Editors Note:

The normal pre Fed announcement drift lifted the markets off their lows on Wednesday morning and the post Fed depression pushed them back down again.

It is typical for the actual Fed statement to be a wet blanket for the market. If they economy is good the Fed warns about future rate hikes. If the economy has worsened, the admission by the Fed weakens markets.

The Fed left rates unchanged, which was no surprise, but they also admitted the economy had weakened and they were no longer confident that inflation was rising. They also warned somewhat on the global economy saying they would "monitor global conditions closely" and that was something they did not do in the prior statement. They did not reference a future rate hike date but said future hikes would be gradual.

Markets rose briefly immediately after the statement, then declined sharply as the statement was parsed for hidden clues and possibilities. Apparently they found plenty not to like and the Dow closed down -222. That was the fourth consecutive day for the Dow to move more than 200 points in the opposite direction from the day before.

The Nasdaq was down significantly after Apple's earnings with big drops in PCLN -$67, AMZN -18, BIDU -9, GOOGL -16, NFLX -7, ILMN -10 and AAPL -7. The big $14 gain in Biogen (BIIB) helped to offset some of the negativity but it could not lift the biotech sector, which was down again today.



Current Portfolio




Current Position Changes


QQQ - Powershares QQQ ETF

The long call on the QQQ was stopped at the low of the day after the Nasdaq 100 dropped -105 points thanks to declines in Apple and the biotech sector.


PCRX - Pacira Pharma

This position was also stopped at the low of the day after the biotech sector crashed in the afternoon. The $BTK was down -4%.


Stop Loss Updates

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



Original Call Recommendations (Alpha by Symbol)


IWM - Russell 2000 ETF

ETF Description

Comments:

The IWM rallied at the open but failed right at resistance of $101.50. The post Fed decline knocked it back to support at $99 but there was a little dip buying at the close. We need that support level to hold.

Original Trade Description: January 20th

The IWM is the Russell 2000 ETF and the Russell was the only major index to close positive for the day other than the Biotech sector index. The Russell is in a bear market with a -24% drop from its highs. The Russell declined -47 points intraday and rebounded to gain +4.4 at the end of the day. The 960 level where it bounced was support from early 2013 and it was the 300-week average.

Typically, the small caps are the strongest index in December and January. That was not the case this year and there is a good possibility fund managers will bargain hunt there first when the buying begins.

Resistance from Tuesday's gap higher open is $101.20. I was going to recommend an entry trigger at $101.50 to get us past that level. The IWM closed at $99.18. However, by waiting to get past that resistance the option premiums could rise by more than $1. I would rather just buy the open and we will take what the market gives us.

Position 1/21/16:

Long March $102 call @ $2.76, see portfolio graphic for stop loss.




LULU - LuluLemon

LuluLemon designs, manufactures and sells athletic apparel and accessories for women, men and female youth. They operate through corporate owned stores and sell direct to the consumer online. They are best known for their yoga style clothing. Full Company Description

Comments:

LULU spiked higher again in the morning but faded into the close. However, the stock showed great relative strength by closing positive in a bad market.

Original Trade Description: January 22nd

LuluLemon surprised everyone when they raised their guidance for Q4 sales saying they had a great holiday season. The company preannounced strong sales when most other retailers were posting losses or mediocre gains. The company now expects Q4 revenues in the range of $690-$695 million compared to prior guidance for $670-$685 million. This represents nearly 19% year over year growth on a constant currency basis.

Earnings guidance was raised to a range of 78-80 cents, up from 75-78 cents. Analysts were expecting 77 cents. The company said it entered 2016 with a bang thanks to a better than expected holiday season and continued increases in store traffic.

Cowen raised the target price from $52 to $66. Wells Fargo ungraded them from neutral to outperform with a target of $65. Jefferies upgraded it from hold to buy and gave it a $70 price target. Credit Suisse maintained its outperform rating but raised the target to $60. Suntrust Robinson reiterated a buy with a $66 target. Morgan Stanley reiterated an overweight with a target of $68. Morgan called it their favorite "turnaround" stock for 2016. Barclays issued an overweight rating with a target of $85.

It is amazing what a little positive guidance can do for Street ratings.

Earnings are March 9th.

Position 1/26/16:

Long March $60 calls @ $2.90, see portfolio graphic for stop loss.




PCRX - Pacira Pharmaceuticals

Company Description

Comments:

PCRX was stopped out at the close at $63.25 with the low for the day at $63.08. PCRX only lost -2.5% but the downdraft in the biotech sector was too much to overcome with stocks down 7-9%. ISRG -11, ILMN -11, RARE -9, BMRN-6, etc.

Original Trade Description: January 16th

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

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

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

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

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

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

Earnings: Feb 26th, before the open.

Position 1/19/16, exit 1/27/16:
Closed: Long Feb $75 Call, entry $2.75, exit .60, -2.15 loss




QQQ - Nasdaq 100 ETF

ETF Description

Comments:

The Nasdaq 100 crashed and burned with a -105 point decline. The QQQ position was stopped out at $100.45. The decline in Apple and the biotechs were simply too much for the index to overcome.

Original Trade Description: January 20th

The Nasdaq fell -163 points intraday on Wednesday and rebounded to positive territory just before the close. Some late selling in the last few minutes knocked it back to -5 for the day. From -163 to -5 is a monster rebound. The biotech stocks led the way but solar stocks, semiconductors and even Apple and Netflix got into the act and rebounded strongly.

Netflix declined from its afterhours high of $123 to a low of $97 intraday before rebounding to close at $108. I would have loved to buy Netflix at $97. What a bargain.

Obviously, a lot of that rebound was short covering and we do not know if it will last. However, the intraday low on the Nasdaq Composite was 4,319 and very close to the flash crash low of 4,292 from August. While it was not a perfect retest, it was close enough that a lot of traders closed shorts and bought stocks.

The Nasdaq 100 ($NDX) and the index the QQQ tracks, failed to decline anywhere close to the same distance as the Composite. The NDX dropped to 3,992 with major support at 4,000. The rebound there was very strong and from the right support level.

After the bell FireEye (FEYE) raised guidance and F5 networks (FFIV) beat on earnings. That could help with sentiment on Thursday. Nasdaq futures are up +6 in afterhours.

I am recommending the March $104 call with no entry trigger. If the market is going to open up I want to be there on the opening bell. These short squeezes can run for days and most lasting rallies begin with short squeezes.

Position 1/21/16, closed 1/27/16:

Closed: Long March $104 call, entry $2.63, exit $2.05, -.58 loss.




STZ - Constellation Brands

Company Description

Comments:

STZ declined only slightly until 2:30 when the bottom fell out of the market. That flush knocked STZ down another $1.50 in the closing minutes. The stock is still in an uptrend as long as the 50-day average is not broken.

Original Trade Description: January 14, 2016:

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

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

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

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

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

Position 1/19/16:
Long April $150 Call @ $4.70, see portfolio graphic for stop loss.




Original Put Recommendations (Alpha by Symbol)


DVN - Devon Energy

Comments:

Devon shares spiked at the open on yet another short squeeze in oil prices. There was more chatter about a possible OPEC deal with Russia even though two Russian officials said there were NO discussions. Shares faded into the close as the market collapsed.

Original Trade Description: January 21st

Devon Energy primarily engages in the exploration and production of oil and gas. The majority of their production is natural gas from more than 19,000 wells but they are making a concentrated effort to expand oil production. At year-end they had 689 million barrels of oil equivalent reserves. Company Description

In Q3 they produced 282,000 barrels of oil per day. That was a 31% increase over Q3-2014. That was the 5th quarter they exceeded guidance on oil production growth. That compares to their 680,000 Boepd of total gas and liquids production showing that oil was only about 41% of their total production. However, in Q3 oil accounted for 74% of total upstream revenue.

Devon is a well run company and highly regarded but the price of oil is killing them. They do have significant midstream assets including pipelines and processing facilities in the EnLink Midstream business. They own 70% of ENLC and 29% in ENLK. Those midstream companies generated $270 million in cash distributions in 2015.

The EnLink revenue is supporting Devon through this down cycle in the energy sector. Devon is also acquiring Access Pipeline in the first half of 2016 and that will add to their midstream assets.

If crude prices were to rally long term Devon would be a great company to own. However, in this period of falling oil prices from now until April the company is at the mercy of the declining sector.

On Thursday Devon shares rebounded with oil prices to resistance at $24.50 and then faded. When the switch to the March contract fades and crude prices begin to fall again I expect Devon to revisit the lows under $20 from Wednesday.

Earnings are February 16th so this will be a short-term play.

Position 1/25/16:

Long March $23 put @ $1.48, see portfolio graphic for stop loss.



HPQ - Hewlett Packard

Juno is a biopharmaceutical company that develops cell based cancer immunotherapies. Full Company Description

Comments:

No specific news. This is a long-term play to hold over the Feb 24th earnings. Earnings news by other companies will be the driver over the next several weeks.

Original Trade Description: January 25th

Back in October Hewlett Packard spun off its enterprise server business into Hewlett Packard Enterprise (HPE) and the old Hewlett Packard that sells PCs and printers remained (HPQ). The problem with this spinoff is that the enterprise company is where the profits are. The PC business has been declining for years and that is why HP split the two entities.

Since the spinoff at $14.75 in October the HPQ shares have been in decline. They closed at a new low on Monday. I see no reason where HPQ should rally in the near future. PC sales are still expected to decline in 2016 only at a slower pace. There is nothing to produce excitement in the PC company.

In theory we could probably just buy a cheap put and sit on it but HPQ has earnings on February 24th. I expect those earnings to be disappointing. However, you never know if they will pull a rabbit out of the hat and announce something that powers the stock higher. This is why I am recommending a strangle rather than just a straight put play.

HPQ shares closed at $9.49 on Monday and halfway between the $9 put and $10 call. I am recommending the April strangle so we can benefit from the long-term trend if HPQ continues to decline. If earnings disappoint we could see HPQ at $5 by then.

Earnings are February 24th.

Position 1/26/16:

Long April $9 put @ 41 cents, no stop loss.
Long April $10 call @ 50 cents, no stop loss.



JUNO - Juno Therapeutics

Juno is a biopharmaceutical company that develops cell based cancer immunotherapies. Full Company Description

Comments:

Juno crashed to a new low on the selloff in biotechs. Now that support has broken this should be the start of a longer decline on the heels of the NIH report. I lowered the stop loss on JUNO to $34.25.

Original Trade Description: January 22nd

Juno has been very active in buying up its competitors. On January 11th the company announced the acquisition of AbVitro for $125 million. That is their third acquisition in 12 months. However, Illumina (ILMN), ten times larger than Juno, is also on the same track and announced a similar acquisition on the same day.

Juno claims there is more than enough room in the space for both Juno, Illumina and Celgene (CELG) another competitor in the space. Apparently investors are not convinced. Shares of Juno have been in decline since early December and they hit a post IPO low last week. The rebound was lackluster and in a good market on Friday, they only gained 8 cents.

Update 1/26/16: The National Institute of Health (NIH) researchers published a study showing off-the-shelf T-cell therapy could induce remissions in patients with advanced blood cancers. This new "allogenic" T-cell therapy study represents a competitive threat to therapies from Juno, Kite and Novartis.

Earnings are March 17th.

Position 1/26/16:

Long March $27.50 put @ $1.75, see portfolio graphic for stop loss.



VXX - iPath S&P 500 VIX Futures ETN

Company Description

Comments:

We cannot catch a break on the VXX with the Dow alternating 200-point days for the last four days. On the positive side, the rebound failed to clear resistance at $26.35. Eventually the volatility will ease. It is only a matter of time.

Original Trade Description: January 16th

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

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

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

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

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

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




XLE - Energy Select SPDR ETF

Company Description

Comments:

The short squeeze in WTI lifted equities again but the market crash knocked them back to the lows of the day. Once energy earnings begin to flow we should see further declines. S&P expects a negative 72% in the energy sector.

Original Trade Description: January 19, 2016

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

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

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

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

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

Position 1/20/16:

Long March $50 Put @ $2.62, see portfolio graphic for stop loss.






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