on Thursday. Apple also held its ground after winning the ruling over Samsung and the self-driving car news.

The daily Dow chart is starting to look more like a continuation pattern rather than a potential rebound. The next two days will be critical for market sentiment. If the Dow dips to support and then retests resistance it should bring investors back into the market. If support fails, we could be in for a retest of the flash crash lows or even worse.

The Nasdaq dipped to 4826 at the open, rebounded +50 points to 4878 and then dipped back to 4825 at 1:30. Another small rebound appeared and back to close at 4827. Those three halts at what I will call the 4825 level is going to be the line in the sand for Monday. If that level holds, we should be in good shape. If it fails, I would look for look for interim support at 4795-4800 and then 4760.

I was encouraged by the strength in some of the biotechs and the social media stocks. Even Netflix failed to roll over and die with only a -$1.59 loss. Whether this is a preview of next week or just an expiration anomaly, we do not know.

I would be hard pressed to say the Nasdaq chart was bullish but at least it is not bearish. The majority of the rebound gains are still intact.

The Russell 2000 only gave back -1.46% on Friday and finished the week with a minor gain of 5 points. The Russell declined to prior resistance at 1165, which should now be support. There was a -2 point bleed right at the close to end the day at 1163 but close enough for me. This is the key level for the Russell. How it responds to 1165 next week will set the tone for the market.

I wrote earlier in the month that the first two weeks of September were normally positive and the last two weeks after the September option expiration were normally bearish. While I would like to hope for a rebound next week, I fear any gain could be fleeting. This is one of the most common historical trends in the market and now that the Fed has told us they are worried about the global economy, the warning could send some cautious investors to the sidelines. The S&P has only posted a weekly gain five times in the last 17 years.

If we do get an early week bounce, I would be very skeptical of any stall at resistance. September's end of quarter declines often lead to bottoms in October. Be prepared with a shopping list is we start heading back to the August lows.

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Random Thoughts

The AAII Sentiment Survey for the week ended on Wednesday showed a significant drop in bearish sentiment and a corresponding spike in neutral sentiment. Since the early part of the week was bullish, it is easy to understand the reasoning. Some of those respondents are probably wishing they had not been so quick to give up their bearish stance.

Russia's central bank bought 30 metric tons of gold in August. That is the biggest purchase since March when it purchased 30.5 metric tons. Holdings increased from 41.4 million ounces in July to 42.4 million at the end of August. They bought 13 tons in July and 24 tons in June. Russia is the 6th largest holder of gold and has more than tripled its hoard since 2005.

Why is Russia buying gold? Sanctions are hitting them hard and they could be storing up value in case of new sanctions in the future. However, Russia and China, both big gold buyers, are working on creating an alternative to the dollar and a gold backed currency would have immediate appeal and be a serious blow to the dollar.

Gold is also cheap today with prices at a six-year low. It is a good time to buy if you plan on holding a long time. Once the Fed starts hiking rates and the dollar spikes along with those hikes, the price of gold will decline assuming a lack of geopolitical headlines to move it higher.

Russia is calling America's bluff all over Europe and now in Syria, which was the poke in the eye to America. The U.S. and NATO are updating their battle plans in case Russia tries to annex a Baltic country. Unfortunately, the odds are not good. In 16 war game exercises with eight different teams at the Pentagon the U.S. and NATO were unable to defend the Baltics. Putin can walk in at any time and we cannot stop him with conventional weapons. Baltic Battle Plan Loses

On Friday, President Obama opened Cuba to trade from America by allowing company executives to travel freely to Cuba without restrictions. He also issued rules allowing exports of software and telecommunications equipment to the island. Companies will be able to establish subsidiaries to do business in Cuba. The new rules make it nearly impossible for any successor to undo the initiatives.

Under the new rules, companies like UPS and FedEx could have service from Cuba. Deere & Co could open showrooms for tractors. The new rules allow U.S. companies to hire Cubans, enter into joint ventures with Cuban companies and with the Cuban government and legally establish a physical presence in Cuba.

The new rules abolish the $2,000 per quarter limit to transfers made by U.S. residents to Cuba. The new rules go into effect on Monday.

China is buying about 500,000 bpd of crude oil in excess of its daily needs. The country is rapidly filling its strategic petroleum reserve and adding to the size of that reserve. Currently China has 218.9 million barrels of storage with about 200 million barrels currently stored. They are currently building another 132.3 million barrels of storage and have an additional 148.8 million barrels of capacity planned by 2020. When finished this will give them 500 million barrels of strategic reserves compared to the 700 million currently used by the USA. Their current 500,000 bpd filling program is helping to cushion the excess supply on the market. When Iran begins shipping oil again much of it will go to China and their filling rate could increase. They get a significant discount from Iran because of the low quality of their oil.

The White House is currently negotiating a truce with China over cyber security. Talks have been ongoing for a couple months and increased their urgency over the last several weeks with a goal of announcing a deal when Chinese President Xi Jinping visits Washington this Thursday.

The deal would be a commitment by both countries that each will not be the first to use cyber attacks to cripple the other's critical infrastructure during peacetime. It would NOT protect against attacks against U.S. companies, U.S. government and the military as we have seen in recent months.

Do we seriously believe that China will honor any agreement if they determine it is in their best interest to do otherwise? This is the equivalent of signing the nuclear deal with Iran that lets them self regulate their nuclear activities. Letting Iran take its own soil samples and send them to the IAEA for testing is beyond ridiculous. You have to wonder what exceptions will be in the U.S./Chinese cyber weapon agreement.

Hedge fund billionaire Ken Griffin bought three floors of the new 220 Central Park South condo tower under construction in Manhattan. He purchased 18,000 square feet that will contain the main living quarters and separate units for staff, household help and guests. The sales price for three floors was more than $200 million. Citadel is also rumored to have leased 200,000 square feet at 425 Park Avenue, an office tower under construction between 55th and 56th street. The lease rate would be $300 a foot according to a broker. If both deals close, it would break two records for the most expensive condo and the most expensive commercial space.

Griffin and his wife are going through a divorce and court records claim Griffin earns $100 million a month.

If you are disappointed that Griffin snapped up your ideal home, do not worry. There are more than 20 homes in the U.S. for sale for over $100 million each so shop on! $100 Million Homes

The week after option expiration in September has a terrible history. Since 1988 the Nasdaq has averaged a .9% decline and -1.46% decline for the Russell 2000. The S&P has only posted a weekly gain five times in the last 17 years. The last few days in the quarter typically follow the performance of the week after expiration. The chart below from the Stock Trader's Almanac shows the performance of the indexes since 1994. Septembers to Remember

Ryan Detrick posted another chart showing the next three weeks have been the worst weeks of the year since 2005. Worst Three Weeks


Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

Arthur Schopenhauer


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New Plays

Breaking The August Low

by James Brown

Click here to email James Brown


Intl. Paper Company - IP - close: 40.42 change: -0.49

Stop Loss: 42.35
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 19, 2015
Time Frame: Exit
Average Daily Volume = 2.9 million
New Positions: Yes, see below

Company Description

Trade Description:
Over supply issues and currency headwinds are hurting IP's results.

IP is in the consumer goods business. According to the company, "International Paper (IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging along with uncoated papers and pulp. Headquartered in Memphis, Tenn., the company employs approximately 58,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2014 were $24 billion."

The last few earnings reports have seen IP beat Wall Street's bottom line estimate but that was mainly due to cost cutting. Revenues have been slowing down. Their 2014 Q4 revenues were only up +1.6%. Q1 revenues fell -3.6%. Their most recent report saw Q2 revenues fall -3.6%. The last two quarters saw revenues come in below analysts' expectations.

IP's management did manage to slash selling and administrative costs by almost -8% last quarter. Unfortunately their international packaging, consumer packaging, and printing papers businesses all saw sharp sales declines.

Dividend investors might be drawn to this stock. IP currently has a yield near 4%. Is it worth buying a big yield when the stock has fallen -30% from its 2015 highs and shows no signs of stopping? A Bank of America analysts said their previously bullish thesis for IP doesn't work anymore. Over supply issues in the containerboard industry remain a trouble spot.

The stock is bearish with a clear trend of lower highs and lower lows. Today shares are poised to breakdown under round-number support at $40.00. We are suggesting a trigger to launch bearish positions at $39.85.

Trigger @ $39.85

- Suggested Positions -

Short IP stock @ $39.85

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

Buy the 2016 Jan $40 PUT (IP160115P40) current ask $2.67
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Sink Into The Weekend

by James Brown

Click here to email James Brown

Editor's Note:
The implications of the Fed's decision to not raise rates was the main story on Friday. The tone of trading was bearish with widespread declines as investors worried about global growth.

We have updated multiple stop losses tonight.

GMCR was stopped out.

Current Portfolio:

BULLISH Play Updates

CDW Corp. - CDW - close: 40.83 change: -0.45

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: -0.9%
Entry on September 14 at $41.20
Listed on September 12, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 1.1 million
New Positions: see below

09/19/15: Hmm... CDW confirmed Thursday's bearish reversal but traders bought the dip near its rising 10-dma. These are somewhat conflicting events. CDW should have additional support at the $40.00 level. We are adjusting the stop loss to $39.85.

No new positions at this time.

Trade Description: September 12, 2015:
Consistent earnings and revenue growth have helped drive shares of CDW to new all-time highs.

CDW is in the technology sector. According to the company, "CDW (NASDAQ: CDW) is a Fortune 500 company and a leading provider of integrated information technology (IT) solutions in the U.S. and Canada. We help our customer base of approximately 250,000 small, medium and large business, government, education and healthcare customers by delivering critical solutions to their increasingly complex IT needs. Founded in 1984, CDW employs more than 7,200 coworkers. In 2014, the company generated net sales of more than $12.0 billion.

Our broad array of offerings range from discrete hardware and software products to integrated IT solutions such as mobility, security, data center optimization, cloud computing, virtualization and collaboration. We are technology 'agnostic,' with a product portfolio that includes more than 100,000 products from more than 1,000 brands. We provide our products and solutions through our sales force and service delivery teams, consisting of more than 4,500 coworkers, including over 1,800 field sellers, highly skilled technology specialists and advanced service delivery engineers."

Recent quarterly reports have seen CDW beating Wall Street estimates on both the top and bottom line. Investors were very happy to see the company's most recent report on August 3rd. Earnings were up +20% from a year ago and revenues beat expectations. Management said they expect to grow +2-to-3% above the U.S. IT market in 2015.

Shares of CDW surged on its August 3rd report. When the market corrected sharply lower in late August shares of CDW actually weathered the storm relatively well. The stock filled the gap from its August 3rd earnings pop and then bounced. Now shares have broken through major resistance at $40.00.

Friday's high was $41.11. We are suggesting a trigger to open bullish positions at $41.20.

- Suggested Positions -

Long CDW Stock @ $41.20

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

Long DEC $45 CALL (CDW151218C45) entry $1.15

09/19/15 new stop @ 39.85
09/14/15 triggered @ $41.20
Option Format: symbol-year-month-day-call-strike


Ingram Micro Inc. - IM - close: 27.22 change: -0.37

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -2.3%
Entry on September 09 at $27.85
Listed on September 8, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 1.0 million
New Positions: see below

09/19/15: IM gapped open lower on Friday at $27.26. Shares tried to recover but failed beneath the $27.50 level. The move is worrisome, especially after Thursday's failed rally at $28.00.

No new positions at this time.

Trade Description: September 8, 2015:
IM looks like it is about to break out 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.

- Suggested Positions -

Long IM stock @ $27.85

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

Long DEC $30 CALL (IM151218C30) entry $1.15

09/15/15 Caution - IM did not participate in the market's rally today
09/09/15 triggered @ $27.85
Option Format: symbol-year-month-day-call-strike


Radius Health, Inc. - RDUS - close: 75.00 change: +2.31

Stop Loss: $67.85
Target(s): To Be Determined
Current Gain/Loss: +6.2%
Entry on September 17 at $70.65
Listed on September 15, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 811 thousand
New Positions: see below

09/19/15: RDUS continued to show relative strength on Friday in spite of the market's decline. Shares added +3.1% and closed right on round-number resistance at $75.00.

I would not chase it here. We are adding a stop loss at $67.85.

Trade Description: September 15, 2015:
The allure of biotech stocks can be irresistible. RDUS is a good example. The company went public on June 6, 2014. Shares priced at $8.00 and opened at $8.03. The stock hit $84.00 in July this year. That's impressive for a 13-month return.

As a relatively new biotech stock you may not be familiar with RDUS. According to the company, "Radius is a science-driven biopharmaceutical company developing new therapeutics for patients with advanced osteoporosis as well as other serious endocrine-mediated diseases including hormone responsive metastatic breast cancer. Radius' lead development candidate is the investigational drug abaloparatide for subcutaneous injection, which is completing Phase 3 development for the reduction of fracture risk in postmenopausal women with severe osteoporosis. The Radius clinical portfolio also includes an investigational abaloparatide transdermal patch for potential use in osteoporosis and the investigational drug RAD1901 for potential use in hormone driven, or hormone resistant, metastatic breast cancer including breast cancer brain metastases."

You can review RDUS' pipeline on their website: pipeline link.

The market seems to be focused on RDUS' osteoporosis drug and its breast cancer treatment. That's not surprising since the potential market for both is huge. The osteoporosis drug is closest to being approved.

Today there are almost 500 million people who suffer with osteoporosis, where the body does not produce enough bone tissue. That number is poised to soar with an aging population in Europe, Asia, and the U.S. The market for treatment is already over $6 billion a year.

RDUS' management discussed their results after their Q2 earnings report in July. Their CEO said,

"The ACTIVExtend trial is the 24 month open label extension in which patients from the abaloparatide and placebo treated groups of the ACTIVE trial were placed on alendronate therapy for osteoporosis management. The ACTIVExtend six month study results exceeded our expectations. The group previously treated with abaloparatide had not additional new vertebral fractures during the first six months of the ACTIVExtend trial. Please remember, that from the start of the ACTIVE study, the abaloparatide treated patient showed a statistically significant 87% reduction in new vertebral fractures, the highest reduction ever reported in an osteoporosis trial and highly significant reductions in non vertebral fractures, clinical fractures and major osteoporotic fractures as compared to placebo. We believe that these results support our view that abaloparatide has the potential to represent a new treatment paradigm for patients at high risk of an osteoporotic fracture."
RDUS plans to submit an New Drug Application (NDA) to the U.S. FDA and submit an MAA to the EU later this year for their osteoporosis treatment. That could keep investor interest bullish on the stock as they await an FDA approval.

Technically RDUS saw a sharp correction of more than -$30.00 from its July high to the August intraday low. After a -37% decline RDUS has bounced with traders consistently buying the dips. Today the point & figure chart is bullish and forecasting at $79.00 target. The stock is hovering just below resistance at $70.00 and its simple 50-dma.

We are suggesting a trigger to open bullish positions at $70.65. I want to remind readers that biotech stocks can be volatile. This is an aggressive, higher-risk trade. The right headline can send RDUS soaring while the wrong headline could produce a crash. Use small positions to limit risk. RDUS does have options but they're too expensive to trade.

NOTE: do NOT open positions if RDUS gaps open past $72.00. We'll re-evaluate this trade if shares gap open too high.

*small positions to limit risk* - Suggested Positions -

Long RDUS stock @ $70.65

09/19/15 new stop @ 67.85
09/17/15 triggered @ $70.65


Starbucks - SBUX - close: 56.84 change: -0.44

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +3.1%
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

09/19/15: SBUX held up reasonably well on Friday. The S&P 500 lost -1.6% while SBUX ended the session with a -0.76% decline. Shares didn't even touch support at the $56.00 mark.

No new positions at this time.

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

09/16/15 new stop @ 54.75
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


Zafgen, Inc. - ZFGN - close: 46.23 change: +2.47

Stop Loss: $41.15
Target(s): To Be Determined
Current Gain/Loss: +14.6%
Entry on September 17 at $40.35
Listed on September 16, 2015
Time Frame: Exit 6 to 8 weeks
Average Daily Volume = 232 thousand
New Positions: see below

09/19/15: ZFGN is the big winner for the week. After breaking out past major resistance near $40 on Thursday the rally continued on Friday. ZFGN added another +5.6% and pushed past potential resistance at $45.00.

No new positions at this time. We are adding a stop loss at $41.15.

Trade Description: September 16, 2015:
Most of us have a few extra pounds hugging our waistline. Did you know that more than one third of adults in the U.S. is officially obese? That's the story from the Centers for Disease Control and Prevention. The danger of being too overweight can lead to higher rates of heart disease, diabetes, stroke, and even cancer. ZFGN wants to change that.

ZFGN is in the healthcare sector. According to the company, "Zafgen (ZFGN) is a biopharmaceutical company dedicated to significantly improving the health and well-being of patients affected by obesity and complex metabolic disorders. Zafgen is focused on developing novel therapeutics that treat the underlying biological mechanisms through the MetAP2 pathway. Beloranib, Zafgen's lead product candidate, is a novel, first-in-class, twice-weekly subcutaneous injection being developed for the treatment of multiple indications, including severe obesity in two rare diseases, Prader-Willi syndrome and obesity caused by hypothalamic injury, including craniopharyngioma-associated obesity; and severe obesity in the general population. Zafgen is also developing ZGN-839, a liver-targeted MetAP2 inhibitor, for the treatment of nonalcoholic steatohepatitis, or NASH, and abdominal obesity, as well as second-generation MetAP2 inhibitors. Zafgen aspires to improve the lives of patients through targeted treatments and has assembled a team accomplished in bringing therapies to patients with both rare and prevalent metabolic diseases."

Regular readers know that biotech stocks can be high-risk, high-reward trades. The right headline could send ZFGN soaring while the wrong one could see it gapping down at the opening bell. Odds are if the market is going to rally then biotechs tend to outperform as bullish investors swing for the fences and bet on a big return.

Shares of ZFGN priced at $16.00 when it IPO-ed on June 19, 2014. Shares opened at $20.00. Shares hit an intraday high near $55 in March this year. Since then ZFGN has been consolidating. The consolidation has taken a bit of a bullish bias with higher lows if we discount the market's plunge in August.

Today ZFGN is poised to breakout past major resistance at the $40.00 level. A breakout here could spark some short covering. The most recent data listed short interest at 15% of the very small 20 million-share float. The point & figure chart is already bullish with a quadruple top breakout buy signal and a $54.00 target. Tonight we are suggesting a trigger at $40.35 to launch bullish positions.

NOTE: ZFGN does have options but the prices and the spreads are outrageous. I would avoid them.

- Suggested Positions -

Long ZFGN stock @ $40.35

09/19/15 new stop @ 41.15
09/17/15 triggered @ $40.35


BEARISH Play Updates

Helmerich & Payne, Inc. - HP - close: 49.27 change: -3.32

Stop Loss: $54.35
Target(s): To Be Determined
Current Gain/Loss: +0.9%
Entry on September 10 at $49.70
Listed on September 9, 2015
Time Frame: Exit prior to earnings in November
(option traders exit prior to October expiration)
Average Daily Volume = 2.1 million
New Positions: see below

09/19/15: The combination of a downgrade and a bid drop in crude oil on Friday was a powerful one-two punch against HP. Shares gapped open lower and fell -6.3% on the session.

Tonight we are adjusting the stop loss down to $54.35. No new positions at this time.

Trade Description: September 9, 2015:
The bear market in crude oil has crushed shares of HP, an oil driller. The stock has fallen from its 2014 highs near $118.00 down to $50.00.

HP is in the basic materials sector. According to the company, "Helmerich & Payne, Inc. is primarily a contract drilling company. As of July 30, 2015, the Company's existing fleet includes 342 land rigs in the U.S., 40 international land rigs, and 9 offshore platform rigs. In addition, the Company is scheduled to complete another 12 new H&P-designed and operated FlexRigs, all under long-term contracts with customers. Upon completion of these commitments, the Company's global fleet is expected to have a total of 394 land rigs, including 373 AC drive FlexRigs."

You have to give HP's management team credit for slashing expenses. The company managed to turn out an adjusted profit of $0.27 a share in the third quarter during a very tough period for the industry.

HP reported its Q3 results on July 30th. Wall Street was only expecting $0.14-to-0.17 per share. Revenues still fell -30% from a year ago to $659 million but that was much better than expected.

Unfortunately for HP the oil market has not recovered. After a huge bounce from its August lows the price of oil has begun to slide. Global oil production is still near record highs while consumption has been weak. An economic slowdown in China and much of the world is hurting demand for oil.

If oil prices stay depressed it's going to hurt business for drillers. The sell-off in HP's stock price has boosted the dividend yield to 5.2%. The current dividend is about $2.75 a year. Rival driller Transocean (RIG) recently cut their dividend. Slower business for drillers could lead HP to reduce its dividend too, which should send the stock lower.

Technically shares of HP are in a bear market and hovering near support at $50.00. A breakdown below $50 could spark a drop toward the next support level around $40.00. The point & figure chart is bearish and forecasting at $38.00 target. Tonight we are suggesting a trigger to launch bearish positions at $49.70.

- Suggested Positions -

Short HP Stock @ $49.70

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

Long OCT $45 PUT (HP151016P45) entry $1.75

09/19/15 new stop @ 54.35
09/10/15 triggered @ $49.70
Option Format: symbol-year-month-day-call-strike


QUALCOMM Inc. - QCOM - close: 54.45 change: -0.53

Stop Loss: 56.65
Target(s): To Be Determined
Current Gain/Loss: +0.0%
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

09/19/15: QCOM dipped to support but did not break it on Friday. Shares held support at $54.00 and managed to limit its loss to -0.9%. Consider waiting for a decline below $53.85 before initiating new bearish positions.

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

09/12/15 new stop @ 56.65
09/04/15 triggered @ $54.45
Option Format: symbol-year-month-day-call-strike


Restaurant Brands Intl. - QSR - close: 36.69 change: -0.77

Stop Loss: 38.25
Target(s): To Be Determined
Current Gain/Loss: +0.4%
Entry on September 11 at $36.85
Listed on September 10, 2015
Time Frame: Exit 4 to 6 weeks.
Average Daily Volume = 1.0 million
New Positions: see below

09/19/15: There was no follow through on Thursday's bounce in QSR. Shares reversed with a -2.0% decline on Friday. Tuesday's low was $36.41. I would wait for a drop below $36.40 before initiating new bearish positions. We are adjusting the stop loss to $38.25.

Trade Description: September 10, 2015:
The burger wars continue as McDonald's recently rejected Burger King's proposal for a "peace day" offering to create the McWhopper. More on the McWhopper in a moment. Most of the fast food or quick service stocks seem to be struggling and the group displayed relative weakness today.

QSR is in the services sector. According to the company, "Restaurant Brands International Inc. is one of the world's largest quick service restaurant companies with more than $23 billion in system sales and over 19,000 restaurants in approximately 100 countries and U.S. territories. Restaurant Brands International owns two of the world's most prominent and iconic quick service restaurant brands - TIM HORTONS® and BURGER KING®. These independently operated brands have been serving their respective guests, franchisees and communities for over 50 years."

A couple of weeks ago QSR's Burger King brand launched a short-lived PR campaign to raise aware for "Peace Day" on September 21st. Peace Day actually started back in 1999 and approved by the United Nations as a day of ceasefire and non-violence.

QSR took out a full-page ad in the New York Times and the Chicago Tribune on Wednesday, August 26th, proposing a ceasefire in the burger wars between McDonald's and Burger King. QSR claims they are trying to raise aware of Peace Day but it sure looks like a clever way to get a lot of publicity.

Just for fun you can see the ad campaign here:

QSR's McWhopper website: www.McWhopper.com
And this YouTube video (1:37 minutes) Burger King - McWhopper Proposal

McDonald's rejected the idea and suggested a simple phone call will do next time (instead of full page ads).
A simple phone call

The whole McWhopper story is just a sideshow and will not have any impact on QSR's business.

QSR's most recent earnings report (late July) came in better than expected. Earnings of $0.30 per share beat estimates by six cents. Revenues did fall -1.6% but at $1.04 billion it was better than expected. Both the Tim Horton and Burger King businesses saw mid-single digit comparable store sales gains on a constant currency basis. Shares of QSR rallied on this news but the surge ran out of gas in early August.

When the market corrected lower in late August shares of QSR just collapsed with a drop of -17.8% in less than three days. The oversold bounce in QSR failed at resistance near $40.00 and is 50-dma. Now shares are on the verge of breaking down below key support at $37.00.

If QSR breaks down the next support level could be the late 2014 low near $33.00. The point & figure chart is a lot more pessimistic and forecasting at $26.00 target. Tonight we are suggesting a trigger to launch bearish positions at $36.85.

- Suggested Positions -

Short QSR stock @ $36.85

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

Long OCT $35 PUT (QSR151016P35) entry $0.85

09/19/15 new stop @ 38.25
09/11/15 triggered @ $36.85
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 24.68 change: +2.71

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -13.1%
2nd position Gain/Loss: +14.9%
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

09/19/15: I cautioned readers that the VXX would spike higher if stocks saw profit taking ahead of the weekend. Sure enough the VXX gapped open higher and soared +12.3% by the closing bell.

No new positions 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

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


Westlake Chemical Corp. - WLK - close: 52.11 change: +0.61

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 14, 2015
Time Frame: Exit prior to earnings in November
Average Daily Volume = 732 thousand
New Positions: Yes, see below

09/19/15: WLK is still hovering between support at $50.00 and resistance at its 20-dma. We are waiting for a breakdown.

Our suggested entry point is $49.75.

Trade Description: September 14, 2015:
We are adding WLK as a bearish momentum play. Shares are down -48% from their all-time high in 2014. They're down about -35% from the 2015 high and off -17% year to date. The S&P 500 is only down -5% in 2015.

WLK is in the basic materials sector. According to the company, "Westlake Chemical Corporation is a manufacturer and supplier of petrochemicals, polymers and building products with headquarters in Houston, Texas. The company's range of products includes ethylene, polyethylene, styrene, propylene, caustic, VCM, PVC resin and PVC building products, including pipe and specialty components, windows, and fence." Products include "the tires we ride on, the plastic wrap that keeps our meats and produce fresh, the pipes that are essential to ensuring clean water, the frames that secure our windows and doors."

Earnings and revenues have been all over the map lately. Their Q4 results announced in February missed the bottom line estimates. Revenues were up +19% but they missed analysts estimates. Q1 results came out in May . Earnings missed by an even wider margin this time and down -6.7% from a year ago. Revenues also missed. Yet their most recent earnings report (Q2) came out on August 4th. Earnings were $1.41 a share, which was much better than expected. Revenues were up +18% to $1.19 billion, also above expectations.

Unfortunately for shareholders traders used the early August rally as a chance to sell. The oversold bounce of round-number support near $50.00 has already failed. Today WLK is poised to breakdown under this key support level at $50. If this level breaks the next support area could be $40.00. The point & figure chart is bearish and forecasting at $33 target. Tonight we are suggesting a trigger to open bearish positions at $49.75.

Trigger @ $49.75

- Suggested Positions -

Short WLK stock @ $49.75

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

Buy the 2016 Jan $45 put (WLK160115P45)

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



Keurig Green Mountain, Inc. - GMCR - close: 56.74 change: -0.45

Stop Loss: 56.85
Target(s): To Be Determined
Current Gain/Loss: +2.8%
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

09/19/15: I cautioned readers on Thursday that we would likely see GMCR hit our stop loss on Friday. Unfortunately shares actually gapped down at the open at $56.65. Our stop was $56.85.

This increased volatility really hurt our option exit. Our November $60 call should have traded around $3.00-3.10 at the open. The very first bid at 09:30:00 a.m. was $1.00. Just three seconds later the bid was back to normal in the $3.10-3.15 range.

*small positions to limit risk* - Suggested Positions -

Long GMCR stock @ $55.10 exit $56.64 (+2.8%)

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

NOV $60 CALL (GMCR151120K60) entry $3.07 exit $1.00* (-67%)

09/18/15 stopped out on gap down at $56.64
*option exit realistically closer to $3.10
09/15/15 new stop @ 56.85
09/12/15 new stop loss @ 55.85
08/31/15 triggered @ $55.10
Option Format: symbol-year-month-day-call-strike