Option Investor

Daily Newsletter, Thursday, 1/15/2015

Table of Contents

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

Market Wrap

Volatility Across The Board

by Thomas Hughes

Click here to email Thomas Hughes
Volatility abounded today as data, earnings and a surprise central bank move sent assets of all classes moving.


The top item of interest this morning was a surprise move from the Swiss National Bank. The bank decided to end its ceiling for the Swiss Franc versus the Euro and caused a massive shift in valuations across many currencies. The EUR/CHF fell more than 18% on the news and sent the euro crashing versus the dollar.

Asian indices were closed long before the announcement from Switzerland and were the only ones not to feel some sting from the move. Markets in this region closed 3% higher on average following an interest rate cut from the central bank of India and supported by an early rebound in oil. European stocks were also up in early trading, lifted by the oil price. They suffered a quick dip into negative territory when the Swiss news hit the wires but quickly rebounded to close near the highs of the day. All except the Swiss stocks, the Swiss SMI Index fell nearly 9%.

Market Statistics

The Swiss bank had an effect on early futures trading here at home but it was negligible and the indications remained positive. Today's economic data caused a wobble in values that eventually stabilized to the upside and this held into the opening bell. The S&P 500 was indicated to open about 5 points higher and that held true although it and the other indices turned negative within minutes of the open. It may be a coincidence but oil, which had been trading at a the high of the day around 9AM, retreated to break even and turned negative in tandem with the opening bell.

The first hour of trading was fairly active. The indices dipped nearly a full percent from the initial high and then rallied back to break even. The bulls were able to push the markets back into the green for a few minutes but were quickly repelled. Afterward they drifted back to the lows of the day and then lower to settle at levels that for many of the indices are consistent with long term support.

Economic Calendar

The Economy

There was a fair amount of economic data to wade through today. First up was the Empire State Manufacturing Survey, one of the first reads of 2015 data. The survey rose by 11 points to 10, moving into positive expansionary territory after last month's dip. The gains are due mostly to growth in New Orders and Shipments and offset by mixed readings on Labor. The number of employees component continues to show growth but the hours worked remains in negative territory. Input and output costs both rose slightly signaling some, but low, levels of inflation. The forward looking expected conditions index also rose, by 10, to the highest level all year and shows widespread optimism for the future 6 month period.

The Producer Price Index fell by -0.3% in December. This is slightly better than the -0.5% expected by the market and on top of an unrevised -0.2% in the previous month. The core PPI rose by 0.3% and is more in line with general conditions. The decline in headline numbers is due primarily to energy, down -6.6%, led by gasoline, down -14.5%. I think this to be a mixed reading but shows some underlying inflationary pressure in the general economy. On a year-over-year basis PPI is up 1.1%.

Jobless claims rose unexpectedly, most likely due to post holiday staff re-alignment. Initial claims rose by 19,000 from an upwardly revised figure for a net gain of 22,000 from last week. This above expectations for 295,000 and above 300,000 but as yet not disturbing. The four week moving average is still below 300,000 which makes claims appear to be stabilizing around that level. On a not adjusted basis claims jumped by 23.2% versus the 15.6% projected by the seasonal factors. This number may climb in the next week or two as we move through the end of year data.

Continuing claims fell by 51,000 to 2.42 million and are hovering just above the moving average. Continuing claims lag initial claims by a week so will likely show an increase in the next week or two as well. This week's reading is in still in line with recent trends and at levels supportive of labor improvements. The total number of claims for unemployment spiked in this weeks report, for the week ending 12/26. This is the data for Christmas week so this number could reflect people who didn't go out looking for work because of the holiday, as well as seasonal lay offs and other factors. While alarming it's just one week of data and could quickly recede if all the other labor trends remain constant. Regardless the spike, total claims is trending roughly 25% below last years levels.

The Oil Index

Oil was among the most volatile of today's trades. There was an early rebound that lifted prices more than 3% in the pre-market session that reversed mid-morning to sink prices by more than -4%. WTI was the most volatile but Brent and Natural Gas were not immune, both fell by at least -2% during today's session. A possible cause was today's and this week's economic data which has not been that great. The data shows there was likely a slump in output in December which led some speculation of weakening demand growth.

The Oil Index gapped up at the open, on the early strength in oil, then fell throughout the day. The index lost about a half percent by the close and was not one of today's biggest decliners. The index is now trading just above support targets with bearish indicators. Both MACD and stochastic are convergent with potential support but neither has confirmed as yet.

I redrew my XOI charts today, they were getting kind of messy, and came up with some interesting things. I now have a Fibonacci Retracement of the 2009-20012 bull market with two trend lines. The first is based on the 2009 start and 2010 confirmation of uptrend while the second is is the nearer term down trend line which began in September. The near term trend is still down and the index is being forced against potential support by the down-trend-line at an important Fibonacci level. And at a place intersecting the new up trend line which poses an interesting technical question. Which trend line will be stronger?

The Gold Index

Gold prices surged today. The metal climbed more than 2% in today's session driven by the Swiss central bank. The shift in policy sparked a flight to safety trade that had once been directed at the Franc. The banks decision not to support this trade any longer was probably a good move for them but caught a lot of currency speculators off guard. It also helped gold to break above $1250 and $1260. Gold is now trading at a four month high and 10% off the lows set last fall. At these levels it is beginning to look extended, and with more central bank activity on the calendar for the next week, could easily pull back.

The Gold Miners ETF GDX continued its break above resistance after pulling back in yesterdays session. Resistance at $20.50 is now becoming support but may be tested again. The indicators are bullish and on the rise after yesterday's dip but not overly strong and could indicate more consolidation, retesting support or even lead to whipsaw action. I'm more and more bullish on the miners each week but am still very cautious in the near term. Things may look different in the gold sector next week after the ECB and BOJ have their say. Speculation in the news suggests that the Swiss move is foreshadowing QE moves the ECB will enact next week, moves that were just deemed legal by EU courts.

In The News, Story Stocks and Earnings

The bankers were in the news and in general it is not great. As a group the big bankers have disappointed on the top and bottom lines driven by legal charges, lower revenues and other factors. Each of the big names reporting so far, Wells Fargo, JP Morgan, Citigroup and Bank of America are on the list. Needless to say the sector is getting slammed. The Banking Index fell 1.79% in today's session on increasingly bearish momentum. The index is approaching a three month low near $65 and the bottom of the 12 month range.

Target announced that it was exiting Canada, finally. The company has been struggling in the country for years and is estimated to have lost more than $5 billion on the move. The news was largely expected but otherwise well received by the market. The stock mad a small gap at the open to trade just below the all time highs set last week.

Intel reported earnings after the bell and beat expectations. The chip maker reported $0.74 per share versus the $0.64 expected by the street. Revenue beat although sales of PC chips was flat near $8.9 billion. Sales of data chips rose to $4.1 billion driving revenues and helping margins which have improved. The company guided a range in line with expectations but did not inspire confidence sending the stock down in after hours trading.

Schlumberger also reported after the bell. The oil services and information technology company reported adjusted earnings of $1.51, slightly ahead of expectations, on revenue that was in line with projections. Business was driven by North America which saw an increase of 17%. The company also reported that it is making moves to deal with the low oil environment which include job cuts and other restructuring. The stock fell in after hours trading and was trading at a 1 ½ year low.

The Indices

We got another wild ride today. The indices moved in a +1% range after opening in the green only to close in negative territory. Market action was not orderly, today's movement was a back and forth fight between the bulls and bears that have the indices down at long term support levels. Today's move was led by the techs but not limited to them.

The NASDAQ Composite fell by 1.48% today, dropping down to rest on the long term trend line. Today's action is accompanied by bearish indicators which point to a testing of the trend line but the longer term analysis is still in line with support at this level. A break below the trend line could lead to further selling with next targets at 4,500 and 4,000.

The S&P 500 was another big lose in today's session. The broad market fell 0.92% and is also now resting on its long term trend line. The index has been pressured lower by lackluster earnings and economic data but has yet to break the trend line. The indicators are bearish in the near term but continue to remain consistent with support along these levels in the short to long term. There could be further testing of support with a possible move down to 1970.This would pierce the trend line but is above the December low so not a threat yet. A move below 1970 may signify a deeper correction down to 1900 or lower and set up for potential reversal. However, unless outlook begins to deteriorate the long term trend will likely provide another buying opportunity.

The Dow Jones Industrial Average fell only 0.61% compared to the NASDAQ's 1.48% decline. The blue chips closed near the low of the day but off of the low set yesterday, a low that may indicate support levels. Yesterday's candle has a long lower wick which, along with MACD peak analysis and a support line drawn to the January 6th low reveal a potential support level consistent with the September highs around 17,250 set last fall. It definitely looks like the index is moving lower, into that support level, but it also looks like there is plenty of support there. A below 17,250 won't start to get serious until it break 17,050 at which point it may extend the retreat to 16,750.

The Dow Jones Transportation Average suffered the least decline. The transpots fell only 0.39% in today's session and are trading just above support. Support is consistent with the all-time high set in July, the break-out in October and the test of support in December so appears to have some strength. The indicators are bearish in the near term but like the other indices, remain consistent with longer term support. There is no indication of major reversal at this time so this pullback appears to be that, a pullback and another chance to buy on a dip.

The markets are struggling with some near term fears but the long term trends remain up. Fear born on plunging oil prices have been compounded by weak earnings and magnified by the Swiss central bank. These fears need to be taken into perspective. Low oil is good for the economy in general. Weak earnings happen sometimes, it is just the first week of the season and not all companies are disappointing. The Swiss central bank move was a surprise, it probably cost some people a lot of money but represents only a small shift in underlying fundamentals. For us here in the US long term economic trends remain positive and on the rise with no indication of letting up.

Expect more of the same volatility tomorrow because the mix of earnings and data continues. Earnings season rolls on with more reports from the banking sector including Goldman Sachs, First Citizens and Suntrust. On the economic front look out for CPI, TIC flows, Michigan Sentiment and industrial production. Rear looking December data in the form of CPI and Industrial Production is expected to show declines while the more current January Michigan Sentiment is expect to rise. Looking out to next week there is no let up to the data or the earnings. Earnings seasons gets into full swing and there are a number of market moving economic reports along with two major central bank meetings.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Will Demand Fall For These Industrial Goods?

by James Brown

Click here to email James Brown


Eagle Materials - EXP - close: 70.20 change: -1.12

Stop Loss: 73.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 933 thousand
Entry on January -- at $---.--
Listed on January 1509, 2015
Time Frame: Exit PRIOR to earnings on Feb. 3rd
New Positions: Yes, see below

Company Description

Why We Like It:
EXP is in the industrial goods sector. The company describes itself as, "Eagle Materials Inc. manufactures and distributes Cement, Gypsum Wallboard, Recycled Paperboard, Concrete and Aggregates, and Oil and Gas Proppants from 40 facilities across the US."

The crashing price of oil could have consequences for EXP. Energy companies will cut spending that includes cutting jobs. As they cut jobs, demand for housing will fall. That will hurt the builders and demand for wallboard will go down. Major U.S. homebuilders are already sounding the alarm with executives at both Lennar (LEN) and KB Home (KBH) warning about margins this week.

Another challenge for EXP will be their proppants business. As energy companies drill fewer wells there will be less demand for proppants.

Earnings were already struggling last year with EXP missing Wall Street's estimates three out of the last four reports. The one report they beat estimates they only beat by a penny and missed revenues at the same time.

Technically EXP has broken down into a bear market. The point & figure chart is bearish and forecasting at $63 target. Currently EXP is poised to break support near $70.00. The January 14th low was $69.57. We are suggesting a trigger to buy puts at $69.45. Plan on exiting prior to EXP's earnings report in February.

Trigger @ $69.45

- Suggested Positions -

Buy the Feb $65 PUT (EXP150220P65) current ask $2.05

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Sink For A Fifth Day

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 breaks down below the 2,000 mark with its fifth decline in a row.

BIG and STZ hit our entry points today.

CPHD hit our stop loss.

Current Portfolio:

CALL Play Updates

Alkermes plc. - ALKS - close: 65.65 change: -1.98

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: +35.5%
Average Daily Volume = 833 thousand
Entry on January 07 at $63.01
Listed on January 06, 2015
Time Frame: Exit PRIOR to February option expiration
New Positions: see below

01/15/15: ALKS is starting to cave to the market's downward pressure. Shares underperformed with a -2.9% decline as they appear to be playing catch up with the market's sell-off. The action over the last three sessions is starting to look bearish.

Tonight we are moving the stop loss up to $63.65. 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

Big Lots Inc. - BIG - close: 44.73 change: -0.65

Stop Loss: 43.40
Target(s): To Be Determined
Current Option Gain/Loss: -31.6%
Average Daily Volume = 1.26 million
Entry on January 15 at $45.75
Listed on January 14, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

01/15/15: BIG continued to rally this morning and almost made it to $46 before reversing. Shares got a boost after one firm raised their price target from $52 to $54 before the bell. Our entry to launch bullish positions was hit at $45.75. Looking at the intraday chart of BIG and the broader market I would wait on launching new positions until BIG rallied above $45.25 again.

Earlier Comments: January 14, 2015:
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.

- Suggested Positions -

Long Apr $47.50 CALL (BIG150417C47.5) entry $2.85

01/15/15 triggered @ 45.75
Option Format: symbol-year-month-day-call-strike

Royal Caribbean Cruises - RCL - close: 81.50 change: -0.44

Stop Loss: 79.65
Target(s): To Be Determined
Current Option Gain/Loss: -26.7%
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

01/15/15: RCL is holding up reasonably well. Shares only lost -0.5% versus the S&P 500's -0.9% decline today (and -1.4% in the NASDAQ). I have been cautioning readers that RCL could be headed to round-number support at $80.00. What worries me today is the failure at the simple 10-dma, which is also short-term bearish.

More conservative investors may want to exit early. I am not suggesting new positions.

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

Constellation Brands - STZ - close: 108.18 change: -0.25

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: -21.1%
Average Daily Volume = 1.25 million
Entry on January 15 at $109.36
Listed on January 14, 2015
Time Frame: Exit prior to February expiration
New Positions: see below

01/15/15: We were expecting STZ to rally but shares gapped open higher after garnering bullish analyst comments (a "buy" rating) this morning. Our play opened at $109.36. I don't see any changes from yesterday's new play description, although more conservative traders might want to wait for a rally past $110 given the broader market's weakness.

Earlier Comments: January 15, 2015:
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.

- Suggested Positions -

Long FEB $110 CALL (STZ150220C110) entry $2.47

01/15/15 triggered on gap open at $109.36, trigger was $108.65
Option Format: symbol-year-month-day-call-strike

Whole Foods Market, Inc. - WFM - close: 50.59 change: -0.86

Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.7%
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

01/15/15: WFM suffered a -1.6% decline. That's in spite of today's bullish comments on the grocery industry by Goldman Sachs. If WFM closes under $50.00 it could be a warning signal. I am not suggesting new positions at this time.

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: 81.28 change: +0.05

Stop Loss: 78.75
Target(s): To Be Determined
Current Option Gain/Loss: +17.6%
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: see below

01/15/15: ZBRA rallied toward Tuesday's highs before fading. The stock managed to close in positive territory, which is more than we can say for the broader market. I would hesitate to launch new positions. More conservative traders might want to raise their stop loss.

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: 68.59 change: -0.19

Stop Loss: 70.35
Target(s): To Be Determined
Current Option Gain/Loss: +56.5%
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

01/15/15: DOV spiked above short-term resistance near $72.00 and its 10-dma this morning. Fortunately the rally faded but DOV still performed better than the S&P 500 (-0.2% vs. -0.9%).

Today's intraday high was $70.17. Tonight we are adjusting the stop loss down to $70.35.

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

01/15/15 new stop @ 70.35
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: 73.14 change: -0.74

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -19.4%
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: see below

01/15/15: HOT is looking bearish with the bounce this morning reversing under a short-term trend of lower highs. The stock set a new three-month closing low. I would consider new positions at current levels.

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: 65.80 change: -1.37

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: +16.7%
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

01/15/15: WCC continues to plunge with another -2% decline on Thursday. The stock is down 12 out of the last 13 sessions. Looking at the weekly chart we see that WCC bounce near $64.25 in mid 2014. I wouldn't be surprised to see an oversold bounce once WCC trades into the $64-65 area.

Tonight we are going to try and reduce our risk by lowering the stop loss to $68.65. 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

01/15/15 new stop @ 68.65
01/14/15 triggered on gap down at $67.76, trigger was $68.75
Option Format: symbol-year-month-day-call-strike


Cepheid - CPHD - close: 53.46 change: -1.59

Stop Loss: 53.95
Target(s): To Be Determined
Current Option Gain/Loss: -38.9%
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

01/15/15: CPHD has succumbed to the market's five-day sell-off. Shares underperformed the major indices today with a -2.8% decline. The last few days are painting a pretty ugly candlestick on the weekly chart. Our stop loss was hit at $53.95 today (actually CPHD saw an intraday gap down at $53.91).

- Suggested Positions -

MAR $55 CALL (CPHD150320C55) entry $4.40 exit $2.69 (-38.9%)

01/15/15 stopped out @ 53.91 (stop was 53.95).
01/12/15 triggered @ 56.55
Option Format: symbol-year-month-day-call-strike