Option Investor
Newsletter

Daily Newsletter, Thursday, 1/8/2015

Table of Contents

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

Market Wrap

Can You Say Rally

by Thomas Hughes

Click here to email Thomas Hughes
Economic data, along with FOMC outlook and a string of positive guidance carried the market higher.

Introduction

Today was a good day to be in the market. Economic data, FOMC outlook support and plain old good news added forward momentum to the indices and lifted not only our own, but markets around the world. Asian and European indices both moved more than 1% higher with those in the EU gaining upwards of 3%. Helping to support the EU markets is yesterday's read on inflation for the region which is leading traders to speculate heavily on potential QE moves by the European Central Bank.

Futures trading was positive from the very start. The S&P 500, Dow Jones Industrials and NASDAQ Composite were all indicated about 1% higher with some signs of strength going into the bell. Labor data and guidance news released in the pre-market session helped early trading reach it highest levels. All ten S&P sectors were in the green once the opening bell sounded and quickly moved higher. The SPX was up about 1% in the first 10 minutes of trading and extended the gain all morning.

Market Statistics

Trading held steady through the lunch hour and was buoyed by all the news. A minimum of 5 retail stocks including American Eagle, Cato and Aeropostale raised guidance for 2015 along with several health companies and an auto-industry wide upgrade from GM. GM CEO Mary Barra came out during the morning, speaking at a conference, and upgraded US automotive sales to over 16.5 million this(2015) year. I believe her outlook is shared by execs at Ford because they announced an increase to the dividend.

After lunch the market made another high, and then another and another. No sector was left out with gains in the range of 2% or more. The gains were broad with advancers leading decliners by at least 3 to 1. By 2:30 there was still no indication of the rally letting up. Buying persisted throughout the afternoon and into the close keeping the indices at or near the intra-day high.

Economic Calendar

The Economy

Challeger Gray&Christmas released their report on planned layoffs leading off this mornings line-up. The firm reports that the number of planned lay-offs fell in December to 32,640. This is 9.2% lower than the previous month, the 2nd month of declines and the third lowest reading for this year. While slightly above December levels last year, the total for 2014 is 5% lower than 2013 and the lowest level since 1997. This is looking pretty good to me and should help to keep the labor market on track. And also help to reverse some of the gains in jobless claims we saw last month as well.

Challenger Gray&Christmas see this as very positive for the labor market and job seekers. Company CEO John A. Challenger had this to say in response to the numbers, “Layoffs aren’t simply at pre-recession levels; they are at pre-2001-recession levels. This bodes well for job seekers, who will not only find more employment opportunities in 2015, but will enjoy increased job security once they are in those new positions,” His statements jibe with other data, such as the JOLTS/Quits rate, which suggest that employees are growing more confident in the market. The next JOLTS is due next week.

It's been three weeks since I've been able to touch base on jobless claims and in that time not much happened. Claims have held steady at or near current low levels. This weeks report shows a drop of 4,000 from last week's unrevised figure. This puts claims at 294,000, below the 300K mark and firmly in line with long term trends. At this level claims are indicating low amounts of turnover in the market and are conducive to declining unemployment. On an not adjusted basis claims rose by 9.1% versus a 10.6% gain expected by seasonal factors. Michigan and New York led with increases of 11,000 and 9,000 respectively; Texas and North Carolina led with declines in claims of -7,000 and -2,400.


Continuing claims ticked higher this week by 101,000. This is above expectations for ongoing claims to remain flat or mildly rise. The previous week was revised lower by -2,000 but doesn't lessen the gain this week. Continuing claims are back over 2.4 million but remain near long term lows set in November.

Total claims for unemployment benefits fell by -135,432 making this fourth week of increased volatility in this number. Claims are down from their recent peak and near long lows but remain elevated off of those lows. This is most likely coincidental with the November increase in initial and continuing claims (total claims lag initial claims by two weeks) but bears watching. Regardless, claims are still near the long term lows and at levels consistent with the long term decline in unemployment.


Tomorrow be on the lookout for the ever important NFP payrolls and unemployment data. Payrolls are expected to be around 250K, just like the ADP, with unemployment holding steady. After last months surprisingly big NFP I would not be surprised to see a downward revision and/or a drop this month. An upward revision would just be over the top I think.

What may be more important now and into the future is earnings and workweek. We need to see hourly earnings and wage inflation on the rise as well as the work week holding steady or improving in order to maintain the momentum that is growing in the economy.

The Oil Index

Oil prices held steady today. WTI traded just below $49 while Brent hovered just below $51. This is most likely on bottom picking as there is no other sign of support for prices. The cold weather may have some impact but is most likely factored in. WTI is hanging around the 5.5 year low and now at extended levels and possibly susceptible to a snap back.

The Oil Index traded to the upside today, gaining more than 2.5%. Today's action is driven on the so-called stabilization of oil prices and the broad market rally. While a positive, today's move has only brought the index up to retest resistance along the now 4 month down trend. The index is now at resistance with bearish indicators and still looks set up to test support along the 1,212 level. However, there is a divergence in the indicators suggesting that support could be strong at this level. Not only that, if oil prices are able to snap back then the index could break back above the trend line.


The Gold Index

Gold was basically flat around $1210 today after making a mid day surge to $1215. Gold prices are now above $1200 for the third day and are being supported by economic trends. Economic data released today, along with the FOMC minutes yesterday, are leading the market to think more and more that interest rates will rise sooner and not later. This same data is causing a spike in the dollar that sent the Dollar Index to new highs but its affects on gold are being dampened by the longer term outlook. Also, reports that physical buying is on the rise is helping support prices too.

The GDX Gold Miners ETF is trying really hard to break out of its current pattern, to the upside. The ETF and sector as a whole has been exhibiting signs of potential bottoming based on the stabilization in gold prices, the long term economic outlook and expectations for inflation/rising interest rates. Over the last 2 ½ months it has been in a pattern that, along with the MACD and stochastic, indicating support at $17.50. Today's action is the third day of trading since bouncing off of that support and could now be confirming resistance. The indicators are bullish but MACD has peaked which is in line with price meeting resistance. If the index does break above resistance targets are equal to the height of the previous pattern, about $2.50. If resistance is not breached downside potential is equally $2.50 with a target at or near the long term low just below $17.50.


In The News, Story Stocks and Earnings

Biogen hit the news this morning as well, providing its own amount lift to the market. The company announced that one of its drugs has shown promising results in a 2nd stage trial for optic nuerosis. This, along with an upgrade for Boston Scientific and upwardly revised guidance from Valeant and ISIS Pharma helped lift the entire health care sector. Shares of Biogen tried to gap open but lost the gain, ending up down for the day. The stock lost about a half percent today but is trading near the top of the 12 month range. While the news for Biogen is good, drugs in 2nd stage trials are still a long way from making money for this company.


The retail sector is another to receive a number of upgrades and other positive developments. At least 5 retailers raised guidance today. The companies cited strong holiday sales as well as benefits from restructuring and brand repositioning. American Eagle, Aeropostale and Cato are among the five. Some caution is due however as many of these companies had very low hurdles to beat in the first place. The upward revisions may merely be putting expectations more firmly in reality. The XRT Retail Spyder moved higher in the pre market and made a small gap at the open. Today's action created a small doji and set a new all-time closing high, but not an all-time intra-day high. Resistance may be found at the all-time intra-day high with indicators suggesting a shift in momentum to the upside may be in progress. If so expect a test of resistance near $97.


Constellation Brands reported better than expected results driven by higher deliveries of beer. I am not surprised, I know I do my part to help. The company was able to raise full year guidance because of the increase in business and expects strong volumes and sales increases into calendar 2015. Guidance is now in the $4.25-$4.35 range, above the previous range. Shares of Constellation, which have been in a mild up trend for the past 12 months, moved higher in early trading and gapped up nearly 5% at the open. Shares traded in a wild range throughout the day but the bulls were able to keep control into the closing bell. My take; if beer is gods gift to the working man, and there are more and more working men (and women) everyday as evidenced by the trends, Constellation should do well into the foreseeable future.


Family Dollar reported earnings and revenue below expectation. The company reported adjusted earnings of $0.44 versus an expectation of $0.59. The miss is blamed on a “very challenging” fiscal quarter do in part to the companies transition from a “promotional brand to a more everyday low price brand”. In hindsight maybe this isn't surprising. Another big name company, cough JCP cough, tried to do that and failed ... and then someone got fired. Shares of the stock were little changed as they are caught between a merger agreement with Dollar Tree and a tender offer from Dollar General. Both Dollar General and Dollar Tree fell in today's session, led by DG with a drop of 1.22%.


The Indices

The markets wanted to move higher, and it did. Much higher, near 2% in most cases with no sector losing out. The gains were broad and by all accounts strong, led by the Dow Jones Transportation Average. The transports gained 2.15% today, moving up 188.85 points to finish the day right at the 30 day moving average. Today's action brings the index to the middle of the two month range with indicators that remain bearish. The long term trend is up, but the short term trend is sideways until resistance is broken. Resistance is the all time highs and top of the two month range near 9,250. Failure to break above resistance could keep the index range bound into the short term.


The NASDAQ Composite is runner up today. The tech heavy index made a gain of 1.89% and created a gap at the open. Today's action broke above the short term moving average and is approaching the long term high set over the Christmas holiday. The index is moving higher in a trend following bounce but is not yet confirmed by the indicators. Both MACD and stochastic are consistent with the trend and support in the long term but have only begun to turn bullish in the near term. Current target is the long term high, near 4,800, with support just above the long term trend line.


The Dow Jones Industrial Average was next biggest gainer in today's session. The blue chip index climbed 1.84%, over 320 points, and is fast approaching its current all time high. Today is now the 2nd day in a month of trading in which the index moved 300 points or more, up, from support at 17,500. While the transports look like they are trading sideways, the industrials have a slightly more upward tilt to price action over the past two months.


The S&P 500 is last up in today's action. The broad market gained 1.79% and erased all its losses year-to-date. Today's move extends the trend following bounce that began yesterday and confirms the long term trend. The indicators have not yet confirmed but they are shifting to the upside so not a worry as yet. The index looks like it is on the way up with the current all time as a first target for resistance. Support is along the long term trend line between 2,000 and 2,020 should the bulls go running for cover. I'm bullish in the near term, and in the long term, but with resistance just above and earnings season starting on Monday the index could continue to be volatile over the next month or so.


I have to say it looks like the bull market is alive and well. The bulls were out in force today, driving stocks higher across the board with a broad rally. Today's action is a trend following bounce with economic tailwinds that looks likely to carry the indices to retest current highs if not move higher. The only thing standing in the way right now is economic data and how it affects future outlook, along with earnings and geopolitics.

Tomorrow we get a big dose and perhaps the most important piece of monthly data at this time, Non Farm Payrolls. Provided the data remains in line with trends and does nothing to dispel the idea that 2015 will be as good or better than 2014 then the bull market should continue.

After the data the next hurdle for us to get past is earnings season. Based on today's action the expectations are good but the season could add some churn to the market. The season starts on Monday and heats up toward the end of the week but the bulk of companies are not scheduled to report for another week or two.

Until then, remember the trend!

Thomas Hughes

 

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New Option Plays

Analysts Raising Estimates

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Facebook, Inc. - FB - close: 78.18 change: +2.03

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 33 million
Entry on January -- at $---.--
Listed on January 08, 2014
Time Frame: Exit PRIOR to earnings on January 28th
New Positions: Yes, see below

Company Description

Why We Like It:
FB is the largest social media company. If the company's audience was a country their 864 million daily active users would mark them as the third most populous country on the planet behind India and China. They have 1.35 billion monthly active users. FB has done an impressive job in monetizing all of these eyeballs. Earnings continue to growth. The company has beaten Wall Street's earnings estimates on both the top and bottom line the last four quarters in a row.

Last month Citigroup issued a pretty bullish note on Instagram. Back in April 2012 the market was pretty skeptical when FB CEO Mark Zuckerberg decided to pay $1 billion to buy Instagram. Yet two years later Instragram has surpassed 300 million users. Citigroup now estimates the business is worth $35 billion (FB actually paid about $715 million).

FB continues to see strong growth in its WhatsApp texting service. Last April FB paid an astonishing $19 billion for the instant messaging service when WhatsApp had 600 million users. This past week WhatsApp hit 700 million monthly active users. FB still hasn't announced any new plans to monetize this service but will be extremely valuable when they do.

Wall Street is growing optimistic on FB. Thomson Reuters said analysts have been raising their earnings estimates on FB's Q4 results. According to the IBD analysts "now expect Facebook to earn 48 cents per share minus items in Q4, compared with 31 cents in Q4 2013. That's an increase of 55%."

The amount of video content on FB is growing as well. Last year FB purchased LiveRail, a small startup that now helps FB deliver video outside the social network. CEO Zuckerberg recently said that the amount of video in the average user's news feed rose 3.6% in the past year. The number of video posted by users soared +75%. FB has been delivering more than one billion video views a day since June last year. The company plans to capitalize on this trend and sell more video advertising. That's why it's not surprising that FB just announced today they purchased QuickFire, another video technology company.

Shares of FB didn't really participate in the market's bounce yesterday but they appeared to be playing catch up today with a +2.65% gain. The stock is bouncing from technical support at its trend of higher lows. I see this as a opportunity for a short-term trade to play a rally into FB's earnings report. The company is set to report Q4 earnings on January 28th. We do not want to hold over the announcement.

The simple 10-dma is at $78.50. We are suggesting a trigger to buy calls at $78.65.

Trigger @ $78.65

- Suggested Positions -

Buy the FEB $80 CALL (FB150220C80) current ask $2.99

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

Daily Chart:

Intraday Chart:



In Play Updates and Reviews

Central Bank Hopes Boost Market

by James Brown

Click here to email James Brown

Editor's Note:

Expectations for more stimulus from the ECB and dovish comments from a U.S. federal reserve governor helped fuel the market rally.

A drop in volatility for oil prices also helped soothe market fears, at least for today.

After two big days of market gains we saw ANET hit our stop loss. Tonight we are removing PM.


Current Portfolio:


CALL Play Updates

Alkermes plc. - ALKS - close: 65.23 change: -1.52

Stop Loss: 57.25
Target(s): To Be Determined
Current Option Gain/Loss: +41.9%
Average Daily Volume = 833 thousand
Entry on January 07 at $63.01
Listed on January 06, 2014
Time Frame: Exit PRIOR to February option expiration
New Positions: see below

Comments:
01/08/15: After yesterday's announcement about positive clinical trial data shares of ALKS received a lot of positive press and a new higher price target. Yet that didn't stop shares from seeing some profit taking today.

I am not suggesting new positions at this time.

Earlier Comments: January 6, 2015:
Biotech stocks were not immune to the market's widespread sell-off today. Yet one stock was bucking the trend. That's biotech stock ALKS.

According to the company's marketing material, "Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to develop innovative medicines that improve patient outcomes. The company has a diversified portfolio of more than 20 commercial drug products and a substantial clinical pipeline of product candidates that address central nervous system (CNS) disorders such as addiction, schizophrenia and depression. Headquartered in Dublin, Ireland, Alkermes plc has an R&D center in Waltham, Massachusetts; a research and manufacturing facility in Athlone, Ireland; and manufacturing facilities in Gainesville, Georgia and Wilmington, Ohio."

Investors want to see companies with a growing pipeline of drugs and ALKS certainly qualifies. Here is a list of treatments in various stages of clinical trials at ALKS current pipeline .

The stock's jump today was thanks to a press release issued this morning. Here's an excerpt from ALKS' press release:

[ALKS] today announced topline results from FORWARD-1, one of a series of supportive clinical studies in the comprehensive FORWARD phase 3 pivotal program for ALKS 5461, a once-daily, oral investigational medicine with a novel mechanism of action for the adjunctive treatment of major depressive disorder (MDD). The FORWARD-1 study was designed to evaluate the safety and tolerability of two titration schedules of ALKS 5461. In addition, the study assessed the efficacy of ALKS 5461 over an eight-week period, compared to baseline, in patients with MDD.

...significantly reduced depressive symptoms from baseline starting at Week One and continued to the end of the treatment period at Week Eight...

If this treatment gets approved by the FDA it could be huge. According to a Thomson-Reuters article, depression is a massive opportunity going forward. Almost 350 million people worldwide suffer with depression and it's the leading cause of disability in the world. As more and more healthcare systems around the world get better at diagnosing depression it's going to drive demand for treatment.

Jim Cramer, on CNBC, mentioned ALKS this morning and commented on the company's press release about this new depression drug.

Technically shares have been showing relative strength the last few days and ignoring the market's sell-off. Today's breakout past resistance at $60.00 has also produced a new point & figure chart triple-top breakout buy signal with a $100 price target.

I am cautioning readers that biotech stocks are volatile. ALKS is no different. This is another higher-risk, more aggressive trade. The option spreads are pretty wide, which puts us at a disadvantage.

Tonight we are suggesting small bullish positions if ALKS can trade at $61.75. I would prefer to buy March calls since ALKS reports earnings in late February but March options are not available yet.

- Suggested Positions -

Long Feb $65 CALL (ALKS150220C65) entry $3.10

01/07/15 triggered on gap higher at $63.01, suggested entry was $61.75.
Stock rallied on positive Phase 2 trial data for schizophrenia drug.
Option Format: symbol-year-month-day-call-strike


Athenahealth, Inc. - ATHN - close: 144.79 change: +0.94

Stop Loss: 139.15
Target(s): To Be Determined
Current Option Gain/Loss: - 18.2%
Average Daily Volume = 516 thousand
Entry on January 08 at $146.25
Listed on January 03, 2014
Time Frame: Exit PRIOR to earnings in early February
New Positions: see below

Comments:
01/08/15: Our bullish trade on ATHN is finally open after we changed the entry point last night. The plan was to buy calls at $146.25. ATHN opened higher at $145.08 and then almost made it to $147 before paring its gains. Our trigger was hit. I'm a little concerned that ATHN underperformed the broader market and the rally today failed at the simple 10-dma.

If you're still looking for a new entry point you may want to wait for a rise past today's intraday high (above $146.91).

Earlier Comments: January 3, 2015
You might think Athenahealth is in the healthcare sector but it's actually in the technology sector. The company provides information services to the healthcare sector. ATHN describes itself as "athenahealth is a leading provider of cloud-based services for electronic health records (EHR), revenue cycle management and medical billing, patient engagement, care coordination, and population health management, as well as Epocrates and other point-of-care mobile apps. We connect care and drive meaningful, measurable results for more than 59,000 health care providers in medical practices and health systems nationwide."

Earnings in 2014 have been up and down. ATHN missed estimates in April 2014. They beat estimates in July and then reported in-line results in October. Their next report is expected in early February.

ATHN held an investor day on December 10th. They reaffirmed their 2014 guidance, which is essentially 22% to 27% year over year growth with gross margins in the 63% range. They also provided a 2015 forecast of +20% growth with revenues in the $900-925 million area. There was some concern that this 2015 guidance was too light but shares have been soaring in spite of the initial dip on the news.

If you're going to trade ATHN it's worth pointing out that David Einhorn, the outspoken hedge fund manager at Greenlight Capital, issued a very bearish call on ATHN back in May 2014. We don't know if he's still short ATHN but his opinion may have fueled the short interest in this name. The most recent data listed short interest at 26% of the small 37.5 million share float. Unfortunately for the bears they have been getting killed with the rally from its December lows.

ATHN's recent breakout past resistance in the $145-146 area is bullish and helped generate a buy signal on the Point & Figure chart that is suggesting at $178 target. Technicians will note that ATHN found support right where it was supposed to at prior highs (near $146).

If this rally continues ATHN could see more short covering. Tonight we are suggesting a trigger to buy calls at $150.45 with a stop at $144.90. We will plan on exiting prior to ATHN's earnings report in early February (no confirmed date yet).

- Suggested Positions -

Long FEB $155 CALL (ATHN150220C155) entry $5.50

01/08/15 triggered @ 146.25
01/07/15 strategy update: move the entry trigger from $150.45 to $146.25, move the stop loss to $139.15
Option Format: symbol-year-month-day-call-strike


Royal Caribbean Cruises - RCL - close: 84.51 change: +1.32

Stop Loss: 78.40
Target(s): To Be Determined
Current Option Gain/Loss: +18.7%
Average Daily Volume = 2.9 million
Entry on December 24 at $82.30
Listed on December 22, 2014
Time Frame: We will likely exit prior to earnings in very late January
New Positions: see below

Comments:
01/08/15: It was a bullish day for RCL. Shares added another +1.5% but more importantly RCL broke through resistance near $84.00. If you were looking for a new entry point today's move is another opportunity.

Earlier Comments: December 22, 2014:
The cruise line stocks have been pretty strong this year. Carnival Cruise (CCL) has been the weakest of the big three with a +11.5% gain in 2014. That compares to the S&P 500's +12.0% gain. Norwegian Cruise Line (NCLH) is up +32% this year. Meanwhile RCL has outpaced them all with a +69.9% gain in 2014 as of today.

According to a company press release, "Royal Caribbean Cruises Ltd. is a global cruise vacation company that owns Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises and CDF Croisieres de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 42 ships with an additional seven under construction contracts, and two on firm order. They operate diverse itineraries around the world that call on approximately 490 destinations on all seven continents."

CCL has suffered a series of mishaps, bad decisions, and just poor luck in recent years and RCL has managed to capitalize on its rivals misfortune, especially in Europe. Earnings growth for RCL has kind of mediocre. Their most recent report was October 23rd. RCL beat estimates by a penny while revenues were only in-line with Wall Street estimates. Management then guided lower for Q4. So why has the stock performed so well? Normally when a company lowers their earnings forecast the stock gets hammered!

A big part of the stock's rally has been weakness in crude oil. These are massive ships. They burn between 140 to 150 tons of fuel every single day. That's about 30 to 50 gallons a mile. Falling oil prices mean that fuel costs for these companies has plunged dramatically and should boost their profit margins.

Tigress Financial Partners recently shared their opinion that the cruise liner industry has "benefited from strong demand trends both domestically and globally and more recently the swoon in oil prices has helped to reduce one of their largest costs - fuel. We think long-term demand trends are bullish for the sector and lower oil prices not only mean lower fuel costs but more discretionary cash in consumers' pockets that can be used for additional expenditures on leisure time." Their point about consumers having more cash to spend on leisure is a big one.

The month of December has brought more good news for shares of RCL. On December 1st the S&P Dow Jones Indices announced they would replace Bemis (BMS) with RCL in the big cap S&P 500 index. That means all the mutual funds that track RCL have to buy it eventually. That went into effect on December 4th.

On December 8th analyst firm Jefferies said "The cornerstone of our view on RCL has been that it offers a superior product, this is based on the following: it has a younger fleet, more new ships being built, more impressive features available (e.g. high-speed internet), a better strategy with respect to distribution of cabins (more Balcony berths available) and better brand perception." Jefferies then raised their price target on RCL from $73 to $87.

The analyst love continued on December 22nd when Stifel analyst Steven Wieczynski said, "you have a stock that is trading at 14x forward earnings (2016) for average EPS growth of 28 percent/year for the next three years. When we look back at where Carnival Corp. has traded (15x-17x) on average on a forward EPS basis and then apply the same multiple to RCL, there is clearly a significant amount of upside from current levels" for RCL. Stifel raised their price target on RCL from $88 to $96.

Technically the stock has been showing strength with a bullish trend of higher lows and higher highs. The breakout past resistance at $80.00 is bullish. Today's intraday high was $82.20. Tonight we're suggesting a trigger to buy calls at $82.30.

- Suggested Positions -

Long MAR $85 CALL (RCL150320C85) entry $3.37

12/24/14 triggered @ 82.30
Option Format: symbol-year-month-day-call-strike


Whole Foods Market, Inc. - WFM - close: 50.64 change: +0.47

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: + 2.6%
Average Daily Volume = 4.9 million
Entry on January 08 at $50.35
Listed on January 07, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
01/08/15: Our new WFM play was triggered this morning. The plan was to buy calls when shares rallied to $50.30 but WFM actually gapped open at $50.35. The stock rushed toward short-term resistance near $51.00 before paring its gains.

Earlier Comments: January 7, 2015:
WFM is in the services sector. As of November 2014 the company had 401 stores in the U.S., Canada, and the United Kingdom. Founded in 1978, WFM has become synonymous with healthy, organic food, at least for a growing portion of the population.

In early May 2014 the stock was crushed when the company missed Wall Street's earnings estimates and lowered its 2014 guidance. Investors were very unhappy with WFM's same-store sales growth as well. The organic food space has been growing more competitive in recent years as other retail groceries seek to boost their profits with wider margin "organic" fare.

WFM spent months languishing in the $36-40 zone before finally surging in early November. The big rally was sparked by better than expected earnings results and management raising their 2015 guidance. Shorts panicked and the stock exploded higher.

WFM has been slowly working its way higher since then but now WFM looks poised to breakout past key resistance at the $50.00 level.

The huge drop in gasoline prices is very bullish for the U.S. consumer. They now have more money in their pocket that they can spend on other items, like high priced organic foods at WFM.

Traders have started buying the dip and shares hit an intraday high of $50.18 today. Tonight we are suggesting a trigger to buy calls at $50.30. We will plan on exiting prior to WFM's earnings results in mid February.

- Suggested Positions -

Long FEB $50 CALL (WFM150220C50) entry $2.30

01/08/15 triggered on gap open at $50.35, suggested entry was $50.30
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Dover Corp. - DOV - close: 69.71 change: +0.57

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +21.7%
Average Daily Volume = 1.7 million
Entry on December 29 at $73.40
Listed on December 27, 2014
Time Frame: Exit PRIOR to earnings on January 27th.
New Positions: see below

Comments:
01/08/15: The oversold bounce in DOV continued for a second day (just like the broader market). DOV managed a +2.0% gain and looks like it's headed for what should be possible short-term resistance in the $72.00 area. Tonight we are adjusting the stop loss down to $72.25. I am not suggesting new positions at this time.

Earlier Comments: December 27, 2014:
DOV is part of the industrial goods sector. They make an array of equipment and parts for multiple industries. According to the company, "Dover is a diversified global manufacturer with annual revenues of $8 billion. We deliver innovative equipment and components, specialty systems and support services through four major operating segments: Energy, Engineered Systems, Fluids, and Refrigeration & Food Equipment. Dover combines global scale with operational agility to lead the markets we serve."

Unfortunately for DOV investors the company's earnings picture has soured. Back in October they reported their Q3 results that beat Wall Street estimates on both the top and bottom line. Yet management issued relatively bearish guidance. It would appear that the outlook is worse than previously thought. On December 8th DOV issued an earnings warning and lowered their 2014 guidance. They're blaming restructuring costs and downsizing expenses.

The very next day (Dec. 9th) an analyst at Deutsche Bank downgraded DOV to a "sell" and lowered their price target from $83 to $65. Deutsche Bank's concern is DOV's exposure to the U.S. oil and gas industry. More than 33% of DOV's profits come from sales to the U.S. oil and energy sector. Given the plunge in crude oil prices this year (to five-year lows) the United States is already seeing a slowdown in oil rig use. A lot of the shale oil is expensive to drill and oil needs to be above $75 to be truly profitable. Right now oil is closer to $55 a barrel. That's going to significantly encumber capital spending for the oil industry and DOV could suffer as a result.

Technically shares of DOV broke their long-term up trend in 2014. Shares have developed a bearish trend of lower highs and lower lows. It looks like the most recent oversold bounce has just started to stall. We want to catch the next wave lower. Tonight I'm suggesting a trigger to buy puts at $73.40.

- Suggested Positions -

Long MAR $70 PUT (DOV150320P70) entry $2.30

01/08/15 new stop @ 72.25
01/03/15 new stop @ 74.25
12/29/14 triggered @ 73.40
Option Format: symbol-year-month-day-call-strike


CLOSED BEARISH PLAYS

Arista Networks, Inc. - ANET - close: 66.12 change: +0.98

Stop Loss: 66.25
Target(s): To Be Determined
Current Option Gain/Loss: -35.4%
Average Daily Volume = 534 thousand
Entry on December 22 at $65.90
Listed on December 18, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
01/08/15: We were already cautions on our ANET put play. Today's widespread market rally helped push shares higher and ANET hit our stop at $66.25.

*small positions to limit risk*- Suggested Positions -

MAR $60 PUT (ANET150320P60) entry $4.80 exit $3.10 (-35.4%)

01/08/15 stopped out
01/03/15 new stop @ 66.25
12/22/14 triggered @ $65.90
Option Format: symbol-year-month-day-call-strike

chart:


Philip Morris Intl. - PM - close: 81.71 change: +0.61

Stop Loss: 82.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.4 million
Entry on January -- at $---.--
Listed on January 03, 2014
Time Frame: Exit PRIOR to earnings in early February
New Positions: see below

Comments:
01/08/15: Plunging yields in the U.S. bond market could be fueling investor appetite for high-dividend stocks. Comments from a federal reserve governor today suggested U.S. interest rates might stay lower for longer than previously anticipate. This could be driving the bounce in shares of PM.

Our PM trade has not opened yet. Tonight we are removing it from the newsletter.

Trade did not open.

01/08/15 trade did not open. Removed from the newsletter
01/07/15 adjust the entry trigger from $79.85 to $80.85
Option Format: symbol-year-month-day-call-strike

chart: