Option Investor

Daily Newsletter, Monday, 9/21/2015

Table of Contents

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

Market Wrap

Precarious Market

by Thomas Hughes

Click here to email Thomas Hughes
The bulls and bears continue to duke it out while the market winds up on Fed speak, economic data and earnings.


Trading was light on this first Monday since the last time the FOMC didn't raise interest rates. The market basically held steady after Friday's drop, trading in a relatively narrow range between near term support and resistance levels.

Market Statistics

Asian indices were mixed but nothing new in terms of head line material came out of that sector today. The Nikkei fell nearly -2%, the mainland Chinese Hang Seng gained nearly -2%, each responding to global and local growth concerns. European indices were choppy but were able to close with gains. Global concern weighed heavily and a revelation from Volkswagen they had cheated on emissions tests didn't help. Despite the early fall and massive losses in Volkswagen EU markets were able to recover losses.

Early morning trading on US futures was mildly negative at the start although that did not last long. By 8AM futures were indicating a positive open and that held into the opening bell. There was no economic data, before the open, and no earnings reports of note so early trading was mild.

Once the equities markets opened they began to move higher; at the high of the day posting gains close to +1% but the gains did not hold. Resistance was met within the first hour of trading and by lunchtime the indices were testing break even levels. By early afternoon all the indices had at least moved down to test last week's closing prices led by the Nasdaq.

The NASDAQ got hit hard by comments from Hillary Clinton in response to a New York Times article about high drug prices, and in particular about one drug skyrocketing from $13.50 to $750. She is now set to present a plan to prevent this kind of thing from happening in the future and sparked a -5% drop in the biotech sector.

Economic Calendar

The Economy

Only one official economic release today, existing home sales. The National Association of Realtors reports that existing home sales fell -4.8% last month after 3 months of gain. This is more than the -1% expected, the previous month was also revised slightly lower. Despite the drop existing home sales are up more than 6.5% over last year and have been above last years levels for the past 11 months. Within the report first time home buyers rose to 32% matching the highest levels of the year, median home prices rose and inventory declined.

Moody's Survey Of Business Confidence declined by -0.7% to 41.2. This is the 3rd week of rebound since hitting a peak earlier this month but still trending near the all-time high. In his report Mark Zandi, chief economist at Moody's, says business remains upbeat in the US and reports robust sales, sturdy pricing, ample credit and healthy investment spending/hiring.

Adding to the economic mix and providing fuel for the FOMC rate hike debate were comments from two Fed presidents. Both were pretty hawkish in light of the statement and press conference last week. Bullard says there is a "powerful case" for a rate hike, Lockhart says "later this year" is still very much in play in terms of possible lift-off.

According to FactSet there have been 3 earnings releases for the 3rd quarter so far. Of those two have beaten on earnings and two have beaten on revenue, there are 14 scheduled for this week. The current estimated earnings growth for the quarter is -4.4%, unchanged from last week. Now that we are in the season it is possible this is the low estimate cycle, if so we can expect to see final earnings more in the range of 0% to -0.5%. Energy is still expected to be the biggest impact to negative earnings declines but is not the only sector expected to show decline. Ex-energy earnings growth should be in the range of 2.5% to 6%.

2015 earnings is now only 0.8% compared to 1.7% just 2 months ago. This is worth noting now as it is likely to come up by the end of the quarter. Outlook for the 4th quarter is still positive for earnings growth that will expand into 2016. Full year 2016 earnings growth estimates have fallen a little but remain above 10%. The biggest reason for declining 2016 estimates are oil prices and lower estimates for growth among the energy producers.

The Oil Index

Oil prices surged more than 4% on fears of slowing US production. Recent rig counts show a third week of declines, fueling speculation that supply/demand issues could change. According to estimates the decline could equal 250K bpd, but that is assuming the rigs we've lost were all actively producing and not aging wells taken off-line as part of the natural cycle. In either event oil supply and production remains high with no sign of increased demand. The supply/demand scenario may be shifting but we are still in the very early stages of such a shift so I remain skeptical of oil rallies.

The Oil Index gained only a half percent in response to oil's move higher. Despite the gain the index remains below resistance at the 61.8% retracement level and the short term moving average and looks like it could move lower. The indicators are mixed, MACD is bullish and stochastic is making a bearish crossover, but are consistent with a possible retest of support and/or move down near the recent low. Oil prices are possibly stabilizing, but earnings declines are still on tap and could easily keep the sector in check until outlook begins to improve.

The Gold Index

Gold prices moved down from last week's high but held steady today just above $1130. Prices shot up on the FOMC lack of action and dovish stance but have not yet reached the $1150 resistance level. Despite the dovish Fed stance the chance of a rate hike remains, as evidenced by today's comments by Lacker and Bullard, and will come eventually. Data and the dollar will remain a big mover of gold and could pressure it lower in the near term. Strong, even just steady, data will lead the Fed to raise rates and both should strengthen the dollar.

The gold miners ETF GDX fell more than -2.5% in today's session and could be heading back to support levels near the long term low. The sector is strong in terms of rising production levels and falling costs but is weak in terms of gold prices, which remain near long term low levels if not at the lows. At best the miners can expect earnings this quarter to hold flat to last quarter and last year and at worst to see gold prices decline again. The ETF is sitting on the short term moving average with weakly bullish indicators. A break below the moving average, near $14.00, could take down to support along the long term low near $13.00. A move up from the moving average would find resistance near $15.75.

In The News, Story Stocks and Earnings

The dollar has proven to be resilient in the wake of the FOMC meeting. Much of its strength is due to expected Fed tightening, tightening that did not come. The lack of Fed move could have sparked a major decline in values except for one thing, the rate hike is still coming, unless of course the economy starts to break down. The Dollar Index moved lower after the announcement but found support above the bottom of the 9 month range. Today the index continued to move higher after making a bounce last Friday and is now back above the short term moving average and pushing up against resistance. The indicators are mixed but showing a hint of bullishness; MACD is at 0, stochastic is showing a weak bullish crossover. The indicator signals could easily be halted by resistance, but if accompany a cross of resistance could lead the index higher. Resistance is near $96 with upside targets near $97.50 should it break.

There were a couple of interesting story stocks today. First up is Volkswagen. The German automaker faked results for emissions tests on its eco-friendly diesel models. The charges are that Volkswagen software can detect when a test is being run and somehow reduce emissions by as much as 40%. The EPS has ordered VW to recall half a million models of its diesel powered cars and to pay fines that could go into double digit billions of dollars. Shares of the stock fell more than -18% in today's session.

Pandora experienced some wild action that triggered circuit breaker trading stops more than once during the day. The company received a favorable ruling from the Register of Copyrights that sets a previous deal as a benchmark in how it sets royalty rates. The news will affect additional rulings due out in December and pleased the market. Shares of Pandora gained more than 5.5% in today's session.

GoPro got a big down grade in article by Barron's. The magazine compared the company to BlackBerry calling it a one-hit wonder that was doomed to fall from grace. According to the article shares of GoPro could fall to $25. Today the stock hit a new low and looks like it could easily slip lower. The caveat is that this company is still growing and making a lot of money so the fall from grace may still by a future event.

The Indices

The bulls tried to move the indices higher today and despite some resistance were largely able to do so. Today's biggest winner was the Dow Jones Transportation Index. The transports gained 0.79% and appear to be testing support on a day where other indices appear to be testing resistance. Today's candle moves up from the short term moving average and the bottom of the narrowing trading range in which the index has been winding over the past few week. The indicators are bullish but mixed; MACD is retreating from a bull peak while stochastic is showing a weak bearish crossover while crossing the upper signal line. This combination is consistent a retreat from the top of a trading range, a top highlighted by the shooting star candle which appear last Thursday. The indicators are still bullish even though they suggest a top so a test of resistance is more than possible, near 8,250. Support is near 8,000 for now and could lead to a move down to 7,750 if it is broken.

The Dow Jones Industrial Average made the next largest move, 0.77%, perhaps because it, like the transports, was largely insulated from the sell-off in bio-tech. The blue chips created a small white candle that moved up from the bottom of Friday's long black candle but failed to close above resistance. Today's move was halted by the short term moving average and resistance line at 16,600. The indicators are bullish but also indicating a top, or the top of a range, similar to the transports. This could lead to additional upside and bullish signals but is dependent on a break above resistance. Until then a retreat to the recent, as indicated by previous convergence in MACD, remains an equal if not more likely possibility.

The S&P 500 gained only 0.46% in today's session, creating a small white candle below resistance levels. The broad market was halted at the bottom of the long term up trend line with additional resistance targets immediately above. These include the short term moving average and the 1,985 level which has been important on multiple occasions. The indicators, like the previous two indices, show bullish activity with near term weakness consistent with resistance to higher prices. Should resistance hold a move down to recent lows near 1,860 is likely.

The NASDAQ Composite made the smallest gains in today's session and almost did not make any gains at all. The tech heavy index managed to close with a gain of 0.04% after moving as low -0.5%. Today's action is a move down from the short term moving average, after testing higher prices, that met support at 4,790. Today's move was most likely due to Hillary Clinton's attack at the pharma companies and subsequent drop in the biotech sector but would not have significantly changed the technical picture otherwise. The index is retreating from a peak, like the others, with indicators in support of a peak and/or top of a range. Longer term analysis of MACD is still pointing to a retest of recent lows so this hint may lead to more than just another test of 4,790. A break below this level could move as low 4,500 or 4,250.

The indices certainly look to be in a precarious place. The long term outlook for the economy and earnings is positive so I am still bullish but near term factors make a test of the recent lows a real possibility. Not only are there significant convergences with MACD on all the charts we are on the brink of the 2nd negative earnings season in a row with fear of global slowing and FOMC rate hikes ever present.

I expect earnings season to be much better than currently projected by the FactSet data, and for next quarter to be even better, but there is a lot of time between now and the end of the season. We can expect to see the blended rate slowly increase but it'll be another month or two before the market starts to really look to the fourth quater. In that time another move lower, down to test support, would be good for market health and set us up for another sustained rally.

The FOMC rate hike and all it implies for the market may turn out to be a non-event. Up until the last meeting there was a lot of speculation built into the market. Now it may be possible the market is over it, we know its coming, we know policy will remain accomodative and we know its only the beginning of a longer period of economic expansion.

Data will be the big mover over the next two weeks. This week's calendar is a little light but next week makes up for it. This week look out for the Housing Index tomorrow, jobless claims, Durable Goods and New Home Sales on Thursday and then Michigan Sentiment and the 3rd estimate for 2nd quarter GDP. Next week is the first of October if you can believe it which brings another round of monthly macro-economic releases, capped off by the NFP. By all accounts labor markets have improved over the past month so there could be some strong numbers among ADP, Challenger, NFP and unemployment.

Until then, remember the trend!

Thomas Hughes

New Plays

A Slippery Slope

by James Brown

Click here to email James Brown


Hornbeck Offshore Services - HOS - close: 15.49 change: -0.71

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 21, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 925 thousand
New Positions: Yes, see below

Company Description

Trade Description:
HOS has been crushed over the last couple of years and there appears to be no end in sight.

HOS is part of the basic materials sector. They're in the oil equipment and services industry. According to the company, "Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore service vessels primarily in the Gulf of Mexico and Latin America. Hornbeck Offshore currently owns a fleet of 66 vessels primarily serving the energy industry and has eight additional ultra high-spec Upstream vessels under construction for delivery through 2016."

The energy sector has been hurt by the bear market in crude oil. The sell-off in crude started in June 2014. Yet the sell-off in HOS started in late 2013, more than six months before crude oil turned lower. Falling oil prices make it unprofitable for companies to do a lot of drilling offshore, which is significantly more expensive than normal drilling methods. Today there are only 31 active offshore oil rigs. That's down from 66 offshore rigs a year ago.

HOS management seems to be doing a good job in slashing expenses. They have managed to beat Wall Street's estimates on the bottom line number. Yet HOS has been unable to stop the plunge in revenues. Last quarter revenues fell -20% from a year ago.

Moody's just downgraded HOS' credit rating and changed their outlook to negative. Here is an excerpt from the Moody's press release,

"Hornbeck benefits from the scale and quality of its fleet, and good liquidity, but its credit metrics will continue to be negatively impacted by the very challenging environment facing the offshore sector through 2017" said Sreedhar Kona, Moody's Senior Analyst. "The negative outlook reflects our expectation of continued deterioration in the utilization of offshore supply vessels and their day rates"
The bearish conditions in the energy sector are not secret. Investors have been selling the rallies. Bears have piled on HOS with short interest at 33% of the small 25.5 million share float. That does raise the risk of a short squeeze.

Technically the trend is down. It was just a few days ago that Goldman Sachs outlined their worst-case scenario that saw crude oil falling to $20 a barrel. It could take years for the world to work through the current supply glut that will keep oil prices depressed.

HOS' point & figure chart is forecasting at $12.00 target. Today HOS displayed relative weakness with a -4.3% decline. Tonight we are suggesting a trigger to launch bearish positions at $15.30. More conservative traders might want to wait for a breakdown below $15.00 before launching bearish positions.

*Due to the high short interest I am suggesting small positions to limit risk*

Trigger @ $15.30 *small positions to limit risk*

- Suggested Positions -

Short HOS stock @ $15.30

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

Buy the DEC $15 PUT (HOS151218P15) current ask $1.85
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

Intraday Gains Fade

by James Brown

Click here to email James Brown

Editor's Note:
The stock market tried to rally twice today but the rally faded. The S&P 500 managed a +0.4% gain while the NASDAQ closed flat and the small cap Russell 2000 closed in the red.

RDUS hit our stop loss. WLK has been removed.

Prepare to exit QSR tomorrow morning.

Current Portfolio:

BULLISH Play Updates

CDW Corp. - CDW - close: 40.56 change: -0.27

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: -1.6%
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

09/21/15: The action in CDW is concerning. The opening gap higher quickly failed and shares underperformed the broader market with a -0.66% decline. CDW looks like it's headed for what should be round-number support at $40.00 but it's not guaranteed to bounce there.

