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Daily Newsletter, Wednesday, 12/16/2015

Table of Contents

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

Market Wrap

FOMC +0.25% Rate Decision Gives the Market A Lift

by Keene Little

Click here to email Keene Little
Following the strong selloff into Monday's low the market has been rallying in anticipation that the Fed would acknowledge the strength in the economy as supportive of a rate increase. Those buyers were rewarded with more buying following the rate decision. Today's Market Stats

The market went on hold today after getting a pop up at the open (same as it did yesterday) and clearly it was on hold while waiting for the Fed to bless us with its decision on rates. The decision was unanimous (always worrisome when economists are 100% in agreement) to raise rates a 1/4 point to a range of 0.25% to 0.50%, ending a 7-year period of ZIRP. The market wasn't quite sure how to react initially but when the sellers didn't hit the market it took off to the upside (probably with a little help from its "friends").

This morning's economic reports were of course largely ignored and the only reason we had a rally into the FOMC announcement was because of another overnight rally in the futures (funny how they do that) that gave the market a pop up in the morning and then it went flat (like on Tuesday). The rally into the announcement could have been followed by a buy the rumor, sell the news reaction and it almost happened. But the sellers were overpowered by some buy programs and the indexes closed near today's highs.

We've seen plenty of times when a post-FOMC reaction is reversed the following day so it's likely we'll see at least a pullback Thursday morning but it's for the bulls to lose at this point. The rally off Monday's low looks strong enough to continue higher this month. What exactly the pattern is, and therefore how high the market could go is still a big question but as always I have a few thoughts about that.

As for the Fed's decision, the Fed said an improving economy (cough) was ready to handle a rate hike. They pointed to "solid" consumer spending (I wonder why retailers are complaining they're not the recipients of that spending), an improving housing market and more fixed investments by businesses. Based on the government's measure of the unemployment rate, the Fed also believes the healthier labor market is a good sign of economic strength. As Janet Yellen said at this afternoon's press conference, "The first thing that Americans should realize is that the Fed's decision today reflects our confidence in the U.S. economy. Yikes! That statement should scare us all (wink).

The Fed tried to reassure the market that pace of interest-rate hikes would be "gradual" and that additional hikes would be slower in 2017-2018 than they had previously predicted. But the dot plot for 2016 rate hikes continues to show the plan to raise rates 0.25% each quarter. But in the press conference it was clear that Yellen was trying to jawbone the market higher with assurances that while today's rate increase is not going to be a one-and-done, it will be followed by greater caution and of course will be data dependent. The Fed plans to hold its huge reserve ($4.5T) of Treasuries and MBS (mortgage-backed securities) on its books and continue to roll them over.

Not discussed, of course, is what's happening in the junk bond market. The 7-year period of ZIRP encouraged people and businesses to borrow much more than they might otherwise have. The energy field is the poster child of junk bonds at the moment and with energy prices hitting lows below the 2009 lows, the ability to pay back these loans is becoming less with each passing day. Bankruptcies are up and junk bond prices are down (increasing the spread between junk and Treasuries, which is exactly what we saw happen into the 2007 high).

Businesses have collectively borrowed trillions as a way to buy back stocks (helps increase the value of shares, which in turn helps management with their stock options) and pay for M&A activity, which has now exceeded the value seen at the 2007 high with more borrowed money than back then. Student loans are through the roof and students are having a hard time getting good-paying jobs to be able to pay back the loans.

Auto loans are now the new sub-prime slime, exceeding the value of sub-prime mortgage loans being made in 2006-2007. Auto loans are being made to people with poor or no credit rating and the average age of a loan on a USED car is more than six years. What do you think the chances are that many of these loans will go into default? More junk bonds. But never fear, the Fed will be able to buy ABS's (auto-backed securities) in the future with more printed money. Banks have been more than eager to make these loans when the cost of capital has been so cheap. Throw in some leverage on a 15 to 20-point spread between the cost of the money and how much they can lend it out and presto, big earnings for the banks. Package them up and then sell as investment grade bonds. More than $100B of these loans are out there.

Depending on the Fed to save us has become less reliable over time but there's still a lot of hope out there. Ultimately I believe the market will lose complete faith in the Fed and today's rate increase could end up with the same result as when they did the same thing back in the 1930s. In hindsight we could easily see this as bad timing at a market peak. I found an interesting piece from Simon Black at sovereignman.com relative to the Fed's control of the nation's purse strings:

It's ultimately a complete farce. Our entire financial system is based on awarding total control of our money to a tiny, unelected committee of bureaucrats.

