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Newsletter

Daily Newsletter, Saturday, 1/31/2015

Table of Contents

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

Market Wrap

Thank Visa, Google, Biogen and Amazon

by Jim Brown

Click here to email Jim Brown

The Dow lost -252 on Friday but it would have been a -302 loss if not for Visa's $7 gain that added about 50 Dow points. Ditto on the Nasdaq if not for Google's +24 point gain, Biogen's +36 and Amazon's +43 points.

Market Statistics

Earlier in the Day Visa was up +15 and adding about +115 Dow points but once the selling accelerated into the close that gain was cut to +$7. Google's gains were cut -5 to +24 and Amazon lost -5 to gain +43. Those big gains kept the major indexes from declining further into the red. The Dow lost -251 to close at a six week low. Even a +7% spike in crude prices could not rescue the markets from a very bad day.

January was not a good month for the markets with the major indexes averaging about a -3% loss. Biotechs were the big winners with energy, semiconductors and financials the big losers.

A lot of the market negativity on Friday came from the economic reports. The GDP for Q4 was much weaker than expected and losing almost half of the Q3 gains. The Q4 GDP came in at +2.6% growth, less than the consensus estimates for +3.1% growth and Moody's estimate for +3.4% growth. This was far less than the +4.97% growth in Q3 but nobody expected that to continue. Consumer spending rose +2.87%, up from +2.2% in the prior quarter, but fixed investment gains declined from +1.21 to +0.37%. An unexpected buildup in inventories also boosted the headline number by +0.82% but it will detract from future quarters. A buildup in inventories can occur when manufacturers are expecting stronger demand ahead or when demand slows and retailers are not ordering as much product as before. Final sales, which excludes the impact of inventories, rose +1.8% after gaining +5% in Q3.

Net exports subtracted -1.02% as a result of the strong dollar. Government spending declined and subtracted -0.4% from the headline number. Disposable income rose +3.8% after a +2% rise in Q3.

We will see two more revisions of the Q4-GDP in the coming months and the revisions are typically volatile. We will not see Q1 GDP until late April and expectations are for another decline in growth. Almost all of the recent economic reports have shown a decline in activity and the drop in energy spending will also weigh on the GDP.

This report confirmed what many analysts had feared regarding the slowing U.S. economy. This report along with the many earnings misses due to the strong dollar helped push the indexes lower on Friday.


The Employment Cost Index for Q4 posted a minor decline in the headline number from +0.7 to +0.6% and a three-month low. Wage growth slowed from +0.8% in Q3 to +0.5%. Benefit costs were flat at +0.5% growth. Compensation is up +2.3% for the full year and flat with the Q3 rate. That is actually the highest rate in more than two years. Benefit costs for the full year rose +2.6% and also a multiyear high.

The weakening of the economic numbers drove treasuries higher and yields lower. The yield on the 30-year declined to 2.251% and a 65 year low. Treasury yields are still telling us there is trouble ahead.


The final revision of Consumer Sentiment for January declined only slightly from 98.2 to 98.1 and remains at an 11-year high and up +4.5 from December. The current conditions component rose from 104.8 to 109.3 and the expectations component rose from 86.4 to 91.0. Consumers are very happy about the decline in gasoline prices plus 40% reported their incomes were higher than last year. That is up from 34% of the respondents in December. The holiday bonus payouts must have been higher than expected.

Those respondents expecting business conditions to be better in 2015 increased from 29% in December to 37% in late January.


Next week is payroll week. The worry over the Friday payroll numbers will hang over the market all week. The ADP report on Wednesday could soften some of those fears if the number is decent.

The Manufacturing ISM on Monday could be a pothole if it comes in much weaker than expected. This is a national report and the various regional reports have been showing weaker results.


There were several new splits announced last week. Visa was the biggest company with a 4:1 split for six weeks from now. This will definitely be tradable once the Friday bounce fades. Hanes Brands is also a 4:1 for March 3rd and should also provide a split run if the market cooperates. Rollins is a 3:2 split and that ratio does not normally provide much in the way of a ramp into the split. I would bet on Visa and Hanes for the best performance.


Visa (V) reported earnings of $2.53 compared to estimates of $2.49 and revenue rose +7% to $3.38 billion. Transaction volume rose from $1.84 trillion to $1.90 trillion. The company affirmed 2015 estimates but warned they expected at least a 2% impact from the strong dollar. About 60% of Visa's volume is outside the USA. The CEO said the use of credit cards was unusually strong during the holiday quarter. Also, he said they were seeing the results of the lower gasoline prices in the payment/shopping trends of card holders. Fifty percent of the savings was actually being saved with 25% going towards paying down debt and 25% spent on groceries, restaurants and clothing. Visa shares spiked +15 at the open to supply about +110 Dow points but faded at the close to +7 and +50 Dow points. The company also announced a 4:1 split, which will remove some of the volatility in the Dow when Visa shares decline from $260 to $65. Visa will go from the heaviest weighting in the Dow to number 20. Goldman Sachs will become the top dog in terms of weighting.


Amazon (AMZN) shocked investors with a huge profit for Q4. Earnings were 45 cents compared to estimates for 23 cents. That translates into $214 million in net income compared to losses in the prior two quarters. Revenue rose +15% to $29 billion and gross margin was 30%. Sales increased +20% to $89 billion for the full year. Amazon took a monster hit of $895 million from the strong dollar.

The company said its Prime memberships grew by 53%. They added more than 10 million Prime members since Thanksgiving. Some analysts estimate they have between 40-45 million Prime customers but Amazon does not release the numbers. The average Prime member spends $1,500 a year and a regular Amazon customer spends about $625 per year.

Amazon said its Amazon Web services (AWS) grew 90% in Q4 and topped 1 million customers. Starting in Q1 they will breakout the revenue/income for AWS rather than lumping it into the "other" category. Amazon obtained a bank loan of $2 billion and sold $6 billion in debt in order to continue building out datacenters and regional distribution hubs for faster shipments. There are some analysts who believe Amazon will eventually spinoff AWS and with gross margins of 90% and user growth in the 90% range it would likely be worth somewhere over $30 billion compared to Amazon's total market cap of $145 billion.

They guided for Q1 for sales of $21.9-$22.9 billion compared to estimates for $23 billion. Because Amazon spends/builds frantically in the first two quarters when online buying is slow they guided to a -$450 million loss to +$50 million in profits in Q1.

Amazon makes up 4.03% of the Nasdaq 100.


Google (GOOG) reported earnings Thursday evening of $6.88 compared to estimates for $7.08 but investors did not seem to care. The CFO blamed the strong dollar for the lower than expected performance. Revenue minus traffic acquisition fees was $14.48 billion and lower than the $14.61 billion estimate. Google's share of the advertising pie is still shrinking. Facebook's share rose from 5.4% in 2012, 17.5% in 2013 and 21.7% in 2014. In 2013 Google owned about 50% of the market but that is declining as Facebook and Bing continue to grow. Expenses rose +22% with 46% of that in R&D for things like self-driving cars.

Investors seemed to applaud the results with Google shares rising +24 to $537. This is still below decent resistance at $550. Google makes up 7.22% of the Nasdaq 100. Apple is 11.55%.


Biogen Idec (BIIB) reported earnings of $4.09 compared to estimates of $3.76. Earnings nearly doubled the year ago quarter. Revenue of $2.64 billion fell short of estimates at $2.65 billion. The company projected earnings for 2015 of $16.60-$17.00 compared to analyst estimates of $16.37. Shares exploded higher with a 10% gain of +$36. Biogen is 1.07% of the Nasdaq 100.


Intuitive Surgical (ISRG) reported earnings of $4.92 compared to estimates of $4.38. However, despite a 10% growth in robotic surgeries in Q4 the company warned that growth in 2015 could range from 7% to 10%. Expenses rose +10% while surgical profits declined -12% due to increasing competition. With a PE of 45 this was not good enough and investors dumped the stock. ISRG is not in the top 25 highest weighted companies in the Nasdaq 100 so the $10 decline was not a material influence.


Paccar (PCAR) reported earnings of $1.11 compared to estimates of $1.09. Revenue of $5.12 billion also beat estimates of $4.96 billion. The company said lower fuel prices were stimulating a boom in truck sales. Despite the positive results shares collapsed with a -6% loss.


Intercept Pharmaceuticals (ICPT) said its obeticholic acid (OCA) product had received "breakthrough therapy" designation from the FDA. The product treats the life threatening liver disease NASH. The designation will allow ICPT to speed the drug through the final trials and into the market. The drug reverses liver damage due to NASH. Shares rallied $30 on the news.


Dow component Chevron (CVX) reported earnings that declined -28% to $1.85 but that still beat expectations of $1.63. Revenue fell -18% to $46.09 billion and well above estimates of $30.65 billion. Production was flat at 2.58 mbpd. Prices received per BOE declined from $90 to $66 in the U.S. and down from $101 to $68 internationally. Chevron announced a capex budget of $35 billion that was down -13% from 2014. The company said it was going to halt its share buyback until oil prices improved. Chevron shares were down only fractionally.


The earnings calendar for next week is heavily weighted towards Wednesday and Thursday. However, Exxon on Monday is the bellwether for the energy sector. How they handled their capex decisions will be critical news for investors. Disney and UPS highlight Tuesday. More than 100 S&P companies report this week and three Dow components.


In other news Shell said it would cut $15 billion in spending over the next three years. Conoco said it was cutting capex spending even further than previously announced, down from $13.5 billion to $11.5 billion.

Shake Shack (SHAK) priced its IPO on Thursday night at $21. Shares rocketed to $52.50 at the open before falling back to close at $45.90 and a +118% gain. This is an amazing open considering they only have 63 stores. The $1.6 billion valuation at the close equates to about $27 million per store. That is a price to sales ratio of 15:1 compared to Chipotle (CMG) at 6:1. SHAK started in Madison Square Park in Manhattan in 2008. Store locations grew during the recession but locations outside Manhattan are far less profitable. For the first nine months of 2014 the company only generated $84 million in revenue while net income of $3.5 million was -21% below 2013 levels. They burned $7 million in cash in the first 9 months and had only $6 million as of Sept 30th. Net profit margins are only 4.2% and very low considering the post IPO valuations. McDonalds averages 17% profit margins but most of their 36,000 stores are run by franchisees.

The IPO will transfer 31.6% of the parent corporation ownership in Shake Shack to Shake Shack. The funds from the IPO will be used to repay a $22 million loan to the parent SSE Holdings Inc. Cash payments from Shake Shack will also be made to the existing 68.4% of owners as a tax avoidance strategy to Continuing SSE Equity Owners. They don't disclose the amount of the payments but they will be large and that will subtract from the available cash left to build the business. Lastly, the post IPO valuation of more than $1 billion now requires them to report earnings using GAAP methods and that will eliminate a lot of the nonstandard terms they used in the prospectus to discuss earnings and expenses. Things like "adjusted EBITDA," "Shack-onomics" and "cash-on-cash return" will now have to be stated in normal accounting terms. The potentially negative impact of this change was also mentioned in the prospectus.

I know Shake Shack is a cult like favorite in New York but I would be looking for any way possible to short it once the IPO buzz wears off.


A rally in crude prices tried to lift the market late in the day but the general negativity from economics and earnings was too much to overcome. The +7% spike in crude prices was blamed on news that ISIS had launched a surprise attack on Iraqi Kurdish positions on the outskirts of Kirkuk on Friday. A senior Kurdish commander and at least five of his men were killed. The assault on Kirkuk was one of the most aggressive on record by ISIS. The surge by ISIS into Kirkuk surprised everyone given the beating they have been taking from coalition air assets.

Kirkuk is a critical area for export of oil from Iraq with those fields exporting oil through a pipeline through Turkey.

I am doubtful this news will amount to anything but it may have been the spark that touched off some serious short covering in the futures market. With numerous analysts still expecting to see WTI decline into the $30s there were a lot of shorts in the market. The afternoon spike was clearly a short squeeze that once started tended to feed on itself.

However, note that the rebound started on Thursday and faded somewhat at Friday's open. When the morning dip was bought the afternoon short squeeze was born.


The active rig count plunged by -90 to a five year low at 1543. That was the biggest weekly decline since the financial crisis. That brings the number of rigs cut to -388 since the end of September. That is a -20% decline and the pace is accelerating.

Canadian rigs are down -214 to 608 (-26%) from last year's level at 822.


With the massive cuts in capex spending, 20% decline in active rigs and the expected production declines 3-6 months from now we are probably at or near a bottom in the energy crash. I believe this is a twice a decade buying opportunity in energy stocks.

Since June investors have lost -$393 billion on energy stocks. Over $350 billion of that loss came from declines in 76 energy companies that Bloomberg tracks. Another $40 billion loss came from high-yield bonds issued by energy companies. Oil and gas E&P companies have invested more than $1.4 trillion into the sector over the last five years. There were $286 billion in joint ventures, investments and spinoffs. There were $353 billion in initial public offerings and companies borrowed $786 billion in bonds and loans.

We are just starting to see the earnings reports from the energy sector and there will be a lot of ugly in the weeks ahead. Those with the best reports will be the best candidates for long term positions. Those with the worst reports, falling cash balances, high debt and expensive production will be the ones to short and or be acquired.

Markets

There are so many problems with the market I don't know where to start. The market runs on two things. Those are earnings and economics. The decline in the global economy is accelerating. The Eurozone is falling further into deflation status and the ECB QE program will not begin until March. Prices in the Eurozone declined -0.6% year over year in January and a steeper decline than the -0.5% drop expected by analysts. This follows the December decline into deflation of -0.2% and the weakest since 2009.

Germany reported it also slipped into deflation with a -0.3% year over year decline in prices in January. The drop in Germany means that not only the periphery is in decline but also the core since Germany was the strongest economy in Europe. The Danish central bank cut its rates for the second time in a week. They cut the rate paid to commercial banks for excess funds parked at the central bank to -0.5%. It was already negative but now even more negative. That means banks have to pay the central bank to hold their excess cash. The Danish Krone is still pegged to the euro so expect another currency upset like we saw from Switzerland as the euro continues to fall.

Energy prices are aggravating the decline in overall prices in Europe. In January energy prices fell -8.9% after a -6.3% decline in December. While that may be good deflation since lower energy prices are stimulative it also reduces the cost of everything else because of lower input costs. Unemployment in the Eurozone declined from 11.5% to 11.4% and the lowest level since 2012.

The Baltic Dry Index declined to its lowest level in 26 years indicating a severe lack of cargoes to be shipped. The Baltic is the base rate for renting a cargo ship for dry cargoes such as grain, fertilizer, mineral ore, coal, etc. The demand for shipping is not just at the low for the economic cycle but a multi-decade low.

It is hard to build a market case for a rebounding economy when there is almost no demand for commodity shipping. The commodity index rebounded +2.9% on Friday only because of the short squeeze in oil of +7%. It is still at six year lows. If there is no commodity demand there is no economic growth.

Baltic Dry Index

Commodity Index

The S&P is in decline mode and the internals are terrible. At the close on Friday only 35.8% of the S&P-500 stocks are trading above their short term 50 day average. On the longer term 62.6% of the S&P is trading above their 200-day average but that number is dropping rapidly and is very close to being the second weakest since reading since 2012. There is no way you can build a bullish case for the market on these internals.



On the earnings front the overall results have actually been good but the earnings misses by numerous high profile companies has resulted in quite a few declines. As of Friday 227 S&P companies have reported. According to Factset an abnormally large 79% have beaten on earnings with a more realistic 58% beating on revenue. Stock buybacks have been a major factor in many of the earnings beats. When you can't increase your earnings buy back stock and reduce the number of shares to increase your earnings per share.

So far 80% of companies giving guidance for Q1 have issued negative guidance. That is far in excess of the average at 68%. Only 19% of companies have issued positive guidance. This is very low historically. Nearly every company with any international sales is guiding to the low end of their prior estimates because of the strong dollar.

Earnings growth for Q4 is now at +2.1%. Apple's earnings accounted for HALF of the S&P earnings gains last week. Without Apple the Q4 earnings growth rate would only be +0.2%.

The forecast for Q1-2015 earnings is now negative. Q1 is likely to be the first quarterly decline in earnings since Q3-2012. On September 30th analysts were expecting Q1 earnings growth to be +9.9%. By December 31st that had declined to +4.2% growth. Today the consensus estimate is for a decline in earnings of -1.6%. A lot of this weakness is coming from the energy sector. On September 30th energy earnings estimates for Q1 stood at +3.3%. On December 31st that had dropped to -28.9% and as of today it has fallen to -53.8%.

Bespoke Investment Group posted the following chart showing the spread between positive and negative guidance is the worst since 2008. Actually the spread over the last three years has not been pretty. There are numerous indicators of earnings fundamentals but this one is definitely attention getting.


With Q4 earnings growth about to go negative, Q1 estimates already negative and Q2 estimates probably going negative as well it is very likely earnings are going to have a negative impact on the market and it could be lasting.

QE in Europe has already helped the European markets and eventually it should lift the economy. However, it took multiple QE programs across five years for the U.S. economy to recover and it was the slowest recovery on record. The European QE will be less effective because it is a collection of countries with different economies and different central banks using differing amounts of QE. There is no common treasury bond in Europe like there is in the USA. The impact of QE will be less and may take longer to produce any measurable change.

Meanwhile the U.S. economy is stumbling along. Any week now we could get a series of economic reports that show the U.S. is falling back into recession and with the Fed already at zero interest it is not prepared to fight a new recession.

My hope is that the low oil prices will generate a consumer spending boom that prevents the U.S. from falling back into recession. Hopefully the $1.28 per gallon that consumers are saving today from the same period in 2014 will bolster the economy. Based on the 9 million barrels per day of gasoline consumed that represents a savings of $484 million a day, $3.387 billion a week and $176 billion a year on gasoline alone. With distillate demand slightly over half of gasoline demand that represents another $90 billion in annual savings on diesel, heating oil and jet fuel.

Since we have not seen any evidence of an increase in consumer spending we will have to wait until spending habits change before projecting economic gains. Analysts tell us it takes 3-6 months at the new gasoline prices before spending habits change. However, Ford said sales of F150 pickups exceeded manufacturing capacity at the present time. That is clearly a result of lower fuel prices. We need to see that carry forward into the general economy before getting too bullish on the 2015 outlook.

The S&P returned to the 1,990 level on Thursday and almost hit it again on Friday. Since January was a bad month in the market and last week was month end we would normally expect traders/funds to be closing out losing positions into month end with hopes of entering new positions as the new month begins.

Also, the first three days of any month are typically the best three days of the month because of new retirement contributions being put to work. This suggests we could start next week on a positive note. If by chance we start out with a continued decline I fear we are going to decline sharply once the support at 1,985 is broken. The 150-day average at 1,996 was broken at the close on Friday but only by one point. This average has been support since early December.

The next material support level after 1,985 is 1,906. Resistance is solid at 2,065.


The Dow closed at a six-week low and appears headed for a retest of 17,000 and possibly 16,360. The chart has clearly broken down as a result of too many Dow stocks missing on earnings and taking big losses. The Dow chart is no longer bullish. The pattern of lower highs and lower lows is intact and a dip to 17,000 will only emphasize that even more. There are three Dow components reporting earnings next week along with 100 S&P companies.

Visa's gains added about 50 Dow points or the Friday decline would have been a lot worse.

Support at 17,000 is crucial or we face the real possibility of a serious breakdown. Short term resistance is 17,400 and 17,500.



Only 12 of the Nasdaq 100 (actually 107 stocks) were positive on Friday. The strong performance of AMZN, GOOG, GOOGL and BIIB kept the index from returning to the mid-January lows at 4,100.

The Nasdaq 100 lost -33 points on Friday and -129 for the week. As mentioned above were it not for those four big caps the damage would have been a lot worse. However, the number of multi-dollar losers on the Nasdaq Composite still far outweighed the winners.

The NDX has support at 4,085 and resistance at 4,215.

The Nasdaq Composite has support at 4,545 and resistance at 4,700.




The Russell 2000 lost the least of any major index at -1.98%. In theory fund managers may be less afraid of future earnings from the small caps because they have minimal exposure to the strong dollar and overseas sales. The small caps may be the safest place to ride out the economic weakness in Europe. However, once the big caps pick a direction by violating critical support the small cap babies will be thrown out with the big cap bath water. There is no safe harbor once a confirmed market decline appears.


The Dow Transports ($TRAN) closed at a three-month low at 8,649. There have been several intraday dips below that level but this is the lowest close since October 30th. With oil prices hitting a six-year low last week the transports should have been stronger. However, they declined steadily all week and are in a confirmed decline. The 100-day average has been support since August 2013 and that has failed. The weakness in shipments and the worry that oil prices will rise soon is weighing on the index. With the transports at a three month low any continued decline will be an anchor for the Dow.


The NYSE Composite is on the verge of a breakdown below 10,400. The index is already in a confirmed downtrend and a break below the December lows at 10,400 would be significantly bearish. The NYSE is struggling because of a lot of small banks and energy companies and both sectors are in the penalty box for declining earnings.


For next week the first three days could see a bounce as a result of the -500 point Dow decline last week and the influx of month end retirement funds. However, since it is payroll week and last week was so negative fund managers may elect to wait for the Nonfarm smoke to clear before adding to or establishing new positions. When the market is in a steep decline managers tend to drag their feet on putting new money to work. The S&P had two down months back to back for the first time since 2012. That is a red flag warning.

I would be cautious about new long positions until the market finds a bottom. There is no rush to invest. There is always another day to trade as long as you have capital to invest.

Random Thoughts

Ignore the Super Bowl Indicator and most other random indicators of the same vein. This will be the 49th Super Bowl. They have been played by different teams, in different locations in all kinds of weather. There is NO relation to the market despite what some analysts will predict. Claiming years when the NFC wins as a predictor of a strong market is hogwash. If you manipulate any data long enough you can always find a temporary relationship despite the coincidence being entirely random. Stick with your charts for market direction.

The Mexican Peso is in free fall at 15 to the dollar and a nine-year low. The Brazilian Real is at 10-year lows against the dollar. The only thing they have in common is that they are large producers of oil and the black gold has turned into a slippery slope for foreign currencies.

Comments from Philly Fed President Charles Plosser on the Fed managing expectations:

"It may work out just fine, but there is a risk to that strategy, and the risk is that we wait until the point where markets force us to raise rates and then we have to react quickly and aggressively. I believe that if we wait too long, then we run the risk of falling very far behind the curve or disrupting the economy by rapid rate increases.

The history is that monetary policy is not ultimately a very effective tool at solving real economic structural problems. It can try for a while but the problem then is that it's only temporarily effective, and when you can't do it anymore you get the explosion in the Swiss market.

One of the things I have tried to argue is look, if we believe that monetary policy is doing what we say its doing and depressing real interest rates and goosing the economy and we are in some sense distorting what might be the normal market outcomes. At some point we are going to have to stop doing it. At some point the pressure is going to be too great. The market forces are going to overwhelm us. We are not going to be able to hold the line anymore. And then you get that rapid snapback in premiums as the market realizes that central banks can't do this forever. And that is going to cause volatility and disruption.

I think the jury is still out on the costs. Because the cost I was worried about was the longer-term cost of unraveling all of this. So maybe I was right, maybe I was wrong. That remains to be seen.

I do worry about the longer-term implications for the institution. Part of my criticism has been that we have pushed the boundaries into fiscal rather than monetary policy. That has brought us praise and opprobrium. Perhaps justifiably on both counts. I do wonder as I look down the road five or 10 years, how will that shape the institution? What happens to our independence? What happens to our ability to do things effectively? Given all that we have done — maybe it was all for the best, but even if it was — are there going to be longer-term ramifications that we may end up regretting later?"

On Wednesday the Fed boosted its assessment of the economy and repeated its pledge to be "patient" on raising interest rates. The word patient is commonly considered as a code word for two meetings. As long as they keep using that word it will be at least two more meetings before they raise rates. The committee characterized the economic expansion as "solid" rather than the term "moderate" they used in December. Interesting that economic reports are weakening but the Fed is upgrading their outlook.

The problem is that the Fed wants to raise rates. They realize the long term problem of very low rates and they really want to raise them. Unfortunately the U.S. and the global economy are not cooperating. Oil prices are too low and the dollar is too strong. This is going to prevent them from raising rates long into the future until those conditions change. Once the Fed hikes rates the dollar will spike even higher and further harm U.S. companies doing business overseas. A stronger dollar will further depress commodities and increase deflation pressures.

The Fed acknowledged the problems overseas when they said they would take "international developments" into account when considering a rate hike. That language in the Fed statement helped send treasury yields even lower. The last time the Fed mentioned "international developments" was in January 2013.

The Fed is in a box and the spring under the low rates is being wound tighter as every month passes. Like Plosser mentioned in the comments above, if the Fed waits until it is forced to raise rates then the speed and severity could be very harmful to the market and the economy. They need to raise rates soon but they can't. They are trapped by economic conditions. This is an economic time bomb and the clock is ticking.

The economic recovery is far from solid and if the Fed raises rates they could knock the economy back into a recession. If they don't raise rates the current asset bubble could end up being worse than the 2008 financial crisis. There is no easy button for the Fed.

Be glad you are watching the Super Bowl from the comfort of your home. Ticket prices averaged about $3,900 a week ago according to ticket search engine SeatGeek. On Monday they rose to $4,500. On Wednesday they rose to $5,140 and on Friday they hit $6,191. As of Saturday the cheapest ticket on SeatGeek was $8,000. Since brokers sell tickets to customers without actually owning the tickets the race is on to fill those orders. They get a quote first, sell the tickets to customers, collect the money and then attempt to buy the tickets to fill the order. This is the Super Bowl version of a short squeeze.

Add in plane tickets, hotel rooms, taxi fares or car rentals, meals and drinks and this is some very expensive entertainment. So set back, order some pizza and have some friends over. You will still be saving a lot of money by staying home and the weather inside is always perfect and you can pause the TV while you go for drinks or a pit stop down the hall.

The new Prime Minister of Greece Alexis Tsipras is invoking the nuclear option in dealing with the EU, ECB and IMF otherwise known as the Troika. Tsipras said "Greece will not seek an extension of the bailout agreement" and "We don't plan to cooperate with that committee." Greece has already accepted 245 billion euros in bailout aid from the Troika in exchange for progressively stronger austerity programs. Tsipras told his cabinet he would not abandon his campaign promises to the Greek people and would no longer agree to a policy of submission to the Troika. His campaign promises halt all the austerity measures and have started a democratic revolution. Tsipras is betting the Troika will not let the outstanding debt breakup the monetary union over the bailout funds. If Greece refuses to repay the debt the EU has no options other than ejecting Greece from the EU. However, they will not want to see the EU fractured by a Greek exit but they also can't be seen as giving into the demands of the newly elected government. Tsipras knows this and as of today he is holding all the cards. Eventually a "mutually agreed" settlement will be made because there is no other option.

Are you planning on retiring soon? Every day more than 10,000 baby boomers turn 62, the average age where people actually retire according to a Gallup Poll. By 2030 one in five Americans will be over the age of 62. Fidelity Investments found that a couple who retires at 65 needs an average of $220,000 to cover out of pocket medical expenses over the course of their retirement. This includes things like hearing aids, eye exams, glasses, dental care, nursing and rehabilitative care. That does not cover nursing homes or assisted living facilities that cost from $42,000 to $77,000 a year to start. Gallup said senior citizens retiring now are in denial over the cost of their future healthcare. They assume Medicare will cover everything and that is the wrong assumption.

The stock Trader's Almanac pointed out that when the markets lose ground in January the month of February is down more often than not and the average performance was solidly negative. When Santa fails to call bears will come to Broad and Wall. Santa definitely was a no show this year and that brings us to another market adage. As January goes, so goes the year. With January down an average of -3% across all the indexes it sets up a test of that adage. With economics and earnings declining the outlook is negative for February.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"There’s just one simple step to making a small fortune by using Elliott Wave Theory: start with a large fortune."

Tim Knight (Slope Of Hope)

 


Index Wrap

Major Indices Still Within Broad Trading Ranges

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

For now, the major indexes remain within broad trading ranges but with the threat of a downswing ahead that carries to below prior lows. A sell off below support would be consistent with another potential shot up in the VIX volatility Index, which looks possible with the VIX chart patterns seen below.

MONTH END REVIEW:

The S&P 500 (SPX) finished down 64 points in January for a loss of 3.1%. The Dow 30 (INDU) was off 3.6%, down 658 points, on the month. The Nasdaq Composite (COMP) fell 101 points, a decline of 2% from its December and year-end Close of 4736.

Not a great start to 2015 but losses in January are not uncommon as investors assess the new year's earnings potential even within the current bull market dating from 2009; e.g., January 2009 decline; also seen in 2010 and 2014.

The current Market has of course been dominated by broad back and forth price swings since early-December. Stock market volatility, as measured by the S&P 500 volatility Index VIX has seen several spikes to above 20, and the VIX has yet to dip back to 14 or under in the past two months.

I'm anticipating continued trading opportunities in VIX options. This is a market much dominated by portfolio managers due to VIX's negative correlation to stock prices; it's cheap insurance and very under-reported. If you look at say, Investors Business Daily, which reports as much or more data than most Market related print publications, you'll find the S&P, Dow Index, Nas 100 and Russell 2000 'Index' options prices and volumes but no reporting on the most-active VIX puts and calls. Surprising considering VIX options have far greater average daily volume and a larger Open Interest than all but volume and OI for SPX puts and calls.

Time to include the VIX index options in trade selection? YES!

VIX Technical Commentary; Daily and Hourly charts

I'm trying out regular weekly commentary on the S&P 500 Volatility Index (VIX); I'll continue this week to feature both the VIX daily and hourly charts.

As to the importance of taking a look at trading the VIX, one reason is that it is negatively correlated to stock prices or there's an inverse relationship. A perhaps overly simplistic way to say this is that when Market volatility goes up, stock prices will tend to come down; conversely, when volatility measures like the VIX starts coming down from peak levels, stocks will tend to rally; i.e., a good hedge against stocks losing value. So, like SPX options, sizable fund participation.

BEST KEPT SECRET: DAILY TRADE VOLUMES IN VIX!

Yesterday (1/30/15), daily volume in VIX put and call options on the CBOE was 425,734 and Open Interest (OI) was 4,226,125. Compared to the daily trade volume of the S&P 500, at 1,183,397 and OI at 11,279,735, VIX options' volume doesn't seem enormous but it is quite substantial. VIX options volume is a strong number 2 in volume compared to all other 'Index' options.

Compare VIX volume (425,734) to QQQ options that saw 104,180 contracts change hands on 1/30/15 or to the Russell 2000 daily options volume of 38,673; NDX options saw a volume of 10,008 on this same Friday of the past week. Spreads (between bid/offer) tend to be relatively 'tight' due to the amount of stock portfolio/VIX arbitrage going on and the volume levels involved.

Volatility indexes like the VIX and VXN (the Nasdaq 100 Volatility Index) measure the market's expectation of 30-day volatility implicit in the prices of near-term index options. The indexes are quoted in percentage points, just like the standard deviation of a rate of return, e.g. 19.36.

Two recent Trader's Corner articles of mine were on the S&P 500 Volatility Index (VIX) with the idea of covering the basics of contract specs and looking at how the VIX Index trades technically:

1.) "Trading volatility, Pt.1" (1/15/15): The tremendous growth in volume in VIX options on the CBOE, ideas on trading strategy and contract specifications.

2.) "Trading volatility with VIX options, Pt.2" (1/22/15): Spotting tradable shifts in trend based VIX chart pattern and indicator analysis and discussed and illustrated.

VIX trends, both on a 2-3 day basis and in a 2-3 week outlook, can be assessed with the same chart analysis and related technical indicators, that work with any other index or stock; e.g., pattern recognition, overbought/oversold considerations (especially when VIX is at overbought extremes), etc.

My VIX daily chart below illustrates the recent 'extreme' upside area where VIX has been tending to make tops. VIX relative to the price of the S&P 500 (SPX) tends to have an inverse trend relationship. When VIX has shot up into a possible TOP in the higher 'extreme' ranges shown below we can anticipate a BOTTOM in the S&P although we can't say exactly how long that will take to happen; but, it's usually within days, not weeks. Conversely, when VIX has bottomed in the areas highlighted, we can anticipate a counter-trend move HIGHER in VIX at some point ahead, coupled with a DOWNWARD slide in SPX.

It has often been easier to anticipate VIX falling back toward the 14 to 12 range from spikes into the 22 to 26 zone, by buying VIX puts than it has been to anticipate a SIZABLE upside move per the VIX daily chart below. Although, 'oversold' RSI readings, at 40 in the period shown below (on a 13-day basis) in the Relative Strength Index (RSI) has suggested a reasonably good 'bet' on the Call side; e.g., in late-August and early-December.

Note that VIX could be headed to extremes seen previously in the 22 to 26 zone (before the Market rallied previously) and that in turn suggests buying VIX puts. Long VIX puts, long SPX calls could work in tandem.

You'll notice that I'm using a Close-only 'line' chart below. On an intraday basis VIX peaked at 22.18, saw a intraday Low of 19.24 and Closed up 2.21 (+10.5%) at 20.97.

I highlighted the 16 area in VIX as technical/chart support last week on my extended hourly chart seen next. Moreover, the Relative Strength Index (RSI) hit an 'oversold' extreme on a 21-hour basis. The RSI 'length' setting of 21 is what I use on my extended hourly stock index charts and is part of the Fibonacci number series (e.g., 1,2,3, 5, 8, 13, 21, etc.)

I made the following VIX strategy comments last week: "look for a potential break of the up trendline intersecting just under 21, which would then suggest a move to at least 18 and possibly or probably lower such as to support in the VIX 16 to 14 zone. I would exit VIX puts on dips to 16 or under."

I went on to say last week that I was less inclined to buy VIX calls in the 16-14 range as volatility, represented by VIX can be down for lengthily periods before a rally develops, as seen on the daily chart above. Actually, the dip to support AND the oversold RSI suggested a possible (relatively) low risk trade in VIX calls; with use of a Call trade exit/stop out point just below 14. VIX can trend sideways in the 14-12 range for extended periods of time, whereas peaks in VIX above 22 tend to be relatively short-lived.

S&P 500 (SPX) DAILY CHART:

The S&P 500 has a multimonth trading range pattern between 2060-2090 on the upside and 1993-1973 on the downside. Recent lows in SPX have formed in the 1990-2000 zone; there's then potential to test December lows in the 1973 area. A next lower target/support comes in around 1950 at my lower (-3.5% under SPX's 21-day moving average) trading envelope/'band'.

Near resistance comes in at the 21-day average (2030), extending to 2040 on up to a line of prior intraday highs at 2063.

Another shot down such as to the 1973 to 1950 area would probably see the Relative Strength Index get to a 'fully' oversold reading. Trader sentiment has been showing more bearishness as stock put volumes rise relative to equity calls.

I'm taking a wait and see attitude on staking out a bullish trade as I would rather be the full on contrarian and see an 'oversold' RSI and a further build up of bearishness in order to then speculate on SPX continuing to see two-sided trading swings. One more shot down and SPX would look 'due' for a rally. Stay tuned!

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is mixed in its pattern. On one hand, OEX could be at the low end of its 2-month old trading range and may rebound from there. On the other hand, lower relative highs since the intraday top at 924 and the average number of days since early-December BELOW the 21-day moving average, is a bearish intermediate pattern.

OEX has arrived at prior support found in the 873 area. Next support or a next downside target area is to 860.

Near resistance is highlighted at 893 and then at the January down trendline currently intersecting around 904. A sustained period above 900 would be a bullish plus and suggest a possible test of resistance implied by prior highs at 910-911.

THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:

The Dow 30 (INDU) Average has the same pattern as the S&P; i.e., declining upswing highs since the 18100 peak, trade mostly below its 21-day moving average and having seemingly 'pulled' back to lows made in mid-December in the 17075 area. I've highlighted potential 'support' at 17075, then a next downside target area and potential support around 16900.

Very near resistance is at 17400-17500, 17555 and the current intersection of INDU's 21-day moving average; next resistance is then seen at INDU's down trendline in the 17725 area.

Dow stocks remaining in strong uptrends are few: BA, HD, MMM, PFE and CSCO probably, plus TRV. (UTX was looking like it could break out in a new up leg but has recently retreated from prior highs in the 120 area.)

A dip into the 17000-16900 zone may offer trade potential for a rebound back to the 17400 area, then on to possibly test resistance at the 21-day average.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) is mixed in its pattern also as the Index trends sideways. The Nasdaq is holding farther above its lows than the S&P and Dow and was down 2 percent on the month versus down 3+ percent in the S&P and Dow for January.

The Nasdaq pattern is roughly the same in the number of days trading below its 21-day moving average; and in the declining relative upswing highs forming a tentative down trendline. Resistance is seen in the 4700 area, then at 4760 at the current intersection of the down trendline.

Near COMP support is at 4600, extending to the prior 4550 lows; a next potential downside target is to 4500, at my lower trading band, more properly known as a (21-day) moving average envelope line; in this case set to 'float' at 3% UNDER the Average.

COMP is both in the (more or less) middle of its trading range and is not at an oversold extreme per the 13-day RSI, with trader 'sentiment' showing dips toward what would be a bearish 'extreme' but isn't there yet. Not a lot to decide on a directional trade here absent a bullish breakout or bearish 'breakdown'.

NASDAQ 100 (NDX); DAILY CHART:

The NDX 100 (NDX) has the same lateral trading-range pattern now two months old that has hit highs in the 4325-4345 area and, on the downside, has traced out a well-defined line of lows around 4085. Next support below 4084-4100 is suggested at 4009-4000 and my lower trading 'band' at 3.5% UNDER the 'centered' (21-day) moving average.

Key near resistance is highlighted at 4250, extending next to the 4300 area. A sustained move above 4300 would likely result in renewed upside momentum.

NDX may be headed to another oversold reading in the RSI. Another noteworthy indicator is seen with the relatively high level hit by the Nasdaq 100 volatility Index, VXN. Above 20 and especially at 21-22 (VXN Closed this past week at 21.59) VXN has tended to suggest potential for NDX to rally. Stay tuned on that!

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The QQQ trend is mixed to bearish in the pattern of lower relative highs on rallies into late-December and the recent advance to the 104 area. 103, then 104 are the key resistances in the Q's. The 'mixed' part of the trend picture is that the broad movement over recent weeks is predominately sideways.

Yes, a mildly bearish pattern of somewhat lower upswing highs made on two subsequent rally attempts after the 106 peak (11/28/14) but with QQQ also consistently bottoming in the 100 to 99.36 area. Below 99.36, a next possible downside target is to the 98 area.

A sustained move above 104 resumes bullish upside momentum. Conversely, a couple of back to back Closes below 100 would tip the chart more to a bearish interpretation. Even then and even with a dip to the 98 area, I'd cover puts and look for possible bottoming action or an upside reversal pattern.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) has a slightly different pattern than the other major indices with its converging up and downward sloping trendlines. A suggestion with this pattern is that a breakout above or below the upper and lower trendlines would then often lead to a substantial further move in the direction of the breakout; e.g., a decisive upside penetration of 1200 would suggest upside potential to 1260-1280 whereas a decisive downside penetration of 1160 could lead to decline to 1100-1080.

Near chart support: 1160, extending next to 1140. Near resistance is seen at 1200, extending next to the prior 1220 peak of late-December.


GOOD TRADING SUCCESS!




New Option Plays

Industrial Goods Loser

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Precision Castparts Corp. - PCP - close: 200.10 change: -2.52

Stop Loss: 205.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.2 million
Entry on January -- at $---.--
Listed on January 29, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
PCP is part of the industrial goods sector. They fabricate metal products for multiple industries. According to the company, "Precision Castparts Corp. is a worldwide, diversified manufacturer of complex metal components and products. It serves the aerospace, power, and general industrial markets. PCC is a market leader in manufacturing large, complex structural investment castings, airfoil castings, forged components, aerostructures and highly engineered, critical fasteners for aerospace applications. In addition, the Company is a leading producer of airfoil castings for the industrial gas turbine market. PCC manufactures extruded seamless pipe, fittings, forgings, and clad products for power generation and oil & gas applications; commercial and military airframe aerostructures; and metal alloys and other materials to the casting, forging, and other industries."

The stock has had a hard time since it produced a big bearish double top in 2014 (see weekly chart below). Earnings have struggled as well. Back in July 2014 the company reported earnings that missed estimates on both the top and bottom line. In October they miss estimates again. Then on January 16, 2015 the company issued an earnings warning.

Wall Street was expected PCP's Q3 earnings to be $3.41 on revenues of $2.57 billion. PCP warned that earnings would be closer to the $3.05-3.10 range and revenues below $2.47 billion. The stock crashed. Shares gapped down on this news to open at $186.70 (a -$33.00 drop). PCP immediately bounce but the oversold bounce failed near $210 and below its 10-dma. It's been sinking the last several days.

PCP did report its Q3 earnings on January 22nd. They managed to beat Wall Street's newly lowered expectations with earnings of $3.09 per share. Unfortunately PCP's management lowered guidance again and reduced their full year earnings forecast for 2015.

The stock been downgraded following its recent disappointments. Analysts are worried about the company's lack of earnings visibility and do not see any near term catalyst to drive the stock. The next event that might change investor sentiment could be PCP's 2016 guidance, which comes out in May this year.

PCP sells a lot of metal products to the oil and gas industry. Right now, with the price of oil at six-year lows, the company has reported a slowdown in customer orders from their energy-related clients. The bad news for PCP is that this trend will likely continue. Just this past week we heard some big name oil companies reducing their capex plans for 2015. Reduced spending in the oil and gas industry could be a constant theme this year as the sector adjusts to low crude oil prices.

The bearish performance in shares of PCP have generated a sell signal on the point & figure chart with a $132 target. Today PCP is hovering just above round-number support at the $200.00 mark. Tonight I am suggesting a trigger to buy puts at $199.50.

Trigger @ $199.50

- Suggested Positions -

Buy the MAR $190 PUT (PCP150320P190) current ask $3.50

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

GDP & Greece Short Circuit The Bounce

by James Brown

Click here to email James Brown

Editor's Note:

A disappointing U.S. GDP number and rising concerns over Greece's new government helped short circuit the market's bounce. The major U.S. indices all turned lower again.

We have removed AYI as a candidate. Several plays have new stop losses tonight.


Current Portfolio:


CALL Play Updates

Alkermes plc. - ALKS - close: 72.25 change: +0.06

Stop Loss: 69.45
Target(s): To Be Determined
Current Option Gain/Loss: +141.9%
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:
01/31/15: ALKS is still resisting the market's weakness. Shares tagged new highs on Friday before paring its gains. The stock managed to close in positive territory (barely) in spite of the market sell-off Friday afternoon. Tonight we are moving the stop loss up to $69.45.

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

01/31/15 new stop @ 69.45
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

chart:


Avago Technologies - AVGO - close: 102.88 change: -3.65

Stop Loss: 101.40
Target(s): To Be Determined
Current Option Gain/Loss: -38.3%
Average Daily Volume = 2.2 million
Entry on January 28 at $107.75
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
New Positions: see below

Comments:
01/31/15: The volatile sideways churning in AVGO continued on Friday. The stock reversed near $106.75 on Friday morning and plunged toward the bottom of its trading range. The $102 and $100 levels are short-term support. Our stop remains at $101.40 for now.

Considering AVGO's relative weakness on Friday (-3.4%) I am not suggesting new positions at this time.

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.

- Suggested Positions -

Long MAR $110 CALL (AVGO150320C110) entry $4.86

01/28/15 triggered @ 107.75
Option Format: symbol-year-month-day-call-strike

chart:


Big Lots Inc. - BIG - close: 45.91 change: -0.89

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: -19.3%
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:
01/31/15: It was a volatile week for BIG. Wednesday's failed rally near resistance at $48.00 is starting to look like a bearish reversal. More conservative traders may want to consider an early exit. We are raising the stop loss up to $44.90. 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

01/31/15 new stop @ 44.90
01/28/15 new stop @ 43.90
01/15/15 triggered @ 45.75
Option Format: symbol-year-month-day-call-strike

chart:


Cracker Barrel Old Country Store - CBRL - cls: 134.51 chg: -3.04

Stop Loss: 133.35
Target(s): To Be Determined
Current Option Gain/Loss: -22.8%
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:
01/31/15: CBRL is no stranger to volatility. The past couple of days have seen three-dollar moves both directions. The stock is still trading above short-term support near $134.00. We are going to try and reduce our risk by moving the stop loss up to $133.35. More aggressive traders will want to consider keeping their stop below the simple 50-dma instead (currently near $132.30).

I am not suggesting new positions at this time.

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

01/31/15 new stop @ 133.35
01/26/15 triggered @ 135.15
Option Format: symbol-year-month-day-call-strike

chart:


Lowe's Companies - LOW - close: 67.76 change: -2.17

Stop Loss: 66.90
Target(s): To Be Determined
Current Option Gain/Loss: -45.8%
Average Daily Volume = 5.3 million
Entry on January 28 at $70.60
Listed on January 27, 2015
Time Frame: Exit PRIOR to earnings on Feb. 25th
New Positions: see below

Comments:
01/31/15: Friday turned out to be an ugly day for shares of LOW. The stock underperformed the broader market with a -3.1% decline. The action from Wednesday's high to Friday's low is starting to look like a potential bearish reversal. Tonight we are raising the stop loss up to $66.90. I am not suggesting new positions at this time.

Earlier Comments: January 27, 2015:
Lowe's Companies is a Fortune 100 company. They sell to 15 million customers a week with annual sales of more than $53 billion. LOW is the second biggest player in the home improvement retail business. Their main rival is Home Depot. LOW currently has more than 1,800 stores across the United States, Canada, and Mexico.

The stock has been a great performer the last couple of years, significantly outperforming the broader market. Their most recent earnings report was November 19th and results were one cent above expectations with a profit of $0.59 a share. Revenues also beat expectations with +5.6% growth to $13.68 billion. Same-store sales were up +5.1%.

Management issued bullish guidance for 2015 and raised their earnings estimate above Wall Street's forecast. LOW also raised their revenue guidance above analysts' estimates. The company expects revenues to grow +4.5% to 5% in 2015 with same-store sales growth in the +3.5% to 4% range.

The stock is often influenced by trading and news out of the homebuilders. This year there have been a couple of bombs in the homebuilding industry with both KBH and LEN warning on potential margin pressures in 2015. Shares of LOW, a retailer, shrugged off this headlines.

The U.S. economy grew +4.9% in the third quarter last year and is expected to grow about +3% in 2015. The slow and steady improvement in the U.S. economy is a tailwind for LOW. Another bonus is low gas prices. While we have not seen a lot of evidence that consumers are spending their savings at the pump eventually that money, amounting to hundreds of dollars a year for the average driver, will be spent. Americans love to spend money on their homes, which is bullish for LOW.

We are quickly approaching the spring residential real estate selling season. That means consumers will be spending money on fixing up their homes to go on the market. Those people who buy a home will spend money on their new purchase.

Technically LOW's stock has been consolidating sideways between support near $65 and resistance near $70 the last few weeks. The point & figure chart has already produced a new triple-top breakout buy signal with a $75 target (that could grow). Yesterday the stock hit an intraday high of $70.50. Tonight I am suggesting a trigger to buy calls if LOW hits $70.60.

- Suggested Positions -

Long MAR $70 CALL (LOW150320C70) entry @ 2.71

01/31/15 new stop @ 66.90
01/28/15 triggered @ 70.60
Option Format: symbol-year-month-day-call-strike

chart:


Monster Beverage Corp. - MNST - close: 116.95 change: -3.82

Stop Loss: 115.75
Target(s): To Be Determined
Current Option Gain/Loss: -42.2%
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:
01/31/15: MNST was hitting record highs mid-week. Shares were hit with profit taking on Friday and the stock underperformed with a -3.1% decline. Our stop loss remains at $115.75. I am not suggesting new positions at this time.

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

chart:


Constellation Brands - STZ - close: 110.45 change: -1.33

Stop Loss: 108.40
Target(s): To Be Determined
Current Option Gain/Loss: -8.9%
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:
01/31/15: STZ faded back to the bottom of its trading range and settled near support at $110. Tonight we are moving the stop loss up to $108.40. I am not suggesting new positions at current levels.

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

01/31/15 new stop @ 108.40
01/15/15 triggered on gap open at $109.36, trigger was $108.65
Option Format: symbol-year-month-day-call-strike

chart:


Valeant Pharmaceuticals - VRX - close: 159.97 change: -1.54

Stop Loss: 154.80
Target(s): To Be Determined
Current Option Gain/Loss: -22.9%
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:
01/31/15: VRX tested short-term support at its 10-dma again on Friday. The stock has failed twice in the $161.70-161.80 zone in the last two days. I'm suggesting readers wait for a rally past this level before considering new bullish 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

chart:


Whole Foods Market, Inc. - WFM - close: 52.10 change: -0.91

Stop Loss: 51.25
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: Exit PRIOR to earnings on February 11th
New Positions: see below

Comments:
01/31/15: WFM has spent the last several days consolidating sideways in the $52-54 zone. It's also inside a bullish channel I've outlined on the daily chart below. A breakdown below the bottom of the channel will probably signal a drop toward $50.00 or its 50-dma. Therefore we are raising our stop loss up to $51.25. More aggressive traders will to endure a drop to $50 will obviously want to consider a lower stop loss. Just remember we do not want to hold over the earnings report on February 11th.

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

01/31/15 new stop @ 51.25
01/28/15 new stop @ 49.45
01/08/15 triggered on gap open at $50.35, suggested entry was $50.30
Option Format: symbol-year-month-day-call-strike

chart:


Williams-Sonoma Inc. - WSM - close: 78.25 change: -2.53

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 990 thousand
Entry on January -- at $---.--
Listed on January 29, 2015
Time Frame: Exit PRIOR to earnings in March
New Positions: Yes, see below

Comments:
01/31/15: Ouch! WSM, like many high-flyers on Friday, was hammered lower with profit taking as the market accelerated lower toward the weekend. WSM underperformed with a -3.1% decline. It's possible the $78.00 level is short-term support.

Currently our suggested entry point to buy calls is at $81.15 but we might reconsider buying this dip if WSM does bounce at $78.00.

Earlier Comments: January 29, 2015:
Normally when a company lowers their earnings guidance Wall Street tends to punish the stock price. WSM has lowered guidance several times but that didn't stop shares for outperforming the market with a +29% gain in 2014.

The company describes itself as "Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and 603 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East and the Philippines."

They have an enviable position of mostly selling to high-end customers who make more than $150,000 a year. Unlike many retailers, WSM has an extremely healthy online presence. Their e-commerce business generated half of all sales, which certainly gives their margins a boost compared to rivals.

WSM seems to have perfected the beat estimates and guide lower game to management Wall Street's earnings expectations. Looking at the last four earnings reports in a row WSM has beaten estimates three out of the last four reports on both the top and bottom line. Every time management has guided lower for the next quarter. This strategy has definitely generated some volatility in the stock price. A quick look at WSM's daily chart and you'll see a lot of big gaps up and down as investors react to news. Yet the overall trend has been higher. Today WSM sits at all-time highs.

Shares have been showing relative strength in 2015 with a +5.4% gain thus far. The point & figure chart is bullish and forecasting a long-term target at $105.00. Tonight I am suggesting a trigger to buy calls at $81.15. Please note that I am suggesting small positions to start. WSM is flirting with and apparently breaking out past a long-term trend line that you can see on the monthly chart below.

Trigger @ $81.15 *start with small positions*

- Suggested Positions -

Buy the MAR $85 CALL (WSM150320C85)

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

chart:


Zebra Technology - ZBRA - close: 83.46 change: -0.21

Stop Loss: 81.35
Target(s): To Be Determined
Current Option Gain/Loss: -20.6%
Average Daily Volume = 494 thousand
Entry on January 12 at $80.85
Listed on January 10, 2015
Time Frame: Exit prior to earnings on February 26th
New Positions: see below

Comments:
01/31/15: Upward momentum in ZBRA is slowing down and the market's weakness this past week definitely did not help. Friday's close below the simple 10-dma is short-term bearish. More conservative traders may want to move their stop closer to the $82.00 level.

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

01/28/15 new stop @ 81.35
01/12/15 triggered @ 80.85
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Starwood Hotels & Resorts - HOT - close: 71.97 change: -1.61

Stop Loss: 75.05
Target(s): To Be Determined
Current Option Gain/Loss: -26.3%
Average Daily Volume = 2.3 million
Entry on January 14 at $73.90
Listed on January 12, 2014
Time Frame: Exit PRIOR to earnings on February 10th
New Positions: see below

Comments:
01/31/15: HOT is looking a lot better as a bearish candidate with last week's retreat. Shares are testing their January lows. These intraday lows are in the $71.70-71.80 area. I am suggesting a new decline below $71.70 as an entry point to buy puts again.

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

01/29/15 new stop @ 75.05
01/14/15 triggered @ 73.90
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

Acuity Brands, Inc. - AYI - close: 149.89 change: -2.03

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: see below

Comments:
01/31/15: The recent trading in AYI is starting to look like a bearish double top with the two failed rallies near $156 in January. Our trade has not opened yet. We're choosing to remove AYI as an active candidate.

Trade did not open.

01/31/15 removed from the newsletter, suggested entry was $156.05.

chart: