Option Investor

Daily Newsletter, Monday, 1/5/2015

Table of Contents

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

Market Wrap

World Slides On Oil

by Thomas Hughes

Click here to email Thomas Hughes
Supply and demand issues drive oil price to a 5 ½ year low and the equity markets fell with it.


There is no other way to say it but that oil prices crashed today. Price slid to a new 5 year low, nearly 5% below the previous close, and brought the world down with it. Asian markets did not feel the full force of the drop and were able to hold near break even in most cases but European indices were not so lucky. Early losses there were multiplied later in the trading day as oil prices hit new low after new low.

Futures trading here at home was negative from the earliest, indicating an open just below last week's close. The trade declined a little as the morning wore on and was not helped by positive auto sales data released by the industry. All showed an increase in December sales, most beat expectations and some did it smartly.

Market Statistics

Trading began as expected once the opening bell sounded, a little to the downside. Once open the market quickly moved lower, the first hour of trading saw them march steadily lower by an average of 1% but the carnage did not stop there. Around 10AM the selling began to diminish although the indices continued to drift lower into the lunch hour. By 12:15 the market was down an average 1.5%, led by a 2% drop in the Dow Transports.

Selling pressure persisted all day, lows were hit just after lunch, around 1:30PM, and were then tested throughout the afternoon. The NASDAQ Composite suffered the least losses of the morning and maintained that strength into the close but that is not saying much. There was a little late day value-buying just before the closing bell that helped to lift the indices. They closed off of their lowest levels but only just.

Economic Calendar

The Economy

There was not much economic data released today although there is quite a bit due out this week and next week. Auto Sales was the only official data of the day and released in a trickle as one company after another gave up the data. GM and Ford gave us a hint of what to expect before the bell with their individual reports. GM sales rose by 19.3% in December, roughly 50% above expectations. Ford sales rose only 1.2%, less than half of the expectations but a December record dating back to 2005. Fiat-Chrysler also posted double digit gains, besting GM with a 20% increase. This is good news for GM in particular and the industry in general as it continues the uptrend in car sales we have seen since the end of the financial crisis.

Moody's Survey of Business Confidence fell this week. The index fell by 2.4 points from an all time high set last week. Mr. Zandi takes note of this in his summary and mentions low participation due to the holiday as a factor in the reading. He goes on to say that US businesses remain upbeat and in line with an expanding economy. Hiring, sales and business spending remain strong along with expectations for next year. The bit about "...credit availability improving notably..." is still there and a positive sign for prospects in the first part of 2015.

Later this week economic action heats up. On the labor front look for ADP on Wednesday with Challenger and jobless claims Thursday followed by NFP and unemployment data on Friday. Also on tap this week are ISM, Factory Orders, Consumer Credit, Wholesale Inventories and the FOMC Minutes. The minutes are scheduled for Wednesday and are the lead-in to a month of big central bank action. This week is the FOMC minutes from the last meeting, next week they release the Beige Book outlook on the economy, the following week are policy meetings from both the ECB and BOJ, and then the next week is the January meeting of the FOMC.

The Oil Index

Oil hit new lows today. High supply/production capability and lackluster demand have sent WTI and Brent to 5 ½ year lows, much lower than I thought they could or would go. Today's oil trade started with a small drop from the previous close, and then a steady move that took it lower and lower throughout the day. WTI fell near to 5% while Brent fell closer to 6%. Until there is some sign that production levels are falling and/or that supply is coming back in line with demand or that demand is rising the bear market could continue.

The Oil Index fell today, dropping over 4.5% in today's action to move back below resistance at 1335. Today's price action confirms the down trend in the index and is supported by a bearish crossover in the stochastic. Momentum has yet to confirm but is rapidly in decline. Current target is now about 75 below the current level, near 1,212 and the previous low. This level is the full retracement of the current down trend in the oil sector and is a likely target for bottoming or continuation signals.

The Gold Miners

Gold prices got a lift today, although dollar strength kept those gains to levels sub $1200 until late in the afternoon. Stock selling led to some flight into gold which had already been trading higher on physical buying. There is some evidence that physical buying is on the rise in countries like China and India, among others, which is adding support to prices on top of interest rate speculation. While it looks more and more like the bottom for gold is in, there is still a lot of data due out this week which could impact outlook as well as multiple central bank meetings on the horizon. Look for gold to meet resistance near $1215-$1220 should the move above $1200 hold.

The Gold Miners ETF also traded to the upside. The ETF moved 2.6% higher in today's session and continues to exhibit bullish signs. The indicators are both moving higher in the near term and confirm support longer term between $17-$17.50. Current targets are to the upside, just above $20 and the top of two month range. The sector appears to be bottoming as well, but is by no means confirmed without at least a move above $20 . Economic data, central bank action and interest rate outlook could continue to cause volatility in the near term.

In The News, Story Stocks and Earnings

Earnings season is upon us once again. Alcoa is scheduled to report next Monday kicking off another round of reporting. According to FactSet expectations for Q4 earnings remain low, led by negative revisions in the energy sector. The current expected average growth rate for the S&P 500 remains at 2.6%, down from 8.4% at the beginning of the quarter. Telecoms are expected to lead, and energy is expected to lag which was evidenced by some negative ratings issued today. So far, 87 or 17.4% of S&P 500 companies have issued negative guidance.

Alcoa lost over 5% today in a move that took the stock down to an area of potential support. Today's move created a long black candle that halted near the $15 support line and just above additional support along the short term moving average. Support is along the $15 line, and below that along the rising trend line anchored to the last two lows. This stock could continue to test support into next Monday and beyond, depending on how the market likes the earning report.

The banks will be in focus next week as well. The big banks begin to report next Wednesday with JP Morgan and Wells Fargo with Bank Of America, CitiGroup and American Express the next day. Not to mention the dozens of regional and other financials that will be reporting as well. As a group the financials have been improving over the past several quarters are expected to produce average earnings growth of 5% this quarter. Despite expectation for growth above the estimated average the financial sector was one of today's hardest hit. Supply and demand issues drive oil price to a 5 ½ year low and the equity markets fell with it.

The Banking Index fell nearly 3%, creating a long black candle and breaking below potential support at $72.50 with next target near $71.00. The index has been ranging over the last 12 months and is now pulling back after testing the top of that range. The indicators are in line with range bound trading and potential support between $70 and $71, with some bias to the upside. I say this because the index moved up to the high end of the range after the October correction and made a new 12 month high a few days ago. Earnings will be the tell and could surprise us, the average earnings for the S&P tend to run higher than the preseason estimate and is now so low as to be an easy beat. Plus, positive economic tail winds could boost earnings in this sector.

Micron Technologies is expected to report tomorrow. The chip maker has been on a roll since bouncing back from losing its CEO a few years back. One area it is making big headway with is its NAND chips for smart phones and other mobile devices. The company has reported growth in the past, in NAND and other areas, and could do so again if expectations are met. The stock has been trending up over the past 12 months and is trading just below a 12 year high now. Today shares lost 2.8% in a move that broke below the short term moving average and is approaching a potential support line near $32.50.

The Semi-Conductor Index has also been trending up this year, and also traded to the down side today. The index lost 1.92% today, not the biggest decline but not the least either. The index broke through the short term 30 day moving average with bearish indicators. Although trending up, price action over the past 30-40 trading days could just as easily be a double top as some other more bullish indication. Current support target is just below the current level near 660.

The Indices

The bulls slipped in some oil today and didn't get back up. Today's +5% drop in oil seemed to be the only thing in focus, that and its impact on earnings outlook. The declines was led by the Dow Jones Transportation Average which lost 2.66%. Today's action created the longest black since last January when it also tested support. The index is now below the short term moving average and moving lower, with the bottom of the two month range near 8,750, as a first target. The indicators are mildly bearish at this time and in line with a range bound market. Support at 8,850 has been tested once before and proved strong so could do so again.

The Dow Jones Industrial Average was runner up in terms of loss today. The blue chips fell 1.86%, dropping below the short term 30 day moving average and coming to rest a hair above 17,500. Today's action extends the retreat from the recent all-time high set just two weeks ago, before the end of the year. The indicators are bearish in the near term and pointing lower, but weakly, with next target for potential support about 400 points lower. Looking back over the past 12 months the indicators are still consistent with the long term bull market and support along these levels. It looks like time to wait for support to step back in, which could be this week as data is released.

The S&P 500 is next in line with a loss of 1.83%. The broad market lost over 37 points today and created the longest black candle since early October of last year. Today's action came to rest firmly on the 2020 support line that dates back to the all time high set in September. This line was just barely brushed against, before buyers stepped in to bid prices up but only by a few points. The indicators are bearish in the near term, pointing to a further test of support, but still consistent with rising support in the long term. If 2020 doesn't hold the long term trend line is just below around the 2,000 level, a level which has produced 7 bounces and 500 points of movement over the last 18 months.

The NASDAQ composiste brings up the rear today with a loss of only 1.57%. The tech heavy index fell nearly 75 points today, dropping beneath the short term moving average but not quite enough to meet support targets. The index is about 50 points above potentials support along the 4,600 line. If this line does not hold the long term trend line is just below that and is the next best target. The indicators are mildly bearish and inline with a test of support within a greater uptrend.

The indices fell today but from what? Low oil prices? Low oil is hurting the oil sector, and that pain is being felt by the general market, but once the sting is over what will be left? Low energy prices for everybody else; an environment that I see as helpful to the overall economic recovery. The long term economic trends are up and the expectations for next year are good so I don't see a market reversal right now. Present conditions may be a little weak but that is to be expected at the end of the holiday season.

There is a lot of data due out this week, and next week, compounded by FOMC minutes and the Beige Book. Each piece could be the catalyst to send the market moving but so long as the overall picture remains unchanged, the picture of slow steady growth with underlying momentum, the movement should be in line with long term trends. Tomorrow there will be a few earnings reports, a little bit of data and most likely some big headlines around oil price but the more important catalysts I think will be the FOMC minutes and then the NFP/Unemployment. I remain bullish and am patiently awaiting to buy on this dip.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Poised To Outperform

by James Brown

Click here to email James Brown


BioMarin Pharmaceutical - BMRN - close: 93.11 change: +0.94

Stop Loss: 89.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.1 million
Entry on January -- at $---.--
Listed on January 05, 2014
Time Frame: Exit prior to February option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
BMRN is in the healthcare sector, more specifically the biotech space. Last year biotechs were some of the best performing stocks. The S&P 500 rallied +11% in 2014 while the NASDAQ gained more than +13%. Yet the IBB biotech ETF gained +33% while the BTK biotech index surged +48% last year. BMRN only rallied +28.5% in 2014 but they look poised to outperform this January.

The company describes itself as "BioMarin develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. The company's product portfolio comprises five approved products and multiple clinical and pre-clinical product candidates."

They have several drugs in development. One of them is in Phase 3 trials for germline BRCA breast cancer. On their website they list three therapies in phase 3 trials, two appears to be in phase 2, while two more are in phase 1 trials. You can see the list here: BMRN pipeline . J.P.Morgan (JPM) listed six biotech stocks as part of their top U.S. stocks for 2015. BMRN was one of them. According to the Street.com,

J.P. Morgan said: We believe BMRN is uniquely positioned in biotech with an established and growing commercial portfolio, a broad and compelling late-stage pipeline, and an orphan disease focus. Vimizim has enjoyed a strong launch to date, and we suspect its true transformative potential could become increasingly evident in 2015. Perhaps even more importantly, BMRN should have an abundance of clinical news flow throughout the year that may captivate and retain investor interest. The list likely includes very important Phase 2 data for BMN-111 for achondroplasia in 2Q followed by pivotal data for PEG-PAL in PKU, BMN 190 in Batten disease, and BMN 701 in Pompe as well as initial human data for BMN 270 gene therapy in Hemophilia A.

Technically shares of BMRN appears to be breaking out from a three-week, sideways consolidation that occurred in December. The stock was showing relative strength today. Tonight we are listing a trigger to buy calls at $93.55.

NOTE: I am labeling this an aggressive, higher-risk trade because the option spreads on BMRN are pretty wide. I suggest small position sizes.

Trigger @ $93.55 *higher-risk, more aggressive trade*

- Suggested Positions -

Buy the FEB $95 CALL (BMRN150220C95) current ask $5.10

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

Daily Chart:

In Play Updates and Reviews

First Four-Day Decline In A Year

by James Brown

Click here to email James Brown

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

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

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

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

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

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

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


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

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