They have the power to conjure trillions of dollars, euros, yen, pounds, renminbi, etc. out of thin air that are backed by absolutely nothing other than a thin veneer of confidence.

Civilizations have been experimenting with this model for thousands of years. And every single time it has failed.

Future historians will certainly wonder why we chose a financial system based on a model with such a long history of failure, and why we gave control of our savings and economic activity to unelected bureaucrats who are consistently wrong.

When you step back and look at the big picture, this system is totally mad. And full of risk.

Governments are insolvent. Central banks are nearly insolvent. Banking systems are extremely illiquid. National pension funds are insolvent.

And their solution is to keep borrowing and printing more money.

And this is the system the financial markets are placing their trust in. Trust but verify and be sure you watch for signs of cracking so that you're not caught with the crowd. The bearish charts for junk bonds point to a wide crack in the market's foundation and it deserves close attention over the coming weeks.

Moving onto the charts, we unfortunately have a large difference between indexes and that means caution by both sides is warranted until the bigger picture clears up. Because of the choppy price action with overlapping highs and lows, with a few whipsaws thrown in for good measure, it remains possible we'll see the market whip around for the rest of the month and end up not going anywhere. Traders would get chopped to pieces in this kind of environment (even selling option spreads could be difficult because of some of the wild price swings).

Tonight I'm going to show an example of the large differences between indexes, using the Nasdaq and Wilshire 5000, both of which support higher prices but they have significantly different projections. Each also supports the idea that the market could break down from here so continuation of the current rally is by no means a sure thing.

Starting with the Nasdaq, its weekly chart below shows the wave count for the leg up from October 2011, which is the c-wave of an A-B-C rally from 2009, and the 5-wave move for it. The 4th wave completed at the August low and we've been in the 5th wave since that low. It's been struggling near its July high near 5232, which was a test of its March 2000 high at 5132 (within 2%). This pattern says THE bull market will be finished once the leg up from August completes.

Nasdaq Composite index, COMPQ, Weekly chart

The Nasdaq's daily chart below shows a bullish wave count (green labeling) for the 5th wave up from August, shown on the weekly chart. It too needs to be a 5-wave move and the question at the moment is whether the December high was the completion of the 5th of the 5th wave or if instead the final little 5th wave started from Monday's low, which is currently the way I'm leaning and why I've labeled Monday's low as wave-(iv). In the move up from August, the 5th wave would equal the 1st wave at 5416 but could stop at the 62% projection at 5208. The lower projection would be essentially a retest of the November and December highs with just a minor new high (0.6% higher for a triple top).

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for COMPQ:
- bullish above 5133
- bearish below 4871

The reason the 5-wave count in the rally from August works for the Nasdaq is because the 4th wave (Monday's low) did not overlap the 1st wave (the August 28th high), which would be a violation of one of the important rules for EW (Elliott Wave). If it had overlapped then we can't be looking for a 5th wave up and that's where things get confusing for the market. The DOW agrees with the Nasdaq potential here, as does SPX but it did overlap by pennies so I need to forgive that small transgression by SPX to keep it with the same bullish wave count shown above. But the Wilshire 5000 index has a big overlap, as shown on its daily chart below. Normally the Wilshire 5000 index and SPX are in lock step but this time there is enough of a difference for me to question the wave count.

Wilshire 5000 index, W5000, Daily chart

Key Levels for W5000:
- bullish above 21,874
- bearish below 20,600

I show the same bullish (green) wave count on the W5000 daily chart above as the one for the Nasdaq but noted two problems: the first is green wave-(ii) dropped below the start of wave-(i), which is the August low, and therefore it's an EW rule violation; and second, green wave-(iv), which was Monday's low, dropped below the end of wave-(i), the August 28th high, which is another rule violation. That makes the bearish wave count (bold red) a stronger possibility, which says the November 3rd high finished the bounce correction to the May-September decline rally and now it will be all downhill from here.

Today's bounce had the W5000 close to resistance at its 20- and 50-dma's, coming together near 21470, and then there's price-level S/R near 21600, followed by the 200-dma near 21700 and then its downtrend line from July, near 21840. In other words, the bulls have a lot of work to do and the bounce could fail at another lower high and lead to a very strong decline. The rally off Monday's low is certainly looking bullish so the upside potential needs to be respected but the downside risk is significant (crash potential following a series of 1st and 2nd waves to the downside). From a bearish perspective, the W5000 could be doing a back-test of its broken 20- and 50-dma's, which could lead to a bearish kiss goodbye and decline from here.

If the price pattern is bullish, the question is what it could be if not an impulsive 5-wave move up from August, like that shown on the Nasdaq chart. There is one bullish wave count that accounts for the overlap and multiple 3-wave moves up and down and it's the reason I'm taking the time to lay it out (since the bears won't believe it). We could be in a large ending diagonal 5th wave for the move up from August and the move up to the November high is only the 1st wave of the ending diagonal 5th wave. A typical ending diagonal would look something like that drawn on the W5000 weekly chart below.

Wilshire 5000 index, W5000, Weekly chart

The reason the bears will have a lot of trouble believing in this possibility is because it suggests the market will work its way higher into the April timeframe (sell in May and go away?). It would be a choppy move higher and likely frustrate both sides with a lack of follow through (unless you're willing to let the market pull back in large moves without spiking you out of your long positions). Considering the slowing global economy and the very significant debt problems (reflected in the decline of junk bond prices) I personally have a very difficult time believing the market can hold up for another 4-5 months but I present this chart pattern to at least make us aware of the possibility. As I said before, I consider the downside risk as very significant, especially if this week's bounce attempt is reversed and Monday's lows are taken out, but bears need to see the potential so as not to get complacent about how long it could take the market to top out.

The other indexes fit this bullish ending diagonal 5th wave idea, which is a reason I'm seriously considering the possibility (otherwise I wouldn't bother showing it), so we'll just have to watch some key levels from here to use as clues about which pattern is the higher-probability one.

SPX has a bullish pattern like the one for Nasdaq, even though one needs to ignore the 26-cent overlap between Monday's low and its August 28th high. The 5th wave in the move up from August would equal the 1st wave near 2120, which would essentially be a retest of its November and December highs as well as a back-test of its broken uptrend line from October 2011 - October 2014.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2068
- bearish below 1993

The SPX weekly chart shows the same ending diagonal 5th wave idea presented on the W5000 weekly chart. The upside projection is based on a typical time/price relationship between the waves and for SPX it points to almost 2200 by April. There's lots of overhead resistance for SPX to get through, which could result in a choppy climb higher and that's something I would expect to see with this pattern. Just continue to keep in mind that the bearish pattern following the November high is very bearish and therefore any breakdown below Monday's low near 1993 could lead to accelerated selling.

S&P 500, SPX, Weekly chart

The DOW has the same bullish pattern shown on the Nasdaq's daily chart. The move up from August can be considered a 5-wave move, with the 5th wave in progress from Monday's low. It would equal the 1st wave at 18438, which would be a test of its May high at 18351 for a big double top finish to its rally. If the 5th wave is to achieve only 62% of the 1st wave it will stop near 17941, which would be a test of its November and December highs for a smaller-timeframe triple top. The lower projection would also be another back-test of its broken uptrend line from October 2011 - October 2014. The bulls will need to see the DOW above 17950 before they can breathe a little easier, especially considering the more bullish potential with the ending diagonal idea discussed with the W5000 weekly chart above.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,950
- bearish below 17,138

The RUT has been the black sheep of the family, with a price pattern that doesn't look like any of the others. It's been weaker since August and that won't change if the bears are not yet out of the picture. But if we're going to see a Santa Claus rally we'll likely see the RUT start to make up some ground and get back into the race for MAYBE a new high. I can see the potential for the other indexes to make new highs but leave the RUT wanting for one. It's approaching price-level S/R near 1152 and then above that it will run into its 20- and 50-dma's near 1168. Above that level I'd feel better about upside potential but if it's the first to break below Monday's low near 1108 I'd be out of long positions in a hurry.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1168
- bearish below 1108

Bonds have not been giving us any better clues about direction than the stock market. Since the highs at the end of last January and the lows in June, bond prices have been chopping sideways in a narrowing range. Surprisingly, we did not see much movement in the bond market today. TLT (20+ year Treasury bond fund) finished with a long-legged doji today, which depicts a day of indecision. As can be seen on the TLT weekly chart below, price is getting pinched between the downtrend line from January and the uptrend line from June, now near 123.40 and 119.40, resp. Today it closed near the middle of its tightening range, at 121.18, after first rallying post-FOMC and then dropping right back down this afternoon. A drop below 118 would suggest a decline to its uptrend line from February 2011 - December 2013, near 110, maybe even down to its December 2013 low near 101. But the larger pattern continues to suggest we have not yet seen the final high for TLT before the bond bull finishes. A rally up to the 140-143 area in the first half of 2016 is what I'm thinking we'll see, maybe a little higher if it's into the 2nd half of 2016.

20+ Year Treasury ETF, TLT, Weekly chart

Banks will not waste any time increasing their loan rates to customers -- Wells Fargo waited 12 minutes to raise its prime rate from 3.50% to 3.75%, effective Thursday. As for increasing the savings rate for the poor (literally) savers hurt by the Fed's policies? Go pound sand was apparently the bank's answer. There's no announced change from their 0.06% rate on savings accounts. Needless to say, the banks liked the rate decision and BKX shot higher this afternoon (after the usual cha-cha-cha following the announcement), adding to the strong rally off Monday's low. But BKX is not out of the woods yet and could still get mauled by the bears. Notice on its daily chart that it has rallied back up to its broken uptrend line from October 2011 - January 2015 and this could result in just a back-test followed by a bearish kiss goodbye. Needless to say, the bulls need to keep up their buying.

KBW Bank index, BKX, Daily chart

The TRAN looks more bearish than bullish. The decline from November 20th is impulsive and fits well as the 1st wave of the next large decline. That calls for just a bounce correction before heading lower in a stronger decline. It's possible the leg down from November 20th is the 5th wave of the decline from March, which could now lead to a stronger bounce and at least back up to the November 20th high. So I see further bounce potential but I'll be watching it for evidence that it will be just a quick bounce and then back down.

Transportation Index, TRAN, Daily chart

Following the U.S. dollar's up-down-up reaction post-FOMC it finished with a marginal (+0.10%), which was a little surprising since the dollar had pulled back prior to this week and the expectation had been for a dollar rally following a rate increase. Unless the dollar is above to rally above its December 3rd high at 100.60 I'll continue to expect it to chop sideways into next year before heading higher.

U.S. Dollar contract, DX, Weekly chart

Gold has been having trouble getting a bounce off its December 3rd low but I continue to like the setup for a higher bounce, which would be helped if the dollar pulls back some more. Commodities in general look like they could be ready to turn back up (a pattern looks to be finishing now with price targets met) and that would help the metals as well. I'll continue to look for lower gold prices but the setup remains good for a bounce correction.

Gold continuous contract, GC, Weekly chart

Oil also looks like it's getting ready for a bounce after hitting the bottom of what looks like a descending wedge pattern. We should see another up-down sequence to finish it, in which case I would expect to see oil down to around $30 by April. But there's also the potential for a stronger rally out of the wedge and above $60 by April so I see a good setup for a long play on oil and then see how it looks if and when it reaches the top of the descending wedge (downtrend line from June), which is currently near 44. If it chops its way up to the top of the wedge then we'd have a good idea that it will drop down for one more new low before setting up a better long trade.

Oil continuous contract, CL, Weekly chart

This morning's economic reports included some encouraging numbers about the housing market -- housing starts in November were up by 1173K, which was more than expected. Building permits took a nice jump up from October's 1161K to 1289K and more than expected. But Industrial Production declined by -0.6%, which was worse than expected and a drop from October's -0.4%, which was a downward revision from -0.2%. Capacity utilization also dropped from 77.5% to 77.0%. So the signs of a slowing economy continue, which of course raises the question why the Fed would raise rates now but a logical Fed is just another oxymoron.

Tomorrow's reports include unemployment claims, the Philly Fed index and Leading Indicators. It's not likely they'll cause much of a reaction.

Economic reports

Conclusion

The stock market, as compared to the bond and currency markets, got the bigger (positive) reaction to today's FOMC rate decision, which is a little odd since it was a rate increase and the Fed still didn't clear up expectations about what to expect in 2016. The uncertainty should have bothered the market more and maybe it yet will. Today's rally could have had a "helping hand." The bond market's muted reaction, as well as in the currencies, which are acknowledged as the "smarter" markets, tells us they still don't trust the Fed's intentions. That's a warning sign for traders in the stock market.

I wouldn't be at all surprised by a pullback on Thursday, which is typical following a post-FOMC afternoon rally, and that would provide some clues about what to expect next. With a few of the indexes having bounced up to potentially strong resistance we might have had a news-related bounce high put in place and now down we go. An impulsive decline and break below Monday's lows would be very bearish and I would not go bottom picking if that happens. But considering an important time cycle turn window around December 22-24 I'm looking for a Santa Claus rally into that timeframe before thinking more aggressively about the short side.

And lastly, the idea of large ending diagonal (rising wedge) playing out into next April, as discussed with the Wilshire 5000 and SPX charts, needs to carefully considered. The market indexes could chop their way higher to new all-time highs over the next few months and those wishing to get into longer-dated put options could find them turning to dust over time so I would suggest nothing longer term here. Trade short term and play the swings carefully. Once the larger pattern becomes clearer we'll then be able to set up longer-term position trades. Until then, swing both ways and keep your trades tight and short term.

And if you are still sitting on the fence about renewing your subscription, just do it. You'll have several good trade setups with OIN and they'll more than pay for your subscription. It's a great deal so take advantage of it.

Annual End of Year Subscription Special

It is that time of year again when we offer the best prices of the year on a package of our top newsletters. If you have been a subscriber for several years you know this is the best price and best deal of the year.

Please follow the link below to see for yourself the EOY subscription special for 2016. You will not be disappointed!

Good luck in the coming week and I'll be back with you next Wednesday.

Keene H. Little, CMT

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


New Plays

Relative Strength In Consumer Goods

by James Brown

Click here to email James Brown

Editor's Note:

Additional Trading Ideas:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:

Bullish ideas: DAL, VSH, BSX, KR, TSS, ENR, IMAX




NEW BULLISH Plays

Fortune Brands Home & Security - FBHS - close: 56.07 change: +0.60

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 16, 2015
Time Frame: Exit PRIOR to earnings in February
Average Daily Volume = 1.4 million
New Positions: Yes, see below

Company Description

Trade Description:
FBHS is a relative strength trade. The S&P 500 is up +0.7% year to date thanks to the strong three-day rally this week. Yet shares of FBHS are up +23% in 2015 and poised to close the year at all-time highs.

FBHS is in the consumer goods sector. According to the company, "Fortune Brands Home & Security, Inc., headquartered in Deerfield, Ill., creates products and services that help fulfill the dreams of homeowners and help people feel more secure. The Company's trusted brands include MasterBrand cabinets, Moen faucets, Therma-Tru entry door systems, and Master Lock and SentrySafe security products. Fortune Brands holds market leadership positions in all of its segments."

Their most recent earnings report was October 21st. FBHS said their Q3 earnings per share rose +17.3% to $0.64 a share. That actually missed Wall Street estimates of $0.65. Revenues were up +17% to $1.24 billion. Management guided in-line with estimates. The stock rallied anyway in spite of the miss.

Fast-forward to December and FBHS raised their dividend +14% to $0.16 a share. Chris Klein, FBHS CEO, commented on the move, "This represents the third consecutive year of a double digit increase in our dividend rate. We are continuing to deliver profitable growth and are following through on our commitment to use our strong balance sheet, capital structure and free cash flow to drive incremental shareholder value."

Technically shares have developed a bullish trend of higher lows and higher highs. The $52-53 area was major resistance and FBHS broke out in mid November. The stock held up very well during the market's December weakness. Now shares are bouncing along the trend line of support and poised to hit new all-time highs. The point & figure chart is very bullish and forecasting at long-term $74.00 target. Tonight we are suggesting a trigger to open bullish positions at $56.65.

Trigger @ $56.65

- Suggested Positions -

Buy FBHS stock @ $56.65

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

Buy the MAR $60 CALL (FBHS160318C60) current ask $1.50
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:

Weekly Chart:



In Play Updates and Reviews

Solar Stocks Flare On Tax Credit Deal

by James Brown

Click here to email James Brown

Editor's Note:
The stock market was in rally mode today following the FOMC's decision to raise rates. Solar energy stocks displayed impressive relative strength and outshined the broader market on news of a potential tax credit extension in Washington.


Current Portfolio:


BULLISH Play Updates

Activision Blizzard, Inc. - ATVI - close: 39.21 change: +0.50

Stop Loss: 36.40
Target(s): To Be Determined
Current Gain/Loss: +2.8%
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:
12/16/15: The market's afternoon rally helped push ATVI toward its recent highs. Shares gained another +1.29%. The stock looks poised for a bullish breakout soon.

No new positions at this time.

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: 114.43 change: +1.72

Stop Loss: 111.45
Target(s): To Be Determined
Current Gain/Loss: +1.6%
Entry on December 15 at $112.65
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: see below

Comments:
12/16/15: Small caps have been underperforming the big caps all month long. The IWM managed to (barely) outperform the S&P 500 today with a +1.52% gain. The rally stalled right at technical resistance on the IWM's simple 10-dma.

No new positions at this time.

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.

- Suggested Positions -

Long the IWM @ $112.65

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

Long JAN $115 CALL (IWM160115C115) entry $1.18

12/15/15 triggered @ 112.65
Option Format: symbol-year-month-day-call-strike


Microsoft Inc. - MSFT - close: 56.13 change: +0.93

Stop Loss: 53.20
Target(s): To Be Determined
Current Gain/Loss: +2.8%
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:
12/16/15: The combination of bullish analyst comments and a market-wide rally helped lift MSFT to a +1.68% gain and a new multi-year closing high. Today's intraday high was $56.25. I would be tempted to launch new positions on a new rally above this level.

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: 60.35 change: +0.37

Stop Loss: 58.45
Target(s): To Be Determined
Current Gain/Loss: -0.3%
Entry on December 15 at $60.45
Listed on December 08, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 8.8 million
New Positions: see below

Comments:
12/16/15: Come on, SBUX. Let's get moving! The stock needs a double shot of espresso. Traders bought the dip this afternoon but SBUX only gained +0.6% on the session. That compares to a +1.5% gain for the major indices. Investors may ant to wait for a rally above $61.00 before initiating new bullish positions.

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.

- Suggested Positions -

Long SBUX stock @ $60.45

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

Long FEB $65 CALL (SBUX160219C65) entry $1.07

12/15/15 triggered @ $60.45
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: 53.69 change: +13.64

Stop Loss: 50.85
Target(s): To Be Determined
Current Gain/Loss: +40.7%
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:
12/16/15: Holy tax credit, Batman! SCTY soared +34% today on news that the U.S. congress has agreed to extend the federal tax credit for solar energy. The new deal extends the tax credits for another five years. It was due to expire at the end of 2016.

Shares of SCTY hit an intraday high of $55.29 before trimming its very big gains. More conservative investors may want to bail out now and just take the money and run. The afternoon dip in SCTY was about $51.15. Tonight we are adjusting our stop loss up to $50.85.

No new positions at this time.

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

12/16/15 new stop @ 50.85
12/14/15 new stop @ 35.85
12/14/15 triggered @ $38.15
Option Format: symbol-year-month-day-call-strike


SolarEdge Technologies - SEDG - close: 25.75 change: +3.76

Stop Loss: 24.95
Target(s): To Be Determined
Current Gain/Loss: +20.0%
Entry on December 15 at $21.45
Listed on December 14, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 790 thousand
New Positions: see below

Comments:
12/16/15: The tax-credit news for solar companies fueled a +17% rally in shares of SEDG today. More conservative traders may want to exit now to lock in a gain. We are raising our stop loss up to $24.95.

No new positions at this time.

Trade Description: December 14, 2015:
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.

- Suggested Positions -

Long SEDG stock @ $21.45

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

Long MAR $25 CALL (SEDG160318C25) entry $2.10

12/16/15 new stop @ 24.95
12/15/15 new stop @ 19.25
12/15/15 triggered on gap open at $21.45, trigger was $21.20
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Columbia Sportswear - COLM - close: 44.43 change: -0.03

Stop Loss: 46.25
Target(s): To Be Determined
Current Gain/Loss: +0.7%
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:
12/16/15: COLM did not participate in the market's big rally today. That's great news if you're bearish. Tonight we will adjust our stop loss down to $46.25.

At the moment I'd wait for a new drop below $43.80 before initiating new positions.

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

12/16/15 new stop @ 46.25
12/08/15 triggered @ $44.75
Option Format: symbol-year-month-day-call-strike


Ctrip.com International - CTRP - close: 49.83 change: +1.49

Stop Loss: 50.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 15, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.7 million
New Positions: Yes, see below

Comments:
12/16/15: The market's widespread bounce fueled a +3.0% gain in CTRP today. Yet the rally stalled at round-number resistance near the $50.00 mark. I don't see any changes from last night's new play description. Our entry point to launch bearish positions is currently at $47.65.

Trade Description: December 15, 2015:
Occasionally stocks can get ahead of themselves. Investor enthusiasm can become too frothy that drives a stock too high and shares eventually fall back to earth. That could be the case with CTRP.

CTRP is part of the services sector. According to the company, "Ctrip.com International, Ltd. is a leading travel service provider of accommodation reservation, transportation ticketing, packaged tours, and corporate travel management in China. It is the largest online consolidator of accommodations and transportation tickets in China in terms of transaction volume. Ctrip enables business and leisure travelers to make informed and cost-effective bookings by aggregating comprehensive travel related information and offering its services through an advanced transaction and service platform consisting of its mobile apps, Internet websites and centralized, toll-free, 24-hour customer service center. Ctrip also helps customers book vacation packages and guided tours. In addition, through its corporate travel management services, Ctrip helps corporate clients effectively manage their travel requirements."

First the good news, CTRP is in a growing business. According to a Goldman Sachs analyst, the online travel market in China could triple to $200 billion by 2020. In October this year CTRP made a deal with rival online Chinese travel company Qunar, which was owned by Baidu.com (BIDU). The two companies merged and together will control 70% to 80% of the hotel and air ticket market in China. BIDU now owns 25% of CTRP. Larger rival Priceline.com (PCLN) is also investing in CTRP. PCLN recently invested $500 million in a convertible bond deal with CTRP, which could eventually lead to PCLN owning about 15% of CTRP.

CTRP is also seeing strong business results. Their Q3 earnings, which came out on November 18th, were way above expectations. Management then raised their Q4 guidance above Wall Street estimates. The stock also had a 2-for-1 split, which occurred on December 1st. If that wasn't enough good news the stock is also being added to the NASDAQ-100 on Monday, December 21st.

The merger news with Qunar produced the gap higher in October. The strong Q3 earnings and bullish guidance produced the big gap higher in November. With a rally from $30 in late September to $57 in mid November it appears CTRP just ran too far too fast. The stock has started to correct lower.

The stock split has taken place and it is common for stocks to see a post-split depression. They can also see a post-earnings depression after a big rally on the news. One could argue that all the good news has been priced into CTRP. What's the next catalyst to buy it?

Technically shares are breaking down. The bounce today failed at round-number resistance at $50.00. Shares did not participate in the market's rally yesterday or today. It looks like the pullback in CTRP is not over yet. The point & figure chart is bearish and forecasting at $41.00 target.

Now eventually CTRP will find support and shares will rebound again but support could be all the way down in the $37-40 zone. Yesterday's intraday low was $47.74. We are suggesting a trigger to launch bearish positions at $47.65. Please note this is an aggressive, higher-risk trade. The stock can be very volatile. Use small positions to limit risk.

Trigger @ $47.65 *small positions to limit risk*

- Suggested Positions -

Short CTRP stock @ $47.65

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

Buy the MAR $45 PUT (CTRP160318P45)

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


GameStop Corp. - GME - close: 30.56 change: +0.02

Stop Loss: 32.25
Target(s): To Be Determined
Current Gain/Loss: -1.1%
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:
12/16/15: It is encouraging to see GME underperform the market today. Shares closed virtually unchanged on the session, which is bearish considering the market's big rally today.

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: 46.83 change: +0.88

Stop Loss: 47.35
Target(s): To Be Determined
Current Gain/Loss: -2.4%
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:
12/16/15: HOG shot higher at the open and then spent the rest of the day churning sideways in the $46.00-47.00 range. The market's afternoon rally lifted HOG to a +1.9% gain. Tonight we are adjusting our stop loss down to $47.35.

No new positions at this time.

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

12/16/15 new stop @ 47.35
12/11/15 triggered @ $45.75
Option Format: symbol-year-month-day-call-strike


Leucadia National Corp. - LUK - close: 16.49 change: -0.47

Stop Loss: 17.16
Target(s): To Be Determined
Current Gain/Loss: +6.8%
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:
12/16/15: Great news! There was no follow through on yesterday's oversold bounce in shares of LUK. The stock reversed near the $17.00 level and underperformed the market with a -2.77% decline.

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: 19.34 change: -1.42

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +11.4%
2nd position Gain/Loss: +33.3%
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:
12/16/15: The volatility index and the VXX is falling fast with the stock market up three days in a row.

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