Option Investor

Daily Newsletter, Tuesday, 11/17/2015

Table of Contents

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

Market Wrap

Home Depot Soars

by Jim Brown

Click here to email Jim Brown

Retailers held up the market thanks to Dow components Home Depot and Walmart. The continued short squeeze from Monday began to fade at noon and the S&P fell back into negative territory after a +13 point intraday gain.

Market Statistics

Home Depot (HD) spiked +$5.34 to add about 40 Dow points. The index was helped by a $2 gain in Walmart and another +15 Dow points. Despite those 55 points of Dow gains, the index closed up only +6. Intraday the Dow peaked at +116 but news of Germany evacuating a soccer stadium because of a terrorist threat knocked the buyers out of the market.

Another weight on the Dow was heavy selling in GE at the close ahead of their stock swap for Synchrony Financial. GE completed its spinoff of Synchrony by giving 1.0505 shares of Synchrony (SYF) for every GE share owned. GE said only about 31% of GE shares had been tendered for the swap. Because the offer was oversubscribed, GE is only accepting a portion of the shares tendered. The final ratio will be announced on Nov 20th. The swap will reduce the number of GE shares outstanding by about 6.6%. That is equivalent to a $20 billion share buyback. There were 25 million shares of GE for sale at the close as a sell the news trade after riding the stock to a six-year high.

There was also a little bit of good news on the economic front. The Consumer Price Index for October rose +0.2% after falling a total of -0.3% in the prior two months. Energy prices actually rose +0.3% to lift the index after a -4.7% decline in September. That little bump in crude prices to $50 in early October lifted the CPI but with crude now near $40 it will be a drag on the CPI for November.

The core CPI, ex food and energy also rose +0.2% with the services component up +0.3%. On a trailing 12 month basis the headline CPI is up only +0.1% while the core CPI us up +1.9% with most of that gain from a +2.8% rise in services.

The strength in the dollar, the implosion in commodity prices and oil will keep inflation low in the months ahead but the Fed will likely ignore the number because of "transitory" impacts, to use their phrase.

Industrial production for October declined -0.2% after the same decline in September. The warmer than normal September and October caused a -2.5% decline in utility output and mining/energy declined -1.5%. The report was ignored since utility output is not a market moving metric.

On the negative side the NAHB Housing Market Index for November declined from 65 to 62 as current and future sales declined. Analysts expected a reading of 64. The buyer traffic component did increase slightly from 47 to 48 and closer to neutral at 50. Even with the -3 point decline the index is still near the highs for the year at 65.

There were $33.6 billion in net cash inflows into the U.S. in September. The majority came from private foreign investors. However, Belgium bought $25.1 billion in treasuries, Singapore $6.8 billion and Luxembourg $6.2 billion. Large sellers of U.S. debt were Japan $19.9 billion, China $12.5 billion and the U.K. $8.9 billion.

Internet E-Commerce sales rose to $87.5 billion in Q3 from $84.0 billion in Q2. Sales are on track to significantly exceed 2014-Q4 of $77.6 billion. If the current trend holds, we could see nearly $90 billion in sales in Q4. To put that in perspective the entire retail sector does about $630 billion in Q4. Internet sales have risen for 27 consecutive quarters.

The important events for Wednesday are led by the FOMC minutes at 2:PM. This normally produces some volatility and this is the last communication from the Fed before the December meeting where they are expected to hike rates. How they phrase their intent in the minutes will be of specific interest.

The new residential construction numbers for October will be released at 8:30. Estimates are for a decline from 1.206 million to 1.162 million. The market will ignore it because starts always decline in the fall.

Home Depot (HD) was the star of the day. The company reported earnings of $1.35, which beat estimates by 3 cents and was 20 cents above the $1.15 earned in the year ago quarter. Revenue increased +6.4% to $21.8 billion and matching estimates. Same store sales rose a spectacular +7.3% in the USA.

The CEO said, "During the quarter, we saw broad-based growth across our geographies and product categories, led by growth in transactions from both our DIY and Pro customers." HD expects full year 2015 sales growth of +5.7% with comps of +4.9%. The company guided for earnings per share at $5.36 and the upper end of its prior guidance. Home Depot has returned $35 billion to shareholders through dividends over the last five years. In Q4, they are planning on buying back another $2 billion in shares to bring the 2015 total to $7 billion.

I would be a buyer of Home Depot on any pullback. The stock is on the verge of a breakout to a new high and I would hope to see some post earnings depression over the next couple of days to give us an entry point. I sure wish I had bought it on Friday.

Walmart (WMT) posted earnings of $1.03 that beat estimates by a penny but warned that Q4 would be competitive and sales growth would only be about +1% after a +1.5% rise in U.S. comp store sales in Q3. Overall, global revenue declined -1.3% to $117.4 billion due to dollar headwinds and economic declines in China and Brazil. Traffic was up +1.7%.

The company blamed the lackluster sales on the tech industry saying there had not been many new and exciting products over the last couple of years. Innovation has been relatively dormant. Weak tech sales also impacted Sam's Club, which sells a lot of TVs and electronics. Walmart is expecting a surge in Star Wars related products that will help boost the overall revenue. With Walmart's push into organic products they are hurting stores like Kroger and Whole Foods and that is attracting cost conscious consumers looking for healthy food.

Shares rallied +$2 but that was after a $1 drop from the intraday highs. This looks like a good opportunity for a short entry.

Dicks Sporting Goods (DKS) reported earnings of 45 cents and missing estimates for 47 cents. Revenue increased +7.6% to $1.6 billion but that also missed estimates for $1.64 billion. Same store sales of +0.4% missed estimates for +1.9% by a wide margin. The company blamed it on warmer weather that kept people from buying winter apparel. Dicks warned that Q4 would be "highly promotional" and the effort would be to actively manage inventory levels and not be left with large amounts of back stock at the end of December.

Dicks shares declined -9.43% on the news and I would not be bargain hunting at this level. The long-term trend is down and the lack of execution suggests Q4 will not be positive.

The Dicks earnings miss was a blow to Under Armour (UA). The athletic wear company gets 14% of its sales from Dicks while Nike only gets 2% from the retailer. Dicks said inventory levels rose +13% in Q3 and they were working with vendors to reduce its exposure to slow selling merchandise by returning the product, cancelling orders and securing markdown allowances. Under Armour shares declined -6% on the news.

After the bell, Jack in the Box, parent of Qdoba Mexican Grill (JACK) reported earnings of 62 cents compared to estimates for 65 cents. Revenue of $354 million missed estimates for $358 million. Same store sales rose +6.2% and was the highlight of the report. Qdoba Mexican Grill same store sales rose +6.6%. Shares rose +$2.50 in afterhours.

Staples, Target, Lowe's, Green Mountain Coffee and SalesForce.com are the highlights on the earnings calendar for Wednesday.

Early this morning the Justice Dept and Federal Trade Commission (FTC) said they would release the information on their long awaited investigation into vitamins and supplements and reveal both criminal and civil charges. The shares of GNC Holdings (GNC), Herbalife (HLF) and Vitamin Shoppe (VSI) plunged intraday on the potential for a negative headline. GNC fell from $31.50 to $22.64 or roughly -26% before the news was even released.

The actual event was anticlimatic since no public companies were charged or even mentioned. USPlabs, seller of Jack3d and six executives face criminal charges for the unlawful sale of nutritional supplements. The Justice Dept claimed USPlabs used a synthetic stimulant made in China to make Jack3d and OxyElite Pro but told retailers the supplements were manufactured from plant extracts. The indictment claimed numerous users suffered liver damage with some receiving liver transplants as a result of the supplements.

The Justice Dept said it also filed civil cases against five companies for similar reasons. The companies included Clifford Woods, which sold Taheebo Life Tea and Life Grow Plus. Viruxo, which sold a product of the same name used to rtreat herpes. Optimum Health, which sold DMSO Cream for a variety of conditions. The FTC filed lawsuits against Sunrise Nutraceuticals LLC, Health Nutrition Products and NPB Advertising alleging they sold or advertised deceptive or unproven workout or weight loss supplements.

Shares or GNC rebounded to close just under $30 in afterhours. Options volume in GNC was 35,000 contracts or 8 times normal. One trader bought 2,700 weekly calls at $30 that expire Friday. VSI and HLF both closed down for the day but should recover tomorrow since the press conference was not held until just before the market closed.

Copper, oil and all commodities continued their plunge on falling demand and the strong dollar. Copper closed at $2.10 per pound and the lowest level since 2009. The entire commodity complex is about to set a 40 year low as referenced by the $CRB. It closed today at 185.42. You have to go back to 2002 for a lower close at 183.52 and then 1999 at 182.95. Then you have to go way back to 1975 for a lower close at 175.90.

We only have to drop -2 points to be at 40-year lows and the majority of analysts are still recommending shorting commodities. I do not know how the Fed is going to rationalize raising rates in this environment. The dollar will surge and commodities will move even lower and further reducing inflation as they decline.

Crude oil declined to $40.79 with the loss of $1 ahead of Wednesday's inventory report. Oil is up slightly tonight after the API Inventory report after the close showed a surprising decline of -482,000 barrels. However, the API report rarely agrees with the EIA report due out in the morning. There can be millions of barrels difference between the two reports. Even if there is a decline, it is only temporary with nearly 40 tankers now waiting offshore in Houston for fog to clear so they can unload.


The rally turned short squeeze rolled for 43 points before it was turned back at resistance at 2,066. Analysts claimed the decline was due to the evacuation of a German soccer stadium after a bomb threat but I suspect it had more to do with the short squeeze running its course.

The headlines flowing constantly out of Europe are poisoning sentiment and the FOMC minutes on Wednesday are likely to spell out in no uncertain terms that a rate hike will occur in December.

The positive earnings from Home Depot and Walmart impacted the market because they are both Dow components. That early morning spike in the Dow helped to continue the squeeze from Monday. When Walmart began rolling over and GE came under pressure the rally began to fade. The German headline was just the straw that broke the rally's back.

At Monday's close 193 S&P stocks or 38.2% were down more than 20%. A total of 253 or 50.1% were down more than 15% and a whopping 68.5% were down more than 10%. That is hardly a bullish scenario. We are not going to make new highs with those internals.

The S&P has significant resistance at 2,085 and strong support at 2,023. That gives it a roughly 60-point range to wander for the rest of the week. At this point, I am leaning bearish because of the lack of positive catalysts and the constant stream of terrorism headlines. I hope I am wrong.

There were only three Dow gainers that counted. The rest of the index was negative or only fractionally positive. I mentioned in the weekend commentary that it would take a good short squeeze to rescue the Dow 30 from the funk it was in on Friday. That short squeeze came right when needed and caused a +230 point rally on Monday. However, even a 9-point gain in the top three stocks representing about +65 Dow points failed to get it much off zero on Tuesday. That is not very encouraging. Unless some other Dow stocks repeat that win on Wednesday, the outlook is questionable.

Resistance is 17,600 and support 17,200.

The Nasdaq tried to punch through resistance at 5,008 but failed at the close as the market faded. The index dipped to strong support on Monday just over 4,900 and rebounded on the short squeeze. Today's +1.39 gain was lethargic at best. There were no outstanding headlines on tech stocks to power the index higher with most of the names on the winners list making a rare appearance on that list. Netflix was the exception with another outstanding gain of +$6.30 after a +7.70 gain on Monday. I am strongly hostile at Netflix today after I was stopped out in Ultimate Investor on Friday's drop only to see a $14 rebound to a two month high.

I am neutral on the Nasdaq because the big caps helped power the early November high but they are noticeably absent so far this week, with the exception of Netflix.

Support remains 4888-4925 and resistance 5008-5022.

The Russell 2000 gave back -13 points from its intraday high at 1,166 to close at 1,153. That is significantly below last week's high at 1,200 and solid resistance. Small caps are supposed to be in favor at this point in November and they were the biggest loser today. This is not good for market sentiment. The 1,166 level is now critical resistance on any rebound and the 1,140 support from Monday is also critical. That is a 26-point range so breaking out on either side would be a directional commitment.

Historically this is supposed to be a bullish week along with next week. However, the constant terrorist headlines and the impending rate hike are probably going to play havoc with seasonal patterns. The market is starting to feel heavy after Monday's short squeeze was unable to ignite a fire under equities. The kindling burned out and there was no follow through. Volume was moderate at 7.45 billion shares so it looked like another distribution day. I am not recommending a dip buy at this point. If we did retest 2,023 on the S&P it may not hold next time.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Is All The Bad News Price In?

by James Brown

Click here to email James Brown


Yelp Inc. - YELP - close: 27.54 change: +0.10

Stop Loss: 24.40
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.5 million
New Positions: Yes, see below

Company Description

Trade Description:
It has been a rough ride for YELP investors. The stock is down -50% year to date and off -72% from its all-time highs set in 2014. Yet the action lately is starting to look like all the bad news is priced in.

YELP is considered part of the technology sector. According to the company, "Yelp Inc. (http://www.yelp.com) connects people with great local businesses. Yelp was founded in San Francisco in July 2004. Since then, Yelp communities have taken hold in major metros across 31 countries. Approximately 83 million unique visitors visited Yelp via their mobile device1, including approximately 18 million unique devices accessing the Yelp app2, and approximately 79 million unique visitors visited Yelp via a desktop computer3 on a monthly average basis during the second quarter of 2015. By the end of the same quarter, Yelpers had written approximately 83 million rich, local reviews, making Yelp the leading local guide for real word-of-mouth on everything from boutiques and mechanics to restaurants and dentists."

The earnings picture has struggled this year. YELP's Q1 and Q2 reports both missed analysts' estimates. YELP also guided lower each time. Then there was news in July that YELP had given up on trying to sell itself because they couldn't find a buyer.

The revenue picture improved in the third quarter. YELP reported its Q3 results on October 28th. Earnings of $0.03 a share missed estimates of $0.06. Yet revenues were up +40% to $143.6 million, which was better than expected. Management then raised their 2015 guidance.

On November 13th shares of YELP received a big upgrade from RBC Capital Markets who raised their outlook to "outperform" and upped their price target from $34 to $42. Meanwhile recent news that InterActiveCorp (IACI) had offered to buy Angie's List (ANGI) might restart the M&A speculation on YELP since ANGI and YELP are in similar businesses.

Technically shares of YELP definitely appear to have formed a bottom over the last three months. The rally from its October lows has generated a buy signal on the point & figure chart that is forecasting a long-term target of $37.00. Right now YELP is flirting with a breakout past its early August peak. A breakout could spark some short covering. The most recent data listed short interest at 22% of the 60.8 million share float.

We are listing YELP as an aggressive, higher-risk bullish trade. The stock can be volatile so readers may want to limit their position size. Tonight we are suggesting a trigger to launch positions at $27.75.

Trigger @ $27.75 *small positions to limit risk*

- Suggested Positions -

Buy YELP stock @ $27.75

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

Buy the 2016 JAN $30 CALL (YELP160115C30) current ask $1.40
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

Early Rally Fades, Stocks Close Mixed

by James Brown

Click here to email James Brown

Editor's Note:
The market rally this morning ran out of steam midday. Traders were nervous thanks to new headlines regarding potential terrorist activity in Germany today.

NHTC hit our trigger and our stop loss in the same session. We are re-listing it as a new trade for tomorrow. Please read the details below.

Current Portfolio:

BULLISH Play Updates

Microsoft Inc. - MSFT - close: 52.97 change: -0.44

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -3.0%
Entry on November 04 at $54.60
Listed on November 03, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 35.4 million
New Positions: see below

11/17/15: MSFT failed to see any follow through on yesterday's bounce. The stock is hovering along short-term technical support at its 20-dma. If shares see any serious follow through lower we could see the stock hit our stop loss at $52.15.

No new positions at this time.

Trade Description: November 3, 2015:
MSFT is more than just a software company. MSFT is in the technology sector. It is considered part of the business software industry. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company is run under three segments. They have their productivity and business processes segment. This includes commercial office software, personal office software, and more. One of their fastest growing segments is MSFT's Intelligent Cloud business, which includes their server software and enterprise services. Then they have their "More Personal Computing" segment. This includes their Windows operating software, MSN display advertising, Windows phones, smartphones, tablets, PC accessories, Internet search, and their Xbox platform.

The stock has been dead money for almost a year. MSFT peaked near round-number resistance at $50.00 back in November 2014. Shares channeled sideways between support at $40 and resistance at $50 for months. That changed last month.

MSFT reported its 2016 Q1 results on October 22nd. Analysts were expecting a profit of $0.59 a share on revenues of $21.04 billion. MSFT beat both estimates with a profit of $0.67 a share. Revenues came in at $21.66 billion. Their Intelligent Cloud segment saw sales rise +8% but it was actually +14% on a constant currency basis.

Shares of MSFT soared the next day with a surge to 15-year highs. The big rally is based on investors' belief that MSFT and its relatively new management is successfully transitioning away from declining PC sales and moving quickly towards the cloud (and mobile).

Normally I would hesitate to buy a stock like MSFT after a big gap higher. Too often stocks tend to fill the gap. However, shares of MSFT have been able to levitate sideways in the $52.50-54.50 zone as traders keep buying the dips. Odds are growing we could see MSFT rally toward its all-time highs near $60.00 a share from December 1999. The big gain in October produced a buy signal on the point & figure chart, which is now forecasting a long-term target of $82.00. Tonight we are suggesting a trigger to launch bullish positions at $54.60.

- Suggested Positions -

Long MSFT stock @ $54.60

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

Long 2016 JAN $55 CALL (MSFT160115C55) entry $1.54

11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike

Natural Health Trends Corp. - NHTC - close: 45.47 change: -8.25

Stop Loss: New 39.85
Target(s): To Be Determined
Current Gain/Loss: (new trade) Unopened
Entry on November -- at $---.--
Re-Listed on November 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 379 thousand
New Positions: Yes, see below

11/17/15: It was a crazy day for shares of NHTC. The stock opened higher and triggered our bullish play. Then midday the stock just collapsed. NHTC fell -25% intraday. Our stop loss was hit at $49.90.

Why did NHTC plunge -25% today (it settled with a -15.3% decline). The U.S. Department of Justice announced lawsuits against a nutritional supplement maker USPLabs. This is a private company that makes multiple supplements. The DoJ is filing a lawsuit against the company and six of its executives for selling supplements with unlawful materials. USPLabs was making fat-loss products with banned stimulants while they told their retailers that it was actually safe and made from plants. The DoJ did not name any public companies in their lawsuit. Yet stocks like GNC Holdings (GNC), Vitamin Shoppe, and Herbalife, all plunged on the news. NHTC joined the group because NHTC does sell nutritional supplements. (read more about it here)

What's really crazy is that NHTC doesn't retail other companies' products. The drop today was a knee-jerk reaction when the news had nothing to do with NHTC.

Tonight we are marking this as a loss. If you traded the stock our loss was -8.1%. If you traded the option the loss was -44.0%. However, the sell-off today was completely unwarranted and we want to jump back in tomorrow morning.

Our plan is to re-launch this trade tomorrow and buy NHTC at the opening bell. We'll adjust the stop loss to $39.85. We'll adjust the call option to the $50.00 strike.

Trade Description: November 16, 2015:
If you're looking for relative strength then NHTC could be your stock. It's been a rocky ride so far in 2015 with big swings both up and down. Right now NHTC is on an upswing. Shares have rallied +168% from its August 2015 low near $20.00. The stock is up +369% year to date.

NHTC is in the consumer goods sector. According to the company, "Natural Health Trends Corp. (NHTC) is an international direct-selling and e-commerce company operating through its subsidiaries throughout Asia, North America, and Europe. The Company markets premium quality personal care products under the NHT Global brand."

The company's earnings and revenue growth has been significant. They reported their Q2 results on July 28th. Earnings nearly doubled from $0.49 a year ago to $0.98. Revenues soared almost +104% to $69.7 million. At the time management raised their dividend +33% to $0.04 a share and announced a $15 million stock buyback program.

In the middle of October NHTC pre-announced strong Q3 revenues. They reported their Q3 results on October 27th. Earnings soared from $0.42 a year ago $1.18 a share. Revenues hit a record $80.8 million, up +154% from a year ago. Their number of active members increased +24% to 94,700 from the prior quarter. Management then raised their dividend to $0.05.

NHTC hit new multi-year highs at $55.45 in early November. Since then shares have spent the last two weeks consolidating sideways in the $50-54 zone. The stock weathered last week's market decline pretty well. If shares breakout higher NHTC could see a short squeeze. The most recent data listed short interest at 19% of its very small 7.3 million share float.

Tonight we are suggesting a trigger to launch bullish positions at $54.30. I am suggesting small positions. Shares can be volatile. We should consider this a higher-risk, more aggressive trade.

*small positions to limit risk*

- Suggested Positions -

Buy NHTC stock @ the opening bell

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

Buy the JAN $50 CALL (NHTC160115C50) current ask $5.80
option price is a current quote and not a suggested entry price.

11/17/15 re-list this trade, launch new positions tomorrow
New stop 39.85, new option = Jan. $50 call
11/17/15 NHTC trade -8.1%, Jan. $60 call trade -44.0%
11/17/15 stopped out @ $49.90 - on DoJ story about another company
11/17/15 Triggered on gap higher @ $54.32
Option Format: symbol-year-month-day-call-strike


Paychex, Inc. - PAYX - close: 53.33 change: -0.03

Stop Loss: 51.25
Target(s): To Be Determined
Current Gain/Loss: +0.3%
Entry on November 11 at $53.15
Listed on November 09, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.3 million
New Positions: see below

11/17/15: Traders bought the dip in PAYX this morning and shares bounced back to close virtually unchanged on the session.

More conservative traders may want to start raising their stop loss.

Trade Description: November 9, 2015:
Last week the Bureau of Labor Statistics announced that the nonfarm payroll (jobs) report for October showed a gain of +271,000. That was way above expectations. The separate household survey showed a gain of +320,000 jobs. This pushed the unemployment rate down to 5.0%, the lowest reading since early 2008. Many believe that the U.S. has now reached full employment. Do you know what that means? It means more Americans working. That means more paychecks to be delivered and more HR services to be handled.

PAYX is in the services sector. According to the company, "Paychex, Inc. (PAYX) is a leading provider of integrated human capital management solutions for payroll, HR, retirement, and insurance services. By combining its innovative software-as-a-service technology and mobility platform with dedicated, personal service, Paychex empowers small- and medium-sized business owners to focus on the growth and management of their business. Backed by more than 40 years of industry expertise, Paychex serves approximately 590,000 payroll clients across 100 locations and pays one out of every 15 American private sector employees."

PAYX earnings have been slowly and consistently creeping higher. Revenues have been rising about 8% the last couple of quarters. This company's most recent earnings report was September 30th. They beat estimates on both the top and bottom line, which helped fuel another rally in the stock.

PAYX management has been very consistent about paying a dividend. PAYX now sports a dividend yield of 3.7%. That could draw more and more income investors looking for a safe company to buy.

A recent article on Forbes.com, by Brett Owens, noted that "demand for payroll outsourcing (60% of Paychex's latest quarterly revenue) will grow at a 3.9% compound annual rate between 2013 and 2018. HR outsourcing (40% of revenue) is on a stronger tear, with a projected 12.3% yearly gain in the same period" (source)

We like PAYX's relative strength. Shares are up +14.2% year to date. That compares to a +1.0% gain in the S&P 500 and a +7.6% rally in the NASDAQ. The NASDAQ composite is up +18% from its August low but PAYX is up +26.7%. The rally in PAYX has produced a buy signal on the point & figure chart, which is also forecasting a long-term target at $72.00.

On Friday PAYX found short-term support near $53.00. Tonight we are suggesting a trigger to launch bullish positions at $53.15.

- Suggested Positions -

Long PAYX stock @ $53.15

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

Long JAN $55 CALL (PAYX160115C55) entry $0.80

11/11/15 triggered @ $53.15
Option Format: symbol-year-month-day-call-strike

U.S. Concrete, Inc. - USCR - close: 57.54 change: +0.42

Stop Loss: 55.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 14, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 220 thousand
New Positions: Yes, see below

11/17/15: USCR managed to outperform the major indices with a +0.7% gain today. Yet the stock remains stuck inside this $56-60 trading range.

Currently our suggested entry point to launch bullish positions is $60.65.

Trade Description: November 14, 2015:
USCR looks like a very impressive relative strength trade. This is a small cap stock. The small cap Russell 2000 index is down -4.6% year to date. Shares of USCR are up +110%.

They are part of the industrial goods sector. USCR is in the building materials business. According to the company, "U.S. Concrete serves the construction industry in several major markets in the United States through two business segments: ready-mixed concrete and aggregate products. The Company has 139 standard ready-mixed concrete plants, 16 volumetric ready-mixed concrete facilities, and 12 producing aggregates facilities. During 2014, U.S. Concrete sold approximately 5.7 million cubic yards of ready-mixed concrete and approximately 4.7 million tons of aggregates."

The U.S. economy is only growing around +2% yet construction spending has rebounded to multi-year highs. A recent interview with the CEO of USCR revealed that they are benefitting from the building boom in several U.S. markets. According to the CEO their outlook is very healthy for the next two years. If President Obama signs the current highway spending bill it could provide an additional boost with multi-year funding for USCR.

Another bonus to being a U.S. based and domestically focused small cap company is how the rising dollar should not be a currency headwind for the company.

Earnings growth for USCR has been significant. Their Q1 report came out in May this year. The company blew away the estimates with revenues up +17%. Their Q2 numbers were even better. USCR crushed the numbers again with revenues up +35.7%.

USCR's most recent earnings report was November 5th. The company announced their Q3 results. Wall Street was looking for a profit of $1.10 a share on revenues of $282.3 million. USCR said earnings surged +85% from a year ago. Gross margins were up +310 basis points to 16.7%. Their revenues roared +49.4% to $295.11 million.

William J. Sandbrook, President and Chief Executive Officer of U.S. Concrete, stated,

"The third quarter marked another quarter of significant improvement in revenue, adjusted EBITDA and earnings per share reflecting solid execution on our core growth objectives. This sustained improvement is a strong validation of our entire operating strategy across our attractive construction material categories. During the quarter we grew our organic operations in all of our key regions, including Texas. Our ongoing consolidation efforts, established leadership positions, and focus on high barrier-to-entry projects allowed us to remain disciplined with our price, as evidenced by ready-mixed concrete prices increasing year-over-year for the 18th straight quarter. This pricing success, combined with our increasingly vertically integrated positions, delivered higher material spreads and very favorable incremental margins on our scalable platform. Additionally, during the quarter we further strengthened our vertically integrated capabilities with the addition of three strategic aggregate operations within key markets. As we look forward, we are encouraged by our prospects for further improvement as we continue to advance our long-term growth strategy."
Technically the stock is in a bullish up trend. Traders have been consistently buying the dips. The broader market retreated this past week while USCR managed to close nearly unchanged for the week (-20 cents). The point & figure chart is bullish and forecasting at $72.00 target. USCR appears to have short-term resistance at $60.50. Tonight we are suggesting a trigger to launch bullish positions at $60.65.

Trigger @ $60.65

- Suggested Positions -

Buy USCR stock @ $60.65

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

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

BEARISH Play Updates

Denny's Corp. - DENN - close: 9.35 change: -0.26

Stop Loss: 9.75
Target(s): To Be Determined
Current Gain/Loss: +5.6%
Entry on November 10 at $9.90
Listed on November 05, 2015
Time Frame: 4 to 8 weeks
Average Daily Volume = 527 thousand
New Positions: see below

11/17/15: DENN accelerated lower today with a -2.7% drop to new relative lows. I would not chase it here. Tonight we are moving the stop loss down to $9.75.

Trade Description: November 5, 2015:
Wall Street seems to have soured on restaurant stocks. The group has been underperforming and this stock is accelerating lower.

DENN is in the services sector. According to the company, "Denny's is the franchisor and operator of one of America's largest franchised full-service restaurant chains, based on the number of restaurants. As of July 1, 2015, Denny's had 1,696 franchised, licensed, and company restaurants around the world with combined sales of $2.7 billion including 108 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curacao, Puerto Rico, Dominican Republic, El Salvador, Chile and New Zealand, and 160 company operated restaurants in the United States."

The stock rallied in early August on its earnings report but that proved to be a bull-trap. The breakout past resistance near $12.00 didn't last. When the market corrected lower in August, shares of DENN plunged toward its 200-dma and the $11.00 level. Shares spent the next eight weeks churning sideways with investors selling the rallies near resistance.

This week DENN reported their Q3 earnings report. The company delivered a profit of $0.11 a share. Revenues were up +5.8% to $123.8 million. These were in-line with estimates. Actually revenues were just slightly above expectations. The company's guidance was in-line with analysts' estimates. Evidently these results were not good enough as shares of DENN plunged on the news.

The stock has broken down below multiple layers of support. Now shares are on the verge of breaking through round-number support at $10.00. If shares to trade below $10.00 it should generate a new sell signal on the point & figure chart. Tonight we are suggesting a trigger to launch bearish positions at $9.90.

- Suggested Positions -

Short DENN stock @ $9.90

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

Long DEC $10 PUT (DENN151218P10) entry $0.55

11/17/15 new stop @ 9.75
11/14/15 new stop @ 10.25
11/10/15 triggered @ $9.90
Option Format: symbol-year-month-day-call-strike

CarMax Inc. - KMX - close: 55.62 change: +0.60

Stop Loss: 57.25
Target(s): To Be Determined
Current Gain/Loss: -1.6%
Entry on November 13 at $54.75
Listed on November 12, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 1.8 million
New Positions: see below

11/17/15: KMX continued to bounce but the rebound failed near its 10-dma. Shares hit an intraday high of $56.40. More conservative investors may want to move their stop loss closer to today's high. I am suggesting a new drop below $55.00 as our next entry point.

Trade Description: November 12, 2015:
The labor market in the U.S. is healthy. The October jobs report came in above estimates at +271,000 jobs. Wages are actually rising. You would think this would be bullish for consumer spending. Unfortunately the demand for used cars seems to be slowing down.

KMX is in the services sector. According to the company, "CarMax, a member of the FORTUNE 500 and the S&P 500, is the nation's largest retailer of used cars. Headquartered in Richmond, Va., we currently operate 151 used car stores in 76 markets. The unique CarMax consumer offer allows customers to shop for vehicles the same way they shop for items at other 'big-box' retailers. We provide low, no-haggle prices; a broad selection of CarMax Quality Certified vehicles; and superior customer service. During the fiscal year ended February 28, 2015, we retailed 582,282 used vehicles and we sold 376,186 wholesale vehicles at our in-store auctions."

It looks like low interest rates has fueled huge demand for new cars. Last month the number of new cars sold in the U.S. hit ten-year highs with an annual pace of 18.24 million units. This is probably stealing market share from the used car market. Looking at KMX's last couple of earnings reports both their comparable store unit sales and their quarterly revenues have come in below estimates. Keep in mind that used car sales are still seeing growth but growth is slowing. That's hurting KMX's stock price since they are the largest retailer of used cars.

This stock peaked in April this year. KMX set a lower high in June. Since then shares have been stuck in a bearish trend of lower highs and lower lows. KMX is now in a bear market (down -26% from its 2015 high) and currently testing support near $55.00.

If KMX breaks key support at $55.00 it could signal the next major leg down. I wouldn't be surprised to see a drop toward $50 or even the late 2014 lows in the $44 region. Tonight we are suggesting a trigger to launch bearish positions at $54.75. Please note this is going to be a relatively short-term trade. KMX has earnings coming up in mid December. We will plan to exit prior to their announcement.

- Suggested Positions -

Short KMX stock @ $54.75

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

Long JAN $52.50 PUT (KMX160115P52.5) entry $2.00

11/13/15 triggered @ $54.75
Option Format: symbol-year-month-day-call-strike

Lululemon Athletica - LULU - close: 44.09 change: -1.15

Stop Loss: 46.55
Target(s): To Be Determined
Current Gain/Loss: +6.7%
Entry on November 12 at $47.25
Listed on November 11, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.9 million
New Positions: see below

11/17/15: LULU continued to sink with shares losing another -2.5% today. Tonight we are adjusting the stop loss down to $46.55.

No new positions at this time.

Trade Description: November 11, 2015:
Disappointing earnings guidance and rising competition have been tough on shares of LULU. It doesn't help that expectations for this holiday season are falling.

LULU is in the consumer goods sector. According to the company, "lululemon athletica inc. (LULU) is a yoga-inspired athletic apparel company with products that create transformational experiences for people to live happy, healthy, fun lives. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback."

LULU's most recent earnings report was September 10, 2015. The company beat the bottom line estimate by a penny. Revenues were up +16% from a year ago and came in above estimates. Comps showed strength with a +11% improvement on a constant dollar basis. However, management spoiled the news by drastically lowering their Q3 estimates below Wall Street expectations. The stock was crushed on this outlook.

LULU is facing a few challenges. The biggest challenge is rising competition. The athleisure trend in apparel has been around for a while now but everyone is trying to cash in on it. That includes heavyweights like Under Armour and Nike. Nike plans to almost double its sales in women's apparel by 2020. You can bet they plan on stealing some market share from its smaller rivals like LULU. LULU also has competition from other apparel stores like the Gap (with all of its various labels) and Victoria's Secret. If rising competition wasn't enough LULU has also raised their prices, which could further drive consumers toward lower cost alternatives.

Bigger picture the outlook for holiday spending this year is wilting. In the last couple of weeks multiple analyst firms have released reports that consumers will spend less time in stores (lower traffic). Plus, retail sales growth is expected to fall from last year, especially on apparel.

Technically LULU is in another bear market. The stock is down -32% from its 2015 highs. Shares have a bearish trend of lower highs as investors keep selling the rallies. Now LULU has fallen to short-term support in the $47.40-47.50 area.

My biggest concern is the elevated short interest. The most recent data listed short interest at 27% of the 110 million share float. That many shorts can make this stock volatile as weak hands could panic on any bounce. Of course longer-term the bears are probably right on LULU until the story changes. Readers may want to trade the put options to limit their risk. Tonight we are suggesting a trigger to launch bearish positions at $47.25. Plan on exiting prior to LULU's earnings report in mid December.

- Suggested Positions -

Short LULU stock @ $47.25

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

Long DEC $45 PUT (LULU151218P45) entry $2.40

11/17/15 new stop @ 46.55
11/14/15 new stop @ 48.25
11/12/15 triggered @ $47.25
Option Format: symbol-year-month-day-call-strike

Skechers U.S.A. Inc. - SKX - close: 25.32 change: -0.05

Stop Loss: 26.35
Target(s): To Be Determined
Current Gain/Loss: +13.9%
Entry on November 05 at $29.40
Listed on November 04, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 2.1 million
New Positions: see below

11/17/15: Be careful here. SKX did not see a lot of movement today. It's possible shares have found support near the $25.00 level. Tonight we are adjusting our stop loss down to $26.35.

No new positions at this time.

Trade Description: November 4, 2015:
Sometimes investors can get spoiled when a company is executing really well. When that company suddenly stumbles the reaction can be extremely painful. SKX definitely stumbled when they reported their Q3 results on October 22nd.

SKX is in the consumer goods sector. According to the company, "SKECHERS USA, Inc., based in Manhattan Beach, California, designs, develops and markets a diverse range of lifestyle footwear for men, women and children, as well as performance footwear for men and women. SKECHERS footwear is available in the United States and over 120 countries and territories worldwide via department and specialty stores, more than 1,200 SKECHERS retail stores, and the Company's e-commerce website. The Company manages its international business through a network of global distributors, joint venture partners in Asia, and 13 wholly-owned subsidiaries in Brazil, Canada, Chile, Japan, Latin America and throughout Europe."

SKX has turned in some impressive numbers this year. Back in April they reported their Q1 results, which beat estimates on both the top and bottom line. Revenues were up +40% from a year ago and hit a company record for quarterly sales. Three months later SKX did it again. They reported their Q2 results on July 29th. SKX beat estimates on both the top and bottom line. Revenues were up +36% from a year ago and another new record.

You can imagine the market's surprise when SKX reported their Q3 results on October 22nd and missed estimates on both the top and bottom line. Analysts were expecting a profit of $0.55 a share on revenues of $876 million. SKX only delivered $0.43 a share. Revenues were up +27% to $856 million. It was another record quarter for sales - their highest ever. Yet investors were suddenly worried about a slowdown in growth. There does seem to be a trend developing. Q1 revenues were +40%. Q2 was up +36%. Q3 +27%.

Prior to SKX's Q3 report the stock was up +150% year to date. The stock was up +400% from its 2014 lows. You could say the stock had gotten ahead of itself and suddenly investors hit the expectations reset button. Shares of SKX plunged -31% in one day (Oct. 23rd). Management said that negative foreign currency exchange rates in Brazil, Canada and Chile, combined with a slow domestic retail environment hurt results.

In SKX's Q3 press release they provided more details:

The Company's diluted earnings per share for the third quarter of 2015 was negatively impacted by several factors including foreign currency translation and exchange losses of $13.5 million, and increased deferred rent expenses of $3.5 million related to the new Fifth Avenue Skechers retail store, which opened during the third quarter, and a second Skechers location in Times Square, which just opened. Additionally, during the third quarter of 2015 diluted earnings per share were impacted by increased legal expenses of $5.0 million related to the settlement of personal injury lawsuits from the Company's toning footwear business; and $5.9 million in higher legal fees and associated costs primarily related to intellectual property litigation, which included the matter of Converse, Inc. v. Skechers U.S.A., Inc., which went to trial before the International Trade Commission in August of this year. The Company believes that most, if not all, of these legal matters will come to a conclusion by early next year. During the third quarter of 2015, these additional expenses reduced diluted earnings per share by $0.15.
Technically the big drop in shares of SKX has done a ton of damage. The point & figure chart is now forecasting a long-term target of $11.00 (I doubt SKX will get that low). It is significant that there has been almost no oversold bounce. SKX tried to bounce but it failed at its 200-dma. Now after consolidating sideways the last several days SKX is starting to breakdown again. Shares underperformed the market today with a -4.9% decline.

The intraday low on October 23rd was $29.55. Tonight we are suggesting a trigger to launch bearish positions at $29.40. I suspect the $25.00 level is potential round-number support and could make a good short-term target for the bears.

FYI: SKX had a 3-for-1 stock split on October 15, 2015.

- Suggested Positions -

Short SKX @ $29.40

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

Long 2016 JAN $25 PUT (SKX160115P25) entry $1.00

11/17/15 new stop @ 26.35
11/14/15 new stop @ 27.65
11/11/15 new stop @ 29.05
11/05/15 triggered @ $29.40
Option Format: symbol-year-month-day-call-strike

Seagate Technology - STX - close: 33.88 change: -0.42

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +5.5%
Entry on November 11 at $35.85
Listed on November 10, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 4.9 million
New Positions: see below

11/17/15: The bounce in STX failed at $34.74 today. Shares reversed into a -1.2% loss on the session. Tonight we are moving our stop loss down to $35.55. More conservative traders may want to lower their stop even more.

No new positions at this time.

Trade Description: November 10, 2015:
A slowdown in PC sales is killing STX's performance. Share are significantly underperforming the broader market. The company's stock is down -45% year to date.

STX is part of the technology sector. According to the company, "Seagate creates space for the human experience by innovating how data is stored, shared and used." That doesn't tell us much. Visiting their website you can learn that "Seagate is the global leader in data storage solutions, developing amazing products that enable people and businesses around the world to create, share and preserve their most critical memories and business data." Essentially STX makes hard drives and data storage for both personal and business use. This includes desktop storage, laptop storage, backup solutions, data recovery, cloud computing storage, and a lot more.

Unfortunately for investors the earnings picture has been disappointing. STX management issued an earnings warning on October 15th as they reduced their guidance for Q1 earnings and revenues. You can see the drop in their stock price on the 15th.

STX reported their 2016 Q1 earnings on October 30th. Net income fell -63.6% from a year ago. Earnings came in at $0.54 a share, which was three cents below estimates. Revenues plunged -22.7% to $2.92 billion, which matches the levels they warned about two weeks prior. STX said their gross margins contracted from 28.1% to 24.2%.

Management knew the quarter was going to be bad so they tried to soften the bad news by announcing a +17% jump in their dividend just prior to their earnings announcement. The news didn't seem to help. Their 2016 Q2 guidance did not help either as management lowered their revenue forecast below analysts' estimates. Wall Street has been reducing their ratings and their price target on the stock in reaction to the company's lowered forecast.

I could see dividend investors looking a STX as a potential buy. The plunge in the stock price has driven the dividend yield up to 6.9%. Yet who wants to buy a stock for their dividend and watch your capital evaporate?

Technically STX is in a bear market. Shares displayed relative weakness today with a -4.5% decline and a drop to new multi-year lows. The point & figure chart is already bearish and forecasting at $26.00 target. If STX trades below $36.00 it will produce a new triple-bottom breakdown sell signal on its P&F chart. Tonight we are suggesting a trigger to launch bearish positions at $35.85.

- Suggested Positions -

Short STX stock @ $35.85

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

Long JAN $35 PUT (STX160115P35) entry $1.93

11/17/15 new stop @ 35.55
11/14/15 new stop @ 36.25
11/11/15 new stop @ 37.25
11/11/15 triggered @ $35.85
Option Format: symbol-year-month-day-call-strike

iPath S&P500 VIX Futures ETN - VXX - close: 20.83 change: +1.08

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +4.5%
2nd position Gain/Loss: +28.2%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: to be determined
Average Daily Volume = 50 million
New Positions: see below

11/17/15: The market's afternoon pullback and worries over new terrorist threats in Germany today fueled some put buying. This helped lift the VXX, which rose +5.4%.

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

11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
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


Our NHTC trade was stopped out today but we are re-listing it. Please see the details in the updates section above.