Option Investor

Daily Newsletter, Wednesday, 12/10/2014

Table of Contents

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

Market Wrap

Follow the Bouncing Ball

by Keene Little

Click here to email Keene Little
Monday's strong decline was followed by Tuesday's strong reversal and retracement of Monday's losses, which was then followed by today's reversal that more than retraced yesterday's gains. Welcome to the land of volatility, especially with today's 90% down day.

Wednesday's Market Stats

If you don't like the direction of the market just stick around for the next day's reversal. And the reversals have been violent. Following the slow methodical climb in November we're now seeing some tough battles for control between the bulls and the bears and the resulting price swings have both sides wondering which side is up or down. And that battle could continue for at least the rest of the week. But today was clearly bearish and as you can see in the table above, the down volume swamped up volume 10:1. That's a lot of selling pressure for the bulls to overcome.

If you haven't heard yet, the Hindenburg has descended upon us. The Omen that is. Yesterday was the 5th sighting of the Hindenburg Omen (HO) this month and as I'm sure you've heard, no market crash has ever occurred without the HO first being sighted. The problem with this signal is the number of false positives. We get many of these signals and no market crash and in fact people tend to look at it as the boy who cried wolf. Only after the crash do people wish they had paid attention. Considering what I believe to be a very vulnerable market that's been pushed too high too fast without any fundamental underpinnings, its probably wise to pay attention this time, especially since we've had multiple HO's in a short period of time.

Basically the HO occurs with the following conditions:

1. NYSE new 52-week highs and new 52-week lows are both greater than or equal to 2.8% (about 84 stocks) of the sum of the number of NYSE issues that advance or decline that day (about 3000)
2. New 52-week highs cannot be more than twice the number of 52-week lows (although it can be the other way around)
3. NYSE is above where it was trading 50 trading days ago
4. The McClellan Oscillator is negative on the same day

The important point to remember about this signal is that it occurs because fewer stocks are participating in the rally. The indexes might be looking strong, even making new highs, but more and more stocks are not helping the rally. In recent weeks I've shown plenty of charts to highlight the deteriorating market breadth, a big reason why I kept saying the upside potential is not worth the downside risk. I still feel that way, even if the market makes new highs into the end of this month. It just makes the new highs that much weaker and that much vulnerable to a disconnect to the downside. It's another example, imo, of knowing when to trade and when not to. It's been a good time for bulls to take their chips off the table and go to cash. It's also been a good time for the bears to wait for a top to get put in place. We might have that signal but depending on your trading timeframe, it's a good time to stay cautious until we see how the decline from last week develops.

Once we get an HO it's good for 30 days and multiple signals in a short period of time is more negative than one lone signal. The signal is negated when the McClellan Oscillator climbs back above zero. So at the moment we have an active signal and multiple signals. It's another sign of deterioration in market breadth, which is what alerts us to the potential for the market to top out. It's just something to keep in mind and not a predictor of a market crash. It alerts us to the possibility and it's a reason to at least be cautious about bullish positions. Assuming the market will come back during times like this could be a dangerous game to play. The last cluster of HO's was in September, just as the nearly 10% decline was getting started.

Another topping signal came from the New York Fed President, William Dudley. I say this somewhat tongue-in-cheek but the Fed is not known for its accuracy in economic predictions. In fact with a 100% failure rate I'd say you'd have a good track record always taking the other side of their bet. Recently Dudley predicted we'll see a 2.5%-3.0% growth rate in 2015 instead of the 2% we've been experiencing, saying "The U.S. economic outlook looks brighter, with growth likely to be somewhat above the trend of the past five years." If you didn't hear it, that was Dudley ringing the bell at the top.

With this week's volatility there's no telling where the market will be by the end of the week but so far the weekly candle, as can be seen on the SPX weekly chart below, is a strong reversal of the rally from the top of its parallel up-channel for the rally from October 2011. This is using the arithmetic price scale and if I use the log price scale the trend line along the highs from April 2010 - May 2011 (bold green line) is where price was only able to poke above in the past two weeks. The leg up from October finally looks complete and now the question is whether we'll get a just a pullback to the 2000 area before pressing higher (green dashed line) or if instead we've started at least a much larger pullback. The more bearish possibility is that last week saw THE high for the bull market.

S&P 500, SPX, Weekly chart

After holding its 20-dma for the past two days, especially with the strong spike back up yesterday, today's decline had SPX solidly breaking its 20-dma at 2057. The next MA support is the 50-dma near 1998, which could coincide with millennial support at 2000 by the time it's tested. But first there's potential support near 2019 where it would test the September high.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2080
- bearish below 2019

One other trend line that SPX struggled with, shown in blue on the 60-min char below, is the uptrend line from November 2012 - February 2014. Last Friday's high was a perfect tap of the trend line before dropping away. In fact it was a small 3-drives-to-a-high pattern with the tests on December 3rf, 4th and 5th, with bearish divergence. Hindsight trading is so easy and it's real easy to see this setup now. At the time I liked the setup by the end of the week for a short play but I'll admit to feeling completely beaten by this market when it came to thinking about another short play. That's what this market does to traders.

S&P 500, SPX, 60-min chart

So now we've got a new downtrend in progress for SPX with today's lower high and lower low. What we don't know yet is whether the move down from last Friday will only be a 3-wave pullback before heading higher or if instead we've got the start of something more bearish. Two equal legs down points to 2015 and if that breaks we've got a projection at 1987 where the 2nd leg of the decline would be 162% of the 1st leg down. At the moment SPX found support near 2024, the November 3rd high. The bottom of a down-channel for this decline is currently near 2020 and another price-level support is at 2001 (the November 4th low). The first sign of bullishness would be a break of the downtrend line from last week, currently near 2051.

One of the reasons why it's important to note the potential for just an a-b-c pullback from last Friday is the VIX. It shot higher today, up +24%, and it's the first time above 18.50 since gapping down on October 21st. Whenever we see this kind of spike in the VIX it's usually led to a v-bottom reversal in stocks. An early-morning low in stocks, especially if SPX holds 2015 or higher, could be followed by another short-covering rally. But something about the VIX is a little different this time. As I noted yesterday, Tuesday's drop back down to support-turned-resistance, near 14.75, was a setup for a reversal back up for the VIX and back down for the stock market. This played out to perfection today. But stay aware of the potential for the VIX to be moving too much, too fast.

Volatility index, VIX, 60-min chart

Another warning to bears comes from the TRIN reading. For a reminder, TRIN, originally known as the Arm's index (for its developer, Richard Arms), measures the strength between advancing and declining issues and volume. The formula is advancing-declining issues over advancing-declining volume. This results in a ratio and the higher the number the more selling pressure it indicates. It's kind of like the VIX -- when the TRIN is high it's time to buy.

Today's TRIN closed at 3.1, the highest level since the highs in November/December 2011. That's some strong selling pressure. For some perspective, even the strong selling in October didn't produce a reading over 2.0. High readings like this are typically seen at major lows in a washout event, not at the beginning of a decline. The bearish view is that it's the kickoff to a much stronger decline to come. The bullish view is that the market is washed out short term and is ready for another bounce. Between the VIX and the TRIN it's certainly something both sides need to stay aware of.

For an a-b-c pullback with two equal legs down from last week for the DOW, we're looking at 17447 for a downside target. That coincides closely with the uptrend line from October 2011 - November 2012, as shown on its daily chart below. That makes this level an important one for the bulls to defend. The bulls would be back in business with a rally above its broken 20-dma near 17767, less than 130 points back up, which should be easy in this whippy market (wink).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,000
- bearish below 17,447

Tuesday's sharp rally for NDX was essentially a back-test of its broken uptrend line from November 4th. It was a nice recovery back above its 20-dma, near 4268, following the hard break below it in the morning but it had the appearance of short covering instead of real buying (too much, too fast). Today's drop back down leaves a sell signal with a bearish kiss goodbye following the back-test. Price-level support near 4200 should be tested next if there's any more selling Thursday morning. The market is oversold again on a short-term basis and we have the spikes in the VIX and TRIN, all of which says the bears need to be careful and certainly can't afford to get complacent. The bulls are probably getting some of their complacency shaken out of them too but we know how quickly this market can recover so the bears can't claim control yet, even if we're currently on a sell signal.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4300
- bearish below 4216

Because of the impulsive decline from last Friday into Tuesday morning's low I felt the high bounce into Tuesday's close was a head fake that sucked in too many bulls and spit out the bears (again). But I will admit to being worried about that opinion based on how high a bounce we saw in the RUT -- to within 4 points of its November 25th all-time high. The bearish wave count required an immediate turn back down and strong selloff today and that's what we got, which keeps the bears in the driver's seat for now. As you can see on the daily chart below, it's been one whippy ride since November. As long as the RUT stays below its November 25th high it stays bearish.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1192
- bearish below 1150

The reason I say the RUT stays bearish below 1192 is because of a pattern that I've been watching since its November 25th high. With the choppy price action I had the sense it was an ending pattern and an expanding triangle into the November 25th high is a bearish topping pattern, often followed by a contracting triangle that forms a diamond top, which is what I have drawn on the 60-min chart below. Only in hindsight will we know if this is the correct interpretation but it's a pattern that often has traders feeling bullish about the index because it looks like a high-level consolidation that should break higher. It's the breakdown instead that catches too many traders suddenly bailing out of their positions bought on the dips. It takes a break below Tuesday's low near 1153 to confirm the bearish pattern otherwise it's possible we'll still get some violent up and down moves inside the diamond before it breaks down.

Russell-2000, RUT, 60-min chart

The RUT is typically used as a sentiment indicator, indicating whether traders are willing to go with a risk-on or a risk-off strategy. Another, and perhaps better, indicator of risk-on/risk-off comes from HYG, the High Yield bond fund (junk bonds). The higher the yield the higher the risk and in this yield-chasing environment (thanks to the Fed pushing investors into chasing yield performance) investors have been looking to the junk bonds for the higher yields. But while stock indexes continued to rally in 2014 HYG was unable to climb above its May 2013 high and topped out in June 2014. It has been in a down-channel since then and is now testing its June 2013 low. If the DOW was doing the same thing it would now be down to about 14500, 3000 points below us. I have no doubt the DOW will get back down there and it could do it relatively quickly next year. If stock indexes continue to push higher into the end of this year I think it will be just that much more vulnerable to a disconnect to the downside in the new year.

High Yield Corp Bond fund, HYG, Weekly chart

The Trannies are getting hit with the rest of the market, which is a little surprising in that weaker oil prices should be helping them. But concern about reduced shipments, including reduced oil shipments, is creating some selling pressure. Following the double test of the trend line along the highs from March-May 2013 - July 2014, in November, accompanied by bearish divergence at the new high, it's not surprising to see the pullback. But so far the pullback is inconclusive about what it means. It's only a 3-wave pullback and two equal legs down for it is at 8841. Yesterday's low was 8843 and today's was 8852, leaving the potential for just an a-b-c pullback correction to the decline that will be followed by another rally into the end of the month/year. The projection to 9430, shown on the daily chart, still beckons. However, it's not a bullish bet I'd be willing to make here.

Transportation Index, TRAN, Daily chart

Following the U.S. Dollar's high on Monday it has seen a fairly strong reversal back down and it's looking like we might have seen the high for the dollar for the next several months. The high was a brief throw-over above the top of a parallel up-channel from its April 2011 low, as can be seen on the weekly chart below, and the drop back inside the channel creates a sell signal. It also looks like a completed 5-wave move for the leg up from last May. That calls for at least a correction of the May-December rally before pressing higher again.

U.S. Dollar contract, DX, Weekly chart

Gold got a boost yesterday but pulled back slightly today. Short term it looks like it push at least a little higher but it's about to run into the top of its down-channel that it's been in since 2012, currently near 1240. Slightly higher is the downtrend line from October 2012 - July 2014, currently near 1253. If gold bulls get feisty and push gold higher than that then there's the 200-dma and 50-week MA near 1270. I also have some Fib correlation (retracement and wave relationships in the bounce off the October low) near 1267. That provides some levels to watch for resistance if gold keeps rallying since I don't think gold has found its bottom yet. The bounce pattern off the October low looks corrective and the larger pattern for the move down does not look complete yet. I think we'll see lower prices into 2015 before we'll get a long-term bullish setup for gold (probably below $1000).

Gold continuous contract, GC, Weekly chart

All you preppers out there who are anxious to get some gold and silver coins stashed away for TEOTWASWKI, it's never a bad time to sock away a little bit of the shiny metal but if I'm right about what 2015 will be like for the metals, you'll have time to buy more at cheaper prices. Just keep adding to your stash on the way down but don't overdo it. As I've been saying for weeks, I think we'll see silver bounce back up to the 18.60 area, possibly a little higher, before heading lower. It could struggle here (17-ish) as it battles its broken uptrend line from 2003-2008, which it held at the end of September but broke in October, it could continue lower from here. But I think it's going to work off some more of its oversold condition before heading lower again. If it's able to break its downtrend line from November 2012 (light purple on the weekly chart below), currently near its 50-week MA at 19.22, it would look a little more bullish and especially so if it breaks its downtrend line from April 2011, near 21 by the end of the month.

Silver continuous contract, SI, Weekly chart

Every day I hear "washout!" when it comes to oil. It seems everyone wants to catch falling knives when it comes to oil and it just keeps dropping. Oil players are getting annihilated as it keeps probing lower and lower for that elusive bottom. That could keep it dropping but I think it's now close to what should be a tradeable bottom, especially if the U.S. dollar is also getting ready for a larger pullback.

Once oil broke support near 64 (62% retracement of 2009-2011 rally and a long-term 1998-2008 uptrend line) I went looking for additional potential support/target levels and I had to use a monthly chart to find them. The first one is the 200-month MA at 60.28, which is only 15 cents below today's low. The next one is near 58, which is price-level support from 2005-2006 and 2009. Below that is near 54, which is a 261.8% projection for the 2nd leg of the move down from August 2013 (a typical projection for an extended move, especially in commodities), and then 50.50, the 78.6% retracement of the 2009-2011 rally.

Oil continuous contract, CL, Monthly chart

If oil's decline from August 2013 is going to turn into a 5-wave move, the bounce following the leg down from June will be a choppy consolidation over the next several months for the 4th wave and then another leg down to complete the 5th wave later next year, which is what I’ve got depicted on the chart. A choppy 4th wave bounce back up to the broken uptrend line from 1998-2008 could see oil up near 70 by mid-year 2015 before dropping lower.

Thursday morning will be a little busier than this morning for economic reports but other than retail sales there's not much there to move the market. The market is desperate for better economic news though and as long as the improved sales numbers come through we shouldn't see much of a reaction.

Economic reports and Summary

Price action is clearly getting more volatile and that's usually a sign of a market turn in progress, which in this case could mean the market is putting in a top. This goes against the idea that the market has bullish seasonals providing winds at our backs. But as I've mentioned previously, with so many believing in a further rally, whether it's an end-of-year rally or a 2015 rally, the foregone conclusion is that the market is going to continue to rally. This is a setup for a major disappointment. It's way too early to predict what the market will do tomorrow, let alone this month and next year, so we'll take it one day at a time. But all big moves start out small and identifying the pattern of the decline will be important in helping define what the larger pattern might look like.

At the moment the short-term pattern is a 3-wave pullback from last week and as such could be just a correction to the rally and will be followed by more rally to new highs into the end of the month. If the current decline develops into a 5-wave move down we'll have something a little more bearish (and potentially a lot more bearish) on our hands. We'll take it one day and one move at a time while the bigger picture develops and helps give us an idea of how the rest of the month and next year might play out.

Good luck 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

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New Option Plays

The Rally Isn't Over Yet

by James Brown

Click here to email James Brown


iShares Russell 2000 ETF - IWM - close: 115.66 change: -2.51

Stop Loss: 113.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 40 million
Entry on December -- at $---.--
Listed on December 10, 2014
Time Frame: exit prior to January option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
The IWM is the exchange traded fund (ETF) that mimics the performance of the small cap Russell 2000 index.

Wednesday proved to be a rough day for U.S. equities. The Dow Jones Industrials were off as much as -285 points near its lows for the session. It closed down -268 (-1.5%). The S&P 500 and the NASDAQ composite also dropped with -1.6% and -1.7% declines, respectively. Small caps tend to be more volatile so it's not surprising that the Russell 2000 index dropped -2.1% on the session.

So why are we adding a bullish trade on the IWM if they underperformed today? Just as the small caps tend to underperform on the way down they also tend to outperform on the way up. We are speculating that the market's current pullback will be over soon. Let me repeat this is a speculative bet that dip buyers are still out there. The average hedge fund manager has drastically underperformed the market this year and is desperate to generate some last minute gains before the year is over. Therefore they are likely to use this market pullback as an entry point for bullish positions.

Tonight we are suggesting a buy-the-dip trigger on the IWM at $115.00. This ETF has found support in the $114.35-115.00 area multiple times in the last few weeks. I would keep positions small to limit risk.

Trigger @ $115.00 *small positions*

- Suggested Positions -

Buy the Jan $115 CALL (IWM150117C115) current ask $3.14

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

Daily Chart:

In Play Updates and Reviews

Oil's Weakness Drags Stock Market Lower

by James Brown

Click here to email James Brown

Editor's Note:

Stocks were down across the board in the U.S. Most of Europe posted declines and Japan suffered a rough day as well.

Crude oil prices continued to sink after OPEC lowered their forecast for 2015. Suddenly everyone was worried that this is a reflection of slower economic growth for the globe. It seems odd that people suddenly cared today since everyone knows that most of the world has been slowing down for months. The U.S. is one of the few bright spots for growth. That didn't seem to matter as traders took profits again.

Fortunately we have been raising our stops on most of our active trades.

AET, BCR, DECK, DIS, and RRGB all hit our stop losses today.

Current Portfolio:

CALL Play Updates

DineEquity, Inc. - DIN - close: 99.17 change: -0.38

Stop Loss: 97.35
Target(s): To Be Determined
Current Option Gain/Loss: +250.0%
Average Daily Volume = 154 thousand
Entry on November 05 at $91.55
Listed on November 04, 2014
Time Frame: Exit PRIOR to December 20th option expiration
New Positions: see below

12/10/14: Shares of DIN continue to hold up well. Shares only lost -0.3% while most of the market was off more than -1.5% on Wednesday. It's worth noting that if the market continues to sink DIN will have a hard time making any progress higher.

Tonight we're moving the stop loss to $97.35.

I'm not suggesting new positions at the moment. Keep in mind that our December options expire relatively soon.

Earlier Comments: November 4, 2014:
Restaurant stocks were showing relative strength today. Better than expected earnings results from the likes of Red Robin (RRGB) and Bloomin Brands (BLMN) helped buoy the group. Additional stocks in this industry showing relative strength on Tuesday are: BWLD, PNRA, JACK, EAT, SONC, TXRH, KKD, DNKN, CAKE, DRI, and PBP. The one we like tonight is DIN.

According to a company press release, "Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 19 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world."

The company has seen success with a steady improvement in earnings. DIN has beaten Wall Street's estimates on both the top and bottom line three quarters in a row. Their most recent report was October 28th. Analysts were looking for a profit of $1.05 a share on revenues of $157.2 million. DIN served up $1.14 per share with revenues climbing to $162.85 million.

The company saw domestic system-wide same-store sales up +2.4% at IHOP and +1.7% at Applebee's. Management then raised their sales guidance on both Applebee's and IHOP. DIN also raised its dividend by 17% to $0.875 per share and they boosted their stock buyback program from $40 million to $100 million.

The restaurant industry should be a major beneficiary of the drop in oil prices. Lower gasoline prices at the pump mean consumers have more spending money and will likely burn a lot of that cash eating at restaurants.

Shares broke out to new highs on this earnings report and bullish guidance. Today the stock is at all-time highs. The point & figure chart is bullish and forecasting a long-term target at $118.00.

Tonight we are suggesting a trigger to launch bullish positions at $91.55.

- Suggested Positions -

Long DEC $95 call (DIN141220c95) entry $1.20

12/10/14 new stop @ 97.35
12/06/14 only two weeks left on our December options
11/29/14 new stop @ 96.85
11/26/14 new stop @ 94.85, traders may want to take profits here!
11/22/14 new stop @ 93.85
11/19/14 new stop @ 92.75
11/13/14 new stop @ 92.25
11/12/14 new stop @ 91.45
11/08/14 new stop @ 89.65
11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike

The Hain Celestial Group, Inc. - HAIN - close: 112.63 change: -1.43

Stop Loss: 111.35
Target(s): To Be Determined
Current Option Gain/Loss: +30.6%
Average Daily Volume = 615 thousand
Entry on November 26 at $110.25
Listed on November 25, 2014
Time Frame: Plan on exiting PRIOR to the stock split
New Positions: see below

12/10/14: HAIN followed the market lower and closed below its 10-dma. The stock could find support in the $111.50-112.00 zone. If not we'll see HAIN hit our stop loss.

I am not suggesting new positions at this time.

Earlier Comments: November 25, 2014:
"Our business continues to benefit from strong growth trends in the organic and natural, better-for-you segment of consumer packaged goods."

That quote is from HAIN's CEO after the company reported its latest earnings results in early November. He's right. Consumers are choosing healthier foods and it looks like a major trend change that could benefit HAIN for a long time.

The company website describes HAIN as, "The Hain Celestial Group, headquartered in Lake Success, NY, is a leading natural and organic food and personal care products company in North America and Europe. Hain Celestial participates in almost all natural food categories with well-known brands that include Celestial Seasonings, Terra, Garden of Eatin', Health Valley, WestSoy, Earth's Best, Arrowhead Mills, DeBoles, Hain Pure Foods, FreeBird, Hollywood, Spectrum Naturals, Spectrum Essentials, Walnut Acres Organic, Imagine Foods, Rice Dream, Soy Dream, Rosetto, Ethnic Gourmet, Yves Veggie Cuisine, Linda McCartney, Realeat, Lima, Grains Noirs, Natumi, JASON, Zia Natural Skincare, Avalon Organics, Alba Botanica and Queen Helene."

HAIN's results have definitely confirmed the trend in consumer spending. They have beaten Wall Street's estimates and guided higher in three out of the last four earnings reports.

The Q4 report in late August this year saw revenues up +26% to $583.8 million. Management raised their guidance as they now expect sales growth of +27% to +30% in 2015.

The company reported their 2015 Q1 numbers on November 6th and sales are accelerating. Wall Street was expecting a profit of $0.67 on revenues of $640.27 million. HAIN delivered a profit of $0.68, which is a +31% increase from a year ago. Revenues were up +34.6% to $642.6 million. These are really impressive results when you consider that includes a voluntary recall of their HAIN nut butters back in August.

Commenting on their Q1 results, Irwin Simon, Founder, President, and CEO of the company said, "We are pleased with another strong start to our fiscal year across all of our segments on a worldwide basis with the highest quarterly net sales in the Company's history."

"Our diverse portfolio of brands and products across multiple categories and our customer base across various channels of distribution enabled us to deliver double-digit sales growth even with the impact of the nut-butter recall initiated in August."

Accompanying these results their Board of Directors also approved a 2-for-1 stock split but shareholders needed to approve an increase in the number of shares outstanding first. The company's annual meeting was a few days ago and shareholders did approve the stock split. That headline came out tonight, after the closing bell.

The 2-for-1 stock split will occur in December. The shareholder record date is December 12th, 2014. The ex-dividend date is expected to be December 29th (this is when HAIN will begin trading post-split).

Shares of HAIN have been consolidating sideways beneath resistance at $110 for the last three weeks. The stock displayed relative strength today and looks poised to breakout past this resistance. The 2-for-1 stock split news could be the catalyst it needed. After hours tonight shares are trading around $110.50. We are expecting HAIN to gap open higher tomorrow morning. I'm suggesting a trigger to buy calls on HAIN if shares trade at $110.25 or higher.

We are not setting an exit target tonight but I will point out that the point & figure chart is bullish and forecasting a long-term $131.00 target.

- Suggested Positions -

Long 2015 Jan $115 call (HAIN150117c115) entry $1.80

12/09/14 new stop @ 111.35
11/29/14 new stop @ 109.85
11/26/14 triggered @ $110.25
Option Format: symbol-year-month-day-call-strike

The Home Depot - HD - close: 98.94 change: -0.70

Stop Loss: 97.25
Target(s): To Be Determined
Current Option Gain/Loss: -12.4%
Average Daily Volume = 6.4 million
Entry on December 08 at $100.25
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/10/14: HD is still holding up reasonably well. Shares only fell -0.7% versus the S&P 500's -1.6% decline today. The intraday high was only $100.23. Yesterday's suggestion still works. Traders may want to wait for a rise past $1002.5 before initiating new positions.

Earlier Comments: December 6, 2014:
Shares of HD ended the week at an all-time closing high, just below the $100 mark. The company had a bit of a rough start to 2014. They missed estimates on both the top and bottom line when they reported back in February and management lowered their forward guidance. They missed estimates again in May. Momentum changed with their August earnings report as HD beat Wall Street's bottom line estimate and raised their 2015 guidance.

HD appears to be benefitting from the growing U.S. economy. Falling unemployment means more people are working. Homebuilders are feeling confidence. The U.S. is seeing strong housing starts. Consumers are remodeling their homes. The do-it-yourself trend remains strong. HD is starting to see growth in the "connected home" concept, which is part of the Internet of Things (IoT) with remote control garage doors, home monitoring, thermostats, and light fixtures.

HD is in the services sector. According to the company website, "The Home Depot is the world's largest home improvement specialty retailer, with 2,269 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2013, The Home Depot had sales of $78.8 billion and earnings of $5.4 billion. The Company employs more than 300,000 associates."

Investors were keenly focused on the company's latest earnings report, HD's Q3 report, which came out on November 18th. Analysts wanted to know if the massive data breach reported by HD in September would negatively impact sales. It looks like the data breach has been overlooked by most if HD's customers.

Wall Street was looking for Q3 results of $1.14 per share on revenues of $20.47 billion. HD said their earnings per share rose +21% to $1.15 (up from $0.95 a year ago). Revenues improved +5.4% to $20.52 billion. The company said their overall comparable store sales were up +5.2% while inside the U.S. comps were up +5.8%. Online sales surged +40%.

HD gave relatively bullish guidance. They still expect +21% earnings growth in 2015. However, they noted that current guidance does not include any probable losses from the data breach. Last year Target (TGT) was a high-profile company that confessed to a huge data breach where millions of customer credit card data was stolen. This year Home Depot has been another high-profile company targeted by hackers.

HD said approximately 56 million cards may have been compromised. They have since plugged the hole in their cyber security. HD did confess in a recent SEC filing that they are facing 44 civil lawsuits in U.S. and Canada in response to the data breach. In spite of all the bad news investors continue to bid the stock higher.

Since HD's earnings report in November the stock has received several price target upgrades. The point & figure chart is also bullish and forecasting at $110 target.

Friday's November jobs report shows that the U.S. economy could be picking up speed, which would be bullish for HD. It looks like shares are going to breakout past significant round-number, psychological resistance at the $100 level.

Tonight we are suggesting a trigger to buy calls at $100.25.

Interesting factoid: HD's last stock split was a 3-for-2 split back in 1999 in the $90-100 range. I'm not predicting they will announce a new split but you never know.

- Suggested Positions -

Long FEB $105 CALL (HD150220C105) entry $1.21

12/08/14 triggered @ 100.25
Option Format: symbol-year-month-day-call-strike

Starbucks Corp. - SBUX - close: 82.66 change: -0.37

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: -12.7%
Average Daily Volume = 4.0 million
Entry on December 10 at $83.55
Listed on December 09, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/10/14: SBUX traded up toward its recent highs this morning and then reversed. Our suggested entry point to buy calls was hit at $83.55. Our trade is now open but readers may want to wait if you're looking for an entry point. If this market pullback continues we could easily see SBUX test its 10-dma near $81.70. If the market really sinks then SBUX might retest support near $80.00. A bounce from either level could be used as a new bullish entry point.

Earlier Comments: December 9, 2014:
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 have only been so-so this 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. The good news is that looks like it's about to change.

Five-Year Plan

SBUX recently 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 just 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.

Wall Street is bullish on the stock. Several firms have upgraded shares recently. Carter Worth, chief market technician at Sterne Agee, thinks SBUX could rally +10% to +15% in the short-term. JP Morgan raised their price target to $89. Goldman Sachs just added SBUX to their conviction buy list with a $95 target. Piper Jaffray has a $100 target. The same analyst at Piper believes SBUX's stock could double in the next four years. The point & figure chart is bullish and forecasting at $105.00 target.

The breakout past its all-time highs set in Q4 of 2014 is very bullish. This pullback is a gift. Tonight we are suggesting a trigger to buy calls at $83.55.

- Suggested Positions -

Long Feb $85 CALL (SBUX150220C85) entry $2.29

12/10/14 triggered @ 83.55
Option Format: symbol-year-month-day-call-strike

The Sherwin-Williams Co. - SHW - close: 246.80 change: -2.78

Stop Loss: 245.65
Target(s): To Be Determined
Current Option Gain/Loss: +181.9%
Average Daily Volume = 526 thousand
Entry on November 05 at $231.00
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/10/14: The stock market's broad-based weakness drug SHW down to a -1.1% decline. Shares will likely test their 10-dma tomorrow at $246.00. If SHW dips any further it will hit our stop at $245.65.

I am not suggesting new positions at this time.

Earlier Comments: November 1, 2014:
It's not very often you see a company about to celebrate its 150th birthday. For SHW that will be the year 2016. The company has been in business since 1866. The Company's core business is the manufacture, distribution and sale of coatings and related products. SHW is headquartered in Cleveland, Ohio. They sell through over 4,100 company-operated stores. Their global group has sales in more than 115 countries. Sherwin-Williams is also a very well known dividend payer and has annually increased dividends since 1979.

The slow and steady economic improvement in the U.S. has been beneficial. The real estate market has also helped SHW. New homes need new paint. The pace of new home sales in the U.S. hit six-year highs last month. While home sales do tend to slow down a bit in the winter months SHW should benefit from lower input costs. Crude oil and natural gas are big components in the paint and coatings industry. The severe drop in oil the last few months is a blessing for SHW.

The company raised their earnings guidance back in July. They issued bullish guidance again in their latest quarterly report. SHW announced earnings on October 28th. Wall Street was expecting a profit of $3.22 per share on revenues of $3.18 billion. SHW said their earnings rose +31.4% to a record-setting $3.35 per share. Revenues were up +10.6% at $3.15 billion, which missed the estimate.

SHW's remodeling business saw growth. The real driver was paint sales. Their paint stores account for the lion's share of sales, which saw revenues up +20%. SHW also purchased 2.0 million shares of their stock last quarter and still have 6.8 million yet to buy in their stock buy back program.

Management was optimistic. SHW's Chairman and CEO MR. Christopher Connor, said,

"We are pleased to report record sales and earnings per share in the third quarter and first nine months of 2014 on the continued positive sales volume and strong operating results of our Paint Stores Group. The Paint Stores Group architectural volume growth was positive across all end market segments. The Comex acquisition continues to perform better than expected in the year. Our Consumer Group improved its operating results through higher volume sales and operating efficiencies. Our Global Finishes Group continues to improve its operating margins through improved operating efficiencies."

Management raised their 2014 EPS guidance above Wall Street's estimates. They also raised their revenue guidance but this was only in-line with consensus. SHW now expects Q4 sales in the +6% to +8% range. They expect earnings to be in the $1.30-1.40 range versus $1.14 in the fourth quarter of 2013.

The stock's relative strength has driven shares to new all-time highs and a +25% gain in 2014. The point & figure chart is bullish and forecasting at long-term target at $286.

Tonight we are suggesting a trigger to buy calls at $231.00.

- Suggested Positions -

Long 2015 Jan $240 call (SHW150117c240) entry $3.37

12/09/14 new stop @ 245.65
11/22/14 new stop @ 238.25
11/15/14 new stop @ 234.45
11/13/14 SHW is hitting potential resistance at $240. Traders may want to take profits now.
11/08/14 new stop @ 229.75
11/05/14 triggered @ 231.00
Option Format: symbol-year-month-day-call-strike

Semiconductor ETF - SMH - close: 54.80 change: -0.86

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +327.3%
Average Daily Volume = 2.4 million
Entry on October 17 at $47.15
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/10/14: Uh-oh! Is the semiconductor rally over? The SMH lost -1.5% and closed below its simple 10-dma for the first time in several weeks. We are three days into the week and the SMH looks poised to snap the eight-week streak of gains.

I have been warning readers that the SMH was overbought and due for a dip. You may want to just exit now or raise your stop loss. I am not suggesting new positions at this time.

Earlier Comments: October 16, 2014:
It looks like the correction in the semiconductor stocks might be done.

The SMH is the Market Vectors Semiconductor Exchange Traded Fund (ETF) that tries to mimic the performance of the Market Vectors Semiconductor 25 index. Semiconductors as a group had been strong performers with the SMH up +73% from its late 2012 lows.

A few weeks ago the industry started to see some profit taking. MCHP issued an earnings warning last week that that sparked the massive plunge in the SMH. The SMH has witnessed a -15% correction from its 2014 closing high to the closing low on Monday this week. Now it has started to bounce. It's possible all the panic selling is over.

Intel (INTC), a much bigger company than MCHP, just reported earnings on October 14th and the results were better than Wall Street expected. More importantly INTC offered slightly bullish guidance.

Bloomberg noted that INTC said its PC-processor business rose +8.9% last quarter. Sales for INTC's chips for notebook computers soared +21%. Even chips for desktop PCs rose +6% in the third quarter.

The strong results from INTC have helped buoy the SMH, which is starting to rebound after testing (and piercing) long-term support on its weekly chart (shown below).

We suspect the worst might be over. However, this could be a volatile trade. There are a lot of semiconductor companies who have yet to report their results.

The SMH saw its rally stall under $47 and near its 200-dma. Tonight we are suggesting a trigger to buy calls at $47.15.

- Suggested Positions -

Long 2015 Jan $50 call (SMH150117c50) entry $1.10

11/29/14 new stop @ 53.85
11/22/14 new stop @ 52.25
11/20/14 new stop @ 51.40
11/12/14 new stop @ 50.85, readers may want to just take profits now!
11/01/14 new stop @ 48.85
10/25/14 new stop @ 47.85
10/21/14 new stop @ 46.35
10/17/14 triggered @ 47.15
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Currently we do not have any active put trades.


Aetna Inc. - AET - close: 87.67 change: -1.89

Stop Loss: 87.65
Target(s): To Be Determined
Current Option Gain/Loss: -20.5%
Average Daily Volume = 2.45 million
Entry on December 03 at $88.65
Listed on December 02, 2014
Time Frame: Exit PRIOR to January expiration
New Positions: see below

12/10/14: The stock market's decline accelerated on Wednesday and AET broke through technical support at its 10-dma. Shares hit our stop loss at $87.65 in the last 30 minutes of trading. It's probably a good thing we were stopped out since after the closing bell AET issued disappointing earnings guidance.

- Suggested Positions -

2015 Jan $90 call (AET150117C90) entry $1.76 exit $1.40 (-20.5%)

12/10/14 stopped out
12/09/14 new stop @ 87.65
12/03/14 triggered @ 88.65
Option Format: symbol-year-month-day-call-strike


CR Bard Inc. - BCR - close: 167.47 change: -2.63

Stop Loss: 169.45
Target(s): To Be Determined
Current Option Gain/Loss: +14.1%
Average Daily Volume = 538 thousand
Entry on November 13 at $165.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/10/14: The profit taking in BCR picked up speed with a -1.5% decline. Shares also broke support at their 10-dma and the $170.00 level. The stock hit our stop loss at $169.45 pretty early today.

- Suggested Positions -

2015 Jan $170 call (BCR150117c170) entry $2.63 exit $3.00 (+14.1%)

12/10/14 stopped out
12/09/14 new stop @ 169.45
12/01/14 new stop @ 165.85
11/22/14 new stop @ 163.35
11/13/14 triggered @ 165.65, suggested entry was $165.60
Option Format: symbol-year-month-day-call-strike


Deckers Outdoor Corp. - DECK - close: 95.86 change: -1.75

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: + 7.9%
Average Daily Volume = 763 thousand
Entry on November 17 at $92.25
Listed on November 15, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/10/14: Last night we decided to raise our stop loss on DECK. Today's market-wide sell-off was too much and shares hit our new stop. DECK is on pace to snap its six-week winning streak.

- Suggested Positions -

2015 Jan $95 call (DECK150117c95) entry $3.80 exit $4.10 (+7.9%)

12/10/14 stopped out
12/09/14 new stop @ 95.65
11/29/14 new stop @ 93.65
11/22/14 new stop @ 89.75
11/17/14 triggered $92.25
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co. - DIS - close: 91.63 change: -1.31

Stop Loss: 91.65
Target(s): To Be Determined
Current Option Gain/Loss: -18.9%
Average Daily Volume = 6.5 million
Entry on December 01 at $92.63
Listed on November 29, 2014
Time Frame: exit prior to February expiration
New Positions: see below

12/10/14: The market pullback weighed on shares of DIS. It didn't help that the stock was downgraded this morning. Shares broke support at $92.00 and hit our stop loss at $91.65. The next support level could be the November lows in the $88.75 area.

I'm still long-term bullish on DIS so keep it on your radar screen. Once this market pullback is done we will want to re-evaluate DIS.

- Suggested Positions -

2015 Feb $95 call (DIS150220C95) entry $1.80 exit $1.46 (-18.9%)

12/10/14 stopped out
12/09/14 new stop @ 91.65
12/01/14 trade begins. DIS opens at $92.63
Option Format: symbol-year-month-day-call-strike


Red Robin Gourmet Burgers - RRGB - close: 70.72 change: -1.57

Stop Loss: 69.85
Target(s): To Be Determined
Current Option Gain/Loss: -15.3%
Average Daily Volume = 214 thousand
Entry on December 02 at $70.55
Listed on December 01, 2014
Time Frame: 4 to 8 weeks
New Positions: see below

12/10/14: Everyone seems to agree that lower oil prices are great for consumers. Yet that didn't stop shares of RRGB from piercing support and hitting our stop loss at $69.85.

- Suggested Positions -

2015 Jan $70 call (RRGB150117c70) entry $2.95 exit $2.50 (-15.3%)

12/09/14 new stop @ 69.85
12/02/14 triggered @ 70.55
Option Format: symbol-year-month-day-call-strike