Option Investor
Newsletter

Daily Newsletter, Tuesday, 1/19/2016

Table of Contents

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

Market Wrap

Hostage to Oil

by Jim Brown

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Oil prices declined again after the Iranian oil minister said they would accelerate production and they were going to discount their oil to some European countries. The price war is now in full swing.

Market Statistics

Brent crude traded down to $28.60 intraday after Iran began rattling the market with claims they were going to win back market share stolen by Saudi Arabia and others by lowering prices to customers in Europe. This comes only about a month after Saudi Arabia cut prices sharply to Europe to undercut prices for Russian oil. Saudi said they will not be undersold and they plan on not only holding onto existing market share but will aggressively pursue gaining additional market share.

This is the end of the world for those producers hoping for a rebound to higher prices. With Saudi Arabia, Iran and Russia all competing to be the lowest price to Europe we should see Brent crude prices continue to decline. That will drag WTI lower as well and the equity markets will follow suit. It is almost inconceivable that we will not test $25 in the days ahead and that may not be the lows since the inventory build season continues until the end of April.


Crude prices had risen slightly after the Chinese economic data on Monday night was not bearish. China reported Q4 GDP at 6.8% and slightly missing estimates for 6.9%. Retail sales for December rose +11.1% and missing estimates for 11.3%. Industrial production rose +5.8% and also a miss. Fixed asset investment rose +10.0% and missing estimates for 10.2%. All of the misses were minor and the Chinese markets gained on the news. The GDP for all of 2015 was 6.9% and the slowest growth since 1990. U.S. futures rallied after the Chinese numbers and caused a huge gap open this morning with the S&P rising +20 points in the first few minutes.


The U.S. economics were limited today with the NAHB Housing Market Index the only major report. The headline number for January declined from 61 to 60 and well off the high of 65 in October. Potential buyer traffic declined from 46 to 44 after a high of 48 in November. The Midwest was the only region that posted a gain with a jump from 54 to 58.

This was still a decent report because conditions normally decline in the winter months. Cold weather and snow tends to keep people at home in front of the TV rather than trudging through the slush to look at a dozen new homes. Higher home prices and slowly rising interest rates also slowed buyer interest.

The calendar for tomorrow is highlighted by the new residential construction and the consumer price index (CPI). The CPI is expected to be flat but odds are good that we could see a miss to the downside.

The big report for the week is the Philly Fed Manufacturing Survey on Thursday. With the manufacturing sector in a recession, it will be interesting to see if the Philly estimates for a +2 will come true after a -10.2 last month.


There were some notable earnings today starting with Bank of America (BAC) this morning. BAC reported adjusted earnings of 29 cents ($3.01 billion) compared to estimates for 26 cents. Revenue rose +4.3% to $19.53 billion. The bank had to increase loan loss reserves by $264 million due to exposure to energy loans. They said they had $21.3 billion in total energy exposure. They warned if oil prices continued lower they could see loss reserves rise another $900 million. JPM and WFC also warned they had raised loss reserves due to energy exposure and those losses could rise. Shares declined slightly on the report.


Morgan Stanley (MS) reported earnings of 43 cents compared to estimates for 33 cents. That was a huge beat but it only managed to produce a 29-cent gain in the stock. Revenue was $7.7 billion compared to estimates for $7.59 billion. Total non-interest costs fell -41% for the quarter. Trading revenue rose +1% to $1.47 billion.


UnitedHealth Group (UNH) reported adjusted earnings of $1.40 that beat estimates for $1.36. However, that was a 19% decline from the year ago quarter and the company blamed it on Obamacare. Revenue was $43.6 billion, up +30%. The company is still considering withdrawing from the Obamacare exchanges at the end of 2016. They said the people enrolled in the plans were sicker and tended to use a lot more medical care than those in the general population. In order to remain in the exchanges UnitedHealth will have to raise premiums dramatically to match the risk profile of the enrollees. Shares gained $3.30 on the news.


After the bell, IBM reported earnings of $4.84 compared to estimates for $4.81. Revenue of $22.06 billion narrowly beat estimates for $22.02 billion. The strong dollar reduced IBM revenue for the full year by -$7 billion, with a -$300 million hit in Q4. That is a monster number to overcome and still beat on earnings. Revenue from "strategic imperatives" including cloud, data analytics, social and security software rose about 10%. Given the negative expectations for IBM over the last year, this was still a decent earnings report.

On the downside IBM warned that revenue could continue to slide. This was the 15th consecutive quarter of revenue declines. Shares declined -$5 in afterhours.


Netflix (NFLX) reported earnings of 7 cents compared to estimates for 2 cents. Revenue of $1.82 billion missed estimates for $1.83 billion. In the more important subscriber metric, they reported 5.59 million new subscribers with 4 million of those overseas to push their total subscribers close to 75 million with 30 million outside the USA. U.S. subscriber growth fell short at 1.56 million compared to estimates for 1.62 million. The company is predicting the addition of 6.1 million in Q1.

Netflix said the average subscription price rose between 4-5% and they were seeing increased adoption of the $12 plan. The price freeze on the 22 million U.S. subscribers at $8 expires in May. They are going to show 600 hours of new original content in 2016 compared to 450 hours in 2015. They streamed 42.5 billion hours of content in 2015 compared to 29 billion hours in 2014. The company plans to spend about $5 billion on content licensing in 2016 in addition to the $9 billion they have previously committed to pay studios by September 2018. Netflix ended the year with $2.3 billion in cash.

They expanded from 60 countries to 190 countries in the first week of 2016 but they are not open in China. They said they were working hard to move into China but it may not happen in 2016. Shares rallied $8 in afterhours to $115 after gaining nearly $4 in regular trading.


Goldman Sachs (GS) is the big dog out with earnings on Wednesday and they are trading at a 52-week low. Expectations are not high so there is the potential for an upside surprise. However, legal fees are likely to weigh on results.


Tiffany (TIF) warned this morning that holiday sales disappointed. The company said the important gifting season of November and December were hit by "weak tourist spending" in multiple markets. Global net sales declined -3% with same store sales down -5%. In constant dollars worldwide sales fell -6%. They said sales were constrained by challenging global economic conditions and events that slowed tourist travel between countries.

Tiffany guided for a 10% decline in earnings for 2015, down from the prior outlook for a 5% to 10% decline. New guidance is for earnings of $3.78 compared to analyst estimates for $3.88. The company said it expects minimal growth in net sales and earnings in 2016. Earnings are due out on March 18th.


McDonalds (MCD) was upgraded by BTIG from neutral to buy with a $130 price target. The analyst said the all day breakfast, Game Time Gold and the new McPick 2 value menu should generate "meaningful improvement" in the U.S. business. Shares rose +$2.32 on the upgrade.


Procter & Gamble (PG) rallied +1.75 after Stifel upgraded the consumer products company from hold to buy with a price target at $85. The analyst said improving year over year comparisons, rising market share and improving execution would power the stock higher. P&G currently has a 3.5% dividend yield.


Goldman Sachs reiterated a buy rating on Apple (AAPL) with a $155 price target despite deteriorating sales expectations. The analyst said the declining expectations have provided a buying opportunity in the shares given that the low guidance is now priced into the stock. The analyst expects revenues for the December quarter of $76.8 billion and EPS at $3.28. That is just over the consensus estimates. For the March quarter, Goldman expects $57.1 billion and $2.30 in earnings. They expect Apple to guide lower (conservatively) for the March quarter in order to reduce expectations while they clean up their excess inventory problem. I would be a buyer of Apple only after the Q4 earnings, which could be very volatile.


Helping to depress oil prices today was an update from the IEA saying the world might "drown" in oil in 2016. The IEA said oil demand growth slowed significantly in Q4 due to weak economic conditions in Russia, China and Brazil. The agency said crude inventories could rise another 285 million barrels ahead of the summer demand season. That is in addition to the more than 1 billion barrel increase in 2015 to more than 3 billion barrels.

In addition, a new report using satellite imagery showed that Iran had significantly more oil in storage on tankers in the Persian Gulf. New estimates put the total at 50 million barrels, up from 30-36 million in prior estimates. As of January 18th, none of the tankers had moved so the oil remains unsold. An Iran official said "Iran is not interested in entering the market in a disorderly manner, which is self defeating. However, it is also not interested in sacrificing further, to benefit those who gained from its absence" from the market. "It will require a delicate balance." Those comments came on the same day Iran said it was cutting prices to Europe so it appears the calming talk is just talk.

As long as oil prices continue lower we should expect to see equity markets continue lower as well.

Markets

The Dow gapped up about +185 points at the open to 16,171 and almost immediately began to fade. The index went negative in late afternoon but was rescued with a buy program that triggered with the drop to 15,900. That added +174 points in the closing hour but that also faded at the close to end with only a 28-point gain.

The S&P rebounded at the open to 1,900 and came to an immediate stop. The afternoon decline knocked it back to the August lows at 1,867 before the buy program lifted the index back into positive territory with a 1-point gain.

Needless to say it was a very volatile day and there was no direction. However, we may have traded to a stalemate. The bulls tried to manage some gains and failed. The bears tried to sell it off again and failed. In the end the indexes closed near neutral territory with no clear winner.

This was the day after a three-day weekend, which is normally bullish. It was also the day after option expiration, which is normally flat as traders square positions, resell stock that was put to them and launch new positions for the next option cycle. Post expiration Monday rarely has any direction because of the option settlement process.

Basically the day was a draw and tomorrow will be the directional day. The S&P needs to continue holding above that 1,867 level from August or the next target is 1,820. Resistance is now 1,900 and 1,950.


The Dow was helped by the stocks making the news today. UnitedHealth on earnings and McDonalds and Procter & Gamble on analyst upgrades. Chevron and Exxon were the big losers as oil prices fell back below $29. In after hours tonight crude is down to $27.97.

Goldman's earnings on Wednesday could be detrimental to the Dow but falling oil prices and the -$5 drop in IBM in afterhours are going to be the biggest drags.

The Dow is the weakest of the three major indexes and has already broken below 16,000 twice in the last two days only to recover that level at the close. The next dip is not likely to repeat that feat. The Dow's target is the 15,370 low from August and the 15,350 low from February 2014.

Resistance would be today's high at 16,171 but that may be wishful thinking.



The Nasdaq struggled valiantly to remain positive after the morning gap open but it was not to be. The index ended with a loss of -11 after being up +60 at the open. Netflix will be a big help at the open with its +8 gain in afterhours trading. However, sellers are still piling on any rebound in tech stocks. Without any material tech earnings on Wednesday, it will be tough to maintain any positive sentiment.

Support is 4,432 and the lows from the last two days of trading. A break below that level targets 4,292 and the August flash crash low followed by 4,130 from October 2014.



The Russell 2000 returned to Friday's lows and failed to penetrate but the rebound was lackluster and the Russell lost -13 points for the day or -1.27% and the biggest loss for the major indexes. The small cap rout is still in progress and this suggests the market will continue lower.

The index closed well under the 1,000 level at 994.84 and the next material support is around 900 and then 800.


The Biotech sector was the biggest sector loser with a -2.7% decline. This dragged the Nasdaq and the Russell lower. Until the biotechs find a bottom, they will compete with oil prices as the biggest drag on the market.


With crude oil at $27.97 tonight the market has very little chance of a material rally. Futures were up +5 early in the session and then suddenly dropped to -8 around 7:15 ET on no news. Something happened but it has not hit the newswires yet. It may be due to the drop in oil prices but without a headline we just do not know.

I would continue to be cautious about new long positions until it appears the market has found a bottom. The lack of a strong short squeeze suggests traders are willing to let their shorts ride instead of race to cover on every little bounce.

It is ok not to be in the market. You do not have to trade. Being bored is a lot better than being broke.

The advertising for the EOY subscription special is over. However, we still have some mouse pads and books left over so I will leave the link open for a few days in case anyone wants to take advantage of the savings.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Go With the Flow

by Jim Brown

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NEW DIRECTIONAL CALL PLAYS

None


NEW DIRECTIONAL PUT PLAYS

XLE - Energy Select SPDR ETF (Description)

The XLE is an ETF that represents the majority of the stocks in the energy sector. With the price of crude oil plunging and analysts predicting bankruptcy for 30-50% of the U.S. producers there is nothing to provide support for this ETF.

The few stocks that have dividends including Exxon, Chevron, Conoco and a few others, cannot support the sector. There are 45 stocks in the ETF with Exxon, Chevron and Schlumberger the largest weightings. That leaves about 40 stocks to drag the sector down as oil prices continue to fall.

This play does not need a lot of explanation. We are betting the energy sector will continue to decline as oil prices head for the low $20s.

This is the period of the year when oil inventories build. Demand is low and refineries will begin to shut down for spring maintenance in February and that will continue into March. Last year from the second week in January to the fourth week in April, U.S. inventories rose nearly 112 million barrels to record levels. They cannot repeat that this year because there is not enough available storage. This will drive prices even lower when producers run out of locations to store the oil.

We will plan on exiting this position the first week of March. I am not putting a stop loss on it initially because we could see some volatility whenever the shorts get squeezed. Once we are in the position for 3-4 days I will assign a stop loss

Buy March $50 Put, currently $2.17, no initial stop loss.



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Jim Brown

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In Play Updates and Reviews

Never a Dull Moment

by Jim Brown

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Editor's Note:

Falling oil prices were blamed for the decline in the markets but there were multiple factors. The biggest factor was the lack of buyers. Multiple times over the last several days, triple digit rally have been sold. We have been unable to produce a decent short squeeze because shorts are content to let their positions ride rather than race to cover on short term bounces.

We are changing the format slightly this week. The entry date, earnings date, current price, change for the day and stop loss are all in the portfolio graphic. They will no longer be listed in the individual play descriptions. Everything you need is now available in a single location.



Current Portfolio





Current Position Changes


Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


STZ - Constellation Brands

The position was triggered when STZ shares rallied to $144.05 this morning.

The entry price was $4.70 and the stop loss is 138.25.


Original Call Recommendations (Alpha by Symbol)


DLR - Digital Realty Trust

Company Description

Comments:

Not a good day for DLR. Shares declined -$1.22 to support at $75. Any further decline should trigger our stop loss at $74.80.

Original Trade Description: January 9, 2016:

The last several days have been tough on investors. Stocks experienced a global market sell-off. This volatility and uncertainty could push investors into safer, high-dividend paying stocks. Currently the 10-year U.S. bond only yields 2.1%. That makes a stock like DLR, with a dividend yield above 4%, a lot more attractive. The company has a history of consistently raising its dividend over the last nine years in a row. The stock's relative strength doesn't hurt either.

DLR is in the financial sector. According to the company, "Digital Realty Trust, Inc. supports the data center and colocation strategies of more than 1,000 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia. Digital Realty's clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products."

DLR has consistently beat Wall Street earnings expectations the last four quarters in a row. The last two quarters the company has also beat analysts' revenue estimates.

Earlier this week DLR provided their 2016 outlook and the company's forecast was slightly above expectations, which helped shares resist the market's sell-off.

Here is an excerpt from DLR's press release on their 2016 outlook:

Digital Realty expects 2016 core FFO (Funds from Operations) per share to be within a range of $5.45-$5.60, which represents a 7% increase at the midpoint from the midpoint of 2015 core FFO per share guidance. Foreign currency translation is expected to represent a headwind to core FFO per share of 1%-2% in 2016.

"We are seeing solid demand for Digital Realty's comprehensive set of data center solutions, which gives us confidence in our ability to achieve accelerating core FFO per share growth in 2016," commented Andrew P. Power, Digital Realty's Chief Financial Officer. "We also expect to generate double-digit AFFO per share growth (Adjusted Funds from Operations), driven by greater cash flow contribution from our core business, accretion from the Telx acquisition and the continued burn-off of straight-line rent. In short, the quality of earnings is improving, the growth in cash flow is accelerating, and we are optimistic about the prospects for our business in 2016 and beyond."

The recent relative strength in shares of DLR over the last few weeks has lifted shares above key resistance near the $75.00 level. It has also produced a buy signal on the point & figure chart, which is now forecasting a longer-term target of $102.00.

Friday saw DLR shares tag new all-time highs (@ 77.67). We are suggesting a trigger to buy calls at $77.75. Plan on exiting prior to February option expiration.

Position 1/11/16:
Long Feb $80 Call @ $1.10, initial stop loss $74.80




PCRX - Pacira Pharmaceuticals

Company Description

Comments:

The position was entered on the positive open and I am encouraged that there was no material selling despite the -2.7% decline in the Biotech index.

Original Trade Description: January 16th

PCRX delivered a very bumpy ride for investors in 2015. The stock outperformed the year before with +54% gain in 2014. Then sentiment changed last year and by October 2015 shares of PCRX were down -58% for the year and down -70% from its February 2015 highs. Fortunately some strong earnings news and a legal win helped PCRX pare its 2015 loss to -13%. Today PCRX is bouncing from support and looks poised to continue its late 2015 rebound.

PCRX is in the healthcare sector. According to the company, "Pacira Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on the clinical and commercial development of new products that meet the needs of acute care practitioners and their patients. The company's flagship product, EXPAREL® (bupivacaine liposome injectable suspension), indicated for single-dose infiltration into the surgical site to produce postsurgical analgesia, was commercially launched in the United States in April 2012. EXPAREL and two other products have successfully utilized DepoFoam, a unique and proprietary product delivery technology that encapsulates drugs without altering their molecular structure, and releases them over a desired period of time."

The legal win I mentioned above was a fight between PCRX and the F.D.A. There was a disagreement over how PCRX was marketing its Exparel drug. The FDA argued the treatment was only approved for a couple different types of surgery. The company filed a lawsuit against the FDA in September last year. On December 15th they announced a resolution with the FDA. The lawsuit was dropped and the FDA officially rescinded its warning letter about how PCRX was marketing Exparel. Shares of PCRX soared about 15% on the news.

Some of the volatility last year was likely due to PCRX earnings. The company has beaten Wall Street's earnings estimates in three of the last four quarters. Yet they have missed the revenue estimate twice. At the same time Revenue growth has slowed from +84% to +59% to +25% to +19.6% in the most recent quarterly report.

PCRX did offer some good news this year. On January 7th they pre-warned that Q4 revenues would be better than expected. Wall Street was estimating $67.4 million for the quarter. PCRX is now forecasting +12.2% improvement from a year ago to $69.4 million. They also raised their full-year 2015 guidance.

The stock market's sell-off in 2016 pulled PCRX down toward support in the $60 area but traders started buying the dip in a big way on Thursday. PCRX has outperformed the market the last two days in a row. If this bounce continues it could spark some short covering. The most recent data listed short interest at 23% of the relatively small 33.7 million share float. Another positive is PCRX's point & figure chart shows the bounce off support and is currently forecasting an $83.00 target.

Earnings: Feb 26th, before the open.

Position 1/19/16:
Long Feb $75 Call @ $2.75, initial stop loss $61.45




QQQ - Powershares QQQ

ETF Description

Comments:
01/16/16: The QQQ gapped open to $102.37 before dipping again to $100 intraday. We entered this position on a dip buy to $100.50 on Friday. The current stop loss is $97.45.

If you missed our entry point I would still consider new positions on a rebound from these levels. Investors should wait for a bounce first so a rally past $102.50 would be an attractive entry point.

Original Trade Description: January 7, 2016:

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).

Position 1/15/16:
Long Feb $105 Call @ $1.34, initial stop loss $97.45




SPY - SPDR S&P-500 ETF

ETF Description

Comments:
The S&P honored its August lows today but the outlook is negative. If the overnight futures hold at their current -12 level we could see the S&P dip back to support at 1,867 again.

The initial position was entered at the open today when the SPY gapped up to $190 at the open. Our entry trigger was $189.35.

Original Trade Description: January 13, 2016:

The stock market's sell-off seems to be getting worse. Constant worries about a slowing global economy and the potential for another currency devaluation in China have spooked investors. The nearly non-stop plunge in crude oil hasn't helped although at the moment it looks like the $30.00 a barrel level is offering some short-term support for oil. I wouldn't count on oil holding above $30 though.

In the U.S. we have the Federal Reserve that has begun a rate-hiking cycle seemingly at the wrong time as the U.S. economy slows down. The Atlanta Fed's Q4 GDP growth estimates have fallen to +0.8%. Meanwhile corporate earnings are forecasted to be negative for the second quarter in a row, which would be an "earnings recession" in the U.S.

All of these ingredients have come together in a bearish recipe to send stocks lower. Eventually stocks will bounce. The tone on Wall Street today felt "a little panicky" according to some market watchers. We could be getting close to a bottom (at least a short-term bottom). Tonight we are going to try and pick a trade to catch the bottom. This is typically called "catching a falling knife" and can be hazardous to your trading account. Consider this an aggressive, higher-risk trade. I suggest small positions to limit risk.

The SPY has potential support in the $187.00 area and again in the $182 region. I'm looking at a buy-the-dip trade near the lower level. The October 2014 low in the SPY was $181.92. The August intraday low was $182.40.

Position 1/19/16:
Long March $195 call @ $3.55, initial stop loss $184.90




STZ - Constellation Brands

Company Description

Comments:
01/16/16: The STZ play was triggered when the stock moved through the trigger at $144.05 early on Tuesday. The stock posted a $2.87 gain in a very choppy market. That relative strength suggests we could have a winning play if the market cooperates.

Original Trade Description: January 14, 2016:
STZ was one of last year's best performing stocks with +45% gains in 2015. Consistently raising earnings and revenue guidance can do that for a stock. The company is seeing so much demand for their beer products that STZ just announced they're building a huge new brewery in Mexico. Meanwhile their wine and spirits business is seeing stronger margins due to recent acquisitions. Overall STZ is moving into 2016 with the wind at its back.

STZ is in the consumer goods sector. According to the company, "Constellation Brands is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world's leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company's premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky... Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,700 talented employees."

STZ has been killing it on the earnings front. They have beaten earnings the last three quarters in a row. Management has raised their guidance the last three quarters in a row. Their most recent earnings report was last week on January 7th. Analysts were expecting a profit of $1.30 a share on revenues of $1.62 billion. STZ beat estimates with a profit of $1.42 a shares. Revenues were up +6.4% to $1.64 billion. Strong beer sales has helped fuel double-digit shipment increases. The company announced they were building another brewery and raised their guidance again.

This bullish outlook sparked a couple of new price target upgrades ($172, $174 and $185). The stock soared to new highs and broke through key resistance near the $145.00 level on its earnings news and guidance. Shares have seen some profit taking since its spike to new highs. Now STZ is near support at one of its long-term trend lines of higher lows. The simple 50-dma should offer technical support at $140.40. Meanwhile the $140.00 level could offer some round-number, psychological support. Both of these are converging near its trend line of higher highs.

STZ underperformed the market today, which may mean more profit taking ahead. We want to buy calls on STZ as it nears support in the $140.00-140.50 area. Tonight we are listing a buy-the-dip trigger at $140.50 with a stop loss $138.25, just under its early January low.

Position 1/19/16:
Long April $150 Call @ $4.70, initial stop loss $138.25




Original Put Recommendations (Alpha by Symbol)


VXX - iPath S&P 500 VIX Futures ETN

Company Description

Comments:
01/16/16: The VXX opened slightly lower but rallied intraday as the market crashed. By day's end the VXX settled back to only a penny gain. This ETF can be volatile but once the market calms it should drop like a rock.

Original Trade Description: January 16th
At the risk of stating the obvious, the last two weeks in stocks have been brutal. Investors have taken a risk-off attitude and sold just about everything. The small cap Russell 2000 index is already down -11% in the first ten trading days of 2016. The NASDAQ composite is off -10%. The S&P 500 has declined -8%.

The new year has suffered a parade of negative headlines from disappointing economic data both in the U.S. and China. China devaluating its currency. N. Korea claiming to have hydrogen bombs (several times worse than normal nukes). Crude oil crashing into multi-year lows. Plus falling sentiment for corporate earnings, which are expected to be negative two quarters in a row.

No one wanted to be long over the three-day weekend, which helped drive stocks even lower on Friday. The S&P 500 dipped to 15-month lows before paring its losses on Friday. The fact that Friday was also options expiration just added to the volatility.

Stocks normally don't move that fast in a straight line for very long. Markets a very oversold and way overdue for a bounce. The rebound could show up this week. One way to play it is the volatility indices. The VXX follows the iPath S&P 500 VIX Short-Term Futures Index. When investors panic volatility spikes but these are almost always short-term events. You can see on the long-term weekly chart below these spikes always fade.

Tonight we are suggesting put options on the VXX to capture the decline as volatility fades again and it will sooner or later. We are betting on sooner. We want to buy the March $23 puts at the opening bell on Tuesday.

Position 1/19/16:
Long March $23 Put @ $2.41, no stop loss