Option Investor
Newsletter

Daily Newsletter, Monday, 2/9/2015

Table of Contents

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

Market Wrap

Greek Drama Deja Vu

by Thomas Hughes

Click here to email Thomas Hughes
Greece and the bail-out dramas once again impede the market.

Introduction

Greece has done it again. The country and its hard-won bail out plan has sent the market lower. The good news is that this time around the market did not react too violently. Last week it seemed as if the new government was back-pedaling on its anit-austerity pledge and coming in line with creditor demands but new comments put that idea to rest. Over the weekend prime Minister Tsipras said that the pledge of anit-austerity was “irrevocable”, a statement at odds with finance minister Varoufakis who still says that Greece will accept “majority” of reforms. EU markets, the German DAX most prominently, fell more than 1% on the news.

Market Statistics

There was no economic data today, and few earnings reports before the bell that grabbed the markets attention. The news and European sell-off had their affect on us but only marginally. The indices were indicated to open lower all morning, and did, but only by a few points. Trading was light after the opening bell sounded, the indices treading water just below last week's closing prices, and remained light all day. The indices began to firm around lunch time sending the SPX and NASDAQ Composite into the green but the break into positive territory did not last long. Early afternoon the indices drifted back to test the early lows and then move lower. The market hit bottom late afternoon and bounced back to recover about half of today's loss before the close of the day.

Economic Calendar

The Economy

As mentioned there was no data released today. There is some due out this week but the list is light. Tuesday is Wholesale Inventories and JOLT's job openings. Wholesale inventory is expected to rise, but not as strongly as the previous month. JOLT's should remain steady but the number to watch will be the quits rate, a gain in quits is bullish for labor and a sign of confidence among participants. Wednesday the KC Fed releases the Index of Labor Market Conditions and the EIA oil inventory. The LMCI has been on the rise for the past three years with momentum at all time highs. Based on last weeks remarkable NFP release I do not expect that to change. I've been commenting for a while on the idea of underlying momentum present in the labor market and I think that the revisions to October and November NFP, as well as the December headline, underscore the idea.

Thursday is the usual jobless claims numbers with the addition of retail sales and business inventories. Friday rounds out the week with Michigan Sentiment and Import/Export Prices. Both sets of inventory data and the JOLTs numbers are for December, the rest of the data is for January except Michigan Sentiment which is the preliminary for February. Rear looking December data is less important to me, the January and February data more important being in the current quarter.

According Moody's Survey of Business Confidence outlook and expectations remain near all time highs. The diffusion index dropped -0.01 to 41.5, one tenth below last week's all time high and are indicative of an optimistic business environment. In the summary report Mark Zandi reports that “Business sentiment remains sky-high, especially in the U.S., where it is consistent with an economy that is expanding above its potential. Hiring intentions are especially strong, and absorption of office space has surged to a record high. Pricing is holding up well despite heightened deflation concerns in much of the developed world. Credit availability has also notably improved, perhaps reflecting recent aggressive actions by the Bank of Japan and European Central Bank.” The bit about “absorption of office space” is a good sign I think. It could mean growth of new businesses as well as more jobs.


The Oil Index

Oil traded up again today as OPEC spun the market again. The cartel announced that it sees “overflowing supply” with no change in sight, but also raised its 2015 forecast for demand. OPEC is now saying that US production is slowing quicker than forecast and will boost demand for other products, namely OPEC oil. WTI and Brent both gained on the news, WTI rising more than 3% to trade above $53.50. Brent only gained 1%.

The oil sector got another boost from oil. The Oil Index traded up by about 1% in today's session. The index created another small candle, just below resistance, making it a week that it as been stuck between 1,350 and 1,400. It was bouncing higher on rebounding oil prices and is now consolidating in what appears to be a potential bullish flag. A break above 1,400 would confirm this pattern and put a target near 1,500. The caveat is that the bullish indicators have made a peak so it is also possible the index will remain range bound. The next clue to direction for this index may come Wednesday with the inventory numbers if some other headline does not come first.


The Gold Index

Today gold traded higher by about a half percent to settle above $1240. This is only a small rebound from last weeks drop and below my previous support target of $1250, which I now have my eye on as possible resistance. Gold prices may continue to trade below $1250 in the near term but my long term view is bullish and getting more so as the data suggests that the FOMC will raise interest rates sooner than expected.

The GDX gold miners ETF moved higher on today's gain in gold, and expected earnings reports due out this week and next. The ETF crept up from the short term moving average in today's action, after testing it last week, and could be setting up for another move higher. Earnings for the past quarter aren't likely to be that great but forward outlook should be better. Early reports are mixed, but only a few have reported so far. At this time the sector is sitting on support, with gold prices under pressure, and indicators moving lower. There could be additional tests of support, particularly if gold prices sink, but so far it has held. Support is near $21.50 with $20 next target should it break.


In The News, Story Stocks and Earnings

African based Randgold Resources reported earnings today. The gold miner reported earnings that were well below expectations but upped the dividend on reported higher production and impressive cash/gold reserves. Randgold reported that production was up 26% in 2014 and indications within the report suggest that it may increase again in 2015. The company also reported it was able to reduce costs by 2% and is debt free. Cash and gold reserves on hand total over $100 million. The stock gained more than 1% today, moving up off of potential support at the $80 line. The indicators are bearish so there could be further testing of this support, with the short term 30 day moving average adding additional support just below it. Longer term, the stock is trading near the top of a 2 year range so resistance to higher prices could be strong, however, bullish momentum is also strong and convergent with a retest of $85.


McDonald's made the news today when it announced comp store sales results for January. Global comps fell by -1.8%, but ex-Asia really weren't bad at all. US sales rose by 0.4%, above estimates, and EU sales were up 0.5% despite weakness in France and Russia. Asia-Pacific, which has been battling image issues and the fall-out from the meat recall in China, fell -12.6% and will be a drag on earnings. The stock fell -1.25% on the news and is now sitting on the short term 30 day moving average and just below the 93.80 resistance line. Indicators are bullish but consistent with resistance at this level.


Diamond Offshore, one of the largest providers of off-shore drilling services, announced earnings before the bell. The report was mixed and came with a little bad news for shareholders but ultimately sent the stock over 2% higher. The company reported a top line miss, a bottom line beat and suspended a special dividend. The regular dividend is still in place, savings from the special one will be saved to help pay for new opportunities as they arise. The stock sank in the pre-market session, opened just above long term support and then rose the rest of the day to close near the daily high and above the 30 day moving average.


Hasbro reported earnings that beat estimates and that revenues grew in all markets, but less than expected. The results were good enough for the board to approve a $500 million dollar share repurchase program and raising the dividend. The combination of news was well received and sent shares higher in the pre-market. The stock gained 4% before the opening bell and then doubled that gain once trading was officially underway. Shares of Hasbro are now trading at a new all time high with strong bullish momentum.


The Indices

There wasn't much direction to trading today. The market got off on a slow, sluggish blah start and then drifted the rest of the day. There was no doubt a bias to the downside but each major index is supported by its short term moving average, except for the Dow Jones Transportation Average, which led today's decline. The Transports shed just over -1% today and broke below the 30 day EMA. The index is basically in the middle of a three month trading range with incredibly neutral indicators. Momentum has slowly equalized around the current level, between the upper and lower ends of the range, and is near equilibrium now. Stochastic is similarly in the the middle of its range after winding up over the last three months and is giving me one of those weird feelings like something is about to happen only I don't know what it is. The long term trends are up, the economic trends are up and last weeks labor data was as strong as ever, if not stronger, so I am still bullish. Current range limits are my support line at 8,550 and resistance line at 9,250.


The rest of the indices were closely matched in terms of % decline but the Dow Jones Industrial Average edged the others out for runner up. The blue chips fell -0.53 in today's session and is approaching the middle of what in hindsight is a trading range comparable to that of the transports. This index is on the high side of the mid point of the range and still above the short term moving average but could easily reach those levels tomorrow. The indicators are less neutral looking on this chart, MACD is weak but steady and stochastic is moving higher in both the short and long terms although it is not very strong. Without some kind of catalyst to move it this index could be stuck in a range with the bottom near 17,250 and the top near 18,000.


The S&P 500 is not far behind the Dow Jones with its loss of -0.42% and is almost dead center of its range. The broad market has been in a sideways consolidation move for the past three months, similar to the other indices, but its trading range is a little tighter than that. This index has been winding up since the first of the year between 1,990 and 2,060 and now that range is getting even tighter. The long term trend line is back in play and is pushing the index up from beneath, even as it is falling back to the moving average. The indicators are mildly bullish, but weak and indecisive so it is possible the index could fall back to the EMA or further, with the trend line as next possible target. If the index were to move higher and break above the top of the 30 day range the all time high near 2,090 is just above and will provide resistance as well.


The NASDAQ Composite brings up the rear in today's action, not a bad thing considering the market lost value. The tech heavy index lost -0.39% and is now trading just above the short term moving average with a tiny doji-like spinning top. This index is also moving lower, near the middle of a three month range, with neutral indicators and no catalyst that I can foresee this week. There is some bullish bias to the indicators but not much and nothing I would call strong. The long term trend line is in play on this chart as well and could begin to pressure the index in the next week if it continues to move lower. The bottom of the range is 4,600, the top is 4,800.


The market seemed to be a little sluggish in its movement today. Perhaps the winter storm that is raging in the north east kept some traders away, perhaps it was worry over Greece, maybe it was something else. I would have guessed that the strong NFP data and revisions would help to stave off any market blahs and spurs the bulls to rally but they didn't. It looks like the indices are range bound and I can't fathom what the next catalyst may be.

The FOMC, minutes and Beige Book are out, We weathered the round of weak December data, we are seeing rebounding in January and earnings are OK. After that the only thing is geopolitics and outlook. Geopolitics may be a factor but the issues at hand, Ukraine and Greece, have been simmering for quite a long timer. That leaves outlook and outlook may be slipping. According the Factset report earnings growth outlook for Q1 and Q2 may turn negative, due to oil, and that is a scary thought for this bull. If this continues to progress, and the indices move lower breaking trend and support, there could be reversal in the market until outlook returns to growth. I don't think we're there yet. I'm still a bull, but more cautious than ever.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Sales Growth Is Slowing

by James Brown

Click here to email James Brown




NEW DIRECTIONAL PUT PLAYS

Nike, Inc. - NKE - close: 91.17 change: -0.62

Stop Loss: 93.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on February -- at $---.--
Listed on February 09, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Nike is a giant in the footwear and athletic apparel business. They have approximately one third of the global athletic shoe market, selling more than 120 million shoes a year. NKE's recent highs near $100 back in 2014 marked a nearly +400% gain from its 2009 lows near $20 a share.

The company describes itself as "NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

Just about everyone seems bullish on NKE. Apparel sales have been slow last year but the fastest growth was in athletic apparel. That's because there is a new fashion trend, called Athleisure. Consumers are wearing more athletic clothing and footwear even if they're not that active.

NKE's most recent earnings report was December 18th. It was a great report. NKE delivered earnings growth of +25% with $0.74 a share. Revenues were up +14.8% to $7.38 billion. Both top and bottom line results were above expectations. Gross margins improved +120 basis points to 45.1%. These numbers look great.

Unfortunately the stock is selling off. NKE had previously guided gross margin improvement in the 120-150 basis point range. The market was also disappointed in NKE's future order data. Future orders only grew at +7% or +11% if you exclude currency changes. That's below expectations. It's also below the prior quarter's +14% growth. At 11% NKE's future orders are growing at their slowest pace in a year.

Investors have reacted by consistently selling the rallies in NKE. You can see the trend of lower highs and now a trend of lower lows. This weakness has led NKE to a -4.5% decline in 2015. The point & figure chart has turned bearish with a quadruple bottom breakdown sell signal.

Odds are growing that we will see NKE drop toward its long-term trend line of higher lows (shown on the weekly chart). Tonight we are suggesting a trigger to buy puts at $89.90. More aggressive traders may want to consider jumping in early below today's low at $90.69.

Trigger @ $89.90

- Suggested Positions -

Buy the MAR $90 PUT (NKE150320P90) current ask $2.56

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Geopolitics Take Focus

by James Brown

Click here to email James Brown

Editor's Note:

The stocks struggled to make any headway today as the markets appeared to be focused on geopolitics. The situation with Ukraine and also in Greece were grabbing most of the headlines.

Disappointing economic data out of China and disappointing sales data from McDonald's didn't help either.

Our plan was to close the HOT trade today.

We want to exit our WFM trade tomorrow morning.


Current Portfolio:


CALL Play Updates

Hanesbrand Inc. - HBI - close: 115.58 change: +0.06

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: +12.1%
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:
02/09/15: HBI managed to eke out a very small gain while the broader market turned negative on Monday. The stock is up four out of the last five days and shares struggled with its intraday highs from January 28th. It wouldn't surprise me to see a minor dip in HBI.

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


ServiceNow, Inc. - NOW - close: 72.88 change: -2.06

Stop Loss: 69.85
Target(s): To Be Determined
Current Option Gain/Loss: -27.5%
Average Daily Volume = 1.1 million
Entry on February 05 at $75.15
Listed on February 04, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/09/15: I don't see any news behind the relative weakness in NOW today. Shares underperformed with a -2.7% pullback. The nearest support is the $70.00-71.00 area. I'm not suggesting new positions at this time.

Earlier Comments: February 4, 2015:
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.

- Suggested Positions -

Long MAY $80 CALL (NOW150515C80) entry $3.93

02/05/15 triggered @ 75.15
Option Format: symbol-year-month-day-call-strike


Starbucks Corp. - SBUX - close: 88.82 change: -0.18

Stop Loss: 85.80
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.1 million
Entry on February -- at $---.--
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
02/09/15: SBUX faded toward what looks like short-term support near $88.00 before paring its losses. We are waiting for a breakout past $90.00.

Earlier Comments: February 5, 2015:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +8.1%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pop. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

SBUX said their worldwide comparable store sales rose +5% while traffic only rose +2%. It was the 20th consecutive period that same-store sales were up +5% or more. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.

SBUX's guidance was pretty lackluster but Wall Street didn't care. The company actually guided down for the Q2 2015 (current quarter) as they expect earnings in the $0.64-0.65 range. Analysts' were expecting $0.68 a share. SBUX also provided 2015 guidance of $3.09-3.13 versus Wall Street's estimate of $3.12. The company is still projecting 2015 sales growth of 16% to 18% as they see sales ramping up in the second half of 2015. They also updated their outlook on China as they plan to add 3,400 stores by 2019.

Investor sentiment on SBUX is bullish. Shares have not seen barely any profit taking following its post-earnings pop. Now, after two weeks of digesting gains, the stock is pushing higher and poised to breakout past resistance at $90.00. The point & figure chart is bullish and forecasting at $104.00 target.

Tonight we are suggesting a trigger to buy calls at $90.25 with an initial stop loss at $85.80.

Trigger @ 90.25

- Suggested Positions -

Buy the Apr $95 CALL (SBUX150417C95)

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


Constellation Brands - STZ - close: 111.86 change: -1.05

Stop Loss: 108.40
Target(s): To Be Determined
Current Option Gain/Loss: +3.2%
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:
02/09/15: STZ spent Monday drifting sideways along its simple 10-dma. We have less than two weeks left on our February calls. That means we will most likely exit our STZ trade this week. More conservative traders may want to use a stop loss closer to $110.00. I am not suggesting new positions at this time.

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

02/07/15 Our February options have two weeks left
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


Thor Industries - THO - close: 59.15 change: -0.69

Stop Loss: 57.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 352 thousand
Entry on February -- at $---.--
Listed on February 07, 2015
Time Frame: Exit PRIOR to earnings in March (no date yet)
New Positions: Yes, see below

Comments:
02/09/15: THO briefly traded above resistance at $60.00 but failed to hit our suggested entry point. Shares faded back toward $59.00 by the closing bell. I don't see any changes from the weekend newsletter's new play description.

Earlier Comments: February 7, 2015:
Thor was making headlines this week. The small country of Iceland has started building a temple to the Norse god and other deities, which will be the first such building in the last 1,000 years. However, tonight we are not talking about Norse deities and instead looking at Thor Industries, one of the largest manufacturers of RVs in the world.

THO is part of the consumer goods sector. They were founded back in 1980 by Wade Thompson and Peter Orthwein when they bought Airstream. Today the company makes a large number of recreational vehicles under several brand names that fall into two segments: towable RVs and motorized RVs.

There are more than 76 million baby boomers in the U.S. and they started hitting retirement age in 2011 at the rate of 10,000 a day. With many boomers looking for an active retirement the demand for RVs is likely to remain strong.

USA Today recently ran an article discussing how the RV industry has rebounded sharply following the Great Recession. The industry was expecting +8% growth in 2014 and RV makers just saw their best October in almost 40 years. One piece of the puzzle that could be boosting demand is gasoline prices at three-year lows. That makes these massive gas guzzlers (RVs) a lot more attractive.

THO recently announced an acquisition where they purchased towable recreational maker Cruiser RV and luxury fifth wheel RV maker DRV. This strengthens THO's towable product line, an area that was already seeing significant growth.

THO's most recent earnings report was back on December 1st, 2014. The company disappointed on the bottom line with earnings of $0.73 a share. That missed Wall Street estimates by 8 cents. However, revenues soared +15% to $922 million, which surpassed estimates. THO blamed a tight labor market in Indiana for the margin pressure. The company did offer a bullish update on its backlog. The company's motorized backlog dipped 18% but its towable backlog surged +56% (this is before their recent acquisition).

The stock did see a post-earnings sell-off in early December but THO has recovered. After churning sideways the last several weeks the stock has broken out to new multi-month highs. The point & figure chart is bullish and forecasting at $77 target.

Tonight we are suggesting a trigger to buy calls at $60.25. I'm suggesting the March calls since THO will likely report earnings in March and we do not want to hold over the announcement. We'll update our time frame when THO confirms its earnings date.

Trigger @ $60.25

- Suggested Positions -

Buy the MAR $60 CALL (THO150320C60)

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


UnitedHealth Group - UNH - close: 106.49 change: -1.11

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: -35.4%
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:
02/09/15: The pullback in shares of UNH continued with a -1.0% decline. The stock looks headed for what should be support at the $105.00 level. At this point I would wait for UNH to trade near $105 and then look to buy calls on a bounce. We are keeping the stop at $104.85 for now.

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: 160.10 change: -1.89

Stop Loss: 155.85
Target(s): To Be Determined
Current Option Gain/Loss: -27.1%
Average Daily Volume = 2.5 million
Entry on January 26 at $160.55
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings on February 24th
New Positions: see below

Comments:
02/09/15: Bullish analyst comments failed to give VRX much of a lift. Shares followed the market lower instead.

This morning VRX was started with an "overweight" rating and a $200 price target. The rally attempt this morning stalled at $163.50.

More conservative traders may want to raise their stop again. 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: 52.94 change: -0.59

Stop Loss: 51.25
Target(s): To Be Determined
Current Option Gain/Loss: +63.0%
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:
02/09/15: Stocks delivered widespread declines on Monday and WFM followed the market lower. We were planning to exit tomorrow at the closing bell to avoid holding over earnings on Wednesday. However, given the market's weakness tonight I'm suggesting we exit immediately tomorrow morning.

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

02/09/15 Exit update: plan on exiting tomorrow at the opening bell
02/07/15 plan on exiting Feb. 10th at the closing bell
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: 80.19 change: -0.28

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.2%
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:
02/09/15: WSM was not immune to the market's widespread decline today. Shares lost -1.4% and look poised to test the $78.00 level soon. I'm not suggesting new positions at this time.

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: 87.43 change: +0.28

Stop Loss: 83.85
Target(s): To Be Determined
Current Option Gain/Loss: +82.4%
Average Daily Volume = 494 thousand
Entry on January 12 at $80.85
Listed on January 10, 2015
Time Frame: Exit prior to February option expiration
New Positions: see below

Comments:
02/09/15: ZBRA displayed some relative strength today with a +0.3% gain. Shares look poised to tag new record highs tomorrow. Since our February options expire in less than three weeks we are going to plan on exiting this week. Traders may want to raise their stop again. I am not suggesting new positions.

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

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

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

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

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

- Suggested Positions -

Long FEB $85 CALL (ZBRA150220C85) entry $1.70

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

Cummins Inc. - CMI - close: 134.40 change: -1.46

Stop Loss: 140.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 2.9 million
Entry on February 09 at $134.90
Listed on February 07, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/09/15: Right on cue shares of CMI continued to fall. Shares gapped down at the open thanks to another analyst downgrade this morning. Our trigger to buy puts was hit very early at $134.90. I would still consider new bearish positions at current levels.

Earlier Comments: February 7, 2015:
Thus far 2015 has not been a great year for shares of CMI. The stock is down -4.2% while the broader market is flirting with a minor gain for the year. CMI is in the industrial goods sector.

The company describes itself as "Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 54,600 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations. Cummins earned $1.65 billion on sales of $19.2 billion in 2014."

CMI's earnings report in late October (Q3) was strong as they beat estimates on both the top and bottom line. Management also offered bullish guidance. Unfortunately conditions have deteriorated in the last three months. CMI is a good example of why we like to avoid holding over a company's earnings report. Their most recent earnings report was February 5th. They beat estimates and delivered record numbers but the stock dropped thanks to lowered guidance.

You have to give credit to analyst firm First Global who downgraded CMI in late January on worries that weak emerging markets would hurt CMI's business. They were correct. Over half of CMI's sales come from outside the U.S. Weak demand overseas (thanks to the global slowdown) and a significantly stronger dollar hurt CMI's results and more importantly their guidance.

CMI's Q4 profit surged +32% from a year ago to $2.56 a share. That's five cents above estimates. Revenues rose +11% from a year ago to $5.1 billion, also above estimates. Their full year revenues hit a record $19.2 billion, thanks in large part to +20% sales growth in North America. Unfortunately most of the world is seeing an economic decline. CMI management lowered their forecast. Previously the company was projecting 2015 sales in the $20-23 billion range. They just lowered their forecast $19.6-20.0 billion in sales for 2015.

This bearish sales forecast send the stock lower. Investors ignored the company's pledge to return 50% of its operating cash flow back to shareholders in 2015. A couple of Wall Street analysts have already lowered their price targets on CMI's stock following the company's guidance.

Technically CMI's stock has broken down from a multi-week consolidation. The recent weakness has generated a new sell signal on the point and figure chart that is forecasting at $122 target. Shares sit just above potential round-number support at $135.00. Tonight we are suggesting a trigger to buy puts at $134.90.

- Suggested Positions -

Long MAR $130 PUT (CMI150320P130) entry $2.65

02/09/15 triggered @ 134.90
Option Format: symbol-year-month-day-call-strike


CLOSED BEARISH PLAYS

Starwood Hotels & Resorts - HOT - close: 71.23 change: -0.43

Stop Loss: 75.05
Target(s): To Be Determined
Current Option Gain/Loss: -18.1%
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:
02/09/15: Our plan was to exit this HOT trade today at the closing bell to avoid holding over the company's earnings report out tomorrow.

- Suggested Positions -

FEB $70 PUT (HOT150220P70) entry $1.60 exit $1.31 (-18.1%)

02/09/15 planned exit
02/07/15 prepare to exit on Monday at the closing bell.
01/29/15 new stop @ 75.05
01/14/15 triggered @ 73.90
Option Format: symbol-year-month-day-call-strike

chart: