Option Investor

Daily Newsletter, Tuesday, 1/13/2015

Table of Contents

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

Market Wrap

Unbelievable Volatility

by Jim Brown

Click here to email Jim Brown

The Dow spiked to +282 at the open but quickly sold off to -142 at 17,498 before rebounding at the close to end the day at 17,611 and a -27 point loss. In case you are keeping track that is a 422 point intraday range and also another lower close.

Market Statistics

The morning rally seemed to center on the positive earnings out of Alcoa and the expectations for a positive ruling on open market transactions (OMT) by the ECB in Europe. There was a court ruling due out late today and a decision that OMTs were illegal would also reflect negatively on QE by the ECB. Since the entire investing world is counting on the ECB launching a huge QE program on January 22nd a negative ruling would be a huge disappointment. Also weighing on the market was a warning from KB Home.

On the economic front there was little data to influence the market but what little we did have was positive. The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings rose to the highest level in 14 years in November. The number of open positions rose by +142,000 to 4.97 million. That is the most since January 2001. New positions in professional and business services, retailers and state and local government agencies rose the most. Hiring in leisure and hospitality and health-care firms declined.

There were 4.99 million hires in November, down from a seven-year high of 5.1 million the prior month. This reduced the hiring rate from 3.7% to 3.6%. The survey showed that 2.62 million people quit their jobs, down from 2.71 million the prior month. Total terminations fell from 1.76 million to 1.61 million.

The NFIB Small Business Survey Optimism Index rose from 98.1 to 100.4 for December. That was the third consecutive month of gains and an eight-year high. Those respondents planning on increasing employment rose from 11% to 15% and those expecting sales to increase rose from 14% to 20%. Overall seven out of the ten components saw increases.

The calendar for Wednesday has the Retail Sales for December and the Fed Beige Book for highlights. That is followed by the Philly Fed Manufacturing Survey on Thursday. All could be market moving. The reports highlighted in green are important but they tend to not move the market.

KB Homes (KBH) reported adjusted earnings of 27 cents compared to estimates of 52 cents. The company did not originally report an adjusted number and said earnings were $8.36 per share, which included an income tax benefit of $824.2 million. Shares rallied on the initial report but once the real number was produced on the conference call about 11:30 the shares crashed -16%.

Revenue did increase +29% to $796 million to beat estimates by about $20 million. However, on the conference call the CEO said they were seeing "soft demand" in some locations as the quarter progressed. The earnings miss and the soft demand comments tanked the stock. You have to ask yourself why demand is soft with 30-year mortgage rates near record lows and the relaxation of credit requirements. Why are people not buying new homes?

Tesla (TSLA) shares rallied $2 in regular trading but CEO Elon Musk dropped a bomb at the Detroit Auto Show after the close. He said sales in China had declined "significantly" because potential Chinese buyers don't believe the charging network is widespread enough to allow the cars to travel significant distances. He said they were working to change that impression and the Supercharger network is slated for large improvements in 2015 and 2016. Shares fell -6% to $190 in afterhours.

Musk said Tesla would be selling "millions" of cars by 2025 as they become a volume automaker rather than a niche producer. The Model-X gull wing SUV that is due out in late summer has already sold out for the entire year.

GoPro (GPRO) declined -12% on news that Apple had received a patent for a remote control camera. The camera can be controlled remotely through an iPhone or iPad. Since Apple is expected to have sold more than 270 million of their products in 2014 their entry into the GoPro space would be serious competition. GoPro sold 4 million cameras.

However, after analysts got a chance to review the patent they concluded it would not be serious competition for GoPro. Apparently it relates more to a camera that could be used for surveillance like a security camera or a baby monitor camera. The patent does state it could be a wearable camera with examples given as mounted on a bike helmet or a scuba mask so Apple does have other things in mind for the project.

Credit Suisse upgraded Apple shares from hold to outperform and raised their target from $110 to $130. The analysts said Apple was seeing "solid and sustainable iPhone volume." They expect Apple to sell 215 million iPhones in 2015 and 2016. He predicted higher margins as demand for the bigger phones increases and those sales lean towards the higher memory units with a larger number of apps and movie/music downloads.

The analyst also expected Apple to increase its cash-return program to $200 billion through 2017 with $165 billion in buybacks and $37 billion in dividends. He is also not including any material gains from the rumored 13 inch iPad, Apple TV, Apple Pay or the Apple Watch. If those turnout to be profitable he said his estimates could be revised higher.

The upgrade did not drive the stock price with Apple shares gaining only 97 cents for the day. Current Q4 earnings expectations are simply too high.

Amazon shares rallied +3% in the morning after Citigroup said the business would grow another 15% in 2015 compared to the industry average of 4%. The Citi analyst set a price target of $354 with the stock closing at $294. The gains faded with the market to end at only +3.33 for the day. The analyst said Amazon Web services could grow a whopping +35% this year. They are already the biggest cloud on the planet. He is expecting profits to have risen +25% in 2014 and margins to the highest level in 10 years. That is a pretty optimistic outlook.

Amazon also announced it had signed 79 year old Woody Allen to make his first ever TV series. The filmmaker will write and direct the 30 minute comedy series, which will premier in 2016. He has directed more than 40 films since his first in 1966 named "What's up Tiger Lilly." He has four Oscars to his credit and two Golden Globes. Amazon Studios was started in 2010 to develop full-length films and TV shows. Amazon spent nearly $2 billion on streaming rights and original content in 2014 according to Morningstar. Amazon has 13 new pilots that will be unveiled on Thursday to Prime members.

Earnings are on Jan 29th and they usually disappoint. I looked at buying puts on them over the weekend but the prices are astronomical since everyone expects them to disappoint.

Best Buy (BBY) was upgraded by Goldman Sachs from neutral to buy. The bank said a pickup in TV sales and good sector fundamentals should produce better than expected Q4 results. Shares were flat on the news.

Abbot Labs (ABT) was downgraded from buy to hold at Jefferies with a $50 price target. The analyst said this was a valuation call as the company lacks near-term visibility. Shares fell -1.6%.

Alaska Air (ALK) was upgraded by Deutsche Bank to hold from sell with a 12-month price target of $65. The bank said lower fuel prices should be positive. Shares gained about $1 to $61.

Franklin Resources (BEN) was downgraded by Bank of America from buy to neutral with a $60 price target. Company is facing multiple growth headwinds according to BAC. Shares declined 50 cents to $52.25.

E*Trade (ETFC) was upgraded by BAC from neutral to buy with a price target of $26. Core trends are improving and the company will likely return more capital to investors. Shares gained 28 cents.

Hewlett Packard (HPQ) was downgraded by Pacific Crest to neutral from outperform. It was a valuation call with shares up +145% over the last two years. Shares were down fractionally on the news.

Legg Mason (LM) was upgraded by BAC to buy from neutral with a price target of $62. Shares gained +2.6% on the news to $54.50.

Marathon Petroleum (MPC), not to confused with Marathon Oil (MRO), was downgraded by JP Morgan from buy to neutral with a price target of $97. Shares crashed -5% to $81 on the downgrade.

Sonic (SONC) rallied +4% to a new high after Piper Jaffray upgraded them from neutral to overweight with a price target of $38 with multiple growth drivers. Shares closed at $32.

Fresh Market (TFM) was downgraded by Piper Jaffray from overweight to neutral with a price target of $42 on worries over the CEO exit. Shares crashed -11.3% to $36 on the news.

We are right in the middle of the guidance warning season for Q4 as earnings reports accelerate starting next week. Companies giving positive guidance today were LLTC, ZLTQ, HTWR, MFLX, ISRG, NXTM and ELX. Inline guidance came from QTM, PRGS, GME, FLDM, ZIXI, DAN, BAGR, MVNR and ORBK. We saw negative guidance from SYK, DWCH, AAOI, IHS and HTCH. Relatively speaking the amount of negative guidance was minimal compared to the positive and inline guidance.

The flurry of earnings warnings so far this year has caused analysts to sharply lower their Q4 earnings estimates and this is also depressing the market. Q4 estimates have been cut from +8.1% growth to +2.0% and Q1 estimates have fallen from +9.2% to +2.8% and still falling. Analysts believe 2015 S&P earnings could fall -$6 to -$9 from prior estimates. Assuming a PE of 18 that equates to -108 to -162 S&P points. That means a year end estimate for 2,100 on the S&P could be cut to 1,940 to 1,992.

Estimates are just estimates and until we get 2-3 weeks deeper into the cycle we won't know if they are accurate or not. The market appears to be pricing in some earnings disappointments along with the worry over Europe and the strong dollar.

Crude oil helped push the market lower in the morning after WTI crashed to a new five-year low at $44.20 before rebounding to $46.45 at the close. At one point WTI was trading for more than Brent crude, which is the standard for waterborne crude pricing around the world. At one point in 2014 Brent was priced at more than $15 than WTI.

Despite the decline in energy equities today I continue to believe this is a twice a decade buying opportunity. Eventually crude is going to find a bottom and when it does the resulting move higher in equities is going to be violent. However, the Q4 earnings are going to be ugly. Current estimates are for a decline of -23.4% for Q4 and another -35% decline in Q1. This means we might be able to buy some energy stocks cheaper in February after earnings. However, if WTI finds a bottom in the coming days we could see a sharp rally in energy stocks before earnings and the post earnings drop could be minimal.

Bottom callers are breaking out all over with calls for $44, $43, $40, $38, etc. Most analysts believe any number that starts with a 3 is going to be the last straw for global producers. The financial crisis low was $33. Nobody wants to be the first producer to blink but the pain is immense for those countries that depend on oil exports for 50% or more of their revenue. One analyst jokingly said he would not be surprised if Russia nuked Saudi Arabia's big oil terminal to cut supply by 7 mbpd and blame it on terrorists. We are at the pain level where somebody is going to do something drastic soon.

Gasoline prices have now declined for 109 consecutive days to $2.11 today. That is an all time record streak. As long as oil prices continue to decline we can expect gasoline to decline as well. However, we are getting to the ridiculous zone. I am not sure how much further gasoline can decline and still be profitable for everyone in the retail chain. Gasoline futures set a new low at $1.26 today. My wife paid $1.599 for unleaded in Denver today at a Loaf & Jug. That does not leave much room for the refiners and retailers for profits. We could be nearing rock bottom.

The bond market is still telling us there is trouble ahead. The yield on the ten-year fell to 1.876% intraday and only .01 point above the intraday low of 1.868% back in October. The odds are very good we are going to see a lower low as treasuries remain a flight to quality.

The yield on the 30-year declined to 2.469% intraday and that is only a couple of bips above the July 2012 low at 2.452%. Anything below that 2.452% level is a 60+ year low. Think about that. Mortgage rates are at multi-decade lows and money continues to pour into treasuries. This is a warning on the state of the global economy.


The volatility today was huge. Selling off from a +282 open to -142 at 2:PM makes a very ugly candle and another lower high, lower low. It is very bad for sentiment. You expect big swings on a capitulation event where the market might drop -282 points and then explode higher as the dip buyers overwhelm the shorts. You rarely see the reverse where a big gain is wiped out in a matter of minutes into a triple digit loss.

Volume was 7.8 billion shares and fairly high for a Tuesday even in an expiration week. Volume was 2:1 negative, which given the magnitude of the move I am surprised it was not worse.

I warned in the weekend commentary if forced to pick a direction I would be shorting the Nasdaq 100 (QQQ) because they were leading the market. On Monday the NDX posted the biggest loss. Today it traded in a 118 point range from the opening high at 4,252 to the intraday low at 4,134 but rebounded to close negative by only 3.77 points. That is extreme volatility.

After pondering the index and stock charts for a couple hours tonight I am neutral for tomorrow. The big move up and down cleared a lot of buy/sell stops and I am pretty sure investors are in shock tonight. The focus is going to be on the bank earnings with JPM and WFC reporting on Wednesday. Traders will also be looking at Europe for direction ahead of the January 22nd ECB decision.

On the S&P the 100-day average is back in play at 2,007 with the low today at 2,008. The psychological 2,000 level is also a target after the dip to 1,992 last week. Resistance is now solid at 2,060 after two tests only three days apart. That gives even a newbie chartist a clear level to short.

The Dow may have traded in a 400+ point range but it closed with a lower low. Support at 17,500 was immediately bought with only a 2 point penetration. That occurred about the same time oil was rebounding so that could have been a factor. In the table below Chevron was the biggest loser with Exxon in the number 7 spot with only a fractional loss that was $1 off its lows.

Since JP Morgan is a Dow component they will influence the Dow's performance when they report earnings on Wednesday. Whatever they report will also impact Goldman Sachs and they are also a Dow component.

There were six Dow components making new 52-week highs this morning. Those were WMT, PFE, MRK, DIS, CSCO and UNH. If those stocks were not being offset by declines in XOM, CVX and others the day might have turned out different.

The double failure at 17,915 over the last four days makes that level strong resistance. The 100-day at 17,298 will be the level to watch on any further declines. The 100-day has been support on the last two declines even though the Dow is not normally reactive to moving averages.

The Nasdaq Composite dipped to 4,624 intraday but managed to rebound back over prior support at 4,650. The 100-day average, now 4,593 has acted as support on the last two declines. That gives us about 67 points of maneuvering room before a critical support test. There are a lot of big caps in the losers list below but on the winners side Google, Netflix, Biogen and Amazon kept the index from closing too far in the red.

The 4,750 level has now been strong resistance on the last two spikes higher so that is the clear level to watch on any future gains.

The NYSE Composite index was far weaker than the other majors and is confirming the lower high from last week. If it confirms a lower low under 10,400 we are in serious trouble.

The Dow Transports just barely held above the 100-day at 8,700. Any move below the 8,659 low from last week is going to trigger increased selling. The Transports are not supporting the Dow and odds are good they are going significantly lower.

The Russell 2000 was the only major index to finish the day in positive territory at 1,180 and most of the gain came in the final 30 minutes of trading. It is not enough for me to take my eyes off the Nasdaq 100 as my directional indicator this week. However, if the Russell moved over 1,200 I would immediately switch. The Russell rallied to a dead stop at 1,200 this morning before dropping back to 1,168 intraday.

I am still bearish until proven wrong. I am sure there is another short squeeze in our immediate future but after the shorts were cleared out at the open today they may be less anxious about launching a new set of plays tomorrow. However, if the market starts off negative they will regain their confidence very quickly.

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Jim Brown

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New Option Plays

Industrial Equipment

by James Brown

Click here to email James Brown


WESCO Intl. - WCC - close: 69.33 change: -1.43

Stop Loss: 72.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 619 thousand
Entry on January -- at $---.--
Listed on January 13, 2014
Time Frame: Exit PRIOR to earnings on January 29th
New Positions: Yes, see below

Company Description

Why We Like It:
Last year the S&P 500 gained +11% as the U.S. economy slowly started to gain some momentum. That was not the case for WCC. This stock underperformed the market in 2014 with a -16% decline.

According to the company's marketing materials, "WESCO International, Inc. (WCC), a Fortune 500 company headquartered in Pittsburgh, Pennsylvania, is a leading provider of electrical, industrial, and communications maintenance, repair and operating (MRO) and original equipment manufacturers (OEM) products, construction materials, and advanced supply chain management and logistic services. 2013 annual sales were approximately $7.5 billion. The company employs approximately 9,200 people, maintains relationships with over 25,000 suppliers, and serves over 75,000 active customers worldwide.

Customers include commercial and industrial businesses, contractors, government agencies, institutions, telecommunications providers, and utilities. WESCO operates nine fully automated distribution centers and approximately 475 full-service branches in North America and around the world, providing a local presence for customers and a global network to serve multi-location businesses and multi-national corporations."

Last year was challenging for WCC's earnings results. They missed Wall Street's earnings estimates three quarters in a row. The only reason they beat estimates back in October was because management had lowered their guidance back in July. So WCC managed to beat Wall Street's lowered estimates. On December 17th WCC lowered their guidance again, this time for fiscal year 2015. Management tried to soften the blow by announcing a $300 million stock buyback program over the next two years.

Technically WCC looks terrible. It formed a bearish double top with the peak in January and June in 2014. Shares have developed a bearish trend of lower highs. The point & figure chart is bearish and forecasting at $55.00 target. Now it appears to be breaking down under key support near $70.00. The intraday low today was $68.82. We are suggesting a trigger to buy puts at $68.75.

This is going to be a short-term trade. We will plan on exiting prior to WCC's earnings report on January 29th.

Trigger @ $68.75

- Suggested Positions -

Buy the FEB $65 PUT (WCC150220P65) current ask $1.30

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Whipsaw Lower On Tuesday

by James Brown

Click here to email James Brown

Editor's Note:

The major U.S. indices saw their early gains vanish as stocks plunged before dip buyers showed up this afternoon.

It was a very volatile session.

Current Portfolio:

CALL Play Updates

Alkermes plc. - ALKS - close: 67.36 change: -1.25

Stop Loss: 59.25
Target(s): To Be Determined
Current Option Gain/Loss: +48.4%
Average Daily Volume = 833 thousand
Entry on January 07 at $63.01
Listed on January 06, 2014
Time Frame: Exit PRIOR to February option expiration
New Positions: see below

01/13/15: ALKS tagged a new high, just above $70, before the market reversed lower. Shares gave up about a third of yesterday's gains. Fortunately traders were starting to buy the dip this afternoon.

More conservative investors will want to seriously consider raising their stop loss.

I am not suggesting new positions at this time.

Earlier Comments: January 6, 2015:
Biotech stocks were not immune to the market's widespread sell-off today. Yet one stock was bucking the trend. That's biotech stock ALKS.

According to the company's marketing material, "Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to develop innovative medicines that improve patient outcomes. The company has a diversified portfolio of more than 20 commercial drug products and a substantial clinical pipeline of product candidates that address central nervous system (CNS) disorders such as addiction, schizophrenia and depression. Headquartered in Dublin, Ireland, Alkermes plc has an R&D center in Waltham, Massachusetts; a research and manufacturing facility in Athlone, Ireland; and manufacturing facilities in Gainesville, Georgia and Wilmington, Ohio."

Investors want to see companies with a growing pipeline of drugs and ALKS certainly qualifies. Here is a list of treatments in various stages of clinical trials at ALKS current pipeline .

The stock's jump today was thanks to a press release issued this morning. Here's an excerpt from ALKS' press release:

[ALKS] today announced topline results from FORWARD-1, one of a series of supportive clinical studies in the comprehensive FORWARD phase 3 pivotal program for ALKS 5461, a once-daily, oral investigational medicine with a novel mechanism of action for the adjunctive treatment of major depressive disorder (MDD). The FORWARD-1 study was designed to evaluate the safety and tolerability of two titration schedules of ALKS 5461. In addition, the study assessed the efficacy of ALKS 5461 over an eight-week period, compared to baseline, in patients with MDD.

...significantly reduced depressive symptoms from baseline starting at Week One and continued to the end of the treatment period at Week Eight...

If this treatment gets approved by the FDA it could be huge. According to a Thomson-Reuters article, depression is a massive opportunity going forward. Almost 350 million people worldwide suffer with depression and it's the leading cause of disability in the world. As more and more healthcare systems around the world get better at diagnosing depression it's going to drive demand for treatment.

Jim Cramer, on CNBC, mentioned ALKS this morning and commented on the company's press release about this new depression drug.

Technically shares have been showing relative strength the last few days and ignoring the market's sell-off. Today's breakout past resistance at $60.00 has also produced a new point & figure chart triple-top breakout buy signal with a $100 price target.

I am cautioning readers that biotech stocks are volatile. ALKS is no different. This is another higher-risk, more aggressive trade. The option spreads are pretty wide, which puts us at a disadvantage.

Tonight we are suggesting small bullish positions if ALKS can trade at $61.75. I would prefer to buy March calls since ALKS reports earnings in late February but March options are not available yet.

- Suggested Positions -

Long Feb $65 CALL (ALKS150220C65) entry $3.10

01/10/15 new stop @ 59.25
01/07/15 triggered on gap higher at $63.01, suggested entry was $61.75.
Stock rallied on positive Phase 2 trial data for schizophrenia drug.
Option Format: symbol-year-month-day-call-strike

Cepheid - CPHD - close: 55.40 change: -0.83

Stop Loss: 53.95
Target(s): To Be Determined
Current Option Gain/Loss: -20.5%
Average Daily Volume = 623 thousand
Entry on January 12 at $56.55
Listed on January 10, 2014
Time Frame: 3 to 5 weeks, exit PRIOR to Q4 earnings
New Positions: see below

01/13/15: CPHD also hit a new relative high before rolling over. The stock dipped back toward prior resistance and what should be support near the $55.00 area before bouncing. I would wait for a new rally above $56.00 before considering new bullish positions.

Earlier Comments: January 10, 2015:
CPHD is part of the technology sector but after you hear what they do the company sounds like they belong in the biotech industry. The company's marketing material describes themselves as "Based in Sunnyvale, Calif., Cepheid (CPHD) is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests. By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer."

The stock struggled over the 2014 summer. Earnings in July came in two cents ahead of expectations. Yet management lowered their guidance. The stock collapsed. Now it looks like the company is seeing an earnings turnaround. Their most recent report was October 16th. Wall Street estimates were pretty wide ranging from breakeven ($0.00) to a loss of -16 cents. CPHD reported a loss of -6 cents. Yet revenues were up +15% to $115.2 million, which was above expectations. Gross margins improved as well with a jump from 49% to 52%. More importantly management raised their guidance for the rest of 2014. That fueled a nice rally in shares.

The company seems to be on a roll with a number of positive announcements. In just the last few weeks CPHD has announced European approval of Xpert HIV-1 Viral Load, which is a test to measure the active amount of HIV in a patient's blood. This is significant since nearly 35 million people globally are living with HIV/AIDS. The U.S. FDA recently approved CPHD's test to detect the presence of highly contagious Noroviruses of the genogroup 1 and genogroup II. This is significant since estimates suggest 267 million people are affected by a norovirus ever year and 200,000 people die annually. The FDA also issued an approval for a test to detect the presense of Flu A, Flu B, and the respiratory syncytial virus in a patient. CPHD said they also received a grant to work on an Ebola detection test that can be used on a person's saliva or blood.

Shares displayed relative strength on Friday with a +2.3% gain. The stock is challenging resistance in the $55-56 zone and on the verge of breaking out to new record highs. If CPHD does break out it could see some short covering. The most recent data listed short interest at 13% of the relatively small 69.4 million share float.

The November 28th intraday high was $56.47. More aggressive traders may want to jump in on a rally past $56.00. We are suggesting a trigger to buy calls at $56.55. Please note this could be a short-term trade. It looks like CPHD might report earnings at the very end of January and we will most likely exit prior to the announcement.

- Suggested Positions -

Long MAR $55 CALL (CPHD150320C55) entry $4.40

01/12/15 triggered @ 56.55
Option Format: symbol-year-month-day-call-strike

Royal Caribbean Cruises - RCL - close: 83.27 change: +0.01

Stop Loss: 78.40
Target(s): To Be Determined
Current Option Gain/Loss: - 5.0%
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

01/13/15: Shares of RCL weathered the market's volatile session today pretty well. The stock garnered some bullish analyst comments. While it is encouraging to see RCL close virtually unchanged with the major indices in the red I am a little concerned to see the rally this morning fail at short-term resistance in the $84.65 area.

I am not suggesting new positions at this time.

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

Whole Foods Market, Inc. - WFM - close: 51.73 change: -0.09

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: +37.0%
Average Daily Volume = 4.9 million
Entry on January 08 at $50.35
Listed on January 07, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

01/13/15: WFM also held up reasonably well. The $51.00 level is broken resistance and today it acted as new support. WFM bounced near $51 to close virtually unchanged.

Earlier Comments: January 7, 2015:
WFM is in the services sector. As of November 2014 the company had 401 stores in the U.S., Canada, and the United Kingdom. Founded in 1978, WFM has become synonymous with healthy, organic food, at least for a growing portion of the population.

In early May 2014 the stock was crushed when the company missed Wall Street's earnings estimates and lowered its 2014 guidance. Investors were very unhappy with WFM's same-store sales growth as well. The organic food space has been growing more competitive in recent years as other retail groceries seek to boost their profits with wider margin "organic" fare.

WFM spent months languishing in the $36-40 zone before finally surging in early November. The big rally was sparked by better than expected earnings results and management raising their 2015 guidance. Shorts panicked and the stock exploded higher.

WFM has been slowly working its way higher since then but now WFM looks poised to breakout past key resistance at the $50.00 level.

The huge drop in gasoline prices is very bullish for the U.S. consumer. They now have more money in their pocket that they can spend on other items, like high priced organic foods at WFM.

Traders have started buying the dip and shares hit an intraday high of $50.18 today. Tonight we are suggesting a trigger to buy calls at $50.30. We will plan on exiting prior to WFM's earnings results in mid February.

- Suggested Positions -

Long FEB $50 CALL (WFM150220C50) entry $2.30

01/08/15 triggered on gap open at $50.35, suggested entry was $50.30
Option Format: symbol-year-month-day-call-strike

Zebra Technology - ZBRA - close: 82.54 change: +1.88

Stop Loss: 78.75
Target(s): To Be Determined
Current Option Gain/Loss: +29.4%
Average Daily Volume = 494 thousand
Entry on January 12 at $80.85
Listed on January 10, 2015
Time Frame: Exit prior to earnings in February
New Positions: Yes, see below

01/13/15: ZBRA continued to ignore the market's weakness. Shares surged another +2.3% to post their fifth gain in a row. The stock is nearing what could be resistance in the $85.00 area.

Earlier Comments: January 10, 2015:
ZBRA is considered part of the industrial goods sector but they sound more like a technology company. The company website describes them as "Zebra Technologies is a global leader in enterprise asset intelligence, designing and marketing specialty printers, mobile computing, data capture, radio frequency identification products and real-time locating systems. Incorporated in 1969, the company has over 7,000 employees worldwide and provides visibility into valued assets, transactions and people."

Their goods are used by 90% of the Fortune 500 companies. They have almost no debt. Last year they spent almost $3.5 billion buying Motorola Solutions (symbol was MSI). ZBRA's CEO believes that the MSI acquisition will help them capitalize on three big trends: mobility, the Internet of things, and cloud computing.

In February 2014 ZBRA raised their earnings guidance. They did it again two months later in April. Their most recent earnings report was above expectations. ZBRA announced record revenues with sales up +19% in Middle East and Africa, +16% in North America, +11% in Latin America, and +9% in Asia Pacific.

Technically the stock has been stair-stepping higher with a bullish trend of higher lows and higher highs. This past week ZBRA displayed relative strength and broke out to new multi-month highs. The point & figure chart is bullish with a $92.00 target.

Tonight we are suggesting a trigger to buy calls at $80.85. We will plan on exiting positions before ZBRA reports earnings in mid February.

- Suggested Positions -

Long FEB $85 CALL (ZBRA150220C85) entry $1.70

01/12/15 triggered @ 80.85
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Dover Corp. - DOV - close: 69.15 change: +0.41

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +52.2%
Average Daily Volume = 1.7 million
Entry on December 29 at $73.40
Listed on December 27, 2014
Time Frame: Exit PRIOR to earnings on January 27th.
New Positions: see below

01/13/15: DOV spent Tuesday's session churning sideways inside the $68-70 zone. It's the second day in a row we've seen DOV bounce around in this range.

I am not suggesting new positions at this time.

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

01/09/15 DOV's BoD approves a 15 million share stock buyback program over the next three years
01/08/15 new stop @ 72.25
01/03/15 new stop @ 74.25
12/29/14 triggered @ 73.40
Option Format: symbol-year-month-day-call-strike

Starwood Hotels & Resorts - HOT - close: 74.03 change: -0.15

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.3 million
Entry on January -- at $---.--
Listed on January 12, 2014
Time Frame: Exit prior to earnings in mid February
New Positions: Yes, see below

01/13/15: The stock market's rally this morning sent HOT higher but the rally failed pretty quick. Shares faded back toward the $74.00 level. I don't see any changes from yesterday's new play description. Our suggested entry point to buy puts is at $73.90.

Earlier Comments: January 12, 2015:
HOT is in the services sector. According to a company press release, "Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with more than 1,200 properties in 100 countries, and 181,400 employees at its owned and managed properties. Starwood is a fully integrated owner, operator and franchisor of hotels, resorts and residences with the following internationally renowned brands: St. Regis®, The Luxury Collection®, W®, Westin®, Le Meridien®, Sheraton®, Four Points® by Sheraton, Aloft®, and Element®. Starwood also owns Starwood Vacation Ownership, Inc., a premier provider of world-class vacation experiences through villa-style resorts and privileged access to Starwood brands."

The company's most recent earnings report was October 28th. The company beat the bottom line estimate by a penny but missed the revenue number. Management then guided lower. Since then at least two analyst firms (UBS and JP Morgan) have downgraded shares of HOT. JPM said their downgrade was on valuation concerns. Other analysts have issued worries about how the strong dollar might hurt HOT's financials.

There are also concerns that Airbnb could be hurting the hotel business. Airbnb's growth has surged since it was founded back in 2008. Just four year later Airbnb announced their 10 millionth night booked. It may not be fair to say all 10 million of those would have gone to the hotel industry but certainly a good chunk of Airbnb's business has been stolen from more traditional lodging services.

Technically shares of HOT look weak. The point & figure chart is bearish and forecasting at $68 target (which could get worse). Today's breakdown under support near $75.00 looks ominous. The intraday low today was $74.06. Tonight I am suggesting a trigger to buy puts at $73.90. We will plan on exiting prior to HOT's earnings report in mid February.

Trigger @ $73.90

- Suggested Positions -

Buy the FEB $70 PUT (HOT150220P70) current ask $1.37

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