Option Investor
Newsletter

Daily Newsletter, Monday, 1/26/2015

Table of Contents

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

Market Wrap

Greece, Fed, Weather, Earnings, GDP

by Thomas Hughes

Click here to email Thomas Hughes
The market got off to a tepid start as Greek elections, an FOMC meeting, a wicked winter storm, earnings and an upcoming GDP release wrestle for attention.

Introduction

This week got off to a tepid start. For starters, elections in Greece put the ultra-left anti-austerity party in control of the government and the bail out at risk. This news would have sent the market plunging a year ago but today was taken in stride and shrugged off with little regard. Why, because it really doesn't matter to us, and maybe not to traders in Europe. EU stocks rose in today's session led by the German DAX 1.4% and new all time high.

Futures were flat to negative for most of the morning as the market digested earnings reports, anticipated other earnings reports as well as the FOMC meeting Wedesday and GDP estimate scheduled for release Friday. There is no expectation for the FOMC to adjust policy at this meeting but as always the statements and outlook will be important. The statement will be scrutinized for signs and indications of when, exactly, the rate hikes will begin and any change to expectations could become a significant market mover. On the GDP front expectations are creeping up. Consensus is now in the 3.5% range.

Market Statistics

Futures gained some strength going into the open but remained in negative territory. The open was weak and saw the indices retreat to support within the first few minutes of trading. Bottom was hit by 9:45AM, sending the indices back to break even where they trended for the rest of the day. The daily high, just above break even for most indices, was hit in the early afternoon and the markets closed near those levels at the end of the day.

With all the activity this week trading conditions will be compounded by a looming winter storm. As I write this wrap the flakes are beginning to fall and are expected to total as much as 3 feet in some areas. It is unclear now how much affect it will have on the economy, or damage it may cause, or if trading may be stopped due to weather but rest assured there was a lot of speculation on the matter. New York and other states have already issued major alerts, curfews and other measures to ensure public safety.

Economic Calendar

The Economy

There was no economic data released today. This week, however, is another important one as it includes the FOMC and the GDP estimate. Also scheduled for release are the Durable Goods, Consumer Confidence, New Home Sales, jobless claims, Pending Home Sales and Chicago PMI. The big days will be Wednesday (FOMC) and Friday(GDP) but the entire second half of the week is pretty heavy with potentially market moving data. And next week is full of data too, this is the last week of January which means ADP, Challenger, NFP and Unemployment.

Moody's Survey Of Business Confidence is back near record highs. The index ended 2014 at the record high of 41.1, dipped to 38.3 in the first weeks of the year and has now surged by 1.4 points in the most recent week to 39.7. In the summary Mark Zandi, Moody's economist and administrator of the survey, reports that

“Business sentiment has started 2015 near record highs. U.S. businesses are especially upbeat, consistent with an economy that is expanding well above its potential. Sales and hiring are notably strong, and investment spending intentions has never been as robust. It is also encouraging that pricing is holding firm despite the decline in oil prices, surging value of the dollar, and disinflationary forces overseas. Credit availability has also improved notably in recent weeks.”

According to data from FactSet 90 S&P 500 companies had reported earnings by last Friday. Of them 79% reported above the mean estimate (above average) while only 54% of them reported earnings above the mean estimate (below average). The current mean estimate for S&P 500 earnings growth is only 0.25%, down from 1.7% last week. This is led primarily by the energy sector but significant downside surprises from the big banks and some others have had an impact as well. With expectations so low it is not surprising that so many have beaten the expectation but so far we are on track for growth below the average growth we have seen over the past couple of years. This week is another heavy one of earnings for the S&P as well.


The Oil Index

Oil prices held steady, near long term lows, as the transition to Saudi Arabia's new king unfolds smoothly and a fast approaching winter storm has some traders betting on higher prices. There was some fear that the new king would diverge from current Saudi policy but so far all indications are that no, he will not. His first public statements support Saudi and OPEC policy and reaffirmed al-Naimi as oil minister. WTI and Brent both settled near break even after a day of mild volatility.

The oil sector was one of today's leaders. The Oil Index rose by more than 1.75% in today' session and is now approaching a potential area of resistance. The index is moving up from the long term trend line, and has broken the near term down trend, but is approaching a possible resistance line near 1,350. This level is consistent with an important Fibonacci Retracement that has provided support or resistance 5 times over the last 4 months. The indicators are bullish and pointing up so it looks like this level will be reached at the least. Whether or not prices will halt is still yet to be seen as Fibonacci is good for targeting places where signals may happen, and not so much as signals themselves.


The Gold Index

Gold prices retreated today as traders took the chance to lock in profits. Gold prices hit a five month high last week, supported by long term outlook and driven by the flight out of currencies. Today saw the metal drop a little over 1% to fall below $1280 as some of the impetus driving the trade petered out. Prices could retreat further over the next few days with $1250 as a likely target for support. FOMC policy/statements and economic data will be important, an indication of higher rates I think would be bullish, an indication that rates may rise sooner than expected I think very bullish.

The gold miners ETF GDX actually gained in today's session. The ETF fell in early trading and opened lower on the decline in gold but during the day lower prices attracted enough bulls to lift prices above break even. Today's action is the first sign of support now that the ETF is pulling back from the recent high and needs to be watched, now that it has broken out to the upside. In the near term the indicators are bullish but retreating from their peaks, in line with the underlying market and test of support. Over the short to long term they are also bullish, and convergent with at least a retest of the recent highs. Support is near $20.50 and the top of the top of the Nov/Dec bottoming pattern with upside targets near the recent high at $23.09.


In The News, Story Stocks and Earnings

Norfolk Southern reported earnings before the bell. The rail carrier met expectations for this year and announced near $2.5 billion dollars in planned expenses. The company reported $1.64 per share for the fourth quarter, down a nickel from last year on revenue slightly shy of expectations. On a full year basis 2014 net income totaled over $2 billion and is up 5% from 2013 and is a record for the company. The planned expenditures are to boost infrastructure, improve safety and otherwise set the company up for future growth. The stock fell in the early pre market session but buyers stepped in after the open to drive prices back up. The stock finished the day with a gain near 1.5%.


Homebuilder DRHorton beat expectations when it released earnings. The builder reported a surge in home sales that led to higher revenue and earnings. The company reported $0.39 per share, $0.04 higher than the $.035 expected by the street. Sales of new homes increased by 29% while the back log of homes not yet built has grown over 21% in the quarter indicating that this may not be a one time result. Shares of the stock rose by more than 1% in early trading and held that level into the open. The stock traded in a near 5% range during the day and closed near the open, forming a doji.


Microsoft reported after the bell. The stock traded right around the short term moving average all day and sank on the news. The company beat on the top and bottom lines but did not do it well enough to support buying. The stock dropped by a full percent and then traded in a wild range around that level after that.


Apple is scheduled to report after the bell tomorrow. The company is expected to report earnings of $2.59 per share, up from the $2.07 reported a year ago. Expectations are high and fueled by two headlines today. The first is that Apple may have sold more iPhones in China than in the US for the first time. The second is that the Pay feature is beginning to gain traction. This will not likely add a huge amount the bottom line but we may get an indication of what to expect in the future. The stock traded up today but created a black candle and a spinning top. The indicators are bullish and pointing higher but earnings could be a bust as well as a boon so Wednesday may be the day to really look at this one.


The Indices

The market was a little choppy today and it had plenty of reason to be. Not only is there a week of important economic events and earnings reports the snow was getting steadily heavier all day. I myself am out of the storms path but had plenty of opportunity to view it through the eye of the TV. All in all, it looked like another day of jockeying for position while the markets trade near support levels. Today's action was led by the Dow Jones Transportation Average. The transportation sector moved up by 0.65% on earnings and outlook. Today's move tested support along the short term moving average and is supported by rising indicators. Resistance is just above the current level, near 9,250 and the all time highs. It looks like this index could be testing resistance this week coincident with the FOMC and/or the GDP release.


The NASDAQ Composite Index was the next biggest gainer in today's session, posting an increase of 0.29%. The tech heavy index was not hurt by today's news, other than to test last week's closing prices, and closed at the high of the day. The index is moving higher from the short term moving average after making a trend line bounce, supported by rising indicators. The near term outlook is bullish but resistance is just above today's closing price and will likely be hit in the next couple of days. A break above that level, near 4,800 and the 14 year high, would be bullish and could lead the index to 4,900 or higher. Failing to break above resistance would find potential support near 4,700 and 4,600 along the long term up trend line.


The S&P 500 is next in line with a gain of 0.26%. The broad market index tested the short term moving average with this mornings decline and then closed at the day's high. The index is moving higher following a trend line bounce and is now gearing up for a test of resistance. The indicators are bullish and pointing up, indicating that prices are likely to rise, with resistance roughly 30 points higher near the all time high. Right now the only thing standing in the way is outlook and the Fed. We know how things have been, how they are and how they are expected to be, now we need to Fed to give the OK, again, and maybe for GDP to be good. A break above the all time high could lead to targets near 2,150 and 2,200 in the near to short term.


The Dow Jones Industrial Average brings up the rear in today's session. The blue chip index gained only 0.3% and barely closed in the green. The index had been dipping into the red just prior to close but a surge of buying in the final minutes pushed it back above break even. Today's move tested the short term moving average, confirming support, and was itself confirmed by the MACD. Momentum turned bullish today and is now confirming the stochastic crossover which occurred last week. This is pointing to a test of resistance, just above 18,000, that could lead to a break out. If so targets would be as much as 500 points above the all time in the near to short term.


The markets appear to be moving higher, in line with trends, following a test of long term support. Today's action confirmed near term support for many of the indices that could lead to further movement. While poised for a move higher, the indices are also faced with resistance at or near current all-time highs. This resistance needs to be broken for a longer term bull move to ensue and that move, or failure, has a good chance of happening this week. My guess is that Wednesday either before or after the FOMC statement is released, the market will start moving, with the chance for Friday's GDP to move it more.

Until then, remember the trend!

Thomas Hughes


New Option Plays

A Bright Light On Earnings

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Acuity Brands, Inc. - AYI - close: 154.09 change: +2.22

Stop Loss: 149.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 365 thousand
Entry on January -- at $---.--
Listed on January 26, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
AYI is part of the technology sector. The company has managed to deliver double-digit sales and earnings growth in six out of the last seven quarters.

Who are they? "Acuity Brands, Inc. is a North American market leader and one of the world's leading providers of lighting solutions for both indoor and outdoor applications. With fiscal year 2014 net sales of $2.4 billion, Acuity Brands employs approximately 7,000 associates and is headquartered in Atlanta, Georgia with operations throughout North America, and in Europe and Asia. The Company's lighting solutions are sold under various brands." (source: company press release)

The last couple of earnings reports have been healthy. Back in October AYI beat Wall Street's estimates on both the top and bottom line with revenues rising +15.3%. Their most recent report was January 9, 2015. Earnings rose +38% from a year ago to $1.32 a share, which was above expectations. Revenues rose +12.7% to $647.4 million, also above expectations.

AYI's President Vernon Nagel commented on the quarter saying, "We were extremely pleased with our record fiscal 2015 first quarter results. Gross profit margin of 42.2 percent increased 90 basis points over prior year's first quarter, while adjusted operating profit margin of 14.9 percent increased 230 basis points over last year's first quarter adjusted operating profit margin. Our variable contribution margin, i.e., the incremental adjusted operating profit as a percentage of the increase in net sales, was over 33 percent. We believe our record first quarter results reflect our ability to provide customers truly differentiated value from our industry-leading portfolio of innovative lighting and control solutions along with superior service."

AYI also discussed their outlook and Mr. Nagel said, "We remain very bullish about our prospects for continued future profitable growth. Third-party forecasts as well as key leading indicators suggest that the growth rate for the North American lighting market, which includes renovation and retrofit activity, will be in the mid-to-upper single digit range for fiscal 2015 with expectations that overall demand in our end markets will continue to experience solid growth over the next several years. Our order rates through the month of December reflect this favorable trend. Further, we expect to continue to outperform the growth rates of the markets we serve due to benefits from growing renovation and tenant improvement projects, further expansion in underpenetrated geographies and channels, and growth from the introduction of new products and lighting solutions."

At least two analysts have already upgraded their price targets on AYI following the January earnings report.

Technically shares have spent the last couple of weeks digesting gains after its big, post-earnings pop to new highs. Now the stock looks poised to begin its next leg higher. There is short-term resistance near the $155.50-156.00 area. Tonight I'm suggesting a trigger to buy calls at $156.05.

Trigger @ $156.05

- Suggested Positions -

Buy the MAR $160 CALL (AYI150320C160) current ask $3.20

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

No Greek Fallout

by James Brown

Click here to email James Brown

Editor's Note:

News that the anti-austerity party in Greece won the vote on Sunday failed to rock the markets on Monday. There was a brief decline lower on Monday morning but traders quickly bought the dip.

CBRL and VRX both hit our entry triggers.

Prepare to exit our RCL trade tomorrow at the closing bell.


Current Portfolio:


CALL Play Updates

Alkermes plc. - ALKS - close: 71.36 change: +1.55

Stop Loss: 66.85
Target(s): To Be Determined
Current Option Gain/Loss: +103.2%
Average Daily Volume = 833 thousand
Entry on January 07 at $63.01
Listed on January 06, 2015
Time Frame: Exit PRIOR to February option expiration
New Positions: see below

Comments:
01/26/15: ALKS is back in rally mode. Shares outperformed the broader market with a +2.2% gain and a breakout to new highs. Traders may want to raise their stop loss again.

I am not suggesting new positions.

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

01/24/15 new stop @ 66.85
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


Avago Technologies - AVGO - close: 106.73 change: -0.25

Stop Loss: 101.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.2 million
Entry on January -- at $---.--
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
New Positions: Yes, see below

Comments:
01/26/15: The market spiked lower this morning (like on the Greek election news). AVGO also spiked lower and shares spent the rest of the day trying to recover. I do not see any changes from the weekend newsletter's new play description. Our suggested entry point to buy calls is at $107.75.

Earlier Comments: January 24, 2015:
AVGO is in the technology sector. They are part of the semiconductor industry. They make chips that speed up mobile phones while reducing interference. According to company marketing materials, "Avago Technologies is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing. Backed by an extensive portfolio of intellectual property, Avago products serve four primary target markets: wireless communications, wired infrastructure, enterprise storage, and industrial and other."

AVGO is probably best known as a part supplier to Apple Inc. (AAPL). AAPL's huge success with the iPhone 6 and 6+ has been a blessing for AVGO. Earnings and revenue growth is seeing significant moment. The last few reports have all come in above expectations with revenues up +25% in the second quarter, +100% in the third quarter, and up +115.4% year over year in AVGO's fourth quarter (last October). Earnings growth surged +58% quarter over quarter and up +123% from a year ago. Gross margins also improved quarter over quarter and rose from 51% a year ago to 58% in their most recent quarter. Management then raised their guidance for Q1 2015.

Following their December 3rd, 2014 earnings report several Wall Street analysts raised their price targets on AVGO into the $115-122 range. The point & figure chart is even more positive with a forecast of $127.00.

The stock was showing strength again on Friday with a +1.7% gain. AVGO appears to have short-term resistance near $107.50. Tonight we are suggesting a trigger to buy calls at $107.75. I do want to caution investors that AVGO could be heavily influenced by AAPL's earnings report. AAPL reports earnings this coming Tuesday (Jan. 27th, after the closing bell). If AAPL somehow disappoints it could negatively impact shares of AVGO.

Trigger @ $107.75

- Suggested Positions -

Buy the MAR $110 CALL (AVGO150320C110) current ask $4.40

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


Big Lots Inc. - BIG - close: 47.45 change: +0.69

Stop Loss: 43.40
Target(s): To Be Determined
Current Option Gain/Loss: -1.8%
Average Daily Volume = 1.26 million
Entry on January 15 at $45.75
Listed on January 14, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
01/26/15: BIG continued to show strength today and outperformed the market with a +1.47% gain. The stock is nearing what could be resistance at the top of its early December gap down in the $47.50-48.00 area. After a four-day bounce I would not be surprised to see BIG stall or pullback a little bit here.

I'm not suggesting new positions at this time.

Earlier Comments: January 14, 2015:
It would appear that investors have a pretty short memory when it comes to BIG. This company is in the services sector. They're part of the discount store industry.

According to company marketing materials, "Big Lots Inc. (BIG) is a unique, non-traditional, discount retailer operating 1,495 BIG LOTS stores in 48 states with product assortments in the merchandise categories of Food, Consumables, Furniture & Home Decor, Seasonal, Soft Home, Hard Home, and Electronics & Accessories."

The stock saw big gains in 2014 at least until they reported their Q3 earnings in December. That big drop on the daily chart was a reaction to BIG's earnings results. Analysts were expecting a loss of $0.05 a share on revenues of $1.12 billion. BIG reported a loss of $0.06 with revenues virtually flat at $1.11 billion. Guidance was only in-line with Wall Street's estimates.

The good news is that BIG does expect to see a profit again in the fourth quarter. They also reported +1.4% comparable store sales growth in the third quarter, which not only beat the -2.5% comp sales from a year ago but was the first positive growth in three years. None of that mattered. BIG plunged -17% on its Q3 report and didn't find support until the $38.00 area.

Since then shares have seen something of a turnaround. After consolidating sideways for a couple of weeks BIG has shot higher in January while most of the broader market has been sinking. The breakout above technical resistance at its 50-dma and its 200-dma is encouraging.

This morning the U.S. retail sales data came in below expectations and yet BIG managed to shrug off this headline. Traders bought the dip near the 50-dma (around $44) this morning. By the closing bell BIG was outperforming with a +1.6% gain.

It looks like this relative strength may continue. Further gains could spark some short covering. The most recent data listed short interest at 17% of the relatively small 52 million share float. Today's intraday high was $45.65. We are suggesting a trigger to buy calls at $45.75. The 200-dma is at $43.50. We'll start this trade with a stop at $43.40.

- Suggested Positions -

Long Apr $47.50 CALL (BIG150417C47.5) entry $2.85

01/15/15 triggered @ 45.75
Option Format: symbol-year-month-day-call-strike


Cracker Barrel Old Country Store - CBRL - cls: 136.67 chg: +2.21

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: +10.3%
Average Daily Volume = 248 thousand
Entry on January 26 at $135.15
Listed on January 22, 2015
Time Frame: Exit prior to earnings in late February
New Positions: see below

Comments:
01/26/15: The rebound in CBRL continued on Monday and shares rally through potential resistance at $135.00. Our trigger to buy calls was hit at $135.15. If you missed it you might want to wait for a dip near $135.00 as your next entry point.

Earlier Comments: January 22, 2015:
The falling price of gasoline in the U.S. is a significant tailwind for the restaurant industry. AAA said the price of gas has fallen 119 days in a row with the national average down to $2.04 a gallon. Looking in the rearview mirror we can see how it affected the restaurant industry.

According to TDn2K's Black Box Intelligence data restaurants saw their same-store sales grow +3.1% in December, the fastest pace in three years. The fourth quarter of 2014 delivered the fastest same-store sales growth in the last six years. Another industry analyst believes that having more money in their pocket from low gas prices means that consumers are willing to trade up from fast-food to more traditional dining options.

One firm that should benefit is CBRL. According to the company, "Cracker Barrel Old Country Store, Inc. provides a friendly home-away-from home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping that’s surprisingly unique, genuinely fun and reminiscent of America's country heritage … all at a fair price. Cracker Barrel Old Country Store, Inc. (CBRL) was established in 1969 in Lebanon, Tennessee and operates 634 company-owned locations in 42 states." Another detail that makes CBRL unique is that 85% of the company's locations are at Interstate highway exits (likely near a gas station).

Earnings last year were decent. The company has developed a trend of beating Wall Street's estimates and then guiding lower. Management has either been super cautious on guidance or they're trying to manage expectations. Their most recent earnings report was November 25th. CBRL earnings were up +16% to $1.42 a share. That beat estimates of $1.29. Revenues came in at $683 million, above the $665 million estimate. CBRL said their same-store sales surged +3.3%, which was above the industry average.

Once again CBRL management lowered their immediate quarter guidance but this time they did raise guidance for FY2015.

Looking ahead the restaurant industry should see easy comparisons to January and February last year since much of the country was blanketed by winter storms. On the other hand several states raised their minimum wage, which began on January 1st this year so that has the potential to impact restaurant industry margins.

Technically shares of CBRL have just performed a 38.2% Fibonacci retracement from their recent high. This bounce might be an entry point. However, I want to see CBRL break through some short-term resistance. Tonight I'm suggesting a trigger to buy calls at $135.15. We will plan on exiting prior to the company's earnings report in late February.

- Suggested Positions -

Long MAR $140 CALL (CBRL150320C140) entry $2.72

01/26/15 triggered @ 135.15
Option Format: symbol-year-month-day-call-strike


Monster Beverage Corp. - MNST - close: 119.95 change: +0.64

Stop Loss: 115.75
Target(s): To Be Determined
Current Option Gain/Loss: -24.4%
Average Daily Volume = 1.1 million
Entry on January 23 at $120.25
Listed on January 17, 2015
Time Frame: Exit PRIOR to earnings in late February
New Positions: see below

Comments:
01/26/15: Traders bought the dip in MNST near the $118.00 level this morning. Shares spent the rest of the session churning between $118 and $120. If you're looking for an entry point tonight I suggest a new rally past $120.25.

Earlier Comments: January 17, 2015:
Shares of MNST have been extremely effervescent. Last year the NASDAQ composite rallied +13.4%. Yet MNST soared +59% in 2014. Thus far in 2015 the NASDAQ is down -2.1% while MNST is up +9.7%. The stock looks poised for more gains.

The company's market material describes MNST as, "Based in Corona, California, Monster Beverage Corporation is a holding company and conducts no operating business except through its consolidated subsidiaries. The Company's subsidiaries market and distribute energy drinks and alternative beverages including Monster Energy® brand energy drinks, Monster Energy Extra Strength Nitrous Technology® brand energy drinks, Java Monster® brand non-carbonated coffee + energy drinks, M3® Monster Energy® Super Concentrate energy drinks, Monster Rehab® non-carbonated energy drinks with electrolytes, Muscle Monster® Energy Shakes, Übermonster® energy drinks, and Peace Tea® iced teas, as well as Hansen's® natural sodas, apple juice and juice blends, multi-vitamin juices, Junior Juice® beverages, Blue Sky® beverages, Hubert's® Lemonades and PRE® Probiotic drinks."

A big part of last year's gains in MNST came in August. On August 15th, 2014 it was announced that Coca-Cola (KO) was buying a 16.7% stake in MNST. This is part of a long-term strategic partnership to conquer the energy drink category. This generated a +20% pop in shares of MNST and the stock has been in rally mode ever since.

Earnings have been mediocre. MNST has beaten Wall Street's bottom line earnings estimate the last three quarters in a row. Yet they also missed analysts' revenue estimates those same three quarters. Revenue growth has actually been slowing down. Their Q4 2013 revenues grew +14.7% while their Q3 2014 revenue growth was down to +7.7%. Investors don't seem to care.

There has been a lot of analyst action on this name with both upgrades and downgrades in the last several weeks. So far the upgrades are outnumbering the downgrades. This past week saw Cowen upgrade MNST and give it a $140 price target.

The bears are that MNST will suffer from stronger competition from Red Bull, their main rival. They've been rival for years, so what's going to change? There is the valuation argument that MNST is too expensive with the stock trading at 36 times earnings.

Bulls can argue that MNST will see stronger growth when they make the switch to KO's global distribution system. Right now international sales only make up 22% of MNST's total revenues and MNST only has 5% of the international energy drink market. That compares to 37% of the energy drink market in the U.S. By joining KO's distribution platform it's going to give MNST a lot more exposure overseas, especially in Latin America and China. Currently MNST has zero exposure in China. There is speculation that MNST could double its market shares internationally pretty quickly.

Another bonus for MNST is the consumer spending situation in the United States. About 70% of MNST's sales come from convenience stores and gas stations. The massive drop in gasoline prices is very bullish for MNST since consumers will have more money in their pocket after filling up.

At a recent investor meeting MNST said that sales growth in the energy drink category had "re-accelerated" after three consecutive quarters of slowing sales growth (not declines, just slower growth).

There is speculation that MNST might be able to raise prices in the U.S. since their rival, Red Bull, recently raised their prices. There is also the relationship with KO as the company could up its stake in MNST to 25%. Of course they could outright buy MNST too.

The point & figure chart for MNST is bullish and forecasting a long-term $155.00 target. We are not setting a target tonight. The plan will be to exit prior to earnings in late February. The $120.00 level might be round-number resistance so we are suggesting a trigger to buy calls at $120.25.

- Suggested Positions -

Long MAR $125 CALL (MNST150320C125) entry $4.50

01/23/15 triggered @ 120.25
Option Format: symbol-year-month-day-call-strike


Royal Caribbean Cruises - RCL - close: 84.75 change: +0.24

Stop Loss: 79.65
Target(s): To Be Determined
Current Option Gain/Loss: + 2.4%
Average Daily Volume = 2.9 million
Entry on December 24 at $82.30
Listed on December 22, 2014
Time Frame: Exit tomorrow at the close
New Positions: see below

Comments:
01/26/15: RCL followed the market lower this morning and thankfully managed a bounce back into positive territory. Unfortunately we are almost out of time. RCL has earnings coming up on Thursday.

Tonight we are suggesting an exit tomorrow at the closing bell.

- Suggested Positions -

Long MAR $85 CALL (RCL150320C85) entry $3.37

01/26/15 prepare to exit at the closing bell tomorrow
01/24/15 Earnings are coming up on Thursday, Jan. 29th. Prepare to exit before they report earnings.
01/14/15 new stop @ 79.65
12/24/14 triggered @ 82.30
Option Format: symbol-year-month-day-call-strike


Constellation Brands - STZ - close: 110.61 change: -0.79

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: +21.5%
Average Daily Volume = 1.25 million
Entry on January 15 at $109.36
Listed on January 14, 2015
Time Frame: Exit prior to February expiration
New Positions: see below

Comments:
01/26/15: STZ is still looking good. Shares bounced from support near $110 again. STZ appears to be trading in a short-term $110-112 trading range. If you missed my last suggested entry point then consider waiting for a breakout past $112.00.

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

Earlier Comments: January 15, 2015:
Today the big players in the beer industry like Anheuser-Busch InBev (BUD) and Molson Coors (TAP) are losing market share to smaller craft beer brewers. Yet STZ actually seeing momentum in its beer portfolio.

STZ is part of the consumer goods sector. According to the company's website, "Constellation Brands, Inc. is a leading wine, beer and spirits company with a broad portfolio of premium brands. Constellation is the world leader in premium wine, the leading multi-category beverage alcohol company in the U.S. and the number three beer company in the U.S. Headquartered in Victor, New York, Constellation Brands is an S&P 500 Index and Fortune 1000® company with more than 100 brands in our portfolio, sales in approximately 100 countries and operations in approximately 40 facilities."

Last year the stock was a strong performer. The S&P 500 rallied about +11% in 2014 while STZ surged +39%. Investors have been consistently buying dips. The relative strength from last year has carried into 2015.

The company recently reported earnings on January 8th. Wall Street was expecting a profit of $1.14 per share on revenues of $1.51 billion. STZ said their earnings rose +11.8% to $1.23 a share. Revenues were up +7% to $1.54 billion, beating estimates on both counts. Management then raised their 2015 guidance from $4.10-to-$4.25 to $4.25-to-$4.35. That compares to Wall Street's 2015 estimate of $4.24.

STZ's CEO Rob Sands commented on their latest results saying, "We achieved outstanding results for the third quarter driven by the exceptional ongoing momentum for our beer business." Their beer sales rose +16% and gained market share.

The stock has seen multiple upgrades in January and currently trading at all-time highs. Today traders bought the dip near $105.00. The stock looks poised to breakout past short-term resistance at $108.50. The point & figure chart is bullish and forecasting a long-term target of $127.00.

We are suggesting a trigger to buy calls at $108.65. We'll start this trade with a stop at $104.85.

- Suggested Positions -

Long FEB $110 CALL (STZ150220C110) entry $2.47

01/15/15 triggered on gap open at $109.36, trigger was $108.65
Option Format: symbol-year-month-day-call-strike


Valeant Pharmaceuticals - VRX - close: 159.86 change: +0.20

Stop Loss: 154.80
Target(s): To Be Determined
Current Option Gain/Loss: -16.7%
Average Daily Volume = 2.5 million
Entry on January 26 at $160.55
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
New Positions: see below

Comments:
01/26/15: Most of the market spiked lower this morning. Shares of VRX spiked higher and almost hit $161.00. Our suggested entry point to buy calls was hit at $160.55. Unfortunately VRX did not see any follow through higher and shares faded back toward neutral near resistance at the $160.00 level.

Traders may want to wait for a new rally above $160.35 before initiating new positions.

Earlier Comments: January 24, 2015:
Healthcare stocks have been some of the market's best performers in 2015. VRX is helping lead the group higher with a +11.5% gain already.

The company's website says, "Valeant Pharmaceuticals International, Inc. is a multinational specialty pharmaceutical company that develops and markets prescription and non-prescription pharmaceutical products that make a meaningful difference in patients' lives. The company's growth strategy is to acquire, develop and commercialize new products through strategic partnerships, and strategically expand its pipeline by adding new compounds or products through product or company acquisitions. Headquartered in Laval, Quebec, Valeant has approximately 17,000 employees worldwide and is listed on both the New York Stock and Toronto Stock Exchanges under the symbol VRX."

VRX made a lot of headlines last year with its attempted hostile takeover of Allergan (AGN). Eventually VRX lost out to a rival. AGN agreed to a takeout by Actavis (ACT) for $219 a share, which was more than VRX wanted to pay.

Meanwhile VRX has been doing just fine on the earnings front. The company is developing a trend of beating analyst estimates. Plus they guided higher in April 2014, in September and with their last earnings report on October 20th. In November VRX's Board of Directors announced at $2 billion stock buyback program.

This year VRX has already raised guidance again. They see Q4 results above Wall Street estimates. They also raised their guidance for FY2015 into the $10.10-10.40 range compared to consensus estimates near $10.01.

The stock has been surging with a rally to new all-time highs. The point & figure chart is bullish and forecasting at $180.00 target.

Currently VRX sits just below round-number resistance at $160.00. We are suggesting a trigger to buy calls on a breakout at $160.55.

- Suggested Positions -

Long MAR $170 CALL (VRX150320C170) entry $4.80

01/26/15 triggered @ 160.55
Option Format: symbol-year-month-day-call-strike


Whole Foods Market, Inc. - WFM - close: 53.49 change: +0.31

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: +87.0%
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:
01/26/15: WFM managed to outperform the major indices with a +0.58% gain today. This is WFM's fourth gain in a row. It looks like the $52.00 area might be short-term support. Readers may want to raise their stop loss closer to the $50.00 level.

I am not suggesting new positions at this time.

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: 84.54 change: +0.35

Stop Loss: 78.75
Target(s): To Be Determined
Current Option Gain/Loss: +8.8%
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: see below

Comments:
01/26/15: ZBRA dipped toward short-term support at its 10-dma before bouncing back to a +0.4% gain. The stock remains below resistance near $85.00. I am not suggesting new positions at the moment.

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

Starwood Hotels & Resorts - HOT - close: 75.31 change: +0.68

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -63.8%
Average Daily Volume = 2.3 million
Entry on January 14 at $73.90
Listed on January 12, 2014
Time Frame: Exit prior to earnings in mid February
New Positions: see below

Comments:
01/26/15: Hmm... HOT displayed relative strength again with a +0.9% gain versus the S&P 500's +0.25% gain. More conservative traders may want to abandon ship and exit early. I'm not suggesting new positions at this time.

Earlier Comments: January 12, 2015:
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.

- Suggested Positions -

Long FEB $70 PUT (HOT150220P70) entry $1.60

01/14/15 triggered @ 73.90
Option Format: symbol-year-month-day-call-strike