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: 27.48 change: +0.26

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -1.3%
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

09/21/15: The Monday morning rally in IM failed beneath resistance near $28.00. Shares still managed to outperform the market with a +0.95% gain on the day. I am suggesting investors wait for IM to rally past last week's high at $28.06 before considering new bullish positions.

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

Starbucks - SBUX - close: 57.54 change: +0.70

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +4.3%
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

09/21/15: Investors were in the mood for a little more coffee today and SBUX outperformed the market with a +1.2% gain. Shares are poised to breakout past the next resistance level at $58.00 soon.

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: 44.12 change: -2.11

Stop Loss: $41.15
Target(s): To Be Determined
Current Gain/Loss: + 9.3%
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

09/21/15: ZFGN was not immune to the sell-off in biotech stocks today. However, shares did fare reasonably well especially after such a big rally in the prior two days. The stock almost $48.00 this morning before reversing lower.

If biotech stocks plunge again tomorrow then ZFGN will likely follow through group lower. No new positions at this time.

Check out the closed play update on RDUS for why biotechs fell today.

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: 48.07 change: -1.20

Stop Loss: $54.35
Target(s): To Be Determined
Current Gain/Loss: +3.3%
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

09/21/15: HP was downgraded again today. The stock saw its intraday rally attempt fail at $50.00 and shares rolled over into a -2.4% decline. This is a new multi-year closing low for the stock.

More conservative traders may want to lower their stop again. 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

Intl. Paper Company - IP - close: 40.34 change: -0.08

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 prior to earnings in late October
Average Daily Volume = 2.9 million
New Positions: Yes, see below

09/21/15: IP's bounce this morning failed at $40.93. Shares underperformed the major indices with a -0.19% decline. We are waiting on a breakdown below $40.00. Our suggested entry point is $39.85.

Trade Description: September 19, 2015:
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)

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: 54.39 change: -0.06

Stop Loss: 56.65
Target(s): To Be Determined
Current Gain/Loss: +0.1%
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

09/21/15: QCOM is inching closer and closer to a bearish breakdown below support at $54.00. 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: 37.97 change: +1.28

Stop Loss: 38.25
Target(s): To Be Determined
Current Gain/Loss: -3.0%
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

09/21/15: Watch out! The tone of trading seems to have changed for QSR. Shares displayed significant relative strength today with a +3.48% gain and a close above both its 10 & 20-dma. The intraday high was $38.13.

This could just be a one-day fluke. I don't see any specific news to account for the relative strength. We are choosing an immediate exit tomorrow morning to cut our losses early.

- Suggested Positions -

Short QSR stock @ $36.85

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

Long OCT $35 PUT (QSR151016P35) entry $0.85

09/21/15 prepare to exit tomorrow morning
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: 23.05 change: -1.63

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: - 5.6%
2nd position Gain/Loss: +20.5%
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

09/21/15: The market delivered something of a rocky session. The VIX and the VXX both plunged lower in spite of the market's intraday gyrations. The VXX fell -6.6%.

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


Radius Health, Inc. - RDUS - close: 68.88 change: -6.12

Stop Loss: $67.85
Target(s): To Be Determined
Current Gain/Loss: -4.0%
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

09/21/15: Biotech stocks were wounded today thanks to presidential hopeful Hillary Clinton. There was a story in the New York Times about Turing Pharmaceuticals who recently acquired a 62-year old drug and raised the price - dramatically. Daraprim is a treatment for malaria and toxoplasmosis. It used to sell for $13.50 a pill. After Turing bought the drug they raised the price to $750 a pill overnight. That's a 5,455% increase.

Hillary Clinton tweeted, "Price gouging like this in the specialty drug market is outrageous. Tomorrow I'll lay out a plan to take it on. -H" This sparked a serious sell-off in biotech stocks. The IBB biotech ETF fell -4.5%. I looked at the top 100 point losers on the NASDAQ today and about 90 of them were biotech stocks.

Shares of RDUS, which had been showing relative strength, was hammered. RDUS fell from $75.00 to $66.10 at its lows today. That's a -11.8% decline. RDUS pared its loss to -8.1% but we were stopped out on the morning drop at $67.85.

Thanks, Hillary!

*small positions to limit risk* - Suggested Positions -

Long RDUS stock @ $70.65 exit $67.85 (-4.0%)

09/21/15 stopped out @ 67.85
09/19/15 new stop @ 67.85
09/17/15 triggered @ $70.65



Westlake Chemical Corp. - WLK - close: 55.70 change: +3.59

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: see below

09/21/15: Shares of WLK soared on news the IRS is considering a rule change. The government is reconsidering rules on what companies can convert into master limited partnerships. WLK rallied +6.8% on this news.

Our trade has not opened yet and we are removing WLK as a candidate.

Trade did not open.

09/21/15 removed from the newsletter, suggested entry was $49.75