Option Investor

Daily Newsletter, Thursday, 10/29/2015

Table of Contents

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

Market Wrap

Rate Hikes And Slow Growth

by Thomas Hughes

Click here to email Thomas Hughes
The bulls held their ground in the face of weak earnings, renewed chances of a December rate hike and weak economic growth.


The market proved to be somewhat resilient today, holding steady near newly reached two month highs. Trading was light and held within a narrow range as the market digests the FOMC statement, today's 3rd quarter GDP estimate and an ongoing season of weak earnings.

The FOMC meeting was a bit of a surprise, the statement was a little on the hawkish side, and basically told the market not to be surprised if they hike rates in December. Their reason, the economy is gaining strength, international concerns are not that big a deal anymore, and conditions are leading to inflation, if not causing it.

The first estimate for 3rd quarter GDP did nothing to change the FOMC outlook; the US economy is still growing, but growth slowed in the 3rd quarter. The surprise, or silver lining, is that income and spending were both up. In terms of corporate earnings, the season remains weak but also better than expected with growth in the outlook, if not next in the next quarter then in the next year.

Market Statistics

International markets were cautious following the Fed announcement. Asian indices closed mixed and near the one month highs. One notable headline; the Chinese government repealed its one child policy. In Europe trading was less optimistic, indices there posted losses in the range of -0.5%.

Early morning pre-market trading here at home was about the same. The indices were indicated to open flat to negative for most of the morning with little to no effect from today's economic data. The indices opened the day with losses near -0.25% and proceeded to trade in a very narrow range from there. A late day rally took the indices to the intraday high but it did not hold, by close of the day they had retreat to near the midpoint of the day's range. The transports were today's leader and the only major index to trade in positive territory.

Economic Calendar

The Economy

The first estimate for 3rd quarter GDP is 1.5%. This is a hair below consensus of 1.6% and the middle part of the range between 1.6% and 2.5%. This is down more than -2% from the 2nd quarter but still expansionary. The two biggest drags on GDP were imports, up, and inventory investment, down. The surprise was that two of the largest positive contributions were in PCE and personal income. Diposable personal income rose by 4.8% versus 3.4% in first quarter, driven by an acceleration in wages. Gross domestic purchases decline from the 2nd quarter but remain positive at 1.5%.

Initial Claims for unemployment rose by 1,000 from last week's unrevised figure to hit 260,000. The four week moving average of initial claims fell by -4,000 to hit 259,250 and a new low not seen since 12/15/1973. On a not adjusted basis claims rose by 5.3% versus the 5.0% predicted by the seasonal factors. On a year over year basis not adjusted claims are down by -9.6%. South Carolina and Michigan led with increases in claims of 2,156 and 2,117. Pennsylvania and Texas led with decreases in claims of -3,583 and -2,893. Based on this data job losses are at historic lows and not consistent with slowing growth.

Continuing Claims for unemployment, those filing for a second week, fell by -37,000 to hit 2.144 million. This is a new low dating back to 11/4/2000. The four week moving average also fell, shedding -12,750 to hit 2.174 million, also a new low dating back to November of 2000. Continuing claims are also not consistent with slowing economic growth.

Total claims rose this week, contrary to declines in the other two gauges, but remains near its historic lows as well. Total claims rose by 18,694 to reach 1.881 million but remain down -8.07% from last year at this time. Despite the gains in this week's data total claims is also not consistent with slowing economic growth. Next week we will get the monthly bundle of labor macro data including ADP, Challenger, NFP and unemployment, each of which will shed new light on the state of labor. If the economy is indeed slowing labor market could begin to cool off, perhaps foreshadowed by last month's NFP. On the flipside, strong labor market and rising income/spending could lead the economy out its slump.

Pending Home Sales declined unexpectedly by -2.3%. Average expectation was closer to +0.6%. This is now the 2nd month of decline and the 2nd lowest level of pending home sales this year. However, on a year over year basis pending homes sales, a forward indicator, is up 3% from last September and have been in Y-O-Y expansion for 13 months. Lawrence Yun, chief economist for the National Association Of Realtors, low interest rates, rising rents and strong labor markets should continue to drive demand in housing markets.

The Oil Index

Oil prices held flat in today's trade, although trading was a little choppy, after rebounding from the 2 month low yesterday. WTI traded in a range around $46, closing near that level as well. Supply and production are still weighing on prices despite today's gains with no change to the fundamentals in sight. Production remains high on a global scale and today's report from Connoco-Phillips underscores that point. They reported production levels up from last year, above guidance, with 7 new projects scheduled for start-up and next year's forecast shows production growth as well. Tomorrow Exxon and Chevron report.

The energy sector was able to continue a bounce from support begun yesterday. The Oil Index gained 0.75% in today's session, creating a medium bodied white candle moving up from support and the short term moving average. The indicators remain bearish but are showing signs of near term support. The index could be moving up to retest the recent high near 1,235. The strength of this move will depend on oil prices which don't look very strong at this time. Support is at the short term moving average, near 1,150. A fall below this level could take the index down to the lows set last month near 1,025.

The Gold Index

Gold prices fell for the 2nd day, losing about -2.5% in today's session. The hawkish sounding Fed statement has put the fear of rate hikes back in the market, strengthened the dollar and sent gold barreling down to support. Gold is now trading just below $1150 and looking like it will move back down to longer term support levels near $1120 and $1100. Data will continue to drive this trade, so long as economic growth remains steady and inflation expectations remain low gold prices should move lower.

The gold miners took a hit today too, driven by the drop in gold prices and by poor results among the miners. Today the Gold Miners ETF GDX fell more than -5%, breaking through near term support and the short term moving average to reach a new 3 week low. The indicators are bearish in confirmation of the break, which is in line with the underlying bear market in the sector. The ETF looks like it could move down to support levels near $13.

In The News, Story Stocks and Earnings

GoldCorp reported earnings this morning. The North American based miner missed expectatios, reporting a net loss of -$0.05, while hitting record production levels. Production is up 42% from last year but hurt by declining gold prices which hit 6 year lows during the reporting period. Although a net loss was reported the company balance sheet is improving. Revolving credit facilities have been repaid, free cash flow is up, all-in-cost is down and production is rising. Despite the improvements the loss was not received well and sent the stock down by more than 10.5%.

Pfizer hit the news this morning for possible M&A activity, with Allergan. The companies have both confirmed that they are in preliminary talks, initiated by Pfizer, to merge. There are no details availabel yet but the news was enough to cause a halt to trading of Allergan's stock. Shares of Pfizer fell more than -2.5%, shares of Allergan jumped more than 7%. Allegan is now trading near a three month high.

ConnocoPhillips reported before the bell. The company reported a wider than expected loss, accelerated cost reductions and rising production levels. Adjusted loss per share of -$0.38 missed by a penny while production levels are rising and above previously guided levels. At the same time, the company also announced 7 new projects on the verge of start-up which will add to production in the next year. Shares of the stock fell in the pre-market session, tested support below the short term moving average after the open, and then rose to post a small gain on the day.

LinkedIn reported after the bell and blew expectations away. The internet networking social media website reported $0.78 per share, analyst had been expecting near $0.46. Total revenue grew 37% on a 24% increase in premium subscriptions. Along with this the company raised next quarter guidance to $0.74 versus the previous $0.67. Shares of the stock shot up more than 14% on the news.

The Indices

Today was rather quiet, considering the FOMC meeting yesterday, the sheer volume of earnings reports released today and the weak/not weak economic data. Action was led by the Dow Jones Transportation Average which posted a gain of 0.84%. The transports rose from the short term 30 day moving average confirming near term support although the indicators remains bearish. Both MACD and stochastic are pointing lower, suggesting support may be tested further although at this time they may be more indicative of range bound trading than anything else. Support appears to be building near the short term moving average, near 8,000, although the bottom of the range is closer to 7,750. Resistance is near 8,250 with a possible move up to 8,500.

The S&P 500 was runner up in today's action although it closed with a loss. The broad market posted a decline of 0.04%, creating a small doji type spinning top. The index has paused once more in it's climb from the September low although indications remain positive so I don't think the move has exhausted itself quite yet. MACD momentum is declining from its peak, indicative of a slowing market, but the current wave is pretty strong relative to the past 12 months so could easily run a bit further. Stochastic is confirming strength, trending high in the upper sigal zone and producing a bullish crossover. Today's action was just beneath resistance at 2,090, a break above this level could take the index to the all time high near 2,130.

The Dow Jones Industrial Average made the next smallest decline in today's session. The blue chips fell by -0.13% and also created a small doji like spinning top, near the top of the previous days candle and above resistance. The indicators are bullish, if momentum is declining, so a continuation of this move, up to next resistance, looks likely. Next resistance is the underside of the long term trend line near 18,000. Regardless, the current rally is now nearly 15% off of it's bottom and in position for profit taking so caution is warranted.

The NASDAQ Composite made the largest decline in today's session, -0.42%. The tech heavy index opened with a loss, then traded near its opening level, so created a very small bodied doji candle above the mid-point of yesterday's range. The indicators are bullish, and showing some strength if MACD declined with today's session. The index is below potential resistance at 5,100, a break above this level could take it back to the all time high and the underside of the previously broken long term up trend line.

The market held steady today which is remarkable. Not only has a hawkish fed resulted in a rally, weak economic growth and tepid earnigs have helped to support prices. Under different conditions any of these situations could have resulted in market hysteria. Today I think was different because they all lead to one thing, expected positive improvements next quarter and next year. In any event, the rally is on and the near term trend is up. There are signs it is losing some steam so caution is due, along with tight stops.

A thought; If earnings growth is expected to return, and GDP growth is expected to average above 2%, and the FOMC thinks we need a rate hike, then the economy is growing and we are indeed about to come out of a trough in the economic and earnings cycle as suggested by the data and the projections. If this is the case then the bull market is intact and the rally will go on.

Tomorrow, more data and more earnings. On the economic calendar; personal income and spending, the Employment Cost Index, Michigan Sentiment and Chicago PMI. On the earnings front the pace of releases falls off somewhat from today but remains strong; more than 7 dozen names, the most important probably Exxon and Chevron. Next week will be no reprieve. There will be another massive round of earnings reports along with the monthly macro economic data.

Until then, remember the trend!

Thomas Hughes

New Plays

Come Sail Away

by James Brown

Click here to email James Brown


Carnival Corp. - CCL - close: 54.08 change: +0.79

Stop Loss: 50.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 29, 2015
Time Frame: Exit prior to earnings in mid December
Average Daily Volume = 4.0 million
New Positions: Yes, see below

Company Description

Trade Description:
Cruise lines appear to be doing a great business this year. CCL, RCL, and NCLH are all trading near their 52-week highs. CCL looks interesting as shares push through resistance this week.

CCL is in the services sector. According to the company, "Carnival Corporation & plc is a global cruise company and one of the largest vacation companies in the world. Our portfolio of leading cruise brands includes Carnival Cruise Line, Holland America Line, Princess Cruises, Seabourn, and Fathom in North America; P&O Cruises and Cunard in the United Kingdom; AIDA Cruises in Germany; Costa Cruises in Southern Europe; and P&O Cruises in Australia.

These brands, which comprise the most recognized cruise brands in North America, the United Kingdom, Germany and Italy, offer a wide range of holiday and vacation products to a customer base that is broadly varied in terms of cultures, languages and leisure-time preferences. We also own a tour company that complements our cruise operations: Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. Combined, our vacation companies attract 10 million guests annually.

Headquartered in Miami, Florida, U.S.A., and Southampton, England, Carnival Corporation & plc operates a fleet of more than 100 ships, with another seven ships scheduled for delivery between January 2015 and March 2017. With approximately 200,000 guests and 77,000 shipboard employees, there are more than 277,000 people sailing aboard the Carnival fleet at any given time."

CCL has been a consistent winner on the earnings front. The company has beaten Wall Street's bottom line earnings estimates the last four quarters in a row. Their most recent report was September 22nd. Analysts were looking for a profit of $1.63 a share on revenues of $4.81 billion. CCL delivered a profit of $1.75 a share. Revenues fell -1.3% to $4.88 billion, above estimates. The company enjoyed a -33% drop in fuel expenses last quarter.

CCL's President and CEO is Arnold Donald. He commented on their quarter, "We have just enjoyed a record quarter and are on track to achieve a nearly 35% annual non-GAAP earnings improvement. That's over $0.5 billion of year-over-year profit improvement on top of the 25% annual earnings improvement we achieved in 2014... This year is clearly trending ahead of pace with constant currency yield now forecasted to be up 4%. We overcame numerous headwinds including ongoing macroeconomic malaise in Europe, global geopolitical disruptions, public health scares like MERS, and even ship construction delays."

CCL is also seeing growth in China. According to Mr. Donald, "China has clearly made world news in recent weeks but continues to be an aggressive growth region for us. In fact, we will grow to a six ship fleet next year from a base of four, strengthening our position as industry leader, yet still representing only 5% of our global capacity next year. Given the low penetration levels for cruise and the pent-up demand for travel, we remain very confident in the long-term potential for this expansive market." CCL isn't stopping there. They are adding two more ships dedicated to the Chinese market with one coming online in 2017 and another in 2018.

Technically shares of CCL have rallied off support in early October. Now it's starting to breakthrough resistance in the $54.00 area and ended today's session at a new multi-year high. The point & figure chart is very bullish and forecasting a long-term $72.00 target. Tonight we are suggesting a trigger to launch bullish positions at $54.25. We will plan on exiting prior to CCL's earnings report in mid December.

Trigger @ $54.25

- Suggested Positions -

Buy CCL stock @ $54.25

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

Buy the 2016 JAN $55 CALL (CCL160115C55) current ask $1.95
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 Sideways

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market's major indices spent most of Thursday's session drifting sideways inside a relatively narrow range. Equities posted minor losses by the closing bell.

LEN hit our stop loss. DNKN has been removed.

Current Portfolio:

BULLISH Play Updates

Advaxis, Inc. - ADXS - close: 12.73 change: +0.84

Stop Loss: 10.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 28, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 1.4 million
New Positions: Yes, see below

10/29/15: Biotech stocks underperformed the broader market today. The IBB biotech ETF fell -0.9%. Shares of ADXS really underperformed. It plunged -7.7% and snapped a five-day winning streak.

If shares do not bounce tomorrow we will have to re-evaluate our strategy on ADXS. For the moment we are waiting for a new relative high. Our suggested trigger is $13.05.

Trade Description: October 28, 2015:
Biotech stocks are starting to rally again after weeks of consolidating sideways. ADXS is also on the move after building what looks like a significant bottom over the last month.

ADXS is in the healthcare sector and part of the biotech industry. According to the company, "Located in Princeton, N.J., Advaxis, Inc. is a clinical-stage biotechnology company developing multiple cancer immunotherapies based on its proprietary Lm Technology(TM). The Lm Technology(TM), using bioengineered live attenuated Listeria monocytogenes (Lm) bacteria, is the only known cancer immunotherapy agent shown in preclinical studies to both generate cancer fighting T-cells directed against a cancer antigen and neutralize Tregs and myeloid-derived suppressor cells (MDSCs) that protect the tumor microenvironment from immunologic attack and contribute to tumor growth."

"Advaxis's lead Lm Technology(TM) immunotherapy, axalimogene filolisbac (ADXS-HPV), targets human papillomavirus (HPV)-associated cancers and is in clinical trials for three potential indications: Phase 2 in invasive cervical cancer, Phase 1/2 in head and neck cancer, and Phase 1/2 in anal cancer. The U.S. Food and Drug Administration (FDA) has granted axalimogene filolisbac orphan drug designation for each of these three clinical settings. For additional information on Advaxis, visit www.advaxis.com."

Shares of ADXS peaked in June 2015 near $30.00 a share. That capped an incredible run from about $3.00 in late 2014. When biotech stocks collapsed in August and September ADXS was not spared. Shares eventually found support in the $10.00 region. If you look closely ADXS spent most of October consolidating sideways in the $9.50-12.00 range.

A few weeks ago there was an important development. The U.S. FDA issued a verbal hold on ADXS's leading treatment due to complications from one patient.

What ADXS does sounds like science fiction. They used modified Listeria bacteria to trick the body into attacking and killing cancer cells. One patient in their clinical study used ADXS' as a treatment for her cervical cancer back in 2013. This past summer (July 2015) she entered the hospital with complications and died of her cervical cancer. The FDA issued a hold on ADXS' trial because the hospital found strains of listeria in her system (two years later). Now this particular case may be unique since the patient had some orthopedic implants from a car accident that may have provided a spot for the listeria to hide without producing an infection.

This FDA hold sparked some serious selling in after hours trading with ADXS down more than -20% on this news. The next day (October 7, 2015) shares of ADXS gapped down at $8.10 and rallied back to $10.51 by the closing bell. Since this headline investors have been buying the dips in the $9.50 area. It's starting to look like all the bad news may be baked in. Meanwhile ADXS believes the FDA hold is a temporary setback.

Shares of ADXS have been showing relative strength the last few days as biotech stocks move higher. If this market rally continues ADXS could be a significant outperformer.

Veteran Premier Investor Newsletter readers already know that we consider trading biotech stocks to be higher-risk, more aggressive traders. They are high-risk, high-reward opportunities. The right or wrong headline can send a biotech stock crashing or soaring overnight. The fact that ADXS recovered so quickly following this bad news is encouraging and might suggest the "weak hands" in the stock have already exited.

Today's intraday high was $12.81. Tonight we are suggesting a trigger to launch small bullish positions at $13.05. I suspect the $16.00 level might be resistance but the point & figure chart is forecasting an $18.00 target. Remember, this is an aggressive trade.

Trigger @ $13.05 (use small positions to limit risk)

- Suggested Positions -

Buy ADXS stock @ $13.05

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

Buy the DEC $15 CALL (ADXS151218C15)

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

Delta Air Lines - DAL - close: 50.50 change: +0.36

Stop Loss: 47.75
Target(s): To Be Determined
Current Gain/Loss: -1.4%
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

10/29/15: DAL managed to recover about half of yesterday's decline. Shares also outperformed the XAL airline index with a +0.7% gain today.

I would wait for a new rally above $50.75 before considering new bullish positions. 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

Wayfair Inc. - W - close: 42.94 change: -0.19

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: +4.3%
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

10/29/15: Shares of W rallied at the open. The stock was up +5.7% at is best levels ($45.60) and then suddenly reversed lower. Shares ended the session with a -0.4% decline.

After a rally from $40.00 to $45.60 in about three days time I am not surprised to see a little bit of profit taking. No new positions at this time.

Do not forget that W has earnings coming up on November 10th. We plan to exit prior to the announcement.

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

DSW Inc. - DSW - close: 24.64 change: -0.25

Stop Loss: 25.75
Target(s): To Be Determined
Current Gain/Loss: -3.1%
Entry on October 27 at $23.90
Listed on October 26, 2015
Time Frame: Exit prior to earnings in late November
Average Daily Volume = 1.5 million
New Positions: see below

10/29/15: The S&P 500 index was virtually flat today (down less than one point, about -0.04%). Yet shares of DSW underperformed with a -1.0% drop.

The relative weakness in DSW is encouraging. Today's low was $24.25. Traders may want to wait for a drop below today's low before initiating new positions.

Trade Description: October 26, 2015:
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.

*small positions to limit risk* - Suggested Positions -

Short DSW stock at $23.90

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

Long DEC $22.50 PUT (DSW151218P22.5) entry $0.90

10/27/15 triggered @ $23.90
10/27/15 DSW downgraded a 2nd time in as many days
Option Format: symbol-year-month-day-call-strike

iPath S&P500 VIX Futures ETN - VXX - close: 18.58 change: +0.24

Stop Loss: None, no stop at this time.
Target(s): $16.25
Current Gain/Loss: +14.8%
2nd position Gain/Loss: +36.0%
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

10/29/15: The major market indices inched lower and the VXX reacted with a minor bounce.

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


Lennar Corp. - LEN - close: 49.26 change: -1.93

Stop Loss: 49.75
Target(s): To Be Determined
Current Gain/Loss: -4.8%
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

10/29/15: Home construction stocks plunged today. LEN underperformed with a -3.7% decline and a breakdown under support at $50.00 and under support at its simple 200-dma. Our stop loss was hit at $49.75.

- Suggested Positions -

Long LEN stock @ $52.25 exit $49.75 (-4.8%)

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

2016 JAN $55 CALL (LEN160115C55) entry $1.88 exit $0.85 (-54.8%)

10/29/15 stopped out
10/27/15 new stop @ 49.75
10/21/15 triggered @ $52.25
Option Format: symbol-year-month-day-call-strike



Dunkin' Brands Group - DNKN - close: 41.73 change: +1.19

Stop Loss: 41.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 27, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 1.6 million
New Positions: see below

10/29/15: Many of the restaurant stocks were down today. Disappointing earnings results from the likes of Buffalo Wild Wings (BWLD) sparked the sell-off. Yet oddly enough DNKN did not seem to react. Shares closed virtually unchanged on the session. Other quick-service restaurants did not fare as well.

If DNKN is not going to cooperate then we are going to cut it loose. Our trade did not open.

Trade did not open.

10/29/15 removed from the newsletter, suggested entry was $39.25