Editor's Note:

The stock market sell-off continued on Friday to mark the worst start for any year on record for both the S&P 500 and the Dow Jones Industrial Average. The market has been in a near non-stop decline from its December 29th peak.

We are removing IONS as a candidate.
The QQQ trade has two new entry points.


Current Portfolio:


CALL Play Updates

Dollar Tree, Inc. - DLTR - close: 77.79 change: -0.66

Stop Loss: 76.90
Target(s): To Be Determined
Current Option Gain/Loss: -48.6%
Average Daily Volume = 3.6 million
Entry on January 07 at $80.85
Listed on January 06, 2016
Time Frame: Exit PRIOR to February option expiration
New Positions: see below

Comments:
01/09/16: The only major news for DLTR on Friday was a headline that the CEO of Family Dollar, Howard Levine, plans to leave now that the two companies have merged.

Shares of DLTR have weathered the market's storm relatively well. The stock did lose -0.8% on Friday but is only down two days in a row. The S&P 500 is down six out of the last seven days.

If DLTR dips again on Monday I would look for potential support at the simple 30-dma (near $77.35). If shares fall much further we could get stopped out.

No new positions at this time.

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

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

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

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

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

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

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

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

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

- Suggested Positions -

Long FEB $80 CALL (DLTR160219C80) entry $3.60

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

chart:


Harris Corp. - HRS - close: 85.84 change: -0.40

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -52.8%
Average Daily Volume = 927 thousand
Entry on January 05 at $88.15
Listed on January 04, 2016
Time Frame: Exit PRIOR to earnings in early February
New Positions: see below

Comments:
01/09/16: HRS tried to rally a gain on Friday but failed near its 10-dma (that is two days in a row). Shares only lost -0.4% on Friday versus the S&P 500's -1.0% drop but HRS does look headed for round-number support at $85.00. Nimble traders could use a bounce from $85.00 as a new bullish entry point. Keep in mind that our stop loss is at $84.90.

You will notice on the daily chart below that HRS has not yet tested its three-month trend line of support. The stock should bounce. I want to caution you that our stop is very close to this support. More aggressive traders may want to widen their stop and given HRS more room.

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

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

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

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

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

- Suggested Positions -

Long FEB $90 CALL (HRS160219C90) entry $2.65

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

chart:


PowerShares QQQ ETF - QQQ - close: 104.01 change: -0.86

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

Comments:
01/09/16: The first week of 2016 has been brutal for stocks. The NASDAQ composite is down -7.3% in the last five trading days. The QQQ is off -7% this year and down -9% from its Dec. 29th high (just seven trading days).

As you know we think stocks have fallen too far too fast and should see a sharp bounce. Tonight we are adjusting our entry strategy on the QQQ. We are listing two separate entry triggers. Tonight we are adding a new buy-the-dip trigger should the QQQ continue to plunge. The $100.00 level should be round-number support. Add a buy-the-dip trigger at $100.50. If this trigger is hit we will use a stop loss at $97.45 and the February $105 calls (see below).

Should the QQQs bounce from current levels then we will use an intraday trigger to buy calls at $106.50. If this entry is hit we will use a stop loss at $103.45 (and use the Feb. 110 calls).

Trade Description: January 7, 2016:
The stock market moves on emotion. Most of the time it is a tug-of-war between fear and greed. Occasionally one emotion takes control of the market and stocks move too fast one direction. That is where we are at today.

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

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

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

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

Trigger @ $106.50, use an initial stop loss at $103.45

- Suggested Positions -

Buy the FEB $110 CALL (QQQ160219C110)

Buy-the-Dip Trigger @ $100.50, use an initial stop loss at $97.45

- Suggested Positions -

Buy the FEB $105 CALL (QQQ160219C105)

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(s).

01/09/16 Entry Strategy Update - Use TWO different entry triggers
One is a buy-the-dip trigger at $100.50 with a stop at $97.45 and the Feb $105 calls
The other is a trigger at $106.50 with a stop at $103.45 and the Feb $110 calls
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Red Robin Gourmet Burgers - RRGB - close: 58.29 change: +1.67

Stop Loss: 60.25
Target(s): To Be Determined
Current Option Gain/Loss: -12.0%
Average Daily Volume = 244 thousand
Entry on January 06 at $58.40
Listed on January 05, 2016
Time Frame: Exit PRIOR to earnings in mid February
New Positions: see below

Comments:
01/09/16: Warning! RRGB displayed significant relative strength on Friday. The rest of the U.S. market continued to sink but RRGB bounced. Shares gained +2.9% although it is worth noting that Friday's move is an "inside day". The entire bounce took place inside Thursday's range. Days like that normally suggest investor indecision. We still want to be defensive here so we are lowering the stop loss down to $60.25.

No new positions at this time.

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

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

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

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

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

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

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

- Suggested Positions -

Long FEB $55 PUT (RRGB160219P55) entry $2.50

01/09/16 new stop @ 60.25
01/06/16 triggered @ $58.40
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

Ionis Pharmaceuticals - IONS - close: 56.88 change: +1.45

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

Comments:
01/09/16: IONS did bounce on Friday. Upon further review it appears that IONS might be too volatile to trade at the moment. We have decided to remove IONS as a candidate. Our trade did not open.

Trade did not open.

01/09/16 removed from the newsletter, suggested entry was $60.35
01/06/16 Entry point update - Adjust the entry point to buy calls from $63.20 down to $60.35. Move the stop loss down to $56.75
Option Format: symbol-year-month-day-call-strike

chart: