Option Investor
Newsletter

Daily Newsletter, Monday, 1/12/2015

Table of Contents

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

Market Wrap

Bulls Slip On Oil Prices

by Thomas Hughes

Click here to email Thomas Hughes
The bulls were set for a positive open but another downgrade for oil sent it lower, and the market followed.

Introduction

Futures were up in early trading, the S&P 500 and Dow Jones both indicated up by near a half percent in the early electronic session. Earnings, economic data and the FOMC were all in focus but a surprise down grade for oil from Goldman Sachs sent the market ducking for cover. Goldman now sees oil prices near $40 and expects that level to hold until it drives the shale players out of the market. This caused oil to begin another plunge, dropping more than 4% at the low point of the day. The drop in oil caused a sell off in oil stocks, led by shale producers, that in turn caused the equity markets to seek support levels.

Market Statistics

Other news impacting trading were a flurry of upgrade and downgrades, positive and negative guidance revisions, early earnings reports and economic data due out later this week. A number of high profile names either received or produced a revision as the market gears up for earnings season. The season started today with Alcoa who reported after the bell.

Asian and European markets were up, though the Asian indices were more mixed than anything. European indices were as high as 1.5% above last week's closing prices before weakness in our markets caused some volatility later in their day.

The market tried to rally once the opening bell sounded. The indices opened up by a few points but were heading lower within the first five minutes of trading. The SPX lost a little more than 1% before hitting bottom and bouncing higher. The market drifted sideways the rest of the morning and into the afternoon. The lows were tested late in the day but produced another bounce that lifted stocks into the close. The indices were able to recover some of today's losses and are now sitting just above long term support levels.

Economic Calendar

The Economy

No economic data was released today although there was plenty to talk about. Labor data released last week including the NFP, Unemployment Level and Hourly Earnings show that job creation remains strong, unemployment is falling and that average earnings fell. The NFP was strong and shows momentum in positive revision to the previous month that brings it up over 350K. The strength in job creation and other factors contributed to a surprise decline in unemployment to 5.6%. The negative of the report is that hourly earnings fell but my take is this; if we added a lot of entry level/lower paying jobs then it is not surprising the average rate would dip. More important is that the average workweek remained steady.

Other data due out, and there is a lot, includes manufacturing, retail, inflation, housing and industrial figures. Perhaps the biggest item on the list is the Feds Beige Book, scheduled for release on Wednesday, revealing the state of the economy and outlook for the future. Also up this week are Michigan Sentiment, Philly Fed Survey, Empire Manufacturing, CPI, PPI, Retail Sales, Industrial Production, Capacity Utilization and others.

Moody's Survey of Business Confidence rebounded this week, from a revision to last week's release. The index rose to 38.2 and remains near all time highs set at the end of last year. Survey administrator Mark Zandi reports in his summary that US business confidence remains upbeat and that hiring, sales and spending are all strong. Improvements in credit availability are still being noted which I see as a good sign, along with expectations for this year which also remain strong.

The Oil Index

Oil prices fell to hit another new low. Prices which began to fall on supply/demand imbalance are gaining momentum on downgrades to price expectation. Today's downgrade from Goldman Sachs is only the latest and forecasts oil to trade at or near $40 for a good part of 2015. This is supposed to drive the shale players out of the market... at which time supply imbalances will correct and prices can go back up. This is indeed a problem for shale producers and energy in general but I just can't help getting excited about gas that is $2 a gallon or lower.

The Oil Index fell as well but is still above near term support, unlike the underlying commodity which as at a +5 ½ year low. The index is falling from the four month down trend line and approaching potential support. There is a chance for support near $1,250 but a more likely target is below that near $1,212 and the current low. The indicators are bearish but very weak and currently suggest that support may exist at these levels. Support will need to be watched, if oil prices keep falling then I don't expect it to hold. A break below support would present an opportunity for bearish plays.


The Gold Index

Gold moved sharply higher today as safety seekers fled equities. Spot gold rose more than 1.5% to trade above $1,230 for the first time in over a month. Today's move extends the break above $1200 resistance and takes it another step closer to the next targets near $1245 and $1,250. The bottom may be in, but the trend is still not set so I expect volatility centered around economic data, oil prices and Fed expectations.

The GDX Gold Miners ETF has formed a bottom and today broke out of the pattern. The ETF surged more than 4.5%, breaking above resistance at $20.50. This may be a whipsaw but the indicators are bullish and on the rise, consistent with a strong market. The MACD peak is convergent with the new high, signaling that new highs are probable, while stochastic is moving higher and about to cross the upper signal line. This set up looks strong and could carry the ETF up to $22.50 or higher in the near term. If gold prices can hold at or near current levels the miners could keep rallying with a target on this ETF near $25 and $27.50.


In The News, Story Stocks and Earnings

Earnings season kicked off today with Alcoa. The aluminum giant reported after the bell so I'll get to that one last. According to FactSet the average earnings expectation for the S&P 500 has fallen to 1.1% over the last week. This is down from 8.4% at the beginning of the quarter and driven by massive reductions in earnings expectations from the energy sector. To date, 87 companies have issued negative guidance with a few more added to the list today; Tiffany's and Sandisk both lowered guidance outlook this morning. However, over the past few years an average of 72% of companies beat the average each quarter with an average increase of 2.1%. This means that the quarter will likely end up much better than expected around 3.7% or higher.

Rail carrier CSX reports earnings tomorrow. The company is expected to earn $0.49 per share and is likely to beat based on strength in the shipping sector. Of concern will be forward outlook and how low oil will impact volumes. Lower oil is good for input costs but much of what the rails are loaded with is oil products from the shale regions so falling prices could be a negative factor. Today the stock lost a little over 1.65% and approached potential support near $23.25. The stock is indicated lower at this time but both MACD and stochastic suggest support could be near this level as well. Tomorrow's earnings report will be the tell and may be as important to the market as Alcoa in terms of gauging specific sectors as indicators of the overall market.


KBHomes is also scheduled to report earnings tomorrow. The home builder is expected to earn $0.52 per share, nearly double the previous quarter. Earnings will be key but as always it will be the “what can you do for me next” attitude toward earnings that will likely drive prices and oil is behind a lot of the speculation. On the one hand low oil is a discount for consumers and may lead to more free cash flow and possibly increases in the housing sector. On the other hand housing projects in key oil producing areas are likely to slump due to lower activity. Today KBH traded in a wild range creating a near-doji candle in the middle of a 9 month trading range. The stock is currently moving up from the lower end of that range, is above the 30 day moving average and accompanied by bullish/neutral indicators.


Bristol Meyers Squibb was one of few stocks to trade to the upside today. The company announced positive results for a cancer drug test that may prove to become a new product. The stock jumped more than 7.5% in today's action but was not immune to the bears. The stock gapped up at the open then fell the rest of the day to close with a gain closer to 3%.


Alcoa received an upgrade from Nomura this morning in anticipation of a strong report after the bell. The aluminum giant was expected to report $0.26 for the quarter with a full year projection of $1.13. The company shocked the market with earnings that were above expectations. Alcoa reported earnings of $0.33, much better than expected on revenue that was above projections and 14% higher than last year. 2015 expectations are good as well with high single digit growth projected in aerospace and single digit growth in autos. Aluminum demand is also expected to rise globally. This report is not to surprising due to the high number of new contracts announced by Alcoa last year, particularly in the airline industry. Another indication may be Ford's use of aluminum in the new F-150's, which won Truck of the Year once again. The stock traded up in after hours action.


The Indices

The market fell today and just couldn't get its mojo back. The declines were not large but along with the drop on Friday erased most if not all of the gains made last week. The NASDAQ Composite was today's biggest loser. The tech heavy index fell 0.84% despite a positive pre-announcement from software provider SAP. Today's action erased all of the gains made last week and more, closing the gap formed at the open on Thursday. The indicators are bearish, but very weak, and suggest that the index could move down to support near 4,600 and the long term trend line. The long term trend is up and has proven support exists several times. With this in mind any move lower would be a buying opportunity provided economic data, the Beige Book and earnings are enough to fuel the rally.


The S&P 500 was another big decliner. The broad market got hit hard by the plunge in oil prices but was able to close off of the lows of the day. Today's action brings the index down to levels just above long term support. The indicators are weak and suggest that support may be reached, if not tested. Support includes the September all time high and the long term trend line near 2,000.


The Dow Jones Industrial and Transportation Averages experienced similar losses today, although the transports were a touch lower. Today's action carried the index down by 0.58% and nearly erased the gains made in last Thursday's monster rally. The index is now down near potential support with indicators that are weak in the near term but still consistent with support in the longer term. The index could move lower to test support at 8,750 or 8,500 in the near term.


The Dow Jones Industrial Average was today's best performer, losing only 0.54%. Today move took the blue chips down near support comparable to the other indices with indicators equally bearish and weak. The index looks like it may dip down to test support at 17,500 but this may not happen. I say this because today's drop was based on oil, a near term fear. When long term economic data and earnings outlook start coming out things may look different. The long term trend is up and I remain bullish.


The market fell today on plunging oil prices. Plunging prices led to diminished earnings outlook and that led to selling in the oil market. Now earnings expectations are so low it would be hard for the average S&P 500 company not to beat them. With this in mind, economic trends positive and outlook for 2015 good the dips still look like attractive places to buy. Caution is due as always, the prospect of Fed policy tightening may serve to reverse the market but I don't think it's happening yet.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Underperforming Services

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Starwood Hotels & Resorts - HOT - close: 74.18 change: -0.57

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.3 million
Entry on January -- at $---.--
Listed on January 10, 2014
Time Frame: Exit prior to earnings in mid February
New Positions: Yes, see below

Company Description

Why We Like It:
HOT is in the services sector. According to a company press release, "Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with more than 1,200 properties in 100 countries, and 181,400 employees at its owned and managed properties. Starwood is a fully integrated owner, operator and franchisor of hotels, resorts and residences with the following internationally renowned brands: St. Regis®, The Luxury Collection®, W®, Westin®, Le Meridien®, Sheraton®, Four Points® by Sheraton, Aloft®, and Element®. Starwood also owns Starwood Vacation Ownership, Inc., a premier provider of world-class vacation experiences through villa-style resorts and privileged access to Starwood brands."

The company's most recent earnings report was October 28th. The company beat the bottom line estimate by a penny but missed the revenue number. Management then guided lower. Since then at least two analyst firms (UBS and JP Morgan) have downgraded shares of HOT. JPM said their downgrade was on valuation concerns. Other analysts have issued worries about how the strong dollar might hurt HOT's financials.

There are also concerns that Airbnb could be hurting the hotel business. Airbnb's growth has surged since it was founded back in 2008. Just four year later Airbnb announced their 10 millionth night booked. It may not be fair to say all 10 million of those would have gone to the hotel industry but certainly a good chunk of Airbnb's business has been stolen from more traditional lodging services.

Technically shares of HOT look weak. The point & figure chart is bearish and forecasting at $68 target (which could get worse). Today's breakdown under support near $75.00 looks ominous. The intraday low today was $74.06. Tonight I am suggesting a trigger to buy puts at $73.90. We will plan on exiting prior to HOT's earnings report in mid February.

Trigger @ $73.90

- Suggested Positions -

Buy the FEB $70 PUT (HOT150220P70) current ask $1.33

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Oil's Decline Continues To Weigh On Stocks

by James Brown

Click here to email James Brown

Editor's Note:

Another big drop in crude oil prices, to new multi-year lows, continues to weigh on the broader market.

ATHN hit our stop loss. FB has been removed.

CPHD and ZBRA both hit our bullish entry points.


Current Portfolio:


CALL Play Updates

Alkermes plc. - ALKS - close: 68.61 change: +3.47

Stop Loss: 59.25
Target(s): To Be Determined
Current Option Gain/Loss: +93.5%
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:
01/12/15: It was another big day for ALKS. M&A news in the biotech space helped give a lot of biotech names a boost today. ALKS outperformed the market with a +5.3% gain. The next challenge is potential round-number resistance at $70.00.

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

01/10/15 new stop @ 59.25
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


Cepheid - CPHD - close: 56.23 change: +0.54

Stop Loss: 53.95
Target(s): To Be Determined
Current Option Gain/Loss: - 13.6%
Average Daily Volume = 623 thousand
Entry on January 12 at $56.55
Listed on January 10, 2014
Time Frame: 3 to 5 weeks, exit PRIOR to Q4 earnings
New Positions: see below

Comments:
01/12/15: The rally in CPHD continued today and shares broke out to new highs. Our trigger to buy calls was hit at $56.55.

Earlier Comments: January 10, 2015:
CPHD is part of the technology sector but after you hear what they do the company sounds like they belong in the biotech industry. The company's marketing material describes themselves as "Based in Sunnyvale, Calif., Cepheid (CPHD) is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests. By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer."

The stock struggled over the 2014 summer. Earnings in July came in two cents ahead of expectations. Yet management lowered their guidance. The stock collapsed. Now it looks like the company is seeing an earnings turnaround. Their most recent report was October 16th. Wall Street estimates were pretty wide ranging from breakeven ($0.00) to a loss of -16 cents. CPHD reported a loss of -6 cents. Yet revenues were up +15% to $115.2 million, which was above expectations. Gross margins improved as well with a jump from 49% to 52%. More importantly management raised their guidance for the rest of 2014. That fueled a nice rally in shares.

The company seems to be on a roll with a number of positive announcements. In just the last few weeks CPHD has announced European approval of Xpert HIV-1 Viral Load, which is a test to measure the active amount of HIV in a patient's blood. This is significant since nearly 35 million people globally are living with HIV/AIDS. The U.S. FDA recently approved CPHD's test to detect the presence of highly contagious Noroviruses of the genogroup 1 and genogroup II. This is significant since estimates suggest 267 million people are affected by a norovirus ever year and 200,000 people die annually. The FDA also issued an approval for a test to detect the presense of Flu A, Flu B, and the respiratory syncytial virus in a patient. CPHD said they also received a grant to work on an Ebola detection test that can be used on a person's saliva or blood.

Shares displayed relative strength on Friday with a +2.3% gain. The stock is challenging resistance in the $55-56 zone and on the verge of breaking out to new record highs. If CPHD does break out it could see some short covering. The most recent data listed short interest at 13% of the relatively small 69.4 million share float.

The November 28th intraday high was $56.47. More aggressive traders may want to jump in on a rally past $56.00. We are suggesting a trigger to buy calls at $56.55. Please note this could be a short-term trade. It looks like CPHD might report earnings at the very end of January and we will most likely exit prior to the announcement.

- Suggested Positions -

Long MAR $55 CALL (CPHD150320C55) entry $4.40

01/12/15 triggered @ 56.55
Option Format: symbol-year-month-day-call-strike


Royal Caribbean Cruises - RCL - close: 83.26 change: -0.66

Stop Loss: 78.40
Target(s): To Be Determined
Current Option Gain/Loss: - 2.1%
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:
01/12/15: RCL succumbed to some profit taking this morning but shares pared their losses and spent most of the session consolidating sideways.

I am not suggesting new positions at this time.

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: 51.82 change: +1.87

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: +39.1%
Average Daily Volume = 4.9 million
Entry on January 08 at $50.35
Listed on January 07, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
01/12/15: WFM was a big winner today. I don't see any company-specific news but shares rocketed higher and outperformed the major indices with a +3.7% surge to new multi-month highs.

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


Zebra Technology - ZBRA - close: 80.66 change: +0.12

Stop Loss: 78.75
Target(s): To Be Determined
Current Option Gain/Loss: + 2.9%
Average Daily Volume = 494 thousand
Entry on January 12 at $80.85
Listed on January 10, 2015
Time Frame: Exit prior to earnings in February
New Positions: Yes, see below

Comments:
01/12/15: The rally in ZBRA continued with shares up four days in a row. The stock hit new five-month highs this morning. ZBRA also hit our suggested entry point to buy calls at $80.85. Looking at the intraday chart I am suggesting readers wait for a new rally above $80.90 before initiating new positions.

Earlier Comments: January 10, 2015:
ZBRA is considered part of the industrial goods sector but they sound more like a technology company. The company website describes them as "Zebra Technologies is a global leader in enterprise asset intelligence, designing and marketing specialty printers, mobile computing, data capture, radio frequency identification products and real-time locating systems. Incorporated in 1969, the company has over 7,000 employees worldwide and provides visibility into valued assets, transactions and people."

Their goods are used by 90% of the Fortune 500 companies. They have almost no debt. Last year they spent almost $3.5 billion buying Motorola Solutions (symbol was MSI). ZBRA's CEO believes that the MSI acquisition will help them capitalize on three big trends: mobility, the Internet of things, and cloud computing.

In February 2014 ZBRA raised their earnings guidance. They did it again two months later in April. Their most recent earnings report was above expectations. ZBRA announced record revenues with sales up +19% in Middle East and Africa, +16% in North America, +11% in Latin America, and +9% in Asia Pacific.

Technically the stock has been stair-stepping higher with a bullish trend of higher lows and higher highs. This past week ZBRA displayed relative strength and broke out to new multi-month highs. The point & figure chart is bullish with a $92.00 target.

Tonight we are suggesting a trigger to buy calls at $80.85. We will plan on exiting positions before ZBRA reports earnings in mid February.

- Suggested Positions -

Long FEB $85 CALL (ZBRA150220C85) entry $1.70

01/12/15 triggered @ 80.85
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Dover Corp. - DOV - close: 68.74 change: -0.90

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +65.2%
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:
01/12/15: DOV spiked lower this morning and traded below $68 before trimming its losses. Shares still underperformed the major U.S. indices with a -1.29% decline. I don't see any changes from my recent comments.

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

01/09/15 DOV's BoD approves a 15 million share stock buyback program over the next three years
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 BULLISH PLAYS

Athenahealth, Inc. - ATHN - close: 139.60 change: -1.38

Stop Loss: 139.15
Target(s): To Be Determined
Current Option Gain/Loss: - 41.8%
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:
01/12/15: I cautioned readers last night that ATHN looked vulnerable. Another down day in the market did not help. Shares slipped to new relative lows and hit our stop at $139.15.

- Suggested Positions -

FEB $155 CALL (ATHN150220C155) entry $5.50 exit $3.20 (-41.8%)

01/12/15 stopped out
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

chart:


Facebook, Inc. - FB - close: 76.72 change: -1.02

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: see below

Comments:
01/12/15: We are giving up on FB as a bullish candidate tonight. The bounce is rolling over. Shares underperformed the major indices with a -1.3% decline. We may have to wait until after FB reports earnings on January 28th before looking at FB as a potential candidate again.

Trade did not open.

01/12/15 removed from the newsletter, suggested trigger was $78.65

chart: