Option Investor
Newsletter

Daily Newsletter, Monday, 12/15/2014

Table of Contents

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

Market Wrap

Oil Sinks To New Low

by Thomas Hughes

Click here to email Thomas Hughes
The bulls started off strong but failed to hold the gains as oil plummets and traders wait on the FOMC.

Introduction

There were many things for traders to take note of today but media attention was dominated by two things; events in Australia and falling oil prices.

A hostage situation in Australia resulted in several deaths unfolded throughout the morning hours. A lone gunman held dozens of hostages in a popular cafe for upwards of 16 hours. The situation came to a head around 10:15AM, right around the time the market started to fall. Also affecting early trading were volatile oil price which began the day in positive territory but sank to new lows following OPEC statements defending current oil production.

Even without this tragic event the day was full of news. Starting in Japan weak manufacturing sentiment sent the Nikkei plunging even as Shinzo Abe receives renewed support. Prime Minister Abe was elected to a new term over the weekend and is expected to begin enacting Abenomics 2.0 as early as this month. Not only that, the BOJ is meeting this week with a scheduled policy release for Thursday and could surprise the markets. The Japanese data, along with declining oil prices helped to send the entire region lower. European markets were able to shrug off the Asian decline but eventually fell into the red. A,lso on tap this week, a meeting of the ECB but I don't expect much from them.

Our markets were strongly higher from the earliest of electronic trading. The S&P 500 future was trading between 12 and 16 points above last week's close with the Dow Jones Industrials and NASDAQ Composite trading at relative levels. The FOMC meeting, scheduled for Tuesday and Wednesday of this week, were the focus of early trading despite the unfolding situation in Australia and poor Japanese data.

Market Statistics

Economic data was largely as expected, despite one spot of weakness, and helped to support early pre-market trading. The markets held pre-market levels and opened as indicated. The opening bell was followed by a rally that carried the indices roughly 0.75% higher within the first five minutes. Unfortunately, these levels did not hold. After 30 minutes of testing resistance the indices began to fall back.

It was about this time that the Australian hostage situation began to heat up. Shots were fired, we saw action on TV and the market went with it. However, what really had the market down was oil. New comments from OPEC, released about the same time, have them in support of current production levels. This sent prices for WTI and Brent seeking new lows and the broad market with it. The SPX was testing break even by 10:45 and then falling down to test long term support near 1985 by 11:30. The low of the day was reached by 12:00 noon at which time the indices began to recover some of the loss. Selling moderated during the afternoon but the decline was not recovered. The market was able to move off of the lowest levels of the day but still closed with most indices in the red.

Economic Calendar

The Economy

There was quite a bit of economic data released for it being a Monday, and not all of it positive. Empire State Manufacturing Survey being first on the list and the negative bit. The Empire State Manufacturing diffusion index fell 14 points to -3.6. This is the first negative reading, the lowest reading, in roughly two years. The drop was unexpected as general consensus was around 14 and the previous reading was 10.2. New orders and shipments both fell into negative territory, leading the decline, but labor remained steady at 8.7 despite a drop in the number of hours worked. The six month outlook remains positive but slightly muted from previous months.

Industrial production and capacity utilization were released at 9:15AM. Industrial production rose by 1.3% in November, following an upward revision for the June-October period. The upward revisions are not surprising in light of positive revisions we have been seeing in labor data as well as GDP in general. Output also increased, by more than 1%, and is above the long term average. Industrial production itself is nearly 7% above its long running average and more than 5% levels at this same time last year. Capacity utilization also increased, gaining 0.8%, and is now equal to its long running average.

The National Association of Home Builders released their gauge of home builder sentiment. Builder sentiment fell one point in November, to 57, from last month's reading of 58. This is the 6th month of positive sentiment and is expected to remain steady if not strengthen into the first half of next year. Two of the three sub indicators declined slightly, current conditions (-1) and future expectations (-1) while traffic remained steady at 45. Traffic is the only indicator to remain below the expansionary 50 and is expected to improve, outlook into 2015 remains positive.

Moody's Survey Of Business Confidence has reached new highs, according to Chief Economist Mark Zandi. His summary states that "Business sentiment is ending 2014 on a very high note. Confidence has surged to a new record high... consistent with an economy that is expanding well above its potential (and)... expectations regarding the economy’s prospects into next year are especially strong." He also notes that spending, hiring and sales are very strong.

The Oil Index

Wow, oil, it's still slipping. Early indications that prices may bounce were dashed when OPEC stood tall and defended current out put levels. Early on, prices were being supported by news Libyan ports were closed but this was not enough to keep them up. Brent had been up by nearly 1.5% in the early session with WTI lagging with a gain near 0.65% when OPEC announced it would not be making any production cuts. Oil prices, both Brent and WTI, then proceeded to fall with no bottom in sight. WTI led the decline with a drop of more than 3% followed by Brent's drop of just over 1%. WTI is now trading at new lows below $55 per barrel, Brent just above $60.

The Oil Index fell in tandem with the underlying commodity. The index fell a little more than 1% and dropped below a previous support line at $1250. This line was also my most recent target and now may provide additional resistance. Bearish indicators continue to gain strength, led by stochastic and a drop below into the lower signal zone. The index looks incredibly bearish at this time, but also extended from the moving averages and the trend line. There could be a snap back or consolidation but I am not holding my breath, while oil is falling the index will not doubt fall as well. Based on the height of the bearish MACD momentum is at least as strong now as during the previous low set in October.


The Gold Index

Gold sold off more than 2% as central bank expectations have dollar value firming. The triple shot of central bank meetings being a major cause for speculation this week. Not only is the Fed expected to increase hawkish verbiage, the other central banks are at least expected to defend current dovish policy if not increase it. This is a combination which could send the dollar even higher and gold potentially lower.

Gold prices fell more than $20 by 3PM, dropping back below $1200, and could go lower but I think that will depend on what the FOMC actually says. Most importantly what they say about inflation and interest rate expectations. If the interest rate time line gets pushed up gold prices could go up as well. Current expectation is for the first hike to be around mid 2015 with the bias leaning to the early side, ie the June meeting.

The Gold Index held support for the first half of the day but it did not last. Long term support at the 100% retracement line was broken by today's 4.5% decline. The indicators are now bearish and confirming the break but not overly strong. The index is moving lower with next target at or near the long term low, just below $60, set at the beginning of November. A move down to support is now likely, but a break below support is needed for a longer term bearish outlook. Gold prices will lead with the FOMC policy statement a high probability catalyst for either event.


In The News, Story Stocks and Earnings

Alcoa announced that it is buying a German titanium and aluminum casting company in order to exand its global aerospace foot print. The financial details of the deal were not disclosed but the announcement itself is important. It underscores the growing nature of the aerospace industry. There have been several deals announced this year, most of which include Alcoa already, and this move may help secure some more. Shares of the stock traded higher during the morning but fell back to support later in the day. The stock is now sitting on long term support and the bottom of a 6 month trading range. The indicators are bearish and at an extreme so support needs to be closely watched. If Alcoa recovers from the recent pull pack to support upside targets, near the top of the 6 month range, are near $17.75 or +18%. If support should fail next target for support is near $14. Alcoa is scheduled to report earnings ina about four weeks, 1/8/2015.


Today is supposed to be the biggest shipping day of the holiday season. It is the last week, very nearly the last day, to be sure you packages get to where they are supposed to be going by the 25th. And that is if there are no SNAFU's like last year. FedEx alone is expected to ship a record setting 22.6 million packages, an estimate based on industry wide projections of a 16% increase in on line sales. The jump in sales and shipping led FedEx to increase seasonal workers. Shares of FedEx were one stock to buck today's sell off, gaining a little over a half percent. The stock traded in a wide range and tested support at the 30 day moving average. The indicators are bearish but weak and in line with a pull back to support. FedEx is scheduled to report earnings on Wednesday.


According to FactSet earnings for the S&P 500 are expected to run an average of 3.0%. This is down from the 8.0% estimated earlier this year, led by downward revisions in the energy sector. This will likely move higher as more companies report; the actual average earnings usually running about 5 points above estimate and will rise over the course of the season. So far three S&P companies have reported, all three reporting sales and earnings above the mean estimate. Telecom is expected to lead earnings this quarter, energy is expected to lag.

Interestingly enough, FactSet is scheduled to report earnings tomorrow. The data analyst is expected to report EPS of $1.33 versus the previous quarter's earnings of $1.31. Today the stock traded to the upside, barely hanging on to positive territory and the 30 day moving average. The stock is testing support at $135.


Looking over the earnings calendar for the week I see that Oracle is scheduled for Wednesday as well. Oracle always stands out for me, no special reason, but it also marks the onset of an upcoming earnings season. It reports earnings roughly 4 weeks ahead of Alcoa. It was, surprisingly, another stock to buck today's sell off. Surprising as the tech's were one of today's hardest hit indices. Today Oracle gapped back up from a low set last Friday and moved back above the 30 day moving average. The stock appears to be bouncing from a test of support but is still well within the 12 month range and beneath technical resistance. Resistance is just above the current level near $42.


The Indices

The day started off strong. Futures were strong, data was largely positive and supported futures trading, the open was positive and the first five minutes of open trading was real strong. The strength did not last because the market is still waiting on the Fed and there were other events to grab attention.The events in Australia and the drop in oil each played a part, mostly the drop in oil, but the Fed I think is the underlying reason.

Today's drop was led by the NASDAQ Composite. The tech sector shed more than 1%, falling down to test support at 4,600 and stopping there. The index is now below the 30 day moving average with bearish indicators and looking like it is heading down to the long term trend line. Both MACD and stochastic are both moving lower suggesting that current support, 4,600, will be further tested at least.


The S&P 500 was next biggest loser today, dropping 0.64%. The broad market fell to test support consistent with the July all-time highs and the long term trend line. Support appears to be holding but as of now the indicators are still bearish. Today's candle is bearish, as it is long and dark, but has both long upper and lower wicks which lead me to think there is also indecision in the market. I see the FOMC meeting as the next likely catalyst so tomorrow could see another test of support. Support is currently in the range of 1980-1990.


The Dow Jones Industrial Average made today's smallest decline, dropping a little more than a half percent. The blue chip index also created a bearish candle with long wicks and retested the July all-time highs. The indicators are in decline and suggest that support will continue to be tested, perhaps until the FOMC report is released. Support is currently around 17,150 with a next possible target at 17,000 if broken.


The Dow Jones Transportation Average did not decline today. It did not close at the highs of the day but it not close in the red either. The trannies created a small doji today, with equal length candles, just below the 30 day moving average and just above the 8,750 support line. The indicators are bearish, but unlike the others, are once again showing early signs of rolling over. If support is broken next potential support is 8,500 with upside targets for a bounce near 9,000 and 9,250.


Once again the FOMC meeting is upon us and once again I think it no coincidence the markets are testing long term support just before. The trends are up, outlook is good and expectations are for policy to show this. The question is, will the statements and forward outlook support the low-interest-rate-low-inflation Goldilocks rally we are in? Along with the Fed meeting is a plethora of economic data as well. Tomorrow are two key gauges of the housing sector with CPI, Philly Fed and Leading Indicators due out later in the week.

Regardless of the Fed there are still some head winds to keep in mind, primarily Obamacare. It is still unclear how negatively it will impact job creation and the consumer, two segments of the economy important to the recovery.

Long term economic trends are still positive, and showing underlying strength. The Empire Manufacturing number is a an isolated spot of weakness for now so not alarming by itself. Outlook for next year is positive, as evidenced by numerous forward looking reports released last week. I am bullish, but still waiting to buy on the dip.

Until then, remember the trend!

Thomas Hughes

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New Option Plays

Reacting to Falling Oil Prices

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

The Greenbrier Companies - GBX - close: 43.74 change: -1.26

Stop Loss: 47.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 940 thousand
Entry on December -- at $---.--
Listed on December 15, 2014
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Railroad-related stocks have seen a dramatic shift thanks to the sell-off in crude oil.

GBX is in the services sector. The company manufacturers railroad freight cars and ocean-going barges. They also refurbish freight railroad cars. New rules by the White House on railroad tanker cars that carry crude oil should mean strong business for GBX as companies are forced to either buy new cars or refurbish old ones to meet the new requirements.

The last couple of earnings reports from GBX have been bullish. They have strong revenue growth. Management raised their 2015 earnings guidance with their last report back in October. GBX has a huge backlog. Yet none of this seems to matter at the moment. The market is transfixed on the death spiral in crude oil prices.

How does crude oil impact the railroad stocks? The shale oil revolution in the U.S. has been a major boon for the railroads. A lot of the shale oil drilling has taken place in regions with limited or no pipelines available to move the oil to be refined. That has boosted huge demand to transport oil by rail. Forbes noted that back in 2008 there were only 9,500 car loads of oil shipped by train. Yet by 2013 that has blossomed to 407,761 carloads. The first six months of 2014 saw 229,800 carloads of oil shipped by train.

Unfortunate, OPEC, mainly the Saudis, have declared war on all other oil producers, including the U.S. shale oil industry. When OPEC met on Thanksgiving they decided to not cut production knowing full well it would drive the price of oil lower. The very next day shares of GBX plunged.

Analysts have estimated that the average price to produce U.S. shale oil is in the $70-80 per barrel range. Today WTI crude oil is at $55.69 a barrel. E&P companies are not going to produce oil at a loss. That's going to cut back demand to transport oil by rail. However, it's not just oil transports the rail companies are missing out on. If the U.S. energy sector cuts back on shale oil drilling it will also reduce the need to move tons of fracking sand and metal pipes to drill all of those wells. If that wasn't bad enough the depressed oil prices mean cheaper gas and that makes trucking companies more of a competitor to normal transportation of goods.

GBX is not a railroad. They are a derivative trade on the rails and seem to be a lot more volatile. Right now the momentum is lower. GBX has spent the last few days trying to hold support at $45.00 and it has failed. The $40.00 mark might be round-number support but the next support level looks like it's closer to $37.00. The point & figure chart is forecasting at $24.00 target.

Tonight we are suggesting a trigger to open bearish positions at $43.25. We'll try and limit our risk with a stop loss at $47.05, which is just above today's high. That's a relatively wide stop loss. I do consider this a more aggressive, higher-risk trade due to the volatility. The most recent data listed short interest at 27% of the small 23.3 million share float and that raises the risk of a short squeeze (more volatility). Consider using small positions to limit your risk.

Keep in mind that this could be a short-term three or four week trade. GBX will most likely report its Q4 earnings in the early to mid January and we'll plan on exiting prior to the report.

Trigger @ $43.25 *small positions*

- Suggested Positions -

Buy the JAN $40 PUT (GBX150117P40) current ask $2.00

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Oil Continues To Weaken The Market

by James Brown

Click here to email James Brown

Editor's Note:

Another plunge in oil prices plagued the U.S. market on Monday and the major indices closed lower.

IWM hit our stop loss.


Current Portfolio:


CALL Play Updates

DineEquity, Inc. - DIN - close: 99.72 change: -0.10

Stop Loss: 97.35
Target(s): To Be Determined
Current Option Gain/Loss: +258.3%
Current Option Gain/Loss if you sold the Dec $100 call: +420.0%
Average Daily Volume = 154 thousand
Entry on November 05 at $91.55
Listed on November 04, 2014
Time Frame: Exit PRIOR to December 20th option expiration
New Positions: see below

Comments:
12/15/14: DIN continues to hold up very well and closed virtually unchanged in spite of the market's weakness. The stock gapped open higher and that helped out entry to sell short the December $100 call.

I am not suggesting new positions at this time. We want to exit both option positions on Friday before they expire.

Earlier Comments: November 4, 2014:
Restaurant stocks were showing relative strength today. Better than expected earnings results from the likes of Red Robin (RRGB) and Bloomin Brands (BLMN) helped buoy the group. Additional stocks in this industry showing relative strength on Tuesday are: BWLD, PNRA, JACK, EAT, SONC, TXRH, KKD, DNKN, CAKE, DRI, and PBP. The one we like tonight is DIN.

According to a company press release, "Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 19 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world."

The company has seen success with a steady improvement in earnings. DIN has beaten Wall Street's estimates on both the top and bottom line three quarters in a row. Their most recent report was October 28th. Analysts were looking for a profit of $1.05 a share on revenues of $157.2 million. DIN served up $1.14 per share with revenues climbing to $162.85 million.

The company saw domestic system-wide same-store sales up +2.4% at IHOP and +1.7% at Applebee's. Management then raised their sales guidance on both Applebee's and IHOP. DIN also raised its dividend by 17% to $0.875 per share and they boosted their stock buyback program from $40 million to $100 million.

The restaurant industry should be a major beneficiary of the drop in oil prices. Lower gasoline prices at the pump mean consumers have more spending money and will likely burn a lot of that cash eating at restaurants.

Shares broke out to new highs on this earnings report and bullish guidance. Today the stock is at all-time highs. The point & figure chart is bullish and forecasting a long-term target at $118.00.

Tonight we are suggesting a trigger to launch bullish positions at $91.55.

- Suggested Positions -

Long DEC $95 call (DIN141220c95) entry $1.20

December 15, 2015, at the open, sold the Dec. $100 call
Short DEC $100 call (DIN141220c100) entry $1.10

12/15/14 sold the Dec $100 call at the open
12/13/14 Sell the Dec. $100 call on Monday, Dec. 15th
12/10/14 new stop @ 97.35
12/06/14 only two weeks left on our December options
11/29/14 new stop @ 96.85
11/26/14 new stop @ 94.85, traders may want to take profits here!
11/22/14 new stop @ 93.85
11/19/14 new stop @ 92.75
11/13/14 new stop @ 92.25
11/12/14 new stop @ 91.45
11/08/14 new stop @ 89.65
11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike


F5 Networks - FFIV - close: $130.26 change: -0.29

Stop Loss: 129.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 965 thousand
Entry on December -- at $---.--
Listed on December 11, 2014
Time Frame: Exit PRIOR to earnings on January 21st, 2015
New Positions: Yes, see below

Comments:
12/15/14: This morning the NASDAQ said they are removing EXPE, FFIV, and MXIM from their NASDAQ-100 index and replacing them with AAL, LRCX, and EA. The first three stocks have been surpassed in market cap by the latter three. The changes will take place on December 22nd. This news may have exaggerated the weakness in FFIV this morning but fortunately shares bounced near last week's lows.

Currently we are on the sidelines. Our suggested entry point to buy calls is at $133.80.

Earlier Comments: December 11, 2014:
It has become a hostile world for corporations and their biggest weakness is online security. It feels like every day we hear about another company getting hacked. Last year the big story was Target (TGT). This year there were several companies, including Home Depot (HD). Just recently the current story is the terrible hacking incident at Sony, specifically their Sony movie studio. Fortunately for FFIV all of this plays to their strength as more corporations seek to beef up their cyber security.

According to company marketing, "F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

FFIV introduced a host of new products late last year and they have been knocking it out of the park with their "good, better, best" pricing strategy. Earnings this year have been consistently strong. Their report in January 2014 beat earnings on both the top and bottom line and FFIV raised guidance. The company did it again in April and July by beating Wall Street's estimates on both the top and bottom line and raising guidance.

Their most recent earnings report was October 29th, which was the company's fiscal year 2014 Q4 results. GAAP earnings came in at $1.26 a share. That's up 18% sequentially and up +23% from a year ago. Non-GAAP net income was $1.57 a share versus $1.26 a year ago. Their quarterly revenues rose +6% sequentially and +17.8% year over year to $465.3 million. Their fiscal year 2014 saw total revenues up +17% to $1.73 billion.

John McAdam, FFIV's president and chief executive officer, commented on their results saying,

"The fourth quarter of fiscal 2014 was a solid finish to a year characterized by positive customer and partner response to our Synthesis architecture, the array of new products we rolled out in fiscal 2013, our Good Better Best pricing strategy, and the enhanced capabilities of our BIG-IQ management platform... During the quarter, product revenue grew 20 percent from the fourth quarter of 2013, driven by strong sequential growth of Enterprise sales in the Americas and solid year-over-year growth in EMEA and APAC. Contributing to that growth, rising concern over the increasing number and variety of security threats helped stimulate demand for our security solutions and drive sales of our Better and Best software bundles, which include our most popular security products. This quarter, we will expand our portfolio of security offerings with the launch of our WebSafe and MobileSafe anti-malware solutions, available as software modules on TMOS, and Defense.Net, cloud-based DDoS protection that complements our on-premise DDoS solution."

FFIV management issued guidance that was in-line with Wall Street who had finally raised their estimates on the company. Speaking of Wall Street, analysts are bullish on the stock. FFIV has seen several price target upgrades in recent months with numbers like $136, $140, $150, and $151 a share. The point & figure chart is even more bullish with a long-term target of $182.00.

Investors have been consistently buying the dips and FFIV has a bullish trend of higher lows. Today shares are consolidating sideways beneath short-term resistance in the $133.50-133.75 area. Tonight we are suggesting a trigger to buy calls at $133.80.

Earnings are expected on January 21, 2015, so we'll plan on exiting ahead of the report. I don't see any February options available so we'll use the normal January calls that expire on the 17th.

Trigger @ $133.80

- Suggested Positions -

Buy the Jan $135 CALL (FFIV150117C135)

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


The Home Depot - HD - close: 100.05 change: +0.27

Stop Loss: 97.25
Target(s): To Be Determined
Current Option Gain/Loss: +28.1%
Average Daily Volume = 6.4 million
Entry on December 08 at $100.25
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/15/14: HD managed to eke out a gain of +0.2% but that was enough to outperform the major market indices. HD is still finding short-term resistance in the $101.00 area.

Investors may want to wait fro a close above $101.40 before considering new bullish positions.

Earlier Comments: December 6, 2014:
Shares of HD ended the week at an all-time closing high, just below the $100 mark. The company had a bit of a rough start to 2014. They missed estimates on both the top and bottom line when they reported back in February and management lowered their forward guidance. They missed estimates again in May. Momentum changed with their August earnings report as HD beat Wall Street's bottom line estimate and raised their 2015 guidance.

HD appears to be benefitting from the growing U.S. economy. Falling unemployment means more people are working. Homebuilders are feeling confidence. The U.S. is seeing strong housing starts. Consumers are remodeling their homes. The do-it-yourself trend remains strong. HD is starting to see growth in the "connected home" concept, which is part of the Internet of Things (IoT) with remote control garage doors, home monitoring, thermostats, and light fixtures.

HD is in the services sector. According to the company website, "The Home Depot is the world's largest home improvement specialty retailer, with 2,269 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2013, The Home Depot had sales of $78.8 billion and earnings of $5.4 billion. The Company employs more than 300,000 associates."

Investors were keenly focused on the company's latest earnings report, HD's Q3 report, which came out on November 18th. Analysts wanted to know if the massive data breach reported by HD in September would negatively impact sales. It looks like the data breach has been overlooked by most if HD's customers.

Wall Street was looking for Q3 results of $1.14 per share on revenues of $20.47 billion. HD said their earnings per share rose +21% to $1.15 (up from $0.95 a year ago). Revenues improved +5.4% to $20.52 billion. The company said their overall comparable store sales were up +5.2% while inside the U.S. comps were up +5.8%. Online sales surged +40%.

HD gave relatively bullish guidance. They still expect +21% earnings growth in 2015. However, they noted that current guidance does not include any probable losses from the data breach. Last year Target (TGT) was a high-profile company that confessed to a huge data breach where millions of customer credit card data was stolen. This year Home Depot has been another high-profile company targeted by hackers.

HD said approximately 56 million cards may have been compromised. They have since plugged the hole in their cyber security. HD did confess in a recent SEC filing that they are facing 44 civil lawsuits in U.S. and Canada in response to the data breach. In spite of all the bad news investors continue to bid the stock higher.

Since HD's earnings report in November the stock has received several price target upgrades. The point & figure chart is also bullish and forecasting at $110 target.

Friday's November jobs report shows that the U.S. economy could be picking up speed, which would be bullish for HD. It looks like shares are going to breakout past significant round-number, psychological resistance at the $100 level.

Tonight we are suggesting a trigger to buy calls at $100.25.

Interesting factoid: HD's last stock split was a 3-for-2 split back in 1999 in the $90-100 range. I'm not predicting they will announce a new split but you never know.

- Suggested Positions -

Long FEB $105 CALL (HD150220C105) entry $1.21

12/08/14 triggered @ 100.25
Option Format: symbol-year-month-day-call-strike


Starbucks Corp. - SBUX - close: 80.89 change: -2.36

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: -36.7%
Average Daily Volume = 4.0 million
Entry on December 10 at $83.55
Listed on December 09, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/15/14: SBUX managed to ignore the market's decline most of last week. Suddenly shares were participating in the market's weakness on Monday. The stock gapped open lower near its 10-dma and then plunged to a -2.8% decline.

We shouldn't be surprised. I have been suggesting that traders look for a dip near $82.00 or $80.00 as a potential entry point for new bullish positions. However, given the market's weakness, investors may want to wait for signs that SBUX is actually bouncing from support before initiating new trades. Our stop is currently at $79.90.

Earlier Comments: December 9, 2014:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results have only been so-so this year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks like it's about to change.

Five-Year Plan

SBUX recently announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company just launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

Wall Street is bullish on the stock. Several firms have upgraded shares recently. Carter Worth, chief market technician at Sterne Agee, thinks SBUX could rally +10% to +15% in the short-term. JP Morgan raised their price target to $89. Goldman Sachs just added SBUX to their conviction buy list with a $95 target. Piper Jaffray has a $100 target. The same analyst at Piper believes SBUX's stock could double in the next four years. The point & figure chart is bullish and forecasting at $105.00 target.

The breakout past its all-time highs set in Q4 of 2014 is very bullish. This pullback is a gift. Tonight we are suggesting a trigger to buy calls at $83.55.

- Suggested Positions -

Long Feb $85 CALL (SBUX150220C85) entry $2.29

12/10/14 triggered @ 83.55
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Arrow Electronics - ARW - close: 55.23 change: -0.83

Stop Loss: 57.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 585 thousand
Entry on December -- at $---.--
Listed on December 13, 2014
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Comments:
12/15/14: ARW continued to sink as expected and underperformed the market with a -1.48% decline versus the -0.6% drop in the S&P 500. It's worth noting that the sell-off paused at technical support on ARW's simple 50-dma. That's why our suggested entry point is at $54.75. We wanted to see a drop below this moving average.

Earlier Comments: December 13, 2014:
ARW is in the services sector. The company sells electronic components at the wholesale level. The company describes itself as "a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. Arrow serves as a supply channel partner for more than 100,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 460 locations in 58 countries."

Most of this year ARW has been reporting results that beat Wall Street's bottom line estimates but they kept missing the revenue number. That changed with their Q3 results when ARW reported on October 29th. ARW managed to beat estimates on both the top and bottom line with revenues up +11% from a year ago. Management offered relatively bullish guidance. Yet the stock did not react. That appears to be the mystery.

ARW's share price performance immediately slowed down following its Q3 report. You can see on the daily chart below that ARW plunged with the market's correction in September and October. Yet while the S&P 500 lost about -10% during that pullback shares of ARW lost more than -25%. When the market started to bounce ARW followed but its rally stalled after its Q3 report. The S&P 500 and the NASDAQ continued to rally and broke out to new highs for the year. ARW was unable to follow suit. Now the stock appears to be reversing after a failed rally at round-number resistance near the $60 mark.

With the new lower high there is a good chance the weakness in ARW continues. The stock never reversed its massive sell signal on its P&F chart. Tonight we are suggesting a trigger to open bearish positions at $54.75. More aggressive traders may want to jump in earlier (like a drop under $56.00) but we would like to see ARW trade below its simple 50-dma (currently $55.22).

Trigger @ $54.75

- Suggested Positions -

Buy the Jan $55 PUT (ARW150117P55) current ask $2.20

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




CLOSED BULLISH PLAYS

iShares Russell 2000 ETF - IWM - close: 113.55 change: -1.16

Stop Loss: 113.75
Target(s): To Be Determined
Current Option Gain/Loss: -22.8%
Average Daily Volume = 40 million
Entry on December 12 at $114.78
Listed on December 10, 2014
Time Frame: exit prior to January option expiration
New Positions: see below

Comments:
12/15/14: Our speculative trade on the IWM did not pay off. The market continued to sink on Monday and the IWM broke down under key support in the $114.00 area and its 200-dma. Shares of this ETF also broke down below their 50-dma and hit our stop loss at $113.75 before lunchtime.

*small positions* - Suggested Positions -

Jan $115 CALL (IWM150117C115) entry $2.72 exit $2.10 (-22.8%)

12/15/14 stopped out at $113.75
12/12/14 triggered on gap down at $114.78, suggested trigger was $115.00
Option Format: symbol-year-month-day-call-strike

chart: