Option Investor
Newsletter

Daily Newsletter, Monday, 12/14/2015

Table of Contents

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

Market Wrap

FOMC WEEK!

by Thomas Hughes

Click here to email Thomas Hughes
The December FOMC meeting is at hand; Will they raise rates or not . . . and will the market be happy about it?

Introduction

Anticipation for Wednesday's FOMC meeting and wild swings in oil prices drove today's session. The indices, like oil, experienced some large swings as traders position for a possible rate hike on Wednesday and options expiration on Friday.

The global markets saw some indecision but did not have an overly large impact on our market. In Asia, Japanese and Hong Kong markets were down in the range of -1% while the mainland Shanghai index rose more than 2.5% in a day of trading that saw intraday losses greater than -5%. European indices began the day with gains but the plunge in oil sparked a sell-off that carried down by roughly -2% by days end.

Market Statistics

Futures trading indicated a sharply higher open, greater than 1%, during the earliest part of the electronic session. This did not last long as oil prices fell hard throughout the morning and pulled the trade back down to break even levels. Break even held until the opening bell at which time a half hour of churning back and forth across the 0% line was followed by a short sell-off. Lows were hit shortly after 11:30AM with losses near -0.8% for the broad market.

Going into the noon hour bulls began to regain control and sent the indices up to test their earlier high, just above last week's closing price. The highs did not hold and the market drift back to the flat line. Afternoon trading was nothing but chop and churn around break even with a late day rally which took the broad market to the highs of the day just before the close of the session.

Economic Calendar

The Economy

No economic data today. Tomorrow look out for Long Term Tic Flows, CPI, Empire Manufacturing and the NAHB Housing Market Index. Wednesday is Building Permits, Housing Starts, Industrial Production, Crude Inventory and the FOMC meeting. Thursday Initial Claims, Philly Fed and Leading Indicators and Natural Gas round out the week, there are no reports on Friday.

The event most important to the market is the FOMC meeting on Wednesday. They are largely expected to raise rates for the first time since the financial crisis and likely spark some market movement. Along with policy, indications of future increases will be very important.

Moody's Survey Of Business Confidence bounced back from a long term low this week. The index gained 0.8% to hit 33.8, snapping a three month slide that began over the summer when China's financial turmoil hit a crescendo. Despite slipping from it's high, the index is still strong relative to historical data with positive forward outlook.


According to Factset the expected rate of earnings growth for the S&P 500 in the 4th quarter is -4.4%. This is down -0.1% from last week and extends a 3 month slide in expectation. If earnings come in negative it will be the first three quarter period of negative growth since 2009. To date, 83 companies have given negative guidance, above average and possibly setting us up for another season of better than expected earnings. So far 3 companies have reported for the 4th quarter; 2 beat on earnings and 2 beat on revenue so we're off to a decent start so far. 10 more report this week.

I've started some new tables. I'm going to track earnings growth outlook and the blended rate of earnings growth for each upcoming quarter and the coming year for the S&P 500. I've been expecting us to come out of a trough in earnings growth and I think this will help pinpoint it.


2016 expectations remain positive although they have been falling. First quarter earnings growth is now projected at 1.7%, down -0.3% from last week and well off the 4.9% predicted at the beginning of October. Full year expectations are for growth of 7.9%, down -0.2% from last week but up 0.1% from the low set two weeks ago. It is possible that growth expectations for next year have bottomed but I think it is a little early to make that call.


The Oil Index

Oil prices played a big role in today's market action. WTI fell hard in early trading, losing close to -3%, only to bounce back and gain 2% by settlement time. Today's lows hit a near 11 year low so today's move may have been simple profit taking. The supply/demand situation has not fundamentally changed so any rally remains suspect at this point.

The Oil Index hit a new low today as well, and bounced back to regain the losses. Today's candle has a small body and long shadows so shows some indecision but the near term trend remains down. The indicators are both pointing lower with first target for support near 1,025. Oil prices may have hit bottom but they are still at bottom, dragging on earnings outlook and dragging this index back to test support. S&P 500 energy sector earnings growth expectations have fallen for the fourth quarter and full year 2016. Fourth quarter 2015 fell to -65.4 from -60.1%. Full year 2016 growth has fallen to -1.6% from just below 1% last week.


The Gold Index

Gold prices are calling for a rate hike, falling just over -1.0% in today's session. With this in mind the possibility of a snap-back rally in gold becomes a growing possibility. Any negative surprise from the FOMC, even only meeting expectations, could easily spark knee-jerk reaction and short covering in the near term. Longer term, fundamentals remain skewed toward dollar strength; the FOMC is at the beginning of a tightening cycle, the ECB and BOJ are still easing. Support target is near $1,050 with possible resistance near $1,085.

The gold miners fell in tandem with the underlying metal. The Gold Miners ETF GDX lost more than -5%, perhaps succumbing to the idea that even gold prices snap back they will remain low for a while. Today's candle is long and black, the largest move in about 6 weeks and broke below the short term moving average. This, along with the indicators, suggest it will return to test support near $13 if not move below, depending of course on the FOMC and the dollar. Support is possibly very strong along this level, it is the all time low and has been tested 6 times in 5 months.


In The News, Story Stocks and Earnings

Not much in terms of earnings reports today but one interesting name popped up, Quanex. Quanex is a small cap building products company making pre-fab engineered building products ranging from windows and doors to wood and vinyl products and coated aluminum sheeting. The company beat earnings expectations and expanded guidance on growth of business and acquisitions. Current quarter EPS of $0.29 beat consensus estimates by $0.03 and last years comparable results of $0.08. Full year 2016 guidance of $1 billion beats estimates by $0.08 billion. Shares of the stock jumped more than 1% in the pre-market, surged 8% in the open session and then fell back to break even by the close.


I thought Quanex was interesting as a possible insight into the home builders and home building sector in general. The SPDR Home Builders ETF fell more than -1.25% to set a new 2.5 month low. The ETF has been under pressure all year and now trading near the bottom of the 12 month range. The indicators are bearish and pointing lower so a test of support looks very likely. First target is near $33.50 with $33 next target on a break through. Support is likely to be fairly strong even though the housing sector isn't exactly booming. Construction spending has been expanding all year, driven by tight supply, and is expected to continue in 2016. Looking out to next year the construction segment is expected to see growth of 7% and could beat this if labor and housing trends continue to show improvement.


Boeing announced, after the bell, an increase to the buy back and a hike to the dividend. The buy back increases the ongoing repurchase plan by $2 billion. Buying activity has been suspended but is expected to resume in January. The dividend increase is 20% and brings quarterly distribution to $1.09 per share.


The VIX has begun to spike but may have already topped out. Today's action saw a rise in volatility that quickly faded, creating a large black candle with long upper shadow indicative of resistance at the $25 level. The indicators are on the rise but very weak compared to past peaks so this spike doesn't appear to be too strong and consistent with resistance. If the Fed doesn't scare the market on Wednesday this could signal the start of a rally.


The Indices

Today the indices touched potential support levels, ahead of the Fed, and bounced back. Action was mostly what I would call churn but resulted in candles with long lower shadows for most of the indices. Although most closed with gains one, this year's laggard, did not. The Dow Jones Transportation Average closed with a loss of -0.47% and now trading and set a new long term low. The good news is that the long lower shadow indicates support at this level with a close above the previous low, the bad news is that indicators are both pointing lower so support could be tested further. If support fails next target is near 7,250.


The largest gainer in today's session was the Dow Jones Industrial Average. The blue chips posted an increase of 0.60% after moving down to test support at 17,250. The indicators remain bearish so further testing of support could happen, they are weak so current support levels appear strong. A bounce would find potential resistance at 17,500 while a break through support could take the index down to 16,750 and the long term up trend line.


The S&P 500 made the next largest gain in today's session, just shy of 0.5%, after shedding nearly -1% and testing support at 2,000. The indicators are still moving lower so an additional test of support could come but they are also divergent from the new low and consistent with support. The long term trend is up and this move appears to be confirming support along those levels.


The NASDAQ Composite made the smallest gain in today's session, only 0.38%. The tech heavy index also moved down to test support, found it, and created a candle with long lower shadow. Support appear to be along the 4,900 level with a chance for it to be tested again. The indicators are pointing lower, consistent with lower prices, but weak when compared to past prices so also consistent with support at these levels.


Today's action looks promising for us bulls but in the end is more churning market wind up as we prepare for the FOMC meeting announcement on Wednesday. I expect a rate hike this week and at least a hint of when to expect the next one. How the market reacts is anybodies guess but I think it is discounted by now. I remain bullish and looking to buy on the dips, cautious of the Fed, and looking for signs of increasing earnings expectations for the 4th quarter of 2015 and all of 2016.

Until then, remember the trend!

Thomas Hughes

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New Plays

The Trend Has Reversed For This Tech Stock

by James Brown

Click here to email James Brown


NEW BULLISH Plays

SolarEdge Technologies - SEDG - close: 20.97 change: +1.07

Stop Loss: 18.80
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 14, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 790 thousand
New Positions: Yes, see below

Company Description

Trade Description:
The world is changing. Over the weekend 195 countries signed a pledge to help cut greenhouse gas emissions and stall global warming. It doesn't matter if you're a climate change skeptic or a diehard supporter, governments are going to implement policies that change how we consume energy. It should be bullish for solar energy companies.

SEDG is in the technology sector. They're considered part of the semiconductor industry. According to the company, "SolarEdge provides an intelligent inverter solution that has changed the way power is harvested and managed in solar photovoltaic systems. The SolarEdge DC optimized inverter system maximizes power generation at the individual PV module-level while lowering the cost of energy produced by the solar PV system. The SolarEdge system consists of power optimizers, inverters and a cloud-based monitoring platform and addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations."

The company is growing fast. Their Q2 results, announced on August 12th, beat estimates on both the top and bottom line. Revenues were up +120% from the prior year and management raised their Q3 guidance.

Q3 results were announced on November 4th. Analysts were expecting a profit of $0.29 a share on revenues of $110 million. SEDG beat both estimates. Earnings were $0.36 a share. Revenues were up +16.9% from the prior quarter and up +71.8% from a year ago to $115.1 million. Gross margins improved from 28.7% in Q2 to 29.1% in Q3.

Guy Sella, the founder, Chairman, and CEO of SolarEdge, commented on their quarter, "We are very satisfied with another strong quarter of record revenues and improved gross margins. In addition to our very positive financial results, this quarter we introduced our new HD Wave inverter topology, demonstrating our technological leadership in the market. We are confident that our global presence and expanded product offering position us well for continued growth." Management then raised their full-year 2015 revenue guidance.

The stock appears to have bottomed with the lows in the $15-16 area. The last few weeks have seen the trend reverse higher with a pattern of higher lows and higher highs. Shares recently broke through significant resistance at $20.00, at its 50-dma, and its trend line of lower highs. The point & figure chart is bullish and forecasting at $27.00 target.

The stock displayed relative strength today. We are suggesting a trigger to launch small bullish positions at $21.20. SEDG has been volatile in the past. I consider this a more aggressive, higher-risk trade.

Trigger @ $21.20

- Suggested Positions -

Buy SEDG stock @ $21.20

- (or for more adventurous traders, try this option) -

Buy the MAR $25 CALL (SEDG160318C25) current ask $1.95
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

Solar Stocks Shine On Monday

by James Brown

Click here to email James Brown

Editor's Note:
Solar energy stocks were a bright spot in the market on Monday following the Paris climate deal achieved over the weekend. Meanwhile most of the market managed an oversold bounce but small caps continue to underperform.

SCTY hit our entry trigger.
NTGR and YELP were stopped out.


Current Portfolio:


BULLISH Play Updates

Activision Blizzard, Inc. - ATVI - close: 37.96 change: +0.74

Stop Loss: 36.40
Target(s): To Be Determined
Current Gain/Loss: -0.5%
Entry on December 04 at $38.15
Listed on December 03, 2015
Time Frame: Exit prior to ATVI earnings in early February
Average Daily Volume = 10.0 million
New Positions: Yes, see below

Comments:
12/14/15: ATVI bounced right on cue. Friday's decline saw shares fall toward their trend line of support. Traders took advantage of the dip and ATVI outperformed the market today with a +1.9% gain.

Trade Description: December 3, 2015
The movie industry gets a lot of press but the video game market is much bigger. One of the biggest companies in this arena is ATVI and they're about to get a lot bigger.

ATVI is part of the technology sector. According to the company, "Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, Call of Duty Online, Destiny, Skylanders, World of Warcraft, StarCraft®, Diablo®, and Hearthstone. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world."

Revenues for a video game company like ATVI tend to be lumpy based on new releases throughout the year. The company has managed to beat Wall Street's estimates on the bottom line the last four quarters in a row.

On November 2nd, 2015, ATVI announced they had signed a $5.9 billion deal to buy King Digital Entertainment (symbol: KING). This deal should give ATVI a huge boost in its mobile gaming footprint and could add a significant chunk to earnings in 2016. A Wedbush analyst believes the mobile gaming market is about $24 billion and growing at up to 20% a year for the next five years. They see the KING acquisition as a great fit for ATVI.

Several days later, on November 11th, ATVI announced that their new Call of Duty: Black Ops III game was the biggest entertainment launch of the year with a three-day opening weekend sales above $550 million. That surpassed any other entertainment launch of the year including books, music, or movies (surpassing the movie Jurassic World's massive opening weekend).

Recently a Cowen analyst said videogames are going to be another hot seller this year and they listed ATVI as their top pick in the industry. Multiple analysts have upgraded their stock price on ATVI following the KING acquisition news. Shares of ATVI have shown significant strength this year. The stock is trading at all-time highs and up +86% year to date. The point & figure chart is bullish and forecasting at $49.50 target.

Today's widespread market decline sparked some profit taking in ATVI. The stock found support at its rising 10-dma. If shares bounce from here we want to jump on board. Tonight we are suggesting a trigger to launch bullish positions at $38.15.

- Suggested Positions -

Long ATVI stock @ $38.15

- (or for more adventurous traders, try this option) -

Long FEB $40 CALL (ATVI160219C40) entry $1.47

12/04/15 triggered @ $38.15
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 111.11 change: -0.80

Stop Loss: 111.45
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 12, 2015
Time Frame: 4 to 8 weeks
Option traders: exit prior to January option expiration
Average Daily Volume = 36 million
New Positions: Yes, see below

Comments:
12/14/15: Small caps continued to underperform the market today. The IWM fell to $110.28 at its intraday low today. The ETF ended the session down another -0.7%. Currently I don't see any changes from the weekend new play description. Wait for the rebound.

Trade Description: December 12, 2015:
Stocks were hammered last week. The small caps really underperformed with the Russell 2000 small cap index plunging 60 points or -5%. The last two weeks have seen an 80-point drop (-6.7%) in the $RUT.

Last week's sell-off looks pretty ugly especially with Friday's breakdown below short-term support near 1,140 on the $RUT index. We think the weakness is overdone.

Normally the middle of December sees some tax-loss selling ahead of yearend. Last week the tax-loss selling was exacerbated by serious weakness in crude oil. Oil's plunge to new seven-year lows crushed the energy sector. There is also some general uneasiness about the Fed's likely decision to raise rates in the week ahead.

Historically the mid-December dip is a buying opportunity. The next two or three weeks is typically bullish and small caps often outperform. We want to be ready if that happens. One way to play the small caps is the Russell 2000 ETF, the IWM.

Friday saw the IWM sink -2.2% to close at $111.91. Tonight we are suggesting a trigger to launch bullish positions at $112.65. If triggered we'll try and limit our risk with a tight stop loss at $111.45, just under Friday's low.

Trigger @ $112.65

- Suggested Positions -

Buy the IWM @ $112.65

- (or for more adventurous traders, try this option) -

Buy the JAN $115 CALL (IWM160115C115)

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


Microsoft Inc. - MSFT - close: 55.14 change: +1.08

Stop Loss: 53.20
Target(s): To Be Determined
Current Gain/Loss: +1.0%
Entry on November 04 at $54.60
Listed on November 03, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 35.4 million
New Positions: see below

Comments:
12/14/15: MSFT investors were definitely in a buy-the-dip mood today. Shares briefly traded down to $53.68 and then reversed sharply higher. MSFT ended the session with a +1.99% gain. I would consider new positions at current levels. More conservative traders might want to wait for a little follow through higher and launch positions on a new rally above $55.35 instead.

Trade Description: November 3, 2015:
MSFT is more than just a software company. MSFT is in the technology sector. It is considered part of the business software industry. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company is run under three segments. They have their productivity and business processes segment. This includes commercial office software, personal office software, and more. One of their fastest growing segments is MSFT's Intelligent Cloud business, which includes their server software and enterprise services. Then they have their "More Personal Computing" segment. This includes their Windows operating software, MSN display advertising, Windows phones, smartphones, tablets, PC accessories, Internet search, and their Xbox platform.

The stock has been dead money for almost a year. MSFT peaked near round-number resistance at $50.00 back in November 2014. Shares channeled sideways between support at $40 and resistance at $50 for months. That changed last month.

MSFT reported its 2016 Q1 results on October 22nd. Analysts were expecting a profit of $0.59 a share on revenues of $21.04 billion. MSFT beat both estimates with a profit of $0.67 a share. Revenues came in at $21.66 billion. Their Intelligent Cloud segment saw sales rise +8% but it was actually +14% on a constant currency basis.

Shares of MSFT soared the next day with a surge to 15-year highs. The big rally is based on investors' belief that MSFT and its relatively new management is successfully transitioning away from declining PC sales and moving quickly towards the cloud (and mobile).

Normally I would hesitate to buy a stock like MSFT after a big gap higher. Too often stocks tend to fill the gap. However, shares of MSFT have been able to levitate sideways in the $52.50-54.50 zone as traders keep buying the dips. Odds are growing we could see MSFT rally toward its all-time highs near $60.00 a share from December 1999. The big gain in October produced a buy signal on the point & figure chart, which is now forecasting a long-term target of $82.00. Tonight we are suggesting a trigger to launch bullish positions at $54.60.

- Suggested Positions -

Long MSFT stock @ $54.60

- (or for more adventurous traders, try this option) -

Long 2016 JAN $55 CALL (MSFT160115C55) entry $1.54

12/01/15 new stop @ $53.20
11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike


Starbucks Corp. - SBUX - close: 59.92 change: +0.10

Stop Loss: 58.45
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 08, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 8.8 million
New Positions: Yes, see below

Comments:
12/14/15: SBUX dipped to technical support at its rising 100-dma and bounced. The rebound was a little bit disappointing. Shares ended the session with a +0.1% gain versus the S&P 500's +0.4% rise and the NASDAQ's +0.38% bounce.

Currently we are suggesting a trigger to launch bullish positions at $60.45. SBUX should be able to hit that trigger tomorrow if stocks continue to bounce on Tuesday.

Please note that I am adjusting our stop loss to $58.45.

Trade Description: December 8, 2015:
Do you know someone giving or getting a Starbucks gift card for the holidays this year? Odds are you do (see below). The recent action in SBUX looks like another bullish entry point.

We have traded SBUX more than once this year. Here is an updated play description and entry point on the stock:

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. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 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.

Sales Growth:

SBUX is a big company and yet they continue to deliver strong earnings and revenue growth. Their Q2 2015 results, released in April, saw revenues up +17.8%. Q3 results, announced in July, saw revenues up +17.5%. Their Q4 results were announced on October 29th. Revenues grew +17.5% again. The company has been killing it with strong same-store sales. Q1's global same-store sales were +7%. Q2's same-store sales were also +7%. Q3's rose to +8%. What's impressive is SBUX is able to deliver this sort of sales growth in spite of the strong dollar and its negative foreign currency impact.

SBUX management provided guidance for Q1 2016 with earnings just below analysts' estimates. They still see double-digit revenue growth next year. The company plans to open about 1,800 new locations in fiscal 2016.

SBUX continues to build out their technology improvements. They see millions of orders a week on their mobile transactions platform. Currently they are testing a delivery service in Seattle.

It's also worth mentioning that the holiday season is normally a strong one for SBUX. Last year one in seven Americans received a Starbucks gift card.

We should also note that there is currently an E. Coli scare going around. Chipotle (CMG) is getting hammered on this story. Other companies like Costco and Starbucks have also had issues with E. Coli in a few products recently but thus far the impact has been very limited for SBUX.

Technically SBUX is in an up trend. It is also one of the best performing stocks in the S&P 500 this year with SBUX up +50% year to date. The point & figure chart is forecasting at $68.00 target. The stock peaked in late October and has spent the last few weeks consolidating sideways. The dips below $60 found support near prior resistance and now SBUX has built a potential bullish double bottom pattern. Tonight we are suggesting a trigger to launch bullish positions at $62.65.

Trigger @ $60.45

- Suggested Positions -

Buy SBUX stock @ $60.45

- (or for more adventurous traders, try this option) -

Buy the FEB $65 CALL (SBUX160219C65)

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.

12/14/15 adjust stop loss to $58.45
12/12/15 Entry adjustment - move the trigger from $62.65 to $60.45. Adjust the stop loss down to $58.65.
Option Format: symbol-year-month-day-call-strike


SolarCity Corp. - SCTY - close: 41.59 change: +4.55

Stop Loss: 35.85
Target(s): To Be Determined
Current Gain/Loss: +9.0%
Entry on December 14 at $38.15
Listed on December 12, 2015
Time Frame: 6 to 8 weeks
Option traders: Exit prior to January option expiration
Average Daily Volume = 3.7 million
New Positions: see below

Comments:
12/14/15: SCTY surged off the starting blocks this morning. Shares got their second wind midday and the stock ended Monday's session with a +12.2% gain. The breakout through resistance at $38.00 and $40.00 is impressive.

Today's rally could be a reaction to the Paris climate deal reached over the weekend. There is also movement in Washington to extend some of the solar and wind tax credits. Both headlines are bullish for solar companies like SCTY.

The breakout past resistance sparked some short covering as expected. Our trigger to launch positions was hit at $38.15. I would not chase it here. We are moving the stop loss to $35.85.

Trade Description: December 12, 2015:
If you looked at the news this weekend then you probably noticed the headlines regarding the COP 21 UN climate change conference in Paris. Almost 200 countries signed the pledge to help fight global warming. It's a long road from promises to implementation and enforcement but it does signal a big step away from burning fossil fuels in the future. That should bode well for solar power stocks.

SCTY is in the technology sector. Officially it's part of the semiconductor industry. They bill themselves as "America's #1 full-service solar provider." According to the company, "SolarCity® provides clean energy. The company has disrupted the century-old energy industry by providing renewable electricity directly to homeowners, businesses and government organizations for less than they spend on utility bills. SolarCity gives customers control of their energy costs to protect them from rising rates. The company makes solar energy easy by taking care of everything from design and permitting to monitoring and maintenance. SolarCity currently serves 19 states."

The earnings picture is improving. Their most recent earnings report was October 29th. SCTY reported their Q3 results. Wall Street was expecting a loss of ($1.94) a share on revenues of $111.4 million. SCTY blew away the EPS estimate with a loss of just ($0.20) a share. Revenues were up +95% to $113.85 million.

The company provided bullish guidance. They see Q4 installations up +58-69% over a year ago. They introduced 2016 guidance of +40% growth for full-year installations. They have also driven their cost per watt to a new low of $2.84. The company is focused on reducing overall costs even more.

The stock initially sold off on this news but shares bottomed in mid November near $25.00. That looks like a bottom with shares of SCTY up four weeks in a row now. Currently SCTY is hovering near its 50-dma and just below resistance near $38.00. A rally above $38.00 will produce a new buy signal on the point & figure chart. It could also spark some short covering.

The most recent data listed short interest at 54% of the 50 million share float. That's plenty of fuel for a short squeeze. I wouldn't be surprised to see SCTY rally into the $45-50 zone. Tonight we are suggesting a trigger to launch small bullish positions at $38.15. We want to keep positions small to limit risk because SCTY is a volatile stock. This should be considered a higher-risk, more aggressive trade.

*small positions to limit risk* - Suggested Positions -

Long SCTY stock @ $38.15

- (or for more adventurous traders, try this option) -

Long JAN $40 CALL (SCTY160115C40) entry $2.78

12/14/15 triggered @ $38.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Columbia Sportswear - COLM - close: 44.01 change: -0.90

Stop Loss: 48.05
Target(s): To Be Determined
Current Gain/Loss: +1.7%
Entry on December 08 at $44.75
Listed on December 07, 2015
Time Frame: Exit prior to earnings in February
Option traders exit prior to January expiration
Average Daily Volume = 284 thousand
New Positions: see below

Comments:
12/14/15: COLM's rally attempt failed. Shares reversed lower and underperformed the market with a -2.0% decline. I would use today's move as a new bearish entry point.

Trade Description: December 7, 2015:
The pace of consumer spending has been disappointing this year. Overall retail sales have been slow. Plus the warmer weather has been a major set back for outerwear and winter clothing a lot of retailers are dealing with high levels of unsold inventory.

COLM is in the consumer goods sector. According to the company "Columbia Sportswear Company has assembled a portfolio of brands that connect active people with their passions, making it a leader in the global active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company's brands are today sold in approximately 100 countries. In addition to the Columbia® brand, Columbia Sportswear Company also owns the Sorel®, Mountain Hardwear®, prAna®, Montrail® and OutDry® brands."

Bullish COLM investors have got to be frustrated. It's true that a lot of retailers have struggled. Yet COLM has had pretty good results this year. Their Q4 report from 2014, announced in February, was above estimates and management raised guidance. The stock soared on the bullish report and guidance.

Their Q1 results, on April 30th, beat estimates and guidance was in-line. Then on July 30th, COLM reported their Q2 results. Again earnings and revenues beat estimates by a wide margin. Management raised their guidance again. Shares of COLM exploded to new all-time highs and almost hit $75.00. That has proven to be the peak.

Since COLM's report in July the market has begun selling COLM's stock. The up trend reversed with COLM sinking under a bearish pattern of lower highs and lower lows. They reported their Q3 results on October 29th. They beat estimates again and raised their full-year guidance. The stock gapped higher nearly $10 the next day only to reverse lower.

Dick's Sporting Goods (DKS) really shook up the retail industry when they reported their earnings on November 17th. DKS missed Wall Street estimates on both the top and bottom line and DKS guided lower. The company blamed warm fall weather on their disappointing results. DKS also warned that Q4 would likely be very promotional, which would hurt margins. A few days later Bank of America Merrill Lynch downgraded COLM from "buy" to "neutral" over similar worries.

Technically COLM is in a bear market. The point & figure chart is forecasting at $36.00 target. COLM bounced off the $45.00 level in November. That bounce has failed. Now shares are about to breakdown under key support at $45.00. We are suggesting a trigger to launch bearish positions at $44.75.

- Suggested Positions -

Short COLM stock @ $44.75

- (or for more adventurous traders, try this option) -

Long JAN $45 PUT (COLM160115P45) entry $2.80

12/08/15 triggered @ $44.75
Option Format: symbol-year-month-day-call-strike


GameStop Corp. - GME - close: 30.27 change: +0.27

Stop Loss: 32.25
Target(s): To Be Determined
Current Gain/Loss: -0.2%
Entry on December 11 at $30.22
Listed on December 10, 2015
Time Frame: 6 to 8 weeks
Option traders exit prior to January expiration
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
12/14/15: After huge declines last week I'm not surprised to see a bit of a bounce in GME today. Shares spent most of the day consolidating sideways on either side of the $30.00 mark.

No new positions at this time.

Trade Description: December 10, 2015:
The future of video game purchases is digital downloads. That is why shares of GME have struggled the last couple of years. Their retail business model is in serious jeopardy.

GME is in the services sector. According to the company, "GameStop Corp., a Fortune 500 and S&P 500 company headquartered in Grapevine, Texas, is a global, multichannel video game, consumer electronics and wireless services retailer. GameStop operates more than 6,800 stores across 14 countries. The company's consumer product network also includes www.gamestop.com; www.Kongregate.com, a leading browser-based game site; Game Informer® magazine, the world's leading print and digital video game publication and the recently acquired Geeknet, Inc., parent company of ThinkGeek, www.thinkgeek.com, the premier retailer for the global geek community featuring exclusive and unique video game and pop culture products. In addition, our Technology Brands segment includes Simply Mac and Spring Mobile stores. Simply Mac, www.simplymac.com, operates 72 stores, selling the full line of Apple products, including laptops, tablets, and smartphones and offering Apple certified warranty and repair services. Spring Mobile, http://springmobile.com, sells post-paid AT&T services and wireless products through its 590 AT&T branded stores and offers pre-paid wireless services, devices and related accessories through its 69 Cricket branded stores in select markets in the U.S."

The company's earnings results have been mixed. Their Q2 report, announced on August 27th, came in better than expected. GME beat analysts' estimates on both the top and bottom line. Management raised their 2016 guidance. Guess what? Traders sold the news anyway.

Fast-forward to November. The stock has already reversed under major resistance near $48 again. Shares plunge on November 13th following an analyst downgrade. Ten days later GME reports their Q3 earnings results. Their profit was $0.54 a share. Not only is that 5% decline from a year ago but it's five cents below estimates. Revenues were down -3.6% to $2.02 billion, another miss. Hardware sales plunged -20% in the third quarter. Software sales were down -9%. GME's comparable store sales fell -1.1%, which was below guidance. If that wasn't enough management lowered their Q4 guidance below Wall Street estimates. Following this Q3 report the stock garnered several analyst downgrades.

One of GME's biggest challenges is digital downloads where customers do not have to leave their home (or dorm room) to purchase new games. They can just purchase it online over the Internet and have it immediately downloaded and start gaming. Not only does this jeopardize GME's new game sales but it also hurts a major portion of their business, which is reselling used games. If fewer people are buying hard copy discs of their video games then that means fewer people selling their used games back to GME, which the company resells at a healthy margin.

The trend of digital downloads started years ago but they are growing in popularity. The bearish story on GME is not a secret. That's probably the biggest risk. There are already a lot of bears in the name. The most recent data listed short interest at 53% of the 103 million share float. That much short interest can make the stock volatile to any potentially positive headlines. I think the bears are right and GME is headed lower as their business continues to struggle.

Another risk is valuation. The stock has fallen -33% in the last few weeks. Most of the analyst action in GME has been bearish with several downgrades. The stock currently trades with a P/E around 8.6. Eventually some analyst firm might decide to upgrade it on a valuation basis and the stock could see a short-term rally on this sort of headline. Fortunately traders usually sell the rallies in GME.

Currently GME is flirting with a breakdown below major support in the $31.50-32.00 area. A breakdown here could see the current downtrend accelerate. The point & figure chart is bearish and forecasting at $19.00 target. Tonight we are suggesting a trigger to open bearish positions at $31.40. Please note that this is an aggressive, higher-risk trade. GME can be a volatile stock. I am removing our normal entry point disclaimer regarding gap downs. Due to potential volatility traders may want to use the options instead of trying to short the stock. I am listing the January puts. You might want to consider the April puts (next available month).

- Suggested Positions -

Short GME stock @ $30.22

- (or for more adventurous traders, try this option) -

Long JAN $30 PUT (GME160115P30) entry $2.44

12/11/15 triggered on gap down at $30.22, suggested entry was $31.40
Option Format: symbol-year-month-day-call-strike


Harley-Davidson, Inc. - HOG - close: 45.53 change: -0.10

Stop Loss: 48.25
Target(s): To Be Determined
Current Gain/Loss: +0.5%
Entry on December 11 at $45.75
Listed on December 09, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 3.15 million
New Positions: see below

Comments:
12/14/15: Most of the market produced an oversold bounce on Monday. HOG tried to bounce but it failed near the $46.00 level. I would consider new bearish positions at current levels.

Trade Description: December 9, 2015:
HOG was a big winner during the market's rally off the 2009 bear-market low. Shares surged from about $8 in early 2009 to over $74.00 in 2014. Unfortunately that bullish momentum is long gone.

HOG is in the consumer goods sector. According to the company, "Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services. Since 1903, Harley-Davidson Motor Company has fulfilled dreams of personal freedom with custom, cruiser and touring motorcycles, riding experiences and events and a complete line of Harley-Davidson motorcycle parts, accessories, general merchandise, riding gear and apparel. Harley-Davidson Financial Services provides wholesale and retail financing, insurance, extended service and other protection plans and credit card programs to Harley-Davidson dealers and riders in the U.S., Canada and other select international markets."

The company has seen sales slow down. Their most recent earnings report was October 20th. Q3 earnings growth was flat (+0%) from a year ago at $0.69 a share. That missed estimates by 8 cents. Revenues only rose +0.9% to $1.14 billion, which also missed estimates. The company said their dealer new motorcycle sales were down -1.4% worldwide from a year ago. Their U.S. sales fell -2.5%. Shipments came in below guidance.

Matt Levatich, President and Chief Executive Officer, said, "We expect a heightened competitive environment to continue for the foreseeable future." The company lowered their shipment guidance for 2015. They also lowered their margin guidance. The stock reacted with a big drop on the earnings miss and lowered guidance. Multiple analyst firms downgraded the stock in response to the news.

Technically HOG is in a bear market. Shares have a bearish trend of lower highs and lower lows. HOG spent most of November struggling with resistance at $50.00. The recent weakness has pushed shares to new two-year lows. The next drop could push HOG toward $40 or lower. Tonight we are suggesting a trigger to launch bearish positions at $45.75.

My biggest concern is some analyst deciding that HOG looks "cheap" on valuation. At this point HOG could be a value trap. Cheap stocks can always get cheaper.

- Suggested Positions -

Short HOG stock @ $45.75

- (or for more adventurous traders, try this option) -

Long FEB $45 PUT (HOG160219P45) entry $2.59

12/11/15 triggered @ $45.75
Option Format: symbol-year-month-day-call-strike


Leucadia National Corp. - LUK - close: 16.08 change: -0.55

Stop Loss: 17.16
Target(s): To Be Determined
Current Gain/Loss: +9.2%
Entry on November 30 at $17.70
Listed on November 28, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
12/14/15: The sell-off in LUK accelerated on Monday with a -3.3% decline. That's on top of Friday's -3.4% drop. Tonight we are adjusting the stop loss down to $17.16.

No new positions at this time.

Trade Description: November 28, 2015:
Investors appear to have soured on shares of LUK. The stock is down -20% year to date but it's off -29% from its July 2015 highs. LUK just ended the week at new five-year lows.

LUK is considered part of the financial sector. One of their biggest businesses is their Jefferies Group investment brokerage. Jefferies is only one in a long list of companies that LUK owns. You could argue LUK is more of a holding company or a conglomerate and a very diverse one at that.

Here's a list of some of LUK's businesses:
Berkadia, a full-service mortgage bank
FXCM, an online foreign exchange trading platform (NYSE:FXCM)
HomeFed, a real estate developer (65% owned by LUK)
Foursight Capital, an Auto loan originator and servicer
Leucadia Asset Management, a diversified alternative asset management platform
Folger Hill, a multi-manager discretionary long/short equity hedge fund platform
Topwater Capital, a highly-scalable multi-manager and multi-strategy liquid securities fund
Jefferies, a leading, client-focused global investment banking firm
Jefferies LoanCore, a joint venture between Jefferies and GIC Private Ltd (f.k.a. Government of Singapore Investment Corporation), is a finance company focused on originating and securitizing commercial mortgage loans
National Beef, a beef processing company that processes ~3 million fed cattle per year representing ~12.5% market share
HRG Group, a diversifed holiday company (NYSE: HRG) that operates in four business segments: consumer products - Spectrum Brands (NYSE: SPB, ~58% ownership); insurance - Fidelity & Guaranty Life (NYSE: FGL, ~81% ownership (1)); FrontStreet Re (100% ownership); Energy - Compass Production (~100% ownership); Asset Management (de minimis net book value).
Garcadia, 26 auto dealerships
Vitesse Energy
Juneau Energy
Linkem, a fixed wireless broadband internet provider in Italy
Conwed, a leading manufacturer of extruded, oriented and knitted plastic netting
Idaho Timber
Golden Queen (gold and silver mine)
(more details about LUK
company .pdf
The earnings picture for LUK has taken a drastic turn for the worse. Their Q1 report, announced March 17th, showed earnings of $11.7 million versus $112 million a year ago. Q1 revenues were down -34%. LUK delivered similar results with their Q2 earnings, announced August 5th. Earnings per share were $0.11 compared to $1.12 a year ago. Revenues were flat at $2.84 billion. Their most recent earnings report was November 5th, 2015. LUK reported their Q3 results, which was a loss of ($0.47) a share versus a profit of $0.14 a year ago. Revenues plunged -21% to $2.36 billion. You can see why investors might be selling the stock.

Management has been trying to take advantage of their low stock price with an aggressive stock buyback program but it's not making much difference. Technically shares of LUK are in a bear market and showing significant relative weakness.

The point & figure chart is very bearish and forecasting an $11.00 target. The last few days LUK has been trying to hold short-term support near $18.00 but that appears to have failed. Tonight we are suggesting a trigger to launch bearish positions at $17.70.

- Suggested Positions -

Short LUK stock @ $17.70

- (or for more adventurous traders, try this option) -

Long MAR $18 PUT (LUK160318P18) entry $1.20

12/14/15 new stop @ 17.16
12/12/15 new stop @ 17.55
11/30/15 triggered @ $17.70
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 21.67 change: -1.65

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: + 0.7%
2nd position Gain/Loss: +25.3%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: to be determined
Average Daily Volume = 50 million
New Positions: see below

Comments:
12/14/15: The bounce in the S&P 500 on Monday short circuited the surge in volatility. The VXX fell -7.0%.

No new positions at this time.

Trade Description: August 24, 2015
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

(see VIX chart from the August 24th play description)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

- Suggested Positions -

Short the VXX @ $21.82

Sept. 2nd - 2nd position (Double Down On The September 1st Spike)

Short the VXX @ $29.01

11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Netgear Inc. - NTGR - close: 43.19 change: -0.46

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: -5.0%
Entry on December 04 at $45.55
Listed on December 02, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 468 thousand
New Positions: see below

Comments:
12/14/15: NTGR extended its losses to six down days in a row . This morning shares tried to rally but failed near the $44 level and its 20-dma. The stock reversed lower and plunged to $42.25 before trimming its decline. Our stop loss was hit at $43.25.

- Suggested Positions -

Long NTGR stock @ $45.55 exit $43.25 (-5.0%)

- (or for more adventurous traders, try this option) -

JAN $45 CALL (NTGR160115C45) entry $1.80 exit $0.65 (-63.9%)

12/14/15 stopped out @ 43.25
12/04/15 triggered @ $45.55
Option Format: symbol-year-month-day-call-strike

chart:


Yelp Inc. - YELP - close: 29.58 change: -0.07

Stop Loss: 28.85
Target(s): To Be Determined
Current Gain/Loss: + 4.0%
Entry on November 18 at $27.75
Listed on November 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.5 million
New Positions: see below

Comments:
12/14/15: YELP closed virtually unchanged on the session. Unfortunately the intraday weakness was enough to hit our stop loss at $28.85.

*small positions to limit risk*- Suggested Positions -

Long YELP stock @ $27.75 exit $28.85 (+4.0%)

- (or for more adventurous traders, try this option) -

2016 JAN $30 CALL (YELP160115C30) entry $1.47 exit $1.55 (+5.4%)

12/14/15 stopped out
12/05/15 new stop @ 28.85
11/21/15 new stop @ 27.90
11/18/15 triggered @ $27.75
Option Format: symbol-year-month-day-call-strike

chart: