Option Investor
Newsletter

Daily Newsletter, Thursday, 1/7/2016

Table of Contents

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

Market Wrap

Global Sell Off Deepens

by Thomas Hughes

Click here to email Thomas Hughes
China woe and plunging oil prices carry the markets to new lows.

Introduction

China woe and plunging oil prices drove the global markets to new lows today. China's Shanghai index was the leader once again, hitting the -7% circuit breaker, which halted trading for the day. Volatility in the region has risen once again, due mainly to meddling by the government, and is expected to continue at least into tomorrow. New developments include a suspension of the circuit breaker, resumption of government backed equities buying and an extension of selling rules that had been set to expire tomorrow. European indices were led by the DAX which lost close to -4.5% on an intraday basis. The region was able to recover some, but not all, of the days losses with the DAX closing down -2.29%.

Market Statistics

Futures trading was indicating a loss of -2% or more for most of the morning with little effect from positive data and earnings released before the opening bell. The China situation, as well as rapidly declining oil prices, was firmly in focus. The markets retreat in quick fashion when the opening bell sounded, with the S&P 500 hitting an early low of -1.79%. This low held, the market was able to bounce, aided by the announced suspension of Chinese circuit breakers, and traded up off the intraday low until late in the day. By 1:30 the indices were back down testing their lows and setting new ones. The day's final low was set around 3:30 and led to a late day rally. This rally was short lived and left in the indices near the lows of the day.

Economic Calendar

The Economy

Today's labor data does not support a faltering economy. Along with the jobless claims data we also saw the latest Challenger Gray & Christmas report on planned lay-off's. This month's figures hit new lows on so many levels, but is tempered by statements suggesting that employers are shying back from job cuts during the holiday season. The ADP data yesterday, however, suggests that employers might not be laying off because they need those employees. Whatever the reason, in December 2015, planned lay-offs were 23,622. This is a 15 year low, the lowest December on record and makes the 4th quarter of 2015 the lowest level a 13 year low.

The December figure is down -24% from last month and -27.6% from December last year. On a full year basis 2015 did not hit a record high, as expected, but was up 24% over last year. Mitigating this rise is the increase in oil related job cuts, +660% over 2014, and government, +311%. There were some notably large cuts in the computer sector as well, HPQ and MSFT, but on a whole that sector is basically flat on a year over year basis.

Challenger's 2016 outlook calls for a slower pace of lay-off's, rising wages and increased hiring.


Initial claims for unemployment benefits came in at 277,000 this week, down -10,000 from last week's not revised figure. The four week moving average also fell, -1,250, and hit 275,750. On a not adjusted basis claims rose 16.9% versus an expected 21.5% projected by the seasonal factors. YOY not adjusted claims is down -7%. The states with the biggest increases were NJ (6935), MI (6348), and KY (5497). The states with the largest decrease in claims were CA (-9900), TX (-5083) and FL (-2474).

Initial claims have trended up in the nearer term but remain low and near the 40 year low set last year. We are entering a period of seasonal volatility in claims. They may rise somewhat over the next few months with larger fluctuations centered around MLK Day, Valentines Day and Easter..


Continuing claims rose this week, adding 25,000 to hit 2.230 million. Last week's figures were revised higher by 7,000 bringing this week's total to +32,000 from the previous report. Continuing claims have also risen slightly over the past month to 6 weeks but remain very low, near the 40 year low and consistent with labor market health. Total claims fell by -100,503, consistent with expectations, to hit 2.236 million. This is the lowest level in four weeks but still off the long term lows set last fall. Year over year total claims are down -7%. Looking forward we can expect to see this number rise over the coming months, how high and how long will be more important than the fact that it does. Based on last years data we could see a significant rise as soon as next week which would be data for mid December.

Tomorrow is NFP, unemployment, hourly earnings and hours worked data. Based on the ADP it could be quite strong, possibly as high as 250,000. Unemployment is expected to remain steady, as is hours worked.


The Oil Index

Oil prices fell hard in the early morning hours to hit a 12 year low. WTI fell more than -5% intraday to reach levels below $32.50 before bouncing back to break even later in the day. Supply and demand issues are still not resolved and for appear to be firmly in favor of supply. Today's action shows there are some buyers at these levels, whether or not the can support the market is in question but I wouldn't be surprised to see WTI hit $30.

The XOI fell in today's trading and hit the lower target just above 1000. The index fell more than -2% intraday and created a candle with long upper shadow in the process. Today's action suggests that this level could be support but that is yet to be confirmed. The indicators are both pointing lower in the near term, suggesting a test of support, but divergent from this new low suggesting support and/or reversal. In either event oil prices will lead. A break below this level could take the index down to 950, a bounce could go as high as 1,050 or 1,100.


The Gold Index

Gold prices are getting lift on a flight to safety and has poked its head above $1100. This move breaks a resistance target but does signal reversal. Prices are lifting on China woe mostly, a situation likely to fizzle out over the next week. If you remember, last summer China sent some ripples through the market that were largely forgotten two weeks later. Fundamentals, labor data, supports a strengthening US economy and a stronger dollar so for now this move in gold appears to be near term, and a selling opportunity for the bears.

The gold miners got a lift from gold. The miners ETF GDX rose more than 4.5% and broke through the top of the two month trading range to touch $15. The indicators are pointing higher a move above $15 could come. There some signs of resistance; an upper shadow on the candle, a near term down tick in stochastic %K and divergences in both indicators suggest the ETF is still range bound. $15 is a possible resistance line, next target is near $15.50.


In The News, Story Stocks and Earnings

Earnings season has begun, if quietly. KB Homes were among those reporting today before the bell and the home builder did not meet expectations. Top and bottom line misses, driven by weather related delays in construction, along with a poor outlook for earnings growth helped to drive the stock lower by more than -10% during the session. Although disappointing to investors, company CEO said that traffic was strong and demand remained robust. Of note, labor shortages are being cited as another reason for the shortfall in earnings.


The Walgreen's Boots Alliance reported better than expected earnings on slightly weaker than expected revenue. Earnings of $1.01 beat by a nickel and are up more than 11% from last year. The company also narrowed its guidance to the upper end of the previously stated range. The news helped to lift the stock by nearly 4% intraday but sellers took advantage of the gains and traded the shares down from there. Today's action appears to confirm support at $80.


Constellation Brands reported before the bell and pleased investors to say the least. The company beat on the top and the bottom lines, reported strong demand and raised guidance. Guidance was raised to a range of $5.30-$5.40, ten cents above the high end of the previous range, and drove shares up by more than 5%. The move looks strong but I think, based on the doji, rushing into this might not be a good idea.


The Container Store reported after the bell and did not live up to expectations. Consensus was $0.05, actual was -$0.04 which came on weak revenue and poor store traffic. The really bad news was guidance, which came in -30% below consensus. Shares of the stock fell in after hours trading.


The Indices

The indices are once again approaching correction territory, once again led by the Dow Jones Transportation Average. The transports lost more than -3% in today's action, falling to support targets at 7,000. Today's candle is long and black with very little shadow and declining indicators so a break of 7,000 could easily happen. The indicators are bearish in the near term, consistent with a move lower, but are also divergent from the newly set low. The divergence suggests the move is running out of steam, reaching an extreme of sentiment or approaching support, 7,000 could be it, if not a move down to 6,750 looks likely.


The NASDAQ Composite was the next biggest loser in today's session. The tech heavy index lost just over 3% in a move that appears to be confirming resistance. Today's action gapped lower at the open, moved up into positive territory and then fell to new lows, creating a candle with a long upper shadow and indication of resistance. The indicators are pointing lower, momentum is strong and gaining strength, so this move could continue. Next target is near 4,575.


The Dow Jones Industrial Average made the third largest decline in today's action, about -2.32%. The blue chips created a long black candle with very little lower shadow and broke below the long term trend line and support targets near 16,00. The indicators are bearish and pointing lower, but not overly strong, so it looks like this move could continue with downside targets near 16,000.


The S&P 500 was today's laggard in terms of losses. The broad market lost about -2.25%, created a long black candle and broke through support targets. Today's action is accompanied by bearish indicators, weakly bearish, and could go as low as 1,900.


The indices are nearing correction and could easily enter it tomorrow or next week. There is a lot of market turbulence, primarily centered on China and oil prices, set on the back-drop of what is expected to be a poor earnings season. These events are not inspiring, but may lead to the beginnings of the next rally.

Reasons why I remain bullish overall; Earnings season is likely to turn out better than expected, future outlook for earnings is for growth, economic trends (labor) are positive and growth is expected to expand in the next year. The noise will soon dissipate and the market will return to focus on these things, sooner or later.

Tomorrow we get the big one, the numero uno economic release that moves the market, the non farm pay rolls report. This number is likely to be strong, an even which should inspire a rally because is it shows economic strength, but this might be clouded by FOMC outlook in the face of China, sluggish global growth and weak earnings.

I expect China's market will be quite volatile overnight, what they do is really what will drive tomorrow's trade. I remain a long term bull, waiting for my entries, looking to buy on the dips but playing it very very cautious in the near term.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Too Far, Too Fast!

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

PowerShares QQQ ETF - QQQ - close: 104.87 change: -3.39

Stop Loss: 103.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 35 million
Entry on January -- at $---.--
Listed on January 07, 2016
Time Frame: Exit PRIOR to February option expiration
New Positions: Yes, see below

Company Description

Trade Description:
The stock market moves on emotion. Most of the time it is a tug-of-war between fear and greed. Occasionally one emotion takes control of the market and stocks move too fast one direction. That is where we are at today.

Fears of a global slowdown thanks to disappointing economic data out of China have increased. China has devalued their currency again, which does not generate confidence. Yesterday we had the nuclear weapon testing headlines from North Korea, which generates fear. We have plunging oil prices, which is fueling worries about deflation.

Odds of a snap back rally are growing and we want to be ready to catch it. One way to play it is the NASDAQ-100 ETF or the QQQ. These are very liquid, big cap names that fund managers can move in and out of more easily.

Thus far 2016 has been ruled by fear. We are only four trading days into the year and the NASDAQ composite is already down -6.4% completely erasing its +5.7% gain from 2015. The QQQ is down -6.2% in the last four days and it's down -8.25% from its December 29th peak just six trading days ago. That's too far too fast.

Tonight we are suggesting a short-term bullish trade when stocks bounce. They will bounce (eventually). Today's intraday high on the QQQ was $107.29. We are suggesting a trigger to buy calls at $107.35. We'll use an initial stop loss at $103.85. More conservative traders may want to use a stop loss closer to today's intraday low instead ($104.81).

Trigger @ $107.35

- Suggested Positions -

Buy the FEB $110 CALL (QQQ160219C110) current ask $1.14
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:



In Play Updates and Reviews

Stocks Deliver Worst Four-Day Start Ever!

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index and the Dow Jones Industrial Average have produced their worst four-day start to any year in history! The S&P 500 is already down -5% for the year. The NASDAQ's -6.4% plunge has erased all of its gains for 2015.

The Dow Industrials and NASDAQ are now in correction territory, down more than 10% from their highs. The S&P 500 would need to drop to 1,898 before hitting correction territory.

Our DLTR trade was triggered this morning before the stock rolled over with the broader market.


Current Portfolio:


CALL Play Updates

Dollar Tree, Inc. - DLTR - close: 78.45 change: -2.07

Stop Loss: 76.90
Target(s): To Be Determined
Current Option Gain/Loss: -38.9%
Average Daily Volume = 3.6 million
Entry on January 07 at $80.85
Listed on January 06, 2016
Time Frame: Exit PRIOR to February option expiration
New Positions: see below

Comments:
01/07/16: The stock market was crushed again at the opening bell. Traders bought the dip in DLTR. For a little while shares managed to buck the market's down trend. DLTR actually hit new four-month highs before yielding to the market's plunge lower. Unfortunately DLTR did hit our suggested entry point to buy calls at $80.85 before rolling over. The stock ended the session with a -2.5% decline but near what should be short-term support near $78.00.

I would hesitate to launch new positions tomorrow but nimble traders may want to consider buying calls on another rally above $80.60.

Trade Description: January 6, 2016:
Last year DLTR shares delivered a very bumpy ride for investors but the stock did manage to outperform. 2015 saw the S&P 500 index flat with a -0.7% loss. The NASDAQ gained +5.7%. Yet DLTR added +9.7%. More importantly DLTR has been showing relative strength THIS year and appears to be breaking out past resistance.

DLTR is part of the services sector. According to the company, "headquartered in Chesapeake, VA, Dollar Tree is the largest and most successful single-price-point retailer in North America, operating thousands of stores across 48 contiguous U.S. states and five Canadian provinces, supported by a solid and scalable logistics network. At Dollar Tree, we are committed to serving the best interests of our shareholders. We seek to enhance shareholder value not only through exceptional business performance and practices, but also through responsible and effective communication. To help put Dollar Tree, Inc.'s financial performance into perspective, our Investor Relations site provides the latest company information relevant to the individual."

One of the big stories for DLTR last year was its $9.5 billion acquisition of rival Family Dollar (FDO). This more than doubled DLTR's stores and more than doubled its annual sales.

DLTR's earnings results have been mixed and the stock has seen some big moves on its recent reports. On September 1st DLTR reported their Q2 results that missed estimates and guided lower. Shares plunged. Fortunately for investors DLTR bottomed in the $60-62 area in the October-November time frame.

On November 24th DLTR reported its Q3 results, which looks like their first full quarter as a combined company (with Family Dollar). Earnings were $0.38 a share. That missed analysts' estimates. Revenues were up +136% from a year ago thanks to the merger and above expectations at $4.95 billion. Management lowered their Q4 guidance but raised their full year 2016 revenue guidance above Wall Street estimates. Investors bought this news and shares of DLTR have been outperforming the broader market for the last several weeks.

DLTR's CEO Bob Sasser commented on his company's Q3 performance, "I am pleased with our Company's third quarter performance. Dollar Tree delivered same-store sales of 2.1%, which represented our 31st consecutive quarter of positive same-store sales. This was against a 5.9% comp from the prior year, our strongest quarter of 2014. While not included in our comp calculation, Family Dollar delivered positive same-store sales of low to mid-single-digits, as a percent, each month during the quarter." Sasser added, "Our integration project is on schedule and we are on track to achieve our stated synergy goals. Today, I am even more enthusiastic about the long-term opportunity this merger provides for our customers, our suppliers, our associates, and our shareholders."

In early December analyst firm RBC upgraded DLTR to one of their "top picks" and raised their price target on the stock to $90. RBC believes DLTR can achieved +20% to +25% growth in 2016-2017. Analyst firm Cantor Fitzgerald is also bullish on DLTR. A couple of weeks ago they issued an note on the company saying, "We expect a re-acceleration of SSS growth and believe there is opportunity for the company to realize cost synergies from the Family Dollar acquisition that doubles the $300 million guidance by year three." Cantor upped their DLTR price target from $85 to $105.

Currently the point & figure chart is bullish and forecasting at $90.00 target.

DLTR spent a good chunk of December consolidating sideways in the $75-80 zone. Now the stock is breaking out, which is impressive considering the stock market's weakness. The S&P 500 is already down -2.6% in 2016 and the NASDAQ is down -3.4%. DLTR is up +4.2% year to date and broke through resistance near $78.50 and now the $80.00 level. Tonight we are suggesting a trigger to buy calls at $80.85.

- Suggested Positions -

Long FEB $80 CALL (DLTR160219C80) entry $3.60

01/07/16 triggered @ $80.85
Option Format: symbol-year-month-day-call-strike


Harris Corp. - HRS - close: 86.24 change: -1.13

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -47.2%
Average Daily Volume = 927 thousand
Entry on January 05 at $88.15
Listed on January 04, 2016
Time Frame: Exit PRIOR to earnings in early February
New Positions: see below

Comments:
01/07/16: HRS held up better than most. The S&P 500 index lost -2.3% today. HRS only fell -1.29% and closed near technical support at its 20-dma. The prior highs near $85.00 should also be another layer of support.

At the moment I would not launch new positions but a rally above today's high ($87.62) could be used as an alternative bullish entry point.

Trade Description: January 4, 2016:
Out of the thousands of publically traded companies out there only a few have been around for over 100 years. A couple of weeks ago HRS celebrated its 120th anniversary.

HRS issued a press release to mark the achievement. Here's an excerpt: "Founded in the back room of an Ohio jewelry store in December 1895, Harris grew from a tiny printing press company into a top 10 defense contractor with $8 billion in annualized sales, 22,000 employees, customers in 125 countries, and a diverse portfolio of technologies that connect, inform and protect the world. Harris is the longest-thriving major defense contractor and one of 398 publicly held companies still in existence for 120 years or longer - including GE, CVS, Coca-Cola, Pfizer, P&G, and J.P. Morgan."

Today HRS is in the technology sector. They are considered part of the communication equipment industry. According to the company, "Harris Corporation is a leading technology innovator, solving our customers' toughest mission-critical challenges by providing solutions that connect, inform and protect. Harris supports customers in more than 125 countries, has approximately $8 billion in annual revenue and 22,000 employees worldwide. The company is organized into four business segments: Communication Systems, Space and Intelligence Systems, Electronic Systems, and Critical Networks."

Last year HRS ended 2015 on a strong note. The month of December saw HRS win several government contracts worth more than $1 billion. Meanwhile analysts are bullish on the stock. Goldman Sachs has a buy rating on HRS. Cowen recently upped their price target to $102 and said it was one of their best trading ideas for 2016.

Technically the stock has been showing relative strength. Last year HRS outperformed the broader market with a +20% gain. The positive news about the company's new contract wins produced a bullish breakout past major resistance at $85.00 in mid December. Today investors bought the dip near short-term support at its 10-dma. HRS displayed relative strength today too with a +0.8% gain. If this bounce continues we want to hop on board. Tonight we are suggesting a trigger to buy calls at $88.15.

- Suggested Positions -

Long FEB $90 CALL (HRS160219C90) entry $2.65

01/05/16 triggered @ $88.15
Option Format: symbol-year-month-day-call-strike


Ionis Pharmaceuticals - IONS - close: 55.43 change: -3.29

Stop Loss: 56.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.6 million
Entry on January -- at $---.--
Listed on January 02, 2016
Time Frame: Exit PRIOR to February option expiration
New Positions: Yes, see below

Comments:
01/07/16: Biotech stocks were some of the market's worst performers today. The IBB biotech index plunged -4%. Shares of IONS fared even worse with a -5.6% decline. If shares bounce tomorrow we will re-evaluate our entry point strategy and may lower our entry trigger again. Currently our suggested entry point is $60.35.

Trade Description: January 2, 2016:
Biotech stocks had a volatile year, especially after the group peaked in July 2015. The IBB managed to deliver a +11% gain for the year thanks to strength among some of its bigger cap names. IONS closed virtually flat for the year (down -19 cents for all of 2015). The stock has been showing relative strength recently and looks poised to sprint past its peers.

IONS is in the healthcare sector. They are part of the drug and biotech industry. The company was previously known as ISIS pharmaceuticals. Unfortunately the rise of the radical Islamic terrorist group known as ISIS has tarnished the name. A couple of weeks ago ISIS changed its name to Ionis. Here's a bit from the company press release:

"Isis Pharmaceuticals, Inc. today (December 18th) announced that the company has changed its name to Ionis Pharmaceuticals, Inc. Ionis (pronounced "eye-OH-nis") Pharmaceuticals is an original name that the Company has chosen to represent its innovative culture and heritage as both the pioneer and leader in the RNA-targeted therapeutic space for the past 26 years."

Now here is the company's description: "Ionis is the leading company in RNA-targeted drug discovery and development focused on developing drugs for patients who have the highest unmet medical needs, such as those patients with severe and rare diseases. Using its proprietary antisense technology, Ionis has created a large pipeline of first-in-class or best-in-class drugs, with over a dozen drugs in mid- to late-stage development. Drugs currently in Phase 3 development include volanesorsen, a drug Ionis is developing and plans to commercialize through its wholly owned subsidiary, Akcea Therapeutics, to treat patients with familial chylomicronemia syndrome and familial partial lipodystrophy; IONIS-TTRRx, a drug Ionis is developing with GSK to treat patients with all forms of TTR amyloidosis; and nusinersen, a drug Ionis is developing with Biogen to treat infants and children with spinal muscular atrophy. Ionis' patents provide strong and extensive protection for its drugs and technology."

Regular readers know that we feel biotech stocks are aggressive, higher-risk trades. A lot of biotech companies are relatively small and only have one or two treatments in development, which make them binary trades. You can win big or lose big depending on the approval process of their treatment. There is a lot of headline risk. There is still headline risk with IONS but the company's relatively deep pipeline of drugs makes IONS a stronger play. You can view IONS' pipeline here.

Shares of IONS surged through several layers of resistance in early November on a better than expected Q3 earnings report. Since that big rally the stock has been consolidating lower. That changed in mid December when traders bought the dip near its 100-dma. Investors have been buying the dips every since. IONS displayed relative strength on Thursday with a +0.99% gain. The point & figure chart is bullish and forecasting at $74.00 target.

We would like to see some follow through higher. Tonight we are suggesting a trigger to buy calls at $63.20. Plan on exiting prior to February option expiration.

Trigger @ 60.35 *new entry trigger*

- Suggested Positions -

Buy the FEB $65 CALL (IONS160219C65)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

01/06/16 Entry point update - Adjust the entry point to buy calls from $63.20 down to $60.35. Move the stop loss down to $56.75
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Red Robin Gourmet Burgers - RRGB - close: 56.62 change: -2.68

Stop Loss: 62.15
Target(s): To Be Determined
Current Option Gain/Loss: - 2.0%
Average Daily Volume = 244 thousand
Entry on January 06 at $58.40
Listed on January 05, 2016
Time Frame: Exit PRIOR to earnings in mid February
New Positions: see below

Comments:
01/07/16: RRGB underperformed the broader market with a -4.5% plunge. That was worse than the NASDAQ composite's -3.0% decline. These are new 52-week lows for the stock.

No new positions at this time.

Trade Description: January 5, 2016:
The second half of 2015 had to be frustrating if you were bullish on RRGB. The company has been outperforming many of its peers in the restaurant industry but shares still got crushed. RRGB delivered a -19.7% decline for all of 2015 but fell -33.5% from its 2015 peak near $92.00 a share.

RRGB is in the services sector. According to the company, "Red Robin Gourmet Burgers, Inc. (www.redrobin.com), a casual dining restaurant chain founded in 1969 that operates through its wholly-owned subsidiary, Red Robin International, Inc., is the Gourmet Burger Authority®, famous for serving more than two dozen craveable, high-quality burgers with Bottomless Steak Fries® in a fun environment welcoming to guests of all ages. In addition to its many burger offerings, Red Robin serves a wide variety of salads, soups, appetizers, entrees, desserts and signature Mad Mixology® Beverages. Red Robin offers a variety of options behind the bar, including its extensive selection of local and regional beers, and innovative adult beer shakes and cocktails, earning the restaurant the 2014 VIBE Vista Award for Best Beer Program in a Multi-Unit Chain Restaurant. There are more than 500 Red Robin restaurants across the United States and Canada, including Red Robin Burger Works® locations and those operating under franchise agreements."

One of the biggest stories last year was the decline in crude oil. Lower crude oil means lower gasoline prices at the pump. Many were expecting lower gas prices to fuel a jump in consumer spending. Unfortunately that increase in spending never really showed up.

The data has shown a slowdown in restaurant sales. Black Box Intelligence, a research firm, publishes monthly statistics on the restaurant industry. Black Box said industry-wide sales growth fell from +1.8% in Q2 2015 to +1.5% in Q3 (no word yet on Q4). Traffic stalled as well. In early November Black Box Intelligence reported that same-store sales growth for the restaurant industry went negative for the first time since July 2014 with a -0.2% drop in October 2015. Traffic plunged -2.8%. There was a bounce in November with comp sales up +0.5% but traffic fell another -1.7%.

That is the environment RRGB has been operating in. They have been beating a lot of their peers with stronger comparable-store sales but RRGB has not been immune to the slow down. Looking at RRGB's last four quarterly reports they have beaten Wall Street's earnings estimate the last three quarters in a row. However, they have missed analysts' revenue estimates three out of the last four quarters. Revenue growth has slowed from +16.6% to +16% to +14.4% and down to +6% in their most recent announcement. Comps started last year at +3.6% and dipped to +2.9% before bouncing back to +3.5%.

Investors don't seem to care that RRGB's comparable store sales are beating the industry. Traders have sold the stock hard following the last two earnings reports and shares have continued to sink under a bearish trend of lower highs. The last three weeks of December saw RRGB consolidating sideways in the $60.00-65.00 range. The recent breakdown below support at $60.00 has produced a new quadruple bottom breakdown sell signal on the point & figure chart, which is currently forecasting a target near $54.00 (and could go lower).

Shares of RRGB displayed relative weakness today. The intraday bounce attempt failed and shares lost -1.7% on the session to close at new 52-week lows. The stock is poised for a drop toward the $50-55 zone. Tonight we are suggesting a trigger to buy puts at $58.40.

- Suggested Positions -

Long FEB $55 PUT (RRGB160219P55) entry $2.50

01/06/16 triggered @ $58.40
Option Format: symbol-year-month-day-call-strike