Option Investor

Daily Newsletter, Wednesday, 10/21/2015

Table of Contents

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

Market Wrap

Bulls Struggling to Hold On

by Keene Little

Click here to email Keene Little
For the past week we've seen the major indexes chop their way marginally higher while running out of upside momentum. This follows a strong 3-week rally and it's looking like the bears might get a turn to play.

Today's Market Stats

The market has been refusing to sell off, especially after being lifted up from last week's low, but the rally has not been inspiring. The choppy push to minor new highs each day (again for the DOW today) has been met with bearish divergence and this has it looking like an ending pattern. Today's small break down looks like the first sign of the bears starting to get stronger.

The DOW was relatively stronger today as it was the only major index to make a new high, both this morning and again this afternoon, but it was not immune to an afternoon selloff that drove all indexes into the red. The RUT has been relatively weak the past several days and that was no different today as it led to the downside. Its relative weakness has been one of several warning signs for the bulls

There were no economic reports of significance this morning and it will be relatively quiet the rest of the week. The market has been more focused on earnings this week and while it hasn't been terrible, we're certainly not seeing barn-burning hot performance either. Many companies are still going into (cheap) debt in order to fund dividends and stock buybacks in an effort to show good earnings in a declining-revenue environment. This is especially true in the energy sector and all the debt they've accumulated is going to bite back soon. Without increasing revenue the clock is ticking...

Last week we saw a market save off following Wednesday's low, which led to a positive week for opex. As we know, opex weeks tend to be bullish but it was looking a little worrisome for bulls as of last Wednesday's close. But "someone" rescued the market, starting with buying in the futures market in the after-hours session, and another opex was saved. This week we've seen the market struggle to continue adding gains and as mentioned above, the buying surge last Thursday and Friday essentially stopped and this week the market has been more or less simply trying to hold up.

In case you think the bullish opex week is not true, a study done by Phoenix Capital Research shows it to be true. Wall Street banks, with help from Uncle Fed's money, tend to keep opex bullish so that their millions of dollars in sold puts expire into their accounts. The Fed, a private consortium of banks, taking care of itself. Who woulda thunk? The study by Phoenix shows the Fed's balance sheet over the past year expands on average about $10B during opex week and shrinks during non-opex week. Flood the banks with money during opex and shrink it back down during non-opex weeks -- we've seen this result consistently in the market. As Phoenix reported, "...this is during the period in which the Fed is NOT engaged in a QE program."

While the Fed is not pumping more money into the system, it has kep up its repurchase program and through selective timing it's been able to help the Wall Street banks during opex weeks. But while the Fed is not going further into debt, corporations have not yet slowed down adding debt to their balance sheets and it's starting to have a more negative impact now. The Wall Street Journal has reported that credit-rating agencies have been downgrading more U.S. companies than any other time since 2007-2009. Corporate debt levels have been climbing steadily higher compared to their cash flows and much of the debt has been used to buy back stock and continue dividends rather than invest it in new capital equipment/improvements. Analysts now expect profits at large companies to decline for a second straight quarter, which would be the first time since 2009. Just as ominous, trailing 12-month default rates on corporate bonds is on the rise, nearly doubling from 1.4% in July 2014.

Many of the credit downgrades and defaults are from the energy field but about two thirds of the downgrades are non-energy related. There's real concern about this "contagion" spreading out into stocks and other assets, especially since most participants in the stock market don't see it coming. As I'll mention with the first chart below, a credit crisis is looming and we're talking about individuals (think about the massive growth in student loans), corporations and governments that are far too much in debt. A collapse of the credit market will create a situation much worse than what we saw leading to the 2007-2009 stock market decline.

All of this is of course background stuff and it's anyone's guess when it will matter to the stock market, which most of us trade (instead of bonds, commodities and currencies). The best we have for predicting what will happen are the charts so with that, let's jump into them.

I want to start off tonight's chart review with a look at the market from 30,000 feet. Traders should feel as hypoxic at the market's current altitude as you'd feel at 30,000 feet without supplemental oxygen. The rally for SPX from 2009 managed to make it all the way back up to its broken uptrend line from 1990-2002, as can be seen on its monthly chart below. This follows the strong break of the trend line in 2008. But even with the significant new price high it's still showing bearish divergence compared to the 2000 and 2007 highs. From a macro view, one could easily time the market by simply staying long above the 12-month MA and flat/short below the MA. With this method you'd now be flat/short the market until we see a monthly close above the MA, currently near 2047.

S&P 500, SPX, Monthly chart with 12-month MA

Note the labels above each of the highs on the chart above for what they are -- a tech bubble into the 200 high, a housing bubble into the 2007 high and a Fed-inspired credit bubble into the 2015 high (cheap money has been misappropriated, including into riskier asset classes). As anyone who has studied markets knows, the popping of a credit bubble is always the worst one since it's highly deflationary, um I mean "disinflationary." It should be noted that since the 2009 low previous breaks of the 12-mma were met with the Fed starting another QE program. Will they save the market again? The trouble with that thought is that the market is beginning to understand the Fed is much less powerful than was thought back in 2010-2012.

Just as important a reason, if not more important, for why the Fed is hamstrung in its ability to start another QE program is as much political as anything else. Presidential primaries have started and one of the big sticking points for politicians is income/wealth inequality. Most politicians today talk about how they're going to correct it (Democrats, especially ultra-liberal Bernie Sanders, talk about higher taxes and income/wealth distribution, as has been supported by Obama) but the bottom line is that it's a real sore point with most Americans. And how do you think much of this disparity occurred? Cheap plentiful money going into riskier assets that are owned by the super rich, who have become super richer.

In this environment, can the Fed get away with another QE program? For the next year it's going to be very difficult for the Fed to make it easier for the rich to get richer without Congress and Presidential candidates feeling the intense heat from American voters. The Fed might not be political (cough) but you can bet they bend to the political winds. If the Fed is on the sidelines, other than continuing to keep liquidity in the system through its repurchase program, the stock market is going to have to figure out another reason why it should be as high as it is. With declining corporate revenues, and the resulting declining in P/E ratios (if not now then very soon), it's getting harder to justify the high stock prices. We now wait to see if the charts reflect some of these concerns.

SPX has made it up to what is likely to be tough resistance at price-level S/R at 2040-2045. SPX had cycled around this level from November 2014 through the end of January 2015 and then rallied above the level in February 2015. From there it held above this level, testing it in March and July as it chopped sideways for most of the year. This support level was then snapped with the strong decline in August, which trapped a lot of traders you were holding or bought into the rally since February. Many of these traders kicked themselves for not stopping out when that support level was broken and have vowed to get out once they can do so with minimal loss. This is what makes support turn into resistance -- traders do a lot of "thank you God" selling when the market comes back to the scene of the crime as they promise to never let that happen again (until next time).

SPX hit a high at 2039 yesterday, only a point below resistance, and with the market overbought through the daily timeframe, there's a good chance we'll see at least a pullback to regroup before heading higher (if it's to head higher). This week's new high and now a red candle could result in a bearish engulfing candlestick (key outside down week) if today's selling continues. The bearish setup here is that an a-b-c bounce correction off the August low will now lead to another leg down below the August low. Two equal legs down from July points to 1773 and then a little lower, near 1738, is its February 2014 low and the uptrend line from March 2009 - October 2011 (arithmetic price scale). It's obviously early, but I think that's where it will head next. The bulls need to see a rally above 2045 to turn this more bullish, but then it will run into potential trouble at its 50-week MA near 2060 (as well as its 200-dma at the same level).

S&P 500, SPX, Weekly chart

In addition to price-level S/R at 2040-2045 there is a downtrend line from July-August near 2040. With short-term bearish divergences over the past week as SPX pushes up against resistance I think the higher-odds play is the short side for at least a pullback before heading higher. As explained above, I think a short play here has the potential to make a lot of money with another strong drop into November/December but at the very least we should get at least a short-term pullback to play. If the pullback/decline starts down impulsively we'd then know to hold on for a bigger ride. But if it pulls back in a choppy corrective way then we'd know to play the short side for just a pullback and then get ready to buy it for another rally leg. At the moment I see little upside potential and big downside potential, hence a high reward vs. low risk potential with a short play.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2045
- bearish below 1990

The 60-min chart below shows yesterday's minor break of the uptrend line from September 29th and then a bounce back above it with this morning's quick high. A drop below price-level S/R near 2020 adds another reason why the top is likely in place. It's only a minor break so far (2019 close) and it could easily recover. A rally above 2038 would obviously point higher, in which case the 200-dma, near 2060, would be an upside target. But if the market breaks down further on Thursday I'd look for a decline to about 1990, a corrective bounce back up, maybe back up to 2020, and then a stronger decline into the end of the month.

S&P 500, SPX, 60-min chart

The DOW was the stronger index today and it was able to push slightly higher in the morning and then again in the afternoon while the other indexes struggled with lower highs. If the bulls can keep the rally going we could see the DOW push up to its 200-dma, currently near 17576, about another 400 points above today's close. But there are two things that I see as trouble for further gains: one, the DOW has now bumped up against its trend line along the highs from 2000-2007, which it broke back below in August, for what could be a bearish back-test. A return to the scene of the crime should result in a strong rejection of price; and two, the way it's been chopping marginally higher since October 16th has it looking more like an ending pattern, with bearish divergence, rather than something more bullish. Earlier today I had pointed out why a drop below 17200 this afternoon would create a sell signal, which it did into the close. Notice that today's candlestick is a bearish engulfing one at resistance, which is a result of the new high and lower close, which creates a key outside down day (a reversal pattern).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,300
- bearish below 16,887

The recent choppy move higher, easily seen on the SPX 60-min chart further above, looks like a distribution pattern as Big Money hands off inventory to the retail crowd. Once the selling starts to overwhelm the buying I think we'll see a sudden break to the downside. As shown on the daily chart above, the expectation is for another leg down below the August low following the completion of the a-b-c bounce off the August low. Not shown on the chart is the projection for another leg down that equals the May-August decline, which is at 14334 (almost 3000 points below today's high at 17315) if it starts down from here. That is close to the 50% retracement of the October 2011 - May 2015 rally, at 14378.

NDX made it up to the price projection at 4463, where the 2nd leg of its bounce off the August low is 62% of the 1st leg up and appears to be rolling over. But it still has a chance to stay bullish if it drops down to its 200-dma, near 4393, and uses it to launch another rally leg. Note that the Nasdaq is not as strong -- it rallied up to the same 62% projection but that was at its 200-dma, which it has been unable to break. The relative weakness in the COMPQ is a bearish warning sign for now.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4403
- bearish below 4329

The RUT tried hard to break through resistance at its downtrend line from June and its 50-dma, both now crossing price-level S/R near 1152. Today's close near 1145 follows the second attempt to rally above these lines of resistance this month. A rally above yesterday's high near 1170 would be the third attempt, which would likely work and that would open up the next upside target near 1190 for a back-test of its broken uptrend line from October 2011 - October 2014 (arithmetic price scale). But a drop below its October 15th low near 1135 would suggest the next decline has started, one which could see the RUT down near 1000, if not lower, in November.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1170
- bearish below 1135

Bonds have not been helping us figure out the direction of the stock market since they've been doing the sideways things for a couple of months. As can be seen on the TLT (20+ year Treasury bond ETF) daily chart below, it has been trapped inside a sideways triangle consolidation pattern since the June low and August high. I think it's building a bullish breakout pattern, which would not be confirmed until it breaks above the October 2nd high at 126.21, but I also recognize the potential to stay stuck inside a relatively tight trading range for at least another month. Notice too how TLT has been trading closely to its 20-, 50- and 200-dma's that are starting to group closely together. There's pressure building for a big move.

20+ Year Treasury ETF, TLT, Daily chart

I have occasionally shown a comparison between the stock market and HYG, the junk bond index (well, it's actually called the High Yield Corporate Bond fund). I've pointed out in the past the huge and widening gap between the stock market and HYG, which vividly shows how the risk-off trade is happening in the bond market (selling in HYG) while the stock market has continued higher, or held up this year. It's just another warning sign, one of many, for those who hold stock as the market holds up with steadily decreasing participation of stocks.

Below is another comparison with HYG but this time with LQD, which is an ETF composed of investment grade corporate bonds. The two ETF's have run mostly in synch for the past several years but started to diverge following the mid-year lows in 2013. HYG's bounce topped out in June 2014 while LQD went on to new highs in January 2015. In other words investment grade bonds were doing much better than junk bonds, indicating bond players were also taking risk off the table. The spread has continued to widen since January, which is just another sign that underneath the hood of the market, big players have been slowly decreasing their risk exposure while many TV pundits will tell you that this is a great time to buy risk (the stock market), with the belief the bull market has much higher to go. They could be right but that's not how I see it.

Investment grade bond fund (LQD) vs. Junk bond fund (HYG), Weekly chart

The U.S. dollar bounced off support last week, which is the top of a parallel up-channel from 2008-2011, currently near 93.85, and closed at its 50-week MA. I'm looking for another leg up into early November to complete a 3-wave move up from August and upside targets for the rally, assuming we'll get it, is first to its downtrend line from March-August, near 97 by the first of November, and then maybe up to 97.66 for two equal legs up from August. Once that's complete I'll then be looking for another leg down to the bottom of its descending wedge from March, perhaps finishing its pullback by the end of the year. That would then set up the next rally leg in 2016.

U.S. Dollar contract, DX, Weekly chart

Gold almost made a break for it last week but got slapped back down by gold bears. It had broken above its downtrend line from October 2012 - January 2015 and its 50-week MA, both near 1181, with a high at 1191.70 last Thursday. That high was only a few points shy of a projection at 1195.20 for two equal legs up from July. Last week's close was below resistance near 1181 and so far this week's red candle is pointing to a reversal into a decline that should take gold to new lows below the July low at 1072.30. A rally above 1195 would be more bullish.

Gold continuous contract, GC, Weekly chart

Oil has dropped back down to its broken downtrend line from September 1st for what could be another back-test. It had broken above the line on October 6th and then dropped back down to it for a back-test last Thursday. It bounced and is now back down for what could be another back-test. At the same time it is also back down to its 50-dma, currently near 44.91 (today's low was 44.86). A drop below its October 2nd low at 43.97 would obviously be a little more bearish, if only for a larger pullback, but for now it remains bullish into November with an expected rally up to 55-56 area before rolling back over.

Oil continuous contract, CL, Daily chart

Tomorrow will be a little busier for economic reports than it was this morning. Other than unemployment claims, we'll get some housing data (existing home sales, which is expected to be flat for September) and Leading Economic Indicators, which is expected to show slowing in September.

Economic reports and Summary


We had a good setup coming into this week for a completion of the 3-wave bounce off the August lows and with indexes up against significant resistance levels, and/or hitting price targets for the bounce, I liked the opportunity to play the short side. With the choppy climb marginally higher over the past week it's been frustrating trying to get an entry but I think today's rollover is a good sign for the bears. Short-term support and key levels were broken and while we could always see another surprise attack by the bulls, I think the odds are in favor of the bears here. Short with a stop just above today's highs should work and if not then watch for a continuation of minor new highs with bearish divergence as a reason to continue to look for a shorting opportunity. But if SPX can rally above 2045 I'd back away from the short side and watch to see if it can make it up to 2060 before considering another shorting opportunity.

The ECB will decide on Thursday whether or not to add to their 60 billion euro ($68B) monthly QE efforts. They haven't accomplished much for their economy (or stock market for that matter) but that might not stop them from trying more of the same failed monetary policies (what's that saying about insanity?). The recent decline of inflation into "disinflationary" territory (-0.1% was the last reading) could prompt further action but at the moment the consensus is that they'll stick with what they're doing. At any rate, it could prompt a bigger move in the stock markets.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Plays

One Too Many

by James Brown

Click here to email James Brown


XPO Logistics, Inc. - XPO - close: 26.89 change: -0.04

Stop Loss: 30.30
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 21, 2015
Time Frame: Exit PRIOR to earnings on November 4th
Average Daily Volume = 2.0 million
New Positions: Yes, see below

Company Description

Trade Description:
Sometimes you can have too much of a good thing. Wall Street loves deal making. Yet it seems that XPO, which has been snapping up smaller rivals, may have made one deal too many.

XPO is in the services sector. They are part of the transportation and freight services industry. According to the company, "XPO Logistics, Inc. (XPO) is a top ten global provider of cutting-edge supply chain solutions to the most successful companies in the world. The company provides high-value-add services for truck brokerage and transportation, last mile logistics, intermodal, contract logistics, ground and air expedite, drayage, global forwarding and managed transportation. XPO serves more than 30,000 customers with a highly integrated network of over 54,000 employees and 887 locations in 27 countries. XPO's corporate headquarters is in Greenwich, Conn., USA, and its European headquarters is in Lyon, France. The company holds an 86.25% controlling interest in Norbert Dentressangle SA." Read more at www.xpo.com

XPO has been on an acquisition spree as the company gobbled up smaller rivals over the last few years. On April 29th Wall Street applauded the news that XPO was buying French logistics company Norbert Dentressangle. Yet the rally quickly stalled and shares of XPO peaked a couple of weeks later. That proved to be the top.

XPO rolled over into a bearish trend of lower highs and lower lows. The mood on Wall Street changed when XPO announced they were buying trucking company Con-way (CNW) in September. The stock plunged to new lows for the year on the announcement. Wall Street could be worried about XPO's soaring debt levels to fuel its acquisition spree. Several analysts have lowered their price targets on XPO following the Con-way deal news.

Short interest in XPO is elevated. The most recent data listed short interest at 33% of the 83.3 million share float. Currently the momentum in shares of XPO favors the bears. The big oversold bounce from XPO's late September low has failed.

Shares look like they are coiling for another big drop. Due to the high amount of short interest I am labeling this an aggressive, higher-risk trade. Consider keeping your position size small to limit risk. Tonight we are suggesting a trigger to launch bearish positions at $26.65. This is a short-term trade. We'll exit prior to XPO's earnings in early November.

Trigger @ $26.65 *small positions to limit risk*

- Suggested Positions -

Short XPO stock @ $26.65

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

Buy the NOV $25 PUT (XPO151120P25) current ask $1.30
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 Close On Their Lows

by James Brown

Click here to email James Brown

Editor's Note:
Another session of disappointing earnings results helped push stocks lower. The major U.S. indices posted declines and closed near their lows for the day, which does not bode well for tomorrow morning.

LEN hit our entry trigger today.

Current Portfolio:

BULLISH Play Updates

Bitauto Holdings - BITA - close: 32.52 change: -0.87

Stop Loss: 29.90
Target(s): To Be Determined
Current Gain/Loss: -3.6%
Entry on October 13 at $33.75
Listed on October 07, 2015
Time Frame: Exit prior to earnings in mid November
Average Daily Volume = 946 thousand
New Positions: see below

10/21/15: BITA traded lower with a -2.6% decline. The stock is having trouble building on any rally attempts.

No new positions at this time.

Trade Description: October 7, 2015:
After a -75% plunge in BITA's stock price is all the bad news baked in? The stock hit a high of $95.00 in January 2015. When the U.S. stock market corrected in late August and spiked lower on August 24th, shares of BITA hit a low of $22.00. That's a -76% drop. Since then BITA appears to have found a bottom.

If you're not familiar with BITA they are a Chinese company. BITA is considered part of the technology sector. According to the company, "Bitauto Holdings Limited (BITA) is a leading provider of internet content and marketing services for China's fast-growing automotive industry. Bitauto manages its businesses in three segments: its advertising business, EP platform business, and digital marketing solutions business.

The Company's bitauto.com advertising business offers automakers and dealers a variety of advertising services through its bitauto.com website, which provides consumers with up-to-date new automobile pricing and promotional information, specifications, reviews and consumer feedback.

The Company's EP platform business provides web-based integrated digital marketing and customer relationship management (CRM) applications to new automobile dealers in China. The platform enables dealer subscribers to create their own online showrooms, list pricing and promotional information, provide dealer contact information, place advertisements and manage customer relationships to help them effectively market their automobiles to consumers.

The Company's taoche.com business provides listing services to used automobile dealers that enable them to display used automobile inventory information on the taoche.com website and partner websites. The Company provides advertising services to used automobile dealers and automakers with certified pre-owned automobile programs on its taoche.com website. The Company's digital marketing solutions business provides automakers with one-stop digital marketing solutions, including website creation and maintenance, online public relations, online marketing campaigns and advertising agent services."

The economic slowdown in China is major news and has been a market-moving headline for months. What investors might forget is that China is still growing. It's just the pace of growth is slowing down. That slowdown is very evident in the auto market. According to McKinsey & Company the Chinese auto market grew +24% between 2005 and 2011. Last year (2014) Chinese consumers bought 19.7 million cars. That looks like a short-term peak. After years of consistent growth the Chinese auto market will be lucky to hit low single-digit growth and might actually post a decline in sales.

Through August 2015 the Chinese auto market has only sold 12.78 million vehicles. September's numbers continued to sink with sales down -3.4% from a year ago. The full-year 2015 sales are on pace for a -2.6% decline. However, analysts are expecting growth in the Chinese auto market to slow down to +8% annually between now and 2020. That's still healthy, just slower than previous years.

Consumers are feeling the pinch with China's slowdown. Unfortunately an extremely volatile Chinese stock market this year has not helped consumer confidence. The good news is that the Chinese government is trying to stimulate their economy. Last month the government slashed their purchase tax on cars by 50% down to 5%. This new discount applies to cars with engines 1.6 liters or smaller. According to Bank of America that accounts for almost 70% of cars sold in China. Credit Suisse analysts believe this tax cut by the government could boost sales by three million units a year. The tax cut started on October 1st and lasts through the end of 2016.

Bearish investors on BITA could argue the stock is expensive. BITA does have a trailing P/E of 40. Yet bullish investors could argue that BITA is cheap with a forward P/E of 2.6. The company continues to see strong revenue growth.

BITA's last couple of quarters saw revenues surge +99.5% in Q1 and +92.5% in Q2. Management has been beating estimates on both the top and bottom line the last three quarters. The company is growing but they are trying to adjust to the economic slowdown. Management has lowered their guidance in two out of the last three quarters. Part of the problem is that last year was so good for the auto market the company faces really tough comparisons.

Their most recent earnings report was August 6th and BITA management lowered their earnings and revenue guidance. The company expects earnings per share to decline -25% to -32% from a year ago. They also expect sales growth to slow from the +92-95% range down to the +64-73% range. Yes, that's a big drop but it's still strong growth. Shares have already been punished for the lowered guidance. BITA fell -18% the very next day (August 7th).

The question I asked earlier was if all the bad news had already been priced into BITA's stock price? After spiking down to $22 in late August shares spent weeks consolidating sideways in the $25.00-28.00 region. This appears to have built a base which the stock is now bouncing from. The last several days has seen a change in the tone of trading with traders buying the dips. The point & figure chart is now bullish and forecasting at $49.00 target.

Today's intraday high was $33.59. Tonight we are suggesting a trigger to launch bullish positions at $33.75. Make no mistake, this is a higher-risk, more aggressive trade. Chinese stocks can be volatile. If this rally continues BITA could see some short covering. The most recent data listed short interest at nearly 10% of the small 20.3 million share float. I am suggesting small positions to limit risk or use the call option to limit risk.

*small positions to limit risk*- Suggested Positions -

Long BITA stock @ $33.75

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

Long NOV $35 CALL (BITA151120C35) entry $2.50

10/13/15 triggered @ $33.75
Option Format: symbol-year-month-day-call-strike

Ingram Micro Inc. - IM - close: 28.77 change: -0.25

Stop Loss: 27.85
Target(s): To Be Determined
Current Gain/Loss: +3.3%
Entry on September 09 at $27.85
Listed on September 8, 2015
Time Frame: Exit prior to earnings on October 29th
Average Daily Volume = 1.0 million
New Positions: see below

10/21/15: It was a volatile day for shares of IM. The stock rallied at the open, likely a reaction to last night's acquisition news. Shares traded above resistance near $29.50 and hit new 2015 highs. However, the rally didn't last and IM plunged back toward the bottom of its recent trading range to close with a -0.8% loss on the day.

Today's trading looks like a potential bearish reversal. More conservative investors may want to exit immediately.

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

10/15/15 new stop @ 27.85
10/07/15 new stop @ 27.45
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

Intra-Cellular Therapies, Inc. - ITCI - close: 43.37 change: -0.55

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: -5.0%
Entry on October 12 at $45.10
Listed on October 10, 2015
Time Frame: Exit prior to earnings in November
Average Daily Volume = 850 thousand
New Positions: see below

10/21/15: A big drop in shares of Valeant Pharmaceuticals (VRX) weighed on healthcare and drug-related stocks today. ITCI dipped to $41.18 before paring its loss to -1.2%.

No new positions at this time.

Trade Description: October 10, 2015:
Biotech stocks had a terrible third quarter with the group down almost -18%. ITCI was an exception with shares up +25% and that's after some serious profit taking from its mid-September highs. The story for ITCI might be strong enough that shares could ignore further weakness in the group.

You may not be familiar with ITCI since they have been a public company for less than two years. Here's a brief description of the company, "Intra-Cellular Therapies is developing novel drugs for the treatment of neuropsychiatric and neurodegenerative diseases and diseases of the elderly, including Parkinson's and Alzheimer's disease. The Company is developing its lead drug candidate, ITI-007, for the treatment of schizophrenia, bipolar disorder, behavioral disturbances in dementia, depression, and other neuropsychiatric and neurological disorders. ITI-007, a first-in-class molecule, is in Phase 3 clinical development for the treatment of schizophrenia. The Company is also utilizing its phosphodiesterase platform and other proprietary chemistry platforms to develop drugs for the treatment of Central Nervous System (CNS) disorders and other disorders."

It is their lead drug candidate, ITI-007, that fueled huge gains in the stock last month. Here's an excerpt from ITCI's website, "ITI-007 is in Phase 3 clinical trials as a first-in-class treatment for schizophrenia. Current medications available for the treatment of schizophrenia do not adequately address the broad array of symptoms associated with this CNS disorder. In addition, use of these current medications is limited by their substantial side effects. ITI-007 is designed to be effective across a wider range of symptoms, treating both the acute and residual phases of schizophrenia, with improved safety and tolerability." (If you would like more details check out their press release here.

Schizophrenia is a serious mental illness that affects more than 70 million people worldwide. The stock more than doubled on news of its successful Phase 3 clinical trial with shares surging from $26 to almost $60 in two days. That's because ITI-007 would be the first treatment for schizophrenia without significant side effects. Analysts are estimating that potential sales for ITI-007 could reach $6 billion a year in the U.S. and EU if approved by the FDA (and its European counterpart).

ITCI is also investigating if the treatment could help other mental illnesses like dementia, depression, and bipolar disorders.

The company's management was quick to capitalize on the good news. They issued a secondary offering of 6.9 million shares at $43.50 a share (about $300 million). Demand was strong enough that they sold 7.93 million shares and raised $345 million. They already had $204 million in cash. Together that bumps their war chest up to more than $500 million.

Gravity eventually took over and shares of ITCI retreated from $60 to $35 but investors have started buying the dips. Now ITCI is building on a bullish trend of higher lows. Shares appear to have short-term resistance at the $45.00 level. A breakout above $45.00 could be our entry point to hop on board the next leg higher.

Regular readers know that we consider biotech stocks aggressive, higher-risk trades. The right or wrong headline can send a stock soaring. ITCI is a great example with shares exploding higher on positive headlines in September. Tonight we are suggesting small bullish positions if ITCI can trade at $45.10. We will tentatively plan on exiting prior to ITCI's earnings report in early November.

(small positions to limit risk) - Suggested Positions -

Long ITCI stock @ $45.10

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

Long NOV $50 CALL (ITCI151120C50) entry $3.80

10/12/15 triggered @ $45.10
Option Format: symbol-year-month-day-call-strike

Lennar Corp. - LEN - close: 52.09 change: +0.27

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: -0.3%
Entry on October 21 at $52.25
Listed on October 20, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 2.8 million
New Positions: see below

10/21/15: LEN displayed some relative strength on Wednesday. The stock broke through resistance near $52.00 and gained +0.5% in spite of the market's widespread weakness. Our trigger to launch bullish positions was hit at $52.25.

Trade Description: October 20, 2015:
Rents are soaring. Mortgage rates are low. The labor market is relatively healthy. This has been fueling a stable environment for the homebuilders. The latest National Association of Homebuilders sentiment index hit ten-year highs. The September reading for the NAHB index was 64. That was above the 62 estimate and a level not seen since October 2005.

David Crowe is the NAHB Chief Economist. According to Crowe, "This upward momentum shows that our industry is strengthening at a gradual but consistent pace. With firm job creation, economic growth and the release of pent-up demand, we expect housing to keep moving forward as we start to close out 2015."

LEN is in the industrial goods sector. According to the company, "Lennar Corporation, founded in 1954, is one of the nation's largest builders of quality homes for all generations. The Company builds affordable, move-up and retirement homes primarily under the Lennar brand name. Lennar's Financial Services segment provides mortgage financing, title insurance and closing services for both buyers of the Company's homes and others. Lennar's Rialto segment is a vertically integrated asset management platform focused on investing throughout the commercial real estate capital structure. Lennar's Multifamily segment is a nationwide developer of high-quality multifamily rental properties."

Earnings have been improving. LEN reported their Q2 results on June 24th. Results were $0.79 a share, which was 15 above estimates. Revenues soared +31.6% to $2.39 billion, above estimates. Home deliveries were up +21%. New orders were up +18%. Their backlog of homes rose +18%.

These bullish trends continued in LEN's fiscal third quarter. The company reported on September 21st. Earnings were $0.96 per share, which was 17 cents above estimates. Revenues were up +23.7% to $2.49 billion, also better than expected. Deliveries rose +16%. New orders were up +10%. The number of homes in the backlog rose +13% (to 8,250) while the value of their backlog surged +22%.

The stock has been consolidating sideways the last few months but LEN appears to be bouncing off its long-term up trend. The current bounce is testing short-term resistance at $52.00. Tonight we are suggesting a trigger to open bullish positions at $52.25. This is a multi-week trade that could last the rest of the year.

- Suggested Positions -

Long LEN stock @ $52.25

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

Long 2016 JAN $55 CALL (LEN160115C55) entry $1.88

10/21/15 triggered @ $52.25
Option Format: symbol-year-month-day-call-strike

Mobileye N.V. - MBLY - close: 47.22 change: +0.19

Stop Loss: $46.45
Target(s): To Be Determined
Current Gain/Loss: -5.1%
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

10/21/15: MBLY did not see any follow through on yesterday's sell-off. The stock managed a little oversold bounce and added +0.4%. I am suggesting caution. The rebound today struggled with new resistance in the $48.00 area. If the broader market accelerates lower tomorrow I suspect MBLY will hit our stop loss at $46.45.

No new 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

10/19/15 Traders keep selling the breakouts past $50.00
10/15/15 MBLY looks ready to breakout past resistance at $50.00
10/12/15 new stop @ 46.45
10/05/15 triggered @ $49.75
Option Format: symbol-year-month-day-call-strike

Starbucks Corp. - SBUX - close: 60.53 change: -0.35

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +1.6%
Entry on October 08 at $59.55
Listed on October 05, 2015
Time Frame: Exit prior to earnings on October 29th
Average Daily Volume = 8.5 million
New Positions: see below

10/21/15: The big story for SBUX today was a negative ruling by an EU commission. Regulators in Europe found that SBUX illegally benefited from tax breaks in the Netherlands. This is a non-event for SBUX. The proposed penalty, is to pay back the tax breaks, up to $34 million, which is a trivial amount for a giant like SBUX.

No new positions at this time. We plan to exit prior to earnings on Oct. 29th.

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.

- Suggested Positions -

Long SBUX stock @ $59.55

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

Long NOV $60 CALL (SBUX151120C60) entry $1.96

10/08/15 triggered @ $59.55
Option Format: symbol-year-month-day-call-strike

Wayfair Inc. - W - close: 44.96 change: -0.42

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: + 9.3%
Entry on October 16 at $41.15
Listed on October 15, 2015
Time Frame: Exit PRIOR to earnings on November 10th
Average Daily Volume = 1.1 million
New Positions: see below

10/21/15: W held up pretty well today. Shares dipped to $43.98 intraday and pared its loss to -0.9%, which essentially erased yesterday's gains.

No new positions at this time. More conservative traders may want to move their stop closer to $42.00 instead.

Trade Description: October 15, 2015
W displayed relative strength today and just closed above resistance. Shares could be poised for some serious short covering.

According to the company, "Wayfair Inc. offers an extensive selection of home furnishings and decor across all styles and price points. The Wayfair family of brands includes:

Wayfair.com, an online destination for all things home
Joss & Main, an online flash sales site offering inspiring home design daily
AllModern, a go-to online source for modern design
DwellStudio, a design house for fashion-forward modern furnishings
Birch Lane, a collection of classic furnishings and timeless home decor
Wayfair is headquartered in Boston, Massachusetts, with additional locations in New York, Ogden, Utah, Hebron, Kentucky, Galway, Ireland, London, Berlin and Sydney."

Shares of W came to market with an IPO in October 2014 and priced at $29.00. They opened at $36.00 and spiked up to $39.43 on the first day of trading. The IPO excitement faded and shares didn't find a bottom until about $17.00 in December 2014.

Revenue Growth

The company seems to be growing at a tremendous pace. Their first earnings report as a public company was November 10th, 2014. Revenues soared +41.7% to $336.2 million. Their direct retail business surged +57%. W said their gross profit was $79.0 million versus $58.6 million a year ago.

Additional 2014 Q3 highlights included the number of active customers for their direct retail business rose +61% to $2.9 million year over year. Their LTM Net revenue per active customer increase $342 or +8.6% year over year and +3.0% from the second quarter of 2014.

W reported their Q4 results on March 4, 2015. The company delivered a loss of ($0.18) per share, which was 10 cents better than expected. Revenues were up +38.4% to $408.6 million, above expectations. Management raised their Q1 guidance significantly above Wall Street estimates.

The company beat expectations again with their Q1 report on May 11th. Results were a loss of ($0.23) per share. Revenues accelerated with a +52% gain to $424.4 million.

The earnings beats kept coming when W reported its Q2 results on August 12th. Analysts were forecasting a loss of ($0.29) per share on revenues of $438.4 million. Wayfair delivered a loss of ($0.15) per share. Revenues roared +66.5% to $491.8 million. Management said their number of active customers was up +53.5% from a year ago to four million. Repeat customer orders hit 56%. Orders delivered shot up +80%.

Big Potential

Following their Q1 results back in May the company's CEO talked about their future. On their Q1 conference call the CEO noted that their potential markets are huge. Estimates suggest that spending in their industry will hit $264 billion in the U.S. and $308 billion in Europe by 2018 (a combined total of $572 billion market).

Bears will argue that W's valuations are outrageous. They're probably right. The recent rally in the stock has bumped the company's market cap to $3.6 billion. At the same time analysts are expecting W to operate at a loss for the next two fiscal years. On a short-term basis the market doesn't seem to care about W's valuation. If this rally continues W could see a short squeeze.

A few months ago in an interview one of the co-founders said that together the two co-founders own between 40% and 50% of the stock. The current float is only 30.2 million shares, which is relatively small. The most recent data listed short interest at 79% of the float.

Shares of W have been consolidating sideways beneath resistance at the $40.00 level for about two weeks. Today shares displayed relative strength with a +3.0% gain and a close above resistance. Tonight we are suggesting a trigger to launch bullish positions at $41.15 (hopefully W does not gap too far past our trigger tomorrow). We will plan on exiting prior to W's earnings report on November 10th.

- Suggested Positions -

Long W stock @ $41.15

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

Long NOV $45 CALL (W151120C45) entry $2.80

10/20/15 new stop @ 39.85
10/16/15 triggered @ $41.15
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

AMAG Pharmaceuticals - AMAG - close: 36.37 change: +1.30

Stop Loss: 41.05
Target(s): To Be Determined
Current Gain/Loss: +2.8%
Entry on October 08 at $37.40
Listed on October 06, 2015
Time Frame: Exit PRIOR to earnings in late October
Average Daily Volume = 946 thousand
New Positions: see below

10/21/15: After yesterday's big breakdown shares of AMAG managed a bounce today. The stock gained +3.7%. Broken support near $37.50 should be new resistance. It's probably no coincidence the rebound today stalled at $37.29.

No new positions at this time.

Trade Description: October 6, 2015:
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.

*small positions to limit risk* - Suggested Positions -

Short AMAG stock @ $37.40

10/20/15 AMAG breaks down below support with a drop to new 2015 lows
10/17/15 new stop @ 41.05
10/10/15 new stop @ 42.05
10/08/15 triggered @ $37.40

GNC Holdings - GNC - close: 40.23 change: -0.46

Stop Loss: 42.55
Target(s): To Be Determined
Current Gain/Loss: -0.8%
Entry on October 14 at $39.90
Listed on October 13, 2015
Time Frame: Exit prior to earnings at the very end of October
Average Daily Volume = 1.2 million
New Positions: see below

10/21/15: So far, so good with our GNC trade. Shares lost -1.1%. I would still consider new bearish positions now at current levels. Keep in mind this is a short-term trade. I suspect we'll close it in the next week or two.

Trade Description: October 13, 2015:
We want to take another swing at GNC. The bearish story for the stock has not changed and the oversold bounce has reversed.

Here's an updated 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 -13.1% 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 the oversold bounce just failed near resistance in the $43.00 area. The point & figure chart is bearish and forecasting at $33.00 target. Tonight I am suggesting a trigger to launch bearish positions at $39.90.

This is a short-term trade. GNC has earnings coming up at the very end of October or early November. We plan to exit prior to the announcement.

- Suggested Positions -

Short GNC stock @ $39.90

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

Long NOV $40 PUT (GNC151120P40) entry $2.10

10/14/15 triggered @ $39.90
Option Format: symbol-year-month-day-call-strike

Hanesbrand Inc. - HBI - close: 28.01 change: +0.24

Stop Loss: 29.15
Target(s): To Be Determined
Current Gain/Loss: -2.4%
Entry on October 20 at $27.35
Listed on October 19, 2015
Time Frame: Exit PRIOR to earnings (see below)
Average Daily Volume = 3.4 million
New Positions: see below

10/21/15: It was another volatile session for shares of HBI. The stock rallied toward short-term resistance at its 10 and 20-dma and then reversed. HBI settled with a +0.8% gain. I would watch for a new drop below $27.75 as our next bearish entry point.

Trade Description: October 19, 2015:
The long-term rally in HBI may have peaked. The stock surged more than +500% from the beginning of 2012 to its 2015 highs near $34.50. Now momentum has reversed.

HBI is in the consumer goods sector. According to the company, "HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in the Americas, Europe and Asia under some of the world's strongest apparel brands, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die/Nur Der, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company's low-cost global supply chain."

The upward momentum in shares of HBI had stalled in March this year. Shares tried and failed to breakout past the $34.50-35.00 zone several times between March and July. Then on July 30th HBI reported its Q2 earnings. Profits came in at $0.50 a share, which was in-line with estimates. Revenues were up +13.4% to $1.52 billion yet that missed estimates of $1.57 billion. Management provided soft guidance for the rest of 2015. The stock plunged the next two days.

Since their disappointing guidance in July investors have been selling the rallies in HBI. That has not stopped Wall Street from defending it. 12 of the 13 analyst firms that cover HBI are bullish on the stock. On September 17th shares of HBI popped after Goldman Sachs upgraded shares and gave it at $40 price target. Unfortunately for bullish investors the Goldman pop failed at resistance. Shares have continued to sink and now they're accelerating lower.

The weakness in HBI is a little bit surprising. The new TransPacific Partnership deal should be positive for apparel makers like HBI. Plus there was recent news that cotton prices are expected to decline through the rest of this year and into 2016. Traders don't seem to care about these potentially bullish tailwinds for HBI. The stock displayed significant relative weakness today with a -4.4% decline.

The market might be worried about HBI's relationship with Wal-Mart (WMT). Last week WMT surprised Wall Street by significantly lowering their earnings guidance. Now WMT is pressuring its suppliers, which could squeeze margins for companies like HBI. That's significant since WMT accounts for over 20% of HBI's sales.

Technically HBI is bearish. Shares have created a big bearish double top on the weekly chart (see below). More recently the rally attempts have failed at resistance near the 200-dma. The point & figure chart is bearish and forecasting at $20.00 target.

Today's low was $27.45. Tonight we are suggesting a trigger to launch bearish positions at $27.35. Please note that this is a short-term trade, which will probably last two or three weeks. HBI is due to report earnings in very late October or early November. There is no confirmed date yet but we plan to exit prior to HBI's announcement.

- Suggested Positions -

Short HBI @ $27.35

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

Long NOV $26 PUT (HBI151120P26) entry $0.65

10/20/15 triggered @ $27.35
Option Format: symbol-year-month-day-call-strike

CarMax Inc. - KMX - close: 57.30 change: +0.35

Stop Loss: 57.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.8 million
New Positions: Yes, see below

10/21/15: KMX managed another bounce today (+0.6%). It is the stock's third gain in a row. If shares do not cooperate soon we'll remove it as a candidate. Our suggested entry point is $54.75.

Trade Description: October 17, 2015:
Auto sales in the United States are surging and hit 10-year highs. So why are shares of KMX, a huge auto dealer, down -25% from its 52-week high?

KMX is in the services sector. According to the company, "CarMax, a member of the Fortune 500 and the S&P 500 and one of the Fortune '100 Best Companies to Work For' for 11 consecutive years, is the nation's largest retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 153 used car stores in 76 markets. The CarMax consumer offer features low, no-haggle prices, a broad selection of CarMax Quality Certified used vehicles and superior customer service. During the fiscal year ended February 28, 2015, the company retailed 582,282 used vehicles and sold 376,186 wholesale vehicles at its in-store auctions."

The major auto manufacturers report their vehicle sales every month. In early October they reported their September car sales and for the industry September sales were up a whopping +16% from a year ago. This has boosted the seasonally adjust annual rate (SAAR) for U.S. auto sales to 18.2 million, a ten-year high.

The Federal Reserve has kept their main interest near zero for years. Low interest rates have generated a boom in auto loans. Depressed oil prices have kept gasoline prices low. The combination has fueled huge consumer demand. Now that the Fed is looking to raise rates we could be near a potential peak in U.S. car sales. Analysts are starting to worry about consumer credit contraction in the auto space. As rates go up consumers can afford less car for the money and dealers make fewer sales.

Shares of KMX peaked in early April after Wall Street reacted to the company's 2014 Q4 earnings report. KMX beat estimates by five cents and revenues were up +14% to $3.51 billion, which was essentially in-line with estimates. Since that report KMX's sales have actually struggled to keep up with expectations.

Their 2015 Q1 report, announced in June, saw KMX beat the EPS estimate by one cent while revenues only rose +7% and missed expectations. Their Q2 report, announced September 22nd, beat the bottom line by three cents. Revenues rose +7.9% but again missed analysts' estimates.

Oppenheimer recently downgraded the stock. They see short-term headwinds for KMX. Plus the company is facing really tough comparisons to the second half of their fiscal 2014, which will be hard to beat.

Technically KMX is in a bearish trend of lower highs and lower lows. Investors have been selling the rallies. Now the stock is testing support in the $55.00-56.00 zone. Tonight we are suggesting a trigger to launch bearish positions at $54.75.

Trigger @ $54.75

- Suggested Positions -

Short KMX stock @ $54.75

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

Buy the 2016 Jan $50 PUT (KMX160115P50)

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

iPath S&P500 VIX Futures ETN - VXX - close: 20.29 change: +1.34

Stop Loss: None, no stop at this time.
Target(s): $16.25
Current Gain/Loss: + 7.0%
2nd position Gain/Loss: +30.1%
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

10/21/15: The stock market's widespread drop today fueled a big bounce in the volatility indices. The VIX rallied +6.0%. The VXX surged +7.0%.

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

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

Short the VXX @ $29.01

10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
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