Option Investor

Daily Newsletter, Wednesday, 1/14/2015

Table of Contents

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

Market Wrap

Bearish Opex Week

by Keene Little

Click here to email Keene Little
Opex weeks have been bullish for so long that it's hard to remember a bearish one but so far that's what we've got. There's still a chance the bulls could rescue this week but they'll need to continue today's late-day bounce to make it happen.

Wednesday's Market Stats

This morning the stock market started off in a big hole that was created after the futures declined significantly during the overnight session, especially after 5:00 AM. What made this odd was that this followed an interim ruling from the European Court of Justice that said the ECB would not be blocked from using their Outright Monetary Transactions (OMT) program. It should actually be called the "OMG, they can just create money out of thin air" program.

With Mario Draghi given the green light to do "whatever it takes" I was surprised we weren't looking at a +25 gap up for SPX instead of a -25. The ECB said the ruling is "an important milestone" and that their program is "ready and available." The next meeting for the ECB is January 22nd and Draghi could finally launch a more significant QE effort. But surprisingly, with more jawboning and a court decision providing a green light for QE, the stock market tanked. Instead of rallying strong, as has been the normal reaction to such news, it leaves us wondering if good news is already baked into the cake. Selling good news is clearly a change in character for the market, which joins several changing signals now.

Following this news the value of the euro initially spiked down early this morning and dropped to 1.1726 and is now very close to testing its November 2005 low at 1.1642. When the euro first started trading against the U.S. dollar it traded at 1.1747 so this is a psychologically important level for the euro, which closed today at . From a technical perspective there is strong price-level S/R near 1.20 so this month's breakdown is potentially very important.

The U.S. dollar initially spiked back up during the overnight session but then tanked at 8:30 AM, as did equity futures. The retail sales report at 8:30 was the culprit since it came in weaker than expected and was negative. Sales dropped -0.9% in December and November's sales was revised lower to +0.4% from the previously reported +0.7%. Expectations for December were +0.1% but even small-growth expectations were not met and instead it was negative growth.

One of the causes for weaker sales was poor income growth. As reported last week, average hourly earnings for December declined -0.2% vs. November's +0.2%, which had been revised lower from the initially reported +0.4%. So the slower-than-expected earnings growth is now showing up in weaker retail sales. Who woulda thunk?

Lower gasoline sales gets the credit/blame for lower retail sales but many economists assumed the lower costs at the pump would prompt more buying elsewhere. Apparently consumers didn't get the memo and they're not doing their patriotic duty by spending more. Many thought consumers would dip into savings and/or increase their use of credit during December, neither of which happened.

Another area that saw a big dip in spending was building materials, down -1.9%, an indication the housing market is slowing down. This follows yesterday's earnings report from KB Homes (KBH) and CEO Jeffrey Mezger's warning in the conference call that their margins are shrinking. Gross margins dropped 30 basis points to 18.7% in their 4th quarter and they're expected to shrink further. Apparently higher sales incentives to compensate for weaker demand, combined with higher material and labor costs, are eating into their profits. The stock lost -16% yesterday, which pulled the home builder index lower as other home builders tanked in reaction to KBH's report.

Not helping the European or U.S. markets was a forecast from the World Bank that predicted slower global growth rates. They lowered their growth forecast from +3.4% down to 3.0%. The high stock valuations are coming under increased pressure as investors start to get more and more data showing the economies are slowing. Deflation fears are also depressing stock prices (asset prices decline in a deflationary period).

Another change in character for the market is what's happening this opex week, a typically bullish time for the market. One common pattern in the past was for the Thursday prior to opex to be down, especially in the morning, and then start the buying with some buy programs that triggers short covering and the buying continues through opex. That didn't happen this time. Another recent pattern, which was seen at the October and December v-bottom reversals, is for a selloff on Monday and Tuesday and a low Wednesday morning. The lows set a bear trap that was then followed by a strong rally into Friday. We even had the same VIX and TRIN setups seen in October and December but it didn't work today. It's another sign that the market has changed.

But first the bears have to fight the Trader's Almanac, which has some very bullish statistics for the coming year, including:

-- the 3rd year in a presidential cycle has produced zero losers in past 76 years
-- the year ending in '5' has been down only one time in the past 130 years
-- there have been only 3 prior times SPX has been up double digits 3 years in a row and each time the 4th year was up more than +20%

Oftentimes this becomes a self-fulfilling prophecy with traders believing, and buying, into the idea that it's a can't-lose market, especially with a Fed that's backstopping the market. We've got a long way to go before we'll know if the bullish records will hold but there is one record that the market might find difficult to break.

The chart below is from BusinessInsider.com and it was put together by Robert Shiller. It shows the period from 1874 to 2014 and the number of consecutive years the S&P 500 was positive. The only time it hit 6 years running was back in 1898-1903, whereas all other previous bull markets maxed out at 5 years except currently. The rally from 2009 will be 6 years old in March (some indexes hit their 6th year in November from their November 2008 lows, such as the SOX and NDX) so another positive year would break the record. It's not that it can't be done but what are the odds? A 6-year rally is by definition from this chart very overbought and that helps explain the -18% decline following the last time the market was up 6 years in a row.

SPX consecutive positive years, 1874-2014, chart courtesy Robert Shiller

Some recent warning signs for the market include:

-- The VIX has climbed more than 50% in the last month
-- There was no Santa Claus rally for the first time since 2008
-- The financial sector is acting especially weak and is typically a good canary sector
-- as goes the first 4 trading days of January so goes the month and as goes January so goes the year

But there's one relatively strong sector, the small caps, which hints of more bullishness and that means the bears cannot get complacent here just because there's been no Santa Claus rally and January is looking so weak. The U.S. has been outperforming most of the rest of the global economies and we could see a relatively strong earnings season that gets traders excited enough to reenter the market and drive the indexes to new highs. Unfortunately the charts are at one of those inflection points and could go either way but one good thing for traders is that the next move (one that lasts for at least a couple of weeks) will likely be a strong one.

Our job is to try to figure out early which way the market's next big move is likely to be so that we can get in front of it (or at least in front of most of it). For that we naturally go to the charts. Starting with the SPX weekly chart, you can see that this week's decline has SPX again breaking its uptrend line from October-December, currently near 2047 and near its 50-day MA. Monday's break below that level was the 2nd break, which increases the odds that the breakdown will hold. At the moment it's trying to hold price-level support near 2010 but if that doesn't hold then the 50-week MA, down near 1949, or its trend line along the highs from April 2010 - May 2011 (bold green line), near 1920, could be the downside targets in the coming days.

S&P 500, SPX, Weekly chart

Because the market is at an inflection point there are several paths the market could take from here and none of them jump out yelling "pick me, pick me!" Consequently my daily chart below is a little busy with the multiple possible paths from here. The more immediately bearish path says the market will continue lower into the end of the month an possibly bottom out near 1870 before setting up a larger bounce correction. Or we could get a sharp rally back up to just above last Friday's high at 2064, followed by a strong decline. Or we could get another rally leg up to new all-time highs. So it's a case of "it could go up or it might go down and if it does neither of those then it will go sideways." The sideways chop and whipsaws has been either a great trading opportunity or a nightmare for traders, depending on how you played it. Many smart traders simply stayed on the sidelines while waiting for the next direction to establish itself.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2072
- bearish below 1963

The 60-min chart below shows a bullish sideways triangle that I had been following but it was negated with today's low that broke below the January 6th low. There's one more bullish wave count that calls for one more new high but it's a real stretch. At this point I do not believe we'll see any more new highs but we could certainly get a high bounce, which is what I'm showing for the coming week. It would finish a 2nd wave correction to the 1st wave decline from December 29th to January 6th and a new high for the bounce would likely get a lot of traders feeling bullish. But the bearish potential with the pattern is that a new bounce high could turn into a bull trap and lead to a strong 3rd wave decline. If this afternoon's small bounce is followed by a drop lower on Thursday we could see SPX drop down to its December low, near 1972, or its uptrend line from March 2009 - October 2011, near 1965 (log price scale). That's also where the 200-dma is currently located.

S&P 500, SPX, 60-min chart

It's the same picture for the DOW as for SPX. The sideways triangle technically was broken today but with only a throw-under it could still be a viable pattern, in which case we're looking for a new rally leg to a new high. Upside targets would be to the trend line along the highs in 2014, near 18300 by the end of the month, or up to the top of a parallel up-channel for the rally from October 2011, near 18600 by early February. The short-term bullish pattern calls for a sharp rally but only marginally higher than the December 26th high at 18103 before dropping sharply lower. The bears would be in better shape with the DOW below 17075, which is where the decline from December 26th would have two equal legs down, and then below its 200-dma, which is nearing 17000.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,000
- bearish below 17,075

NDX has also been chopping sideways in a descending triangle and is still inside it. As a bullish continuation pattern in this location (following the October-December rally) it's very possible we'll get a new rally leg out of the pattern. An a-b-c bounce off the January 6th low that achieves two equal legs up points to 4272, which would also be a 78.6% retracement of the December 26 - January 6 decline so it would be more bullish above that level but still potentially bearish if the December 26th high was THE high.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4272
- bearish below 4089

The RUT has been a different pattern than the others and has been relatively strong, which is bullish. But today was bearish because it again closed below its 50-dma, which it held on a closing basis on Monday and Tuesday, and it closed below its uptrend line from October-December. Worse, it bounced back up near the broken uptrend line today and could leave a bearish kiss goodbye if it sells off tomorrow. The uptrend line will be near 1181 Thursday morning and the 50-dma will be near 1179 so that's resistance until proven otherwise. If, like the other indexes, the market ramps back up to finish a larger 3-wave bounce off the January 6th lows we could see the RUT reach at least 1207 for two equal legs up. That level is also the 78.6% retracement of the December 31 - January 6 decline so it would be more bullish above that level and especially above the trend line along the highs from March-July, currently near 1216.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1217
- bearish below 1150

I mentioned earlier that a bearish signal for the market is the big jump up in the VIX in the past month. With more traders looking to protect their portfolios and/or speculate on the short side of the market, it says traders are not feeling as bullish about the market as they were. But the VIX has now made it up to a downtrend line from October-December, poking above it and then closing on it (mirroring what SPX did with its uptrend line from October-December today, except SPX was able to close above its line). The setup here is for a pullback in the VIX, which would be supportive of a market bounce.

Volatility index, VIX, Daily chart

Bonds continued their rally today, although they started to pull back after this morning's spike up. This week's decline in yields has TYX (30-year) testing a trend line along the lows from December 2008 - July 2012. It is marginally below both those lows but the trend line could offer support. Bearishly, TYX has dropped out the bottom of a parallel down-channel for its decline from December 2013 and that could lead to an acceleration lower. The bottom of the channel is near 2.53 so a rally back above that level would at least negate the short-term bearish picture based on this down-channel. A drop below today's low at 2.395 would continue to support the idea that TYX will be heading for 2% this year.

30-year Yield, TYX, Weekly chart

With Treasury yields declining there seems to be an interest in going for the yield on junk bonds, reflected in the price of HYG holding up better than the stock market. As a measure of risk-on/risk-off this is one thing that's not bearish at the moment. The divergence between HYG and the stock market could be a bullish heads up for the stock market so bears should watch this one carefully.

On the other side of the bull/bear coin is the banking sector. Bank stocks have been much weaker than the broader indexes and BKX was one of the first to break below the January 6th low, giving us a heads up that the others would follow. Back in October it had broken its uptrend line from March 2009 - October 2011 but only on an intraday basis (October 15 and 16). This time the break has been followed by lower lows and 3 days below the trend line, which makes it an official break. This is obviously an important trend line, one that defines the 2009-2014 bull market, and this says it's now over. But BKX has now dropped down to price-level support at about 66-67, with today's low at 66.48. It could be good for a bounce and maybe even back up to its broken uptrend line, near 70.50. That would be a good setup for a reversal back down but will need to be evaluated if and when it gets there. A drop below 66 would be more immediately bearish.

KBW Bank index, BKX, Weekly chart

The TRAN is presenting us with a bearish picture. It left a bearish non-confirmation at the December highs when the DOW made a new high but not matched by the TRAN. The TRAN then dropped sharply below its 20- and 50-dma's, currently near 8959 and 8994, resp., bounced back up to them last Friday and then sold off, leaving a back-test followed by a bearish kiss goodbye. This chart has SELL written all over it.

Transportation Index, TRAN, Daily chart

There's not much of a change to the U.S. dollar's weekly chart shown last week. It has stalled at 92.46 (last week's high was 92.76 and this week's high so far is 92.63), which is the projection for where the extended 5th wave in the rally from last May is equal to the 1st through 3rd waves. Only slightly higher is the top of its parallel up-channel for its rally from April 2008, currently near 93.30. It continues to be a good setup for at least a pullback and as I'll show later, the commodity index looks ready for at least a decent bounce.

U.S. Dollar contract, DX, Weekly chart

There's a lot of clamoring for a gold bottom as multiple market pundits pound the table about what a great buying opportunity we have for gold. When they start pounding the table that gold is worthless piece of shiny metal then I'll be interested in listening to them and doing the opposite. I still don't see a buying opportunity in gold. A trading opportunity maybe but I think we've got lower prices still coming.

If gold can break its downtrend line from October 2012 - July 2014, currently near 1238 (it's trying), I can see the potential for a rally up to a price projection at 1275.90 (two equal legs for the bounce off the November low). A little below that level, near 1271 by the end of the month, it would run into a downtrend line from March-July 2014, which would coincide with the top of an up-channel for the bounce from November. But the bounce has been very choppy and therefore I'm interpreting it as a correction to the decline and not something more bullish. As shown on the weekly chart below, a downside projection near 1000 by mid-year would be a better setup for the first opportunity to evaluate a longer-term buy setup. But we could see gold continue to work its way lower all year and finish near 890 (62% retracement of its 2001-2011 rally).

Gold continuous contract, GC, Weekly chart

Yesterday oil reached the support zone I've been looking for, near 44, and got a nice bounce off the low at 44.20. For the big move down from 2008, the 2nd leg of the decline started from the May 2011 high and it is 62% of the 1st leg down at 44.43, which I've noted on the weekly chart below. There's also the uptrend line from 1998-2008 offering support near 47.25, which was broken intraweek last week and this week but is holding so far. The setup is for a bounce off support but what's not clear yet is whether it will be a strong bounce, following a 3-wave move down from May 2011, or just a sideways choppy mess for several month as it hammers out a 4th wave correction in the decline from August 2013. I lean toward the latter interpretation so I'm expecting a bounce but I think it will be an ugly trading environment. Maybe sell some puts on USO.

Oil continuous contract, CL, Weekly chart

Last week I showed oil's daily chart to show why I liked the $44 area. In addition to the Fib and trendline support mentioned above, the shorter-term pattern for the wave count pointed to 43.63-44.42 for a downside target. This was based on the 5th wave in the move down from last June being equal to the 1st through 3rd waves (at 43.63) and for that 5th wave, which is the leg down from November, its 5th wave equals the 1st wave at 44.42. So there was nice correlation on the daily chart and weekly chart to suggest the $44 area should be strong support and now the size of the bounce suggests we could have a tradeable bottom.

Oil continuous contract, CL, Daily chart

Looking at the commodity index (DJUBS), today saw a relatively strong reversal off this morning's gap down, leaving an outside day for a key reversal. This came at the same time it was testing price-level support at 101.48 (the February 2009 low), with a low at 99.95 and a close at 102.35. The leg down from last April can be viewed as a completed 5-wave move and therefore sets it up for a larger bounce correction (if not something more bullish). One repeating pattern I've noticed with this index since its 2008-2009 decline is that each leg down was followed by approximately a 50% retracement of the decline before starting back down, which is shown on the weekly chart below. A similar 50% retracement, if all we're going to get is a bounce correction, points to 119.19 for a target. That level coincides with a back-test of its broken uptrend line from February 1999 - February 2009 and a trend line along the lows from 2012-2013. A rally above that level would therefore be considered more bullish but at least in the short term (the next few months) this is looking like a bullish setup for commodities, especially if it can back up inside the down-channel from September 2012, the bottom of which is currently near 103.30 (to leave a head-fake break below it).

Bloomberg Commodity index, DJUBS, Weekly chart

Tomorrow's economic reports include the unemployment claims and more importantly, the PPI data, which is expected to show a decline of -0.4% (deflation?) while the core PPI is expected to show +0.1%. The Empire Manufacturing index at 8:30 AM and then the Philly Fed at 10:00 AM will shed more light on how our economy is doing.

Economic reports and Summary

Using the January barometer, the weak start to the month is not good news for bulls. But we still have 11 trading days before the month will finish and with this wild market that could mean anything. The volatile price swings since the early-December highs has hammered out a sideways consolidation and it will likely lead to a strong move one way or the other. Which way is a bit of a coin toss at the moment but it should be noted that major tops have been put in with this kind of price action in the past.

Because so many expect a strong year this year (many past patterns point to a bullish 2015) we're seeing strong buying of the dips (helped with short covering) but we're also seeing many selling into rallies, such as yesterday's gap up that was immediately sold into. So there's a real battle going on and whichever side ends up being on the wrong side will help propel the winning side in a strong move. While I see the potential for a strong bounce to a minor new high above last Friday's highs, I'll be viewing it as a shorting opportunity (using relatively tight stop management) but there is the risk that the big bounces are over and we'll see a strong decline in the coming week. It's a risky time for swing traders and only the nimble who can watch the market during the day should be in there trying to trade this thing. Wait for a direction to become clearer to lessen the risk of a bad entry. This time next week should provide more answers.

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

New Option Plays

Discount Stores & Beer

by James Brown

Click here to email James Brown


Big Lots Inc. - BIG - close: 45.38 change: +0.75

Stop Loss: 43.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.26 million
Entry on January -- at $---.--
Listed on January 14, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It would appear that investors have a pretty short memory when it comes to BIG. This company is in the services sector. They're part of the discount store industry.

According to company marketing materials, "Big Lots Inc. (BIG) is a unique, non-traditional, discount retailer operating 1,495 BIG LOTS stores in 48 states with product assortments in the merchandise categories of Food, Consumables, Furniture & Home Decor, Seasonal, Soft Home, Hard Home, and Electronics & Accessories."

The stock saw big gains in 2014 at least until they reported their Q3 earnings in December. That big drop on the daily chart was a reaction to BIG's earnings results. Analysts were expecting a loss of $0.05 a share on revenues of $1.12 billion. BIG reported a loss of $0.06 with revenues virtually flat at $1.11 billion. Guidance was only in-line with Wall Street's estimates.

The good news is that BIG does expect to see a profit again in the fourth quarter. They also reported +1.4% comparable store sales growth in the third quarter, which not only beat the -2.5% comp sales from a year ago but was the first positive growth in three years. None of that mattered. BIG plunged -17% on its Q3 report and didn't find support until the $38.00 area.

Since then shares have seen something of a turnaround. After consolidating sideways for a couple of weeks BIG has shot higher in January while most of the broader market has been sinking. The breakout above technical resistance at its 50-dma and its 200-dma is encouraging.

This morning the U.S. retail sales data came in below expectations and yet BIG managed to shrug off this headline. Traders bought the dip near the 50-dma (around $44) this morning. By the closing bell BIG was outperforming with a +1.6% gain.

It looks like this relative strength may continue. Further gains could spark some short covering. The most recent data listed short interest at 17% of the relatively small 52 million share float. Today's intraday high was $45.65. We are suggesting a trigger to buy calls at $45.75. The 200-dma is at $43.50. We'll start this trade with a stop at $43.40.

Trigger @ $45.75

- Suggested Positions -

Buy the Apr $47.50 CALL (BIG150417C47.5) current ask $2.65

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

Daily Chart:

Weekly Chart:

Constellation Brands - STZ - close: 108.43 change: +2.13

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.25 million
Entry on January -- at $---.--
Listed on January 14, 2014
Time Frame: Exit prior to February expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Today the big players in the beer industry like Anheuser-Busch InBev (BUD) and Molson Coors (TAP) are losing market share to smaller craft beer brewers. Yet STZ actually seeing momentum in its beer portfolio.

STZ is part of the consumer goods sector. According to the company's website, "Constellation Brands, Inc. is a leading wine, beer and spirits company with a broad portfolio of premium brands. Constellation is the world leader in premium wine, the leading multi-category beverage alcohol company in the U.S. and the number three beer company in the U.S. Headquartered in Victor, New York, Constellation Brands is an S&P 500 Index and Fortune 1000® company with more than 100 brands in our portfolio, sales in approximately 100 countries and operations in approximately 40 facilities."

Last year the stock was a strong performer. The S&P 500 rallied about +11% in 2014 while STZ surged +39%. Investors have been consistently buying dips. The relative strength from last year has carried into 2015.

The company recently reported earnings on January 8th. Wall Street was expecting a profit of $1.14 per share on revenues of $1.51 billion. STZ said their earnings rose +11.8% to $1.23 a share. Revenues were up +7% to $1.54 billion, beating estimates on both counts. Management then raised their 2015 guidance from $4.10-to-$4.25 to $4.25-to-$4.35. That compares to Wall Street's 2015 estimate of $4.24.

STZ's CEO Rob Sands commented on their latest results saying, "We achieved outstanding results for the third quarter driven by the exceptional ongoing momentum for our beer business." Their beer sales rose +16% and gained market share.

The stock has seen multiple upgrades in January and currently trading at all-time highs. Today traders bought the dip near $105.00. The stock looks poised to breakout past short-term resistance at $108.50. The point & figure chart is bullish and forecasting a long-term target of $127.00.

We are suggesting a trigger to buy calls at $108.65. We'll start this trade with a stop at $104.85.

Trigger @ 108.65

- Suggested Positions -

Buy the FEB $110 CALL (STZ150220C110) current ask $2.25

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Market Retreat Continues

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market delivered its fourth decline in a row as stocks sank on global growth worries.

Crude oil actually bounced but economic data was disappointing. Bank earnings results have also been disappointing.

Current Portfolio:

CALL Play Updates

Alkermes plc. - ALKS - close: 67.63 change: +0.27

Stop Loss: 59.25
Target(s): To Be Determined
Current Option Gain/Loss: +71.4%
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

01/14/15: ALKS displayed some strength today and managed a +0.4% gain in spite of the market's weakness. Shares probably got a boost from Citigroup raising their price target from $72 to $85 this morning.

Unfortunately if the market continues to sink ALKS will likely follow. The stock looks like it has short-term support near $66 and then again near $65.

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: 55.05 change: -0.36

Stop Loss: 53.95
Target(s): To Be Determined
Current Option Gain/Loss: -29.5%
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

01/14/15: CPHD followed the market lower and dipped toward $54.00 intraday. The low was $54.01 and our stop loss is at $53.95. If CPHD sees any follow through lower tomorrow we'll likely be stopped out.

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: 81.94 change: -1.33

Stop Loss: 79.65
Target(s): To Be Determined
Current Option Gain/Loss: -19.0%
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

01/14/15: The widespread market weakness today dragged RCL out of its short-term $82.00-84.65 trading range. The stock's nearest support is $80.00. Tonight we will raise the stop loss to $79.65.

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

01/14/15 new stop @ 79.65
12/24/14 triggered @ 82.30
Option Format: symbol-year-month-day-call-strike

Whole Foods Market, Inc. - WFM - close: 51.45 change: -0.15

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: +32.6%
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

01/14/15: WFM spiked lower at the open this morning after shares were downgraded from a "buy" to a "hold" rating. Fortunately traders bought the dip near round-number support at $50.00. If the broader market can stop falling WFM will likely outperform to the upside. Right now the market weakness seems to be holding it back.

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: 81.23 change: -1.31

Stop Loss: 78.75
Target(s): To Be Determined
Current Option Gain/Loss: +14.7%
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

01/14/15: ZBRA dipped to $80.43 before paring its losses today. If the market bounces tomorrow we can use a rally above $81.55 as a new entry point to buy calls.

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: 68.78 change: -0.37

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +65.2%
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

01/14/15: DOV essentially erased yesterday's minor bounce with today's decline. On a short-term basis DOV is still holding support near $68.00.

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: 73.88 change: -0.15

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -14.4%
Average Daily Volume = 2.3 million
Entry on January 14 at $73.90
Listed on January 12, 2014
Time Frame: Exit prior to earnings in mid February
New Positions: Yes, see below

01/14/15: Our bearish HOT trade is now open. The stock fell to $72.57 intraday. Our trigger to buy puts was hit at $73.90. It is worrisome that HOT bounced all the way back to $74 by the closing bell. The 15-cent loss on the session is minor. HOT closed with a -0.2% loss versus the S&P 500's -0.58% loss. We don't want to see relative strength in our bearish candidates.

If you are looking for a new entry point I am suggesting a decline under $73.60 before buying puts again.

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.

- Suggested Positions -

Long FEB $70 PUT (HOT150220P70) entry $1.60

01/14/15 triggered @ 73.90
Option Format: symbol-year-month-day-call-strike

WESCO Intl. - WCC - close: 67.17 change: -2.16

Stop Loss: 72.05
Target(s): To Be Determined
Current Option Gain/Loss: -19.4%
Average Daily Volume = 619 thousand
Entry on January 14 at $67.76
Listed on January 13, 2014
Time Frame: Exit PRIOR to earnings on January 29th
New Positions: see below

01/14/15: WCC continued to fall as expected. What we did not expect was the gap down. Our plan was to buy puts at $68.75 but our play was opened on the gap down at $67.76. The relative weakness today (-3.1%) is good news if you are bearish but I'm not suggesting new positions at this time.

Earlier Comments: January 13, 2015:
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.

- Suggested Positions -

Long FEB $65 PUT (WCC150220P65) entry $1.80

01/14/15 triggered on gap down at $67.76, trigger was $68.75
Option Format: symbol-year-month-day-call-strike