Option Investor
Newsletter

Daily Newsletter, Monday, 2/2/2015

Table of Contents

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

Market Wrap

GroundHog Day

by Thomas Hughes

Click here to email Thomas Hughes
Despite a raging winter storm, economic data, earnings and a surge in oil price Punxsatawny Phil saw his shadow and predicts another 6 weeks of winter.

Introduction

Ol Punxsatawney Phil reports that we can expect another 6 weeks of winter... but I'm not sure he saw his real shadow. The sky was overcast and grey, the crowd was filled with cameras ...you be the judge. In any event the market did not react violently to the news as other more relevant issues were clamoring for attention.

To start things off weak manufacturing data in China hit Asian markets and sent them lower. Chinese PMI came in at 49.7 for the final after an initial reading of 49.8. This is the second month the indicator has been below 50 and is raising fear of slow down in China. This news had Asian market down by at least a half percent but did not have much impact on the European session. EU indices were largely higher on earnings, ECB stimulus and higher oil prices.

Market Statistics

There were a few headlines in the early hours that affected trading. First up, the President has issued his 2015 budget, about $4 trillion, and is set to fight the GOP over it. His stance, it is time to “end mindless austerity”. Other news includes auto sales estimates from data resource IHS. The company says it expects auto sales to continue to grow in 2015, but at a slightly slower pace than 2014. The number of new cars sold is expected to rise by 2.4% to 88.6 million units worldwide, led by the US and China. Earnings released before the bell were largely positive, including a beat from Exxon that is sure to help raise average quarterly earnings growth for the entire S&P 500. Finally, economic data was mixed but in line with trends.

US futures were up from the earliest. The SPX was indicated up by 4 or 5 points in early electronic trading with some volatility. The indices opened positive and held near break even for the first half hour of trading but weak ISM data sent them down to hit a 6 week low. Support kicked in once these lows were hit and by 11AM the major indices were all back in the green. The rest of the day saw the indices move higher, and then lower and then higher again with strength developing into the close. The late day rally took the indices to new daily highs nearly 1% above last weeks close.

Economic Calendar

The Economy

There was a bit of economic data released today, 4 bits from December/Q4 2014 and one from January/Q1 2015. First up was Personal Income and Spending, released at 8:30AM. Income increased by 0.3% or $41.3 billion in December. This was led by gains in income for proprietors and wages/salaries in the public sector. November data was revised lower from a gain of 0.4% to a gain of 0.3%. Personal Consumption Expenditures declined by -0.3% and November was revised lower, by a tenth to up 0.5%. While not a great sign for the consumer, is not unexpected in light of other weak December data. Construction Spending and ISM were both released at 10AM, both a little weaker than expected. Construction Spending in December rose, but only by 0.4% versus the consensus estimate of 0.8%. Helping to even out the miss is an upward revision of 0.1% to the November data. Even with the miss on a year over year basis spending is up 2.2% from December 2013.

Finally, ISM for January, expected at 54.5, was reported at 53.5. This is slightly below expectations and the previous month but still expansionary. New orders, production, employment and prices were all down while inventories rose. Despite being down, responses indicate that demand is still high. 14 of 18 sectors experienced growth in January and most reported strong demand or increasing business opportunities.


Moody's Survey Of Business Confidence continues to show positive expectations for this year. The diffusion index, which ended 2014 at an all time high, surged to a new all time in this week's report. The index is now reading 41.6 and is accompanied by the most optimistic summary I have read in the past 6 months. According to Mark Zandi, Moody's Economist and survey administrator, “Businesses remain upbeat. Confidence surged late last year and remains near record highs in early 2015. Sentiment is sky-high in the U.S. and stronger in Asia. Businesses are also feeling a bit better in Europe, likely reflecting the European Central Bank's recent moves and a weaker euro. South American confidence continues to lag. Hiring intentions in the U.S. are robust, with a record well more than half of respondents saying they are hiring. Layoffs are extraordinarily low. It is 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.” The major changes are that sentiment is now “sky high” in the US and that Asia and the EU are getting better. Other items of interest include “robust” hiring intentions, “extraordinarily low” lay-offs and that credit availability remains “improved”. All things that point to strengthening economic trends, in my opinion at least.


There is more market moving data due out later this week. Tomorrow look out for auto sales and factory orders, Wednesday is ADP employment and ISM services index, Thursday is Challenger job cuts and jobless claims followed up on Friday with the ever important NFP and US unemployment figures.

The Oil Index

I know this will be shocking to hear but oil prices were volatile again today. WTI moved in a choppy range as high as 2.5% above last weeks closing price and closed at the high of the day. A number of factors including high short interest, a steel workers strike threatening fuel production and declining rig counts contributed to the move. While at this time supply is high and rising there are signs that down the road it will begin fall back in line with demand. This is helping to support oil prices but as of yet does not signal a reversal and is not supported by data. Until then this move is likely a relief rally and could set us up for another leg lower.

In the meantime, firming oil prices and better than expected (not great but better than expected) earnings from Chevron and Exxon are helping to lift the oil sector. The Oil Index moved up by over 1.75% in today's session and is now approaching potential resistance near 1,350. Today's action held support above the short term 30 day moving average and is accompanied by bullish indicators. Although momentum is weak it is bullish and ticking higher while stochastic is on the rise and presenting an interesting set up. Both %K and %D are pointing higher, but %K is still below the other and both are below the upper signal line. This could lead to a double bullish crossover as %K crosses %D and both cross the upper signal, or could result in a confirmation of resistance if neither move higher. This scenario looks like it may play out as the index approaches the 1,350 resistance line and either breaks through or is repelled. A break above would have targets near 1,400 and 1,500 hundred. Support, upon a pull back, may be found along the long term trend line near 1,250.


The Gold Index

Gold prices held steady near $1280 after dipping to test support near $1265. Today's action created a near perfect “V” as prices declined to their bottom, bounced and then climbed higher. Prices are struggling with near term concerns such as fear of slowing economic growth, long term economic outlook and the latest FOMC statement. In terms of the FOMC it seems at this time as if the market is accepting a rate hike this year, but is having a hard time deciding just when it's going to come. The sentiment may change later this week as the fresher data begins to come out but I think so long as labor trends remain healthy rate outlook will remain stable and gold prices will hold steady. In the near to short term there could be further testing of support with $1250 the most likely candidate at this time.

The gold miners ETF GDX rose in today's session, climbing more than 1.3% in a move extending a bounce from the short term moving average. This bounce and move higher is also confirming support for the break-out the ETF made at the beginning of the month. Current support is near $20.50-$21.00 with potential resistance at the January high, $23.22. A break above resistance would have a target between $25 and $27.50 in the near to short term. The indicators are bullish but in decline, consistent with a test of support and there is chance support could be tested again. This index may trend sideways over the next week, or two even, as we wait for the macro-data and for earnings. Many of the senior and junior miners are scheduled to report in two weeks time.


In The News, Story Stocks and Earnings

As of last Friday 227 S&P 500 companies had reported earnings. According to FactSet 80% are beating the mean estimate for earnings growth and 58% are beating the mean estimate for revenue. The current estimated mean growth rate for the index is now 2.1%, up from 0.25% just last week. The energy sector led the index in downward revisions, driving the mean estimate from the high over 6% to the low we saw last week. The mean is now rising sharply on better than expected earnings from the oil sector, among others, and will no doubt rise again after today's report from Exxon. The take away; energy is lagging in terms of growth but the amount of lag isn't as bad as previously estimated.


Exxon reported earnings before the bell and provided a bit of lift. The world's largest integrated energry company reported EPS of $1.56 versus the expected $1.33 predicted by the street. Revenues were a shy of estimates but full year revenues were only $0.1 billion short of the previous year. 2015 outlook is in line with estimates but significantly lower than the last several. The stock surged as much as 2.5% in the premarket but did not hold the gain. The stock opened about a half a percent higher and then moved up from there. By the end of the day shares of Exxon had gained about 1.75% and could be bouncing from long term support.


Sysco reported before the bell too. The company said fiscal second-quarter earnings came to $157.9 million, or 27 cents a share, down from $210.8 million, or 36 cents a share, in the year-earlier period. The food distributor said revenue was $12.09 billion, up from $11.24 billion in the comparable quarter last year. Earnings are below estimates which had been expecting an increase. The stock was able to open with a small gain but quickly fell under heavy selling pressure. By the end of the day Sysco had fallen more than 2.25%.


RyanAir, the UK based discount air carrier, reported earnings in line with expectations. The company said that low oil prices were positively impacting their bottom line but that execs plan to pass on most, if not all, of the savings to customers. This move led them to caution on profit growth over the coming two years and sent the stock down by more than 4% in the pre market session. The stock opened near $63.50 and moved down from there to test potential support near $62.50.


The Indices

Today was volatile to say the least. Market action was calm and paced, but it went down a percent, then back to break even, then up a percent, then back to break even and then back up and up to the closing high. The move was led by the Dow Jones Transportation Average which closed with a gain of 1.42%. The transportation index moved higher after testing support near 8,575 and could be setting up to move higher. The index is now moving up from the bottom of a three month consolidation range within a greater up-trend with potential economic catalysts on the horizon. The indicators are in line with support at this level and could be rolling into a trend following signal but have yet to confirm.


The broad market S&P 500 index is today's runner up. The index gained 1.22% in today's session and is moving up from another test of support. Support is near 1,990 and consistent with previous all-time highs, 3 previous tests of support and the long term trend line so looks strong in my view. The indicators are in line with that support; if you will notice the last three bearish MACD peaks are progressively smaller, a sign that short term selling could be running out of steam in the face of a stronger, longer term up-trend. If support fails next target for support are 1,950 and 1,900. Near term targets if this bounce takes hold are near 2,065 and 2,100.


The Dow Jones Industrial Average is third in today's line up. The blue chip index itself led by Exxon, Chevron, JPMorgan, Goldman Sachs, UTX and 3M moved up by 1.14%. Today's move is yet another indication and confirmation that support exists at or below 17,150. This support may break down if the market can not move on from here but at this time is holding. The indicators are in line with the long term up-trend and are beginning to roll over into a possible trend following signal. MACD is bearish but weak and weakening, stochastic is convergent with support, flattened and set up for the bullish crossover. Data, or earnings or a combination could provide the catalyst for such a move. If not, a break below this level could take the index to 16,500 and the long term trend line.


The NASDAQ Composite brings up the rear in today's action. The tech heavy index gained 0.89% in a move that tested the long term trend line and created a long lower shadow. The index, like the others, is confirming support ahead of this weeks economic events but has not yet confirmed a trend following signal. The indicators are consistent with support and leading to a potential trend following entry signal but need to confirm. Bearish MACD is just as weak as it can be while the index is drifting along support; stochastic is pointing higher with both lines but yet to form the crossover. Current resistance is the short term 30 day moving average with upside targets near 4,800 and the current long term high. A break below the long term trend line could carry the index to the next potential support, which is only about 50 points lower. A break below that may lead to heavier selling.


It looks like the indices are gearing up for a move. It looks to me like it will be a move higher, in line with trends, but that is yet to be seen. Recent events have had the bulls in retreat but that may be changing. The markets have weathered a storm of overseas central bank activity, the FOMC, weak December data and lack luster earnings that have tested and retested support but today's move could be preceding another trend following bounce. The good news is that all of the negative data that drove the market lower is rear looking... as in it already happened, we know it wasn't that great and now it's time to move on. It is the time to focus on what is happening now, this quarter and to think about what is going to happen next quarter. The ADP, Challenger, NFP and Unemployment numbers are that kind of data and could be the shot of positive economic news the bulls need to spark a rally.

Until then, remember the trend!

Thomas Hughes


New Option Plays

An Old-fashioned Split Run

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Hanesbrand Inc. - HBI - close: 111.37 change: -0.01

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 800 thousand
Entry on February -- at $---.--
Listed on February 29, 2015
Time Frame: Exit PRIOR to HBI's stock split on March 4th
New Positions: Yes, see below

Company Description

Why We Like It:
How many stocks can you name that are up +400% in the last three years? HBI is in the consumer goods sector. They make apparel under a variety of brand names. Shares of HBI have been a big performer the last few years, outperforming the broader market.

According to the company, "HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic apparel under some of the world's strongest apparel brands in the Americas, Asia and Europe, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company’s low-cost global supply chain."

A good reason shares have been rising so consistently has been HBI's bullish guidance. Last year the company raised its earnings guidance three quarters in a row. Their most recent earnings report was January 29th (last week). HBI's Q4 results were $1.46 a share with revenues surging +20% to $1.55 billion. The bottom line number was two cents above estimates while revenues met estimates.

HBI said that 2014 was its second consecutive year of record results. Net sales rose +15% while its profit grew +28% and adjusted EPS soared +45%. Hanes Chairman and CEO Richard A. Noll commented on their results saying,

"We had another outstanding year in 2014, generating significant shareholder value and again achieving record results for sales, operating profit and EPS. We are in the midst of a multiyear period of strong growth supported by our powerful company-owned global supply chain, Innovate-to-Elevate product platforms, and acquisitions. Our guidance for 2015 translates into another year of double-digit EPS growth and what would be another record year for sales, profit and EPS, despite the challenges of currency exchange rates."

HBI's new guidance sees 2015 revenues in the $5.77-5.82 billion range. That's +9% growth but a little bit below Wall Street's estimates. HBI is forecasting earnings in the $6.30-6.50 range, which equals about +11% to +15% growth.

Management also raised its cash dividend +33% to $0.40 a share. On top of that they issued a 4-for-1 stock split. The split is coming up soon. HBI will start trading split adjusted on March 4th, 2015. We think HBI could see an old-fashioned split run.

Tonight we are listing a trigger to buy calls at $114.10. We'll start this trade with a stop at $109.90. Plan on exiting before the March 4th stock split date.

Trigger @ $114.10

- Suggested Positions -

Buy the HBI $115 CALL (HBI150320C115) current ask $2.25

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Get Whipsawed Again

by James Brown

Click here to email James Brown

Editor's Note:

It was another volatile session for the stock market. The S&P 500 saw a 41-point range. The Dow Industrials whipsawed 330 points. The S&P 500 did rebound off technical support at its 200-dma but there were some market pundits today saying don't trust the bounce.

All this volatility was pretty rough on our play list. AVGO, BIG, CBRL, LOW, and MNST hit our stop losses.


Current Portfolio:


CALL Play Updates

Alkermes plc. - ALKS - close: 72.60 change: +0.35

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:
02/02/15: Traders bought the dip in ALKS this morning near support at $70.00. The stock bounced back to a +0.48% gain on the session.

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


Constellation Brands - STZ - close: 111.30 change: +0.85

Stop Loss: 108.40
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
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:
02/02/15: STZ did trade below support near $110 today. Fortunately for the bulls STZ bounced twice in the $109.50 area. The stock looks ready to re-challenge the upper end of its trading range near $112.00.

We have about three weeks left on our February calls. A breakout past $112.35 could be used as a new entry point.

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


Valeant Pharmaceuticals - VRX - close: 161.98 change: +2.01

Stop Loss: 154.80
Target(s): To Be Determined
Current Option Gain/Loss: -20.8%
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:
02/02/15: Traders bought the dip in VRX near its simple 10-dma again. That's the third time in the last three days. Investors may want to wait for a breakout past resistance near $162.75 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


Whole Foods Market, Inc. - WFM - close: 53.15 change: +1.06

Stop Loss: 51.25
Target(s): To Be Determined
Current Option Gain/Loss: +71.7%
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:
02/02/15: Monday turned out to be a decent session for WFM. The stock did pierce support at the bottom of its bullish channel. However, the stock found support near $51.50 and eventually outperformed the broader market with a +2.0% gain on the day.

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


Williams-Sonoma Inc. - WSM - close: 78.65 change: +0.40

Stop Loss: 75.90
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:
02/02/15: We are adjusting our entry point strategy to take advantage of today's movement in WSM. The stock dipped to $76.49 before bouncing. This looks like a new higher low in the trend of higher lows. Essentially we want to buy this bounce.

Tonight we are adjusting the entry trigger to buy calls on WSM to $79.15. We will move the stop loss to $75.90. We will also adjust the option strike from the March $85 call to the March $80 call.

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 @ $79.15 *start with small positions*

- Suggested Positions -

Buy the MAR $80 CALL (WSM150320C80) current ask $3.00

02/02/15 Strategy Update: Move the entry trigger from $81.15 to $79.15. Adjust the stop loss to $75.90. Adjust the option strike from March $85 call to March $80 call.
Option Format: symbol-year-month-day-call-strike


Zebra Technology - ZBRA - close: 84.07 change: +0.61

Stop Loss: 81.35
Target(s): To Be Determined
Current Option Gain/Loss: -32.4%
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:
02/02/15: ZBRA found support near $82 again this morning. The stock rebounded back toward short-term resistance at $84.00. While ZBRA closed up +0.7% today our option did not cooperate and actually contracted.

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




PUT Play Updates

Starwood Hotels & Resorts - HOT - close: 71.98 change: +0.01

Stop Loss: 75.05
Target(s): To Be Determined
Current Option Gain/Loss: -21.3%
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:
02/02/15: HOT broke down to new three-month lows before bouncing. Shares only managed to make it back to unchanged by the closing bell. That's somewhat encouraging if you're bearish. The sharp intraday rebound does make me less enthusiastic about launching new bearish positions.

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


Precision Castparts Corp. - PCP - close: 206.06 change: +5.96

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

Comments:
02/02/15: Hmm... PCP appears to be trading like an energy stock today. Another rally in crude oil prices fueled gains for most of the energy-sector stocks. PCP does sell a lot of metal to the oil and gas industry.

If this bounce in PCP continues we'll likely drop it. We're currently waiting for a breakdown under $200.

Earlier Comments: January 31, 2015:
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)

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



CLOSED BULLISH PLAYS

Avago Technologies - AVGO - close: 102.42 change: -0.46

Stop Loss: 101.40
Target(s): To Be Determined
Current Option Gain/Loss: -48.6%
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:
02/02/15: AVGO closed with a 46-cents loss but shares were down more than $3.00 intraday. The profit taking in AVGO in the last four days has seen a drop from $108 to almost $99. Today's volatility saw AVGO trade below support at $100 and its 50-dma. Our stop was hit on the way down at $101.40.

- Suggested Positions -

MAR $110 CALL (AVGO150320C110) entry $4.86 exit $2.50 (-48.6%)

02/02/15 stopped out @ 101.40
01/28/15 triggered @ 107.75
Option Format: symbol-year-month-day-call-strike

chart:


Big Lots Inc. - BIG - close: 46.09 change: +0.18

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: -31.2%
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:
02/02/15: The big market swings today also bit shares of BIG. The stock dipped to $44.45 before bouncing. Our stop was hit at $44.90.

- Suggested Positions -

Apr $47.50 CALL (BIG150417C47.5) entry $2.85 exit $1.96 (-31.2%)

02/02/15 stopped out
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: -32.0%
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:
02/02/15: The last three days have been very volatile for shares of CBRL with big swings. Unfortunately the last two days have been down. The stock crashed from $135 to under $129.75 in less than 45 minutes this morning. Our stop was hit at $133.35.

- Suggested Positions -

MAR $140 CALL (CBRL150320C140) entry $2.72 exit $1.85 (-32.0%)

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: 68.41 change: +0.65

Stop Loss: 66.90
Target(s): To Be Determined
Current Option Gain/Loss: -55.7%
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:
02/02/15: LOW was not immune to the market's decline this morning. Shares dipped low enough to pierce its 50-dma before bouncing. Our stop loss was hit on the way down at $66.90.

- Suggested Positions -

MAR $70 CALL (LOW150320C70) entry @ 2.71 exit $1.20 (-55.7%)

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: 117.55 change: +0.60

Stop Loss: 115.75
Target(s): To Be Determined
Current Option Gain/Loss: -51.1%
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:
02/02/15: I warned readers in the weekend newsletter that MNST looked poised to hit our stop loss. The selling pressure continued and MNST fell low enough to pierce the $115 level before rebounding. Our stop was hit this morning at $115.75.

- Suggested Positions -

MAR $125 CALL (MNST150320C125) entry $4.50 exit $2.20 (-51.1%)

02/02/15 stopped out @ 115.75
01/23/15 triggered @ 120.25
Option Format: symbol-year-month-day-call-strike

chart: