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Daily Newsletter, Wednesday, 2/4/2015

Table of Contents

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

Market Wrap

Consolidation Patterns Continue to Hold

by Keene Little

Click here to email Keene Little
The major indexes have been stuck in consolidation patterns since November and appear to be stuck. But it's looking like we should soon break out and the only remaining question is the direction of the break. We could get an answer before the end of the week.

Wednesday's Market Stats

Equity futures chopped sideways last night and into this morning and the cash market continued the choppy sideways consolidation today. SPX had a relatively quiet day, trading in a 15-point range until the market got hit with strong selling in the final 25 minutes of the trading day and that opened up the trading range to 18 points. The DOW was the stronger index all day, thanks to Visa's (V) +2% gain and Disney's (DIS) monster gap up and +7.6% gain. It had a 180-point trading range today.

Funny how a 180-point trading range today felt like a slow day. It was mild by comparison to the last several weeks and we're seeing a contraction in the price swings in the large consolidation patterns that we've been in since November. The trading range is tightening and the patterns are at the point where we should soon break out/down and see a strong move. Finger to the wind says we'll see an upside breakout but there are a few more pieces to put in place before that becomes a safer trading bet.

This morning's economic reports of interest were the ADP Employment and ISM Services reports. Because of recent declines in the unemployment numbers there was an expectation for an upside surprise in the ADP report. Unfortunately they were wrong and the report showed fewer jobs were filled. The number for January was +213K vs. expectations for +230K and down significantly from December's +253K, which was revised higher from the originally reported +241K. The report barely caused a ripple in the pre-market futures.

After the open we received the ISM Services report and there was a slight tick up in January vs. December, 56.7 vs. 56.5. The market tends to pay less attention to this report, vs. the ISM manufacturing report (yesterday), which saw a decline in January from December (it dropped from 55.1 to 53.5, which continues the slew of economic reports showing a slowing of our economy). One component of the ISM Services report shows pricing pressure (deflation) continues -- the prices-paid component dropped to 45.5 in January, down from 49.8 in December, which was down from November's 55. The other warning from the report is that most of the gain in production came from chewing through the backlog of orders and unless new orders can pump the backlog back up we're looking at continued slowing in the months to come.

At 10:30 AM we then received the oil inventory report, which showed a further buildup of 6.3M barrels added last week. This wasn't as high as the nearly 8.9M barrels added in the previous week but it's still a large addition to an already saturated market. Oil prices reacted predictably on the news and spiked down and continued to sell off the rest of the day. By this afternoon's low oil had given back almost 62% of the rally off last Thursday's low before closing at 48.53 (-8.5%), slightly above its 47.95 low. Yesterday afternoon's high was 54.24.

The indexes were looking like they were going to close at/near their highs for the session as we rounded the corner into the closing bell. But then some ECB news hit the wire and the market spiked back down, taking all the indexes into the red, including the DOW which had been green all day. A slight bounce back up into the close managed to keep the DOW in the green but the others were unable to do the same. The news from the ECB was that they are rejecting Greek bonds as collateral for their QE program.

I found the market's reaction to the ECB news a little strange considering the ECB had previously announced that Greece would be excluded from the QE program (the only country to be excluded). Then Mario Draghi and Greece's new finance minister, Yanis Varoufakis, had met earlier today and Varoufakis claiming the ECB would do "whatever it takes" to support all EU members, including Greece. But Germany would have none of it and after a meeting between EU central bank chiefs the ECB announced they would not accept Greek bonds as collateral for more loans.

Oops, somebody got their wires crossed or else the first meeting with Varoufakis was an attempt to play nice and Germany put the kibosh on the plan. Cancelling its acceptance of Greek bonds as collateral for loans shifts the burden to Athens' central bank to finance its lenders and the Greek banking system is already teetering on the edge of bankruptcy. This effectively isolates Greece and it's obvious the EU is trying to force Greece into making a new deal for support. This follows the recent Greek election that installed an anti-austerity party and the fear by EU members is that the Syriza party will simply not pay their debt, although they've been backing off on their hardline position recently.

Greece has been close to Russia and all of this could drive them further into Russia's waiting hands. Without Greece's vote the EU cannot institute new sanctions against Russia so there's a lot of political football going on behind the scenes. It's not just a banking issue and between currency wars, the Greek debt issue (first of many countries in the EU that will be dealing with the debt problems), and Russia there are many pieces to the chess game and Putin happens to be a master at geopolitical chess. All of this could really start to spook the market so it pays to keep your ears on the railroad track and listen for the coming train.

In the meantime, while all this plays out on the grand geopolitical stage, which is quite fascinating, we have a stock market that could still rally in the face of all these worries. A slowing economy? It means the Fed will stay accommodative so let's rally! Trouble in other countries and currencies, which could tip more than one bank/country into default and start the dominoes falling in the international banking system? Nah, the collective central banks have our backs. They know what's going on (cough) and will be able to head off all problems before we even hear about them. After all, they've been right on top of all the problems in the past (cough, gag).

I am of course being facetious and all of the things mentioned above, and more, are in fact a big worry. While I want to play the possibility of an upside breakout, I'm very concerned about a significant downside surprise, starting with a lock-limit down morning. Wear protection when playing in this market! Let's start with a review of SPX.

SPX has remained inside a sideways triangle consolidation pattern since December and tested the top of it yesterday and today. Monday's low was a slight break below the bottom of the triangle pattern (the uptrend line from December 16 - January 16) and the recovery back inside the triangle put it on a buy signal. It continues to look like a bullish continuation pattern and a pullback from the current high could finally lead to a breakout to the upside. That's the bullish interpretation, whereas the bearish interpretation is that it's not a triangle pattern but instead it's simply building a bearish topping pattern (something we've seen at previous important highs. Short term it's looking like we should get a pullback from resistance but the bulls want to see only a partial retracement of this week's rally and then a strong break of resistance.

S&P 500, SPX, Weekly chart

I've been playing around with a couple of different wave counts (the squiggles in the stretch between the November 2012 low and the September 2014 high can be counted a few different ways) and a bullish wave count calls this triangle pattern, since the December 5th high, a 4th wave that should lead to the final 5th wave, as depicted in green on the charts. Sideways triangles typically lead to the final move of the trend (up in this case) and that's why 4th waves are typically triangles. Upside potential is to 2150 and possibly 2200. In either case if you're in bearish positions you'll want to stop out above 2065.

The daily chart below shows the whippy price action inside the triangle and the green wave count is an a-b-c-d-e that started from the December 5th high and December 16th low. The rally from Monday looks like a completed 5-wave move and should therefore lead to at least a pullback. If the bullish wave count is correct we'll see just a pullback and then a stronger rally. If the bearish wave count is correct, this week's rally completes another 2nd wave bounce correction, which sets us up for a strong 3rd of a 3rd wave down. In other words, get ready for a big move that will finally break out of this triangle consolidation.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2065
- bearish below 1980

Getting in closer with the 60-min chart below, all of the choppy moves leaves too many possible wave counts and that's why we need to see what happens from here to help identify the larger pattern. If this week's rally completes an a-b-c bounce off last Thursday's low (as an expanded flat correction with the lower low on Monday) we should see the market start to drop hard in an impulsive move. That would be the first clue for the bears. But if we get a corrective pullback from this morning's high it's going to look more bullish. Once the pullback correction finishes in that case, get ready to rock and roll to the upside.

S&P 500, SPX, 60-min chart

The DOW was the stronger index today, thanks to Visa's (V) strong day following its earnings report. Its price (266) has an outsized influence on the index and it rallied +2.5% today. Off its December 26th high the DOW was looking a lot like SPX with a sideways triangle pattern but it had a larger break below the bottom of the triangle pattern into Monday's low. Instead of triangle pattern it's looking more like the choppy pullback formed a bull flag pattern and today's rally had it testing the top of it this morning and then breaking it this afternoon before a strong selloff shortly before the close.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,840
- bearish below 17,037

From here I see two higher-probability moves for the DOW and like SPX we're likely to see a strong move either way before the end of this week. The bearish wave count suggests we could see a little higher to complete a large a-b-c bounce off the January 6th low, which will be followed by a strong 3rd wave down (shown in red). The bullish wave count calls for a pullback to retrace a portion of this week's rally and then off to the races to the upside. Perversely, a continuation of the rally from here for another day or two would actually be more bearish, whereas a pullback from here would keep the bullish potential alive, depending on what kind of pullback we get (impulsive vs. corrective).

NDX remains firmly inside its descending triangle pattern off its November 28th high. It would turn bullish above its January 23rd high, near 4293, and bearish below the bottom of the triangle, near 4090. Lots of chop and danger for traders in between.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4300
- bearish below 4090

The RUT briefly broke below the bottom of a potentials sideways triangle on Monday but then quickly recovered, which also put it on a buy signal. Yesterday and today it ran into the top of the triangle, which is the downtrend line from December 31 - January 28, but as with the others it's looking like it's ready for at least a pullback before continuing higher. The bulls would be in trouble below Monday's low and its 200-dma, both near 1153.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1204
- bearish below 1150

Bonds are looking like they're ready for a pullback (bounce in yields). And selling in bonds could help the stock market rally so it's going to be important to watch how they do from here. Last week TLT (20+ year Treasury bond ETF) had rallied up to its trend line along the highs from December 2008 - July 2012 and popped above its trend line along the highs for its rally from December 2013. This week's selloff has it back below the shorter-term trend line so it could be ready for a larger pullback from resistance. There was bearish divergence at last week's high on the daily chart (not on the weekly chart below) so we could see at least a retest of the high but at this point I think the upside for bonds is the riskier bet.

20+ Year Treasury ETF, TLT, Weekly chart

The banks don't give me a clear sense of direction yet but at the moment I see a higher-odds scenario that calls for another leg down following the current rally off last Thursday's low. That throws a monkey wrench into the idea for a stock market rally so it's going to be important to watch what the banks do. BKX had a 3-wave move down from December 29th to the January 16th low, which leaves us with a corrective pullback (labeled wave-a on its chart below). From that low it would have an a-b-c bounce with two equal legs up at 40.21. That's labeled wave-b and it could lead to another decline in wave-c, potentially finding support at the trend line along the lows from May-October 2014, currently near 64.15. A rally above 70.21 would be more bullish but then the bulls will have to contend with the 200-dma, at 70.68 and its 50-dma, which will soon cross the broken uptrend line from March 2009 - October 2011, near 71.25. I do not feel bullish about the banks and this is the one keeping me cautious about feeling bullish about the major indexes (following a pullback).

KBW Bank index, BKX, Daily chart

Following the U.S. Dollars high on January 26th it has had a 3-wave pullback (more easily seen on the daily chart vs. the weekly chart below). The 3-wave pullback had a projection for two equal legs down, for an a-b-c correction, at 93.36. Yesterday's low missed the projection by 2 cents at 93.38 and got a strong bounce off that low. The low was also a test of the top of its parallel up-channel from 2008-2011, which can be seen (if you squint hard) on the chart. So far this all fits with the idea that the dollar's rally has not finished yet and it could make it up to the Fib projections at 97.35 before it will be ready for a larger multi-month consolidation. It makes me wonder if oil will drop a little lower before finding its bottom.

U.S. Dollar contract, DX, Weekly chart

Gold's bounce off the November low looks corrective and it's one of the things that keeps me bearish gold, along with the larger wave count that suggests we've got lower prices before the downside pattern is complete. But shorter term the pullback from the January 22nd high also looks corrective and suggests we could see gold push a little higher before starting back down. A higher bounce could take it up to its downtrend line from August 2013, currently near 1330, which would also be a back-test of its broken uptrend line from 2001-2005. Above 1330 would therefore be more bullish.

Gold continuous contract, GC, Daily chart

As mentioned earlier, oil inventory rose another 6.3 million barrels last week, to 413.1 million. Storage, including the big terminal in Cushing, OK, is filled and overflowing (which is one reason why so many large oil ships are holding so much, as well as waiting for higher prices). The total inventory is the highest on record going back to 1982. This is of course the result of the new oil-drilling efforts (primarily shale oil) and as can be seen in the chart below, the production of oil is now back to the highs seen in 1973 and 1986. Flip the chart upside down and it's not hard to figure out why oil prices have collapsed.

Oil production, 1973-January 2015, chart courtesy businessinsider.com

The skyrocketing increase in oil production is of course unsustainable, especially with the number of drilling rigs in decline. Once the production from currently installed rigs begins to decline we'll see this chart reverse, potentially from near current levels. This is probably what has the price of oil basing/rallying in the past 3 weeks. After hitting my downside projection at 43.63-44.42, with a final low so far on January 29th at 43.58, I've been looking for oil to consolidate in what could be a multi-month choppy consolidation as traders try to figure out the supply vs. demand equation. With a slowing economy and slowing production (eventually) we could see prices remain relatively steady with a slight rise over the next several months (similar to what oil did following the low in November 2013).

Oil continuous contract, CL, Daily chart

Tomorrow morning should be relatively quiet as far as economic reports go. I think the market will be more interested in more news out of Europe and what's happening with Greece and its debt problem. A war of words on top of the currency wars that are going on could start to escalate and make more than a few people nervous. Europe has the Bear to its east licking its chops as it watches carefully for its next "opportunity" (Ukraine).

Economic reports and Summary

The major indexes have me feeling a little bullish here. A pullback to retrace some portion of this week's rally could lead to another stronger rally leg and eventually drive the indexes to new highs this month. SPX could rally to 2150 or higher and the DOW could make it up to the 18700 area. Just think, only 1300 points above 18700 (another +7%) could have the DOW ringing the bell at 20K. Bring out the party hats!

OK, yes, I'm more than a bit skeptical about seeing DOW 20K and I'm not even sold on the idea yet that we'll see a rally to new highs. The banks have been weak and it's looking like they could get weaker. A stock market rally to new highs without the banks on board would be more justification to look to short the rally. It would at least mean traders must exercise caution since it's best to follow the money. With all the currency wars going on right now and all the sovereign debts issues that could plague emerging markets, we're not that far away from a real nasty news event and another flash crash is right around the corner. Trade the long side very carefully if we get a good setup with a pullback on Thursday/Friday.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

40% Growth In 2015

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

ServiceNow, Inc. - NOW - close: 74.61 change: +1.96

Stop Loss: 69.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.1 million
Entry on February -- at $---.--
Listed on February 04, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Tonight we are looking at a company that saw its sales grow more than 60% last year. They're forecasting more than 40% growth in 2015. That company is cloud-based services ServiceNow.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight we are suggesting a trigger to buy calls at $75.15.

Trigger @ $75.15

- Suggested Positions -

Buy the MAY $80 CALL (NOW150515C80) current ask $4.00

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Churn Until Late Day Drop

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. stock market churned sideways as investors digested a handful of mostly mixed economic news. The big story was a sharp reversal lower in crude oil after a three-day surge. Then late in the day stocks dropped on the newest twist in the Greece versus Eurozone fight. News that the ECB will not accept Greek bonds as collateral was just one more sign that this is going to be an ugly fight between Greece's new government and its creditors in Europe. It's a high-stakes game of poker. Will Greece call the ECB's bluff?

Meanwhile we did see UNH hit our entry point to launch positions today.


Current Portfolio:


CALL Play Updates

Hanesbrand Inc. - HBI - close: 114.27 change: -0.01

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: -6.5%
Average Daily Volume = 800 thousand
Entry on February 03 at $114.14
Listed on February 29, 2015
Time Frame: Exit PRIOR to HBI's stock split on March 4th
New Positions: see below

Comments:
02/04/15: HBI did not see a lot of follow through on yesterday's big rally. Shares essentially churned sideways in the $113.20-115.20 range. Tomorrow could be interesting as several major retailers will report their January same-store sales data and this could influence HBI.

Readers might want to wait for HBI to rally past today's high (115.30) before initiating new positions.

Earlier Comments: February 2, 2015
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.

- Suggested Positions -

Long MAR $115 CALL (HBI150320C115) entry $3.21

02/03/15 triggered @ 114.14 on an intraday gap higher. Suggested entry was $114.10
Option Format: symbol-year-month-day-call-strike


Constellation Brands - STZ - close: 112.06 change: +0.74

Stop Loss: 108.40
Target(s): To Be Determined
Current Option Gain/Loss: +21.5%
Average Daily Volume = 1.25 million
Entry on January 15 at $109.36
Listed on January 14, 2015
Time Frame: Exit prior to February expiration
New Positions: see below

Comments:
02/04/15: STZ displayed some relative strength today with a +0.66% gain. The stock spent most of the day trading above resistance at the $112.00 level. Unfortunately the market's sharp sell-off this afternoon pulled STZ lower. I'd keep an eye on this one tomorrow. If shares continue to rally then this could be another entry point. Keep in mind that our options expire in less than three weeks. You may want to buy longer-dated options.

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


UnitedHealth Group - UNH - close: 107.92 change: +0.11

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: -11.0%
Average Daily Volume = 4.2 million
Entry on February 04 at $108.25
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/04/15: Our new play on UNH is now open. As expected shares continued to rally and UNH hit our suggested entry point at $108.25. Sadly the rally did not see much follow through and UNH spent most of its day churning sideways. The $108.60-108.75 area was short-term resistance. Investors may want to wait for a new rally past $108.75 before initiating positions.

Earlier Comments: February 3, 2015
Healthcare stocks have been consistent winners for investors over the last couple of years. Just check out a long-term chart of the IHF or XLV healthcare ETFs. Helping the group lead that charge is UNH, one of the biggest names in healthcare. The company's various businesses serve more than 85 million people around the world. The company is ranked No. 14 on the Fortune 500 list.

UNH has two different business segments. They have their UnitedHealthcare business and their Optum business. UnitedHealthcare provides health benefit products and services. Their Optum business is a health management services company.

The Affordable Care Act (ACA, or Obamacare) had a rough start but now the system is clearly seen as a huge benefit for the health insurance companies. According to Bloomberg the ACA has added millions of new customers to the healthcare industry. UNH recently joined the public exchanges and added more than 400,000 new individuals. UNH did say they are paying significantly more fees and taxes due to the ACA but thus far their increase in customers and better operating efficiency in 2014 have kept the costs manageable.

The results are showing up in the company's earnings growth. In July 2014 the company beat estimates and raised their guidance. In October 2014 they beat estimates and raised their guidance. In early December UNH reaffirmed their 2014 guidance and offered a 2015 forecast that was in-line with Wall Street estimates.

Their most recent earnings report was January 21st. The results were slightly ahead of expectations with profits up +10% from a year ago to $1.55 per share with revenues rising +7.4% to $33.43 billion. That was enough to surpass estimates of $1.50 a share on revenues of $33.15 billion.

UNH's CEO Stephen Hemsley commented on their business saying, "We enter 2015 with a positive outlook and rising business momentum. Steady innovation and year by year advances in the quality, breadth and value of our services to employers, government sponsors, consumers and care providers are creating opportunities for revenue and earnings growth in traditional and new markets."

Management offered 2015 guidance that was in-line with prior estimates. They expect earnings to grow about +7.4% in the $6.00-6.25 range. Revenues are expected to rise +8.0% in the $140.5-to-141.5 billion range.

The stock exploded higher on its better than expected Q4 numbers. Since the post-earnings rally peaked the stock has seen a nice correction. Traders just bought the dip yesterday near support at $105.00. We want to hop on board this healthcare train and buy the rebound. There appears to be short-term resistance near $108.00. Tonight we're suggesting a trigger to buy calls at $108.25.

- Suggested Positions -

Long MAR $110 CALL (UNH150320C110) entry $2.46

02/04/15 triggered @ 108.25
Option Format: symbol-year-month-day-call-strike


Valeant Pharmaceuticals - VRX - close: 160.87 change: +1.16

Stop Loss: 155.85
Target(s): To Be Determined
Current Option Gain/Loss: -16.7%
Average Daily Volume = 2.5 million
Entry on January 26 at $160.55
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
New Positions: see below

Comments:
02/04/15: VRX also spent today's session consolidating sideways. The good news is that VRX did show a little relative strength with a +0.7% gain.

I am not suggesting new positions at this time.

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

02/03/15 News that VRX is interesting in buying SLXP
01/26/15 triggered @ 160.55
Option Format: symbol-year-month-day-call-strike


Whole Foods Market, Inc. - WFM - close: 53.68 change: +0.27

Stop Loss: 51.25
Target(s): To Be Determined
Current Option Gain/Loss: +91.3%
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:
02/04/15: WFM tagged new multi-month highs on Wednesday. Shares managed to outperform the broader market with a +0.5% gain. Please note that we only have about one week left. WFM is due to report earnings 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


Williams-Sonoma Inc. - WSM - close: 80.51 change: +0.69

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: +9.4%
Average Daily Volume = 990 thousand
Entry on February 03 at $79.35
Listed on January 29, 2015
Time Frame: Exit PRIOR to earnings in March
New Positions: see below

Comments:
02/04/15: WSM also managed to outperform the major indices. Shares rallied toward its recent highs before stalling. The $81.00 level is short-term resistance. Today's +0.8% gain is the third gain in a row for WSM.

Tonight we are raising the stop loss up to $77.85. Tomorrow several retailers will provide their January same-store sales data and this could influence trading in WSM.

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.

*start with small positions* - Suggested Positions -

Long MAR $80 CALL (WSM150320C80) entry $3.20

02/04/15 new stop @ 77.85
02/03/15 triggered on gap higher at $79.35, new trigger was $79.15
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: 86.50 change: -0.13

Stop Loss: 83.85
Target(s): To Be Determined
Current Option Gain/Loss: +29.4%
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:
02/04/15: ZBRA held up pretty well after yesterday's big gain. The stock only lost 13 cents and remains at all-time highs. Tonight we are adjusting the stop loss up to $83.85.

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

02/04/15 new stop @ 83.85
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: 73.69 change: -0.58

Stop Loss: 75.05
Target(s): To Be Determined
Current Option Gain/Loss: -55.6%
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:
02/04/15: Thankfully HOT did not see a lot of follow through on yesterday's big bounce. The stock rose to $74.68 before reversing and closing in negative territory.

Please keep in mind that we do not have much time left. HOT is scheduled to report earnings next week on February 10th and we plan to exit prior to the announcement.

I am not suggesting new 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