Option Investor

Daily Newsletter, Tuesday, 10/6/2015

Table of Contents

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

Market Wrap

Biotech Crashes Again

by Jim Brown

Click here to email Jim Brown

Two major events in the biotech sector had the index down -6% intraday and caused a major drag on the Nasdaq. Add in the weak healthcare sector and the major averages had a tough day.

Market Statistics

DNA sequencing company Illumina (ILMN) warned that it would miss on sales for both Q3 and Q4. The company blamed the disappointing sales on Europe and weakness in the Asia-Pacific region. The company said Q3 revenue would be $550 million and below forecasts for $569 million. Q4 guidance was cut to $570 million from $603 million. Shares of ILMN declined -20% at the open (-$33) but struggled back to end the day down -10% or -$17 at $145. Since the biotech crash began, ILMN is down from a high of $242.

Exact Sciences (EXAS) is less than half the stock it used to be after the FDA downplayed its colon cancer drug Cologuard and named it an "alternative choice" not a primary treatment. The draft recommendation was far less bullish than analysts were expecting and shares declined -46% to close at $10. FDA Recommendation

The news on EXAS and ILMN reminded investors that biotech stocks are risky investments and many cashed out rather than waiting for bad news in the Q3 earnings cycle. The ARCA Biotech Index ($BTK) was down more than 6% intraday. This was a major drag on the Nasdaq.

All eyes were focused on stock news because the economic news was minimal. The CoreLogic Home Prices for August showed a +6.9% rise over the same period in 2014 and that was the same level as July. The report was ignored.

The International Trade deficit for August rose from -$41.9 billion to -$48.3 billion and well over consensus estimates for -$45.3 billion. This was the biggest deficit since March's -$52.2 billion. Imports rose +$2.8 billion to $233.4 billion. Exports declined -$3.7 billion to $185.1 billion.

Food and beverage exports declined -2.5%. Industrial supply exports fell -5.9%. Automotive exports declined -3.8% and consumer goods fell -3.5%. The import numbers surged because of a +8.4% rise in consumer goods. Petroleum imports declined -6.7% to 280 million barrels. The trade deficit with China rose +14.6% from $28.7 billion to $32.9 billion. The strong dollar was blamed for the slowing exports. This report was also ignored.

The calendar for Wednesday is devoid of any market moving reports. The next hiccup could come from the FOMC minutes on Thursday.

The Dow started off with a gain after DuPont (DD) shares gained +$7 on news the CEO, Ella Kullman, will retire at the end of next week. Kullman had successfully fought off a challenge by activist investor Nelson Peltz back in May. It was a hard fought battle and investors eventually sided with Kullman. The fight caused the company to consider options for improving shareholder returns and they spun off The Chemours Company in May. DuPont is also on tract to reduce annual expenses by $1.3 billion by the end of 2016. Apparently the retirement is seen as an open door for Peltz or others to attack DuPont again in an effort to produce higher returns.

The $7 rally at the open added about 54 points to the Dow. The gain shrank to $4 at the close or roughly 30 Dow points.

Chevron (CVX) added another 23 points to the Dow with a $3 gain as oil prices exploded higher by +5%. Oil prices surged after the EIA said U.S. production declined -120,000 bpd in September. While that is old news for any Option Investor readers it was apparently news for some investors. Production is down from 9.61 million bpd in April to 9.096 million bpd last week. That is a decline of -516,000 bpd since April.

Also pushing prices higher was the increasing tensions in Syria. Turkey has repeatedly warned Russia about fighters intruding on Turkish airspace. Russian fighters have locked weapons radar on Turkish planes and remained in Turkish space for extended periods of time. Turkey is a member of NATO and NATO issued a stern ultimatum to Russia to stay away. Russia is claiming it has no MIG fighters in the area.

Russia is also claiming there are no Russian soldiers in Syria. However, Putin has said he would not prevent volunteers from traveling to Syria and aiding the Syrian government. This is similar to the Ukraine annexation. Putin always said it was army volunteers taking their vacation time to fight in Ukraine and Russia had not assigned any troops to the Ukraine. Of course, you have to wonder how those volunteers got permission to drive as many as 500 Russian tanks and artillery pieces to Ukraine. Hey, Vladimir, I am going on vacation for the next month and my car is in the shop. Can I drive one of your tanks? Can I also have ammo for target practice?Russian Aircraft in Turkey

This situation in Syria is rapidly accelerating to a conflict point. Russia also installed numerous radar jammer vehicles that jam radar and communications from US AWACs planes along with a large number of surface to air antiaircraft missiles. Since ISIS does not have aircraft, it is clear they are not to prevent ISIS from attacking Russian assets.

Oil prices will continue to rise as long as the Syrian situation continues to escalate.

After the bell, Adobe (ADBE) warned on full year revenue and earnings. The software company said full year revenue would be around $5.7 billion and earnings of $2.70 per share. Analysts were expecting $5.93 billion and $3.19 per share. Shares fell from the $85 close to a low of $74.30 before rebounding to cut the losses.

Yum Brands (YUM) fell -18% after reporting adjusted earnings of $1.00 compared to estimates for $1.07. Revenue of $3.43 billion also missed estimates for $3.68 billion. The company said the Chinese division was recovering slower than expected. Same store sales in China rose only +2% and well below the +9.6% rate analysts had expected. The company also said foreign exchange headwinds were worse than expected after China devalued the yuan. Shares of YUM declined from the $83.42 close to $68 in afterhours.

Nuskin (NUS) warned that Q3 revenue would be in range of $570-$573 million due to the strong dollar and slowing sales in China. Analysts were expecting $622 million. The dollar alone is expected to reduce full year revenue by $60 million. Earnings will be released on November 5th. Shares collapsed from the $46.57 close to $40 in afterhours.

PepsiCo (PEP) reported earnings of $1.35 that beat estimates by nine cents. Revenue declined from $17.22 billion to $16.33 billion due mostly to foreign currency translation. The company took a $1.9 billion charge for operations in Venezuela. The company is rapidly failing and hyperinflation is rampant. The country has instigated capital controls that prevent money from leaving Venezuela and this is impacting operations. If you cannot buy raw materials from outside the country and the price of your products is fixed at below your cost it is very hard to conduct business.

In the U.S., the company is expending profits by reducing package sizes. The traditional 10-ounce bag of potato chips is now 8 ounces. However, non-carbonated drink sales rose +10% while carbonated beverage sales declined -1.9%. Regular carbonated beverages declined -1% while diet beverages declined -6.5%.

Monsanto is the heavyweight announcing earnings on Wednesday. Acuity Brands (AYI), Constellation Brands (STZ) and Global Payments (GPN) round out the rest of the notables.

Team Inc (TISI) warned on revenue guidance for the current quarter. The company cut its forecast from $1.1 billion to $1.05 billion but earnings of $2.15 will remain the same. Analysts were expecting $2.15 and $1.08 billion. Shares declined -3% on the news.

Allegheny Technologies (ATI) warned it now expects a Q3 loss of 27-32 cents per share. Consensus estimates were for a 17-cent loss. The announcement came after the close and shares did not move.

O2Micro (OIIM) warned that revenue for Q3 would be in the range of $13.5-$13.8 million, down from guidance of $15.0-$16.2 million. Analysts were expecting $15.8 million. Shares fell -14% on the news.

Infinity Pharmaceuticals (INFI) cut revenue guidance from $105-$125 million to $100-$120 million. Analysts were expecting $130 million. Shares fell -9% on the news.

Quantum (QTM) warned that revenue for Q3 would be in the range of $116-$118 million compared to prior guidance in July of $120-$130 million. Shares declined -5% on the news.

Brinks (BCO) cut earnings guidance from $1.55-$1.75 to $1.40-$1.50 and blamed it on the weak economy in Brazil and the strong dollar. Revenue for 2016 is now expected to be $3.0 billion, down from prior guidance of $3.4 billion. Shares declined sharply at the open but recovered to end the day down only -1.2%.

Tesla (TSLA) shares declined -4.69 to $241 after Morgan Stanley cut their price target from $465 to $450. Yes, you read that correctly. They cut a price target that is nearly twice the current share price by only $15. Clearly, it was a publicity move rather than an actual downgrade. The average price target on Tesla is $288.

The analysts said Tesla's Model X was priced too high at $132,000 and they thought that would limit sales in 2016 to 20,000 units. Tesla said the current "Signature" models are fully priced because of the luxury trim and they would be rolling out some less expensive models in the coming months. Analysts claim the price is $10-$15,000 higher than expected and could cause some sticker shock. I believe anyone that was ready to write a check for $120,000 is probably not going to be deterred by an extra $12,000 because the trim is more luxurious than they expected.

The analysts cut their delivery estimates for the Model X in 2015 from just over 3,000 to 1,500 and down from 25,000 in 2016 to 20,000. Tesla delivered 2,400 cars in 2012 and another 22,480 in 2013. In 2014, they raised production to 31,800 and they are expected to deliver over 50,000 this year. Estimates for 2016 are for 80,000 cars.

Elon Musk said the debut of the Model X has caused a spike in orders for both the X and the S models. At last count, there were 32,000 Model X orders with $5,000 deposits. If Tesla is going to fall short on deliveries in 2016, it will be because of manufacturing problems rather than weak sales.

Disney (DIS) raised ticket prices again. The season passes are now over $1,000 and have blackout dates for busy periods. A new pass for $1,049 offers year-round access but has limited extra benefits. Another pass costs $849 with two weeks of blackout dates during the winter holidays. Individual single day passes are now $99, up from $50 ten years ago. Disney said the number of people that hold passes has risen +250% since 2001. Disney shares were flat for the day.


I was actually somewhat encouraged by the lack of a broad market crash today after the big gains on Monday. The S&P halted right at resistance at 1,990 on Monday and closed at 1,979 today. The various earnings disasters after the close only knocked the futures down about -5 points and they are recovering as I write this.

Given the dramatic moves in the biotech sector today we could have easily seen a material decline in the S&P. Instead, there was only a sharp decline at the open and then some cautious buying as the day progressed. It could have been a lot worse.

The S&P has not yet ventured into the strong band of resistance but it is close enough for a serious attack if buyers were to appear. Support appeared at 1,973 from yesterday morning and again today. That would be the initial line in the sand if we were to head lower. After Monday's huge spike on short covering, it could be a big drop if that initial support fails. The 1,900 level would be the next material support and that is a long way down.

The Dow was saved from negative territory by Du Pont and Chevron. Even Caterpillar got into the act with a $1.65 gain. Those three stocks accounted for 65 Dow points and the Dow closed up only +14.

The Dow punched through resistance at 16,666 on Monday and came to a stop at 16,750. That resistance held today despite the gains from those three stocks outlined above. A decent break above that level could attract some price chasing and additional short covering.

It was a miracle the Nasdaq did not decline more than 33 points. If you look at the size of the losses on the losers list below compared to the size of the gainers it is a serious mismatch. The majority of the losers were biotechs but there were a few odd stocks in the mix for variety.

The Nasdaq has resistance at 4,785 and 4,835. Support is well below at 4,700 and 4,565. The biotech implosion may not be over. The constant barrage of negative headlines is convincing investors that maybe the biotech bubble has finally burst for good. That could weigh on any attempted Nasdaq rebound this week.

The Russell 2000 ran into unexpected resistance at 1,140 and the biotech weakness turned into a major drag. The Russell declined almost exactly the same amount as the Nasdaq at -0.68% so there is nothing we can derive from its performance. It was not stronger or weaker and therefore not a signal.

The Dow Transports declined as expected given the big spike in oil prices. The 100-day average on the transports is now strong resistance and without some positive economic reports and weakening in oil prices, the path of least resistance is definitely lower.

I am somewhat encouraged by the lack of a significant decline after the biotech implosion and mostly negative earnings. However, ships can still sink in a calm sea. Futures are still down -5 at 8:PM ET but showing no signs of deterioration.

I would continue to be calm about adding new long positions until the resistance on the S&P has been broken or we return to the lows for another retest.

Sometimes the best trade is the one you do not make.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Underperforming Its Peers

by James Brown

Click here to email James Brown


AMAG Pharmaceuticals - AMAG - close: 38.84 change: -2.50

Stop Loss: 43.05
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 06, 2015
Time Frame: Exit PRIOR to earnings in late October
Average Daily Volume = 946 thousand
New Positions: Yes, see below

Company Description

Trade Description:
If you're looking for excitement then check out the biotech stocks. It has been a rough few months for the group. The IBB biotech ETF is down -25% from its July 2015 highs. AMAG has sprinted past its peers with a -49% plunge from its July peak. It is worth noting that the prior year (July 2014-July 2015) the stock was up more than +300%.

Here's a brief description of the company, "As a high-growth specialty pharmaceuticals company, AMAG Pharmaceuticals uses its business and clinical expertise to bring therapeutics to market that provide clear benefits and improve people's lives. Based in Waltham, Mass., AMAG has a diverse portfolio of products in the areas of maternal health, anemia management and cancer supportive care. AMAG continues to work to expand the impact of these and future products for patients by delivering on its aggressive growth strategy, which includes organic growth, as well as the pursuit of products and companies that align with AMAG's existing therapeutic areas or those that could benefit from its proven core competencies."

What makes AMAG different from most small biotech firms is that the company actually has sales. AMAG has seen strong revenue and margin growth. At the moment traders don't seem to care. Investors might be worried about competition. The FDA recently approved a generic version of AMAG's Makena treatment. Previously Makena (hydroxyprogesterone caproate) was the only drug approved by the FDA to reduce the risk of pre-term birth. This is bad news for AMAG since Makena represents 75% of its Q2 sales.

Now add more bad news with the biotech sell-off thanks to presidential hopeful Hillary Clinton tweeting about controlling drug prices to prevent price gouging. Plus there are new headlines about the Transpacific partnership (TPP) which is potentially bearish since it limits the exclusivity for new drugs on the market.

The biotech industry is under a lot of pressure and AMAG is underperforming its peers as investors sell the group. Technically AMAG has found short-term support in the $37.50-38.00 region the last few days. It looks like the stock is about to break down to new lows. Tonight we are suggesting a trigger to launch bearish positions at $37.40.

Please note that we want to use small positions to limit our risk. Trading biotech stocks is a risky business. The right or wrong headline can send an individual biotech stock gapping higher or lower. AMAG is definitely a higher-risk, more aggressive trade. There are already a lot of bears in the name. The most recent data listed short interest a 24.4% of the small 28.7 million share float. Investors could use AMAG options but the spreads are so wide the options are untradeable.

Trigger @ $37.40 *small positions to limit risk*

- Suggested Positions -

Short AMAG stock @ $37.40

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.

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Market Rebound Stalls

by James Brown

Click here to email James Brown

Editor's Note:
Asian and European stock markets continued to rally on Tuesday but the U.S. market saw its rally stall. The S&P 500 index broke a five-day winning streak.

GNC hit our stop loss.

Current Portfolio:

BULLISH Play Updates

Ingram Micro Inc. - IM - close: 28.31 change: +0.18

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: +1.7%
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

10/06/15: The relative strength in IM continued on Tuesday. Shares added another +0.6% and set a new multi-month high.

Investors may want to start raising their stop loss.

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

Mobileye N.V. - MBLY - close: 48.36 change: -0.64

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -2.8%
Entry on October 05 at $49.75
Listed on October 03, 2015
Time Frame: Exit prior to earnings in mid November
Average Daily Volume = 4.6 million
New Positions: see below

10/06/15: MBLY dipped toward the $47.50 area today before paring its losses. Shares did close down -1.3%, underperforming the major indices. I don't see any changes from my recent comments. Wait for a new rally past $50.00 before initiating bullish positions.

Trade Description: October 3, 2015:
The future of hands free driving is a lot closer than you might think. MBLY is leading the charge. Their technology is already in more than three million cars made by companies like BMW, General Motors, and Tesla.

What exactly does this technology do? DAS stands for driver assistance systems. Sometimes you might see it called ADAS for advanced driver assistance systems. This new technology helps drivers avoid collisions with other vehicles, pedestrians, bicyclists, and more while also alerting the driver to road signs and traffic lights.

The company website describes Mobileye as "a technological leader in the area of software algorithms, system-on-chips and customer applications that are based on processing visual information for the market of driver assistance systems (DAS). Mobileye's technology keeps passengers safer on the roads, reduces the risks of traffic accidents, saves lives and has the potential to revolutionize the driving experience by enabling autonomous driving."

MBLY said their technology will be available in 160 car models from 18 car manufacturers (OEMs). Further, Mobileye's technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016.

The company is already developing a system for autonomous driving or hands free driving. They currently plan to launch an autonomous system in 2016 that will work at highway speeds and in congested traffic situations.

MBLY stock came to market in August 2014. Demand was strong enough that they upped the number of shares available from around 27 million to 35.6 million shares. They raised the IPO price from the $22 range to $25. This valued MBLY at $5.3 billion. The first day of trading saw MBLY opened at $36.00. Two months later MBLY traded at $60.00.

It's easy to see why investors are optimistic on MBLY. Annual revenues have soared from $19.2 million in 2011 to $143.6 million in 2014. Their revenues last year rose +77% from 2013. Currently a poll of analysts by Thomson Reuters is forecasting sales to rise +50% in 2015 to $218.3 million. Earnings are forecasted to surge +95%.

MBLY's Q1 report was announced in May. Their Q1 earnings were $0.08 per share, which was a penny above estimates. Revenues were up +28% to $45.6 million, also above estimates.

Q2 results, announced August 6th, were better. Earnings were $0.10 a share, which was two cents better than expected. Revenues were up +56.7% to $52.8 million, above expectations.

Last year the New York Post ran an article discussing how the White House might generate a bullish tailwind for MBLY. The National Highway Traffic Safety Administration issued a research report that estimated ADAS type of technology could eliminate almost 600,000 left-turn and intersection crashes a year. They report also suggested that adding FCAM and lane departure technology on big vehicles like over the road trucks could reduce accidents with these huge vehicles by up to 25%. Following this report the White House said they would draft new rules that required this sort of tech in new vehicles.

A couple of weeks ago the U.S. Department of Transportation and IIHS announced that ten auto manufacturers had agreed to add autonomous emergency breaking to all new U.S. models as a standard feature. This should be a huge bonus for MBLY. The basic autonomous breaking system ranges from $120 to $350 per vehicle (FYI: the U.S. auto market is on pace to sell more than 18 million vehicles this year). MBLY has a history of winning 80 to 90 percent of ADAS contracts so this new push by the government and the auto industry's acceptance could mean billions to MBLY's bottom line going forward.

Naturally, with a high-profile, high-growth stock like MBLY there are critics. Bears point out that MBLY's valuations are sky high and they would be right. MBLY's trailing P/E is over 1,000 while it's forward P/E is about 65. Most of Wall Street seems bullish on MBLY as they can see the long-term growth outlook for MBLY. If this rally continues some of those shorts could panic and fuel a short squeeze. The most recent data listed short interest at 18% of the 163 million share float.

The stock looks ready to sprint higher after a healthy bounce off support. Tonight we are suggesting a trigger to launch bullish positions at $49.75. If triggered I would target a run into the $58-62 region. I am suggesting small positions as this is an aggressive, higher-risk trade. MBLY is a volatile stock. You may want to use the call options to limit your risk. More conservative traders may want to wait for MBLY to rally past $50.00 before initiating positions. Normally the $50.00 level would be round-number, psychological resistance. We're suggesting a trigger just below it since MBLY could move fast once it breaks out. It's worth noting that a rally past $50.00 will generate a new buy signal on the point & figure chart.

*small positions to limit risk* - Suggested Positions -

Long MBLY stock @ $49.75

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

Long NOV $55 CALL (MBLY151120C55) entry $2.30

10/05/15 triggered @ $49.75
Option Format: symbol-year-month-day-call-strike

Starbucks Corp. - SBUX - close: 58.69 change: -0.35

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 05, 2015
Time Frame: Exit
Average Daily Volume = 8.5 million
New Positions: Yes, see below

10/06/15: SBUX dipped to the $58.25 region intraday. Traders bought the dip twice, forming a mini double bottom near this area. While SBUX pared is loss to -0.59% on the session it looks like the stock is trading lower after hours (near $58.00).

Currently we are on the sidelines waiting for a breakout higher. Our suggested entry point is $59.55.

Trade Description: October 5, 2015:
SBUX has delivered a strong rebound off last week's lows. Once again the stock looks like a bullish candidate.

We recently traded SBUX as a bullish candidate. What follows is an updated play description:

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.

Technical Set Up

Traders bought the dip in SBUX at its rising 100-dma last week. The rebound has lifted SBUX to major resistance in the $59.00-59.30 area. A breakout here would mark new all-time highs. Tonight we are suggesting a trigger to launch bullish positions at $59.55. It is possible that the $60.00 level is round-number resistance so more conservative traders may want to wait for SBUX to close above $60.00 before initiating bullish positions.

We plan to exit prior to SBUX's earnings report in very late October. More aggressive investors might want to consider holding over the announcement.

Trigger @ $59.55

- Suggested Positions -

Buy SBUX stock @ $59.55

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

Buy the NOV $60 CALL (SBUX151120C60)

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

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

BEARISH Play Updates

Synchronoss Technologies - SNCR - close: 33.55 change: +0.08

Stop Loss: 35.75
Target(s): To Be Determined
Current Gain/Loss: -3.5%
Entry on October 01 at $32.40
Listed on September 30, 2015
Time Frame: Exit PRIOR to earnings in late October
Average Daily Volume = 603 thousand
New Positions: see below

10/06/15: SNCR spiked lower at the open but shares recovered. The stock rebounded higher the rest of the session but didn't make much progress after reaching positive territory on the day.

More conservative traders may want to tighten their stop loss. I am not suggesting new positions at this time.

Trade Description: September 30, 2015:
SNCR is a technology company with strong revenue growth and yet investors have been selling the stock anyway.

SNCR is considered part of the application software industry. According to the company, "Synchronoss Technologies, Inc., is the mobile innovation leader that provides cloud solutions and software-based activation for connected devices across the globe. The company's proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world."

SNCR has been consistently beating Wall Street's earnings expectations. The last three quarters in a row SNCR has delivered bottom line and top line growth above expectations. 2014's Q4 revenues were up +34.7%. 2015 Q1 sales rose +34.9% and Q2 sales rose +33.2%. Yet with strong results like these the stock is down -21.6% year to date and down -36% from its 2015 high.

Technically SNCR had been churning sideways in a wide consolidation pattern for months. It broke down from this consolidation in August when the broader market corrected lower. When the market produced a big bounce off its August lows SNCR did not participate.

Several days ago shares of SNCR collapsed on worries that they might lose their cloud-storage contract with Verizon (VZ). Several analysts defended SNCR and said the drop was a buying opportunity. Both SNCR and VZ said their contract has not changed and was good until 2018. Yet the oversold bounce from this story only lasted one day. Traders have been selling SNCR on every rally.

There is a risk that SNCR is a takeover target. Back in June and July there were rumors that SNCR was exploring a sale of the company. There were also stories that private equity might be interested in taking SNCR private. Yet this acquisition risk has not generated any new buying interest in the stock. Investors are bearish and the most recent data listed short interest at 17.7% of the 38.0 million share float. That's enough to raise the risk of a short squeeze.

Tonight I am suggesting small bearish positions if SNCR trades at $32.40 or lower. We want to use small positions to limit our risk. Investors might want to stick to put options to really limit risk.

- Suggested Positions - small positions to limit risk.

Short SNCR stock @ $32.40

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

Long NOV $30 PUT (SNCR151120P30) entry $1.90

10/01/15 triggered @ $32.40
Option Format: symbol-year-month-day-call-strike

iPath S&P500 VIX Futures ETN - VXX - close: 22.90 change: +0.26

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -4.9%
2nd position Gain/Loss: +21.1%
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

10/06/15: Stocks don't move in a straight line very long and neither do the volatility gauges. The VIX lost -0.7% but the VXX inched higher adding +1.1%.

We have less than two 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


GNC Holdings - GNC - close: 41.87 change: +0.36

Stop Loss: 42.25
Target(s): To Be Determined
Current Gain/Loss: -6.3%
Entry on September 30 at $39.75
Listed on September 29, 2015
Time Frame: Exit prior to earnings at the end of October
Average Daily Volume = 1.2 million
New Positions: see below

10/06/15: The short covering in GNC continued for a third day on Tuesday. The stock shot higher this morning and hit an intraday high of $42.59. Our stop loss was hit at $42.25. The $42.00 area should have been resistance. What is frustrating is that GNC looks like it could retreat lower tomorrow.

- Suggested Positions -

Short GNC stock @ $39.75 exit $42.25 (-6.3%)

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

NOV $37.50 PUT (GNC151120P37.5) entry $1.60 exit $0.80 (-50.0%)

10/06/15 stopped out at $42.25
09/30/15 triggered @ $39.75
Option Format: symbol-year-month-day-call-strike