Option Investor

Daily Newsletter, Tuesday, 9/29/2015

Table of Contents

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

Market Wrap

Saved by the Bell

by Jim Brown

Click here to email Jim Brown

A spurt of buying at the bell lifted the Dow back into positive territory and avoided a negative close under 16,000. The Nasdaq was not so lucky as the biotech sector continued to be a drag.

Market Statistics

This was a very slow news day as the quarter draws to a close and companies are in their quiet period ahead of earnings. The indexes started off positive but faded as the day progressed. The biotech sector continued to be the drag on the Nasdaq and S&P but the rate of sector decline slowed slightly.

Several analysts reiterated buys on various biotech stocks and called the decline a buying opportunity. So far, investors have not taken that advice. Other analysts claim the sector has another 10% to fall.

The huge decline in the Asian markets failed to translate to declines in the USA. Japan declined -4% and China -2%. Europe was negative but not as bad as Asia.

The economic reports in the U.S. were positive but the big events start on Wednesday. The Consumer Confidence for September rose from 101.3 to 103.0 and the highest level since January's 103.8 reading. Analysts were expecting a decline to 98.0 with Moody's expecting a drop to 96.5. Falling gasoline prices were credited as the driver.

The present conditions component rose from 115.8 to 121.1. The expectations component declined slightly from 91.6 to 91.0. Those who felt jobs were plentiful rose from 21.7% to 25.1%. Those expecting an increase in income rose from 16.2% to 19.1%. Consumers planning on buying a car rose from 10.8% to 12.7%, prospective home purchasers rose from 4.4% to 6.3% and the highest level in 2015 but appliances purchasers declined from 49.5% to 48.0%.

The Texas Service Sector Outlook Survey for September rose from 2.1 to 3.6. Respondents generally saw conditions improving slightly. Texas has been hard hit by the energy decline and will not recover until the price of oil begins to rise. The future outlook component for the next six months rose only slightly from 9.7 to 9.8.

The big events begin tomorrow with the ADP Employment report for September. Expectations are for a gain of +191,000 jobs, up only 1,000 from August. The Nonfarm Payroll report on Friday is expected to show a gain of +203,000 jobs, up +30,000 from August. These reports will have a direct impact on the Fed meeting in October.

Janet Yellen will get another chance to hone her rate hike speech at 2:PM on Wednesday and China's PMI revision is due out after the market closes.

The national ISM Manufacturing on Thursday is also going to be important for the market. With regional manufacturing reports erratic with some showing declines, the national version will be important.

The speaker list for the Fed is very heavy this week with Friday the biggest single day schedule I have ever seen.

In stock news Keurig Green Mountain (GMCR) released its cold beverage maker called appropriately the Keurig Kold. The drink machine is not cheap at $369 with the individual drink capsules ranging from 99 cents to $1.25. This is significantly higher than the $100 Sodastream device. Available drinks include Coke, Diet Coke, Sprite and Fanta. Vitaminwater and energy drinks will be added next. Keurig expects to spend $100 million over the next year to market the new drink machine.

Keurig shares are down significantly from the $159 level it saw in November. Coke (KO) owns 16.8% of GMCR.

Apple (AAPL) sold a record 13 million iPhones over the weekend and saw an analyst upgrade today as well as positive mention by Carl Icahn. Sterne Agee initiated coverage on Apple with a $150 price target. Unfortunately, that did not help the stock. Apple shares declined -$3.38 after Google announced some new phones to compete with the iPhone and Google's phones start at $379.

The Nexus 5X has a 5.2-inch screen, 1920x1090 resolution, 2GB, a 12.3 megapixel rear camera, 5 megapixel front camera and 2,700 mAh battery. The Nexus 6P has a 5.7-inch screen, a full aluminum body, USB Type-C port that charges twice as fast as the iPhone. The resolution of 2560x1440 is also better than the 6S+ at 1920x1080. The starting price is $499 compared to $799 for the 6S+, the 6S at $649 and Samsung Galaxy S6 at $679.

Google also announced a high-end tablet with a detachable keyboard. The new Pixel C has a 10.2 inch touch screen with 32 GB of storage and starts at $499. The new tablet is based on the Android operating system rather than the Chrome operating system.

Google also updated its Chromecast device, which allows users to stream content from their tablet or phone to a non-smart TV. They introduced a second version that streams audio to any speaker with a $35 dongle that attaches to the speaker. You can stream music from any smartphone app such as Spotify to any connected speaker. Google has sold more than 20 million Chromecast video devices.

Google shares also declined along with the Nasdaq.

Chesapeake Energy (CHK) announced a layoff of 740 workers after the company reported a loss of more than $4 billion for Q2. The layoffs represent about 15% of their workforce. After the cuts, the company will employ about 4,000 workers. The CEO said in a letter to employees that the current energy environment represented a challenge for Chesapeake and the industry. The terminated employees will receive up to a full years pay depending on their age, pay level and years of service.

Chesapeake is only one of dozens of companies that have cut workers because of oil prices. Analysts estimate more than 100,000 workers have lost their jobs.

Commodities producer Glencore rebounded +17% after several banks came to their defense. On Monday shares fell -27% after an investment bank warned the company could fail because of its $30 billion in debt. Commodity prices are below the cost to produce them in many cases. Citigroup said there was nothing to worry about because Glencore had excellent banking relationships and the commodity crush would pass. Glencore said it was planning on reducing its debt in 2016 by more than $10 billion through planned asset sales.

The crash in Glencore helped to crush the European markets because of major margin calls when the stock fell more than 75% over just the last several weeks. Investors were forced to sell other shares to make up for losses in Glencore.

On Monday, GoPro (GPRO) announced a new $200 camera called the Hero+, which will fill a gap between the entry level Hero at $130 and the Hero+LCD at $300. The new camera can record 1080p video at 30fps compared to the more expensive version at 60fps. The company now has six cameras between $130 and $500. They also lowered the price of the Session camera by -$100 to $300 ahead of the holidays.

Sterne Agee initiated coverage with a price target of $45 compared to today's close at $30. The analyst said a smartphone would never be a competitor for a GoPro camera because it was not built for the same purpose and nobody will want to risk their $700 phone to take an action picture. He said, "Consumers don't just want an action camera. They want a GoPro camera." The name is synonymous with the market. The company is expected to launch the HERO5 camera series in 2016 along with a consumer drone product line. Shares rose fractionally on the news.

Tesla (TSLA) is set to deliver its first Model X to consumers this evening as CEO Elon Musk hands over the first set of keys to a lucky buyer in Fremont California. This will be the first time the company has two models in production at the same time. Tesla has not even released the final pricing on the Model X series but customers are still putting down deposits. More than 32,000 people have put down $5,000 to place an order. However, the fully loaded Signature Edition will cost about $132,000. The Model X has three rows of seats and will seat 7 adults.

The drawback to the SUV other than price is the gull wing doors. Those prevent a top mounted luggage rack for bikes, skis, etc. It also prevents parents from loading the car in some garages because of the space needed to open the doors. Tesla shares declined -1.78 today.

Casino stocks dove again after Macau's biggest junket promoter, Neptune Group, said it might have to halt or reduce operations if VIP gamers continue to avoid the region. Junket operators facilitate loans to VIP gamers and those customers accounted for 70% of Macau revenues. The junket operators said revenue had declined to a five-year low. While Neptune may not completely leave the Macau area their financial stress suggests many less capitalized junket operators could be pushed out of business. That would mean even less revenue for the casino operators like Wynn Resorts (WYNN) and Las Vegas Sands (LVS). Macau gaming revenues have been declining at about -35% per month over the same period in 2014.

Several weeks ago, there was a major theft by a junket operator at a Wynn casino. It was originally reported as $258 million but later reduced to $34 million. Stricter controls are also causing a slowdown in VIP trips.

Crude oil rose today as it does on nearly every Tuesday ahead of the inventory numbers from the API and EIA. After the bell tonight, the API reported a +4.6 million barrel gain in inventories for last week. These gains should now be common since we are out of the summer driving season and refineries are shutting down for maintenance. WTI declined to $44.91 after the report. The API numbers are not considered reliable and traders are more focused on the EIA inventories on Wednesday morning.


Last week somebody bought 50,000 contracts of the SPY June $186 puts at $1,100 each or roughly $55 million. Since then another 90,000 puts were purchased for the June $184 strike at $1,100 per contract or roughly $100 million. Either somebody knows something we do not or there are some really large portfolios that were hedged. The $55 million purchase would hedge about a $1 billion portfolio so double that for the 90,000 contracts.

As a portfolio hedge, the June premiums will decline slowly in case of a market rebound. If a typical market bottom is formed in early October and the market rebounds strongly the put owners can exit those positions with minimal losses in premium. If we did get another leg down in the market and those puts went deep into the money they could sell them for a profit to offset losses in the individual stocks.

While I understand the mechanics of this process, I am still concerned when I see put purchases this large. This requires a significant level of fear regarding a potential decline and confidence that a decline will recover. Otherwise, they could simply sell their positions and plan to buy the dip. Obviously, there may be tax concerns that could make selling the positions not a real option.

Can you imagine the look on the market makers face when he sees an order to buy 50,000 high dollar puts show up on his screen?

Goldman Sachs revised their yearend estimate for the S&P from 2,100 to 2,000. Tony Dwyer at Canaccord cut his yearend estimate from 2,340 to 2,150. Apparently, the bullish bias is fading.

There has been a lot of chatter in the last several days about a retest of the August lows at 1,867 and almost as much talk about the potential to retest the October lows at 1,820. The S&P declined to 1,871 today and only 4 points away from the August low. The rebound was lackluster and you would have expected a bigger bounce after coming that close to a successful retest. In most circles, a 4-point miss would have been good enough to trigger a flood of buyers. The lack of buyers is troubling.

This suggests there are lower lows ahead. However, tomorrow is the end of the quarter and there may have been a calendar consideration in the case of funds. The calendar is working against us in another way because of the historical trend of market lows in the first ten days of October. Portfolio managers may be thinking they can get a better price if they hold out for another week. There was also the worry over the ADP Employment report due out in the morning and the Nonfarm Payrolls on Friday. Why step in front of economic traffic if you do not have to?

All we need is one more of those big market flush days to knock the S&P down to 1,820. While that would be a convenient level for a rebound, it may not be the final level if the global economy is going to continue to decline. There is risk of a global recession or even deflation if commodities fail to find a bottom soon. That could turn this correction into a bear market with a drop to the 1,700 level. I am not predicting that but we need to be aware of the possibilities.

For tomorrow, resistance is 1,900 and support 1,867. Should either level be broken I would expect a continued move in that direction that could possibly be violent.

The Dow has already exceeded the October lows in the August dip back to the January 2014 levels at 15,350. Tuesday's dip under 16,000 was the low for the month the August low appears to be the target. The Dow got some unexpected help from upgrades to McDonalds and Johnson & Johnson. 3M is still gaining from its deal with AstraZenaca and an upgrade from Credit Suisse. The rest of the gains appeared to be limited short covering on the late day bounce.

The October low at 15,855 would be support but after the bigger plunge in August, it should have less influence on the index.

On the Nasdaq support at 4,500 was tested and pierced by 11 points before the end of day rebound began. This decline was due to the continue drop in the biotechs, which lost -1.4% for the day. Until the biotech sector finds a bottom the Nasdaq will continue to bleed points.

Once the 4,500 level breaks the next material support point is the August low at 4,292 and then the 4,130 level from October. This means the Nasdaq could see some seriously negative days if conditions do not change soon. Resistance is 4,600.

The Russell 2000 hit a milestone today with the dip to 1,082. This is support from January and May in 2014. All prior support levels are now well into the rearview mirror and a failure here targets 1,050. The Russell is the sentiment indicator for the market and it remains bearish. Any further decline could accelerate to bear market levels at 1,036 and a -20% decline. This could contaminate the other indexes and cause additional selling.

The possibility of continues weakness in biotechs from fund managers racing to capture their remaining gains, makes me bearish for the rest of the week. The seasonality of market lows in the first week of October is also a factor because investors may wait to see if they can get a better price next week.

The nearness of the Russell small caps to a bear market low is also a factor. This is the sentiment index for the market and sentiment is bearish.

All of these factors could be reversed in the blink of an eye with a major short squeeze but there is still considerable risk. I would be careful about loading up on a bunch of longs, or shorts, because market movement over the next 10 days could turn violent. Continue building your list for long term buys and put in orders at ridiculous prices. Sometimes you will be surprised at what you can buy during a volatility event.

