Editor's Note:

The S&P 500 index delivered its first four-day drop in over a year. The last time was December 2013.

The selling pressure today was pretty heavy and very widespread.

We have removed AAPL as an active candidate. Our trade did not open.


Current Portfolio:


CALL Play Updates

Athenahealth, Inc. - ATHN - close: 143.79 change: -4.20

Stop Loss: 144.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 516 thousand
Entry on January -- at $---.--
Listed on January 03, 2014
Time Frame: Exit PRIOR to earnings in early February
New Positions: Yes, see below

Comments:
01/05/15: The stock market's big drop today helped ATHN erase Friday's gains and more. Shares look like they could dip toward $140.00, which is potential round-number support.

Right now our suggested entry point to buy calls is at $150.45 but if we see a bounce from $140.00 we might reconsider our strategy.

Earlier Comments: January 3, 2015
You might think Athenahealth is in the healthcare sector but it's actually in the technology sector. The company provides information services to the healthcare sector. ATHN describes itself as "athenahealth is a leading provider of cloud-based services for electronic health records (EHR), revenue cycle management and medical billing, patient engagement, care coordination, and population health management, as well as Epocrates and other point-of-care mobile apps. We connect care and drive meaningful, measurable results for more than 59,000 health care providers in medical practices and health systems nationwide."

Earnings in 2014 have been up and down. ATHN missed estimates in April 2014. They beat estimates in July and then reported in-line results in October. Their next report is expected in early February.

ATHN held an investor day on December 10th. They reaffirmed their 2014 guidance, which is essentially 22% to 27% year over year growth with gross margins in the 63% range. They also provided a 2015 forecast of +20% growth with revenues in the $900-925 million area. There was some concern that this 2015 guidance was too light but shares have been soaring in spite of the initial dip on the news.

If you're going to trade ATHN it's worth pointing out that David Einhorn, the outspoken hedge fund manager at Greenlight Capital, issued a very bearish call on ATHN back in May 2014. We don't know if he's still short ATHN but his opinion may have fueled the short interest in this name. The most recent data listed short interest at 26% of the small 37.5 million share float. Unfortunately for the bears they have been getting killed with the rally from its December lows.

ATHN's recent breakout past resistance in the $145-146 area is bullish and helped generate a buy signal on the Point & Figure chart that is suggesting at $178 target. Technicians will note that ATHN found support right where it was supposed to at prior highs (near $146).

If this rally continues ATHN could see more short covering. Tonight we are suggesting a trigger to buy calls at $150.45 with a stop at $144.90. We will plan on exiting prior to ATHN's earnings report in early February (no confirmed date yet).

Trigger @ $150.45

- Suggested Positions -

Buy the FEB $155 CALL (ATHN150220C155)

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


Royal Caribbean Cruises - RCL - close: 81.71 change: -1.24

Stop Loss: 78.40
Target(s): To Be Determined
Current Option Gain/Loss: -12.5%
Average Daily Volume = 2.9 million
Entry on December 24 at $82.30
Listed on December 22, 2014
Time Frame: We will likely exit prior to earnings in very late January
New Positions: see below

Comments:
01/05/15: I cautioned readers over the weekend that if the market continues to sink we could see RCL dip toward support near $80.00. It hit $80.88 today before paring its losses. I still think RCL could tag $80.00. If you're looking for a new bullish entry point I would suggest waiting for a bounce from $80.00 first.

Earlier Comments: December 22, 2014:
The cruise line stocks have been pretty strong this year. Carnival Cruise (CCL) has been the weakest of the big three with a +11.5% gain in 2014. That compares to the S&P 500's +12.0% gain. Norwegian Cruise Line (NCLH) is up +32% this year. Meanwhile RCL has outpaced them all with a +69.9% gain in 2014 as of today.

According to a company press release, "Royal Caribbean Cruises Ltd. is a global cruise vacation company that owns Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises and CDF Croisieres de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 42 ships with an additional seven under construction contracts, and two on firm order. They operate diverse itineraries around the world that call on approximately 490 destinations on all seven continents."

CCL has suffered a series of mishaps, bad decisions, and just poor luck in recent years and RCL has managed to capitalize on its rivals misfortune, especially in Europe. Earnings growth for RCL has kind of mediocre. Their most recent report was October 23rd. RCL beat estimates by a penny while revenues were only in-line with Wall Street estimates. Management then guided lower for Q4. So why has the stock performed so well? Normally when a company lowers their earnings forecast the stock gets hammered!

A big part of the stock's rally has been weakness in crude oil. These are massive ships. They burn between 140 to 150 tons of fuel every single day. That's about 30 to 50 gallons a mile. Falling oil prices mean that fuel costs for these companies has plunged dramatically and should boost their profit margins.

Tigress Financial Partners recently shared their opinion that the cruise liner industry has "benefited from strong demand trends both domestically and globally and more recently the swoon in oil prices has helped to reduce one of their largest costs - fuel. We think long-term demand trends are bullish for the sector and lower oil prices not only mean lower fuel costs but more discretionary cash in consumers' pockets that can be used for additional expenditures on leisure time." Their point about consumers having more cash to spend on leisure is a big one.

The month of December has brought more good news for shares of RCL. On December 1st the S&P Dow Jones Indices announced they would replace Bemis (BMS) with RCL in the big cap S&P 500 index. That means all the mutual funds that track RCL have to buy it eventually. That went into effect on December 4th.

On December 8th analyst firm Jefferies said "The cornerstone of our view on RCL has been that it offers a superior product, this is based on the following: it has a younger fleet, more new ships being built, more impressive features available (e.g. high-speed internet), a better strategy with respect to distribution of cabins (more Balcony berths available) and better brand perception." Jefferies then raised their price target on RCL from $73 to $87.

The analyst love continued on December 22nd when Stifel analyst Steven Wieczynski said, "you have a stock that is trading at 14x forward earnings (2016) for average EPS growth of 28 percent/year for the next three years. When we look back at where Carnival Corp. has traded (15x-17x) on average on a forward EPS basis and then apply the same multiple to RCL, there is clearly a significant amount of upside from current levels" for RCL. Stifel raised their price target on RCL from $88 to $96.

Technically the stock has been showing strength with a bullish trend of higher lows and higher highs. The breakout past resistance at $80.00 is bullish. Today's intraday high was $82.20. Tonight we're suggesting a trigger to buy calls at $82.30.

- Suggested Positions -

Long MAR $85 CALL (RCL150320C85) entry $3.37

12/24/14 triggered @ 82.30
Option Format: symbol-year-month-day-call-strike


Red Robin Gourmet Burgers Inc. - RRGB - close: 75.75 change: -0.65

Stop Loss: 72.45
Target(s): To Be Determined
Current Option Gain/Loss: -19.9%
Average Daily Volume = 276 thousand
Entry on December 24 at $76.71
Listed on December 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
01/05/15: This morning shares of RRGB were upgraded with a new price target from $82 to $90 by analysts at Keybanc. The headline failed to save RRGB from the market's widespread decline today. Shares dipped to $74.41 before bouncing. The $74.00 area looks like potential support. I would hesitate to launch new positions at the moment.

Earlier Comments: December 22, 2014:
The price of gasoline in the United States has fallen for 89 days in a row as of today. That's the longest streak on record. The current national average is down to $2.376 a gallon. That's more than $1.00 off the recent peak. Who stands to benefit from this major correction in fuel prices? Restaurants.

Americans love to dine out. Paying less at the pump means a lot more disposable income to blow on casual dining. One firm that should benefit is RRGB. The company press describes RRGB as "Red Robin Gourmet Burgers, Inc. (www.redrobin.com), a casual dining restaurant chain founded in 1969 that operates through its wholly-owned subsidiary, Red Robin International, Inc. There are more than 500 Red Robin restaurants across the United States and Canada, including Red Robin Burger Works® locations and those operating under franchise agreements."

A couple of weeks ago Wunderlich Securities commented on the restaurant industry. They believe that industry sales could see some of their strongest monthly gains in years and restaurants are poised to do well in 2015. The combination of strong consumer confidence, improving labor trends, and falling gasoline prices is a great recipe for stronger sales at restaurants. The major restaurant chains have been reporting positive same-store sales for the fifth month in a row. That hasn't happened since early 2012.

Technically shares of RRGB have been showing some relative strength the last few days. The stock spent the first half of December consolidating sideways above support near $70.00. Now it's breaking out to new multi-month highs. If this rally continues RRGB could see some short covering. The most recent data listed short interest at 10% of the very small 13.8 million share float. The Point & Figure chart is very bullish and forecasting a long-term price target at $115.00.

Tonight we are suggesting a trigger to buy calls at $76.65. I do see potential resistance at $80.00 (round-number resistance) but we suspect RRGB could run for a while.

- Suggested Positions -

Long MAR $80 CALL (RRGB150320C80) entry $3.87

12/24/14 triggered @ 76.65
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Arista Networks, Inc. - ANET - close: 63.80 change: +1.12

Stop Loss: 66.25
Target(s): To Be Determined
Current Option Gain/Loss: -14.6%
Average Daily Volume = 534 thousand
Entry on December 22 at $65.90
Listed on December 18, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
01/05/15: ANET outperformed the market today with a +1.7% gain thanks to being upgraded to a buy this morning. The stock's rally did stall at resistance near $65.00. More conservative traders may want to lower their stop closer to the $65 level.

I am not suggesting new positions at this time.

Earlier Comments: December 18, 2014:
ANET is in the technology sector. The company makes networking applications and cloud technology. According to company marketing materials, "Arista Networks was founded to deliver software-driven cloud networking solutions for large data center and computing environments. Arista's award-winning 10/40/100GbE switches redefine scalability, robustness, and price-performance, with over 3,000 customers and more than three million cloud networking ports deployed worldwide. At the core of Arista's platform is EOS, an advanced network operating system. Arista Networks products are available worldwide through distribution partners, systems integrators and resellers."

Shares of ANET held their IPO in June 2014 with 5.3 million shares priced at $43.00. The first trade was $55.25. The stock has been volatile but almost doubled with highs in the low $90s by September. Unfortunately for the bulls the rally has reversed.

ANET produced bearish double top near $94 in September. The stock did see a sharp pre-earnings rally before they reported results on November 6th. ANET beat estimates by 12 cents and beat the revenue estimate as well. Yet guidance was only in-line with Wall Street's estimates and traders sold the post-earnings pop. That has proved to be a new lower high.

Following its post-earnings reversal lower the company and the stock has been plagued with trouble. The stock has suffered thanks to two different lock ups expiring. November 11th was a lock up that allowed some ANET employees to sell about 50% of their stock. Then December 2nd was the 180-day lock up that allowed insiders to sell their shares (up to 53 million shares).

ANET was struggling with all of this additional supply coming to market. Then the company was hit with a massive lawsuit by networking giant Cisco Systems (CSCO) on December 5th. CSCO is a much larger rival and claims that ANET has violated patent and copyright infringement on several technologies. CSCO might have a case. ANET's CEO, Jayshree Ullal, spent fifteen years working for CSCO in its enterprise business. ANET claims that CSCO is merely trying to use the legal system to slow down a competitor.

It could take a couple of years for the legal battle to be resolved but Wall Street is turning more cautious. Since December 5th a few analysts have been lowering their price targets on ANET. Meanwhile bears are arguing that ANET is still too expensive with a P/E of 60 at current levels.

The U.S. stock market just produced its best two-day rally since 2008 and yet ANET did not participate. Instead shares faded lower. This relative weakness looks like a clear signal that the path of least resistance is lower.

Today's intraday low was $66.00. I'm suggesting a trigger to buy puts at $65.90. The $60.00 level could be round-number, psychological support but I suspect ANET could decline toward the $55 area. I want to reiterate that shares of ANET have been volatile so I'm suggesting smaller positions to limit risk.

*small positions to limit risk*- Suggested Positions -

Long MAR $60 PUT (ANET150320P60) entry $4.80

01/03/15 new stop @ 66.25
12/22/14 triggered @ $65.90
Option Format: symbol-year-month-day-call-strike


Dover Corp. - DOV - close: 69.47 change: -2.51

Stop Loss: 74.25
Target(s): To Be Determined
Current Option Gain/Loss: +60.9%
Average Daily Volume = 1.7 million
Entry on December 29 at $73.40
Listed on December 27, 2014
Time Frame: 4 to 8 weeks, exit ahead of Q1 earnings
New Positions: see below

Comments:
01/05/15: It was a good day for DOV bears. The stock saw a spike higher this morning but the rally failed near Friday's intraday high. Then shares reversed and underperformed the broader market with a -3.48% decline.

Earlier Comments: December 27, 2014:
DOV is part of the industrial goods sector. They make an array of equipment and parts for multiple industries. According to the company, "Dover is a diversified global manufacturer with annual revenues of $8 billion. We deliver innovative equipment and components, specialty systems and support services through four major operating segments: Energy, Engineered Systems, Fluids, and Refrigeration & Food Equipment. Dover combines global scale with operational agility to lead the markets we serve."

Unfortunately for DOV investors the company's earnings picture has soured. Back in October they reported their Q3 results that beat Wall Street estimates on both the top and bottom line. Yet management issued relatively bearish guidance. It would appear that the outlook is worse than previously thought. On December 8th DOV issued an earnings warning and lowered their 2014 guidance. They're blaming restructuring costs and downsizing expenses.

The very next day (Dec. 9th) an analyst at Deutsche Bank downgraded DOV to a "sell" and lowered their price target from $83 to $65. Deutsche Bank's concern is DOV's exposure to the U.S. oil and gas industry. More than 33% of DOV's profits come from sales to the U.S. oil and energy sector. Given the plunge in crude oil prices this year (to five-year lows) the United States is already seeing a slowdown in oil rig use. A lot of the shale oil is expensive to drill and oil needs to be above $75 to be truly profitable. Right now oil is closer to $55 a barrel. That's going to significantly encumber capital spending for the oil industry and DOV could suffer as a result.

Technically shares of DOV broke their long-term up trend in 2014. Shares have developed a bearish trend of lower highs and lower lows. It looks like the most recent oversold bounce has just started to stall. We want to catch the next wave lower. Tonight I'm suggesting a trigger to buy puts at $73.40.

- Suggested Positions -

Long MAR $70 PUT (DOV150320P70) entry $2.30

01/03/15 new stop @ 74.25
12/29/14 triggered @ 73.40
Option Format: symbol-year-month-day-call-strike


Philip Morris Intl. - PM - close: 80.41 change: -0.61

Stop Loss: 82.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.4 million
Entry on January -- at $---.--
Listed on January 03, 2014
Time Frame: Exit PRIOR to earnings in early February
New Positions: Yes, see below

Comments:
01/05/15: PM continued to sink as we expected. However, shares did not hit our entry point. It got close. PM pierced round-number support at $80.00 and dipped to $79.86 before bouncing. Our suggested entry point to buy puts is at $79.85. If the market weakness continues tomorrow we will likely see PM hit our entry.

Earlier Comments: January 3, 2015:
The first thought a lot of investors have when they think of cigarette maker PM is dividends. This company has been delivering strong dividends for years. Right now the stock's dividend yield is almost 5%. Yet that hasn't stopped the bearish trend of lower highs.

PM describes itself as "Philip Morris International Inc. (PMI) is the leading international tobacco company, with seven of the world's top 15 international brands, including Marlboro, the world's best-selling cigarette brand. Until March 28, 2008, PMI was a wholly owned subsidiary of Altria Group, Inc., since that time the company has been independent and is listed on the New York Stock Exchange (ticker symbol PM)."

PM has joined the cigarette revolution with smokeless e-cigarettes and a new hybrid model they're calling HeatSticks, which doesn't burn the tobacco but instead uses a battery to heat it.

Earnings have been mixed. Back in February 2014 they lowered guidance. That allowed the company to then beat estimates in July and October. Yet in their October report PM issued cautious guidance. The rising U.S. dollar is definitely hurting margins as PM sells its tobacco products around the world.

Technically shares are weak and have been underperforming the market. The current sell-off has pushed PM to the verge of a new sell signal on its point & figure chart. These are new multi-month lows and we think the weakness continues. Friday's intraday low was $80.63. I am suggesting a trigger to open bearish positions at $79.85. Earnings are expected in early February and we'll plan to exit prior to the announcement.

Trigger @ $79.85

- Suggested Positions -

Buy the FEB $80 PUT (PM150220P80) current ask $1.85

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



CLOSED BULLISH PLAYS

Apple Inc. - AAPL - close: 106.25 change: -3.08

Stop Loss: 106.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 56 million
Entry on December -- at $---.--
Listed on December 27, 2014
Time Frame: 4 to 6 weeks, exit ahead of Q4 earnings
New Positions: see below

Comments:
01/05/15: I really wanted our AAPL trade to work. The company will likely blow away estimates on how many iPhones it sold in the fourth quarter 2014. Unfortunately the stock continues to sink and just marked its fifth decline in a row.

Our trade has not opened yet and tonight we are removing AAPL as an active candidate.

Trade did not open.

01/05/15 removed from the newsletter, suggested entry was $110.25
01/03/15 Strategy update: Change the entry trigger from $115.25 to $110.25. Change the stop loss from $109.85 to $106.95. Change the option strike from February $120 to the February $115 call. Option Format: symbol-year-month-day-call-strike

chart: