Option Investor

Daily Newsletter, Monday, 10/26/2015

Table of Contents

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

Market Wrap

Gearing Up For A Big Week

by Thomas Hughes

Click here to email Thomas Hughes
The market held steady near two month highs at the start of a big week; FOMC, GDP and a massive round of earnings are all on tap.


The market held steady today, trading just below the two month highs set last week, in a quiet session. There is a going to be a lot of information to hit the market this week, all with the power to move the market, but little was released today. Top of the list is the FOMC meeting and policy release scheduled for Wednesday afternoon. There is little expectation for a rate hike at this time but once again the market will be hanging on every nuance in the statement in search for clues as to when a rate hike might come. Soft manufacturing data and low-to-no inflation could keep them from hiking for several more meetings.

The first estimates for 3rd quarter GDP come out on Thursday. Consensus is in a range between 1.5% and 2.5% with some estimates as high as 3.5%, down from 3.9% in the 2nd quarter. Full year estimates are still in a tight range around 2.5% as well. Along with the FOMC and the GDP this is also the heaviest week for S&P 500 earnings; 167, more than 33%, of S&P 500 companies report this week.

Market Statistics

International markets were quiet today as well. Most Asian indices closed in the green, although gains were small. The Nikkei led with an increase of 0.65%. In Europe trading was much the same although there was a higher percentage of indices closing with small losses. The euporia caused by Mario Draghi's has either already worn off or traders are waiting to see how the FOMC policy statement affects overall outlook.

Futures trading on US indices was flat throughout the early pre-market session. There were no economic releases before the opening bell, and no headline inducing earnings reports, to drive trading. After the open the market fell to a low near -0.5% from Friday's open and then proceeded to trade sideways in a narrow range the rest of the day and into the close of trading.

Economic Calendar

The Economy

There were no economic releases before the bell but there was one after the bell worth taking note of, New Home Sales. New Home Sales frell -11.5% in September from the previous month to an annualized rate of 468,000. This is well below the expected 550,000 predicted by economists. The previous month was revised lower from the original 552,000 to 529,000. This number is definitely on the weak side, and not consistent with strength in other areas of the housing market. Existing Home Sales, reported last week, was strong and above expectations.

There is a fair amount of data coming out this week aside from the FOMC meeting and the GDP esimate. Tomorrow is Durable Goods, Case-Shiller 20 City Index and Consumer Confidence. Wednesday is of course the FOMC announcement. Thursday is Jobless Claims, GDP and Pending Home Sales. Friday is Personal Income and Spending, Employment Cost Index, Chicago PMI and Michigan Sentiment.

Moody's Survey Of Business Confidence declined another full point to 36.3. This is now the 8th week of decline and a new low for the index. According to Mark Zandi's summary the index shows a notable decline from the summer highs, driven by uncertainty over China and the slump in emerging markets. He notes that expectations for the future have had the largest decline, as well weakening in labor. Despite the decline the index remains at high levels relative to its history so the two month downtrend needs to be taken in perspective.

According to FactSet 173 S&P 500 companies have reported earnings so far this season. Of those 77% have beaten earnings expectations, above average, while only 43% have beaten on the revenue side, below average. The blended rate is now -3.8%, an increase of 0.6% from last week driven by better than expected performance in 8 of the 10 sectors. Energy leads declines and is performing below expectations. Ex-energy earnings growth is now 3.5%. Two negative trends that have developed are the impact of foreign exchange, an impact likely to continue into the coming quarters, and emerging evidence of wage inflation.

Fourth quarter expectations continue to decline. Since last week they have declined to -2%, from -0.9%. This is a negative for forward outlook but remains an improvement from the current quarter with the possibility of positive growth possible, and positive growth expected in the 1st quarter of 2015. Based on the four year average, if the 4th quarte season starts at -2%, we could expect final quarter earnings growth to rise as much as 4%. Ex-energy 4th quarter growth is estimated at 3.97%.

The Oil Index

Oil prices slid again today, dropping another -1.35% to fall below $44 per barrel for WTI. Prices for WTI settled at a two month low and could go lower unless something besides hope of lower production next year materializes to support them. Storage levels are at high levels, along with on-going over production on a global scale, with declining demand growth expectations. Oil prices could easily break down from this level unless a bullish catalyst emerges, with downside target near $40.

The Oil Index fell more than -2.25% in today's session to come slamming down to near term support. The index is now trading at a 3 week low, just above my support line at 1,175. The indicators are consistent with a possible break below this support level so it will need to be closely watched with close stops in place. A break below this level could take the index as low as 1,100 or 1,050. Earnings, as well as earnigns outlook, will be the big driver, the major integrated oil companies report later this week. This quarter could see them come in a little worse than expected, with possible lowered expectations for next quarter due to the recent fall in oil prices.

The Gold Index

Gold prices held steady below $1165 today. Prices were supported by a slight weakening in the dollar but that weakening is small relative to a 2 month high in the Dollar Index and only a two week low in gold. Without inflation present the only thing to support gold prices is anticipated Fed dovishness which might not be enough with QE raging around the world. The dollar is on the rise and likely going higher, supported by the ECB's QE talk last week, possible additional QE in Japan and the FOMC which is supposedly on track to hike rates as soon as this year. Regardless of when the Fed acts, world currencies and the dollar are on diverging paths that should send gold prices lower, possibly as low as $1100.

The gold miners fell in today's session but remain within recent trading ranges. The Gold Miners ETF GDX lost more than -3% but remain within a recent congestion band near the 100% retracement line. The indicators are weak but the index remains above the short term moving average and support so could be setting up for a move higher. The caveat is that gold prices could be driven lower by diverging central bank policy and take the miners with them. A break below the current support levels near $15.50 could take the ETF down to the late summer lows near $13.

In The News, Story Stocks and Earnings

Duke Power hit the news in the early hours, but not for earnings. The large southern based energy supplier announced it's intent to purchase Piedmont Natural Gas for $4.9 billion dollars. The deal would add over 1 million new natural gas customers to Dukes already vast range. The deal is worth $60 per share to shareholders and an assumption of debt by Duke. The per share price is a 40% premium to last week's closing prices for Piedmont. Shares of Duke popped in the ealry pre-market session but sold off during the day, losing a little more than -2%.

Broadcom reported after the bell. The broad band technology leader reported earnings that were above estimates on light revenue. Adjusted eps of %$0.73 is nearly a nickel better than last year at this time but came on light revenue. Shares lost more than -3% during the day but tried to rally in after hours trading. Some gains were made but nowhere near enough to recover the days losses.

Rent A Center reported after the bell as well. The rental company reported light revenue but beat on the bottom line by 2 cents. The problem was with forward guidance which is below consensus. The company guided the fourth quarter to $0.52 to $0.62 per share, with full year earnings of $2.10. Consensus was closer to $0.70 per share with full year earnings near $2.25. Shares of the stock got hit hard on the news and fell more than 20% in after hours trading.

The Cheesecake Factory reported $0.52 per share, in line with expectations. The results come on the back of a 2.2% increase in comp store sales and the opening of 6 new stores so far this year. The restaurant chain also announced the opening of as many as 5 new stores during the present quarter. Shares of the stock responded by falling nearly -5% in after hours trading.

The Indices

The indices held steady in today's trading as the market gears up for what could be the most active week of the earnings season. Not only are there 167 earnings reports the FOMC meeting is on the way, as well as the first read on 3rd quarter GDP. Today's action was led by the NASDAQ Composite, the only index to post a gain in today's trade, 0.06%. The tech heavy index created a very small spinning top candle just below resistance targets at 5,050. The indicators continue to climb, consistent with further testing of resistance and possible break through. MACD momentum is makig a new high relative to the current rally with stochastic confirming with a bullish crossover high in the upper signal zone. A break above this level could take the indes as high as the current all time high, near the bottom of the up trend-line broken in August and the 5,225 level.

The Dow Jones Industrial Average made the smallest decline in today's session, only -0.13%. The blue chips created a small bodied spinning top candle just above resistance targets broken last Friday. The indicators are rising, consistent with the break of resistance, but also divergent relative to the 2 month high, suggestive of a weakening rally. Regardless, the index is indicated higher at this time with potential upside target near 18,000 and the bottom of the previously broken up trend line.

The Dow Jones Transportation Average made the second smallest decline in today's session, -0.16%. The transports created a small spinning top candle, just above last week's broken resistance targets at 8,280, with mixed indicators. Momenutm is bullish, and rising with today's action, but declining relative to the current rally. Stochastic is bullish in the nearest term but consistent with resistance at the current levels. This could lead to further upside but any move above next resistance is highly questionable without positive catalyst.

The S&P 500 is today's laggard. The broad market shed -0.19% in today's session and created a small bodied candle. Today's action was within a tight range, between closely packed support/resistance lines within a long term congestion zone. The indicators are bullish and pointing to continued testing of resistance but have weakenend and could lead to a retest of support. There are weak support targets near 2,060 and 2,050 with a stronger one near 2,020. A break above the current level could take the index up to the all time high near 2,130 with possible resistance levels near 2,090 and 2,125.

The market still looks like it wants to march higher although the indicators show a weakening rally. This could indicate a peak in the market and pull back to support, or it could indicate an consolidation within a greater rally waiting on catalyst for break out. In either event there are plenty of possible catalysts this week, a few tomorrow. Tomorrow the economic calendar is light; Durable Goods, Case-Shiller 20 City index and Consumer Confidence. The earnings calendar is full including names like Apple, Alibaba, Pfizer, Corning and Bristol-Meyers.

I'm still looking to earnings to be the biggest driver of the market. Results for this season are coming in better than expected, not great, but better than expected, with positive forward outlook. The risk at this time is that revenue continues to fall short, and that outlook for next quarter and next year continues to fall. So long as outlook remains positive I remain a bull and will buy on the dips.

As for the FOMC, I do not expect much from them this meeting. They could make a surprise rate hike, but I don't think it likely with inflation as low as it is and the signs of economic slowing we have been seeing since the last meeting. What I do expect is more of the same non-committal in the statement they've been giving all along; the economy is stable and will need a rate hike soon, but it will be data dependent.

One final thought that no one seems to be talking about, Obamacare. It could become a real drag on consumer spending and the economy next year, more so than any affect it is having this year. The White House announced today that rates are going up in many places around the country, my own insurance is going up by nearly 35% and are not conducive to me stimulating the economy.

Until then, remember the trend!

Thomas Hughes

New Plays

On The Wrong Foot

by James Brown

Click here to email James Brown


DSW Inc. - DSW - close: 24.43 change: -0.49

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 26, 2015
Time Frame: Exit prior to earnings in late November
Average Daily Volume = 1.5 million
New Positions: Yes, see below

Company Description

Trade Description:
Investor sentiment regarding footwear retailers has soured dramatically. Recent earnings reports have not helped. Skechers (SKX) reported earnings last Wednesday (night). They missed estimates on both the top and bottom line. This report from SKX sent shockwaves through the footwear industry. Nike (NKE) seems to be the only one that was unaffected. The rest of the group has turned bearish.

DSW falls in that category. Officially DSW is in the services sector. According to the company, "DSW Inc. is a leading branded footwear and accessories retailer that offers a wide selection of brand name and designer dress, casual and athletic footwear and accessories for women, men and kids. DSW operates 469 stores in 42 states, the District of Columbia and Puerto Rico, as well as 370 leased departments for other retailers in the United States under the Affiliated Business Group. We also operate an e-commerce site, http://www.dsw.com, and a mobile site, http://m.dsw.com. Through its partnership with Town Shoes of Canada, the company operates two stores in Canada as well as the e-commerce site http://www.dswcanada.ca."

DSW's most recent earnings report was August 25th. Their earnings of $0.42 a share was in-line with estimates. Unfortunately revenues missed expectations. DSW's management provided soft guidance that was below Wall Street estimates. Traders sold the stock and DSW fell to new 2015 lows at the time. Since then shares have continued to melt.

Today DSW underperformed the market with a -1.9% drop. Shares got some help with a downgrade by Canaccord Genuity. Canaccord reduced DSW from a "buy" to a "hold" and slashed their price target. The analyst is concerned that DSW will not be able to maintain their comparable store sales. Traditional retailers do face a challenge this year. Foot traffic during the holiday season is expected to decline as more consumers shop online.

Technically DSW has broken down to new 18-month lows with today's drop. The point & figure chart is bearish and forecasting a very bearish $11.00 price target. There is a chance that DSW bounces near the 2014 low near $23.50 but we think its momentum will carry it past this level. I am suggesting investors start with small positions to limit risk. Yesterday's intraday low was $24.11. We'll use a trigger at $23.90.

Trigger @ $23.90 *small positions to limit risk*

- Suggested Positions -

Short DSW stock at $23.90

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

Buy the DEC $22.50 PUT (DSW151218P22.5) current ask $0.75
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 Drift Lower After Last Week's Big Gains

by James Brown

Click here to email James Brown

Editor's Note:
The market's major indices drifted lower on Monday following last week's big gains. The NASDAQ composite was an exception, which eked out a very, very small gain on the day.

Our new NTAP trade has been removed.
SBUX and HBI were both closed today.

Current Portfolio:

BULLISH Play Updates

Delta Air Lines - DAL - close: 51.32 change: +0.32

Stop Loss: 47.75
Target(s): To Be Determined
Current Gain/Loss: +0.2%
Entry on October 23 at $51.23
Listed on October 22, 2015
Time Frame: Exit prior to earnings in early January
Average Daily Volume = 9.8 million
New Positions: see below

10/26/15: DAL showed some relative strength today. Traders bought the dip this morning at $50.32 and DAL rebounded to a +0.6% gain on the session.

I don't see any changes from my recent comments although more conservative investors may want to start raising their stop loss.

Trade Description: October 22, 2015:
Depressed crude oil prices have kept jet fuel prices low. This has provided a big cushion for the major airlines. The recent strength in DAL has boosted shares to an all-time closing high.

DAL is in the services sector. According to the company, "Delta Air Lines serves more than 170 million customers each year. Delta was named to FORTUNE magazine's top 50 World's Most Admired Companies in addition to being named the most admired airline for the fourth time in five years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for four consecutive years, a first for any airline. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 318 destinations in 58 countries on six continents.

Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 700 aircraft. The airline is a founding member of the SkyTeam global alliance and participates in the industry's leading trans-Atlantic joint venture with Air France-KLM and Alitalia as well as a joint venture with Virgin Atlantic. Including its worldwide alliance partners, Delta offers customers more than 15,000 daily flights, with key hubs and markets including Amsterdam, Atlanta, Boston, Detroit, Los Angeles, Minneapolis/St. Paul, New York-JFK, New York-LaGuardia, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. Delta has invested billions of dollars in airport facilities, global products and services, and technology to enhance the customer experience in the air and on the ground."

DAL's most recent earnings report was October 14th. Wall Street was expecting a profit of $1.72 per share on revenues of $11.1 billion. DAL beat estimates with a profit of $1.74 a share. Revenues fell -0.6% to $11.11 billion, essentially in-line with estimates. At $1.74 a share DAL's earnings were up +45% from a year ago. That's thanks to the low cost of jet fuel.

Oil prices have been depressed long enough that airlines have started lowering air fares. This drop in air fares is hurting PRASM (passenger revenue per available seat mile). Fortunately DAL's fuel expense, plunged -40% from a year ago.

DAL management is forecasting Q4 PRASM to fall -2.5% to -4.5% but they are still guiding for strong operating margins (16-18%). Plus they see Q4 earnings growth of +40% or more. Think about that. How many other companies are forecasting +40% profit growth for Q4?

DAL's CEO made headlines following their Q3 earnings when he said there is a bubble in wide-body jets. What does he mean? There are a lot of wide-body jets that are being leased by other airlines. Once their lease expires there could be a flood of used jets for sale. DAL believes the price of wide-body jets (and possibly narrow-body jets) will decline and allow the company to purchase additional planes at a discount.

Oil prices are expected to remain low for the foreseeable future. Meanwhile we are approaching the busy holiday season, which means more travel by consumers. Technically shares of DAL appear to be breaking out from a multi-month consolidation pattern. The point & figure chart is bullish and forecasting at $62.00 target.

The January 2015 highs are in the $50.80-51.06 area. Tonight we are suggesting a trigger to launch bullish positions at $51.15. This is a multi-week trade.

- Suggested Positions -

Long DAL stock @ $51.23

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

Long 2016 JAN $55 CALL (DAL160115C55) entry $1.25

10/23/15 triggered on gap open at $51.23, suggested entry was $51.15
Option Format: symbol-year-month-day-call-strike

Ingram Micro Inc. - IM - close: 29.39 change: -0.06

Stop Loss: 28.75
Target(s): To Be Determined
Current Gain/Loss: +5.5%
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

10/26/15: Tomorrow is our last day for this IM trade. The plan is to exit tomorrow at the closing bell. IM has earnings coming up on October 29th.

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

10/26/15 prepare to exit tomorrow at the closing bell
10/24/15 new stop @ 28.75
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

Lennar Corp. - LEN - close: 51.64 change: -0.48

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: -1.2%
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

10/26/15: Homebuilding stocks stumbled today new home sales unexpectedly fell in September. After two months of gains the Commerce Department said September new home sales plunged -11.5% to an annual rate of 468,000 homes. That's the lowest reading since November 2014. Analysts seem to think this is a one-month anomaly. Overall home sales and homebuilder confidence has been strong.

Shares of LEN dipped to short-term support in the $50.75 area before paring its losses for the session. I am suggesting a rally past $52.50 before initiating new bullish positions.

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

Wayfair Inc. - W - close: 40.79 change: -0.48

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: -0.9%
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

10/26/15: It is do or die time for our W trade. Shares dipped to support at $40.00 and started to bounce. Unfortunately the rebound was not enough to actually close in positive territory today. Our stop loss is at $39.85. Any follow through lower could stop us out.

No new positions at this time.

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

iPath S&P500 VIX Futures ETN - VXX - close: 19.29 change: +0.66

Stop Loss: None, no stop at this time.
Target(s): $16.25
Current Gain/Loss: +11.6%
2nd position Gain/Loss: +33.5%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: Exit prior to October option expiration
Average Daily Volume = 50 million
New Positions: see below

10/26/15: Monday produced a relatively widespread decline for stocks. The pullback today was pretty mild. Stocks moved mostly sideways on the session. Yet today's move was enough to fuel a bounce in the volatility index (+5.7%) and the VXX (+3.5%).

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


NetApp, Inc. - NTAP - close: 33.15 change: -1.52

Stop Loss: 32.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 24, 2015
Time Frame: Exit PRIOR to earnings on November 18th
Average Daily Volume = 3.7 million
New Positions: see below

10/26/15: Sometimes the market does not want to cooperate. Last week NTAP broke through major resistance and ended Friday at new multi-month highs. Shares look poised to rally. It looks like someone at UBS decided this was a perfect time to downgrade the stock from a "neutral" to a "sell". Shares of NTAP did not react well. The stock gapped open lower and ended the day with a -4.3% loss.

Our trade has not opened. Considering today's display of relative weakness we are removing it as a candidate.

Trade did not open.

10/26/15 removed from the newsletter, suggested entry was $35.05


Starbucks Corp. - SBUX - close: 63.43 change: +0.82

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +5.8%
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

10/26/15: SBUX entered the last week of October on a strong note. Shares ignored the market's relative weakness and instead SBUX added another +1.3%.

Our plan was to exit positions this morning and the gap higher ($62.98) was just icing on the cake.

Earnings are October 29th. I would keep SBUX on your watch list. A post-earnings correction lower could be another entry point for bullish investors.

- Suggested Positions -

Long SBUX stock @ $59.55 exit $62.98 (+5.8%)

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

NOV $60 CALL (SBUX151120C60) entry $1.96 exit $3.72 (+89.8%)

10/26/15 planned exit
10/24/15 Prepare to exit on Monday morning
10/08/15 triggered @ $59.55
Option Format: symbol-year-month-day-call-strike



Hanesbrand Inc. - HBI - close: 26.97 change: -0.09

Stop Loss: 27.65
Target(s): To Be Determined
Current Gain/Loss: +1.4%
Entry on October 20 at $27.35
Listed on October 19, 2015
Time Frame: Exit PRIOR to earnings on October 28th
Average Daily Volume = 3.4 million
New Positions: see below

10/26/15: Shares of HBI were downgraded this morning. That helped push the stock to a new 2015 low (under $26.00). Unfortunately HBI managed to bounce all the day back and close virtually unchanged on the day.

Our plan was to exit positions today at the closing bell. HBI has earnings coming up on Wednesday and we do not want to hold over the announcement.

- Suggested Positions -

Short HBI @ $27.35 exit $26.97 (+1.4%)

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

NOV $26 PUT (HBI151120P26) entry $0.65 exit $1.25 (+92.3%)

10/26/15 planned exit
10/24/15 prepare to exit on Monday, at the closing bell
10/24/15 new stop @ 27.65
10/20/15 triggered @ $27.35
Option Format: symbol-year-month-day-call-strike