However, sometimes the best trade is the one you don't make.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Falling Same-Store Sales

by James Brown

Click here to email James Brown


GNC Holdings - GNC - close: 40.10 change: -0.13

Stop Loss: 42.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 29, 2015
Time Frame: Exit prior to earnings at the end of October
Average Daily Volume = 1.2 million
New Positions: Yes, see below

Company Description

Trade Description:
Tougher competition, increased government scrutiny, and changing consumer habits have not been a good recipe for shares of GNC. The stock is down -14.6% in 2015 and poised to hit new lows.

GNC is in the services sector. According to the company, "GNC Holdings, Inc. - headquartered in Pittsburgh, PA - is a leading global specialty health, wellness and performance retailer. The Company's foundation is built on 80 years of superior product quality and innovation. GNC connects customers to their best by offering a premium assortment of vitamins, minerals, herbal supplements, diet, sports nutrition and protein products. This assortment features proprietary GNC - including Mega Men®, Ultra Mega®, Total Lean®, Pro Performance®, Pro Performance® AMP, Beyond Raw®, GNC Puredge®, GNC GenetixHD®, Herbal Plus® - and nationally recognized third party brands.

GNC's diversified, multi-channel business model generates revenue from product sales through company-owned retail stores, domestic and international franchise activities, third party contract manufacturing, e-commerce and corporate partnerships. As of June 30, 2015, GNC had more than 9,000 locations, of which more than 6,700 retail locations are in the United States (including 1,067 franchise and 2,304 Rite Aid franchise store-within-a-store locations) and franchise operations in more than 50 countries."

GNC faces multiple issues. This year there have been negative headlines for the supplement industry. Testing showed that multiple supplements at various retailers were filled with bogus ingredients. Companies like Wal-mart, Target, Walgreens, and GNC have all come under fire for selling the fraudulent products. This will likely increase government scrutiny for supplements in general.

GNC also faces an issue with changing consumer habits. While most of Americans are overweight and out of shape there is a growing trend of healthier eating. Consumers want to know what they are putting in their bodies. That means less pills and more raw fruits and veggies, especially organic ones.

The biggest challenge could be tough competition. Online rivals can provide supplements at cheaper prices than GNC's retail stores. Best Buy (BBY), the consumer electronics store, has faced this issue for years with consumers coming into a Best Buy store, shopping around, and then going home and buying the product online from Amazon.com for less money and getting it delivered. GNC faces the same issue.

GNC's earnings have struggled. Their Q1 report, announced April 30th, missed estimates. GNC missed on both the bottom line profit estimates and the revenue estimate. Revenues were down -0.6% and same-store sales plunged -4.1%. Management lowered their 2015 guidance following this report.

GNC's Q2 results were not much better. They missed on both the top and bottom line again. Earnings only grew +2.6% from a year ago. Revenues were virtually flat with a +0.5% gain. Same-store sales fell -2.8%.

The stock rallied anyway because management said they would focus on more franchised stores. This news seemed to have sparked some short covering. Shares of GNC soared from $42 to $50 in just a few days but the rally reversed. Now the stock is trading at new 2015 lows. The company's announcement on August 4th to boost their stock buyback program by an additional $500 million did not help the stock very much.

GNC is in a bear market and poised to break major support at the $40.00 level. The point & figure chart is bearish and forecasting at $33.00 target. Tonight I am suggesting a trigger to launch bearish positions at $39.75.

Trigger @ $39.75

- Suggested Positions -

Short GNC stock @ $39.75

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

Buy the NOV $37.50 PUT (GNC151120P37.5) current ask $1.55
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 Deliver A Mixed Session

by James Brown

Click here to email James Brown

Editor's Note:
Global markets sink again with Asia and Europe posting losses. The NASDAQ and Russell 2000 followed suit but the S&P 500 and Dow Industrials eked out small gains on Tuesday.

Current Portfolio:

BULLISH Play Updates

JetBlue Airways - JBLU - close: 25.19 change: -0.29

Stop Loss: 22.45
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 28, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 8.8 million
New Positions: Yes, see below

09/29/15: JBLU spent most of today's session churning sideways along the $25.00 level. Shares did end up underperforming the broader market with a -1.1% decline. The pullback is not over yet. Our suggested entry point is $24.05.

Trade Description: September 28, 2015:
Crude oil prices have been depressed for months but airline tickets didn't really start falling until a couple of months ago. The average ticket is now down -6% from a year ago. That sounds like bad news for the airline companies. However, the drop in oil has slashed their fuel costs. Most airlines are spending 40% less on fuel than they were a year ago. That's a massive boost to their bottom line.

JBLU is part of the services sector. According to the company, "JetBlue is New York's Hometown Airline®, and a leading carrier in Boston, Fort Lauderdale-Hollywood, Los Angeles (Long Beach), Orlando, and San Juan. JetBlue carries more than 32 million customers a year to 90 cities in the U.S., Caribbean, and Latin America with an average of 900 daily flights."

The International Air Transport Association (IATA) recently issued a press release stating that customer demand for air travel remains strong. Global passenger traffic for July was up +8.2% from a year ago and an improvement above the +5.5% jump in June.

JBLU jus reported their August numbers, which saw traffic increase +6.7% as capacity rose +8.3%. The company did state that their passenger revenues per available seat mile (PRASM), a key metric for the airlines, did fall -3% in August but that was negatively impacted by a late Labor Day holiday this year. JBLU expects their Q3 PRASM to be relatively flat from a year ago (but still at a healthy pace).

Wall Street remains optimistic on JBLU. Analysts have been raising their earnings estimates on the company, which is usually a good sign. Plus JBLU has garnered some new price targets, one at $28 and another at $32. The point & figure chart is forecasting at $47.50 target.

JBLU hit multi-year highs several days ago and has been relatively resistant to the market's weakness. That changed today when investors were selling everything during the market's widespread decline. We want to take advantage of any temporary weakness in JBLU if this decline continues. Prior resistance near $24.00 should be new support. Tonight I am suggesting a trigger to launch bullish positions if JBLU trades at $24.05.

Buy-the-dip Trigger @ $24.05

- Suggested Positions -

Buy JBLU stock @ $24.05

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

Buy the NOV $25 CALL (JBLU151120C25)

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

Ingram Micro Inc. - IM - close: 26.42 change: +0.49

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -5.1%
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

09/29/15: Our IM trade narrowly escaped being stopped out. Our stop loss is at $25.75. The intraday low today was $25.76. The stock rebounded and displayed some relative strength with a +1.88% gain on the session.

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

BEARISH Play Updates

Bristow Group, Inc. - BRS - close: 26.13 change: +0.01

Stop Loss: 28.75
Target(s): To Be Determined
Current Gain/Loss: +5.7%
Entry on September 25 at $27.70
Listed on September 24, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 553 thousand
New Positions: see below

09/29/15: BRS spent Tuesday's session consolidating sideways along the $26.00 level. Shares closed virtually unchanged on the day.

No new positions at this time.

Trade Description: September 24, 2015:
The collapse in crude oil hasn't not just hurt the energy producers but also the oil services company that support the energy sector. This has driven BRS to five-year lows.

BRS is part of the basic materials sector. According to the company, "Bristow Group Inc. is a leading provider of helicopter services to the worldwide offshore energy industry based on the number of aircraft operated and one of two helicopter service providers to the offshore energy industry with global operations. The Company has major transportation operations in the North Sea, Nigeria and the U.S. Gulf of Mexico, and in most of the other major offshore oil and gas producing regions of the world, including Australia, Brazil, Canada, Russia and Trinidad."

The prolonged drop in oil prices has forced most energy companies to cut their capex budgets and expenses. That means less demand for oil services like BRS. The company has missed Wall Street's earnings estimates and lowered guidance the last three quarters in a row.

On February 5, 2015, BRS lowered their 2015 guidance from $4.70-5.20 down to $4.05-4.45 compared to estimates of $4.92 per share. On August 6th BRS lowered their 2016 guidance to $3.10-3.75 versus Wall Street estimates of $4.01 per share.

Unfortunately there appears to be no end in sight for the downturn in energy and crude oil. BRS could have much farther to fall. The last couple of days have seen shares of BRS breakdown below their prior September low. Today's intraday low was $27.83. I am suggesting a trigger to launch small bearish positions at $27.70. We want to start with small positions since BRS is already oversold (there is nothing stopping it from getting a lot more oversold).

*small positions to limit risk* - Suggested Positions -

Short BRS stock @ $27.70

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

Long DEC $25 PUT (BRS151218P25) entry $2.10

09/28/15 new stop @ $28.75
09/25/15 triggered @ $27.70
Option Format: symbol-year-month-day-call-strike

Hornbeck Offshore Services - HOS - close: 13.93 change: +0.18

Stop Loss: 14.75
Target(s): To Be Determined
Current Gain/Loss: +8.5%
Entry on September 22 at $15.22
Listed on September 21, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 925 thousand
New Positions: see below

09/29/15: A bounce in crude oil helped fuel some gains in the energy industry. HOS rallied +1.3% but struggled with resistance in the $14.00 region.

No new positions at this time.

Trade Description: September 21, 2015:
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*

*small positions to limit risk* - Suggested Positions -

Short HOS stock @ $15.22

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

Long DEC $15 PUT (HOS151218P15) entry $2.15

09/28/15 new stop @ 14.75
09/22/15 triggered on gap down at $15.22, suggested entry was $15.30
Option Format: symbol-year-month-day-call-strike

Helmerich & Payne, Inc. - HP - close: 47.84 change: +1.34

Stop Loss: $49.35
Target(s): To Be Determined
Current Gain/Loss: +3.7%
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

09/29/15: Tuesday's bounce in crude oil had a bigger impact on shares of HP. The stock rallied +2.88%. Shares did stall at technical resistance at the simple 10-dma.

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

09/28/15 new stop @ 49.35
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: 37.39 change: -0.09

Stop Loss: 39.65
Target(s): To Be Determined
Current Gain/Loss: + 6.2%
Entry on September 22 at $39.85
Listed on September 19, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 2.9 million
New Positions: see below

09/29/15: IP churned sideways and spent the day inside a 60-cent range. The stock is arguably short-term oversold here. I would not be surprised to see a bounce into the $38-39 area.

No new positions at this time.

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.

- Suggested Positions -

Short IP stock @ $39.85

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

Long 2016 Jan $40 PUT (IP160115P40) entry $3.00

09/28/15 new stop @ 39.65
09/24/15 Caution - the big intraday bounce is a potential warning for bears
09/22/15 triggered @ $39.85
Option Format: symbol-year-month-day-call-strike

Murphy Oil Corp. - MUR - close: 23.98 change: +0.22

Stop Loss: 25.35
Target(s): To Be Determined
Current Gain/Loss: +6.5%
Entry on September 23 at $25.65
Listed on September 22, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 2.4 million
New Positions: see below

09/29/15: Hmm... traders may want to double check their stop loss placement. Today's action in MUR must might be a short-term bottom. The stock fell to new lows and rebounded back into positive territory. MUR actually outperformed the market with a +0.9% gain. Furthermore volume was almost three times higher than normal.

I do expect a bounce but the $25.00 level should be new round-number resistance.

No new positions at this time.

Trade Description: September 22, 2015:
The outlook for crude oil continues to worsen. We are bringing MUR back to the Premier Investor newsletter.

Here's an updated trade description:

The crash in crude oil prices in the second half of 2014 was pivotal turning point for the U.S. energy industry. Suddenly the booming oil and gas sector had its future being questioned with the price of oil now unprofitable for many drillers. Oil has managed a bounce from its 2015 lows while many of the oil and gas producers are still seeing their stocks decline.

MUR is in the basic materials sector. According to the company, "Murphy Oil Corporation is an independent exploration and production company with a strong, oil-weighted portfolio of global offshore and onshore assets. Exploration activities are focused in four main regions: Deepwater Gulf of Mexico, the Atlantic Margin, Southeast Asia and Australia."

The company reduced its 2015 capex outlook by -33% when they reported their 2014 Q4 results back in January. MUR's Q1 results came out in May. Profits evaporated with MUR delivering a loss of ($1.11) per shares versus a profit of $0.96 a year ago.

Management is trying to prop up their floundering stock price. On May 20th the company announced an accelerated stock buyback program of $250 million. This is part of a previously announced $500 million repurchase program from August 2014. The buyback doesn't seem to be working.

Goldman Sachs downgraded MUR to a "sell" in late May. Nearly a month later UBS has also downgraded MUR to a "sell". The UBS analyst expressed concern that MUR's production would likely decline in 2015 and 2016 since the company has cut back on investment. (edit: UBS later pulled its "sell" rating after MUR reported earnings on July 30th). Soon other analysts jumped on the downgrade bandwagon. Morgan Stanley and Oppenheimer have both downgraded MUR in the last several weeks. The Oppenheimer analyst expressed concern that MUR would face a significant cash flow deficit and would need to fund operations through cash on hand and additional debt.

MUR's most recent earnings report on July 30th did beat Wall Street estimates but the company posted a loss of $0.48 per share versus estimates for a loss of $0.54.

Shares of MUR have continued to race lower with investors selling every rally. The trend of lower highs and lower lows has pushed MUR to levels not seen since early 2004. The point & figure chart is bearish and forecasting a long-term target of $12.00. I see potential support at $20.00. The September 11th low was $25.77. Tonight we are suggesting a trigger to launch bearish positions at $25.65.

- Suggested Positions -

Short MUR stock @ $25.65

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

Long 2016 JAN $25 PUT (MUR150115P25) entry $2.40

09/29/15 Caution - today might be a short-term bottom
09/28/15 new stop @ 25.35
09/23/15 triggered @ $25.65
Option Format: symbol-year-month-day-call-strike

QUALCOMM Inc. - QCOM - close: 52.43 change: -0.11

Stop Loss: 54.25
Target(s): To Be Determined
Current Gain/Loss: +3.7%
Entry on September 04 at $54.45
Listed on September 1, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 12.5 million
New Positions: see below

09/29/15: QCOM tagged new lows before paring its losses by the closing bell. I don't see any changes from yesterday's comments. I would still consider new bearish positions at current levels (but don't buy October options).

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

09/28/15 new stop @ 54.25
09/23/15 QCOM's breakdown below support at $54.00 is bearish
09/12/15 new stop @ 56.65
09/04/15 triggered @ $54.45
Option Format: symbol-year-month-day-call-strike

Scripps Networks Interative - SNI - close: 48.14 change: -0.13

Stop Loss: 50.55
Target(s): To Be Determined
Current Gain/Loss: +1.1%
Entry on September 28 at $48.70
Listed on September 26, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 1.3 million
New Positions: see below

09/29/15: SNI also tagged new relative lows this morning but there wasn't much follow through. SNI spent most of Tuesday's session churning sideways inside a $1.00 range.

Trade Description: September 26, 2015:
The television media space is extremely competitive. Investors have really started to worry about the future of broadcast television. There are very significant trends with younger consumers watching less and less TV. Plus there is a growing trend of consumers "cutting the cord" with their cable company and choosing to watch most of their content online, on their tablet, or on their smartphone. These concerns have depressed some stocks in the media industry. Less TV watching means weaker advertising dollars for TV content.

SNI is in the services sector. According to the company, "Scripps Networks Interactive (SNI) is one of the leading developers of engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company's lifestyle media portfolio comprises popular television and Internet brands HGTV, DIY Network, Food Network, Cooking Channel, Travel Channel and Great American Country, which collectively engage more than 190 million U.S. consumers each month. International operations include TVN, Poland's premier multi-platform media company; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel, the first pan-regional TV food network in Asia; and lifestyle channel Fine Living. The company's global networks and websites reach millions of consumers across North and South America, Asia, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com."

SNI's earnings performance has generally been okay. Looking at the last three quarters SNI has beaten analysts' bottom line estimates. Management did warn and lowered their 2015 guidance back in February. However, SNI raised their guidance with their most recent quarterly report in early August.

The bullish view on SNI is the stock's valuation. It is cheaper than its peers in the television industry. Plus, management sees stronger revenues for 2015. However, this is not translating into strength for the stock. When SNI reported its better than expected earnings and raised guidance in early August traders sold the news and shares broke down to new lows.

Bears can argue that SNI's expansion into Europe will mean more currency risk as the dollar rises. Plus, fundamental traders might be concerned about the company's debt more than doubling from $1.5 billion to $3.44 billion in the last year. Moody's Investor Service recently downgraded SNI's credit rating to Baa3 due to SNI's surge in debt. Shorts seem to be winning the day with SNI in a bear market.

Technically SNI peaked with a huge bearish double top in the $86 region in the late 2013-to mid 2014 time frame. Since then shares have plunged with a bearish pattern of lower highs and lower lows. Short interest is currently at 18.5% of the 73.4 million share float. This past week saw SNI breakdown under short-term support near $51.00. Now the stock is flirting with a breakdown below round-number support at $50.00.

The intraday low on Thursday was 48.80. I am suggesting a trigger to launch bearish positions at $48.70.

- Suggested Positions -

Short SNI stock @ $48.70

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

Long NOV $45 PUT (SNI151120P45) entry $0.95

09/28/15 new stop @ $50.55
09/28/15 triggered @ $48.70
Option Format: symbol-year-month-day-call-strike

Sohu.com Inc. - SOHU - close: 40.62 change: -0.11

Stop Loss: 42.75
Target(s): To Be Determined
Current Gain/Loss: +1.0%
Entry on September 24 at $41.03
Listed on September 23, 2015
Time Frame: Exit prior to earnings in early November
Average Daily Volume = 607 thousand
New Positions: see below

09/29/15: SOHU did not see much follow through lower after yesterday's drop to new lows. I am suggesting new positions at current levels.

Trade Description: September 23, 2015:
China's economy is slowing down. Earlier today the country said their manufacturing growth fell to six-year lows. This slowdown is being felt throughout the economy, including the technology space and Internet companies.

SOHU is considered part of the technology sector. I'd consider them a Chinese Internet stock. According to the company, "Sohu.com Inc. is China's premier online brand and indispensable to the daily life of millions of Chinese, providing a network of web properties and community based/web 2.0 products which offer the vast Sohu user community a broad array of choices regarding information, entertainment and communication. Sohu has built one of the most comprehensive matrices of Chinese language web properties and proprietary search engines, consisting of the mass portal and leading online media destination www.sohu.com; interactive search engine www.sogou.com; developer and operator of online games www.changyou.com/en/ and leading online video website tv.sohu.com .

Sohu corporate services consist of online brand advertising on its matrix of websites as well as bid listing and home page on its in-house developed search directory and engine. Sohu also provides multiple news and information service on mobile platforms, including Sohu News App and mobile news portal WAP.Sohu.com. Sohu's online game subsidiary, Changyou.com (CYOU) has a diverse portfolio of popular online games , such as Tian Long Ba Bu, one of the most popular massively multi-player online ('MMO') games in China, as well as a number of mobile games. Changyou also owns and operates the 17173.com Website, a leading game information portal in China. Sohu.com, established by Dr. Charles Zhang, one of China's internet pioneers, is in its nineteenth year of operation."

Looking at SOHU's recent earnings reports the company has been beating estimates on the bottom line but business is slowing down. SOHU has guided lower three of the last four quarterly reports. Their most recent earnings report was July 27th when SOHU announced their Q2 results.

Wall Street expected a loss of ($0.81) per share on revenues of $479.5 million. SOHU delivered a loss of just ($0.37) while revenues grew +23% to $493.6 million. Unfortunately management lowered their guidance again. SOHU expects Q3 revenues to come in the $470-500 million range. That's below analysts' estimates of $530 million. SOHU is also forecasting Q3 earnings in the minus $0.55 to minus $0.80 per share versus Wall Street's estimate for minus $0.39. This is SOHU's lowest revenue growth in the last three years.

Technically the stock is in a bear market with a -40% drop from its June highs (SOHU is down -21% year to date). The stock has been trading with a bearish trend of lower highs. Now SOHU is poised to breakdown under significant support in the $42 area. A drop below $41.00 would generate a new triple-bottom breakdown sell signal on its Point & Figure chart. Tonight I am suggesting a trigger to launch bearish positions at $41.35. If shares break down the next support level could be the $35 region.

FYI: Investors should be aware that SOHU has been rumored to be an acquisition target or a target to be taken private. That's our biggest risk. The cheaper this stock gets the more attractive it might become as a target. However, this is just speculation and it may never happen.

- Suggested Positions -

Short SOHU stock @ $41.03

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

Long DEC $35 PUT (SOHU151218P35) entry $2.00

09/28/15 new stop @ $42.75
09/24/15 triggered on gap down at $41.03, trigger was $41.35
Option Format: symbol-year-month-day-call-strike

iPath S&P500 VIX Futures ETN - VXX - close: 26.89 change: +0.05

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -23.2%
2nd position Gain/Loss: + 7.3%
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

09/29/15: The VXX closed nearly unchanged on the session. If the S&P 500 tags the August lows and bounces this ETN should retreat lower.

We have less than three weeks left on our October options.

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